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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarter ended March 31, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 000-22555



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COINSTAR, INC.

(Exact name of
registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|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)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act.

Large accelerated filer ̈Accelerated filer  x    Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):    Yes ̈No  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|                               |  |                              
|------------------------------ |  | -----------------------------
|Class                          |  | Outstanding at April 16, 2007
|Common Stock, $0.001 par value |  | 27,808,934                   



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##### Table of Contents

COINSTAR, INC.

FORM 10-Q

Index



|                              |  |                                                                                                                            |  |        
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | -------
|                              |  | Page                                                                                                                      
|PART I. FINANCIAL INFORMATION |  |                                                                                                                           
|                              |  |                                                                                                                           
|Item 1.                       |  | Financial Statements:                                                                                                      |  |        
|                              |  |                                                                                                                           
|                              |  | Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006 (unaudited)                                         |  | Page 3 
|                              |  |                                                                                                                           
|                              |  | Consolidated Statements of Operations for the three month periods ended March 31, 2007 and March 31, 2006 (unaudited)      |  | Page 4 
|                              |  |                                                                                                                           
|                              |  | Consolidated Statement of Stockholders Equity for the three month period ended March 31, 2007 (unaudited)                 |  | Page 5 
|                              |  |                                                                                                                           
|                              |  | Consolidated Statements of Cash Flows for the three month periods ended March 31, 2007 and March 31, 2006 (unaudited)      |  | Page 6 
|                              |  |                                                                                                                           
|                              |  | Notes to Consolidated Financial Statements for the three month periods ended March 31, 2007 and March 31, 2006 (unaudited) |  | Page 7 
|                              |  |                                                                                                                           
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                      |  | Page 13
|                              |  |                                                                                                                           
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                                                 |  | Page 20
|                              |  |                                                                                                                           
|Item 4.                       |  | Controls and Procedures                                                                                                    |  | Page 21
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                           
|                              |  |                                                                                                                           
|Item 1A.                      |  | Risk Factors                                                                                                               |  | Page 21
|                              |  |                                                                                                                           
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                |  | Page 21
|                              |  |                                                                                                                           
|Item 6.                       |  | Exhibits                                                                                                                   |  | Page 22
|                              | 
|SIGNATURE                     |  | Page 23                                                                                                                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

COINSTAR, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                                                                                                                                      |  |           |         |   |              |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                                                                      |  | March 31, |         |   | December 31, |  
|                                                                                                                                                                                                      |  | 2007      |         |   | 2006         |  
|ASSETS                                                                                                                                                                                                |  |           |         |   |              |   |         |  
|CURRENT ASSETS:                                                                                                                                                                                       |  |           |         |   |              |   |         |  
|Cash and cash equivalents                                                                                                                                                                             |  | $         | 8,740   |   |              | $ | 24,726  |  
|Cash in machine or in transit                                                                                                                                                                         |  |           | 60,243  |   |              |   | 63,740  |  
|Cash being processed                                                                                                                                                                                  |  |           | 74,627  |   |              |   | 89,698  |  
|Trade accounts receivable, net of allowance for doubtful accounts of $1,123 and $1,050 at March 31, 2007 and December 31, 2006,
respectively                                                          |  |           | 19,083  |   |              |   | 21,339  |  
|Inventory                                                                                                                                                                                             |  |           | 36,048  |   |              |   | 39,334  |  
|Deferred income taxes                                                                                                                                                                                 |  |           | 19,100  |   |              |   | 17,775  |  
|Prepaid expenses and other current assets                                                                                                                                                             |  |           | 13,452  |   |              |   | 13,371  |  
|                                                                                                                                                                                                      |  |           |         |   |              |   |         |  
|Total current assets                                                                                                                                                                                  |  |           | 231,293 |   |              |   | 269,983 |  
|PROPERTY AND EQUIPMENT, NET                                                                                                                                                                           |  |           | 167,736 |   |              |   | 160,962 |  
|DEFERRED INCOME TAXES                                                                                                                                                                                 |  |           |        |   |              |   | 34      |  
|OTHER ASSETS                                                                                                                                                                                          |  |           | 3,935   |   |              |   | 3,807   |  
|EQUITY INVESTMENTS                                                                                                                                                                                    |  |           | 31,341  |   |              |   | 31,259  |  
|INTANGIBLE ASSETS, NET                                                                                                                                                                                |  |           | 42,739  |   |              |   | 43,121  |  
|GOODWILL                                                                                                                                                                                              |  |           | 209,134 |   |              |   | 208,917 |  
|                                                                                                                                                                                                      |  |           |         |   |              |   |         |  
|TOTAL ASSETS                                                                                                                                                                                          |  | $         | 686,178 |   |              | $ | 718,083 |  
|                                                                                                                                                                                                      |  |           |         |   |              |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                  |  |           |         |   |              |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                  |  |           |         |   |              |   |         |  
|Accounts payable                                                                                                                                                                                      |  | $         | 41,816  |   |              | $ | 57,536  |  
|Accrued liabilities payable to retailers                                                                                                                                                              |  |           | 78,829  |   |              |   | 95,737  |  
|Other accrued liabilities                                                                                                                                                                             |  |           | 31,051  |   |              |   | 35,693  |  
|Current portion of long-term debt and capital lease obligations                                                                                                                                       |  |           | 8,135   |   |              |   | 7,883   |  
|                                                                                                                                                                                                      |  |           |         |   |              |   |         |  
|Total current liabilities                                                                                                                                                                             |  |           | 159,831 |   |              |   | 196,849 |  
|LONG-TERM DEBT, CAPITAL LEASE OBLIGATIONS AND OTHER                                                                                                                                                   |  |           | 193,297 |   |              |   | 192,381 |  
|DEFERRED TAX LIABILITY                                                                                                                                                                                |  |           | 9,443   |   |              |   | 7,488   |  
|                                                                                                                                                                                                      |  |           |         |   |              |   |         |  
|TOTAL LIABILITIES                                                                                                                                                                                     |  |           | 362,571 |   |              |   | 396,718 |  
|STOCKHOLDERS EQUITY:                                                                                                                                                                                 |  |           |         |   |              |   |         |  
|Preferred stock, $0.001 par valueAuthorized, 5,000,000 shares; no shares issued and outstanding at March 31, 2007 and
December 31, 2006                                                              |  |           |        |   |              |   |        |  
|Common stock, $0.001 par valueAuthorized, 45,000,000 shares; 29,490,452 and 29,383,150 issued and 27,802,513 and 27,816,011 shares
outstanding at March 31, 2007 and December 31, 2006, respectively |  |           | 346,036 |   |              |   | 343,229 |  
|Retained earnings                                                                                                                                                                                     |  |           | 8,025   |   |              |   | 5,469   |  
|Treasury stock                                                                                                                                                                                        |  |           | (34,301 | ) |              |   | (30,806 | )
|Accumulated other comprehensive income                                                                                                                                                                |  |           | 3,847   |   |              |   | 3,473   |  
|                                                                                                                                                                                                      |  |           |         |   |              |   |         |  
|Total stockholders equity                                                                                                                                                                            |  |           | 323,607 |   |              |   | 321,365 |  
|                                                                                                                                                                                                      |  |           |         |   |              |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                            |  | $         | 686,178 |   |              | $ | 718,083 |  
|                                                                                                                                                                                                      |  |           |         |   |              |   |         |  

See notes to consolidated financial statements



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COINSTAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



|                                      |  |                                     |         |   |      |   |         |  
|------------------------------------- |  | ----------------------------------- | ------- | - | ---- | - | ------- | -
|                                      |  | Three Month Periods Ended March 31, |        
|                                      |  | 2007                                |         |   | 2006 |  
|REVENUE                               |  | $                                   | 132,336 |   |      | $ | 126,032 |  
|EXPENSES:                             |  |                                     |         |   |      |   |         |  
|Direct operating                      |  |                                     | 91,639  |   |      |   | 87,699  |  
|Marketing                             |  |                                     | 1,626   |   |      |   | 924     |  
|Research and development              |  |                                     | 1,341   |   |      |   | 1,241   |  
|General and administrative            |  |                                     | 12,247  |   |      |   | 11,366  |  
|Depreciation and other                |  |                                     | 14,468  |   |      |   | 12,859  |  
|Amortization of intangible assets     |  |                                     | 1,739   |   |      |   | 1,327   |  
|                                      |  |                                     |         |   |      |   |         |  
|Income from operations                |  |                                     | 9,276   |   |      |   | 10,616  |  
|OTHER INCOME (EXPENSE):               |  |                                     |         |   |      |   |         |  
|Interest income and other, net        |  |                                     | 75      |   |      |   | 471     |  
|Interest expense                      |  |                                     | (3,974  | ) |      |   | (3,732  | )
|(Loss) income from equity investments |  |                                     | (255    | ) |      |   | 191     |  
|Early retirement of debt              |  |                                     |        |   |      |   | (238    | )
|                                      |  |                                     |         |   |      |   |         |  
|Income before income taxes            |  |                                     | 5,122   |   |      |   | 7,308   |  
|Income taxes                          |  |                                     | (2,566  | ) |      |   | (3,129  | )
|                                      |  |                                     |         |   |      |   |         |  
|NET INCOME                            |  | $                                   | 2,556   |   |      | $ | 4,179   |  
|                                      |  |                                     |         |   |      |   |         |  
|NET INCOME PER SHARE:                 |  |                                     |         |   |      |   |         |  
|Basic                                 |  | $                                   | 0.09    |   |      | $ | 0.15    |  
|Diluted                               |  | $                                   | 0.09    |   |      | $ | 0.15    |  
|                                      |  |                                    
|WEIGHTED SHARES OUTSTANDING:          |  |                                     |         |   |      |   |         |  
|Basic                                 |  |                                     | 27,777  |   |      |   | 27,716  |  
|Diluted                               |  |                                     | 28,287  |   |      |   | 27,987  |  

