Rosetta Stone 2012 Annual Report Download - page 48

Table of Contents
expiry. Some online licensing arrangements include a specified number of licenses that can be activated over a period of time, which typically ranges
between six 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.
Software products include sales to end user customers and resellers. In most cases, revenue from sales to resellers is not contingent upon resale of
the software to the end user and is recorded in the same manner as all other product sales. Revenue from sales of packaged software products and audio
practice products is recognized as the products are shipped and title passes and risks of loss have been transferred. For most of our product sales, these
criteria are met at the time the product is shipped. For some sales to resellers and certain other sales, we defer revenue until the customer receives the
product because we legally retain a portion of the risk of loss on these sales during transit. A limited amount of packaged software products are sold to
resellers on a consignment basis. Revenue is recognized for these consignment transactions once the end user sale has occurred, assuming the remaining
revenue recognition criteria have been met. In accordance with Accounting Standards Codification subtopic 985-605-50, 
 ("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. 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 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 our company with up to 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, 
 ("ASC 985-605-15"), product revenue is reduced for estimated returns, which are based on historical return rates.
In connection with packaged software product sales and online software subscriptions, technical support is provided to customers, including
customers of resellers, via telephone support at no additional cost for up to six months from the time 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.
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 PCS or online hosting period. When the current
estimates of total contract revenue and contract cost indicate a loss for a fixed fee arrangement, a provision for the entire loss on the contract is recorded.
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