##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 000-22555
 
 COINSTAR, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    94-3156448(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)1800 114th Avenue SE, Bellevue, Washington
(Address of principal executive offices)
    
    98004
(Zip Code)
 (425) 943-8000
(Registrants telephone number, including area code)
 
 þ o
 o o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o
 o þ
  Class
    
    Outstanding at October 23, 2009Common Stock, $0.001 par value
    
    31,065,788




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##### 



COINSTAR, INC.
 FORM 10-Q
Index
 PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008 (unaudited)
    
    Page 3Consolidated Statements of Operations for the nine and three month periods ended
September 30, 2009 and September 30, 2008 (unaudited)
    
    Page 4Consolidated Statement of Equity and Comprehensive Income for the nine month period
ended September 30, 2009 (unaudited)
    
    Page 5Consolidated Statements of Cash Flows for the nine month periods ended September 30,
2009 and September 30, 2008 (unaudited)
    
    Page 6Notes to Consolidated Financial Statements for the nine and three month periods ended
September 30, 2009 and September 30, 2008 (unaudited)
    
    Page 7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    Page 20Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    Page 33Item 4.
    
    Controls and Procedures
    
    Page 33PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    Page 33Item 1A.
    
    Risk Factors
    
    Page 34Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page 48Item 6.
    
    Exhibits
    
    Page 48SIGNATURE
    
    Page 50EX-4.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 COINSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    68,411
    
    
    $
    66,408Cash in machine or in transit
    
    
    49,290
    
    
    
    34,583Cash being processed
    
    
    65,679
    
    
    
    91,044Accounts receivable, net of allowance for doubtful accounts of $4,076 and $2,702
at September 30, 2009 and December 31, 2008, respectively
    
    
    57,235
    
    
    
    51,908Inventory
    
    
    88,041
    
    
    
    92,247Deferred income taxes
    
    
    8,594
    
    
    
    6,881Prepaid expenses and other current assets
    
    
    24,990
    
    
    
    24,715Total current assets
    
    
    362,240
    
    
    
    367,786PROPERTY AND
EQUIPMENT, NET
    
    
    382,184
    
    
    
    348,949DEFERRED INCOME TAXES
    
    
    103,567
    
    
    
    4,338OTHER ASSETS
    
    
    16,511
    
    
    
    11,865INTANGIBLE ASSETS, NET
    
    
    32,877
    
    
    
    43,385GOODWILL
    
    
    292,361
    
    
    
    290,391TOTAL ASSETS
    
    $
    1,189,740
    
    
    $
    1,066,714LIABILITIES AND EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    100,919
    
    
    $
    132,194Accrued payable to retailers and agents
    
    
    115,303
    
    
    
    132,490Other accrued liabilities
    
    
    82,027
    
    
    
    87,500Current portion of long-term debt
    
    
    6,682
    
    
    
    11,655Current portion of capital lease obligations
    
    
    27,428
    
    
    
    20,264Total current liabilities
    
    
    332,359
    
    
    
    384,103LONG-TERM DEBT AND OTHER
    
    
    418,667
    
    
    
    295,942CAPITAL LEASE OBLIGATIONS
    
    
    31,950
    
    
    
    23,509DEFERRED TAX LIABILITY
    
    
    60
    
    
    
    12,072TOTAL LIABILITIES
    
    
    783,036
    
    
    
    715,626EQUITY:Preferred stock, $0.001 par valueAuthorized, 5,000,000 shares; no shares issued
and outstanding at September 30, 2009 and December 31, 2008
    
    
    
    
    
    
    Common stock, $0.001 par valueAuthorized, 45,000,000 shares; 32,894,913 and
30,181,151 issued and 30,968,832 and 28,255,070 shares outstanding at
September 30, 2009 and December 31, 2008, respectively
    
    
    401,532
    
    
    
    369,735Retained earnings (accumulated deficit)
    
    
    47,612
    
    
    
    (2,672
    )Treasury stock
    
    
    (40,831
    )
    
    
    (40,831
    )Accumulated other comprehensive loss
    
    
    (1,609
    )
    
    
    (6,204
    )Total stockholders equity
    
    
    406,704
    
    
    
    320,028Non-controlling interest
    
    
    
    
    
    
    31,060Total equity
    
    
    406,704
    
    
    
    351,088TOTAL LIABILITIES AND EQUITY
    
    $
    1,189,740
    
    
    $
    1,066,714
  3




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COINSTAR, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 Nine Month Periods
    
    
    Three Month PeriodsEnded September 30,
    
    
    Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008REVENUE
    
    $
    816,786
    
    
    $
    533,817
    
    
    $
    295,970
    
    
    $
    203,452EXPENSES:Direct operating (1)
    
    
    559,054
    
    
    
    344,232
    
    
    
    203,650
    
    
    
    134,342Marketing
    
    
    16,605
    
    
    
    13,946
    
    
    
    5,833
    
    
    
    7,372Research and development
    
    
    3,916
    
    
    
    3,578
    
    
    
    1,360
    
    
    
    1,157General and administrative
    
    
    96,524
    
    
    
    65,789
    
    
    
    32,570
    
    
    
    22,997Depreciation and other (1)
    
    
    66,864
    
    
    
    41,997
    
    
    
    23,432
    
    
    
    15,384Amortization of intangible assets
    
    
    5,941
    
    
    
    6,223
    
    
    
    2,029
    
    
    
    2,041Proxy, write-off of acquisition costs, and litigation settlement
    
    
    
    
    
    
    3,084
    
    
    
    
    
    
    
    Income from operations
    
    
    67,882
    
    
    
    54,968
    
    
    
    27,096
    
    
    
    20,159OTHER INCOME (EXPENSE):Foreign currency loss and other, net
    
    
    (339
    )
    
    
    (2,775
    )
    
    
    (270
    )
    
    
    (717
    )Interest income
    
    
    184
    
    
    
    1,063
    
    
    
    30
    
    
    
    180Interest expense
    
    
    (24,510
    )
    
    
    (16,073
    )
    
    
    (9,372
    )
    
    
    (5,394
    )Loss from equity investments
    
    
    
    
    
    
    (338
    )
    
    
    
    
    
    
    (1
    )Early retirement of debt
    
    
    (1,082
    )
    
    
    
    
    
    
    (1,082
    )
    
    
    Income from continuing operations before income taxes
    
    
    42,135
    
    
    
    36,845
    
    
    
    16,402
    
    
    
    14,227Income tax expense
    
    
    (16,231
    )
    
    
    (13,272
    )
    
    
    (6,761
    )
    
    
    (6,357
    )Income from continuing operations
    
    
    25,904
    
    
    
    23,573
    
    
    
    9,641
    
    
    
    7,870Income (loss) from discontinued operations, net of tax (Note 6)
    
    
    28,007
    
    
    
    (2,892
    )
    
    
    31,722
    
    
    
    (12
    )Net income
    
    
    53,911
    
    
    
    20,681
    
    
    
    41,363
    
    
    
    7,858Less: Net income attributable to non-controlling interests
    
    
    (3,627
    )
    
    
    (10,789
    )
    
    
    
    
    
    
    (3,347
    )NET INCOME ATTRIBUTABLE TO COINSTAR, INC.
    
    $
    50,284
    
    
    $
    9,892
    
    
    $
    41,363
    
    
    $
    4,511BASIC EARNINGS PER SHARE:Basic
earnings per share from continuing operations attributable to Coinstar, Inc.
    
    $
    0.75
    
    
    $
    0.45
    
    
    $
    0.32
    
    
    $
    0.16Basic
earnings per share from discontinued operations attributable to Coinstar, Inc.
    
