##### Table of Contents





UNITED STATES
    SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.
    20549
      FORM 10-K
  (Mark One)x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES AND EXCHANGE ACT OF 1934For
    the fiscal year ended December 31, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES AND EXCHANGE ACT OF 1934  Commission File Number:
    000-22555
 COINSTAR, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

94-3156448(State or other jurisdiction of
    incorporation or organization)

(IRS Employer
    Identification No.)1800 114th Avenue SE, Bellevue, Washington

98004(Address of principal executive
    offices)

(Zip Code)   (425) 943-8000
 (Registrants telephone
    number, including area code)
   Common Stock, $0.001 par value

The NASDAQ Stock Market LLC(Title of Each Class)

(Name of Each Exchange on Which
    Registered)  None
  o x
  o x
  x o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer  o

Accelerated
    filer  xNon-accelerated
    filer  o  (Do
    not check if a smaller reporting company)

Smaller reporting company
    o   Rule 12b-2 o x
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 





FORM 10-K
    Index
  PART IItem 1.


Business

Page 3Item 1A.


Risk Factors

Page 5Item 2.


Properties

Page 18Item 3.


Legal Proceedings

Page 18Item 4.


Submission of Matters to a Vote of Security
    Holders

Page 18PART IIItem 5.


Market for the Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

Page 18Item 6.


Selected Financial Data

Page 20Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations

Page 21Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk

Page 33Item 8.


Financial Statements and Supplementary Data

Page 34Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure

Page 35Item 9A.


Controls and Procedures

Page 35Item 9B.


Other Information

Page 35PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance

Page 36Item 11.


Executive Compensation

Page 36Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters

Page 36Item 13.


Certain Relationships and Related Transactions,
    and Director Independence

Page 36Item 14.


Principal Accountant Fees and Services

Page 36PART IVItem 15.


Exhibits and Financial Statement Schedules

Page 36SIGNATURES

Page 40EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   2




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##### Table of Contents



PART I  Special
    Note Regarding Forward-Looking Statements
  Form 10-K Risk Factors
  Item 1.
    Business.  Summary
  e-payment
  ® e-payment e-payment
  e-payment
  e-payment e-payment tm
  Coin
    services
   3




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##### Table of Contents



e-certificates, e-certificate
  e-certificate
  Entertainment
    services
        E-payment
    services
  e-payment e-payment e-payment e-payment-enabled e-payment e-payment T-Mobile,
  Recent
    Events
   4




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##### Table of Contents



Financial
    Information About Segments, Geographic Areas and
    Seasonality
    Where You
    Can Get Information We File with the SEC
  Form 10-K, Form 10-Q, Form 8-K,
  Item 1A.
    Risk
    Factors  You should carefully consider the following risk factors that
    may affect our business, including our financial condition and
    results of operations. The risks and uncertainties described
    below are not the only risks we face. Additional risks and
    uncertainties not presently known to us or that we currently
    deem immaterial also may impair our business. If any of the
    following risks actually occur, our business could be harmed,
    the trading price of our common stock could decline and you
    could lose all or part of your investment in us.
  The
    termination, non-renewal or renegotiation on materially adverse
    terms of our contracts with one or more of our significant
    retailers could seriously harm our business, financial condition
    and results of operations.
   5




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##### Table of Contents



We may
    be unable to identify and define product and service trends or
    anticipate, gauge and react to changing consumer demands in a
    timely manner.
  e-payment
  Our
    most extensive business relationship is with Wal-Mart, and
    changes to this relationship have had and are expected to
    continue to have material effects on our operations and
    results.
      The
    entertainment services market has brought with it risks that
    could adversely affect our business, operating results and
    financial condition.
   6




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##### Table of Contents



There
    are many risks related to our investment in Redbox and our
    acquisition of DVDXpress that may prevent us from achieving the
    objectives for our entry into the DVD business and negatively
    impact our business.
    
    Competition from other providers, including those using other
    distribution channels, having more experience, better financing,
    and better relationships with those in the movie industry, than
    we have, including traditional video retailers like Blockbuster,
    online retailers like Netflix, other retailers like Wal-Mart,
    pay-per-view/cable/satellite
    and similar movie content providers like Comcast, and other
    forms of movie content providers like computer download sites.
    Changes in the sequential timing of when movie content is
    provided to the various movie content distribution channels; for
    example, studios may change, shorten or discontinue altogether
    the period they have historically provided between the time
    movie content is provided to more traditional video retailers
    (usually directly after theatrical release) and to other movie
    content providers such as
    pay-per-view/cable/satellite
    and computer download providers (usually only after a
    significant period of time following distribution to the more
    traditional video retailers, e.g., one month or longer).
    Changes in consumer content delivery preferences, including more
    use of personal video recorders (e.g., TiVo),
    pay-per-view/cable/satellite
    and similar technologies, computer downloads, portable devices,
    and other mediums, and less demand for a high volume of new
    movie content due to such things as larger home DVD and
    downloaded movie libraries.
    Increased availability of movie content inventory through
    personal video recorders,
    pay-per-view/cable/satellite
    and similar technologies, computer downloads, portable devices,
    and other mediums.
    Decreased quality of movie content availability for self-service
    DVD distribution.
    Decreased costs related to purchasing or receipt of movie
    content, including less expensive DVDs, including due to piracy,
    and cheaper use of
    pay-per-view/cable/satellite
    and similar technologies.   7




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Competitive
    pressures could seriously harm our business, financial condition
    and results of operations.
      e-payment e-payment e-payment e-payment e-payment
    Litigation,
    arbitration, mediation, regulatory actions, investigations or
    other legal proceedings could result in material rulings,
    decisions, settlements, fines, penalties or publicity that could
    adversely affect our business, financial condition and results
    of operations.
   8




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We may
    be unable to adequately protect or enforce our patents and other
    proprietary rights.
  e-payment
    e-payment
  Our
    strategy to cross-sell our products and services to retailers
    may be unsuccessful.
   9




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We may
    be unable to attract new retailers and penetrate new markets and
    distribution channels.
  e-payment e-payment
  Payment
    of increased service fees to retailers could negatively affect
    our business results.
  e-payment e-payment
  We
    have substantial indebtedness.
      Defects,
    failures or security breaches in and inadequate upgrade of our
    operating systems could harm our business.
  e-payment
 10




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##### Table of Contents



back-up back-up
  Failure
    to adequately comply with information security policies or to
    safeguard against breaches of such policies could adversely
    affect our operations and could damage our business, reputation,
    financial
    position and results of operations.
  e-payment
  Lack
    of consumer confidence, whether real or perceived, in our
    coin-counting machines could harm our business.
    Our
    future operating results may fluctuate.
  e-payment
  
    the transaction fees we charge consumers to use our services
    the amount of service fees that we pay to our retailers,
    our ability to establish or maintain relationships with
    significant retailers on acceptable terms,
    the successful operation of our coin-counting,
    e-payment
    and DVD network, 11




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
    the commercial success of our retailers, which could be affected
    by such factors as severe weather, strikes or general economic
    conditions,
    fluctuations in revenue generated by our coin-counting,
    entertainment,
    e-payment
    and DVD products and services,
    fluctuations in operating expenses caused by various factors,
    including petroleum costs, labor costs and transportation costs,
    our ability to effectively manage the product mix of our
    entertainment services equipment to maximize consumer
    preferences,
    fluctuations in interest rates, which affects our debt service
    obligations,
    the timing of, and our ability to develop and successfully
    commercialize, new or enhanced products and services,
    the level of product and price competition,
    activities of and acquisitions or announcements by competitors,
    the impact from any impairment of inventory, goodwill, fixed
    assets or intangibles related to our acquisitions,
    fluctuations in consumer spending patterns, and
    relationships with manufacturers and suppliers.  e-payment e-payment
  We
    depend upon third-party manufacturers, suppliers and service
    providers for key components and substantial support for our
    coin-counting, entertainment,
    e-payment
    and DVD services machines and equipment.
  e-payment e-payment e-payment
  e-payment e-payment
  pick-up,
 12




