Rosetta Stone 2014 Annual Report Download - page 81

Table of Contents
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
In connection with the annual goodwill impairment analysis performed as of June 30, 2014, the Company determined that the fair value of each of the
Company's reporting units with remaining goodwill balances exceeded its carrying value, and therefore no additional goodwill impairment charges were
recorded in connection with the annual analysis.
Interim Impairment Review
The Company also routinely reviews goodwill at the reporting unit level for potential impairment as part of the Company’s internal control framework.
The Global Enterprise & Education Language, Global Enterprise & Education Literacy, and North America Fit Brains reporting units were evaluated to
determine if a triggering event has occurred. As of December 31, 2014, the Company concluded that there were no indicators of impairment that would cause
it to believe that it is more likely than not that the fair value of these reporting units is less than the carrying value. Accordingly, a detailed impairment test
has not been performed and no goodwill impairment charges were recorded in connection with the interim impairment reviews of these reporting units.
North America Consumer Language Goodwill Impairment
In the fourth quarter of 2014, the North America Consumer Language reporting unit experienced a decline in the demand for its products and services at
its current pricing levels. In an attempt to increase demand, the Company lowered prices in its direct-to-consumer and retail sales channels. This strategy
resulted in 293,808 units sold and $47.3 million in revenue for the North America Consumer Language reporting unit during the fourth quarter of 2014. In
the fourth quarter of 2013, 216,775 units were sold and generated $54.0 million in revenue. Despite the 35% increase in the number of units sold, revenue
recognized decreased by 12% due to the lower prices in 2014. Additionally, these results were significantly lower than the forecasted bookings, meaning that
while the Company was able to increase the number of units sold over the year ago period, the per unit price was lower than expected. As a result of the
reduced demand and the need to offer lower prices in the fourth quarter of 2014 to generate sales, the Company began to evaluate whether the decline in
demand at prior price levels has resulted in the need for a permanent price decline. In addition, given the results in the fourth quarter of 2014, the Company
began to evaluate its overall long-term strategy. In March 2015, the Company announced a plan to realign and reorganize the Company to focus on
profitable growth in the Global Enterprise and Education operating segment. The new plan results in significantly lower projected revenue and overall
profitability for its North America Consumer Language reporting unit.
As a result of the above events, the Company considered it appropriate to perform an interim goodwill impairment test for the North America Consumer
Language reporting unit.
The combination of the lower reporting unit fair value of the North America Consumer Language reporting unit and the identification of unrecognized
fair value changes to the carrying values of other assets and liabilities (primarily tradename, developed technology and deferred revenue) in Step 2 of the
interim goodwill impairment test, resulted in a negative implied fair value of goodwill for the North America Consumer Language reporting unit. As a result,
the Company recorded its best estimate of the goodwill impairment loss of $18.0 million, which represents a full impairment of the North America Consumer
Language goodwill. Any adjustment to the estimated impairment loss based on completion of the measurement of the impairment will be recognized in the
first quarter of 2015.
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Intangible assets consisted of the following items as of the dates indicated (in thousands):
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


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Trade name/ trademark
$ 12,526
$ (1,062)
$ 11,464
$ 11,807
$ (158)
$ 11,649
Core technology
15,890
(5,661)
10,229
9,954
(3,207)
6,747
Customer relationships
26,889
(14,344)
12,545
22,152
(11,720)
10,432
Website
12
(12)
—
12
(12)
—
Patents
300
(161)
139
300
(122)
178
Total
$ 55,617
$ (21,240)
$ 34,377
$ 44,225
$ (15,219)
$ 29,006
F-24