    
    0.94
    
    
    
    (0.10
    )
    
    
    1.04
    
    
    
    Basic earnings per share attributable to Coinstar, Inc.
    
    $
    1.69
    
    
    $
    0.35
    
    
    $
    1.36
    
    
    $
    0.16DILUTED EARNINGS PER SHARE:Diluted
earnings per share from continuing operations attributable to Coinstar, Inc.
    
    $
    0.74
    
    
    $
    0.45
    
    
    $
    0.31
    
    
    $
    0.16Diluted
earnings per share from discontinued operations attributable to Coinstar, Inc.
    
    
    0.92
    
    
    
    (0.10
    )
    
    
    1.03
    
    
    
    Diluted earnings per share attributable to Coinstar, Inc.
    
    $
    1.66
    
    
    $
    0.35
    
    
    $
    1.34
    
    
    $
    0.16WEIGHTED SHARES OUTSTANDING:Basic
    
    
    29,829
    
    
    
    27,992
    
    
    
    30,437
    
    
    
    28,170Diluted
    
    
    30,209
    
    
    
    28,507
    
    
    
    30,840
    
    
    
    28,685
 
 (1)
    
    Direct operating above excludes depreciation and other of $56.4 million and $20.0 million for the nine and three month periods ended
September 30, 2009 and $36.2 million and $13.4 million for the nine and three month periods ended September 30, 2008, respectively.  4




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COINSTAR, INC.
 CONSOLIDATED STATEMENT OF EQUITY AND COMPREHENSIVE INCOME
Nine Month Period Ended September 30, 2009
(in thousands, except share data)
(unaudited)
 AccumulatedRetained Earnings
    
    
    
    
    
    
    OtherCommon Stock
    
    
    (Accumulated
    
    
    Treasury
    
    
    Comprehensive
    
    
    Non-controlling
    
    
    
    
    
    
    ComprehensiveShares
    
    
Amount
    
    
Deficit)
    
    
Stock
    
    
Loss
    
    
Interest
    
    
Total
    
    
IncomeBALANCE, December 31, 2008
    
    
    28,255,070
    
    
    $
    369,735
    
    
    $
    (2,672
    )
    
    $
    (40,831
    )
    
    $
    (6,204
    )
    
    $
    31,060
    
    
    $
    351,088Proceeds
from exercise of stock options, net
    
    
    630,804
    
    
    
    13,275
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,275Stock-based compensation expense
    
    
    141,708
    
    
    
    5,883
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    349
    
    
    
    6,232Shares issued for DVD agreement
    
    
    193,348
    
    
    
    1,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,091Convertible debt-equity portion, net of tax
    
    
    
    
    
    
    20,160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,160Tax deficiency on stock-based compensation expense
    
    
    
    
    
    
    (354
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (354
    )Purchase of non-controlling interest in Redbox, net of $55,778 deferred tax benefit
    
    
    
    
    
    
    (56,751
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,036
    )
    
    
    (91,787
    )Share issuance for purchase of Redbox non-controlling interest
    
    
    1,747,902
    
    
    
    48,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,493Net income
    
    
    
    
    
    
    
    
    
    
    50,284
    
    
    
    
    
    
    
    
    
    
    
    3,627
    
    
    
    53,911
    
    
    $
    53,911Gain on short-term investments
net of tax expense of $10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    14Foreign currency translation adjustments
net of tax expense of $301
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,873
    
    
    
    
    
    
    
    3,873
    
    
    
    3,873Interest rate hedges on long-term debt
net of tax expense of $452
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    708
    
    
    
    
    
    
    
    708
    
    
    
    708Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,506Less: Comprehensive income attributable to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,627
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    54,879BALANCE, September 30, 2009
    
    
    30,968,832
    
    
    $
    401,532
    
    
    $
    47,612
    
    
    $
    (40,831
    )
    
    $
    (1,609
    )
    
    $
    
    
    
    $
    406,704
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COINSTAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Month PeriodsEnded September 30,2009
    
    
    2008OPERATING ACTIVITIES:Net income
    
    $
    53,911
    
    
    $
    20,681Adjustments
to reconcile net income to net cash provided by operating activities from continuing operations:Depreciation and other
    
    
    66,864
    
    
    
    41,997Amortization of intangible assets and deferred financing fees
    
    
    6,907
    
    
    
    6,608Write-off of acquisition costs
    
    
    1,262
    
    
    
    1,004Non-cash stock-based compensation for employees
    
    
    6,232
    
    
    
    6,288Share-based payments for DVD agreement
    
    
    1,091
    
    
    
    Excess tax benefit on share-based awards
    
    
    
    
    
    
    (615
    )Deferred income taxes
    
    
    3,582
    
    
    
    9,231Income from equity investments
    
    
    
    
    
    
    3,449(Income) loss from discontinued operations, net of tax
    
    
    (28,007
    )
    
    
    2,892Loss on early retirement of debt
    
    
    1,082
    
    
    
    Other
    
    
    632
    
    
    
    835Cash (used) provided by changes in operating assets and liabilities, net of effects of business acquisitions
    
    
    (70,480
    )
    
    
    14,996Net cash provided by operating activities from continuing operations
    
    
    43,076
    
    
    
    107,366INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (105,141
    )
    
    
    (115,740
    )Acquisitions, net of cash acquired of $43,621 in 2008
    
    
    (1,229
    )
    
    
    (24,829
    )Proceeds from sale of fixed assets
    
    
    214
    
    
    
    290Net cash used by investing activities from continuing operations
    
    
    (106,156
    )
    
    
    (140,279
    )FINANCING ACTIVITIES:Principal payments on capital lease obligations and other
    
    
    (18,642
    )
    
    
    (12,119
    )Proceeds from capital lease financing
    
    
    22,020
    
    
    
    Net (payments) borrowings on credit facility
    
    
    (35,000
    )
    
    
    34,000Convertible debt borrowings, net of underwriting discount and commissions of $6,000
    
    
    194,000
    
    
    
    Financing costs associated with revolving line of credit and convertible debt
    
    
    (3,984
    )
    
    
    Cash used to purchase remaining non-controlling interests in Redbox
    
    
    (113,867
    )
    
    
    Excess tax benefit on share-based awards
    
    
    
    
    
    
    615Proceeds from exercise of stock options
    
    
    10,889
    
    
    
    8,547Net cash provided by financing activities from continuing operations
    
    
    55,416
    
    
    
    31,043Effect of exchange rate changes on cash
    
    
    2,996
    
    
    
    (2,462
    )NET DECREASE IN CASH AND CASH EQUIVALENTS, CASH IN
MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED FROM CONTINUING OPERATIONS
    
    
    (4,668
    )
    
    
    (4,332
    )CASH FLOWS FROM DISCONTINUED OPERATIONS:Operating cash flows
    
    
    14,872
    
    
    
    2,761Investing cash flows
    
    
    (16,397
    )
    
    
    (8,130
    )Financing cash flows
    
    
    (2,462
    )
    
    
    (4,140
    )(3,987
    )
    
    
    (9,509
    )NET DECREASE IN CASH AND CASH EQUIVALENTS, CASH IN
MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED
    
    
    (8,655
    )
    
    
    (13,841
    )CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED:Beginning of period
    
    
    192,035
    
    
    
    196,592End of period
    
    $
    183,380
    
    
    $
    182,751
   6




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COINSTAR, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Nine and Three Month Periods Ended September 30, 2009 and 2008
(unaudited)
 NOTE 1: ORGANIZATION, BUSINESS, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of company:
 Coin-counting kiosks
    