See notes to consolidated financial statements



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COINSTAR, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

Three Month Period Ended March 31, 2007

(in thousands, except share data)

(unaudited)



|                                             |  |              |   |                   |        |                |  |   |                                      |       |   |         |   |  |   |       |  |   |         |  
|-------------------------------------------- |  | ------------ | - | ----------------- | ------ | -------------- |  | - | ------------------------------------ | ----- | - | ------- | - |  | - | ----- |  | - | ------- | -
|                                             |  | Common
Stock |   | Retained Earnings |        | Treasury Stock |  |   | AccumulatedOther ComprehensiveIncome |       |   |        
|                                             |  | Shares       |   |                   | Amount |                |  |   |                                      | Total |  
|BALANCE, December 31, 2006                   |  | 27,816,011   |   |                   | $      | 343,229        |  | $ | 5,469                                |       | $ | (30,806 | ) |  | $ | 3,473 |  | $ | 321,365 |  
|Proceeds from exercise of stock options, net |  | 53,152       |   |                   |        | 979            |  |   |                                      |       |   |         |   |  |   |       |  |   | 979     |  
|Stock-based compensation expense             |  | 54,150       |   |                   |        | 1,684          |  |   |                                      |       |   |         |   |  |   |       |  |   | 1,684   |  
|Tax benefit on share-based compensation      |  |              |   |                   |        | 144            |  |   |                                      |       |   |         |   |  |   |       |  |   | 144     |  
|Treasury stock purchase                      |  | (120,800     | ) |                   |        |                |  |   |                                      |       |   | (3,495  | ) |  |   |       |  |   | (3,495  | )
|Net income                                   |  |              |   |                   |        |                |  |   | 2,556                                |       |   |         |   |  |   |       |  |   | 2,556   |  
|Other comprehensive income                   |  |              |   |                   |        |                |  |   |                                      |       |   |         |   |  |   | 374   |  |   | 374     |  
|                                             |  |              |   |                   |        |                |  |   |                                      |       |   |         |   |  |   |       |  |   |         |  
|BALANCE, March 31, 2007                      |  | 27,802,513   |   |                   | $      | 346,036        |  | $ | 8,025                                |       | $ | (34,301 | ) |  | $ | 3,847 |  | $ | 323,607 |  
|                                             |  |              |   |                   |        |                |  |   |                                      |       |   |         |   |  |   |       |  |   |         |  

See notes to consolidated financial statements



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COINSTAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                                              |  |                                    |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                              |  | Three Month PeriodsEnded March 31, |        
|                                                                                                              |  | 2007                               |         |   | 2006 |  
|OPERATING ACTIVITIES:                                                                                         |  |                                    |         |   |      |   |         |  
|Net income                                                                                                    |  | $                                  | 2,556   |   |      | $ | 4,179   |  
|Adjustments to reconcile income from operations to net cash provided by operating activities:                 |  |                                    |         |   |      |   |         |  
|Depreciation and other                                                                                        |  |                                    | 14,468  |   |      |   | 12,859  |  
|Amortization of intangible assets                                                                             |  |                                    | 1,739   |   |      |   | 1,327   |  
|Amortization of deferred financing fees                                                                       |  |                                    | 188     |   |      |   | 191     |  
|Loss on early retirement of debt                                                                              |  |                                    |        |   |      |   | 238     |  
|Non-cash stock-based compensation                                                                             |  |                                    | 1,684   |   |      |   | 1,388   |  
|Excess tax benefit from exercise of stock options                                                             |  |                                    | (884    | ) |      |   |        |  
|Deferred income taxes                                                                                         |  |                                    | 1,942   |   |      |   | 2,797   |  
|Income from equity investments                                                                                |  |                                    | (74     | ) |      |   | (191    | )
|Return on equity investments                                                                                  |  |                                    |        |   |      |   | 288     |  
|Other                                                                                                         |  |                                    | 84      |   |      |   | (86     | )
|Cash provided (used) by changes in operating assets and liabilities, net of effects of business acquisitions: |  |                                    |         |   |      |   |         |  
|Accounts receivable                                                                                           |  |                                    | 2,280   |   |      |   | (184    | )
|Inventory                                                                                                     |  |                                    | 3,287   |   |      |   | (1,679  | )
|Prepaid expenses and other current assets                                                                     |  |                                    | (1,336  | ) |      |   | 1,453   |  
|Other assets                                                                                                  |  |                                    | (1,362  | ) |      |   | (115    | )
|Accounts payable                                                                                              |  |                                    | (15,717 | ) |      |   | 613     |  
|Accrued liabilities payable to retailers                                                                      |  |                                    | (16,966 | ) |      |   | (12,883 | )
|Accrued liabilities                                                                                           |  |                                    | (4,518  | ) |      |   | (5,496  | )
|                                                                                                              |  |                                    |         |   |      |   |         |  
|Net cash (used) provided by operating activities                                                              |  |                                    | (12,629 | ) |      |   | 4,699   |  
|INVESTING ACTIVITIES:                                                                                         |  |                                    |         |   |      |   |         |  
|Purchase of property and equipment                                                                            |  |                                    | (18,126 | ) |      |   | (7,417  | )
|Acquisitions, net of cash acquired                                                                            |  |                                    | (227    | ) |      |   | (2,670  | )
|Proceeds from sale of fixed assets                                                                            |  |                                    | 241     |   |      |   |        |  
|                                                                                                              |  |                                    |         |   |      |   |         |  
|Net cash used by investing activities                                                                         |  |                                    | (18,112 | ) |      |   | (10,087 | )
|FINANCING ACTIVITIES:                                                                                         |  |                                    |         |   |      |   |         |  
|Principal payments on long-term debt and capital lease obligations                                            |  |                                    | (2,291  | ) |      |   | (17,946 | )
|Excess tax benefit from exercise of stock options.                                                            |  |                                    | 884     |   |      |   |        |  
|Repurchase of common stock                                                                                    |  |                                    | (3,495  | ) |      |   | (382    | )
|Proceeds from exercise of stock options                                                                       |  |                                    | 1,028   |   |      |   | 708     |  
|                                                                                                              |  |                                    |         |   |      |   |         |  
|Net cash used by financing activities                                                                         |  |                                    | (3,874  | ) |      |   | (17,620 | )
|Effect of exchange rate changes on cash                                                                       |  |                                    | 61      |   |      |   | 207     |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED            |  |                                    | (34,554 | ) |      |   | (22,801 | )
|CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED:                           |  |                                    |         |  
|Beginning of period                                                                                           |  |                                    | 178,164 |   |      |   | 175,267 |  
|                                                                                                              |  |                                    |         |   |      |   |         |  
|End of period                                                                                                 |  | $                                  | 143,610 |   |      | $ | 152,466 |  
|                                                                                                              |  |                                    |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                             |  |                                    |         |   |      |   |         |  
|Cash paid during the period for interest                                                                      |  | $                                  | 3,771   |   |      | $ | 3,771   |  
|Cash paid during the period for taxes                                                                         |  |                                    | 627     |   |      |   | 165     |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:                                       |  |                                    |         |  
|Purchase of vehicles financed by capital lease obligations                                                    |  | $                                  | 2,262   |   |      | $ | 8,569   |  
|Accrued acquisition costs                                                                                     |  |                                    | 20      |   |      |   | 1,793   |  

See notes to consolidated financial statements



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COINSTAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Month Periods Ended March 31, 2007 and 2006

(unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of company: Incorporated as a Delaware company in 1993, Coinstar is a multi-national company offering a range of 4th Wall
solutions for retailers storefronts consisting of self-service coin counting; electronic payment (e-payment) services such as money transfer services, stored value cards, payroll cards, prepaid debit cards and prepaid wireless
products via point-of-sale terminals and financial services kiosks; and entertainment services such as skill-crane machines, bulk vending machines and kiddie rides. We have also made strategic investments in Redbox Automated Retail, LLC
(Redbox) and Video Vending New York, Inc. (d.b.a. DVDXpress), to offer self-service DVD kiosks where consumers can rent or purchase movies. Our services, in one form or another, are currently offered in supermarkets, mass
merchandisers, warehouse clubs, drugstores, universities, shopping malls and convenience stores in the United States, Canada, Mexico, Puerto Rico, the United Kingdom and other countries. As of March 31, 2007, we had a total of approximately
13,800 coin-counting machines installed, over 299,000 entertainment services machines installed, over 14,000 locations where our point-of-sale terminals were installed and over 400 financial services kiosks installed.

Basis of presentation: The unaudited consolidated financial statements of Coinstar, Inc. included herein reflect all adjustments, consisting only
of normal recurring adjustments which, in the opinion of management, are necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods presented.

These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) and
in accordance with United States generally accepted accounting principles (GAAP) for interim financial information. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with
GAAP have been condensed or omitted pursuant to such SEC rules and regulations. These financial statements should be read in conjunction with our audited financial statements and the accompanying notes included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2006, filed with the SEC. The results of operations for the three month period ended March 31, 2007, is not necessarily indicative of the results to be expected for any future quarter or for the entire
fiscal year. Acquisitions are recorded and included in our results of operations as of the date acquired.