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##### Table of Contents



back-up
  We are
    subject to substantial federal, state, local and foreign laws
    and government regulation specific to our
    business.
  e-payment e-payment
    There
    are risks associated with conducting our business and sourcing
    goods internationally.
  e-payment
   13




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Our
    money transfer services business requires us to meet specific
    federal, state, local and foreign laws and government
    regulations, subjecting us to additional risk.
        and/or
  Our
    money transfer service is and will remain reliant on an
    effective agent network.
   14




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Our
    money transfer services may involve the movement of large sums
    of money, and, as a result, our business is particularly
    dependent on our ability to process and settle transactions
    accurately and efficiently.
    Higher
    petroleum prices may adversely affect our operating results and
    reduce our profitability.
  e-payment
  Our
    customers ability to access our products and services can
    be adversely affected by severe weather, natural disasters and
    other events beyond our control, such as fires, power failures,
    telecommunication loss and terrorist attacks.
  e-payment
 15




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Acquisitions
    and investments involve risks that could harm our business and
    impair our ability to realize potential benefits from such
    acquisitions and investments.
    
    the assumption of known and unknown liabilities of an acquired
    company, including employee and intellectual property claims and
    other violations of applicable law,
    managing relationships with other investors and the companies in
    which we have made investments,
    use of cash resources and incurrence of debt and contingent
    liabilities in funding acquisitions and investments,
    difficulties and expenses in assimilating the operations,
    products, technology, information systems or personnel of an
    acquired company,
    stockholder dilution if an acquisition is consummated through an
    issuance of our securities,
    amortization expenses related to acquired intangible assets and
    other adverse accounting consequences,
    costs incurred in identifying and performing due diligence on
    potential targets that may or may not be successful,
    impairment of relationships with employees, retailers and
    affiliates of our business and the acquired business,
    entrance into markets in which we have no direct prior
    experience, and
    impairment of goodwill arising from our acquisitions and
    investments.  Recall
    of any of the products dispensed by our entertainment services
    machines or by the entertainment services industry generally
    could adversely affect our entertainment services
    business.
   16




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We may
    be subject to product liability claims if property or people are
    harmed by our products and services.
    Our
    stock price has been and may continue to be
    volatile.
    
    the termination, non-renewal or re-negotiation of one or more
    retailer relationships,
    acquisition, merger, investment and disposition activities,
    operating results below market expectations and changes in, or
    our failure to meet, financial estimates of securities analysts
    or our own guidance,
    release of analyst reports,
    trends and fluctuations in the use of our coin, entertainment
    and
    e-payment
    services,
    period-to-period fluctuations in our financial results,
    announcements regarding the establishment, modification or
    termination of relationships regarding the development of new or
    enhanced products and services,
    announcements of technological innovations or new products or
    services by us or our competitors,
    ineffective internal controls,
    industry developments, and
    economic or other external factors.    Our
    anti-takeover mechanisms may affect the price of our common
    stock and make it harder for a third party to acquire us without
    the consent of our board of directors.
   17




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Item 2.
    Properties.  e-payment
      Item 3.
    Legal
    Proceedings.    Item 4.
    Submission
    of Matters to a Vote of Security Holders.   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.  Market
    Information
    High


LowFiscal 2006:First Quarter

$
27.13


$
22.72Second Quarter


29.58



21.83Third Quarter


29.85



21.60Fourth Quarter


34.40



27.92Fiscal 2007:First Quarter

$
31.65


$
28.30Second Quarter


34.97



30.20Third Quarter


34.00



30.36Fourth Quarter


34.74



24.69  18




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##### Table of Contents



Holders
    Dividends
    Recent
    Sales of Unregistered Securities
    Securities
    Authorized for Issuance Under Equity Compensation
    Plans
    Unregistered
    Sales of Equity Securities and Use of Proceeds
       19




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MaximumTotal Number


Approximateof Shares


Dollar ValuePurchased as


of Shares thatTotal Number


Average


Part of the


May Yet beof Shares


Price Paid


Publicly Announced


Purchased UnderRepurchased


per Share


Repurchase Programs


the ProgramsOctober 1 - 31, 2007













$
11,593,687November 1 - 19, 2007














11,665,097November 20 - 30, 2007














21,275,984December 1 - 31, 2007


238,142


$
27.42



238,142



14,965,596238,142


$
27.42



238,142


$
14,965,596   Item 6.
    Selected
    Financial Data.    Year Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share data)CONSOLIDATED STATEMENT OF OPERATIONS:REVENUE

$
546,297


$
534,442


$
459,739


$
307,100


$
176,136EXPENSES:Direct operating


358,508



349,605



304,594



182,118



77,277Operating taxes, net


(2,466
)


9,929



8,705



4,808



1,309Marketing


11,899



14,420



10,748



12,925



13,215Research and development


5,153



5,246



5,716



5,465



5,772General and administrative


55,193



50,977



32,488



27,475



19,344Depreciation and other


58,841



52,836



45,347



35,302



27,006Amortization of intangible assets


7,331



6,220



4,556



2,014



138Impairment and excess inventory charges


65,220















(Loss) income from operations


(13,382
)


45,209



47,585



36,993



32,075OTHER INCOME (EXPENSE):Interest income and other, net


2,348



1,543



1,477



344



263Interest expense


(17,069
)


(15,748
)


(12,916
)


(6,271
)


(1,210
)Income (loss) from equity investments and other


1,333



(66
)


353



177



Early retirement of debt


(1,794
)


(238
)






(706
)


(Loss) income before income taxes


(28,564
)


30,700



36,499



30,537



31,128Income tax benefit (expense)


6,311



(12,073
)


(14,227
)


(10,169
)


(11,573
) 20




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##### Table of Contents



Year Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share data)NET (LOSS) INCOME

$
(22,253
)

$
18,627


$
22,272


$
20,368


$
19,555NET (LOSS) INCOME PER SHARE:Basic(1)

$
(0.80
)

$
0.67


$
0.86


$
0.94


$
0.91Diluted(1)

$
(0.80
)

$
0.66


$
0.86


$
0.93


$
0.90CONSOLIDATED BALANCE SHEET DATA:Cash and cash equivalents

$
18,497


$
18,687


$
45,365


$
61,878


$
7,125Cash in machine or in transit(2)


78,097



63,740



60,070



35,751



31,757Cash being processed(3)


99,998



95,737



69,832



59,158



60,782Total assets


768,573



718,083



643,401



547,134



204,074Total debt, capital lease obligations and other


272,651



200,264



210,478



211,410



17,461Common stock


354,509



343,229



328,951



282,046



191,370Total stockholders equity


305,130



321,365



294,047



226,146



114,190     (1)
    
    See Note 12 to Consolidated Financial Statements for an
    explanation of the determination of the number of shares used in
    computing net income per share information, basic and diluted.(2)
    
    Cash in machines or in transit is unavailable for immediate cash
    requirements as it represents cash being processed by carriers,
    cash deposits in transit, or coin residing in our coin-counting
    or entertainment services machines.(3)
    
    Cash being processed represents coin residing in our
    coin-counting or entertainment services machines or being
    processed by carriers, which we are specifically obligated to
    use to settle our accrued liabilities payable to retailers.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  The following discussion and analysis should be read in
    conjunction with our Consolidated Financial Statements and
    related Notes thereto included elsewhere in this Annual Report.
    Except for the consolidated historical information, the
    following discussion contains forward-looking statements. Actual
    results could differ from those projected in the forward-looking
    statements. Please refer to Special Note Regarding
    Forward-Looking Statements at the beginning of this Annual
    Report.
  Overview
  e-payment e-payment e-payment
  Strategy
   21




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Business
  Coin
    services
    e-payment e-payment
  ® e-payment
    Entertainment
    services
        E-payment
    services
  e-payment e-payment e-payment
 22




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##### Table of Contents



e-payment-enabled
  T-Mobile, e-payment e-payment
  Recent
    Events
          Critical
    Accounting Policies and Estimates
   23