    
    18,800
    *DVD kiosks
    
    
    20,600Money transfer services locations
    
    
    45,000E-payment point-of-sale terminals
    
    
    24,500
 
 *
    
    Amount includes 12,400 coin to card, e-payment or e-certificate kiosks Sale of Entertainment Services Business:
 Basis of presentation:
  Principles of consolidation:
 Use of estimates
 7




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.
 Revenue recognition: We recognize revenue as follows:
 
    
    Coin-counting revenue, which is collected from either consumers or card issuers (in
stored value card or e-certificate transactions), is recognized at the time the consumers
coins are counted by our coin-counting kiosks. Cash deposited in kiosks that has not yet
been collected is referred to as cash in machine and is reported in our consolidated
balance sheet under the caption Cash in machine or in transit. Our revenue represents
the fee charged for coin-counting;
    
    Net revenue from DVD movie rentals is recognized on a ratable basis during
the term of a customers rental transaction. Revenue from the sale directly out of the
kiosk of previously rented movies is recognized at the time of sale. On rental
transactions for which the related DVDs have not yet been returned to the kiosk at
month-end, revenue is recorded with a corresponding receivable recorded in the balance
sheet, net of a reserve for uncollectibility. We record revenue net of refunds and
applicable sales taxes collected from customers;
    
    Money transfer revenue represents the commissions earned on a money transfer
transaction and is recognized at the time the customer completes the transaction;
    
    E-payment revenue is recognized at the point of sale based on our commissions earned,
net of retailer fees.
 Interest rate swap:
 Fair valueSeptember 30,
    
    December 31,Balance sheet classification
    
    2009
    
    2008(in thousands)Interest rate swap
    
    Other accrued liabilities
    
    $
    6,306
    
    
    $
    7,466
 Fair value
   
    
    Level 1: Observable inputs such as quoted prices in active markets for identical
assets or liabilities
 8




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
    
    Level 2: Inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly; these include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active
    
    Level 3: Unobservable inputs that reflect the reporting entitys own assumptions
  Balance as of September 30, 2009Level 1
    
    Level 2
    
    Level 3Short-term investment
    
    $
    9,793
    
    
    
    
    
    
    
    Interest rate swap liability
    
    
    
    
    
    $
    6,306
    
    
    
    
 Recent accounting pronouncements The Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles
     1.
    
    The period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements;
 9




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2.
    
    The circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements; and3.
    
    The disclosures that an entity should make about events or transactions
that occurred after the balance sheet date.
   Contingency
 NOTE 2: PURCHASE OF NON-CONTROLLING INTERESTS IN REDBOX
     10




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Secured credit facility:
   NOTE 3: PROPERTY AND EQUIPMENT
 September 30,
    
    
    December 31,2009
    
    
    2008(in thousands)Machines
    
    $
    654,947
    
    
    $
    608,779Computers
    
    
    36,841
    
    
    
    32,277Office furniture and equipment
    
    
    11,238
    
    
    
    13,202Vehicles
    
    
    12,885
    
    
    
    21,611Leasehold improvements
    
    
    3,888
    
    
    
    3,715719,799
    
    
    
    679,584Accumulated depreciation and amortization
    
    
    (337,615
    )
    
    
    (330,635
    )$
    382,184
    
    
    $
    348,949
 11




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NOTE 4: STOCK-BASED COMPENSATION
 Stock-based compensation:
  Nine Month Periods
    
    Three Month PeriodsEnded September 30,
    
    Ended September 30,2009
    
    2008
    
    2009
    
    2008Expected term (in years)
    
    
    3.7
    
    
    
    3.7
    
    
    
    3.7
    
    
    
    3.7Expected stock price volatility
    
    
    40
    %
    
    
    35
    %
    
    
    40
    %
    
    
    35
    %Risk-free interest rate
    
    
    1.5
    %
    
    
    2.5
    %
    
    
    1.9
    %
    
    
    2.6
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Estimated fair value per option granted
    
    $
    9.29
    
    
    $
    9.66
    
    
    $
    9.80
    
    
    $
    10.08
   Nine Month Periods
    
    Three Month PeriodsEnded September 30,
    
    Ended September 30,2009
    
    2008
    
    2009
    
    2008(in thousands)
    
    (in thousands)Stock-based compensation expense
    
    $
    6,232
    
    
    $
    4,809
    
    
    $
    1,497
    
    
    $
    1,618Related deferred tax benefit
    
    
    1,908
    
    
    
    1,362
    
    
    
    480
    
    
    
    485
 Stock options:
  Weightedaverage exerciseShares
    
    price(in thousands)OUTSTANDING, December 31, 2008
    
    
    2,689
    
    
    $
    25.24Granted
    
    
    642
    
    
    
    29.26Exercised
    
    
    (631
    )
    
    
    21.86Cancelled, expired or forfeited
    
    
    (245
    )
    
    
    30.06OUTSTANDING, September 30, 2009
    
    
    2,455
    
    
    
    26.67EXERCISABLE, September 30, 2009
    
    
    1,469
    
    
    $
    24.56
 12




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##### Table of Contents



Restricted stock awards:
  Weightedaveragegrant dateShares
    
    fair value(in thousands)NON-VESTED, December 31, 2008
    
    
    135
    
    
    $
    30.36Granted
    
    
    207
    
    
    
    29.20Vested
    
    
    (90
    )
    
    
    30.72Forfeited
    
    
    (45
    )
    
    
    30.09NON-VESTED, September 30, 2009
    
    
    207
    
    
    $
    29.70
  NOTE 5: INCOME PER SHARE
  13




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##### Table of Contents



Nine Month Periods
    
    
    Three Month PeriodsEnded  September 30,
    
    
    Ended  September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)Numerator:Income from continuing operations
    
    $
    25,904
    
    
    $
    23,573
    
    
    $
    9,641
    
    
    $
    7,870Income (loss) from discontinued operations, net of tax
    
    
    28,007
    
    
    
    (2,892
    )
    
    
    31,722
    
    
    
    (12
    )Net income
    
    
    53,911
    
    
    
    20,681
    
    
    
    41,363
    
    
    
    7,858Less: Net income attributable to non-controlling interests
    
    
    (3,627
    )
    
    
    (10,789
    )
    
    
    
    
    
    
    (3,347
    )Net income attributable to Coinstar, Inc
    
    $
    50,284
    
    
    $
    9,892
    
    
    $
    41,363
    
    
    $
    4,511Denominator:Weighted average shares for basic calculation
    
    
    29,829
    
    
    
    27,992
    
    
    
    30,437
    
    
    
    28,170Incremental shares from employee stock options and awards
    
    
    380
    
    
    
    515
    
    
    
    403
    
    
    
    515Weighted average shares for diluted calculation
    
    
    30,209
    
    
    
    28,507
    
    
    
    30,840
    
    
    
    28,685
  NOTE 6: SALE OF ENTERTAINMENT BUSINESS
    14




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##### Table of Contents



Nine Month Periods
    
    

Three
Month PeriodsEnded September 30,
    
    
    Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)(Loss) Income from discontinued operations (including loss on disposal
of $49.8 million in the third quarter of 2009)
    
    $
    (56,784
    )
    
    $
    (4,390
    )
    
    $
    (50,887
    )
    
    $
    307Income tax benefit (expense) on discontinued operations
    
    
    2,559
    
    
    
    1,498
    
    
    
    377
    
    
    