Principles of
consolidation: The accompanying consolidated financial statements include the accounts of Coinstar, Inc., our wholly-owned subsidiaries and other entities which are not wholly owned but are consolidated in accordance with Financial Accounting
Standards Board (FASB) Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46). All significant intercompany balances and transactions have been eliminated in
consolidation.

Use of estimates: The preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. These judgments are difficult as matters that are inherently uncertain directly impact their valuation and accounting. Actual results may vary from managements estimates and assumptions.

Coin-in-machine represents the cash deposited into our entertainment services machines at period end which has not yet been collected. Based on our
estimate of coin-in-machine, we have recognized the related revenue, the corresponding reduction to inventory and increase to accrued liabilities which represents the direct operating expenses associated with the coin-in-machine estimate. The
estimated value of our entertainment services coin-in-machine was approximately $6.5 million and $7.1 million at March 31, 2007 and December 31, 2006, respectively.

Settlement of liabilities: In accordance with FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SFAS 140), we consider liabilities to be extinguished when the debtor pays or is legally released from the obligation. During the three months ended March 31, 2007, the company reversed
liabilities totaling $870,000 in accordance with SFAS 140 which is reflected in direct operating expenses.



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##### Table of Contents

Patents costs: Costs to successfully defend a challenge to our patents are capitalized. Costs
which relate to an unsuccessful outcome are charged to expense.

Recent accounting pronouncements: In June 2006, the FASB issued
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 is an interpretation of FASB Statement No. 109 which provides comprehensive guidance on the recognition and measurement of tax
positions in previously filed tax returns or positions expected to be taken in future tax returns. The tax benefit from an uncertain tax position must meet a more-likely-than-not recognition threshold and is measured at the largest
amount of benefit greater than 50% determined by cumulative probability of being realized upon ultimate settlement with the taxing authority. The interpretation provides guidance on derecognition, classification, interest and penalties, as well as
disclosure requirements in the financial statements of uncertain tax positions.

Effective January 1, 2007, we adopted the provisions
of FIN 48. As of the adoption date and March 31, 2007, we identified $1.2 million of unrecognized tax benefits (net of federal tax benefit on state issues) which would affect our effective tax rate if recognized. There was no material change in
unrecognized income tax benefits, other than the $1.2 million described above, as a result of the adoption and we do not anticipate any significant change within the next twelve months.

In accordance with our accounting policy, we recognize interest and penalties associated with uncertain tax positions in income tax expense. As of the
adoption date and March 31, 2007, it was not necessary to accrue interest and penalties associated with the uncertain tax positions identified.

We are generally not subject to examination in jurisdictions within the United States for years prior to 1995. For non United States jurisdictions, we are generally not subject to examination for years prior to 1998.

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measures(SFAS 157), which defines fair
value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance to whether or not an instrument is carried at fair
value. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We are currently reviewing the provisions of SFAS 157 to determine the impact to our consolidated financial statements.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  including
an amendment to FASB Statement No. 115 (SFAS 159). Under SFAS 159, entities may elect to measure specified financial instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in
fair value recognized in earnings each reporting period. The election, called the fair value option, will enable entities to achieve an offset accounting effect for changes in fair value of certain related assets and liabilities without having to
apply complex hedge accounting provisions. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently reviewing the provisions of SFAS 159 to determine the impact to our consolidated financial statements.

In June 2006, the FASB ratified the consensus reached on Emerging Issues Task Force (EITF) Issue No. 06-03, How Sales
Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, Gross Versus Net Presentation) (EITF 06-03). The EITF reached a consensus that the presentation of taxes on
either a gross or net basis is an accounting policy decision that requires disclosure. EITF 06-03 is effective for the first interim or annual reporting period beginning after December 15, 2006. Amounts collected from our customers and
retailers, which under common trade practices are referred to as sales taxes, are and have been recorded on a net basis. We have no intention of modifying this accounting policy; therefore, the adoption of EITF 06-03 will not have any impact to our
consolidated financial statements.

Reclassifications: Certain reclassifications have been made to the prior period amounts to conform to
the current period presentation.



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NOTE 2: PROPERTY AND EQUIPMENT



|                                           |  |                |          |   |                  |   |          |  
|------------------------------------------ |  | -------------- | -------- | - | ---------------- | - | -------- | -
|                                           |  | March 31,2007  |          |   | December 31,2006 |  
|                                           |  | (in thousands) |         
|Coin, entertainment and e-payment machines |  | $              | 360,736  |   |                  | $ | 345,938  |  
|Computers                                  |  |                | 11,935   |   |                  |   | 10,732   |  
|Office furniture and equipment             |  |                | 6,207    |   |                  |   | 6,018    |  
|Vehicles                                   |  |                | 20,638   |   |                  |   | 18,514   |  
|Leased improvements                        |  |                | 2,905    |   |                  |   | 2,353    |  
|                                           |  |                |          |   |                  |   |          |  
|                                           |  |                | 402,421  |   |                  |   | 383,555  |  
|Accumulated depreciation and amortization  |  |                | (234,685 | ) |                  |   | (222,593 | )
|                                           |  |                |          |   |                  |   |          |  
|                                           |  | $              | 167,736  |   |                  | $ | 160,962  |  
|                                           |  |                |          |   |                  |   |          |  

NOTE 3: COMPREHENSIVE INCOME

Comprehensive income, net of related tax effects, is as follows:



|                                                     |  |                                    |       |   |      |   |       |  
|---------------------------------------------------- |  | ---------------------------------- | ----- | - | ---- | - | ----- | -
|                                                     |  | Three Month PeriodsEnded March 31, |      
|                                                     |  | 2007                               |       |   | 2006 |  
|                                                     |  | (in thousands)                     |      
|Net income                                           |  | $                                  | 2,556 |   |      | $ | 4,179 |  
|Other comprehensive income (loss)                    |  |                                    |       |   |      |   |       |  
|Short term investment, net of tax                    |  |                                    | (3    | ) |      |   | (4    | )
|Foreign currency translation adjustments, net of tax |  |                                    | 387   |   |      |   | 117   |  
|Interest rate hedge on long-term debt, net of tax    |  |                                    | (10   | ) |      |   | 92    |  
|                                                     |  |                                    |       |   |      |   |       |  
|Total comprehensive income                           |  | $                                  | 2,930 |   |      | $ | 4,384 |  
|                                                     |  |                                    |       |   |      |   |       |  

NOTE 4: STOCK-BASED COMPENSATION

Stock-based compensation:Stock-based compensation is accounted for in accordance with the provisions of FASB Statement No. 123 (revised
2004), Share-Based Payment (SFAS 123R). Under SFAS 123R, the fair value of stock awards is estimated at the date of grant using the Black-Scholes-Merton (BSM) option valuation model. Stock-based compensation expense is
reduced for estimated forfeitures and is amortized over the vesting period.

The following summarizes the weighted average valuation
assumptions and grant date fair value of options granted during the periods shown below:



|                                        |  |                                    |       |   |      |   |      |  
|--------------------------------------- |  | ---------------------------------- | ----- | - | ---- | - | ---- | -
|                                        |  | Three Month PeriodsEnded March 31, |      
|                                        |  | 2007                               |       |   | 2006 |  
|Expected term (in years)                |  |                                    | 3.7   |   |      |   | 3.6  |  
|Expected stock price volatility         |  |                                    | 41    | % |      |   | 47   | %
|Risk-free interest rate                 |  |                                    | 4.5   | % |      |   | 4.4  | %
|Expected dividend yield                 |  |                                    | 0.0   | % |      |   | 0.0  | %
|Estimated fair value per option granted |  | $                                  | 11.06 |   |      | $ | 9.89 |  

The expected term of the options represents the estimated period of time from grant until exercise
and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on historical volatility of our stock
for a period at least equal to the expected term. The risk-free interest rate is based on the implied yield available on United States Treasury zero-coupon issues with an equivalent remaining term. We have not paid dividends in the past and do not
plan to pay any dividends in the foreseeable future.



9



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##### Table of Contents

Total stock-based compensation expense recognized in the consolidated statement of operations for the
three months ended March 31, 2007 and 2006 was $1.7 million and $1.4 million, respectively, before income taxes. The related deferred tax benefit for stock option expense was approximately $437,000 and $346,000 for the three month periods
ending March 31, 2007 and 2006, respectively.

Stock options: Stock options are granted to employees under the 2000 Amended and
Restated Equity Incentive Plan (the 2000 Plan) and the 1997 Amended and Restated Equity Incentive Plan (the 1997 Plan). Options awarded vest annually over 4 years and expire after 5 years. Shares of common stock are issued
upon exercise of stock options.

