Rosetta Stone 2014 Annual Report Download - page 91

Table of Contents
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
The following table summarizes the significant components of the Company's deferred tax assets and liabilities as of December 31, 2014 and 2013 (in
thousands):






Deferred tax assets:
Inventory
$ 535
$ 731
Amortization and depreciation
—
1,450
Net operating loss carryforwards
27,637
13,461
Deferred revenue
12,447
3,153
Accrued liabilities
12,890
10,388
Stock-based compensation
5,760
5,009
Bad debt reserve
501
374
Foreign currency translation
—
341
Foreign and other tax credits
1,283
1,221
Gross deferred tax assets
61,053
36,128
Valuation allowance
(53,809)
(33,866)
Net deferred tax assets
7,244
2,262
Deferred tax liabilities:
Goodwill and indefinite lived intangibles
(3,465)
(9,687)
Deferred sales commissions
(5,714)
(1,327)
Prepaid expenses
(555)
(853)
Amortization and depreciation
(1,337)
—
Foreign currency translation
(391)
—
Other
(5)
(5)
Gross deferred tax liabilities
(11,467)
(11,872)
Net deferred tax liabilities
$ (4,223)
$ (9,610)
In 2013, the Company acquired all of the outstanding shares of Livemocha and Lexia, respectively and in January 2014 the Company acquired all of
the outstanding shares of Vivity and Tell Me More, respectively. For tax purposes, the acquisitions will be treated as a non-taxable stock purchase and all of
the acquired assets and assumed liabilities will retain their historical carryover tax bases. Therefore, the Company recognized deferred taxes related to all
book/tax basis differences in the acquired assets and liabilities.
In connection with the Livemocha purchase accounting, the Company recognized net deferred tax liabilities of $1.2 million associated with the
book/tax differences on acquired intangible assets and deferred revenue, offset by deferred tax assets associated with acquired net operating loss ("NOL")
carryforwards. The effect of this on the tax provision for the Company resulted in a release of its valuation allowance equal to the amount of the net deferred
tax liability recognized at the time of the Livemocha Merger. Thus, a tax benefit of $1.2 million was recorded during the three months ended June 30, 2013.
During the fourth quarter of 2013, the Company elected to treat the acquisition as an asset acquisition for tax purposes. Accordingly, the Company wrote off
net deferred tax liabilities of $0.9 million against the original net deferred tax liabilities recognized during the three months ended June 30, 2013.
In connection with the Lexia purchase accounting, the Company recognized net deferred tax liabilities of $4.2 million associated with the book/tax
differences on acquired intangible assets and deferred revenue, offset by deferred tax assets associated with acquired net operating loss carryforwards. The
effect of this on the tax provision for the Company resulted in a release of its valuation allowance equal to the amount of the net deferred tax liability
recognized at the time of the Lexia Merger. Thus, a tax benefit of $4.2 million was recorded during the three months ended September 30, 2013.
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