Rosetta Stone 2011 Annual Report Download - page 72

Table of Contents
Interest expense is primarily related to our long-term debt, the outstanding balance of which was zero as of December 31, 2010, as well as interest related
to our other capital leases. Interest expense for the year ended December 31, 2010 was $66,000, a decrease of $0.3 million, or 82% from the year ended
December 31, 2009. The decrease was primarily due to the retirement of our previous Madison Capital term loan.
Other expense for the year ended December 31, 2010 was $0.2 million compared to other income of $0.1 million for the year ended December 31, 2009,
a decrease of $0.3 million or 296%. The decrease is primarily the result of foreign exchange losses and a decrease in trademark infringement awards.
Income Tax Expense (Benefit)
Year Ended
December 31,
2010 2009 Change % Change
(dollars in thousands)
Income tax expense (benefit) $ (411) $ 7,084 $ (7,495) (105.8)%
Income tax benefit for the year ended December 31, 2010 was $0.4 million, a decrease of $7.5 million, or 106%, compared to the year ended
December 31, 2009. The decrease was the result of a decrease of $7.6 million in pre-tax income for the year ended December 31, 2010 and a lower effective
tax rate, compared to the year ended December 31, 2009. Our effective tax rate decreased to (3%) for the year ended December 31, 2010 compared to 35% for
the year ended December 31, 2009. The reduction in our effective tax rate was a result of changes in the geographic distribution of our income and the release
of the valuation allowance on net operating loss carry-forwards and other deferred tax assets of our United Kingdom and Japan subsidiaries.
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 had a two-year term and the applicable interest rate is 2.5% above one month LIBOR.
On January 17, 2011, we allowed our $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 expansion of 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 and existing cash reserves
will provide sufficient liquidity to fund our business and meet our obligations in the foreseeable future.
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