Rosetta Stone 2012 Annual Report Download - page 5

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Table of Contents



Rosetta Stone Inc. ("Rosetta Stone", "the Company", "we", or "us") is a leading provider of technology-based, language-learning solutions. We
develop, market, and sell language-learning solutions consisting of software, online services, mobile applications and audio practice tools primarily
under our  brand. Our teaching method, which we call , is designed to leverage the innate, natural language-learning
ability that children use to learn their native language. Our courses are based on our proprietary interactive technologies and pedagogical content and
utilize a sophisticated sequencing of images, text and sounds to teach a new language without translation or grammar explanation. We believe our
award-winning solutions provide an effective, convenient and fun way to learn languages. We currently offer our self-study language-learning solutions
in over 30 languages.
Rosetta Stone Inc. was incorporated in Delaware in 2005 and completed our initial public offering in April 2009. Our operations are headquartered
in Arlington, VA, and we have several operating locations in the U.S. as well as various international office locations in Asia and Europe.
The strategic plan of the management team through 2015 includes three primary areas of focus:
1. leveraging the brand;
2. innovating the platform; and
3. expanding distribution.
In pursuing these priorities, we plan to balance margin with growth.

During 2012, we had a change in our chief operating decision maker ("CODM"), which led to a fourth quarter change in what our CODM uses to
measure profitability and allocate resources. Accordingly, beginning with the fourth quarter of 2012, we have three operating segments, North America
Consumer, Rest of World ("ROW") Consumer and Institutional. From the first quarter of 2011 through the third quarter of 2012 we had two operating
segments, Consumer and Institutional. Prior to 2011 we operated as a single segment.
The North America Consumer and ROW Consumer segments derive revenues from individuals and sales to retail partners. The North America
Consumer segment includes sales made within the United States and Canada; the ROW Consumer segment includes sales made in countries other than
the U.S. and Canada. The Institutional segment derives revenues from sales to educational institutions, government agencies and corporations
worldwide.
For additional information regarding our segments, see Note 15 of Item 8, . Prior periods are
presented consistent with our current operating segments and definition of segment contribution.


Our primary products include Rosetta Stone Version 4  and Rosetta Stone  online. Version 4  includes each of the
components described below and is available as either tangible packaged software or as an online download of perpetual software. Rosetta Stone
 online combines dedicated conversational coaching and an online software subscription and is available
4