Rosetta Stone 2011 Annual Report Download - page 90

Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Rosetta Stone Inc. and its subsidiaries ("Rosetta Stone," the "Company" or the "Successor") develops, markets and supports a suite of language-learning
solutions consisting of software products, online services and audio practice tools under the Rosetta Stone brand name. The Company's software products are
sold on a direct basis and through select retailers. The Company provides its software applications to customers through the sale of packaged software and
online subscriptions. Rosetta Stone Inc. was incorporated on December 23, 2005 in the state of Delaware and acquired Rosetta Stone Holdings Inc., a
Delaware corporation, on January 4, 2006. Rosetta Stone Holdings Inc. acquired Rosetta Stone Ltd. (formerly Fairfield & Sons, Ltd.) and Rosetta Stone (UK)
Limited (formerly Fairfield & Sons UK Limited), on January 4, 2006. Rosetta Stone Inc. has eleven wholly owned subsidiaries—Rosetta Stone Holdings Inc.,
a Delaware corporation, Rosetta Stone Ltd., a Virginia corporation, Rosetta Stone International Inc., a Delaware corporation, Rosetta Stone Brazil
Holding LLC, a Delaware Corporation, Rosetta Stone (UK) Limited, a corporation incorporated under the laws of England and Wales, Rosetta Stone
Japan Inc., a company incorporated under the laws of Japan, Rosetta Stone GmbH, a company incorporated under the laws of Germany, Rosetta Stone
Korea Ltd., a company incorporated under the laws of the Republic of Korea, Rosetta Stone Ensino de Linguas Ltda., a company incorporated under the laws
of Brazil, Rosetta Stone Canada Inc., a company incorporated under the laws of the Province of New Brunswick, and Rosetta Stone Hong Kong Limited, a
company incorporated under the laws of Hong Kong SAR, the People's Republic of China.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Initial Public Offering
In April 2009, the Company completed an initial public offering consisting of 7,187,500 shares of common stock at $18.00 per share. The total shares
sold in the offering included 4,062,500 sold by selling stockholders and 3,125,000 shares sold by the Company.
After deducting the payment of underwriters' discounts and commissions and offering expenses, the net proceeds to the Company from the sale of shares
in the offering were $49.0 million. The net proceeds from the offering were used to repay a $9.9 million balance on the revolving credit facility and $7.9
million to satisfy the federal, state and local withholding tax obligations associated with the net issuance of stock grants made to key employees.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Rosetta Stone Inc. and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires that
management make certain estimates and assumptions. Significant estimates and assumptions have been made regarding the allowance for doubtful accounts,
estimated sales returns, stock-based compensation, fair value of intangibles and goodwill, fair value of stock issued, inventory reserve, disclosure of
contingent assets and liabilities and disclosure of contingent litigation. Actual results may differ from these estimates.
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