##### 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 March 31, 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
    
    98004(Address of principal executive offices)
    
    (Zip Code)
 (425) 943-8000
(Registrants telephone number, including area code)
 
 þ o
 o o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Class
    
    Outstanding at April 24, 2009Common Stock, $0.001 par value
    
    30,187,638




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##### 



COINSTAR, INC.
 FORM 10-Q
Index
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008
    
    Page 3Consolidated Statements of Operations for the three month periods ended March
31, 2009 and March 31, 2008 (unaudited)
    
    Page 4Consolidated Statement of Equity and Comprehensive Income for the three month period
ended March 31, 2009 (unaudited)
    
    Page 5Consolidated Statements of Cash Flows for the three month periods ended March
31, 2009 and March 31, 2008 (unaudited)
    
    Page 6Notes to Consolidated Financial Statements for the three month periods ended March
31, 2009 and March 31, 2008 (unaudited)
    
    Page 7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    Page 17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    Page 26Item 4. Controls and Procedures
    
    Page 26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    Page 27Item 1A. Risk Factors
    
    Page 27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page 27Item 6. Exhibits
    
    Page 28SIGNATURE
    
    Page 29EX-10.4EX-10.8EX-10.12EX-10.17EX-10.18EX-10.19EX-10.20EX-10.21EX-10.22EX-10.23EX-10.24EX-10.25EX-10.26EX-10.27EX-10.28EX-10.29EX-31.1EX-31.2EX-32.1EX-32.2
  2




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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 31,2009
    
    
    2008ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    59,431
    
    
    $
    66,408Cash in machine or in transit
    
    
    42,641
    
    
    
    34,583Cash being processed
    
    
    76,734
    
    
    
    91,044Accounts receivable, net of allowance for doubtful accounts of $3,456 and $2,702
at March 31, 2009 and December 31, 2008, respectively
    
    
    60,209
    
    
    
    51,908Inventory
    
    
    99,872
    
    
    
    92,247Deferred income taxes
    
    
    9,352
    
    
    
    6,881Prepaid expenses and other current assets
    
    
    25,821
    
    
    
    24,715Total current assets
    
    
    374,060
    
    
    
    367,786PROPERTY AND EQUIPMENT, NET
    
    
    367,367
    
    
    
    352,753DEFERRED INCOME TAXES
    
    
    45,011
    
    
    
    4,338OTHER ASSETS
    
    
    9,293
    
    
    
    8,061INTANGIBLE ASSETS, NET
    
    
    40,784
    
    
    
    43,385GOODWILL
    
    
    288,734
    
    
    
    290,391TOTAL ASSETS
    
    $
    1,125,249
    
    
    $
    1,066,714LIABILITIES AND EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    122,190
    
    
    $
    132,194Accrued payable to retailers and agents
    
    
    109,012
    
    
    
    118,503Other accrued liabilities
    
    
    90,939
    
    
    
    101,487Current portion of long-term debt and capital lease obligations
    
    
    27,445
    
    
    
    31,919Total current liabilities
    
    
    349,586
    
    
    
    384,103LONG-TERM DEBT, CAPITAL LEASE OBLIGATIONS AND OTHER
    
    
    463,210
    
    
    
    319,451DEFERRED TAX LIABILITY
    
    
    129
    
    
    
    12,072TOTAL LIABILITIES
    
    
    812,925
    
    
    
    715,626EQUITY:Preferred stock, $0.001 par valueAuthorized, 5,000,000 shares; no shares issued
and outstanding at March 31, 2009 and December 31, 2008
    
    
    
    
    
    
    Common stock, $0.001 par valueAuthorized, 45,000,000 shares; 32,124,664 and
30,181,151 issued and 30,198,583 and 28,255,070 shares outstanding at
March 31, 2009 and December 31, 2008,
respectively
    
    
    363,885
    
    
    
    369,735Accumulated deficit
    
    
    (709
    )
    
    
    (2,672
    )Treasury stock
    
    
    (40,831
    )
    
    
    (40,831
    )Accumulated other comprehensive loss
    
    
    (10,021
    )
    
    
    (6,204
    )Total stockholders equity
    
    
    312,324
    
    
    
    320,028Non-controlling interest
    
    
    
    
    
    
    31,060Total equity
    
    
    312,324
    
    
    
    351,088TOTAL LIABILITIES AND EQUITY
    
    $
    1,125,249
    
    
    $
    1,066,714
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COINSTAR, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)

(unaudited)
 Three Month PeriodsEnded March 31,2009
    
    
    2008REVENUE
    
    $
    271,155
    
    
    $
    190,519EXPENSES:Direct operating (1)
    
    
    192,026
    
    
    
    131,310Marketing
    
    
    5,135
    
    
    
    2,803Research and development
    
    
    1,257
    
    
    
    1,246General and administrative
    
    
    33,298
    
    
    
    21,096Depreciation and other (1)
    
    
    23,145
    
    
    