    (319
    )One-time income tax benefit on loss on disposal in 2009
    
    
    82,232
    
    
    
    
    
    
    
    82,232
    
    
    
    Income (loss) from discontinued operations, net of tax
    
    $
    28,007
    
    
    $
    (2,892
    )
    
    $
    31,722
    
    
    $
    (12
    )
 NOTE 7: BUSINESS SEGMENT INFORMATION
  Nine Month Periods
    
    
    Three Month PeriodsEnded September 30,
    
    
    Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)Revenue:Coin services
    
    $
    192,404
    
    
    $
    194,771
    
    
    $
    69,565
    
    
    $
    71,027DVD services
    
    
    541,707
    
    
    
    254,661
    *
    
    
    198,085
    
    
    
    104,192
    *Money transfer services
    
    
    64,560
    
    
    
    66,273
    
    
    
    22,476
    
    
    
    22,016E-payment services
    
    
    18,115
    
    
    
    18,112
    
    
    
    5,844
    
    
    
    6,217Consolidated revenue
    
    $
    816,786
    
    
    $
    533,817
    
    
    $
    295,970
    
    
    $
    203,452
 
 *
    
    DVD services revenue above for 2008 does not include $11.0 million for the period January 1, 2008 through
January 17, 2008 when we did not consolidate Redbox. See Note 2.  15




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##### Table of Contents



Nine Month Periods
    
    
    Three Month PeriodsEnded September 30,
    
    
    Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)Operating
income before depreciation/amortization and stock-based compensation/shared-based payments:Coin services
    
    $
    66,731
    
    
    $
    68,741
    
    
    $
    23,399
    
    
    $
    25,432DVD services
    
    
    91,528
    
    
    
    49,537
    
    
    
    34,510
    
    
    
    17,740Money transfer services
    
    
    (8,974
    )
    
    
    (9,425
    )
    
    
    (2,190
    )
    
    
    (2,725
    )E-payment services
    
    
    (1,275
    )
    
    
    623
    
    
    
    (576
    )
    
    
    (560
    )Subtotal
    
    
    148,010
    
    
    
    109,476
    
    
    
    55,143
    
    
    
    39,887Depreciation/amortization
and stock-based compensation/shared-based payments:Depreciation, amortization and other
    
    
    (72,805
    )
    
    
    (48,220
    )
    
    
    (25,461
    )
    
    
    (17,425
    )Stock-based compensation and share-based payments
    
    
    (7,323
    )
    
    
    (6,288
    )
    
    
    (2,586
    )
    
    
    (2,303
    )Subtotal
    
    
    (80,128
    )
    
    
    (54,508
    )
    
    
    (28,047
    )
    
    
    (19,728
    )Consolidated income from operations
    
    $
    67,882
    
    
    $
    54,968
    
    
    $
    27,096
    
    
    $
    20,159
 September 30,
    
    
    December 31,2009
    
    
    2008(in thousands)
    
    
    (in thousands)Total assets:Coin services
    
    $
    513,469
    
    
    $
    473,256DVD services
    
    
    453,833
    
    
    
    378,092Money transfer services
    
    
    112,268
    
    
    
    105,645E-payment services
    
    
    42,093
    
    
    
    35,963Unallocated corporate assets
    
    
    68,077
    
    
    
    73,758Consolidated assets
    
    $
    1,189,740
    
    
    $
    1,066,714
   Nine Month Periods
    
    
    Three Month PeriodsEnded September 30,
    
    
    Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)Revenue:North America
    
    $
    765,514
    
    
    $
    482,252
    
    
    $
    276,461
    
    
    $
    185,703International
    
    
    51,272
    
    
    
    51,565
    
    
    
    19,509
    
    
    
    17,749Total revenue
    
    $
    816,786
    
    
    $
    533,817
    
    
    $
    295,970
    
    
    $
    203,452
 September 30,
    
    
    December 31,2009
    
    
    2008(in thousands)Total assets:North America
    
    $
    1,163,723
    
    
    $
    1,025,362International
    
    
    135,178
    
    
    
    138,868Intercompany eliminations
    
    
    (109,161
    )
    
    
    (97,516
    )Total assets
    
    $
    1,189,740
    
    
    $
    1,066,714
 16




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##### Table of Contents



Nine Month Periods
    
    Three Month PeriodsEnded September 30,
    
    Ended September 30,2009
    
    2008
    
    2009
    
    2008Walmart Stores Inc.
    
    
    20.3
    %
    
    
    13.3
    %
    
    
    20.2
    %
    
    
    14.4
    %Walgreen Co.
    
    
    10.1
    %
    
    
    3.8
    %
    
    
    11.5
    %
    
    
    3.3
    %McDonalds
    
    
    9.6
    %
    
    
    12.0
    %
    
    
    8.4
    %
    
    
    11.8
    %Supervalu Inc.
    
    
    8.4
    %
    
    
    10.2
    %
    
    
    7.8
    %
    
    
    10.8
    %
 NOTE 8: DVD LICENSE AGREEMENT
 Sony agreement
   Lionsgate agreement
   Paramount agreement
  17




---



##### Table of Contents



NOTE 9: 4% CONVERTIBLE SENIOR NOTES
   Debt with Conversion and Other
Options
   18




---



##### Table of Contents



NOTE 10: SUPPLEMENTAL CASH FLOW INFORMATION
  Nine Month PeriodsEnded September 30,2009
    
    2008(in thousands)SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    22,705
    
    
    $
    9,545Cash paid during the period for income taxes
    
    
    1,215
    
    
    
    5,552SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:Non-cash consideration for purchase of Redbox non-controlling interest
    
    $
    48,493
    
    
    $
    Underwriting discount and commissions on convertible debt
    
    
    6,000
    
    
    
    Purchase of vehicles financed by capital lease obligations
    
    
    4,750
    
    
    
    580Purchase of kiosks financed by capital lease obligations
    
    
    8,439
    
    
    
    Accrued acquisition costs
    
    
    
    
    
    
    10,000
 19




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##### Table of Contents



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,
2008 (the Form 10-K). 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
  Recent events
 Sale of Entertainment Business
  DVD license agreements
 Sony agreement
   Lionsgate agreement
  20




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##### Table of Contents



Paramount agreement
   Convertible debt
  Management of Business Segments
  
    
    Coin services  We offer self-service coin-counting services. We own and service
all of our coin-counting kiosks, providing a convenient and trouble-free service to
retailers. We own and operate the only multi-national fully-automated network of
self-service coin-counting kiosks across the United States, Canada, Puerto Rico,
Ireland, and in the United Kingdom. We generate revenue from coin-counting transaction
fees from our customers and business partners.
    
    DVD services  Through Redbox and DVDXpress, we offer DVDs through our
self-service kiosks where consumers can rent or purchase movies. Our DVD kiosks
supply the functionality of a traditional video rental store, yet usually occupy an
area of less than ten square feet. Consumers use a touch screen to select their DVD,
swipe a valid credit or debit card, and go. The process is designed to be fast,
efficient and fully automated with no upfront or membership fees. We generate revenue
primarily through fees charged to rent or purchase a DVD.
    