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Revenue recognition:
  
    Coin-counting revenue is recognized at the time the
    consumers coins are counted by our coin-counting machines;
    Entertainment services revenue is recognized at the time cash is
    deposited in our machines. Cash deposited in the machines that
    has not yet been collected is referred to as cash in machine and
    is estimated at period end and reported on the balance sheet as
    cash in machine or in transit. This estimate is based on the
    average daily revenue per machine multiplied by the number of
    days since the coin in the machine has been collected. The
    estimated value of our entertainment services cash in machine
    was approximately $8.4 million and $7.1 million as of
    December 31, 2007 and 2006, respectively;
    E-payment
    services revenue is recognized at the point of sale based on our
    commissions earned, net of retailer fees. Money transfer revenue
    is recognized at the time the customer completes the transaction.  Purchase price allocations:
  Goodwill and intangible assets: Goodwill and Other Intangible Assets
      Impairment of long-lived assets:
   24




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##### Table of Contents



Income taxes:
  Accounting for Uncertainty
    in Income Taxes Accounting for
    Income Taxes
      Cash in machine or in transit and cash being
    processed:
  Stock-based compensation: ),
    Share-Based Payment Accounting for Stock-Based
    Compensation
  Recent
    Accounting Pronouncements
  Fair Value Measures
 25




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The Fair Value Option for Financial Assets and Financial
    Liabilities  including an amendment to FASB Statement
    No. 115 contract-by-contract
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  An Amendment of ARB No. 51
  Reclassifications
    Results
    of Operations  Years Ended December 31, 2007,
    2006 and 2005
  Revenue
  e-payment e-payments
    Year Ended December 31,(In millions, except percentages)

2007


2006


$ Chng


% Chng


2005


$ Chng


% ChngCoin and
    e-payment
    revenues

$
307.4


$
261.0


$
46.4



17.8
%

$
220.7


$
40.3



18.3
%Entertainment revenues

$
238.9


$
273.4


$
(34.5
)


−12.6
%

$
239.0


$
34.4



14.4
%Total Revenue

$
546.3


$
534.4


$
11.9



2.2
%

$
459.7


$
74.7



16.2
%   e-payment
   26




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e-payment,
    Direct
    Operating Expenses
  pick-up, e-payment
  Year Ended December 31,(In millions, except percentages)

2007


2006


$ Chng


% Chng


2005


$ Chng


% ChngDirect operating expenses

$
358.5


$
349.6


$
8.9



2.5
%

$
304.6


$
45.0



14.8
%as a% of Total Revenue


65.6
%


65.4
%










66.3
%     Operating
    taxes, net
    Year Ended December 31,(In millions, except percentages)

2007


2006


$ Chng


% Chng


2005


$ Chng


% ChngOperating taxes, net

$
(2.5
)

$
9.9


$
(12.4
)


−125.3
%

$
8.7


$
1.2



13.8
%as a% of Total Revenue


−0.5
%


1.9
%










1.9
%     Marketing
   27




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##### Table of Contents



e-payment e-payment e-payment
  Year Ended December 31,(In millions, except percentages)

2007


2006


$ Chng


% Chng


2005


$ Chng


% ChngMarketing

$
11.9


$
14.4


$
(2.5
)


−17.4
%

$
10.7


$
3.7



34.6
%as a% of Total Revenue


2.2
%


2.7
%










2.3
%     Research
    and Development
    Year Ended December 31,(In millions, except percentages)

2007


2006


$ Chng


% Chng


2005


$ Chng


% ChngResearch and development

$
5.2


$
5.2


$




0.0
%

$
5.7


$
(0.5
)


−8.8
%as a% of Total Revenue


1.0
%


1.0
%










1.2
%     General
    and Administrative
    Year Ended December 31,(In millions, except percentages)

2007


2006


$ Chng


% Chng


2005


$ Chng


% ChngGeneral and administrative

$
55.2


$
51.0


$
4.2



8.2
%

$
32.5


$
18.5



56.9
%as a% of Total Revenue


10.1
%


9.5
%










7.1
%      28




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##### Table of Contents



Depreciation
    and Other
    Year Ended December 31,(In millions, except percentages)

2007


2006


$ Chng


% Chng


2005


$ Chng


% ChngDepreciation and other

$
58.8


$
52.8


$
6.0



11.4
%

$
45.3


$
7.5



16.6
%as a% of Total Revenue


10.8
%


9.9
%










9.9
%     Amortization
    of Intangible Assets
    Year Ended December 31,(In millions, except percentages)

2007


2006


$ Chng


% Chng


2005


$ Chng


% ChngAmortization of intangible assets

$
7.3


$
6.2


$
1.1



17.7
%

$
4.6


$
1.6



34.8
%as a% of Total Revenue


1.3
%


1.2
%










1.0
%     Impairment
    and excess inventory charges
  Year Ended December 31,(In millions, except percentages)

2007


2006


$ Chng


% Chng


2005


$ Chng


% ChngImpairment and excess inventory charges

$
65.2


$



$
65.2



100.0
%

$



$




0.0
%as a% of Total Revenue


11.9
%


0.0
%










0.0
%     Other
    Income and Expense
  Year Ended December 31,(In millions, except percentages)

2007


2006


$ Chng


% Chng


2005


$ Chng


% ChngInterest income and other, net

$
2.3


$
1.5


$
0.8



53.3
%

$
1.5


$




0.0
%Interest expense

$
(17.1
)

$
(15.7
)

$
(1.4
)


8.9
%

$
(12.9
)

$
(2.8
)


21.7
%Income (loss) from equity investments and other

$
1.3


$
(0.1
)

$
1.4



−1400.0
%

$
0.4


$
(0.5
)


−125.0
%Early retirement of debt

$
(1.8
)

$
(0.2
)

$
(1.6
)


800.0
%

$



$
(0.2
)


100.0
%  29




---



##### Table of Contents



Income
    Taxes
    Accounting
    for Income Taxes  Special Areas
    Liquidity
    and Capital Resources
  Cash and
    Liquidity
     30




---



##### Table of Contents



Equity
    Investments
      Credit
    Facility
   31




---



##### Table of Contents



5-year
               32




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Contractual
    Obligations
    Payments Due by PeriodLess than 1


1-3


4-5


After 5Contractual Obligations

Total


year


years


years


years(In thousands)Long-term debt(1)

$
257,000










$
257,000Capital lease obligations(2)


15,084



7,166



7,482



436Operating leases(3)


13,974



4,959



5,813



2,988



214Purchase obligations(4)


11,378



11,378Asset retirement obligations(5)


1,610















1,610Liability for uncertain tax positions(6)


1,200











1,200Total contractual cash obligations

$
300,246


$
23,503


$
13,295


$
261,624


$
1,824     (1)
    
    Long-term debt does not include
    contractual interest payments as they are variable in nature.(2)
    
    Capital lease obligations represent
    gross minimum lease payments, which includes interest.(3)
    
    One of our lease agreements is a
    triple net operating lease. Accordingly, we are responsible for
    other obligations including, but not limited to, taxes,
    insurance, utilities and maintenance as incurred.(4)
    
    Purchase obligations consist of
    outstanding purchase orders issued in the ordinary course of our
    business.(5)
    
    Asset retirement obligations
    represent the fair value of a liability related to the machine
    removal costs following contract expiration.(6)
    
    Liability for uncertain tax
    positions represents amounts that we are contingently liable for
    based on our tax positions which their respective statute of
    limitations ends within 4 to 5 years.  Amount of Commitment Expiration by PeriodLess than 1


1-3


4-5


After 5Other Commercial Commitments

Total


year


years


years


years(In thousands)Letters of credit

$
12,428


$
12,428Total commercial commitments

$
12,428


$
12,428


$



$



$
   Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.     33




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data.    Supplemental
    Quarterly Financial Information
    Three Month Periods EndedDec. 31,