A summary of stock option activity during the three month period ended March 31, 2007 is as follows:



|                                |  |           |   |  |                               |       |                                            |      |                                         |   |       
|------------------------------- |  | --------- | - |  | ----------------------------- | ----- | ------------------------------------------ | ---- | --------------------------------------- | - | ------
|                                |  | Shares    |   |  | Weightedaverage exerciseprice |       | Weighted average remainingcontractual term |      | Aggregate intrinsicvalue (in thousands)
|OUTSTANDING, December 31, 2006  |  | 2,514,435 |   |  | $                             | 21.52 |                                            |      |                                         |   |       
|Granted                         |  | 419,013   |   |  |                               | 30.07 |                                            |      |                                         |   |       
|Exercised                       |  | (56,976   | ) |  |                               | 20.11 |                                            |      |                                         |   |       
|Cancelled, expired or forfeited |  | (24,187   | ) |  |                               | 24.33 |                                            |      |                                         |   |       
|                                |  |           |   |  |                               |       |                                            |      |                                         |   |       
|OUTSTANDING, March 31, 2007     |  | 2,852,285 |   |  |                               | 22.78 |                                            | 5.18 |                                         | $ | 24,290
|                                |  |           |   |  |                               |       |                                            |      |                                         |   |       
|                                |  |           |   | 
|EXERCISABLE, March 31, 2007     |  | 1,745,923 |   |  |                               | 21.05 |                                            | 5.32 |                                         | $ | 17,931
|                                |  |           |   |  |                               |       |                                            |      |                                         |   |       

As of March 31, 2007, total unrecognized stock-based compensation expense related to unvested
stock options was approximately $9.8 million. This expense is expected to be recognized over a weighted average period of approximately 25 months. During the three month period ended March 31, 2007, the total intrinsic value of stock options
exercised was approximately $516,000.

Stock options have been granted to officers and employees to purchase common stock at prices ranging
from $0.70 to $32.64 per share, which represented market value at the date of grant and our best estimate of market value for grants issued prior to our initial public offering. At March 31, 2007, there were 4,865,510 shares of unissued common
stock reserved for issuance under all the stock plans of which 2,013,225 shares were available for future grants.

The following table
summarizes information about common stock options outstanding at March 31, 2007:



|                 |  |                              |  |                                           |  |                                |       |                              |           |                                |   |      
|---------------- |  | ---------------------------- |  | ----------------------------------------- |  | ------------------------------ | ----- | ---------------------------- | --------- | ------------------------------ | - | -----
|                 |  | Options Outstanding          |  | Options Exercisable                      
|Exercise price   |  | Number of optionsoutstanding |  | Weighted averageremainingcontractual life |  | Weighted averageexercise price |       | Number of optionsexercisable |           | Weighted averageexercise price
|$  7.38 - $18.59 |  | 594,449                      |  | 5.46                                      |  | $                              | 16.56 |                              | 492,174   |                                | $ | 16.23
|18.60 -   22.60  |  | 653,098                      |  | 5.36                                      |  |                                | 20.83 |                              | 576,209   |                                |   | 20.99
|22.61 -   23.90  |  | 645,068                      |  | 4.14                                      |  |                                | 23.37 |                              | 378,812   |                                |   | 23.27
|23.91 -   30.00  |  | 547,007                      |  | 6.13                                      |  |                                | 25.64 |                              | 292,478   |                                |   | 26.12
|30.01 -   32.64  |  | 412,663                      |  | 4.84                                      |  |                                | 30.13 |                              | 6,250     |                                |   | 31.49
|                 |  |                              |  |                                           |  |                                |       |                              |           |                                |   |      
|                 |  | 2,852,285                    |  | 5.18                                      |  |                                | 22.78 |                              | 1,745,923 |                                |   | 21.05
|                 |  |                              |  |                                           |  |                                |       |                              |           |                                |   |      

Restricted stock awards: Restricted stock awards are granted to certain employees and
non-employee directors under the 1997 Plan and vest annually over 4 years and one year, respectively. The restricted shares require no payment from the grantee. The fair value of the awards is based on the market price on the grant date and is
recorded on a straight-line basis over the vesting period.



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The following table presents a summary of the restricted stock award activity for the three months ended
March 31, 2007:



|                              |  |         |   |  |                                       |      
|----------------------------- |  | ------- | - |  | ------------------------------------- | -----
|                              |  | Shares  |   |  | Weighted averagegrant date fair value
|NON-VESTED, December 31, 2006 |  | 69,562  |   |  | $                                     | 24.30
|Granted                       |  | 54,150  |   |  |                                       | 30.07
|Vested                        |  | (12,050 | ) |  |                                       | 24.90
|Forfeited                     |  |        |   |  |                                       |     
|                              |  |         |   |  |                                       |      
|NON-VESTED, March 31, 2007    |  | 111,662 |   |  |                                       | 27.03
|                              |  |         |   |  |                                       |      

During 2006, we granted 7,500 restricted stock awards with a weighted average fair value of $22.77
per share, the respective market price of the stock at the grant date.

Compensation expense related to restricted stock awards totaled
approximately $238,000 and $93,500 for the three month period ended March 31, 2007 and 2006, respectively. As of March 31, 2007, total unrecognized stock-based compensation expense related to unvested restricted stock awards was
approximately $2.4 million. This expense is expected to be recognized over a weighted average period of approximately 33 months. During the three month period ended March 31, 2007, the total fair value of restricted stock awards vested was
approximately $300,000.

NOTE 5: INCOME PER SHARE

Basic net income per share is computed by dividing the net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income per
share is computed by dividing the net income for the period by the weighted average number of common and potential common shares outstanding (if dilutive) during the period. Potential common shares, composed of incremental common shares issuable
upon the exercise of stock options and vesting of non-vested restricted stock awards, are included in the calculation of diluted net income per share to the extent such shares are dilutive.

The following table sets forth the computation of basic and diluted net income per share for the periods indicated:



|                                                                           |  |                                    |        |      |   |       
|-------------------------------------------------------------------------- |  | ---------------------------------- | ------ | ---- | - | ------
|                                                                           |  | Three Month PeriodsEnded March 31,
|                                                                           |  | 2007                               |        | 2006
|                                                                           |  | (in thousands)                    
|Numerator:                                                                 |  |                                    |        |      |   |       
|Net income                                                                 |  | $                                  | 2,556  |      | $ | 4,179 
|                                                                           |  |                                    |        |      |   |       
|Denominator:                                                               |  |                                    |        |      |   |       
|Weighted average shares for basic calculation                              |  |                                    | 27,777 |      |   | 27,716
|Incremental shares from employee stock options and restricted stock awards |  |                                    | 510    |      |   | 271   
|                                                                           |  |                                    |        |      |   |       
|Weighted average shares for diluted calculation                            |  |                                    | 28,287 |      |   | 27,987
|                                                                           |  |                                    |        |      |   |       

For the three month periods ended March 31, 2007 and 2006, options and restricted stock
awards totaling approximately 861,000 and 1.2 million shares of common stock, respectively, were excluded from the computation of net income per common share because their impact would be antidilutive.

NOTE 6: BUSINESS SEGMENT INFORMATION

FASB Statement
No. 131, Disclosure about Segments of an Enterprise and Related Information, requires that companies report separately in the financial statements certain financial and descriptive information about operating segments profit or loss,
certain specific revenue and expense items and segment assets. The method for determining what information is reported is based on the way that management organizes the operating segments for making operational decisions and assessments of financial
performance. Our chief operating decision maker is considered to be the Chief Executive Officer (CEO). We are organized into two reportable business segments: the North American business (which includes the United States, Canada, Mexico
and Puerto Rico), and our International business (which primarily includes the United Kingdom as well as other European operations of our Coinstar Money Transfer subsidiary (CMT)). Goodwill from the acquisition of CMT has been included
in the International business segment. Goodwill arising in all other acquisitions has been allocated to our North American business segment.



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|                           |  |                                    |         |   |                   |   |         |  
|-------------------------- |  | ---------------------------------- | ------- | - | ----------------- | - | ------- | -
|                           |  | Three Month PeriodsEnded March 31, |        
|                           |  | 2007                               |         |   | 2006              |  
|                           |  | (in thousands)                     |        
|Revenue:                   |  |                                    |         |   |                   |   |         |  
|North American business    |  | $                                  | 120,692 |   |                   | $ | 121,006 |  
|International business     |  |                                    | 11,644  |   |                   |   | 5,026   |  
|                           |  |                                    |         |   |                   |   |         |  
|Total revenue              |  | $                                  | 132,336 |   |                   | $ | 126,032 |  
|                           |  |                                    |         |   |                   |   |         |  
|Net income (loss):         |  |                                    |         |   |                   |   |         |  
|North American business    |  | $                                  | 5,175   |   |                   | $ | 3,333   |  
|International business     |  |                                    | (2,619  | ) |                   |   | 846     |  
|                           |  |                                    |         |   |                   |   |         |  
|Total net income           |  | $                                  | 2,556   |   |                   | $ | 4,179   |  
|                           |  |                                    |         |   |                   |   |         |  
|                           |  |                                   
|                           |  | March 31, 2007                     |         |   | December 31, 2006 |  
|                           | 
|                           |  | (in thousands)                     |        
|Total assets:              |  |                                    |         |   |                   |   |         |  
|North American business    |  | $                                  | 668,279 |   |                   | $ | 694,650 |  
|International business     |  |                                    | 85,136  |   |                   |   | 86,703  |  
|International eliminations |  |                                    | (67,237 | ) |                   |   | (63,270 | )
|                           |  |                                    |         |   |                   |   |         |  
|Total assets               |  | $                                  | 686,178 |   |                   | $ | 718,083 |  
|                           |  |                                    |         |   |                   |   |         |  