    Money Transfer services  Through Coinstar Money Transfer (CMT) and GroupEx
Financial Corporation, JRJ Express Inc. and Kimeco, LLC (collectively, GroupEx), we
offer money transfer services primarily in the United Kingdom, European countries,
North America, and Central America. Our money transfer services provide an easy to
use, reliable and cost-effective way to send money around the world. We generate
revenue primarily through commissions earned on money transfer transactions.
 21




---



##### Table of Contents




    
    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, selling prepaid phones and
providing payroll card services. 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
   Purchase of the remaining non-controlling interests in Redbox
   Results of Operations
 Sale of Entertainment Business
  22




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##### Table of Contents



Nine Month Periods
    
    
    Three Month PeriodsEnded September 30,
    
    
    Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)(Loss) Income from discontinued operations
(including loss on disposal
of $49.8 million in the third quarter of 2009)
    
    $
    (56,784
    )
    
    $
    (4,390
    )
    
    $
    (50,887
    )
    
    $
    307Income tax benefit (expense) on discontinued
operations
    
    
    2,559
    
    
    
    1,498
    
    
    
    377
    
    
    
    (319
    )One-time income tax benefit on loss on disposal
in 2009
    
    
    82,232
    
    
    
    
    
    
    
    82,232
    
    
    
    Income (loss) from discontinued operations, net
of tax
    
    $
    28,007
    
    
    $
    (2,892
    )
    
    $
    31,722
    
    
    $
    (12
    )
  Summary of operating results
 Total revenue/Total operating income
 Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngTotal consolidated revenue
    
    $
    816.8
    
    
    $
    533.8
    
    
    $
    283.0
    
    
    
    53.0
    %
    
    $
    296.0
    
    
    $
    203.5
    
    
    $
    92.5
    
    
    
    45.5
    %Total consolidated income from operations
    
    $
    67.9
    
    
    $
    55.0
    
    
    $
    12.9
    
    
    
    23.5
    %
    
    $
    27.1
    
    
    $
    20.2
    
    
    $
    6.9
    
    
    
    34.2
    %Income from operations as a % of Total Revenue
    
    
    8.3
    %
    
    
    10.3
    %
    
    
    
    
    
    
    
    
    
    
    9.2
    %
    
    
    9.9
    %
  23




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##### Table of Contents



Segment Revenue/Operating income (loss)
 Coin services
 Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngCoin services revenue
    
    $
    192.4
    
    
    $
    194.8
    
    
    $
    (2.4
    )
    
    
    -1.2
    %
    
    $
    69.5
    
    
    $
    71.0
    
    
    $
    (1.5
    )
    
    
    -2.1
    %Coin services operating income
    
    $
    66.7
    
    
    $
    68.7
    
    
    $
    (2.0
    )
    
    
    -2.9
    %
    
    $
    23.4
    
    
    $
    25.4
    
    
    $
    (2.0
    )
    
    
    -7.9
    %Operating income as a % of segment revenue
    
    
    34.7
    %
    
    
    35.3
    %
    
    
    
    
    
    
    
    
    
    
    33.7
    %
    
    
    35.8
    %
   DVD services
 Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngDVD services revenue
    
    $
    541.7
    
    
    $
    254.6
    
    
    $
    287.1
    
    
    
    112.8
    %
    
    $
    198.1
    
    
    $
    104.2
    
    
    $
    93.9
    
    
    
    90.1
    %DVD services operating income
    
    $
    91.5
    
    
    $
    49.5
    
    
    $
    42.0
    
    
    
    84.8
    %
    
    $
    34.5
    
    
    $
    17.7
    
    
    $
    16.8
    
    
    
    94.9
    %Operating income as a % of segment revenue
    
    
    16.9
    %
    
    
    19.4
    %
    
    
    
    
    
    
    
    
    
    
    17.4
    %
    
    
    17.0
    %
  24




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##### Table of Contents



Money Transfer services
 Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngMoney Transfer services revenue
    
    $
    64.6
    
    
    $
    66.3
    
    
    $
    (1.7
    )
    
    
    -2.6
    %
    
    $
    22.5
    
    
    $
    22.0
    
    
    $
    0.5
    
    
    
    2.3
    %Money Transfer services operating loss
    
    $
    (9.0
    )
    
    $
    (9.4
    )
    
    $
    0.4
    
    
    
    -4.3
    %
    
    $
    (2.2
    )
    
    $
    (2.7
    )
    
    $
    0.5
    
    
    
    -18.5
    %Operating loss as a % of segment revenue
    
    
    -13.9
    %
    
    
    -14.2
    %
    
    
    
    
    
    
    
    
    
    
    -9.8
    %
    
    
    -12.3
    %
   E-payment services
 Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngE-payment revenue
    
    $
    18.1
    
    
    $
    18.1
    
    
    $
    
    
    
    
    0.0
    %
    
    $
    5.9
    
    
    $
    6.3
    
    
    $
    (0.4
    )
    
    
    -6.3
    %E-payment operating (loss) income
    
    $
    (1.3
    )
    
    $
    0.6
    
    
    $
    (1.9
    )
    
    
    -316.7
    %
    
    $
    (0.6
    )
    
    $
    (0.6
    )
    
    $
    
    
    
    
    0.0
    %Operating loss or income as a %
of segment revenue
    
    
    -7.2
    %
    
    
    3.3
    %
    
    
    
    
    
    
    
    
    
    
    -10.2
    %
    
    
    -9.5
    %
   Expenses
 Direct Operating Expenses
  25




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##### Table of Contents



Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngDirect operating expenses
    
    $
    559.1
    
    
    $
    344.2
    
    
    $
    214.9
    
    
    
    62.4
    %
    
    $
    203.7
    
    
    $
    134.3
    
    
    $
    69.4
    
    
    
    51.6
    %as a % of Total Revenue
    
    
    68.5
    %
    
    
    64.5
    %
    
    
    
    
    
    
    
    
    
    
    68.8
    %
    
    
    66.0
    %
  Marketing
  Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngMarketing
    
    $
    16.6
    
    
    $
    13.9
    
    
    $
    2.7
    
    
    
    19.4
    %
    
    $
    5.8
    
    
    $
    7.4
    
    
    $
    (1.6
    )
    
    
    -21.6
    %as a % of Total Revenue
    
    
    2.0
    %
    
    
    2.6
    %
    
    
    
    
    
    
    
    
    
    
    2.0
    %
    
    
    3.6
    %
   Research and Development
  Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngResearch and development
    
    $
    3.9
    
    
    $
    3.6
    
    
    $
    0.3
    
    
    
    8.3
    %
    
    $
    1.4
    
    
    $
    1.2
    
    
    $
    0.2
    
    
    
    16.7
    %as a % of Total Revenue
    
    
    0.5
    %
    
    
    0.7
    %
    
    
    
    
    
    
    
    
    
    
    0.5
    %
    
    
    0.6
    %
  General and Administrative
  26




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##### Table of Contents



Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngGeneral and administrative
    
    $
    96.5
    
    
    $
    65.8
    
    
    $
    30.7
    
    
    
    46.7
    %
    
    $
    32.6
    
    
    $
    23.0
    
    
    $
    9.6
    
    
    
    41.8
    %as a % of Total Revenue
    
    
    11.8
    %
    
    
    12.3
    %
    
    
    
    
    
    
    
    
    
    
    11.0
    %
    
    
    11.3
    %
 Business Combinations
 Proxy, write-off of acquisition costs, and litigation settlement
  Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngProxy, write-off of
acquisition costs, and
litigation settlement
    
    $
    
    
    
    $
    3.1
    
    
    $
    (3.1
    )
    
    
    -100.0
    %
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    0.0
    %as a % of Total Revenue
    
    
    0.0
    %
    
    
    0.6
    %
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %
 Depreciation and Other
  Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngDepreciation and other
    
    $
    66.9
    
    
    $
    42.0
    
    
    $
    24.9
    
    
    
