Redbox 2004 Annual Report Download - page 26

22
machines, we will continue to analyze and use cost effective ways to reach our growing potential customer base. Sales and
marketing as a percentage of revenue increased to 7.5% in 2003 from 6.9% in 2002.
Research and Development
Research and development expenses increased to $5.8 million in 2003 from $5.0 million in 2002. Research and
development expenses grew primarily as the result of an increase in staffing levels to support research and development to
design complementary new product ideas and continue our ongoing efforts to enhance our existing coin-counting network.
Research and development expenses as a percentage of revenue remained relatively the same at 3.3% and 3.2% for 2003 and
2002, respectively.
General and Administrative
General and administrative expenses increased to $19.3 million in 2003 from $19.1 million in 2002. General and
administrative expenses increased in areas such as professional services (including legal and accounting services), employee
benefits and corporate insurance policies. General and administrative expenses as a percentage of revenue decreased to
11.0% in 2003 from 12.2% in 2002.
Depreciation, Amortization and Other
Depreciation expense increased to $27.0 million in 2003 from $25.8 million in 2002. Depreciation expense increased
mainly due to losses recorded on the disposal of capital assets associated with upgrading the computers in our coin-counting
machines. Depreciation and other as a percentage of revenue decreased to 15.3% in 2003 from 16.6% in 2002. A greater
number of coin-counting machines became fully depreciated between December 31, 2002 and December 31, 2003 than were
newly installed in the same period.
Other Income and Expense
Interest income and other, net, decreased to $263,000 in 2003 from $309,000 in 2002. This decrease, primarily in
interest income, was attributed to both lower amounts of funds invested and lower interest rates earned on investments in the
year ended December 31, 2003 than in the prior year.
Interest expense decreased to $1.2 million in 2003 from $3.7 million in 2002. The decrease is due to a combination of a
decreased amount of outstanding debt and reduced interest rates in the year ended December 31, 2003 compared to the prior
year.
During 2002, we recorded a loss from early retirement of debt totaling $6.3 million related to premiums paid and the
write-off of deferred financing fees to retire our 13% senior subordinated discount notes prior to the October 2006 maturity
date.
Income Taxes
Income tax expense was $11.6 million in 2003. During the fourth quarter of 2002, we recognized deferred tax assets in
accordance with SFAS No. 109 resulting in an income tax benefit $42.6 million. The deferred tax assets primarily represent
the income tax benefit of net operating losses we have incurred since inception. The related tax impact on diluted earnings
per share for 2003 was $(0.53) compared with $1.87 in 2002 resulting from the income tax benefit.
Liquidity and Capital Resources
As of December 31, 2004, we had cash, cash equivalents and cash being processed totaling $156.8 million, which
consisted of cash and cash equivalents available to fund our operations of $94.6 million and cash being processed of $62.1
million. Cash being processed represents coin residing in our coin-counting or entertainment services machines or being
processed by third-party carriers, which we are mainly obligated to use to settle our accrued liabilities payable to our retailer
partners. Working capital was $105.0 million at December 31, 2004 compared with $26.3 million at December 31, 2003.
On December 20, 2004, we issued 3,450,000 shares of our common stock (including 450,000 shares issued upon the
exercise of the underwriters’ over-allotment option) at an offering price of $25.00 per share. The net proceeds from the
offering, net of offering costs and expenses were approximately $81.1 million.
Net cash provided by operating activities was $60.6 million for the year ended December 31, 2004, compared to net
cash provided by operating activities of $53.5 million for the year ended December 31, 2003. Cash provided by operating
activities increased primarily as the result of a net increase in non-cash transactions on our income statement of $9.3 million