Currently, management does not use product line financial performance as a basis for business
operating decisions. However, our CEO does analyze our revenue based on revenue generated from our coin-counting and e-payment services separate from revenue generated from our entertainment service. Revenue for these two product lines was as
follows:



|                                     |  |                                    |         |      |   |        
|------------------------------------ |  | ---------------------------------- | ------- | ---- | - | -------
|                                     |  | Three Month Periods EndedMarch 31,
|                                     |  | 2007                               |         | 2006
|                                     |  | (in thousands)                    
|Revenue:                             |  |                                    |         |      |   |        
|Coin-counting and e-payment services |  | $                                  | 67,297  |      | $ | 54,609 
|Entertainment services               |  |                                    | 65,039  |      |   | 71,423 
|                                     |  |                                    |         |      |   |        
|Total revenue                        |  | $                                  | 132,336 |      | $ | 126,032
|                                     |  |                                    |         |      |   |        

We have coin-counting, entertainment and e-payment services machines that are placed with
retailers that accounted for the following percentages of our consolidated revenue:



|                   |  |                                    |   |  |      |  
|------------------ |  | ---------------------------------- | - |  | ---- | -
|                   |  | Three Month PeriodsEnded March 31, |  
|                   |  | 2007                               |   |  | 2006 |  
|Wal-Mart, Inc      |  | 27.6                               | % |  | 28.5 | %
|The Kroger Company |  | 11.2                               | % |  | 10.4 | %

NOTE 7: RELATED PARTY TRANSACTIONS

Randall J. Fagundo, President of our entertainment services subsidiary, is a member of a limited liability company which has agreed to lease to Coinstar a
31,000 square foot building located in Louisville, Colorado. The terms of the agreement provide for a ten year lease term, commencing March 1, 2003, at monthly rental payments ranging from $25,353 for the first year to $33,076 for the tenth
year, together with additional payments in respect of the tenants proportionate share of the maintenance and insurance costs and property tax assessments for the leased premises. We believe that the terms of this lease are comparable to those
that would be entered into between unrelated parties on an arms length basis.



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##### Table of Contents

Levine Investments Limited Partnership, a shareholder of Coinstar, agreed to lease to Coinstar an 82,000
square foot building located in Van Nuys, California. The terms of this agreement provide for a two year lease term, commencing November 1, 2005, at monthly rental payments of $45,000, together with additional payments in respect of the
tenants proportionate share of the maintenance and insurance costs and property tax assessments for the leased premises. In addition, we have an option to extend the lease term through October 31, 2010 and a second option to extend the
lease term through October 31, 2015. The current term of the lease expires at October 31, 2007. We believe that the terms of this lease are comparable to those that would be entered into between unrelated parties on an arms length
basis.

Approximately $653,000 of our accounts receivable balance is due from a related party of our e-payment subsidiary. This receivable
arose in the ordinary course of business and relates to the purchase of prepaid air time.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in
this Quarterly Report on Form 10-Q. Except for the consolidated historical information, the following discussion contains forward-looking statements that involve risks and uncertainties, such as our objectives, expectations and intentions. Our
actual results could differ materially from results that may be anticipated by such forward-looking statements and discussed elsewhere herein. Factors that could cause or contribute to such differences include, but are not limited to, those
discussed below and those discussed under Risk Factors in Item IA of Part II of this Quarterly Report on Form 10-Q and in Item IA of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may
subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect our
business, prospects and results of operations.

Overview

We are a multi-national company offering a range of 4thWall solutions for retailers storefronts consisting of self-service coin counting; entertainment services such as skill-crane machines, bulk vending
machines and kiddie rides; and e-payment services such as prepaid wireless products, stored value cards, payroll cards, prepaid debit cards and money transfer services. In addition, through our strategic investments in Redbox and DVDXpress, we offer
self-service DVD kiosks where consumers can rent or purchase movies. We also offer a range of point-of-sale terminals, stand-alone e-payment kiosks and e-payment enabled coin-counting machines in drugstores, universities, shopping malls,
supermarkets and convenience stores in the United States, the United Kingdom and other countries.

Coin services

We are the leader in the self-service coin-counting services market. We own and operate the only multi-national fully automated network of self-service
coin-counting machines across the United States, Canada, Puerto Rico, and in the United Kingdom. We estimate that at any one time, there is more than $10.5 billion worth of coin sitting idle in households in the United States. In 2006, consumers
processed more than $2.6 billion worth of coin through our coin-counting machines.

We own and service all of our coin-counting machines.
Consumers feed loose change into the machines, which count the change and then dispense vouchers or, in some cases, issue e-payment products, at the consumers election. Each voucher lists the dollar value of coins counted, less our transaction
fee, which is typically 8.9% of the value of coins counted. In certain cases when our e-payment product is issued instead of a voucher, the consumer does not pay a fee. We generate revenue through transaction fees from our customers and business
partners.

We launched our business in North America with the installation of the first Coinstar® coin-counting machine in the early 1990s and in 2001, we began offering our coin
services in the United Kingdom. Since inception, our coin-counting machines have counted and processed more than 312 billion coins worth more than $16.4 billion in more than 453 million self-service coin-counting transactions. We own and
operate more than 13,800 coin-counting machines in the United States, Canada, Puerto Rico and the United Kingdom (approximately 8,500 of which are e-payment enabled).



13



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##### Table of Contents

Entertainment services

We are the leading owner and operator of skill-crane and bulk vending machines in the United States. We estimate that the market for our entertainment services is approximately $1.1 billion annually in the United
States.

Our entertainment services machines consist primarily of skill-crane machines, bulk vending and kiddie rides, which are installed
in more than 35,000 retail locations, totaling more than 299,000 pieces of equipment. As with our coin services business, we own and service all of our entertainment services machines, providing a convenient and trouble free service to retailers. We
generate revenue from money deposited in our machines that dispense plush toys, novelties and other items.

E-payment services

We offer e-payment services, including activating and reloading value on prepaid wireless accounts, selling stored value cards, loading and reloading
prepaid debit cards and prepaid phone cards, prepaid phones, providing payroll card services and money transfer services. We believe these and other e-payment services represent a significant growth opportunity for us. We offer various e-payment
services in the United States and the United Kingdom through 14,000 point-of-sale terminals, 400 stand-alone e-payment kiosks and 8,500 e-payment-enabled coin-counting machines in supermarkets, drugstores, universities, shopping malls and
convenience stores.

We have relationships with national wireless carriers, such as Sprint, Verizon, T-Mobile, Virgin Mobile and
Cingular/AT&T Wireless. We generate revenue primarily through commissions or fees charged per e-payment transaction and pay our retailers a fee based on commissions earned on the sales of e-payment services.

Strategy

Our strategy, embodied in our 4thWall concept, is based on cross-selling our full
range of products and services to our retailers. In addition, we believe that we will continue to increase operating efficiencies by combining and concentrating our products and services in our retailers storefront.

We expect to continue devoting significant resources to building our sales organization in
connection with our 4thWall cross-selling strategy, adding administrative personnel to support our growing
organization and developing the information technology systems and technology infrastructure necessary to support our products and services. We expect to continue evaluating new marketing and promotional programs to increase consumer utilization of
our services as well as further expand our product research and development efforts.

Results of Operations

The following table shows revenue and expense as a percent of revenue for the periods indicated:



|                                  |  |                                    |   |  |       |  
|--------------------------------- |  | ---------------------------------- | - |  | ----- | -
|                                  |  | Three Month PeriodsEnded March 31, |  
|                                  |  | 2007                               |   |  | 2006  |  
|Revenue                           |  | 100.0                              | % |  | 100.0 | %
|EXPENSES:                         |  |                                    |   |  |       |  
|Direct operating                  |  | 69.2                               |   |  | 69.6  |  
|Marketing                         |  | 1.3                                |   |  | 0.7   |  
|Research and development          |  | 1.0                                |   |  | 1.0   |  
|General and administrative        |  | 9.3                                |   |  | 9.0   |  
|Depreciation and other            |  | 10.9                               |   |  | 10.2  |  
|Amortization of intangible assets |  | 1.3                                |   |  | 1.1   |  
|                                  |  |                                    |   |  |       |  
|Income from operations            |  | 7.0                                | % |  | 8.4   | %
|                                  |  |                                    |   |  |       |  



14



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##### Table of Contents

Three Month Periods Ended March 31, 2007 and 2006

Revenue

Our revenue increased to $132.3 million in
the three months ended March 31, 2007, from $126.0 million for the comparable prior year period. Our revenue increased as a result of two primary factors, our acquisition of Travelex Money Transfer Limited in May 2006, which we renamed Coinstar
Money Transfer (CMT), and an increase in coin-counting activity due to a greater number of installed machines and increased trial and repeat usage.

Revenue for our coin and e-payment services increased to $67.3 million for the three months ended March 31, 2007 from $54.6 million for the comparable prior year period, of which $4.8 million of the increase was
due to our acquisition of CMT. In addition, revenue increased as a result of an increase in the number of transactions, an increase in the number of coin-counting machines and the volume of coins processed by the machines in service during this
period. The total dollar value of coins processed through our network increased to approximately $620 million during the three months ended March 31, 2007, from approximately $570 million for the comparable prior year period. The installed base
of coin-counting machines increased to approximately 13,800 at March 31, 2007, from approximately 13,000 machines at March 31, 2006.

Revenue from our entertainment services was $65.0 million and $71.4 million for the three months ended March 31, 2007 and 2006, respectively. We believe the decrease is primarily due to the maturity of this industry, decreased foot
traffic at our retailers locations, softness of the economy, increased fuel prices and a deflated housing market. While we are watching these trends closely, we believe macro-issues will continue to negatively affect retailer foot traffic for
the next several quarters.

