Rosetta Stone 2014 Annual Report Download - page 80

Table of Contents



$9.9 million and $7.6 million, respectively. For the year ending December 31, 2014, revenue and net loss from Vivity were $2.6 million and $1.2 million,
respectively.

The value of goodwill is primarily derived from the acquisition of Rosetta Stone Ltd. (formerly known as Fairfield & Sons, Ltd.) in January 2006, the
acquisition of certain assets of SGLC International Co. Ltd ("SGLC") in November 2009, the acquisition of Livemocha and Lexia in 2013 and the acquisition
of Vivity and Tell Me More in January 2014.
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 ASC 350, or more frequently, if impairment indicators arise. The Company's reporting units are: North America Consumer Language, North
America Consumer Fit Brains, Rest of World Consumer, Global Enterprise & Education Language, and Global Enterprise & Education Literacy. Each of these
businesses is considered a reporting unit for goodwill impairment testing purposes. The North America Consumer Language and North America Consumer Fit
Brains reporting units are components of the North America Consumer operating segment. The combined Global Enterprise & Education Language and
Global Enterprise & Education Literacy reporting units make up the Global Enterprise & Education operating segment. Prior to 2013, the Company's
reporting units were the same as its operating segments.
The following table represents the balance and changes in goodwill for the Company's reporting units and operating segments for the years ended
December 31, 2014 and 2013 (in thousands):











Balance as of January 1, 2013
$ 13,499
$ —
$ 2,199
$ 19,198
$ —
$ 34,896
Acquisition of Livemocha
4,472
—
—
720
—
5,192
Acquisition of Lexia
—
—
—
—
9,962
9,962
Effect of change in foreign currency
rate
—
—
1
8
—
9
Balance as of December 31, 2013
17,971
—
2,200
19,926
9,962
50,059
Acquisition of Vivity
—
9,336
—
—
—
9,336
Acquisition of Tell Me More
—
—
—
21,703
—
21,703
Impairment Charge
(17,971)
—
(2,199)
—
—
(20,170)
Effect of change in foreign currency
rate
—
(798)
(1)
(1,545)
—
(2,344)
Balance as of December 31, 2014
$ —
$ 8,538
$ —
$ 40,084
$ 9,962
$ 58,584
ROW Consumer Goodwill Impairment
During the three months ended March 31, 2014, the Company determined sufficient indication existed to require performance of an interim goodwill
impairment analysis as of March 31, 2014 for the ROW Consumer reporting unit (“ROW Consumer”). This indicator was due to unexpected declines in the
operations of the ROW Consumer reporting unit, with further decreases in revenue and bookings within the reporting unit driving lower than expected
operating results for the quarter and impacting the forecast going forward. In this interim goodwill impairment test, the ROW Consumer reporting unit failed
Step 1 of the goodwill impairment test.
The combination of the lower reporting unit fair value calculated in Step 1 and the identification of unrecognized fair value changes to the carrying
values of other assets and liabilities (primarily tradename and deferred revenue) in Step 2 of the interim goodwill impairment test, resulted in an implied fair
value of goodwill below the carrying value of goodwill for ROW Consumer. As a result, the Company recorded a goodwill impairment loss of $2.2 million,
which represents a full impairment of ROW Consumer’s goodwill.
Annual Impairment Testing of Goodwill
F-23