Sept. 30,


June 30,


March 31,


Dec. 31,


Sept. 30,


June 30,


March 31,2007(1)


2007(2)


2007


2007


2006


2006


2006(3)


2006(In thousands, except per share data)(unaudited)Consolidated Statement of Operations:Revenue

$
133,314


$
143,291


$
137,356


$
132,336


$
138,047


$
140,036


$
130,327


$
126,032Expenses:Direct operating


83,166



96,209



89,941



89,192



90,856



88,943



84,932



84,874Operating taxes, net


1,946



(9,488
)


2,629



2,447



1,936



2,446



2,722



2,825Marketing


2,009



5,650



2,614



1,626



5,481



4,626



3,389



924Research and development


1,070



1,397



1,345



1,341



1,155



1,457



1,393



1,241General and administrative


13,857



15,685



13,404



12,247



13,033



13,984



12,594



11,366Depreciation and other


14,724



15,100



14,549



14,468



13,272



13,410



13,295



12,859Amortization of intangible assets


1,962



1,813



1,817



1,739



1,722



1,661



1,510



1,327Impairment and excess inventory charges


65,220



























(Loss) income from operations


(50,640
)


16,925



11,057



9,276



10,592



13,509



10,492



10,616Interest income and other, net


292



1,808



173



75



165



487



420



471Interest expense


(4,605
)


(4,365
)


(4,125
)


(3,974
)


(3,910
)


(4,120
)


(3,986
)


(3,732
)Income (loss) from equity investments and other


472



2,217



(1,101
)


(255
)


(118
)


(443
)


304



191Early retirement of debt


(1,794
)


























(238
)(Loss) income before income taxes


(56,275
)


16,585



6,004



5,122



6,729



9,433



7,230



7,308Income tax benefit (expense)


19,053



(7,520
)


(2,656
)


(2,566
)


(1,689
)


(4,144
)


(3,111
)


(3,129
)Net (loss) income

$
(37,222
)

$
9,065


$
3,348


$
2,556


$
5,040


$
5,289


$
4,119


$
4,179Net (loss) income per share:Basic

$
(1.34
)

$
0.33


$
0.12


$
0.09


$
0.18


$
0.19


$
0.15


$
0.15Diluted

$
(1.34
)

$
0.32


$
0.12


$
0.09


$
0.18


$
0.19


$
0.15


$
0.15     (1)
    
    In the fourth quarter of 2007, we
    recorded an impairment and excess inventory charge which is more
    fully described in Note 2 to our Consolidated Financial
    Statements. 34




---



##### Table of Contents



(2)
    
    In the third quarter of 2007, we
    recognized a telecommunication fee refund which is more fully
    described in Note 2 and Note 17 to our Consolidated
    Financial Statements.(3)
    
    In the second quarter of 2006, we
    acquired CMT.  Seasonality
  e-payment e-payment
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures.  (i)
    Disclosure
    Controls and Procedures.  Rule 13a-15(e)
  (ii)
    Internal
    Control Over Financial Reporting.  (a) Managements report on internal control over
    financial reporting.
  Rule 13a-15(f). Rule 13a-15(c).
  (b) Attestation report of the registered public
    accounting firm.
    (c) Changes in internal control over financial
    reporting.
    Item 9B.
    Other
    Information.   35




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance.    Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.    Item 14.
    Principal
    Accountant Fees and Services.   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules.      PageReports of Independent Registered Public Accounting
    Firm  KPMG LLP


41Consolidated Balance Sheets


43Consolidated Statements of Operations


44Consolidated Statements of Stockholders Equity and
    Comprehensive Income (Loss)


45Consolidated Statements of Cash Flows


46Notes to Consolidated Financial Statements


47         Exhibit Number

Description of Document2
.1

Agreement and Plan of Merger, dated May 23, 2004, by and
    among Registrant, Sesame Mergeco, Inc., ACMI Holdings, Inc.,
    American Coin Merchandising, Inc. and Wellspring Capital
    Management LLC, as Stockholder Representative. (1)2
.2

LLC Interest Purchase Agreement dated November 17, 2005 by
    and among Redbox Automated Retail, LLC, McDonalds
    Ventures, LLC and Registrant. (2) 36




---



##### Table of Contents



Exhibit Number

Description of Document2
.3

Asset Purchase Agreement by and among The Amusement Factory,
    L.L.C., Levine Investments Limited Partnership, American Coin
    Merchandising, Inc., Adventure Vending Inc. and
    Registrant. (3)2
.4

Agreement for the Sale and Purchase of the Entire Issued Share
    Capital of Travelex Money Transfer Limited dated April 30,
    2006 by and among Travelex Limited, Registrant and Travelex
    Group Limited. (22)2
.5

Stock Purchase Agreement dated July 19, 2007 by and among
    Coinstar
    E-Payment
    Services Inc., Jose Francisco Leon, Benjamin Knoll, Martin
    Barrett, Frank Joseph Lawrence, David Mard and Robert
    Duran. (31)2
.6

First Amendment of Stock Purchase Agreement dated
    January 1, 2008 by and among Coinstar
    E-Payment
    Services Inc., Jose Francisco Leon, Benjamin Knoll, Martin
    Barrett, Frank Joseph Lawrence, David Mard and Robert
    Duran. (35)3
.1

Amended and Restated Certificate of Incorporation. (4)3
.2

Amended and Restated Bylaws. (33)4
.1

Reference is made to Exhibits 3.1 through 3.2. (4)4
.2

Specimen Stock Certificate. (4)4
.3

Second Amended and Restated Investor Rights Agreement, dated
    August 27, 1996, between Registrant and certain investors,
    as amended October 22, 1996. (4)4
.4

Rights Agreement dated as of November 12, 1998 between
    Registrant and American Securities Transfer and Trust,
    Inc. (5)4
.5

Certificate of Designation of Series A Preferred Stock.
    Reference is made to Exhibit A of Exhibit 4.4. (5)4
.6

Form of Rights Certificate. Reference is made to Exhibit B
    of Exhibit 4.4. (5)10
.1*

1997 Employee Stock Purchase Plan. (4)10
.2*

Amended and Restated 1997 Non-Employee Directors Stock
    Option Plan. (6)10
.3*

Outside Directors Deferred Compensation Plan. (7)10
.4*

1997 Amended and Restated Equity Incentive Plan. (8)10
.5*

2000 Amended and Restated Equity Incentive Plan. (9)10
.6*

Executive Deferred Compensation Plan. (7)10
.7*

Form of 1997 Amended and Restated Equity Incentive Plan Stock
    Option Grant Notice for option grants made prior to
    December 12, 2005. (10)10
.8*

Form of 1997 Amended and Restated Equity Incentive Plan Stock
    Option Grant Notice for option grants made after
    December 12, 2005 to the CEO or CFO. (20)10
.9*

Form of 1997 Amended and Restated Equity Incentive Plan Stock
    Option Grant Notice for option grants made after
    December 12, 2005 to plan participants other than the CEO
    or CFO. (20)10
.10*

Form of 2000 Amended and Restated Equity Incentive Plan Stock
    Option Grant Notice. (10)10
.11*

Form of Indemnity Agreement between Registrant and its Executive
    Officers and Directors. (4)10
.12*

Form of Release Agreement. (11)10
.13*

Summary of 2007 Base Salaries for 2006 Named Executive
    Officers. (30)10
.14*

Form of Restricted Stock Award under the 1997 Amended and
    Restated Equity Incentive Plan for awards made prior to
    December 12, 2005. (12)10
.15*

Form of Restricted Stock Award under the 1997 Amended and
    Restated Equity Incentive Plan for awards made after
    December 12, 2005 to the CEO or CFO. (20)10
.16*

Form of Restricted Stock Award under the 1997 Amended and
    Restated Equity Incentive Plan for awards made after
    December 12, 2005 to plan participants other than the CEO
    or CFO. (20)10
.17*