Our e-payment prepaid telephony and stored value card sales have increased year over year and we expect this
trend to continue. Further, we are currently evaluating price points for entertainment machines and plan on completing a price point conversion by mid-2008. We expect to continue installing additional coin-counting and e-payment machines and
therefore, expect to continue to experience revenue growth in the foreseeable future.

Direct Operating Expenses

Our direct operating expenses consist primarily of the cost of (1) the percentage of transaction fees and commissions we pay to our retailers and
agents, (2) coin pick-up, transportation and processing expenses, (3) the cost of plush toys and other products dispensed from the skill-crane and bulk-vending machines and (4) field operations support and related expenses. Variations
in the percentage of transaction fees we pay to our retailers and agents may result in increased expenses. Such variations are based on our evaluation of certain factors, such as total revenue, e-payment capabilities, long-term non-cancelable
contracts, installation of our machines in high traffic and/or urban or rural locations, new product commitments, co-op marketing incentive, or other criteria.

Direct operating expenses increased to $91.6 million for the three months ended March 31, 2007, from $87.7 million for the comparable prior year period, of which $4.9 million of the increase was due to our
acquisition of CMT offset by operating synergies achieved in integration. Direct operating expenses as a percentage of revenue decreased to 69.2% in the three months ended March 31, 2007, from 69.6% in the comparable prior year period.
Excluding the impact of our acquisition of CMT, direct operating expenses as a percentage of revenue decreased to 68.0%. We are integrating our various business operations and have realized operating expense efficiencies as a percentage of revenue.
For example, as a result of consolidating our field service routes in 2006, we have begun to realize efficiencies and cost savings in personnel, transportation and related costs which we expect to continue during 2007.

Marketing

Our marketing expenses consist primarily
of marketing, advertising and public relations efforts in existing market regions and startup marketing expenses incurred to launch our services in new regional markets.

Marketing expenses increased to $1.6 million for the three months ended March 31, 2007, from $0.9 million for the comparable prior year period, of which $0.6 million of the increase was due to our acquisition of
CMT. As in prior periods, we have been directing most of our advertising dollars toward national and regional advertising. In addition, we have primarily directed our money transfer services advertising dollars to the major markets in which we offer
money transfer services. We have been using advertising to introduce e-payment features on our coin-counting machines and other e-payment product channels such as our stored value card offerings. This directed marketing and advertising approach,
which we expect to continue throughout the year, continues driving increased trial and repeat usage of both our coin services offering and e-payment products. Marketing as a percentage of revenue increased to 1.3% in the three months ended
March 31, 2007 from 0.7% in the comparable prior year period. Excluding the impact of our acquisition of CMT, marketing expenses as a percentage of revenue increased to 0.8%.



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Research and Development

Our research and development expenses consist primarily of development costs of our coin-counting machine software, network applications, machine improvements and new product development.

Research and development expenses remained relatively consistent at $1.3 million and $1.2 million in the three months ended March 31, 2007 and 2006,
respectively. Research and development expenses represent expenditures to support development and design of complementary new product ideas and continue our ongoing efforts to enhance our existing products and services, primarily our coin-counting
system. We intend to continue to invest in research and development in the coming years. Research and development as a percentage of revenue remained consistent at 1.0% for the three months ended March 31, 2007 and 2006.

General and Administrative

Our general and
administrative expenses consist primarily of administrative support for field operations, customer service, systems and engineering support, computer network operations, finance, human resources, occupancy expenses, legal expenses and insurance.

General and administrative expenses increased to $12.2 million for the three months ended March 31, 2007, from $11.4 million in the
comparable prior year period. The increase is primarily due to our acquisition of CMT offset by efficiencies gained related to the integration of our administrative processes. General and administrative expenses as a percentage of revenue increased
slightly to 9.3% in the three months ended March 31, 2007 from 9.0% in the comparable prior year period.

Depreciation and Other

Our depreciation and other expenses consist primarily of depreciation charges on our installed coin-counting and entertainment services machines as well
as on computer equipment and leased automobiles.

Depreciation and other expense increased to $14.5 million in the three months ended
March 31, 2007, from $12.9 million in the comparable prior year period. Depreciation expense increased primarily due to our increased base of installed machines, primarily coin and entertainment machines. Depreciation and other expense as a
percentage of revenue increased to 10.9% in the three months ended March 31, 2007, from 10.2% in the comparable prior year period.

Amortization of
Intangible Assets

Our amortization expense consists of amortization of intangible assets, which are mainly comprised of the value
assigned to our acquired retailer relationships and, to a lesser extent, internally developed software.

Amortization of intangible assets
increased to $1.7 million in the three months ended March 31, 2007, from $1.3 million in the comparable prior year period. Amortization expense of intangible assets primarily increased due to our acquisition of CMT. Amortization expense as a
percentage of revenue increased to 1.3% in the three months ended March 31, 2007, from 1.1% in the comparable prior year period.

Other Income and
Expense

Interest income and other, net, decreased to approximately $75,000 in the three months ended March 31, 2007, from
approximately $471,000 in the comparable prior year period. The decrease in interest and other income is primarily due to lower average investment balances.

Interest expense increased to $4.0 million in the three months ended March 31, 2007, from $3.7 million in the comparable prior year period. The increase is primarily due to the increase in capital lease
arrangements during the period.

Income Tax Expense

The income tax provision for the three month periods ended March 31, 2007 and 2006, reflects an effective tax rate of 50.1% and 42.8%, respectively, compared to a United States statutory rate of 35%. For each of
the three-month periods ended March 31, 2007 and 2006, the tax rate reflects United States statutory rate and state income tax implications as well as tax implications from the application of SFAS 123R with respect to incentive stock options.
The increase in the tax rate is primarily due to adjustments in state deferred tax assets. For the remainder of the year, we expect a tax rate of approximately 43%  44%.



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##### Table of Contents

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 March 31, 2007, we had cash and cash equivalents, cash in machine or in transit, and cash being processed totaling $143.6 million, which consisted of cash and cash equivalents immediately available to fund
our operations of $8.7 million, cash in machine or in transit of $60.2 million and cash being processed of $74.6 million. Cash in machine or in transit represents coin residing in our coin-counting or entertainment services machines or being
processed by carriers which is not immediately available to us until it has been collected and deposited. Cash being processed represents coin residing in our coin-counting or entertainment services machines or being processed by carriers which we
are mainly obligated to use to settle our accrued liabilities payable to our retailers. Working capital was $71.5 million at March 31, 2007, compared with $73.1 million at December 31, 2006. The decrease in working capital was primarily
the result of the decline in net income and the timing of payments to our vendors and retailers.

Net cash used by operating activities was
$12.6 million for the three months ended March 31, 2007, compared to net cash provided by operating activities of $4.7 million for the three months ended March 31, 2006. Cash provided by operating activities decreased primarily as a result
of an increase in cash used for operating assets and liabilities of $16.0 million; which was mainly due to the timing of payments to our vendors and retailers.

Net cash used by investing activities for the three month period ended March 31, 2007, was $18.1 million compared to $10.1 million in the comparable prior year period. Net cash used by investing activities
consisted primarily of capital expenditures made in each of the three month periods ended March 31, 2007 and 2006. The increase is primarily related to our increased coin and entertainment machines installed. As of March 31, 2007, we had a
total of 13,800 coin-counting machines installed and over 299,000 entertainment machines installed. As of March 31, 2006, we had a total of 13,000 coin-counting machines installed and over 296,000 entertainment machines installed.

Net cash used by financing activities for the three month period ended March 31, 2007, was $3.9 million. This amount represented cash used to
make a scheduled principal payment of $0.5 million on our term loan, our capital lease payments of $1.8 million and repurchase of our common stock of $3.5 million, offset by net proceeds from the exercise of stock options of $1.0 million and the
excess tax benefit from exercise of stock options of $0.9 million. Net cash used by financing activities for the three months ended March 31, 2006, was $17.6 million. This amount represented cash used to make a scheduled principal payment of
$0.5 million and an additional principal payment of $16.9 million on our term loan, $0.5 million on capital leases and repurchase of our common stock of $0.4 million, offset by proceeds from the exercise of stock options of $0.7 million.

Equity Investments

In 2005, we invested $20.0
million to obtain a 47.3% interest in Redbox, which included a conditional consideration agreement requiring us to contribute an additional $12.0 million if Redbox achieved certain targets within a one year period. In 2006, those targets were met
and we paid the conditional consideration of $12.0 million; however, the percentage of our interest in Redbox did not change. We have a one-time option to purchase shares at any time between December 31, 2007, and December 31, 2008, which
could increase our ownership interest in Redbox to 51%. We are accounting for our ownership under the equity method in our consolidated financial statements. During the three months ended March 31, 2007, we did not make an additional investment
in Redbox.

In 2005, we entered into a credit agreement to provide DVDXpress with a credit facility to provide up to $7.3 million at set
measurement dates extending through July 1, 2007. As of March 31, 2007, DVDXpress has drawn down $5.5 million on this credit facility. On December 7, 2005, we signed an asset purchase option agreement that allows us to purchase
substantially all of DVDXpress business assets and liabilities in exchange for any outstanding debt and accrued interest on the credit facility plus $10,000 and contingent consideration of up to $3.5 million based on achievement of specific
conditions. We are consolidating DVDXpress into our consolidated financial statements in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46 (revised December 2003), Consolidation of Variable
Interest Entities (FIN 46R).During the three months ended March 31, 2007, we did not make an additional investment in DVDXpress.



