Rosetta Stone 2015 Annual Report Download - page 81

Table of Contents



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 acquisitions of Livemocha and Lexia in 2013, and the
acquisitions 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 also routinely reviews goodwill at the reporting unit level for
potential impairment.
Throughout 2015, the Company's reporting units were: Enterprise & Education Language, Enterprise & Education Literacy, Consumer Language, and
Consumer Fit Brains. The combined Enterprise & Education Language and Enterprise & Education Literacy reporting units make up the Enterprise &
Education operating and reportable segment. The combined Consumer Language and Consumer Fit Brains reporting units make up the Consumer operating
and reportable segment.
During 2014, the Company's reporting units were: Enterprise & Education Language, Enterprise & Education Literacy, North America Consumer
Language, Rest of World Consumer, and Consumer Fit Brains. Due to a shift in strategy in the first quarter of 2015, the Company reevaluated and restructured
its reporting units, operating, and reportable segments as described above.
The following table shows the balance and changes in goodwill for the Company's reporting units for the years ended December 31, 2015 and 2014 (in
thousands):












Balance as of January 1, 2014
$ 19,926
$ 9,962
$ 20,171
$ —
$ 50,059
Acquisition of Vivity
—
—
—
9,336
9,336
Acquisition of Tell Me More
21,703
—
—
—
21,703
Impairment of Rest of World Consumer
—
—
(2,199)
—
(2,199)
Impairment of North America Consumer Language
—
—
(17,971)
—
(17,971)
Effect of change in foreign currency rate
(1,545)
—
(1)
(798)
(2,344)
Balance as of December 31, 2014
$ 40,084
$ 9,962
$ —
$ 8,538
$ 58,584
Impairment of Consumer Fit Brains
—
—
—
(5,604)
(5,604)
Effect of change in foreign currency rate
(1,384)
—
—
(1,316)
(2,700)
Balance as of December 31, 2015
$ 38,700
$ 9,962
$ —
$ 1,618
$ 50,280
2015 Activity
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In connection with the annual goodwill impairment analysis performed as of June 30, 2015, the Company exercised its option to bypass Step 0 and
began the annual test with Step 1. The Company determined that the fair values of the Enterprise & Education Literacy, Enterprise & Education Language,
and Consumer Fit Brains reporting units exceeded their carrying values. As a result of the 2015 annual impairment test, no goodwill impairment charges were
recorded as of June 30, 2015.

During the fourth quarter of 2015, the Company determined that sufficient indication existed to require performance of an interim goodwill impairment
analysis for the Consumer Fit Brains reporting unit. This indicator was due to a decline in the operations of the Consumer Fit Brains reporting unit, with
decreases in revenue and bookings within this reporting unit driving lower than expected operating results for the quarter and impacting the forecast going
forward. In this interim goodwill impairment test, the Consumer Fit Brains reporting unit failed Step 1. The combination of lower reporting unit fair value
calculated in Step 1 and the identification of unrecognized fair value adjustments to the carrying values of other assets and
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