Summary of Director Fees. (32)10
.18

Credit Agreement, dated July 7, 2004, among Registrant, as
    Borrower, Bank of America, N.A., Keybank National Association
    and Wells Fargo Bank, National Association, as Documentation
    Agents, Lehman Commercial Paper, Inc., as Syndication Agent, and
    JPMorgan Chase Bank, as Administrative Agent. (1) 37




---



##### Table of Contents



Exhibit Number

Description of Document10
.19

First Amendment, dated December 21, 2004, to the Credit
    Agreement, dated July 7, 2004, among Registrant, as
    Borrower, Bank of America, N.A., Keybank National Association
    and Wells Fargo Bank, National Association, as Documentation
    Agents, Lehman Commercial Paper, Inc., as Syndication Agent, and
    JPMorgan Chase Bank, as Administrative Agent. (13)10
.20

Lease Agreement, dated January 1, 2004, by and between
    Registrant and EOP Operating Limited Partnership. (14)10
.21

Industrial Building Lease, dated October 24, 2002, by and
    between FCF Properties, LLC and American Coin Merchandising,
    Inc., a wholly-owned subsidiary of Registrant, as amended
    June 6, 2003. (15)10
.22*

Employment Agreement between Brian V. Turner and Registrant
    dated August 5, 2005. (16)10
.23*

Change of Control Agreement between Brian V. Turner and
    Registrant dated August 5, 2005. (16)10
.24*

Employment Agreement between David W. Cole and Registrant dated
    January 1, 2004. (14)10
.25*

Stock Option Agreement, Grant to Chief Executive Officer dated
    October 8, 2001. (17)10
.26

Voting Agreement between Levine Investments Limited Partnership
    and Registrant dated November 1, 2005. (18)10
.27*

2006 Incentive Compensation Plan. (19)10
.28

Lease Agreement dated November 1, 2005, by and between Van
    Nuys Airpark Building 5, LLC and Adventure Vending Inc., a
    wholly-owned subsidiary of Registrant. (21)10
.29

Lease Agreement dated November 1, 2005, by and between Van
    Nuys Airpark Building 5, LLC and Adventure Vending Inc., a
    wholly-owned subsidiary of Registrant. (21)10
.30

Lease Agreement dated November 1, 2005, by and between
    Levine & Riggle Rental Company Limited Partnership and
    Adventure Vending Inc., a wholly-owned subsidiary of
    Registrant. (21)10
.31

Transitional Services Agreement dated May 31, 2006 between
    Travelex Limited, Travelex Money Transfer Limited and
    Registrant. (23)10
.32*

Form of Restricted Stock Award under the 1997 Amended And
    Restated Equity Incentive Plan for Awards Made to Nonemployee
    Directors. (24)10
.33*

Form of Stock Option Grant under 1997 Amended and Restated
    Equity Incentive Plan For Grants Made to Nonemployee
    Directors. (24)10
.34*

Employment Agreement effective as of July 7, 2006, between
    Randall J. Fagundo and Registrant. (25)10
.35*

Amended and Restated Equity Grant Program for Nonemployee
    Directors under the Coinstar, Inc. 1997 Amended and Restated
    Equity Incentive Plan. (26)10
.36*

Form of Restricted Stock Award for CEO or CFO for
    Performance-Based Awards Made to the CEO or CFO under the 1997
    Amended and Restated Equity Incentive Plan. (27)10
.37*

Form of Restricted Stock Award for Participants Other than the
    CEO or CFO for Performance-Based Awards to Plan Participants
    Other than the CEO or CFO under the 1997 Amended and Restated
    Equity Incentive Plan. (27)10
.38*

2007 Incentive Compensation Plan. (28)10
.39*

Form of Change of Control Agreement. (29)10
.40*

Amended and Restated Equity Grant Program for Nonemployee
    Directors under the Coinstar, Inc. 1997 Amended and Restated
    Equity Incentive Plan. (32)10
.41

Credit Agreement, dated November 20, 2007, among Coinstar,
    Inc., as borrower, Bank of America, N.A., as administrative
    agent, swing line lender, and letter of credit issuer, Banc of
    America Securities LLC and J.P. Morgan Securities Inc., as
    joint lead arrangers and joint book managers, JPMorgan Chase
    Bank, N.A., as syndication agent, Keybank National Association,
    U.S. Bank National Association and Wells Fargo Bank, N.A., as
    co-documentation agents, and the other lenders party
    thereto. (34)21
.1

Subsidiaries.23
.1

Consent of Independent Registered Public Accounting
    Firm  KPMG LLP.31
.1

Certification of Chief Executive Officer pursuant to
    Section 302(a) of the Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer pursuant to
    Section 302(a) of the Sarbanes-Oxley Act of 2002. 38




---



##### Table of Contents



Exhibit Number

Description of Document32
.1

Certification of Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Indicates a management contract or
    compensatory plan or arrangement.(1)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on July 7, 2004 (File
    Number 000-22555).(2)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on November 18, 2005 (File
    Number 000-22555).(3)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on October 19, 2005 (File
    Number 000-22555).(4)
    
    Incorporated by reference to the
    Registrants Registration Statement on
    Form S-4
    filed on August 8, 1997
    (No. 333-33233).(5)
    
    Incorporated by reference to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 1998 (File
    Number 000-22555).(6)
    
    Incorporated by reference to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2000 (File
    Number 000-22555).(7)
    
    Incorporated by reference to the
    Registrants Quarterly Report on Form
    10-Q for the
    quarter ended March 31, 2002 (File
    Number 000-22555).(8)
    
    Incorporated by reference to
    Appendix A the Registrants Definitive Proxy Statement
    on Form DEF 14A filed on April 27, 2008 (File
    Number 000-22555).(9)
    
    Incorporated by reference to the
    Registrants Quarterly Report on Form
    10-Q for the
    quarter ended June 30, 2003 (File
    Number 000-22555).(10)
    
    Incorporated by reference to the
    Registrants Quarterly Report on Form
    10-Q for the
    quarter ended March 31, 2005 (File
    Number 000-22555).(11)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on June 22, 2001 (File
    Number 000-22555).(12)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on January 20, 2005 (File
    Number 000-22555).(13)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on December 22, 2004 (File
    Number 000-22555).(14)
    
    Incorporated by reference to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2003 (File
    Number 000-22555).(15)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on December 6, 2004 (File
    Number 000-22555).(16)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on August 10, 2005 (File
    Number 000-22555).(17)
    
    Incorporated by reference to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2001 (File
    Number 000-22555).(18)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on November 2, 2005 (File
    Number 000-22555).(19)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on February 16, 2006 (File
    Number 000-22555).(20)
    
    Incorporated by reference to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005 (File
    Number 000-22555).(21)
    
    Incorporated by reference to the
    Registrants Quarterly Report on Form
    10-Q for the
    quarter ended March 31, 2006 (File
    Number 000-22555).(22)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on May 4, 2006 (File
    Number 000-22555).(23)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on June 6, 2006 (File
    Number 000-22555).(24)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on June 14, 2006 (File
    Number 000-22555).(25)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on July 5, 2006 (File
    Number 000-22555).(26)
    
    Incorporated by reference to the
    Registrants Quarterly Report on Form
    10-Q for the
    quarter ended June 30, 2006 (File
    Number 000-22555).(27)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on February 6, 2007 (File
    Number 000-22555).(28)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on February 8, 2007 (File
    Number 000-22555).(29)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on March 7, 2007 (File
    Number 000-22555).(30)
    
    Incorporated by reference to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2006 (File
    Number 000-22555).(31)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on July 25, 2007 (File
    Number 000-22555).(32)
    
    Incorporated by reference to the
    Registrants Quarterly Report on Form
    10-Q for the
    quarter ended June 30, 2007 (File
    Number 000-22555).(33)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on October 19, 2007 (File
    Number 000-22555).(34)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on November 26, 2007 (File
    Number 000-22555).(35)
    
    Incorporated by reference to the
    Registrants
    Form 8-K
    filed on January 7, 2008 (File
    Number 000-22555). 39




