tions, our overall headcount was reduced by approximately 130  employees, the majority of which were employees at our U.S. headquarters. These restructuring expenses consisted primarily of severance and other compensation charges. The savings associated with these reductions in force have been refocused on revenue growth initiatives throughout the com- pany. In connection with these restructuring charges, we also completed the divestiture of our professional employer orga- nization operated through Big Planet resulting in a charge of approximately $ 0 . 5  million. 

## Other income (expense), net 

Other income (expense), net was $ 0 . 4  million of income in 2003  compared to $ 2 . 9  million of expense in 2002 . This increase in other income (expense), net of $ 3 . 3  million is primarily related to the foreign exchange fluctuations to the U.S. dollar on the translation of yen based bank debt and other foreign denominated intercompany balances into U.S. dollars for financial reporting purposes. 

## Provision for income taxes 

Provision for income taxes increased to $ 39 . 9  million in 2003  from $ 38 . 1  million in 2002 . This increase was largely due to the increase in operating income as compared to the prior year. The effective tax rate remained at 37 . 0 % of pre-tax income for 2003  and 2002 . 

## Net income 

As a result of the foregoing factors, net income increased to $ 67 . 9  million in 2003  from $ 64 . 8  million in 2002 . Earnings per share were positively impacted by the repurchase of 10 . 8  million shares of our Class A common stock, which occurred in October 2003 . 

## LIQUIDITY AND CAPITAL RESOURCES 

Historically, our principal needs for funds have been for operating expenses including selling expenses, working capital (principally inventory purchases), capital expenditures and the development of operations in new markets. We have gener- ally relied on cash flow from operations to meet our cash needs and business objectives without incurring long-term debt to fund operating activities. 

We typically generate positive cash flow from operations due to favorable gross margins, the variable nature of selling expenses (which constitute a significant percentage of operating expenses), and minimal capital requirements. We gener- ated $ 130 . 4  million in cash from operations in 2004  compared to $ 109 . 0  million in 2003 . This increase in cash generated from operations in 2004  compared to the prior-year period is primarily related to the increase in net income, which includes higher non-cash amortization charges in 2004 , and the reduction in cash payments for income taxes during 2004  compared to the prior year. 

As of December 31 , 2004 , working capital was $ 117 . 4  million compared to $ 149 . 3  million as of December 31 , 2003 . Our working capital decreased primarily due to an increase in accrued selling expenses as a result of higher December revenue for the year ended December 31 , 2004 , an increase in accrued contingent liabilities and a decrease in our current deferred tax assets at December 31 , 2004  due to the timing of payments from foreign affiliates, which we do not expect to recur in future years. Cash and cash equivalents at December 31 , 2004  were $ 109 . 9  million and were $ 122 . 6  million at December 31 , 2003 . Our cash balance was positively impacted by $ 130 . 4  million in cash flows from operations during 2004 as well as $ 16 . 6  million from the exercise of employee stock options and was offset by the use of approximately $ 35 . 0  mil- lion for capital expenditures, $ 72 . 3  million for repurchases of shares of our common stock, $ 22 . 6  million for the payment of dividends, $ 16 . 2  million for the repayment of long-term debt and $ 10 . 2  million of net purchases of investments. 

Our capital expenditures have been primarily focused on: 

• purchases of BioPhotonic Scanners; 

• computer systems and software; and 

• the build-out of manufacturing facilities and additional retail stores in China, as well as other leasehold improvements in our various markets. 

Capital expenditures were $ 35 . 0  million in 2004 , and we anticipate capital expenditures in 2005  of approximately $ 40 . 0 million to $ 50 . 0  million relating primarily to the items listed above. 

We maintain a $ 25 . 0  million revolving credit facility that expires in May 2007 . Drawings on this revolving credit facility may be used for working capital, capital expenditures and other purposes including repurchases of our outstanding shares of Class A common stock. As of December 31 , 2004 , there were no outstanding balances under our revolving credit facility. 

We also have a $ 125 . 0  million multi-currency private uncommitted shelf facility with Prudential Investment Manage- ment, Inc. As of December 31 , 2004 , we had $ 70 . 0  million outstanding under this shelf facility, $ 5 . 0  million of which is 