    16,971Amortization of intangible assets
    
    
    2,181
    
    
    
    2,342Income from operations
    
    
    14,113
    
    
    
    14,751OTHER INCOME (EXPENSE):Foreign currency loss and other
    
    
    (159
    )
    
    
    (1,128
    )Interest income
    
    
    114
    
    
    
    259Interest expense
    
    
    (6,539
    )
    
    
    (4,916
    )Loss from equity investments
    
    
    
    
    
    
    (580
    )Income before income taxes
    
    
    7,529
    
    
    
    8,386Income tax expense
    
    
    (1,939
    )
    
    
    (2,512
    )NET INCOME
    
    
    5,590
    
    
    
    5,874Less: Net income attributable to non-controlling
interests
    
    
    (3,627
    )
    
    
    (3,173
    )NET INCOME ATTRIBUTABLE TO COINSTAR,
INC.
    
    $
    1,963
    
    
    $
    2,701
 
 (1)
    
    Direct operating above excludes depreciation and other of $18.9 million and $15.2 million for the three month periods ended
March 31, 2009 and March 31, 2008, respectively. EARNINGS PER SHARE:Basic earnings per share attributable to Coinstar,
Inc.
    
    $
    0.07
    
    
    $
    0.10Diluted earnings per share attributable to Coinstar,
Inc.
    
    $
    0.07
    
    
    $
    0.10WEIGHTED SHARES OUTSTANDING:Basic
    
    
    28,933
    
    
    
    27,783Diluted
    
    
    29,212
    
    
    
    28,236
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COINSTAR, INC.
 
 CONSOLIDATED STATEMENT OF EQUITY AND COMPREHENSIVE INCOME
 Three Month Period Ended March 31, 2009
 (in thousands, except share data)
 (unaudited)
 AccumulatedRetained Earnings
    
    
    
    
    
    
    OtherCommon Stock
    
    
    (Accumulated
    
    
    Treasury
    
    
    Comprehensive
    
    
    Non- controlling
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Deficit)
    
    
    Stock
    
    
    Loss
    
    
    Interest
    
    
    Total
    
    
    Income (Loss)BALANCE, December 31, 2008
    
    
    28,255,070
    
    
    $
    369,735
    
    
    $
    (2,672
    )
    
    $
    (40,831
    )
    
    $
    (6,204
    )
    
    $
    31,060
    
    
    $
    351,088Proceeds from exercise of stock
options, net
    
    
    28,187
    
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115Stock-based compensation expense
    
    
    167,424
    
    
    
    2,446
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    349
    
    
    
    2,795Tax deficiency on stock-based compensation expense
    
    
    
    
    
    
    (153
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153
    )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
    
    
    
    
    
    
    
    
    
    
    1,963
    
    
    
    
    
    
    
    
    
    
    
    3,627
    
    
    
    5,590
    
    
    $
    5,590Loss on short-term investments
net of tax benefit of $12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Foreign currency translation adjustments
net of tax benefit of $46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,732
    )
    
    
    
    
    
    
    (3,732
    )
    
    
    (3,732
    )Interest rate hedges on long-term debt
net of tax benefit of $42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    (66
    )
    
    
    (66
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,773Less: Comprehensive income attributable to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,627
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,854
    )BALANCE, March 31, 2009
    
    
    30,198,583
    
    
    $
    363,885
    
    
    $
    (709
    )
    
    $
    (40,831
    )
    
    $
    (10,021
    )
    
    $
    
    
    
    $
    312,324
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COINSTAR, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 (unaudited)
 Three Month PeriodsEnded March 31,2009
    
    
    2008OPERATING ACTIVITIES:Net income attributable to Coinstar, Inc.
    
    $
    1,963
    
    
    $
    2,701Adjustments to reconcile income from operations to net
cash provided by operating activities:Depreciation and other
    
    
    23,145
    
    
    
    16,971Amortization of intangible assets and deferred financing fees
    
    
    2,347
    
    
    
    2,444Write-off of acquisition costs
    
    
    1,262
    
    
    
    Non-cash stock-based compensation
    
    
    2,795
    
    
    
    2,114Excess tax benefit on share-based awards
    
    
    (33
    )
    
    
    (148
    )Deferred income taxes
    
    
    1,742
    
    
    
    2,449Income from equity investments
    
    
    
    
    
    
    580Non-controlling interest
    
    
    3,627
    
    
    
    3,173Other
    
    
    236
    
    
    
    (4
    )Cash (used) provided by changes in operating assets and liabilities,
net of effects of business acquisitions:Accounts receivable
    
    
    (8,778
    )
    
    
    13,989Inventory
    
    
    (7,598
    )
    
    
    (3,380
    )Prepaid expenses and other current assets
    
    
    (3,029
    )
    
    
    (4,008
    )Other assets
    
    
    526
    
    
    
    (138
    )Accounts payable
    
    
    (9,636
    )
    
