Redbox 2008 Annual Report Download - page 39

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losses, state income taxes and non-deductible stock-based compensation expense recorded for incentive stock
option (“ISO”) awards offset by the benefit arising from ISO disqualifying dispositions.
The effective income tax rate for 2007 varies from the federal statutory tax rate of 35% primarily due to a
change in valuation allowance on foreign net operating losses, the impact of changes in foreign tax rates, state
income taxes and non-deductible stock-based compensation expense recorded from ISO awards offset by the
benefit arising for ISO disqualifying dispositions and changes in deferred tax assets due to adjustments to state
operating loss carryforwards.
The effective income tax rate for 2006 varies from the federal statutory tax rate of 35% primarily due to state
income taxes, non-deductible stock-based compensation expense recorded from ISO awards offset by the benefit
arising for ISO disqualifying dispositions, the impact of our election during the third quarter of 2006 of the
indefinite reversal criteria for unremitted foreign earnings under APB No. 23, Accounting for Income Taxes —
Special Areas (“APB 23”), the impact of adjusting our deferred tax asset associated with state operating loss
carryforwards, the impact of recognizing an increase to our available research and development credit, as well as the
impact of recognition of a valuation allowance to offsetting foreign deferred tax assets relating to our acquisition of
CMT.
As of December 31, 2008 and 2007, our net deferred income tax (liabilities) assets totaled ($0.9) million and
$19.9 million, respectively. In the years ended December 31, 2008, 2007 and 2006 we recorded tax (benefit)
expense of $16.2 million, $(6.3) million, and $12.1 million, respectively, which, as a result of our United States net
operating loss carryforwards, will not result in cash payments for United States federal income taxes other than
federal alternative minimum taxes. Current tax payments have been made to state and foreign jurisdictions.
Liquidity and Capital Resources
Cash and Liquidity
Our business involves collecting and processing large volumes of cash, most of it in the form of coins. We
present three categories of cash on our balance sheet: cash and cash equivalents, cash in machine or in transit, and
cash being processed.
As of December 31, 2008, we had cash and cash equivalents, cash in machine or in transit, and cash being
processed totaling $192.0 million, which consisted of cash and cash equivalents immediately available to fund our
operations of $66.4 million, cash in machine or in transit of $34.6 million and cash being processed of $91.0 million
(which relates to our partner payable liability as recorded in “accrued payable to retailers and agents” in the
Consolidated Balance Sheet). Working capital was $(16.3) million as of December 31, 2008, compared with
$104.7 million as of December 31, 2007. The decrease in working capital was primarily the result of our increased
ownership percentage of Redbox, which, as a result required the consolidation of Redbox’s results from the
effective transaction date of January 18, 2008. In addition, the decrease is due to the timing of payments to our
vendors and retailers.
Net cash provided by operating activities was $191.8 million for the year ended December 31, 2008, compared
to net cash provided by operating activities of $58.1 million for the year ended December 31, 2007. Cash provided
by operating activities increased primarily as a result of cash provided by our operating assets and liabilities of
$50.5 million for the year ended December 31, 2008 compared to cash used by operating assets and liabilities of
$44.8 million for the year ended December 31, 2007. The favorable impact from operating assets and liabilities due
to the consolidation of Redbox and the acquisition of GroupEx was $15.4 million. The remaining increase in cash
provided by our operating assets and liabilities was due to the collection of the telecommunication refund, the
reduction of Entertainment inventory, and the timing of receivable collection and vendor payments. Also, cash
provided by operating activities increased due to an increase in income net of non-cash transactions on our
Consolidated Statement of Operations of $38.4 million. This increase was mostly due to our increased ownership
percentage of Redbox, which, as a result required the consolidation of Redbox’s results from the effective
transaction date of January 18, 2008.
In 2007, cash used by our operating assets and liabilities increased mainly due to the timing of payments to our
retailers and the recognition of our telecommunication fee refund that was recorded in 2007 but not collected until
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