---



##### Table of Contents



SIGNATURES      By:
    /s/  Brian
    V. Turner   Chief Financial Officer
     Signature

Title

Date/s/  David
    W. ColeDavid
    W. Cole

Chief Executive Officer and Director

February 28, 2008/s/  Brian
    V. TurnerBrian
    V. Turner

Chief Financial Officer

February 28, 2008/s/  Richard
    C. DeckRichard
    C. Deck

Chief Accounting Officer

February 28, 2008/s/  Keith
    D. GrinsteinKeith
    D. Grinstein

Chairman of the Board

February 28, 2008/s/  Deborah
    L. BevierDeborah
    L. Bevier

Director

February 28, 2008/s/  David
    M. EskenazyDavid
    M. Eskenazy

Director

February 28, 2008/s/  R.
    Michael RouleauR.
    Michael Rouleau

Director

February 28, 2008/s/  Robert
    D. SznewajsRobert
    D. Sznewajs

Director

February 28, 2008/s/  Ronald
    B. WoodardRonald
    B. Woodard

Director

February 28, 2008  40




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                 KPMG
    LLP
    41




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
               KPMG
    LLP
    42




---



##### Table of Contents



COINSTAR,
    INC.
  CONSOLIDATED
    BALANCE SHEETS
 (in
    thousands, except share data)
  December 31,2007


2006ASSETSCURRENT ASSETS:Cash and cash equivalents

$
18,497


$
18,687Cash in machine or in transit


78,097



63,740Cash being processed


99,998



95,737Accounts receivable, net of allowance for doubtful accounts of
    $1,489 and $1,050 at December 31, 2007 and 2006,
    respectively


49,809



21,339Inventory


33,360



39,334Deferred income taxes


3,459



17,775Prepaid expenses and other current assets


18,747



13,371Total current assets


301,967



269,983PROPERTY AND EQUIPMENT, NET


146,041



160,962DEFERRED INCOME TAXES


16,447



34OTHER ASSETS


15,150



3,807EQUITY INVESTMENTS


33,052



31,259INTANGIBLE ASSETS, NET


34,457



43,121GOODWILL


221,459



208,917TOTAL ASSETS

$
768,573


$
718,083LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable

$
49,829


$
57,536Accrued liabilities payable to retailers


99,998



95,737Other accrued liabilities


40,911



35,693Current portion of long-term debt and capital lease obligations


6,505



7,883Total current liabilities


197,243



196,849LONG-TERM DEBT, CAPITAL LEASE OBLIGATIONS AND OTHER


266,146



192,381DEFERRED TAX LIABILITY


54



7,488TOTAL LIABILITIES


463,443



396,718STOCKHOLDERS EQUITY:Preferred stock, $0.001 par value  Authorized,
    5,000,000 shares; no shares issued and outstanding at
    December 31, 2007 and 2006






Common stock, $0.001 par value  Authorized,
    45,000,000 shares; 29,665,125 and 29,383,150 issued and
    27,739,044 and 27,816,011 shares outstanding at
    December 31, 2007 and 2006, respectively


354,509



343,229(Accumulated deficit) retained earnings


(16,784
)


5,469Treasury stock


(40,831
)


(30,806
)Accumulated other comprehensive income


8,236



3,473Total stockholders equity


305,130



321,365TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
768,573


$
718,083    43




---



##### Table of Contents



COINSTAR,
    INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
 (in
    thousands, except per share data)
  Year Ended December 31,2007


2006


2005REVENUE

$
546,297


$
534,442


$
459,739EXPENSES:Direct operating


358,508



349,605



304,594Operating taxes, net


(2,466
)


9,929



8,705Marketing


11,899



14,420



10,748Research and development


5,153



5,246



5,716General and administrative


55,193



50,977



32,488Depreciation and other


58,841



52,836



45,347Amortization of intangible assets


7,331



6,220



4,556Impairment and excess inventory charges


65,220







(Loss) income from operations


(13,382
)


45,209



47,585OTHER INCOME (EXPENSE):Interest income and other, net


2,348



1,543



1,477Interest expense


(17,069
)


(15,748
)


(12,916
)Income (loss) from equity investments and other


1,333



(66
)


353Early retirement of debt


(1,794
)


(238
)


(Loss) income before income taxes


(28,564
)


30,700



36,499Income tax benefit (expense)


6,311



(12,073
)


(14,227
)NET (LOSS) INCOME

$
(22,253
)

$
18,627


$
22,272NET (LOSS) INCOME PER SHARE:Basic

$
(0.80
)

$
0.67


$
0.86Diluted

$
(0.80
)

$
0.66


$
0.86WEIGHTED SHARES OUTSTANDING:Basic


27,805



27,686



25,767Diluted


27,805



28,028



26,033    44




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##### Table of Contents



COINSTAR,
    INC.
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
    AND COMPREHENSIVE INCOME (LOSS)
    (in thousands, except share data)
  AccumulatedRetained Earnings





OtherCommon Stock


(Accumulated





Comprehensive





ComprehensiveShares


Amount


Deficit)


Treasury Stock


Income (Loss)


Total


Income (Loss)BALANCE, December 31, 2004


25,227,487


$
282,046


$
(35,430
)

$
(22,783
)

$
2,313


$
226,146Proceeds from issuance of shares under employee stock purchase
    plan


82,454



989















989Proceeds from exercise of stock options, net


323,633



4,559















4,559Stock-based compensation expense


84,782



340















340Tax benefit on share-based compensation






1,048















1,048Equity purchase of assets, net of issuance cost of $66


2,057,272



39,969















39,969Net income










22,272











22,272


$
22,272Short-term investments net of tax benefit of $4


















(6
)


(6
)


(6
)Foreign currency translation adjustments net of tax benefit of
    $832


















(1,324
)


(1,324
)


(1,324
)Interest rate hedges on long-term debt net of tax expense of $35


















54



54



54Total comprehensive income

























$
20,996BALANCE, December 31, 2005


27,775,628



328,951



(13,158
)


(22,783
)


1,037



294,047Proceeds from exercise of stock options, net


310,840



5,368















5,368Stock-based compensation expense






6,258















6,258Tax benefit on share-based compensation






979















979Equity purchase of assets


63,468



1,673















1,673Treasury stock purchase


(333,925
)










(8,023
)






(8,023
)Net income










18,627











18,627


$
18,627Short-term investments net of tax expense of $8


















12



12



12Foreign currency translation adjustments net of tax expense of
    $732


















2,482



2,482



2,482Interest rate hedges on long-term debt net of tax benefit of $34


















(58
)


(58
)


(58
)Total comprehensive income

























$
21,063BALANCE, December 31, 2006


27,816,011



343,229



5,469



(30,806
)


3,473



321,365Proceeds from exercise of stock options, net


218,229



4,232















4,232Stock-based compensation expense


63,746



6,421















6,421Tax benefit on share-based compensation






627















627Treasury stock purchase


(358,942
)










(10,025
)






(10,025
)Net loss










(22,253
)










(22,253
)

$
(22,253
)Short-term investments net of tax expense of $2


















1



1



1Foreign currency translation adjustments net of tax expense of
    $205


















4,828



4,828



4,828Interest rate hedges on long-term debt net of tax benefit of $44


















(66
)


(66
)


(66
)Total comprehensive loss

























$
(17,490
)BALANCE, December 31, 2007


27,739,044


$
354,509


$
(16,784
)

$
(40,831
)

$
8,236


$
305,130    45




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##### Table of Contents



COINSTAR,
    INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (in
    thousands)
  Year Ended December 31,2007


2006


2005OPERATING ACTIVITIES:Net (loss) income

$
(22,253
)

$
18,627


$
22,272Adjustments to reconcile (loss) income from operations to net
    cash provided by operating activities:Depreciation and other


58,841



52,836



45,347Amortization of intangible assets


7,331



6,220



4,556Amortization of deferred financing fees


712



760



785Loss on early retirement of debt


1,794



238



Impairment and excess inventory charges


65,220







Non-cash stock-based compensation


6,421



6,258



340Excess tax benefit on share based awards


(3,764
)