    
    (2,152
    )Accrued payable to retailers and agents
    
    
    (8,395
    )
    
    
    (8,864
    )Other accrued liabilities
    
    
    (11,803
    )
    
    
    (3,211
    )Net cash (used) provided by operating activities
    
    
    (11,629
    )
    
    
    22,516INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (37,280
    )
    
    
    (31,883
    )Acquisitions, net of cash acquired of $43,621
    
    
    
    
    
    
    (21,485
    )Proceeds from sale of fixed assets
    
    
    170
    
    
    
    769Net cash used by investing activities
    
    
    (37,110
    )
    
    
    (52,599
    )FINANCING ACTIVITIES:Principal payments on capital lease obligations
    
    
    (6,771
    )
    
    
    (4,079
    )Net borrowings on credit facility
    
    
    55,000
    
    
    
    34,500Financing costs associated with revolving line of credit
    
    
    (1,905
    )
    
    
    Cash used to purchase remaining non-controlling interests in Redbox
    
    
    (10,083
    )
    
    
    Excess tax benefit on share-based awards
    
    
    33
    
    
    
    148Proceeds from exercise of stock options
    
    
    418
    
    
    
    3,093Net cash provided by financing activities
    
    
    36,692
    
    
    
    33,662Effect of exchange rate changes on cash
    
    
    (1,182
    )
    
    
    1,372NET DECREASE IN CASH AND CASH EQUIVALENTS, CASH IN
MACHINE OR IN TRANSIT, AND CASH BEING PROCESSED
    
    
    (13,229
    )
    
    
    4,951CASH AND CASH EQUIVALENTS, CASH IN MACHINE OR IN TRANSIT, AND
CASH BEING PROCESSED:Beginning of period
    
    
    192,035
    
    
    
    196,592End of period
    
    $
    178,806
    
    
    $
    201,543SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    4,788
    
    
    $
    2,498Cash paid during the period for income taxes
    
    
    385
    
    
    
    4,155SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:Non-cash consideration for purchase of Redbox non-controlling interest
    
    $
    149,598
    
    
    $
    Purchase of vehicles financed by capital lease obligations
    
    
    1,354
    
    
    
    640Accrued acquisition costs
    
    
    
    
    
    
    10,170
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COINSTAR, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Three Month Periods Ended March 31, 2009 and 2008
(unaudited)
 NOTE 1: ORGANIZATION, BUSINESS, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of company: ®
 Coin-counting machines
    
    
    18,400
    *Entertainment services machines
    
    
    142,000DVD kiosks
    
    
    15,400Money transfer services locations
    
    
    41,000E-payment point-of-sale terminals
    
    
    23,000E-payment enabled coin-counting kiosks
    
    
    11,000
 
 *
    
    Amount includes 11,000 E-payment coin-counting kiosks. Basis of presentation:
  Principles of consolidation: Consolidation of Variable Interest Entities
  Use of estimates
 7




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##### Table of Contents



.
 Revenue recognition:
 
    
    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 machines. Cash deposited in machines 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;
    
    DVD revenue is recognized during the term of a customers rental transaction or
purchase and is recorded net of applicable sales taxes;
    
    Money transfer revenue represents the commissions earned on a money transfer
transaction and is recognized at the time the customer completes the transaction;
    
    Entertainment revenue is recognized at the time cash is deposited in our machines.
Cash deposited in the machines that has not yet been collected is referred to as cash in
machine and is estimated at period end and reported on the balance sheet under the caption
Cash in machine or in transit. This estimate is based on the average daily revenue per
machine, multiplied by the number of days since the coin in the machine has been
collected. The estimated value of our entertainment services coin-in-machine was
approximately $3.7 million and $3.0 million at March 31, 2009 and December 31, 2008,
respectively;
    
    E-payment revenue is recognized at the point of sale based on our commissions earned,
net of retailer fees.
 Interest rate swap: Accounting for Derivative Instruments and Hedging Activities
 Fair valueMarch 31,
    
    December 31,Balance sheet location
    
    2009
    
    2008(in thousands)Interest rate swap
    
    Other accrued liabilities
    
    $
    7,574
    
    
    $
    7,466
 Fair value Fair Value Measures
   8




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       Level 1: Observable inputs such as quoted prices in active markets for identical
assets or liabilities       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 March 31, 2009Level 1
    
    Level 2
    
    Level 3Short-term
investment
    
    $
    1,860
    
    
    
    
    
    
    
    Interest rate swap liability
    
    
    
    
    
    $
    7,574
    
    
    
    
 Recent accounting pronouncements Business Combinations
 Noncontrolling Interests in
Consolidated Financial StatementsAn Amendment of ARB No. 51
 Disclosures about Derivative Instruments and Hedging Activities
 Contingency
 9




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NOTE 2: PURCHASE OF NON-CONTROLLING INTERESTS IN REDBOX
     Noncontrolling Interests in Consolidated Financial
Statements
 Secured credit facility:
 10