    59.3
    %
    
    $
    23.4
    
    
    $
    15.4
    
    
    $
    8.0
    
    
    
    51.9
    %as a % of Total Revenue
    
    
    8.2
    %
    
    
    7.9
    %
    
    
    
    
    
    
    
    
    
    
    7.9
    %
    
    
    7.6
    %
  Amortization of Intangible Assets
  Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngAmortization of intangible assets
    
    $
    5.9
    
    
    $
    6.2
    
    
    $
    (0.3
    )
    
    
    -4.8
    %
    
    $
    2.0
    
    
    $
    2.0
    
    
    $
    
    
    
    
    0.0
    %as a % of Total Revenue
    
    
    0.7
    %
    
    
    1.2
    %
    
    
    
    
    
    
    
    
    
    
    0.7
    %
    
    
    1.0
    %
  27




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##### Table of Contents



Other Income and Expense
 Nine Month Periods Ended September 30,
    
    Three Month Periods Ended September 30,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % Chng
    
    2009
    
    2008
    
    $ Chng
    
    % ChngForeign currency loss and other, net
    
    $
    (0.3
    )
    
    $
    (2.8
    )
    
    $
    2.5
    
    
    
    -89.3
    %
    
    $
    (0.3
    )
    
    $
    (0.7
    )
    
    $
    0.4
    
    
    
    -57.1
    %Interest income
    
    $
    0.2
    
    
    $
    1.1
    
    
    $
    (0.9
    )
    
    
    -81.8
    %
    
    $
    
    
    
    $
    0.2
    
    
    $
    (0.2
    )
    
    
    -100.0
    %Interest expense
    
    $
    (24.5
    )
    
    $
    (16.1
    )
    
    $
    (8.4
    )
    
    
    52.2
    %
    
    $
    (9.4
    )
    
    $
    (5.4
    )
    
    $
    (4.0
    )
    
    
    74.1
    %Loss from equity investments
    
    $
    
    
    
    $
    (0.3
    )
    
    $
    0.3
    
    
    
    -100.0
    %
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    0.0
    %Early retirement of debt
    
    $
    (1.1
    )
    
    $
    
    
    
    $
    (1.1
    )
    
    
    100.0
    %
    
    $
    (1.1
    )
    
    $
    
    
    
    $
    (1.1
    )
    
    
    100.0
    %Non-controlling interest
    
    $
    (3.6
    )
    
    $
    (10.8
    )
    
    $
    7.2
    
    
    
    -66.7
    %
    
    $
    
    
    
    $
    (3.3
    )
    
    $
    3.3
    
    
    
    -100.0
    %
      Income Tax Expense
  Liquidity and Capital Resources
 Cash and Liquidity
    28




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##### Table of Contents



Credit Facility
  Convertible debt
  Debt
with Conversion and Other Options
 29




---



##### Table of Contents



Letters of Credit
  Interest rate swap
 Cash
Flow Hedges
 Redbox Rollout Agreement
  Capital
Resources
  Off-Balance Sheet Arrangements
  30




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##### Table of Contents



Contractual Obligations
  Payments Due by PeriodContractual Obligations
    
    Total
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter(in thousands)Long-term debt (1)
    
    $
    440,757
    
    
    $
    610
    
    
    $
    2,441
    
    
    $
    2,441
    
    
    $
    235,242
    
    
    $
    23
    
    
    $
    200,000Capital lease obligations (2)
    
    
    65,030
    
    
    
    9,964
    
    
    
    28,908
    
    
    
    18,940
    
    
    
    6,717
    
    
    
    501
    
    
    
    DVD Agreement obligations (3)
    
    
    663,611
    
    
    
    71,455
    
    
    
    100,750
    
    
    
    127,033
    
    
    
    144,555
    
    
    
    144,555
    
    
    
    75,263Total contractual cash obligations
    
    $
    1,169,398
    
    
    $
    82,029
    
    
    $
    132,099
    
    
    $
    148,414
    
    
    $
    386,514
    
    
    $
    145,079
    
    
    $
    275,263
 
 (1)
    
    Long-term debt does not include contractual interest payments as
they are variable in nature. The revolving line of credit totaled $235.0 as of September 30,
2009. We also added $200.0 million in convertible debt during the third quarter of 2009.(2)
    
    Capital lease obligations represent gross minimum lease payments, which includes interest of
approximately $5.7 million. We added approximately $30.4 million in capital leases in the
third quarter of 2009.(3)
    
    See Note 8 to our Consolidated Financial Statements included in this Form 10-Q. The DVD
agreement obligations in the above table are summarized as follows: 
    
    Redbox estimates that it will pay Sony approximately $460.0 million during the term of
the Sony Agreement, which is expected to last from July 1, 2009 until September 30, 2014.
At Sonys discretion, the Sony Agreement may expire earlier on September 30, 2011. The
amounts above reflect the $460.0 million as if the term expires in 2014. The $460.0
million estimate is based on future assumptions including pricing estimates, estimated
number of locations, estimated titles in the kiosk, and estimated title counts.
    
    Redbox estimates that it will pay Lionsgate $158.0 million during the term of the
Lionsgate Agreement, which is expected to last from September 1, 2009 through August 31,
2014. At Lionsgates discretion, the Lionsgate Agreement may expire earlier on August 31,
2011. The amounts above reflect the $158.0 million as if the term expires in 2014. The
$158.0 million estimate is based on future assumptions including pricing estimates,
estimated number of locations, estimated titles in the kiosk, and estimated title counts.
    
    Redbox estimates that it will pay Paramount $45.6 million during the Initial Term of the
Paramount Agreement, which runs from August 25, 2009 through December 31, 2009. This
amount has been included in the 2009 column above. The $45.6 million estimate is based on
future assumptions including price and quantities purchased.
 Quarterly Financial Results
  31




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##### Table of Contents



Three Month Periods EndedSept. 30,
    
    June 30,
    
    March 31,
    
    Dec. 31,
    
    Sept. 30,
    
    June 30,
    
    March 31,
    
    Dec. 31,2009(1)
    
    2009
    
    2009
    
    2008
    
    2008
    
    2008(2)
    
    2008(3)
    
    2007(4)(in thousands, except per share data)(unaudited)Consolidated Statement of Operations:Revenue
    
    $
    295,970
    
    
    $
    282,048
    
    
    $
    238,768
    
    
    $
    227,864
    
    
    $
    203,452
    
    
    $
    184,071
    
    
    $
    146,294
    
    
    $
    82,896Expenses:Direct operating
    
    
    203,650
    
    
    
    193,941
    
    
    
    161,463
    
    
    
    150,079
    
    
    
    134,342
    
    
    
    117,592
    
    
    
    92,298
    
    
    
    49,977Marketing
    
    
    5,833
    
    
    
    5,671
    
    
    
    5,101
    
    
    
    5,251
    
    
    
    7,372
    
    
    
    3,788
    
    
    
    2,786
    
    
    
    1,975Research and development
    
    
    1,360
    
    
    
    1,299
    
    
    
    1,257
    
    
    
    1,180
    
    
    
    1,157
    
    
    
    1,175
    
    
    
    1,246
    
    
    
    1,070General and administrative
    
    
    32,570
    
    
    
    32,379
    
    
    
    31,575
    
    
    
    28,503
    
    
    
    22,997
    
    
    
    23,554
    
    
    
    19,238
    
    
    
    9,984Depreciation and other
    
    
    23,432
    
    
    
    22,844
    
    
    
    20,588
    
    
    
    19,472
    
    
    
    15,384
    
    
    
    14,130
    
    
    
