Rosetta Stone 2011 Annual Report Download - page 64

Table of Contents
Version 4 product in the fourth quarter of 2010. Additionally, communications expenses decrease $0.2 million as a result of decreased hosting expenses. We
expect research and development expenses to increase in 2012 as we develop and refine our English remediation solution for our Asian markets, invest in new
digital platforms such as the iPad, and support institutional development initiatives.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2011 were $62.0 million, an increase of $8.8 million, or 17%, from the year ended
December 31, 2010. As a percentage of revenue, general and administrative expenses increased to 23% for the year ended December 31, 2011 compared to
21% for the year ended December 31, 2010. The dollar and percentage increases were primarily attributable to an $8.5 million increase in personnel-related
costs of which $4.0 million related to the addition of the LTIP compensation program which was subsequently cancelled in the fourth quarter of 2011. The
remaining increase in personnel-related costs related to severance expenses due to company restructuring, executive compensation and recruiting costs related
to our search for a new chief executive officer, and international expansion. IT and infrastructure expenses increased $3.0 million related to hardware and
software upgrades, hosting, and telephone. Additionally, consulting expenses increased $4.0 million primarily related to investment in our IT infrastructure
and cost realignment initiatives. These increases were partially offset by a $5.8 million decrease in legal fees associated with our trademark infringement
lawsuit against Google, Inc. and other intellectual property enforcement actions as well as a $0.5 million decrease in bad debt related to the Border's
Group Inc. reserve taken in the fourth quarter of 2010. During 2012, we plan on taking steps to reduce certain general and administrative expenses as we
realign our cost structure to help fund investment in areas of growth.
Stock-Based Compensation
As a result of the loss of the incentive and retentive value of the Long Term Incentive Plan ("LTIP"), on November 30, 2011 the board of directors
cancelled the LTIP resulting in the recognition of a non-cash charge of $4.9 million, which is included in each of the respective operating expense lines for the
year ended December 31, 2011 as follows, $0.8 million in sales and marketing, $1.1 million in research and development, and $4.0 million in general and
administrative. There were no shares issued from the LTIP to any executive prior to its cancellation. Total stock-based compensation by expense line item is
as follows:
Year Ended
December 31,
2011 2010 Change % Change
(dollars in thousands)
Sales and marketing 1,932 774 1,158 150%
Research and development 2,448 1,181 1,267 107%
General and administrative 7,918 2,393 5,525 231%
Total 12,298 4,348 7,950 182%
Lease Abandonment Expenses
As a result of accelerated growth in our Arlington, Virginia headquarters, the Company exceeded maximum capacity in our leased office space in the
third quarter of 2010. At that time, there was no additional space available for lease in the 1919 N. Lynn St. location and additional space was needed to
support continued growth. Our previously abandoned office space at 1101 Wilson Blvd was unoccupied, and as a result of its close proximity to the 1919 N.
Lynn St. location, we made the decision to reoccupy the formerly abandoned space. As of December 31, 2010, the remaining liability associated with the
abandonment of the operating lease at 1101 Wilson Blvd was reversed resulting in a
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