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##### Table of Contents



NOTE 3: PROPERTY AND EQUIPMENT
 March 31,
    
    
    December 31,2009
    
    
    2008(in thousands)Machines
    
    $
    645,756
    
    
    $
    612,583Computers
    
    
    33,199
    
    
    
    32,277Office furniture and equipment
    
    
    13,642
    
    
    
    13,202Vehicles
    
    
    21,898
    
    
    
    21,611Leasehold improvements
    
    
    3,675
    
    
    
    3,715718,170
    
    
    
    683,388Accumulated
depreciation and amortization
    
    
    (350,803
    )
    
    
    (330,635
    )$
    367,367
    
    
    $
    352,753
 NOTE 4: STOCK-BASED COMPENSATION
 Stock-based compensation: ), Share-Based Payment
  Three Month PeriodsEnded March 31,2009
    
    2008Expected term (in years)
    
    
    3.7
    
    
    
    3.7Expected stock price volatility
    
    
    38
    %
    
    
    35
    %Risk-free interest rate
    
    
    1.4
    %
    
    
    2.1
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Estimated fair value per option
granted
    
    $
    8.82
    
    
    $
    9.42
   Three Month PeriodsEnded March 31,2009
    
    2008(in thousands)Stock-based compensation expense
    
    $
    2,795
    
    
    $
    2,114Related deferred tax benefit
    
    
    844
    
    
    
    434
 Stock options:
  11




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Weightedaverage exerciseShares
    
    
    priceOUTSTANDING, December 31, 2008
    
    
    2,689
    
    
    $
    25.24Granted
    
    
    571
    
    
    $
    29.03Exercised
    
    
    (28
    )
    
    $
    21.51Cancelled, expired or forfeited
    
    
    (74
    )
    
    $
    30.17OUTSTANDING, March 31, 2009
    
    
    3,158
    
    
    
    25.83EXERCISABLE, March 31, 2009
    
    
    1,968
    
    
    
    23.37
  Restricted stock awards:
  Weightedaveragegrant dateShares
    
    
    fair valueNON-VESTED, December 31, 2008
    
    
    135
    
    
    $
    30.36Granted
    
    
    186
    
    
    
    28.94Vested
    
    
    (65
    )
    
    
    30.08Forfeited
    
    
    (9
    )
    
    
    31.16NON-VESTED, March 31, 2009
    
    
    247
    
    
    
    29.93
  NOTE 5: INCOME PER SHARE
  12




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Three Month PeriodsEnded March 31,2009
    
    
    2008(in thousands)Numerator:Net income attributable to Coinstar, Inc.
    
    $
    1,963
    
    
    $
    2,701Denominator:Weighted average shares for basic calculation
    
    
    28,933
    
    
    
    27,783Incremental shares from employee stock options and
awards
    
    
    279
    
    
    
    453Weighted average shares for diluted calculation
    
    
    29,212
    
    
    
    28,236
  NOTE 6: BUSINESS SEGMENT INFORMATION
 Disclosure about Segments of an Enterprise and Related Information
 Three Month PeriodsEnded March 31,2009
    
    
    2008(in thousands)Revenue:Coin and entertainment services:Coin revenue
    
    $
    57,987
    
    
    $
    59,243Entertainment revenue
    
    
    32,387
    
    
    
    44,225Subtotal
    
    
    90,374
    
    
    
    103,468DVD services
    
    
    154,697
    
    
    
    60,513
    *Money transfer services
    
    
    19,931
    
    
    
    20,470E-payment services
    
    
    6,153
    
    
    
    6,068Consolidated revenue
    
    $
    271,155
    
    
    $
    190,519
 
 *
    
    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.  13




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##### Table of Contents



Three Month PeriodsEnded March 31,2009
    
    
    2008(in thousands)Operating income before depreciation/amortization
and unallocated expenses:Coin and entertainment services
    
    $
    19,550
    
    
    $
    24,803DVD services
    
    
    26,617
    
    
    
    12,869Money transfer services
    
    
    (3,808
    )
    
    
    (1,823
    )E-payment services
    
    
    (125
    )
    
    
    329Subtotal
    
    
    42,234
    
    
    
    36,178Depreciation/amortization and unallocated corporate expenses:Depreciation, amortization and other
    
    
    (25,326
    )
    
    
    (19,313
    )Unallocated expense  stock-based compensation
    
    
    (2,795
    )
    
    
    (2,114
    )Subtotal
    
    
    (28,121
    )
    
    
    (21,427
    )Consolidated income from operations
    
    $
    14,113
    
    
    $
    14,751
 March 31,
    
    
    December 31,2009
    
    
    2008(in thousands)
    
    
    (in thousands)Total assets:Coin and entertainment services
    
    $
    508,632
    
    
    $
    473,256DVD services
    
    
    445,178
    
    
    
    378,092Money transfer services
    
    
    117,123
    
    
    