(1,033
)


Deferred income taxes


(9,142
)


10,183



14,315(Income) loss from equity investments


(1,624
)


66



(353
)Return on equity investments






929



974Other


(656
)


38



41Cash (used) provided by changes in operating assets and
    liabilities, net of effects of business acquisitions:Accounts receivable


(27,016
)


(8,464
)


(2,159
)Inventory


(3,547
)


(9,253
)


2,920Prepaid expenses and other current assets


(8,594
)


(3,138
)


(2,480
)Other assets


(4,773
)


(444
)


172Accounts payable


(7,624
)


25,507



880Accrued liabilities payable to retailers


2,535



9,977



12,722Accrued liabilities


4,205



6,073



2,791Net cash provided by operating activities


58,066



115,380



103,123INVESTING ACTIVITIES:Purchase of property and equipment


(84,318
)


(45,867
)


(43,905
)Acquisitions, net of cash acquired


(7,249
)


(31,254
)


(20,832
)Equity investments






(12,109
)


(20,327
)Loan to equity investee


(10,000
)






Proceeds from sale of fixed assets


2,294



254



432Net cash used by investing activities


(99,273
)


(88,976
)


(84,632
)FINANCING ACTIVITIES:Principal payments on long-term debt, revolver loan and capital
    lease obligations


(338,543
)


(24,209
)


(3,762
)Borrowings on previous and current credit facilities


400,500







Financing costs associated with revolving line of credit


(1,692
)






Excess tax benefit on share based awards


3,764



1,033



Repurchase of common stock


(10,025
)


(8,023
)


Proceeds from exercise of stock options


4,281



5,357



5,548Net cash provided (used) by financing activities


58,285



(25,842
)


1,786Effect of exchange rate changes on cash


1,350



2,335



(1,797
)NET INCREASE IN CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN
    TRANSIT, AND CASH BEING PROCESSED


18,428



2,897



18,480CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND
    CASH BEING PROCESSED:Beginning of period


178,164



175,267



156,787End of period

$
196,592


$
178,164


$
175,267SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest

$
18,901


$
14,795


$
11,516Cash paid during the period for income taxes


3,480



1,982



1,089SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
    ACTIVITIES:Purchase of vehicles financed by capital lease obligations

$
9,700


$
13,811


$
2,280Common stock issued in conjuction with acquisition






1,673



39,969Accrued acquisition costs


1,051



217



    46




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##### Table of Contents



COINSTAR,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
  NOTE 1:
    ORGANIZATION
    AND BUSINESS  Description of company: tm (e-payment)
  NOTE 2:
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Principles of consolidation: Consolidation of Variable Interest Entities
  Use of estimates:
  Cash in machine or in transit and cash being
    processed:
  Securities available-for-sale:
  Accounts receivable:
  Inventory: first-in-first-out
 47




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##### Table of Contents



Property and equipment:
  Useful LifeCoin-counting and
    e-payment
    machines

5 yearsEntertainment service machines

3 to 10 yearsVending machines

3 to 5 yearsComputers

3 yearsOffice furniture and equipment

5 yearsLeased vehicles

lease termLeasehold improvements

shorter of lease term or useful
    life of improvement   Equity investments:
    Purchase price allocations:
  Goodwill and intangible assets: Goodwill and Other Intangible Assets
   48




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##### Table of Contents



Patent costs:
  Impairment of long-lived assets:
    Settlement of liabilities: Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of Liabilities
  Revenue recognition:
  
    Coin-counting revenue is recognized at the time the
    consumers coins are counted by our coin-counting machines;
    Entertainment services revenue is recognized at the time cash is
    deposited in our machines. Cash deposited in the machines that
    has not yet been collected is referred to as cash in machine and
    is estimated at period end and reported on the balance sheet as
    cash in machine or in transit. This estimate is based on the
    average daily revenue per machine, multiplied by the number of
    days since the coin in the machine has been collected. The
    estimated value of our entertainment services cash in machine
    was approximately $8.4 million and $7.1 million as of
    December 31, 2007 and 2006, respectively;
    E-payment
    services revenue is recognized at the point of sale based on our
    commissions earned, net of retailer fees. Money transfer revenue
    is recognized at the time the customer completes the transaction.  Fees paid to retailers:
 49




---



##### Table of Contents



e-payment and/or
  Operating taxes, net:
  Fair value of financial instruments:
  Foreign currency translation:
  Stock-based compensation: ),
    Share-Based Payment Accounting for Stock-Based
    Compensation
   50




---



##### Table of Contents



Year EndedDecember 31, 2005(In thousands, exceptper share data)Net income (as reported):

$
22,272Add:Total stock-based employee compensation included in the
    determination of net income as reported, net of tax effect of
    $133


207Deduct:Total stock-based employee compensation determined under fair
    value based method for all awards, net of tax effect of $2,259


(4,588
)Pro forma net income:

$
17,891Net income per share:Basic:As reported:

$
0.86Pro forma:

$
0.69Diluted:As reported:

$
0.86Pro forma:

$
0.69   No. 00-15, Classification in the Statement of Cash Flows of the Income
    Tax Benefit Received by a Company upon Exercise of a
    Nonqualified Employee Stock Option
  Income taxes:
  Accounting for Uncertainty
    in Income Taxes Accounting for
    Income Taxes
     51




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##### Table of Contents



Research and development: 98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use.
  Recent accounting pronouncements: Fair Value
    Measures
  The Fair Value Option for Financial Assets and Financial
    Liabilities  including an amendment to FASB Statement
    No. 115 contract-by-contract
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  An Amendment of ARB No. 51
  Reclassifications:
  NOTE 3:
    ACQUISITIONS    Video Vending New York, Inc. (d.b.a.
    DVDXpress):
 52




---



##### Table of Contents



Coinstar Money Transfer:
  NOTE 4:
    PROPERTY
    AND EQUIPMENT  e-payment
  2007


2006(In thousands)Machines

$
364,564


$
345,938Computers


15,238



10,732Office furniture and equipment


10,119



6,018Vehicles


24,655



18,514Leasehold improvements


2,548



2,353417,124



383,555Accumulated depreciation and amortization


(271,083
)


(222,593
)$
146,041


$
160,962      53




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##### Table of Contents



NOTE 5:
    INTANGIBLE
    ASSETS    EstimatedRange of


Weighted


December 31,Estimated


Average


2007


2006Useful Lives


Useful Lives


Gross


Accumulated


Gross


Accumulated(in years)


(in years)


Amount


Amortization


Amount


Amortization(In thousands)Intangible assets:Retailer relationships


3 - 10



9.07


$
44,005


$
(17,180
)

$
49,757


$
(11,517
)Other identifiable intangible assets


1 - 40



9.42



10,686



(3,054
)


6,382



(1,501
)Total









$
54,691


$
(20,234
)

$
56,139


$
(13,018
)       (In thousands)2008

$
6,7342009


6,4322010


5,7012011


4,4552012


3,834Thereafter


7,301$
34,457   NOTE 6:
    ACCRUED
    LIABILITIES    2007


2006(In thousands)Payroll related expenses

$
12,610


$
10,961Interest payable


616



3,176Taxes payable


4,068



2,944Accrued professional fees


1,659



4,503Service contract providers


5,451



5,170Accrued medical insurance


1,951



1,684Payable related to related party for telecommunication fee refund


5,547



Other


9,009



7,255$
40,911


$
35,693  54




---



##### Table of Contents



NOTE 7:
    LONG-TERM
    DEBT    2007


2006(In thousands)Revolving line of credit

$
257,000


$
Term loan






186,952Less current portion






(1,917
)Long-term debt

$
257,000


$
185,035   Revolving line of credit:
      Term loan:
  Interest rate hedge:
 55