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Credit Facility

On July 7, 2004, we entered into a senior secured credit facility maturing on July 7, 2011. This facility provided for advances totaling up to $310.0 million, consisting of a $60.0 million revolving credit
facility and a $250.0 million term loan facility. Fees for this facility of approximately $5.7 million are being amortized over the life of the revolving line of credit and the term loan which are 5 years and 7 years, respectively. Loans under this
facility are secured by a first security interest in substantially all of our assets and the assets of our subsidiaries, as well as a pledge of our subsidiaries capital stock. As of March 31, 2007, our original term loan balance of $250.0
million had been reduced to $186.5 million, and, to date, we have not borrowed on our revolving credit facility. Our quarterly payments of $479,000 will continue until March 31, 2011. The remaining principal balance of $178.8 million will be
due on July 7, 2011, the maturity date of the facility.

Advances under this credit facility may be made as either base rate loans
(the higher of the Prime Rate or Federal Funds Effective Rate) or LIBOR rate loans at our election. Applicable interest rates are based upon either the LIBOR or base rate plus an applicable margin dependent upon a consolidated leverage ratio of
outstanding indebtedness to EBITDA (to be calculated in accordance with the terms specified in the credit agreement). Our consolidated leverage ratios are based upon LIBOR plus 200 basis points or the base rate plus 100 basis points. At
March 31, 2007, our interest rate on this facility was 7.36%.

The credit facility contains standard negative covenants and
restrictions on actions including, without limitation, restrictions on indebtedness, liens, fundamental changes or dispositions of our assets, payments of dividends or common stock repurchases, capital expenditures, foreign investments,
acquisitions, sale and leaseback transactions and swap agreements, among other restrictions. In addition, the credit agreement requires that we meet certain financial covenants, ratios and tests, including maintaining a maximum consolidated leverage
ratio and a minimum interest coverage ratio, as defined in the agreement. As of March 31, 2007, we were in compliance with all covenants. In the first quarter of 2006, we had a mandatory debt paydown of $16.9 million. There is no mandatory
payment in 2007 per our 2006 covenant calculations.

As of March 31, 2007, we had six irrevocable letters of credit that totaled
$11.1 million. These standby letters of credit, which expire at various times through December 31, 2007, are available to collateralize certain obligations to third parties. Prior to and as of March 31, 2007, no amounts were outstanding
under these letters of credit.

We believe our existing cash, cash equivalents and amounts available to us under our credit facility will
be sufficient to fund our cash requirements and capital expenditure needs for at least the next 12 months. After that time, the extent of additional financing needed, if any, will depend on the success of our business. If we significantly increase
installations beyond planned levels, or if coincounting machine volumes generated or entertainment services machine plays are lower than historical levels, or if we increase our capital investment in CMT significantly, our cash needs may
increase. Furthermore, our future capital requirements will depend on a number of factors, including cash required by future acquisitions, consumer usage of our services, the timing and number of machine installations, the number of available
installable machines, the type and scope of service enhancements and the cost of developing potential new product and service offerings and enhancements.

Off-Balance Sheet Arrangements

As March 31, 2007, off-balance sheet arrangements are comprised of our obligations
under our interest rate hedge as disclosed in Note 6 to our Consolidated Financial Statements included in our Fiscal 2006 Annual Report on Form 10-K and our operating leases and letters of credit as disclosed in Note 7 to our Consolidated Financial
Statements included in our Fiscal 2006 Annual Report on Form 10-K. We have no other off-balance sheet arrangements that have had or are reasonably likely to have a material current or future effect on our financial condition or consolidated
financial statements.

Contractual Obligations

There have been no material changes during the period covered by this report, outside of the ordinary course of the our business, to the contractual obligations specified in the table of contractual obligations included in the section
Managements Discussion and Analysis of Financial Condition and Results of Operations included in the our Fiscal 2006 Annual Report on Form 10-K.



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##### Table of Contents

Quarterly Financial Results

The following table sets forth selected unaudited quarterly financial information for the last eight quarters. This information has been prepared on the same basis as our audited consolidated financial statements and
includes, in the opinion of management, all normal and recurring adjustments that management considers necessary for a fair presentation of the quarterly results for the periods. The operating results for any quarter are not necessarily indicative
of the results for future periods. Certain reclassifications have been made to the prior year balances to conform to the current year presentation.



|                                      |  |                                       |         |   |              |   |         |               |  |   |                  |   |  |                   |         |   |                  |   |         |               |  |   |              |   |  |   |         |   |  |   |         |  
|------------------------------------- |  | ------------------------------------- | ------- | - | ------------ | - | ------- | ------------- |  | - | ---------------- | - |  | ----------------- | ------- | - | ---------------- | - | ------- | ------------- |  | - | ------------ | - |  | - | ------- | - |  | - | ------- | -
|                                      |  | Three Month Periods Ended             |        
|                                      |  | March 31,2007                         |         |   | Dec. 31,2006 |   |         | Sept. 30,2006 |  |   | June 30,2006 (1) |   |  | March 31,2006 (2) |         |   | Dec. 31,2005 (3) |   |         | Sept. 30,2005 |  |   | June 30,2005 |  
|                                      |  | (in thousands, except per share data) |        
|                                      |  | (unaudited)                           |        
|Consolidated Statement of Operations: |  |                                       |         |   |              |   |         |               |  |   |                  |   |  |                   |         |   |                  |   |         |               |  |   |              |   |  |   |         |   |  |   |         |  
|Revenue                               |  | $                                     | 132,336 |   |              | $ | 138,047 |               |  | $ | 140,036          |   |  | $                 | 130,327 |   |                  | $ | 126,032 |               |  | $ | 125,607      |   |  | $ | 118,707 |   |  | $ | 109,840 |  
|Expenses:                             |  |                                       |         |   |              |   |         |               |  |   |                  |   |  |                   |         |   |                  |   |         |               |  |   |              |   |  |   |         |   |  |   |         |  
|Direct operating                      |  |                                       | 91,639  |   |              |   | 92,792  |               |  |   | 91,389           |   |  |                   | 87,654  |   |                  |   | 87,699  |               |  |   | 85,199       |   |  |   | 78,981  |   |  |   | 75,372  |  
|Marketing                             |  |                                       | 1,626   |   |              |   | 5,481   |               |  |   | 4,626            |   |  |                   | 3,389   |   |                  |   | 924     |               |  |   | 5,031        |   |  |   | 2,785   |   |  |   | 1,975   |  
|Research and development              |  |                                       | 1,341   |   |              |   | 1,155   |               |  |   | 1,457            |   |  |                   | 1,393   |   |                  |   | 1,241   |               |  |   | 1,446        |   |  |   | 1,445   |   |  |   | 1,516   |  
|General and administrative            |  |                                       | 12,247  |   |              |   | 13,033  |               |  |   | 13,984           |   |  |                   | 12,594  |   |                  |   | 11,366  |               |  |   | 8,472        |   |  |   | 8,587   |   |  |   | 7,704   |  
|Depreciation and other                |  |                                       | 14,468  |   |              |   | 13,272  |               |  |   | 13,410           |   |  |                   | 13,295  |   |                  |   | 12,859  |               |  |   | 11,887       |   |  |   | 11,696  |   |  |   | 10,958  |  
|Amortization of intangible assets     |  |                                       | 1,739   |   |              |   | 1,722   |               |  |   | 1,661            |   |  |                   | 1,510   |   |                  |   | 1,327   |               |  |   | 1,281        |   |  |   | 1,140   |   |  |   | 1,104   |  
|                                      |  |                                       |         |   |              |   |         |               |  |   |                  |   |  |                   |         |   |                  |   |         |               |  |   |              |   |  |   |         |   |  |   |         |  
|Income from operations                |  |                                       | 9,276   |   |              |   | 10,592  |               |  |   | 13,509           |   |  |                   | 10,492  |   |                  |   | 10,616  |               |  |   | 12,291       |   |  |   | 14,073  |   |  |   | 11,211  |  
|Interest income and other, net        |  |                                       | 75      |   |              |   | 165     |               |  |   | 487              |   |  |                   | 420     |   |                  |   | 471     |               |  |   | 426          |   |  |   | 345     |   |  |   | 380     |  
|Interest expense                      |  |                                       | (3,974  | ) |              |   | (3,910  | )             |  |   | (4,120           | ) |  |                   | (3,986  | ) |                  |   | (3,732  | )             |  |   | (3,613       | ) |  |   | (3,353  | ) |  |   | (3,100  | )
|(Loss) income from equity investments |  |                                       | (255    | ) |              |   | (118    | )             |  |   | (443             | ) |  |                   | 304     |   |                  |   | 191     |               |  |   | (88          | ) |  |   | 127     |   |  |   | 152     |  
|Early retirement of debt              |  |                                       |        |   |              |   |        |               |  |   |                 |   |  |                   |        |   |                  |   | (238    | )             |  |   |             |   |  |   |        |   |  |   |        |  
|                                      |  |                                       |         |   |              |   |         |               |  |   |                  |   |  |                   |         |   |                  |   |         |               |  |   |              |   |  |   |         |   |  |   |         |  
|Income before income taxes            |  |                                       | 5,122   |   |              |   | 6,729   |               |  |   | 9,433            |   |  |                   | 7,230   |   |                  |   | 7,308   |               |  |   | 9,016        |   |  |   | 11,192  |   |  |   | 8,643   |  
|Income taxes                          |  |                                       | (2,566  | ) |              |   | (1,689  | )             |  |   | (4,144           | ) |  |                   | (3,111  | ) |                  |   | (3,129  | )             |  |   | (3,497       | ) |  |   | (4,372  | ) |  |   | (3,378  | )
|                                      |  |                                       |         |   |              |   |         |               |  |   |                  |   |  |                   |         |   |                  |   |         |               |  |   |              |   |  |   |         |   |  |   |         |  
|Net income                            |  | $                                     | 2,556   |   |              | $ | 5,040   |               |  | $ | 5,289            |   |  | $                 | 4,119   |   |                  | $ | 4,179   |               |  | $ | 5,519        |   |  | $ | 6,820   |   |  | $ | 5,265   |  
|                                      |  |                                       |         |   |              |   |         |               |  |   |                  |   |  |                   |         |   |                  |   |         |               |  |   |              |   |  |   |         |   |  |   |         |  
|Net income per share:                 |  |                                       |         |   |              |   |         |               |  |   |                  |   |  |                   |         |   |                  |   |         |               |  |   |              |   |  |   |         |   |  |   |         |  
|Basic                                 |  | $                                     | 0.09    |   |              | $ | 0.18    |               |  | $ | 0.19             |   |  | $                 | 0.15    |   |                  | $ | 0.15    |               |  | $ | 0.20         |   |  | $ | 0.27    |   |  | $ | 0.21    |  
|Diluted                               |  | $                                     | 0.09    |   |              | $ | 0.18    |               |  | $ | 0.19             |   |  | $                 | 0.15    |   |                  | $ | 0.15    |               |  | $ | 0.20         |   |  | $ | 0.27    |   |  | $ | 0.21    |  