    105,645E-payment services
    
    
    39,083
    
    
    
    35,963Unallocated corporate assets
    
    
    15,233
    
    
    
    73,758Consolidated assets
    
    $
    1,125,249
    
    
    $
    1,066,714
  14




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##### Table of Contents



Three Month PeriodsEnded March 31,2009
    
    
    2008(in thousands)Revenue:North America
    
    $
    256,656
    
    
    $
    174,375International
    
    
    14,499
    
    
    
    16,144Total revenue
    
    $
    271,155
    
    
    $
    190,519Net income (loss) attributable to Coinstar, Inc.:North America
    
    $
    4,712
    
    
    $
    6,568International
    
    
    (2,749
    )
    
    
    (3,867
    )Total net income
    
    $
    1,963
    
    
    $
    2,701
 March 31,
    
    
    December 31,2009
    
    
    2008(in thousands)Total assets:North America
    
    $
    1,107,194
    
    
    $
    1,025,362International
    
    
    119,431
    
    
    
    138,868Intercompany eliminations
    
    
    (101,376
    )
    
    
    (97,516
    )Total assets
    
    $
    1,125,249
    
    
    $
    1,066,714
  NOTE 7: SUBSEQUENT EVENT
   Pricing Level
    
    Consolidated Leverage Ratio
    
    Eurodollar Rate +
    
    Base Rate +1
    
    £1.50 to 1.00
    
    
    3.75
    
    
    
    2.752
    
    >1.50 to 1.00 but £2.00 to 1.00
    
    
    4.00
    
    
    
    3.003
    
    >2.00 to 1.00 but £2.50 to 1.00
    
    
    4.25
    
    
    
    3.254
    
    >2.50 to 1.00 but £3.00 to 1.00
    
    
    4.50
    
    
    
    3.505
    
    >3.00 to 1.00
    
    
    4.75
    
    
    
    3.75
 15




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16




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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
 th ® th
 Management of Business Segments
  
    
    Coin and Entertainment services  We offer self-service coin-counting services and
entertainment services such as skill-crane machines, bulk vending machines and kiddie
rides. We own and service all of our coin-counting and entertainment services
machines, 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
machines 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. We also generate revenue from money deposited into our
entertainment machines for plush toys, novelties and other items.
    
    DVD services  Through Redbox and DVDXpress, we offer self-service DVD offerings
through 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.
    
    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.
 17




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##### Table of Contents



Strategy
   Purchase of the remaining non-controlling interests in Redbox
   Noncontrolling Interests in Consolidated Financial
Statements
 Recent events
   18




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##### Table of Contents



Results of Operations
 Summary of operating results
 Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngTotal consolidated revenue
    
    $
    271.2
    
    
    $
    190.5
    
    
    $
    80.7
    
    
    
    42.4
    %Total consolidated income from operations
    
    $
    14.1
    
    
    $
    14.8
    
    
    $
    (0.7
    )
    
    
    -4.7
    %
   Segment Revenue/Operating income (loss)
 Coin and Entertainment services
 Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngCoin and Entertainment services revenue
    
    $
    90.4
    
    
    $
    103.4
    
    
    $
    (13.0
    )
    
    
    -12.6
    %Coin and Entertainment services operating income
    
    $
    19.6
    
    
    $
    24.8
    
    
    $
    (5.3
    )
    
    
    -21.2
    %
   DVD services
 Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngDVD services revenue
    
    $
    154.7
    
    
    $
    60.5
    
    
    $
    94.2
    
    
    
    155.7
    %DVD services operating income
    
    $
    26.6
    
    
    $
    12.9
    
    
    $
    13.7
    
    
    
    106.3
    %
  19




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##### Table of Contents



Money Transfer services
 Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngMoney Transfer services revenue
    
    $
    19.9
    
    
    $
    20.5
    
    
    $
    (0.6
    )
    
    
    -2.9
    %Money Transfer services operating loss
    
    $
    (3.8
    )
    
    $
    (1.8
    )
    
    $
    (2.0
    )
    
    
    111.6
    %
   E-payment services
 Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngE-payment revenue
    
    $
    6.2
    
    
    $
    6.1
    
    
    $
    0.1
    
    
    
    1.6
    %E-payment operating (loss) income
    
    $
    (0.1
    )
    
    $
    0.3
    
    
    $
    (0.4
    )
    
    
    -141.7
    %
  ,
 Expenses
 Direct Operating Expenses
  Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngDirect operating expenses
    
    $
    192.0
    
    
    $
    131.3
    
    
    $
    60.7
    
    
    
    46.2
    %as a % of Total Revenue
    
    
    70.8
    %
    
    
    68.9
    %
  20




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##### Table of Contents



Marketing
  Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngMarketing
    
    $
    5.1
    
    
    $
    2.8
    
    
    $
    2.3
    
    
    
    82.1
    %as a % of Total Revenue
    
    
    1.9
    %
    
    
    1.5
    %
  Research and Development
  Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngResearch and development
    