    12,483
    
    
    
    8,401Amortization of intangible assets
    
    
    2,029
    
    
    
    1,961
    
    
    
    1,951
    
    
    
    1,983
    
    
    
    2,041
    
    
    
    2,068
    
    
    
    2,114
    
    
    
    1,435Proxy, write-off of acquisition costs, and litigation
settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,084
    
    
    
    
    
    
    
    Income (loss) from operations
    
    
    27,096
    
    
    
    23,953
    
    
    
    16,833
    
    
    
    21,396
    
    
    
    20,159
    
    
    
    18,680
    
    
    
    16,129
    
    
    
    10,054Foreign currency (loss) gain and other, net
    
    
    (270
    )
    
    
    93
    
    
    
    (162
    )
    
    
    (1,153
    )
    
    
    (717
    )
    
    
    (895
    )
    
    
    (1,163
    )
    
    
    90Interest income
    
    
    30
    
    
    
    46
    
    
    
    108
    
    
    
    155
    
    
    
    180
    
    
    
    625
    
    
    
    258
    
    
    
    197Interest expense
    
    
    (9,372
    )
    
    
    (8,628
    )
    
    
    (6,510
    )
    
    
    (5,453
    )
    
    
    (5,394
    )
    
    
    (5,847
    )
    
    
    (4,832
    )
    
    
    (4,512
    )Income (loss) from equity investments and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    243
    
    
    
    (580
    )
    
    
    472Early retirement of debt
    
    
    (1,082
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,794
    )Income (loss) from continuing operations before income
taxes
    
    
    16,402
    
    
    
    15,464
    
    
    
    10,269
    
    
    
    14,946
    
    
    
    14,227
    
    
    
    12,806
    
    
    
    9,812
    
    
    
    4,507Income taxes
    
    
    (6,761
    )
    
    
    (6,510
    )
    
    
    (2,960
    )
    
    
    (5,018
    )
    
    
    (6,357
    )
    
    
    (3,856
    )
    
    
    (3,059
    )
    
    
    (4,596
    )Income (loss) from continuing operations
    
    
    9,641
    
    
    
    8,954
    
    
    
    7,309
    
    
    
    9,928
    
    
    
    7,870
    
    
    
    8,950
    
    
    
    6,753
    
    
    
    (89
    )Income (loss) from discontinued operations, net of tax
    
    
    31,722
    
    
    
    (1,996
    )
    
    
    (1,719
    )
    
    
    (2,061
    )
    
    
    (12
    )
    
    
    (2,001
    )
    
    
    (879
    )
    
    
    (37,133
    )Net income (loss)
    
    
    41,363
    
    
    
    6,958
    
    
    
    5,590
    
    
    
    7,867
    
    
    
    7,858
    
    
    
    6,949
    
    
    
    5,874
    
    
    
    (37,222
    )Less: Net income attributable to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    (3,627
    )
    
    
    (3,647
    )
    
    
    (3,347
    )
    
    
    (4,269
    )
    
    
    (3,173
    )
    
    
    Net income (loss) attributable to Coinstar, Inc.
    
    $
    41,363
    
    
    $
    6,958
    
    
    $
    1,963
    
    
    $
    4,220
    
    
    $
    4,511
    
    
    $
    2,680
    
    
    $
    2,701
    
    
    $
    (37,222
    )Earnings (loss) per share attributable to Coinstar, Inc:Basic
    
    $
    1.36
    
    
    $
    0.23
    
    
    $
    0.07
    
    
    $
    0.15
    
    
    $
    0.16
    
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    (1.34
    )Diluted
    
    $
    1.34
    
    
    $
    0.23
    
    
    $
    0.07
    
    
    $
    0.15
    
    
    $
    0.16
    
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    (1.34
    )
 
 (1)
    
    In the third quarter of 2009 we sold the Entertainment Business, which is included in
discontinued operations above for all periods presented.(2)
    
    In the second quarter of 2008, we recognized $3.1 million in expense related to a proxy
contest, the write-off of in-process acquisition costs and a litigation settlement.(3)
    
    In the first quarter of 2008, we acquired GroupEx and the majority ownership interest of
Redbox.(4)
    
    In the fourth quarter of 2007, we recorded an impairment and excess inventory charge for the
Entertainment Business, now included as discontinued operations. Seasonality
  Critical Accounting Policies
  32




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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.
    
 Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  33




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Item 1A. Risk Factors
  The termination, non-renewal or renegotiation on materially adverse terms of our contracts with one
or more of our significant retailers could seriously harm our business, financial condition and
results of operations.
   There are many risks related to our DVD services business that may negatively impact our business.
  
    
    Competition from other providers, including those using other
distribution channels, having more experience, greater or more
appealing inventory, better financing, and better relationships with
those in the movie industry, than we have, including:
 
    
    traditional video retailers, like Blockbuster and other local and
regional video stores, and other DVD kiosk businesses;
    
    mail-delivery and online retailers like Netflix or Amazon;
    
    other retailers like Walmart and other chain stores selling DVDs;
    
    pay-per-view/cable/satellite and similar movie content providers like Comcast or HBO;
    
    other forms of movie content providers like Internet sites including iTunes, YouTube, Hulu or Google;
    
    noncommercial sources like libraries; and
 34




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##### Table of Contents




    
    general competition from other forms of entertainment such as movie
theaters, television, sporting events and video gaming.
 
    
    Changes in consumer content delivery preferences, including DVDs with
higher picture/sound quality (e.g., Blu-ray), disposable or
download-to-burn DVDs, more use of personal video recorders (e.g.,
TiVo), pay-per-view/cable/satellite and similar technologies, computer
downloads, online streaming, portable devices (e.g., iPhones), and
other mediums, and less demand for high volume of new movie content
due to such things as larger home DVD and downloaded movie libraries.
    
    Increased availability of movie content inventory through personal
video recorders, pay-per-view/cable/satellite and similar
technologies, computer downloads, online streaming, portable devices,
and other mediums.
    
    Decreased quantity and quality of movie content availability for DVD
distribution due to general-industry-related factors, including
financial disruptions, labor conflicts (e.g., actor/writer strikes) or
movie content failing to appeal to consumers tastes.
    
    The risks described below in Our inability to receive delivery of DVDs on the date of their initial release to the general
public, or shortly thereafter, for home entertainment viewing could adversely affect our DVD
services business. and If we do not manage our DVD inventory
effectively, our business, financial condition and results of
operations could be materially and adversely affected.
    
