Rosetta Stone 2010 Annual Report Download - page 65

Table of Contents
Liquidity and Capital Resources
Our primary operating cash requirements include the payment of salaries, incentive compensation, employee benefits and other personnel-related costs,
as well as direct advertising expenses, costs of office facilities and costs of information technology systems. We fund these requirements through cash flow
from our operations.
On January 16, 2009, we entered into a new secured credit agreement with Wells Fargo Bank, N.A., or Wells Fargo, that provided us with a
$12.5 million revolving line of credit. This revolving credit facility has a two-year term and the applicable interest rate is 2.5% above one month LIBOR. On
January 16, 2009, we borrowed approximately $9.9 million under this revolving credit facility and used these funds to repay the entire outstanding principal
and interest of the term loan we had with Madison Capital. As a result, we have no borrowings owed to Madison Capital under either their term loan or
revolving credit facility, and we have terminated these credit agreements.
On January 17, 2011, the Company allowed its $12.5 million revolving line of credit with Wells Fargo to expire.
We expect that our future growth will continue to require additional working capital. Our future capital requirements will depend on many factors,
including development of new products, market acceptance of our products, the levels of advertising and promotion required to launch additional products and
improve our competitive position in the marketplace, the expansion of our sales, support and marketing organizations, the establishment of additional offices
in the United States and worldwide and building the infrastructure necessary to support our growth, the response of competitors to our products and our
relationships with suppliers and clients. We have experienced increases in our expenditures consistent with the growth in our operations and personnel, and
we anticipate that our expenditures will continue to increase in the future. We believe that anticipated cash flows from operations will provide sufficient
liquidity to fund our business and meet our obligations in the foreseeable future.
Cash Flow Analysis
Net Cash Provided By Operating Activities
Net cash provided by operating activities was $31.7 million for the year ended December 31, 2010 compared to $41.2 million for the year ended
December 31, 2009. Net cash provided by operating activities was primarily generated from net income as adjusted for depreciation and amortization and
stock compensation expense. Net income totaled $13.3 million for the year ended December 31, 2010 compared to $13.4 million for the year ended
December 31, 2009. Depreciation, amortization and stock compensation expense for the period totaled $11.0 million. A decrease in stock-based compensation
expense was primarily the result of $18.5 million in non cash expense associated with the issuance of common stock to key employees in April 2009. This
decrease was offset by a $21.0 million increase in deferred revenue due to increased sales of subscription licenses, and a $6.0 million increase in accounts
payable as a result of increased management of our cash flow and the deferral of payments to certain vendors during the fourth quarter of 2010, to better
match cash outflows with cash inflows, which contributed to net cash provided by operations. In the future, our cash flow management may not be successful
in extending the timing of payments to vendors, which would then cause this cash flow benefit to reverse. If our efforts to reposition the U.S. consumer
business are not successful, we would anticipate our cash flow from operations to decline in 2011.
Net cash provided by operating activities was $41.2 million for the year ended December 31, 2009. Net cash provided by operating activities was
primarily generated from net income as adjusted for depreciation and amortization and stock compensation expense. Net income totaled $13.4 million for the
year ended December 31, 2009. Depreciation, amortization and stock compensation expense for the
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