Rosetta Stone 2011 Annual Report Download - page 51

Table of Contents
Software: Revenue Recognition: Customer Payments and Incentives ("ASC 985-605-50"), price protection for changes in the manufacturer suggested retail
value granted to resellers for the inventory that they have on hand at the date the price protection is offered is recorded as a reduction to revenue. We offer
customers the ability to make payments for packaged software purchases in installments over a period of time, which typically ranges between three and five
months. Given that these installment payment plans are for periods less than 12 months and a successful collection history has been established, revenue is
recognized at the time of sale, assuming the remaining revenue recognition criteria have been met. Packaged software is provided to customers who purchase
directly from us with a six-month right of return. We also allow our retailers to return unsold products, subject to some limitations. In accordance with
Accounting Standards Codification subtopic 985-605-15, Software: Revenue Recognition: Products ("ASC 985-605-15"), product revenue is reduced for
estimated returns, which are based on historical return rates.
Revenue for software license agreements sold via online software subscriptions as hosting agreements are recognized in accordance with Accounting
Standards Codification subtopic 985-605-05, Software: Revenue Recognition: Background ("ASC 985-605-05"). Revenue for online software subscriptions is
recognized ratably over the term of the subscription period, assuming all revenue recognition criteria have been met, which typically ranges between 3 and
12 months. Some online licensing arrangements include a specified number of licenses that can be activated over a period of time, which typically ranges
between 6 and 24 months. Revenue for these arrangements is recognized on a per license basis ratably over the term of the individual license subscription
period, assuming all revenue recognition criteria have been met, which typically ranges between three and 12 months. Revenue for set-up fees related to
online licensing arrangements is recognized ratably over the term of the online licensing arrangement, assuming all revenue recognition criteria have been
met. Accounts receivable and deferred revenue are recorded at the time a customer enters into a binding subscription agreement and the subscription services
are made available to the customer. In connection with packaged software product sales and online software subscriptions, technical support is provided to
customers, including customers of resellers, at no additional cost for one year from date of purchase. As the fee for technical support is included in the initial
licensing fee, the technical support and services are generally provided within one year, the estimated cost of providing such support is deemed insignificant
and no unspecified upgrades/enhancements are offered, technical support revenues are recognized together with the software product and license revenue.
Costs associated with the technical support are accrued at the time of sale.
Revenue for online service subscriptions for dedicated conversational coaching is recognized ratably over the term of the subscription period, assuming
all revenue recognition criteria have been met, which typically range from three months to 15 months. Rosetta Stone Version 4 TOTALe bundles, which
include dedicated conversational coaching online services and packaged software, allow customers to begin their online services at any point during a
registration window, which is 6 months from the date of purchase from us or an authorized reseller. Dedicated conversational coaching online service
subscriptions that are not activated during this registration window are forfeited and revenue is recognized upon expiry. Accounts receivable and deferred
revenue are recorded at the time a customer purchases the online services.
In accordance with ASC 985-605-50, cash sales incentives to resellers are accounted for as a reduction of revenue, unless a specific identified benefit is
identified and the fair value is reasonably determinable.
We have been engaged to develop language-learning software for certain endangered languages under fixed-fee arrangements. These arrangements also
include contractual periods of post-contract support ("PCS") and online hosting services ranging from one to ten years. Revenue for multi-element contracts
are recognized ratably once the PCS and online hosting periods begin, over the longer of the
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