Redbox 2013 Annual Report Download - page 42

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Comparing 2012 to 2011
Net interest expense decreased $8.2 million or 34.3% during 2012, primarily due to a lower rate for our Credit Facility, the
adjustment of accrued interest related to the expiration of a license and service agreement between Redbox and McDonald’s
USA, as well as the interest income from our note receivable with Sigue which consist of the full year interest in 2012.
Income Tax Expense
Our effective tax rate was 14.2%, 37.9% and 37.8% for 2013, 2012 and 2011, respectively. Our tax rate is affected by recurring
items, such as tax rates in foreign jurisdictions and the relative amount of income we earn in each. It is also affected by various
discrete items that may occur in any given year, but are not consistent from year to year. During the fourth quarter of 2013, we
reported a $16.7 million tax benefit related to the recognition of a worthless stock deduction from an outside basis difference in
a corporate subsidiary. During the third quarter of 2013, we reported a $24.3 million tax benefit related to the non-taxable gain
upon the re-measurement of our previously held equity interest in ecoATM. During the second quarter of 2013, we entered into
an arrangement to sell certain NCR kiosks and a series of transactions to reorganize Redbox related subsidiary structures
through the sale of a wholly owned subsidiary. As a result of the series of transactions we recorded a discrete one-time tax
benefit of $17.8 million, net of a valuation allowance, through the realization of capital and ordinary gains and losses. The
combined impact of these three items was a 24.3 percentage point reduction in the effective tax rate for the year ended
December 31, 2013. In addition, our 2013 effective tax rate was increased by state income taxes. Our effective tax rate in 2012
and 2011 was higher than the U.S. Federal statutory rate of 35% due primarily to state income taxes. See Note 12: Income
Taxes From Continuing Operations in our Notes to Consolidated Financial Statements.
Non-GAAP Financial Measures
Non-GAAP measures may be provided as a complement to results provided in accordance with United States generally
accepted accounting principles (“GAAP”).
We use the following non-GAAP financial measures to evaluate our financial results:
• Core adjusted EBITDA from continuing operations;
• Core diluted earnings per share (“EPS”) from continuing operations; and
• Free cash flow.
These measures, the definitions of which are presented below, are non-GAAP because they exclude certain amounts which are
included in the most directly comparable measure calculated and presented in accordance with GAAP. Our non-GAAP
financial measures are not meant to be considered in isolation or as a substitute for our GAAP financial measures and may not
be comparable with similarly titled measures of other companies.
Core and Non-Core Results
We distinguish our core activities, those associated with our primary operations which we directly control, from non-core
activities. Non-core activities are primarily nonrecurring events or events we do not directly control. Our non-core adjustments
include i) restructuring costs associated with actions to reduce costs in our continuing operations primarily through workforce
reductions across the Company, ii) acquisition costs primarily related to the NCR Asset Acquisition and acquisition of ecoATM,
iii) compensation expense for rights to receive cash issued in conjunction with our acquisition of ecoATM and attributable to
post-combination services as they are fixed amount acquisition related awards and not indicative of the directly controllable
future business results, iv) income or loss from equity method investments, which represents our share of income or loss from
entities we do not consolidate or control and the impact of the gain on re-measurement of our previously held equity interest in
ecoATM upon acquisition, v) a gain on the grant of a license to use certain Redbox trademarks to Redbox Instant by Verizon,
vi) benefits from release of indemnification reserves upon settlement of the Sigue Note and vii) a tax benefit related to the
recognition of a worthless stock deduction in a corporate subsidiary ("Non-Core Adjustments").
We believe investors should consider our core results because they are more indicative of our ongoing performance and trends,
are more consistent with how management evaluates our operational results and trends, provide meaningful supplemental
information to investors through the exclusion of certain expenses which are either non-recurring or may not be indicative of
our directly controllable business operating results, allow for greater transparency in assessing our performance, help investors
better analyze the results of our business and assist in forecasting future periods.