    Decreased costs related to purchasing or receipt of movie content,
including less expensive DVDs, more aggressive competitor pricing
strategies and piracy, and cheaper use of
pay-per-view/cable/satellite, download and similar technologies.
  Our inability to receive delivery of DVDs on the date of their initial release to the general
public, or shortly thereafter, for home entertainment viewing could adversely affect our DVD
services business.
   35




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##### Table of Contents



If we do not manage our DVD inventory effectively, our business, financial condition and results of
operations could be materially and adversely affected.
   If our sell-back prices to distributors continue to decrease or we are restricted from selling DVDs
at all, or if there is an increase in customer demand for titles or formats that are more expensive
for us to acquire, our margins in the DVD services business could be adversely affected.
  36




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##### Table of Contents



Litigation, arbitration, mediation, regulatory actions, investigations or other legal proceedings
could result in material rulings, decisions, settlements, fines, penalties or publicity that could
adversely affect our business, financial condition and results of operations.
  Our most extensive business relationship is with Walmart, and changes to this relationship have had
and are expected to continue to have material effects on our operations and results.
   If we cannot manage our growth effectively, we could experience a material adverse effect on or
business, financial condition or results of operations .
  37




---



##### Table of Contents



We have substantial indebtedness.
   We may be unable to identify and define product and service trends or anticipate, gauge and react
to changing consumer demands in a timely manner.
  38




---



##### Table of Contents



Utilization of our deferred tax assets may be limited and is dependent on future taxable income.
  Accounting for Income Taxes
 A governmental authority could challenge the amount of our NOL and tax credit carryforwards, or tax
laws, regulations or interpretations could change, negatively impacting our NOL or tax credit
carryforwards.
  We recently experienced changes in our senior management team. The loss of key personnel or the
inability of replacements to quickly and successfully perform in their new roles could adversely
affect our business.
  Competitive pressures could seriously harm our business, financial condition and results of
operations.
  39




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##### Table of Contents



We may be unable to adequately protect or enforce our patents and other proprietary rights.
    40




---



##### Table of Contents



We may be unable to attract new retailers and penetrate new markets and distribution channels.
  Payment of increased service fees to retailers could negatively affect our business results.
  Events outside of our control, including the current economic environment, has and could continue
to negatively affect customers use of our products and services.
   Defects, failures or security breaches in and inadequate upgrade of or changes to our operating
systems could harm our business.
 41




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##### Table of Contents



Failure to adequately comply with information security policies or to safeguard against breaches of
such policies could adversely affect our operations and could damage our business, reputation,
financial position and results of operations.
  Lack of consumer confidence, whether real or perceived, in our coin-counting machines could harm
our business.
  Our future operating results may fluctuate.
  
    
    relationships with manufacturers and suppliers;
    
    fluctuations in revenue generated by our coin-counting, DVD, money
transfer and e-payment products and services;
    
    our ability to establish or maintain relationships with significant retailers on acceptable terms;
 42




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##### Table of Contents




    
    the amount of service fees that we pay to our retailers;
    
    the transaction fees we charge consumers to use our services;
    
    fluctuations in consumer spending patterns;
    
    the successful operation of our coin-counting, DVD, money transfer and e-payment network;
    
    fluctuations in operating expenses caused by various factors,
including petroleum costs, labor costs and transportation costs;
    
    the commercial success of our retailers, which could be affected by
such factors as general economic conditions, severe weather or
strikes;
    
    the level of product and price competition;
    
    fluctuations in interest rates, which affects our debt service obligations;
    
    the timing of, and our ability to develop and successfully commercialize, new or enhanced products and services;
    
    activities of and acquisitions or announcements by competitors; and
    
    the impact from any impairment of inventory, goodwill, fixed assets or intangibles related to our acquisitions.
  We depend upon third-party manufacturers, suppliers and service providers for key components and
substantial support for our coin-counting, e-payment and DVD services machines and equipment.
    43




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We are subject to substantial federal, state, local and foreign laws and government regulation
specific to our business.
   There are risks associated with conducting our business and sourcing goods internationally.
   Our money transfer services business requires us to meet specific federal, state, local and foreign
laws and government regulations, subjecting us to additional risk.
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Our money transfer service is and will remain reliant on an effective agent network.
   Our business involves the movement of large sums of money, and, as a result, our business is
particularly dependent on our ability to process and settle transactions accurately and
efficiently.
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Our customers ability to access our products and services can be adversely affected by severe
weather, natural disasters and other events beyond our control, such as fires, power failures,
telecommunication loss and terrorist attacks.
  Acquisitions and investments involve risks that could harm our business and impair our ability to
realize potential benefits from such acquisitions and investments.
  
    
    the assumption of known and unknown liabilities of an acquired
company, including employee and intellectual property claims and other
violations of applicable law;
    
    losses related to acquisitions and investments (for example, losses
related to our prior Entertainment Business line);
    
    managing relationships with other investors and the companies in which we have made investments;
    
    reduced liquidity, including through the use of cash resources and
incurrence of debt and contingent liabilities in funding acquisitions
and investments;
    
    difficulties and expenses in assimilating the operations, products,
technology, information systems or personnel of an acquired company;
    
    inability to efficiently divest unsuccessful acquisitions and investments;
    
    stockholder dilution if an acquisition is consummated through an issuance of our securities;
    
    imposition of restrictive covenants and increased debt service
obligations that provide us less flexibility in how we operate our
business to the extent we borrow to finance an acquisition;
    
    amortization expenses related to acquired intangible assets and other adverse accounting consequences;
    
    costs incurred in identifying and performing due diligence on
potential targets that may or may not be successful;
    
    impairment of relationships with employees, retailers and affiliates of our business and the acquired business;
    
    entrance into markets in which we have no direct prior experience; and
    
    impairment of goodwill arising from our acquisitions and investments.
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We may be subject to product liability claims if property or people are harmed by our products and
services.
  Our stock price has been and may continue to be volatile.
  
    
    the termination, non-renewal or re-negotiation of one or more retailer, supplier or distributor relationships;
    
    trends and fluctuations in the use of our coin, DVD, money transfer and e-payment services;
    
    developments in our contractual obligations or litigation with movie studios and DVD distributors;
    
    operating results below market expectations and changes in, or our
failure to meet, financial estimates of securities analysts or our own
guidance;
    
    acquisition, merger, investment and disposition activities;
    
    period-to-period fluctuations in our financial results;
    
    announcements of technological innovations or new products or services by us or our competitors;
    
    announcements regarding the establishment, modification or termination
of relationships regarding the development of new or enhanced products
and services;
    
    release of analyst reports;
    
    economic or other external factors, for example, those relating to the
current economic environment and fluctuations in the trading price of
stocks generally;
    
    ineffective internal controls; and
    
    industry developments.
  Our anti-takeover mechanisms may affect the price of our common stock and make it harder for a
third party to acquire us without the consent of our board of directors.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     
 Item 6. Exhibits
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Exhibit Number
    
    Description4.1
    
    Restricted Stock Purchase Agreement, dated as of July 17, 2009, between Coinstar, Inc. and Sony Pictures
Home Entertainment Inc.10.1*
    
    Amendment to Employment Agreement between Coinstar, Inc. and John Harvey. (1)10.2*
    
    Second Amendment to Letter Agreement, dated as of September 7, 2009, between Coinstar, Inc. and
John Harvey. (2)10.3
    
    Stock and Interest Purchase Agreement among Coinstar Entertainment Services, Inc., Entertainment
Vending Management, LLC, Sesame Holdings, Inc., Coinstar, Inc. and National Entertainment
Network, Inc. dated as of September 8, 2009. (2)10.4
    
    Indenture, dated as of September 16, 2009, between Coinstar, Inc. and Wells Fargo Bank, N.A. (3)10.5
    
    First Supplemental Indenture, dated as of September 16, 2009, between Coinstar, Inc. and Wells Fargo Bank,
N.A. (3)10.6
    
    Form of 4.00% Senior Convertible Note due 2014. (3)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.
 
 *
    
    Includes a management contract or compensatory plan or arrangement.(1)
    
    Incorporated by reference to the Registrants Form 8-K filed on September 8, 2009 (File
Number 000-22555).(2)
    
    Incorporated by reference to the Registrants Form 8-K filed on September 9, 2009 (File
Number 000-22555).(3)
    
    Incorporated by reference to the Registrants Form 8-K filed on September 16, 2009 (File
Number 000-22555). 49




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SIGNATURE
  Coinstar, Inc.By:
    /s/ JOHN C. HARVEYJohn C. HarveyChief Financial OfficerNovember 5, 2009 50