Rosetta Stone 2011 Annual Report Download - page 96

Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
There were no changes in the valuation techniques or inputs used as the basis to calculate the contingent purchase price accrual.
Property, Equipment and Software
Property, equipment, and software are stated at cost, less accumulated depreciation and amortization. Depreciation on property, leasehold improvements,
equipment, and software is computed on a straight-line basis over the estimated useful lives of the assets, as follows:
Software 3 years
Computer equipment 3 - 5 years
Automobiles 5 years
Furniture and equipment 5 - 7 years
Building 39 years
Building improvements 15 years
Leasehold improvements lesser of lease term or economic life
Assets under capital leases lesser of lease term or economic life
Expenses for repairs and maintenance that do not extend the life of equipment are charged to expense as incurred. Expenses for major renewals and
betterments, which significantly extend the useful lives of existing property and equipment, are capitalized and depreciated. Upon retirement or disposition of
property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.
Intangible Assets
Intangible assets consist of acquired technology, including developed and core technology, customer related assets, trade name and trademark and other
intangible assets. Those intangible assets with finite lives are recorded at cost and amortized on a straight line basis over their expected lives in accordance
with Accounting Standards Codification topic 350, Goodwill and Other Intangible Assets ("ASC 350"). On an annual basis, the Company reviews its
indefinite lived intangible assets for impairment based on the fair value of indefinite lived intangible assets as compared to the carrying value in accordance
with ASC 350. In the event the carrying value exceeds the fair value of the assets, the assets are written down to their fair value. There has been no
impairment of intangible assets during any of the periods presented.
Goodwill
The value of goodwill is primarily derived from the acquisition of Rosetta Stone Ltd. (formerly known as Fairfield & Sons, Ltd.) in January 2006 and the
acquisition of certain assets of SGLC in November 2009. The Company tests goodwill for impairment annually on June 30 of each year at the reporting unit
level using a fair value approach, in accordance with the provisions of Accounting Standards Codification topic 350, Intangibles—Goodwill and Other ("ASC
350") or more frequently, if impairment indicators arise. Subsequent to performing the annual test as of June 30, 2011, such indication occurred during the
fourth quarter of 2011 when the fair value of the Company's publicly traded common stock dropped; however, after performing Step 1 of the impairment test
under ASC 350, no impairment was identified as the fair value was greater than the book value of each reporting unit.
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