    $
    1.3
    
    
    $
    1.2
    
    
    $
    0.1
    
    
    
    8.3
    %as a % of Total Revenue
    
    
    0.5
    %
    
    
    0.6
    %
  General and Administrative
  Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngGeneral and administrative
    
    $
    33.3
    
    
    $
    21.1
    
    
    $
    12.2
    
    
    
    57.8
    %as a % of Total Revenue
    
    
    12.3
    %
    
    
    11.1
    %
  Depreciation and Other
  Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngDepreciation and other
    
    $
    23.1
    
    
    $
    17.0
    
    
    $
    6.1
    
    
    
    35.9
    %as a % of Total Revenue
    
    
    8.5
    %
    
    
    8.9
    %
  21




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##### Table of Contents



Amortization of Intangible Assets
  Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngAmortization of intangible assets
    
    $
    2.2
    
    
    $
    2.3
    
    
    $
    (0.1
    )
    
    
    -4.3
    %as a % of Total Revenue
    
    
    0.8
    %
    
    
    1.2
    %
  Other Income and Expense
 Three Month Periods Ended March 31,(In millions, except percentages)
    
    2009
    
    2008
    
    $ Chng
    
    % ChngForeign currency loss and other
    
    $
    (0.2
    )
    
    $
    (1.1
    )
    
    $
    0.9
    
    
    
    -81.8
    %Interest income
    
    $
    0.1
    
    
    $
    0.3
    
    
    $
    (0.2
    )
    
    
    -66.7
    %Interest expense
    
    $
    (6.5
    )
    
    $
    (4.9
    )
    
    $
    (1.6
    )
    
    
    32.7
    %Loss from equity investments
    
    $
    
    
    
    $
    (0.6
    )
    
    $
    0.6
    
    
    
    -100.0
    %Non-controlling interest
    
    $
    (3.6
    )
    
    $
    (3.2
    )
    
    $
    (0.4
    )
    
    
    12.5
    %
     Income Tax Expense
  Liquidity and Capital Resources
 Cash and Liquidity
   22




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##### Table of Contents



Credit Facility
      23




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##### Table of Contents



Accounting for Derivative Instruments and Hedging Activities
   Off-Balance Sheet Arrangements
  24




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##### Table of Contents



Contractual Obligations
  Quarterly Financial Results
  Three Month Periods EndedMar. 31,
    
    
    Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    March 31,
    
    
    Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2008
    
    
    2008 (1)
    
    
    2008 (2)
    
    
    2007 (3)
    
    
    2007 (4)
    
    
    2007(in thousands, except per share data)(unaudited)Consolidated Statement of Operations:Revenue
    
    $
    271,155
    
    
    $
    260,981
    
    
    $
    240,497
    
    
    $
    219,903
    
    
    $
    190,519
    
    
    $
    133,314
    
    
    $
    143,291
    
    
    $
    137,356Expenses:Direct operating
    
    
    192,026
    
    
    
    179,545
    
    
    
    167,421
    
    
    
    150,509
    
    
    
    131,310
    
    
    
    85,112
    
    
    
    86,721
    
    
    
    92,570Marketing
    
    
    5,135
    
    
    
    5,311
    
    
    
    7,374
    
    
    
    3,815
    
    
    
    2,803
    
    
    
    2,009
    
    
    
    5,650
    
    
    
    2,614Research and development
    
    
    1,257
    
    
    
    1,180
    
    
    
    1,157
    
    
    
    1,175
    
    
    
    1,246
    
    
    
    1,070
    
    
    
    1,397
    
    
    
    1,345General and administrative
    
    
    33,298
    
    
    
    30,872
    
    
    
    24,060
    
    
    
    24,706
    
    
    
    21,096
    
    
    
    13,857
    
    
    
    15,685
    
    
    
    13,404Depreciation and other
    
    
    23,145
    
    
    
    23,089
    
    
    
    17,746
    
    
    
    18,855
    
    
    
    16,971
    
    
    
    14,724
    
    
    
    15,100
    
    
    
    14,549Amortization of intangible assets
    
    
    2,181
    
    
    
    2,213
    
    
    
    2,271
    
    
    
    2,298
    
    
    
    2,342
    
    
    
    1,962
    
    
    
    1,813
    
    
    
    1,817Impairment and excess inventory charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,220
    
    
    
    
    
    
    
    Proxy, write-off of acquisition costs, and litigation settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,084
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from operations
    
    
    14,113
    
    
    
    18,771
    
    
    
    20,468
    
    
    
    15,461
    
    
    
    14,751
    
    
    
    (50,640
    )
    
    
    16,925
    
    
    
    11,057Foreign currency (loss) gain and other
    
    
    (159
    )
    
    
    (1,149
    )
    
    
    (709
    )
    
    
    (890
    )
    
    
    (1,128
    )
    
    
    91
    
    
    
    699
    
    
    