---



##### Table of Contents



NOTE 8:
    COMMITMENTS  Lease commitments:
      Capital


OperatingLeases


Leases *(In thousands)2008

$
7,166


$
4,9592009


5,119



3,8212010


2,363



1,9922011


361



1,6652012


75



1,323Thereafter






214Total minimum lease commitments


15,084


$
13,974Less amounts representing interest


(1,058
)Present value of lease obligation


14,026Less current portion


(6,505
)Long-term portion

$
7,521     *
    
    One of our lease agreements is a triple net operating lease.
    Accordingly, we are responsible for other obligations under the
    lease including, but not limited to, taxes, insurance, utilities
    and maintenance as incurred.    Purchase commitments:
  Letters of credit:
 56




---



##### Table of Contents



NOTE 9:
    STOCKHOLDERS
    EQUITY  Treasury stock:
    NOTE 10:
    STOCK-BASED
    COMPENSATION PLANS  Stock-based compensation: ), Share-Based
    Payment
    Year Ended December 31,20052007


2006


(Pro Forma)Expected term (in years)


3.7



3.6



4.6Expected stock price volatility


41
%


47
%


52
%Risk-free interest rate


4.4
%


4.6
%


4.0
%Expected dividend yield


0.0
%


0.0
%


0.0
%Estimated fair value per option granted

$
10.91


$
9.87


$
11.07       Year Ended December 31,2007


2006(In thousands)Stock-based compensation expense

$
6,421


$
6,258Related deferred tax benefit


1,700



1,590  57




---



##### Table of Contents



Stock options:
        2007


2006


2005Weighted





Weighted





Weightedaverage





average





averageShares


exercise price


Shares


exercise price


Shares


exercise priceOUTSTANDING, Beginning of year


2,514,435


$
21.52



2,656,697


$
20.81



2,442,995


$
19.23Granted


502,924



30.09



232,646



24.83



846,600



23.35Exercised


(224,229
)


19.88



(310,500
)


17.78



(324,082
)


14.09Cancelled, expired or forfeited


(124,618
)


26.05



(64,408
)


22.04



(308,816
)


22.36OUTSTANDING, End of year


2,668,512



23.07



2,514,435



21.52



2,656,697



20.81EXERCISABLE, End of year


1,825,286



21.29



1,652,468



20.87



1,437,546



19.77    58




---



##### Table of Contents



Options Outstanding


Options ExercisableWeightedNumber


average


Weighted


Number


Weightedof options


remaining


average


of options


averageExercise price

outstanding


contractual life


exercise price


exercisable


exercise price$ 7.38 - $18.59


540,190



4.85


$
16.78



517,905


$
16.7218.60 - 22.60


582,478



4.43



20.85



549,334



20.9422.61 - 23.90


593,797



3.44



23.38



417,644



23.3723.91 - 30.00


529,546



5.36



25.74



323,472



26.0030.01 - 34.45


422,501



4.14



30.37



16,931



31.702,668,512



4.44



23.07



1,825,286



21.29   Restricted stock awards:
      2007


2006


2005Weighted





Weighted





Weightedaverage





average





averagegrant date





grant date





grant dateShares


fair value


Shares


fair value


Shares


fair valueNON-VESTED,
    Beginning of year


69,562


$
24.30



82,750


$
24.49






$
Granted


69,171



30.48



7,500



22.77



85,050



24.49Vested


(27,763
)


24.03



(20,688
)


24.49







Forfeited


(5,425
)


27.52











(2,300
)


24.49NON-VESTED, End of year


105,545



28.25



69,562



24.30



82,750



24.49   NOTE 11:
    INCOME
    TAXES    December 31,2007


2006


2005(In thousands)United States operations

$
(17,945
)

$
36,175


$
36,903Foreign operations


(10,619
)


(5,475
)


(404
)Total (loss) income before taxes

$
(28,564
)

$
30,700


$
36,499  59




---



##### Table of Contents



December 31,2007


2006


2005(In thousands)Current:United States federal

$
1,216


$
826


$
506State and local


1,692



617



37Foreign


(77
)


447



(631
)Total current


2,831



1,890



(88
)Deferred:United States federal

$
(6,707
)

$
9,519


$
11,899State and local


(1,461
)


2,079



2,059Foreign


(974
)


(1,415
)


357Total deferred


(9,142
)


10,183



14,315Total tax (benefit) expense

$
(6,311
)

$
12,073


$
14,227     December 31,2007


2006


2005U.S. federal tax expense (benefit) at the statutory rate


−35.0
%


35.0
%


35.0
%State income taxes, net of federal impact


−1.9
%


4.8
%


3.7
%Incentive stock options


1.9
%


2.1
%


Impact of meeting the indefinite reversal criteria for
    unremitted foreign earnings






−4.8
%


State net operating loss carryforward adjustment


2.6
%


3.7
%


R&D credit


−0.2
%


−3.4
%


Change in valuation allowance for deferred tax asset


7.0
%


1.2
%


Foreign rate differential


1.9
%






Other


1.6
%


0.7
%


0.3
%−22.1
%


39.3
%


39.0
%      60




---



##### Table of Contents



December 31,2007


2006(In thousands)Deferred tax assets:Tax loss carryforwards

$
12,030


$
26,194Credit carryforwards


4,423



4,076Accrued liabilities and allowances


2,638



4,429Stock compensation


2,835



1,654Inventory


832



645Foreign tax credit


1,134



521Property and equipment


12,311



Other


249



956Gross deferred tax assets


36,452



38,475Less valuation allowance


(2,508
)


(881
)Total deferred tax assets


33,944



37,594Deferred tax liabilities:Property and equipment






(13,212
)Intangible assets


(11,065
)


(14,061
)Unremitted earnings


(3,027
)


Total deferred tax liabilities


(14,092
)


(27,273
)Net deferred tax asset

$
19,852


$
10,321     true-up
    Accounting for Income
    Taxes  Special Areas
   61




---



##### Table of Contents



NOTE 12:
    (LOSS)
    INCOME PER SHARE      Year Ended December 31,2007


2006


2005(In thousands)Numerator:Net (loss) income

$
(22,253
)

$
18,627


$
22,272Denominator:Weighted average shares for basic calculation


27,805



27,686



25,767Incremental shares from employee stock options and awards






342



266Weighted average shares for diluted calculation


27,805



28,028



26,033     NOTE 13:
    RETIREMENT
    PLAN      NOTE 14:
    TERMINATION
    OF SUPPLIER RELATIONSHIP   62




---



##### Table of Contents



NOTE 15:
    BUSINESS
    SEGMENT INFORMATION  Disclosure about Segments of an
    Enterprise and Related Information
    Year Ended December 31,2007


2006


2005(In thousands)Revenue:North American business

$
489,462


$
500,462


$
438,482International business


56,835



33,980



21,257Total revenue

$
546,297


$
534,442


$
459,739Net (loss) income:North American business

$
(11,635
)

$
22,935


$
22,402International business


(10,618
)


(4,308
)


(130
)Total net (Ioss) income

$
(22,253
)

$
18,627


$
22,272   December 31,2007


2006(In thousands)Total assets:North American business

$
726,098


$
694,650International business


129,092



86,703Intercompany eliminations


(86,617
)


(63,270
)Total assets

$
768,573


$
718,083    63




---



##### Table of Contents



e-payment
  Year Ended December 31,2007


2006


2005(In thousands)Revenue:Coin-counting and
    e-payment
    services

$
307,385


$
260,952


$
220,675Entertainment services


238,912



273,490



239,064Total revenue

$
546,297


$
534,442


$
459,739   e-payment
  Year Ended December 31,2007


2006


2005Wal-Mart Stores Inc


24.9
%


27.0
%


25.3
%The Kroger Company


11.6
%


11.4
%


10.5
%   NOTE 16:
    CERTAIN
    SIGNIFICANT RISKS AND UNCERTAINTIES  Current
    Vulnerability Due to Supplier Concentrations:
      NOTE 17:
    RELATED
    PARTY TRANSACTIONS    e-payment e-payment
 64




---



##### Table of Contents



NOTE 18:
    SUBSEQUENT
    EVENTS     65