Rosetta Stone 2009 Annual Report Download - page 63

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Table of Contents
Research and Development Expenses
Research and development expenses were $18.4 million for the year ended December 31, 2008, an increase of $5.5 million, or 43%, from the year ended
December 31, 2007. As a percentage of total revenue, research and development expenses were 9% for the years ended December 31, 2008 and 2007. The
dollar increase was primarily attributable to additional personnel and contract development costs associated with the transition of Version 2 languages to
Version 3, as well as the development of new products and services that are complementary to our existing solutions.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2008 were $39.6 million, an increase of $9.8 million, or 33%, from the year ended
December 31, 2007. As a percentage of revenue, general and administrative expenses decreased to 19% for the year ended December 31, 2008 compared to
22% for the year ended December 31, 2007. The dollar increase was primarily attributable to a $4.3 million increase in personnel-related costs as we
expanded our finance, information technology and other administrative functions to support the overall growth in our business, and a corresponding increase
in communications, travel and other support costs of $4.4 million. Depreciation expense also increased $0.9 million and bad debt expense increased
$0.8 million during the year ended December 31, 2008 as a result of greater capital expenditures and credit sales. We also incurred an additional $1.0 million
in legal fees related to intellectual property protection matters. This increase was partially offset by decreased professional service expenses of $0.2 million as
we replaced contract staff with employees.
Lease Abandonment Expenses
Lease abandonment expense associated with the relocation of our headquarters was $1.8 million for the year ended December 31, 2008, consisting of
accrued exit costs and liabilities under operating lease agreements.
Interest and Other Income (Expense)
Year Ended December 31,
2008 2007 Change % Change
(dollars in thousands)
Interest income $ 454 $ 673 $ (219) (32.5)%
Interest expense (891) (1,331) $ 440 (33.1)%
Other income 239 154 $ 85 55.2%
Total $ (198) $ (504) $ 306 (60.7)%
Interest expense for the year ended December 31, 2008 was $0.9 million, a decrease of $0.4 million, or 33%, from the year ended December 31, 2007.
The decrease was due to a reduction in the outstanding balance of our long-term debt as a result of $3.4 million in principal payments during the period
Income Tax Expense
Year Ended December 31,
2008 2007 Change % Change
(dollars in thousands)
Income tax expense $ 13,435 $ 5,435 $ 8,000 147.2%
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