    (20
    )Interest income
    
    
    114
    
    
    
    155
    
    
    
    180
    
    
    
    626
    
    
    
    259
    
    
    
    201
    
    
    
    1,109
    
    
    
    193Interest expense
    
    
    (6,539
    )
    
    
    (5,490
    )
    
    
    (5,404
    )
    
    
    (5,906
    )
    
    
    (4,916
    )
    
    
    (4,605
    )
    
    
    (4,365
    )
    
    
    (4,125
    )Income (loss) from equity investments and other
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    243
    
    
    
    (580
    )
    
    
    472
    
    
    
    2,217
    
    
    
    (1,101
    )Early retirement of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,794
    )
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    7,529
    
    
    
    12,288
    
    
    
    14,534
    
    
    
    9,534
    
    
    
    8,386
    
    
    
    (56,275
    )
    
    
    16,585
    
    
    
    6,004Income taxes
    
    
    (1,939
    )
    
    
    (4,421
    )
    
    
    (6,676
    )
    
    
    (2,585
    )
    
    
    (2,512
    )
    
    
    19,053
    
    
    
    (7,520
    )
    
    
    (2,656
    )Net income (loss)
    
    $
    5,590
    
    
    $
    7,867
    
    
    $
    7,858
    
    
    $
    6,949
    
    
    $
    5,874
    
    
    $
    (37,222
    )
    
    $
    9,065
    
    
    $
    3,348Less: Net income attributable to non-controlling
interests
    
    
    (3,627
    )
    
    
    (3,647
    )
    
    
    (3,347
    )
    
    
    (4,269
    )
    
    
    (3,173
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss) attributable to Coinstar, Inc.
    
    $
    1,963
    
    
    $
    4,220
    
    
    $
    4,511
    
    
    $
    2,680
    
    
    $
    2,701
    
    
    $
    (37,222
    )
    
    $
    9,065
    
    
    $
    3,348Earnings (loss) per share:Basic
    
    $
    0.07
    
    
    $
    0.15
    
    
    $
    0.16
    
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    (1.34
    )
    
    $
    0.33
    
    
    $
    0.12Diluted
    
    $
    0.07
    
    
    $
    0.15
    
    
    $
    0.16
    
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    (1.34
    )
    
    $
    0.32
    
    
    $
    0.12
 
 (1)
    
    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.(2)
    
    In the first quarter of 2008, we acquired GroupEx and the majority ownership interest of
Redbox.(3)
    
    In the fourth quarter of 2007, we recorded an impairment and excess inventory charge.(4)
    
    In the third quarter of 2007, we recognized a telecommunication fee refund. The net income
effect of the refund, net of taxes, monies owed to a joint venture and other effects was
approximately $6.5 million in the third quarter of 2007. Seasonality
  25




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Critical Accounting Policies
  
 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
   26




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    Total Number of
    
    MaximumShares Purchased
    
    Approximate Dollaras part of the
    
    Value of Shares thatTotal Number of
    
    
    
    
    
    Publicly
    
    May Yet beShares
    
    Average Price
    
    Announced
    
    Purchased Under theRepurchased (1)
    
    Paid per Share
    
    Repurchase Plans
    
    Programs1/1/09 - 1/31/09
    
    
    3,993
    
    
    $
    19.91
    
    
    
    
    
    
    $
    23,918,1412/1/09 - 2/28/09
    
    
    6,408
    
    
    
    24.42
    
    
    
    
    
    
    
    24,114,7053/1/09 - 3/31/09
    
    
    8,627
    
    
    
    29.54
    
    
    
    
    
    
    
    24,265,11819,028
    
    
    $
    25.80
    
    
    
    
    
    
    $
    24,265,118
 
 (1)
    
    Represents shares tendered for tax withholding on vesting of restricted stock awards. None of
these transactions are included against the dollar value of shares that may yet be purchased under
the programs. 27




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##### Table of Contents



Item 6. Exhibits
  Exhibit Number
    
    Description4.1
    
    Registration Rights Agreement between Coinstar, Inc. and GetAMovie, Inc. dated February 26, 2009. (1)4.2
    
    Registration Rights Agreement between Coinstar, Inc. and GARB, LLC dated February 26, 2009. (2)10.1
    
    Purchase and Sale Agreement dated February 12, 2009 by and between Coinstar, Inc. and
GetAMovie, Inc. (3)10.2
    
    Form of First Amendment, Consent and Waiver to Credit Agreement, dated February 12, 2009, among
Coinstar, Inc., as borrower, Bank of America, N.A., as administrative agent, swing line lender,
and letter of credit issuer, Banc of America Securities LLC and J.P. Morgan Securities, as
joint lead arrangers and joint book managers, JPMorgan Chase Bank, N.A., as syndication agent,
Keybank National Association, U.S. Bank National Association and Wells Fargo Bank, N.A., as
co-documentation agents, and the other lenders party thereto. (3)10.3
    