---

|(1) | In the second quarter of 2006, we acquired CMT.
|--- | -----------------------------------------------

|(2) | Effective January 2006, we adopted the guidance under FASB Statement No. 123 (revised 2004), Share-Based Payment which requires the expensing of stock compensation.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | In the fourth quarter of 2005, we acquired The Amusement Factory L.L.C.
|--- | -----------------------------------------------------------------------

Seasonality

We have historically experienced seasonality in our coin services revenues, with highest revenues experienced
in the third calendar quarter, followed by the fourth calendar quarter, and relatively lower revenues in the first half of the year. Our entertainment services revenue also experienced seasonality, with peak revenues in the fourth quarter and
periods surrounding the Easter holiday season. Although our entertainment services revenue may impact the historical seasonality of the coin revenue to some degree, we expect our results of operations will continue to fluctuate as a result of
seasonal fluctuations and our revenue mix between relatively higher margin coin and e-payment services and relatively lower margin entertainment services.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with United States
generally accepted accounting principles. Preparation of these statements requires management to make judgments and estimates. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the present
circumstances. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 at Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations. Except as noted below, there have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form
10-K for the fiscal year ended December 31, 2006.



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##### Table of Contents

Income taxes:Effective January 1, 2007, we adopted the provisions FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 is an interpretation of FASB Statement No. 109 which provides comprehensive guidance on the recognition and measurement of tax positions in previously
filed tax returns or positions expected to be taken in future tax returns. The tax benefit from an uncertain tax position must meet a more-likely-than-not recognition threshold and is measured at the largest amount of benefit greater
than 50% determined by cumulative probability of being realized upon ultimate settlement with the taxing authority. The interpretation provides guidance on derecognition, classification, interest and penalties, as well as disclosure requirements in
the financial statements of uncertain tax positions. As of the adoption date and March 31, 2007, we identified $1.2 million of unrecognized tax benefits (net of federal tax benefit on state issues) which would affect our effective tax rate if
recognized. There was no material change in unrecognized income tax benefits, other than the $1.2 million described above, as a result of the adoption and we do not anticipate any significant change within the next twelve months.

In accordance with our accounting policy, we recognize interest and penalties associated with uncertain tax positions in income tax expense. As of the
adoption date and March 31, 2007, it was not necessary to accrue interest and penalties associated with the uncertain tax positions identified.

We are generally not subject to examination in jurisdictions within the United States for years prior to 1995. For non United States jurisdictions, we are generally not subject to examination for years prior to 1998.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

The following discussion about our market risk involves forward-looking statements. Actual results could differ from those projected in our forward-looking statements.

We are subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of our credit agreement with JPMorgan
Chase Bank and investment activities that generally bear interest at variable rates. Because our investments have maturities of three months or less, and our credit facility interest rates are based upon either the LIBOR or base rate plus an
applicable margin, we believe that the risk of material loss is low and that the carrying amount of these balances approximates fair value. For our debt obligation which has a variable interest rate, the rate presented reflects our projected credit
facility interest rate of LIBOR plus a margin of 2.0% and the impact of our interest rate hedge of $125.0 million of the outstanding debt balance.

The table below presents principal amounts, at book value, by year of maturity and related average interest rates as of March 31, 2007.



|                |  |                           |  |                |  |       |  |       |  |         |  |            |  |         |  |           |  |                     |  
|--------------- |  | ------------------------- |  | -------------- |  | ----- |  | ----- |  | ------- |  | ---------- |  | ------- |  | --------- |  | ------------------- | -
|                |  | Three Month Periods Ended |  | March 31, 2007 | 
|                |  | 2007                      |  | 2008           |  | 2009  |  | 2010  |  | 2011    |  | Thereafter |  | Total   |  | FairValue |  | AverageInterestRate |  
|                |  | (in thousands)            | 
|Long-term debt: |  |                           |  |                |  |       |  |       |  |         |  |            |  |         |  |           |  |                     |  
|Variable rate   |  | 1,438                     |  | 1,917          |  | 1,917 |  | 1,917 |  | 179,284 |  |           |  | 186,473 |  | 186,473   |  | 7.36                | %

We have variable-rate debt that, at March 31, 2007, had an outstanding balance of $186.5
million. Under the terms of our credit agreement, we have entered into a zero net cost interest rate hedge on $125.0 million of this outstanding debt balance which will decrease our sensitivity to changes in the LIBOR rate. Based on our outstanding
debt obligations and our interest rate hedge as of March 31, 2007, an increase of 1.0% in interest rates over the next year would increase our annualized interest expense and related cash payments by approximately $1.3 million; a decrease of
1.0% in interest rates over the next year would decrease our annualized interest expense and related cash payments by approximately $1.8 million. Such potential increases or decreases are based on certain simplified assumptions, including minimum
quarterly principal repayments made on variable-rate debt for all maturities and an immediate, across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the periods.



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|Item 4. | Controls and Procedures
|------- | -----------------------

We maintain a set of
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Management, with the participation of our chief executive officer and chief financial
officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report and has determined that such disclosure controls and procedures are effective.

We also maintain a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).
No changes in our internal control over financial reporting occurred during the quarter ended March 31, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION



|Item 1A. | Risk Factors
|-------- | ------------

There have been no material changes
from risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, which was filed with the SEC on March 9, 2007.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Under the terms of our existing credit facility, we are permitted to repurchase up to $3.0 million of our common stock plus proceeds received after July 7, 2004, from the issuance of new shares of capital stock under our employee
equity compensation plans. As of March 31, 2007, the authorized cumulative proceeds received from option exercises or other equity purchases under our equity compensation plans totaled $17.2 million bringing the total authorized for purchase
under our credit facility to $20.2 million. After taking into consideration our total share repurchases of $11.5 million through March 31, 2007, the remaining amount authorized for repurchase under our credit facility is $8.7 million.

Apart from our credit facility limitations, on October 27, 2004, our Board of Directors authorized repurchase of up to $22.5 million
of our common stock plus additional shares equal to the aggregate amount of net proceeds received after January 1, 2003, from our employee equity compensation plans. This authorization would currently allow us to repurchase up to $18.2 million
of our common stock, however, we will not exceed our credit facility limits.

The following table summarizes information regarding shares
repurchased during the period ended March 31, 2007.



|                      |  |                                 |  |                          |       |                                                                              |         |                                                                                 |   |           
|--------------------- |  | ------------------------------- |  | ------------------------ | ----- | ---------------------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------- | - | ----------
|                      |  | TotalNumber ofSharesRepurchased |  | AveragePricePaidperShare |       | TotalNumber ofSharesPurchasedas Part ofthePubliclyAnnouncedRepurchaseProgram |         | MaximumApproximateDollar Valueof Shares thatMay Yet bePurchasedUnder
theProgram
|January 1 - 31, 2007  |  |                                |  |                          |      |                                                                              |        |                                                                                 | $ | 11,025,133
|February 1 - 28, 2007 |  |                                |  |                          |      |                                                                              |        |                                                                                 |   | 11,979,658
|March 1 - 31, 2007    |  | 120,800                         |  | $                        | 28.94 |                                                                              | 120,800 |                                                                                 |   | 8,664,086 
|                      |  |                                 |  |                          |       |                                                                              |         |                                                                                 |   |           
|                      |  | 120,800                         |  | $                        | 28.94 |                                                                              | 120,800 |                                                                                 | $ | 8,664,086 
|                      |  |                                 |  |                          |       |                                                                              |         |                                                                                 |   |           



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|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                                                                   
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                           
|10.39 *       |  | Form of Change of Control Agreement. (1)                                                                                                          
|              | 
|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.                                            
|              | 
|32.1          |  | 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 March 7, 2007 (File Number
000-22555).
|--- | ------------------------------------------------------------------------------------------------------



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.



COINSTAR, INC.By:

/s/ BRIAN V. TURNERBrian V. TurnerChief Financial OfficerMay 8, 2007




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