    Purchase and Sale Agreement between Coinstar, Inc., Sesame Holdings, Inc. and GARB, LLC dated February 26, 2009. (2)10.4
    
    Third Amended and Restated Limited Liability Company Agreement of Redbox Automated Retail, LLC.10.5*
    
    Transition Agreement between Coinstar, Inc. and David W. Cole dated as of March 31, 2009. (4)10.6*
    
    Transition Agreement between Coinstar, Inc. and Brian V. Turner dated as of March 31, 2009. (4)10.7*
    
    Amended and Restated Employment Agreement, dated as of April 1, 2009, between Coinstar, Inc.
and Paul D. Davis. (4)10.8*
    
    Amended and Restated Change of Control Agreement, dated as of April 1, 2009, between Coinstar,
Inc. and Paul D. Davis.10.9*
    
    Employment Agreement, dated as of April 1, 2009, between Coinstar, Inc. and Gregg A. Kaplan. (4)10.10*
    
    Change of Control Agreement, dated as of April 1, 2009, between Coinstar, Inc. and Gregg A. Kaplan. (4)
 10.11*
    
    Employment Agreement, dated as of June 1, 2009, between Coinstar, Inc. and John C. Harvey. (4)10.12*
    
    Change of Control Agreement, dated as of June 1, 2009, between Coinstar, Inc. and John Harvey.10.13*
    
    Letter Agreement, dated as of April 1, 2009, between Coinstar, Inc. and Gregg A. Kaplan. (4)10.14*
    
    Letter Agreement, dated as of April 1, 2009, between Coinstar, Inc. and John C. Harvey. (4)10.15
    
    First Amendment to Office Lease Agreement as of April 15, 2009, by and between W2007 Seattle
Office Bellefield Office Park Realty, L.L.C. and Coinstar, Inc. (5)10.16
    
    Amended and Restated Credit Agreement, dated as of November 20, 2007 and amended and restated
as of April 29, 2009, among Coinstar, Inc., as borrower, Bank of America, N.A., as
administrative agent, swing line lender, and letter of credit issuer, and the other lenders
party thereto. (6)10.17*
    
    Outside Directors Deferred Compensation Plan, as amended and restated on December 31, 2008.10.18*
    
    Executive Deferred Compensation Plan, as amended and restated on December 31, 2008.10.19*
    
    Form of 1997 Amended and Restated Equity Incentive Plan Stock Option Grant Notice and Form of
Stock Option Agreement for option grants made after December 12, 2005 to the CEO, COO or CFO.10.20*
    
    Form of 1997 Amended and Restated Equity Incentive Plan Stock Option Grant Notice and Form of
Stock Option Agreement for option grants made after December 12, 2005 to Plan Participants
other than the CEO, COO or CFO.10.21*
    
    Form of Notice of Restricted Stock Award and form of Restricted Stock Award Agreement under the
1997 Amended and Restated Equity Incentive Plan for awards made after December 12, 2005 to the
CEO, COO or CFO.10.22*
    
    Form of Notice of Restricted Stock Award and form of Restricted Stock Award Agreement under the
1997 Amended and Restated Equity Incentive Plan for awards made after December 12, 2005 to
Executives other than the CEO, COO or CFO.10.23*
    
    Form of Notice of Restricted Stock Award and form of Restricted Stock Award Agreement under the
1997 Amended and Restated Equity Incentive Plan for Performance-Based Awards Made to the CEO,
COO or CFO.10.24*
    
    Form of Notice of Restricted Stock Award and form of Restricted Stock Award Agreement under the
1997 Amended and Restated Equity Incentive Plan for Performance-Based Awards to Executives
other than the CEO, COO or CFO.10.25*
    
    2009 Incentive Compensation Plan for Section 16 Officers.10.26*
    
    First Amendment to Form of Change of Control Agreement.10.27*
    
    Policy on Reimbursement of Incentive Payments.10.28*
    
    Coinstar, Inc. 1997 Amended and Restated Equity Incentive Plan.10.29*
    
    Summary of Director Compensation.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 S-3 filed on February 26, 2009 (File
Number 333-157552).(2)
    
    Incorporated by reference to the Registrants Form S-3 filed on February 26, 2009 (File
Number 333-157553).(3)
    
    Incorporated by reference to the Registrants Form 8-K filed on February 12, 2009 (File
Number 000-22555).(4)
    
    Incorporated by reference to the Registrants Form 8-K filed on April 6, 2009 (File Number
000-22555).(5)
    
    Incorporated by reference to the Registrants Form 8-K filed on April 21, 2009 (File Number
000-22555).(6)
    
    Incorporated by reference to the Registrants Form 8-K filed on May 1, 2009 (File Number
000-22555). 28




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##### Table of Contents



SIGNATURE
  Coinstar, Inc.By:
    
    /s/ BRIAN V. TURNER

Brian V. TurnerChief Financial OfficerMay 11, 2009
 29