Redbox 2003 Annual Report Download

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2003 ANNUAL REPORT

Table of contents

  • Page 1
    2 0 0 3 A N N U A L R E P O RT

  • Page 2
    .... 4 Launching New Products. These products are aimed at leveraging our existing network of state-of-the-art coin-counting centers. At year-end, over 600 locations were offering new products including TOP-UPTM wireless, stored value MasterCard® cards, payroll cards, bill payment, ring tones...

  • Page 3
    ...' The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, based upon the closing price of Common Stock on June 30, 2003 as reported on the NASDAQ National Market, was approximately $284,553,000. Shares of Common Stock held by each executive officer and...

  • Page 4
    ......Market for the Registrant's Common Stock and Related Stockholder Matters ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative and Qualitative Disclosures About Market Risk ...Financial Statements and Supplementary Data...

  • Page 5
    ... network enables us to track each machine 24 hours a day and provides key financial data and operating statistics to our field service representatives, coin transportation partners, processing partners, banks and our headquarters for analysis and back-up. Our internal field service organization...

  • Page 6
    ...coins into cash have resulted in the continual accumulation of coins by consumers. Growth Strategy Our objective is to drive trial and repeat usage of the Coinstar service, to continue installing new Coinstar units, to develop new markets, to leverage our network through new product initiatives, and...

  • Page 7
    ... technology has enabled our coin processing units to be available to customers more than 95% of the time. In the event of any malfunction, our units have a telephone handset so our retail partners can connect directly to our customer service center using a toll-free number. In addition, our Coinstar...

  • Page 8
    ...partners. Each field service team member is connected to our two-way, wide-area communications network by laptop computer, mobile phone and pager. Each Coinstar unit provides specific service information to the responsible field service employee by directly paging the employee with current operating...

  • Page 9
    ...any processing fee, subject to certain restrictions, such as day of the week. We believe that this service reduces our retail partners' internal coin handling labor expenses and losses. Our Marketing Strategy Our marketing strategy includes promoting use of the Coinstar unit through commercial media...

  • Page 10
    ... our operating system and support network for continued expansion of our network and addition of value-added services. We employ software engineers, information technology specialists and other professional staff in these efforts. We also contract with a number of specialized outside consultants for...

  • Page 11
    ... operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, marketing and public relations resources than we have. These potential competitors may succeed in developing technologies, products or services that are more effective, less costly...

  • Page 12
    ...costs relating to the manufacture, installation or servicing of Coinstar units or transportation and coin-processing costs to levels that would enable us to operate profitably in such markets. Our future success may depend in part on our ability to develop and commercialize new products and services...

  • Page 13
    ... commercialize product enhancements and new products, • the level of product and price competition, • our success in maintaining and expanding our network and managing our growth, • the successful operation of our coin processing network, • our ability to control costs, and • activities...

  • Page 14
    ...new relationships on a timely basis or on acceptable terms would harm our business, financial condition and results of operations. We depend upon key personnel. Our performance is substantially dependent on the continued services of certain executive officers and key employees. Our long-term success...

  • Page 15
    ...in managing an organization that is not based in the United States are risks that could seriously harm the development of our business and ability to operate our machines profitably. Defects, lack of confidence in, or failures of our operating system could harm our business. We collect financial and...

  • Page 16
    ...SEC We maintain an Internet site at http://www.coinstar.com. We make available free of charge on or through our Internet site, proxy information, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to...

  • Page 17
    PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters. Market Information Our common stock is traded on the Nasdaq National Market under the symbol "CSTR." The following table sets forth the high and low bid prices per share as reported by the Nasdaq National Market ...

  • Page 18
    ... age of network for the period (months) ...45.0 38.0 32.0 25.2 20.1 Dollar value of coins processed (in billions) ...$ 2.0 $ 1.8 $ 1.5 $ 1.2 $ 0.9 Revenue per average installed unit(4) ...16,048 15,412 14,601 13,170 13,137 Cash flow information: Net cash provided by operating activities ...$ 53,502...

  • Page 19
    .... Cash being processed represents amounts in transit to our retail partners that are being processed by armored car carriers or residing in Coinstar units. (4) Based on actual yearly results divided by the monthly averages of units in operation over the applicable period. (5) EBITDA represents...

  • Page 20
    ... development costs of the Coinstar unit software, network applications, Coinstar unit improvements and new product development. Selling, general and administrative expenses are comprised of administrative support for field operations, our customer service center, sales and marketing support, systems...

  • Page 21
    ... resources to building our sales and marketing organization, adding administrative personnel and developing the network systems and infrastructure to support the rapid growth of our installed base of Coinstar units. The cost of this expansion and the significant depreciation expense of our...

  • Page 22
    ... our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We are depreciating the cost of our Coinstar machines over a five-year period and have determined that a life of five years is appropriate based on our analysis that included a review of historical data and...

  • Page 23
    ...of coins processed by the units in service during this period. The total dollar value of coins processed through our network increased to approximately $2.0 billion during 2003 from approximately $1.8 billion for the comparable prior year. The average installed base of Coinstar units increased to 10...

  • Page 24
    ...coin volumes processed during the year and 3) increases in field service expenses related to our expansion into 28 new domestic and international regional markets during the year ended December 31, 2003. Direct operating expenses as a percentage of revenue increased slightly to 43.6% in 2003 from 43...

  • Page 25
    ...processing revenue, an increase in coin pick-up and processing costs resulting from the increased coin volumes processed during the year, and increases in field service expenses related to our expansion into seven new international and domestic regional markets during 2002. Direct operating expenses...

  • Page 26
    ...of interest expense in 2002. As of December 31, 2002, we had $34.7 million of long-term debt outstanding under our credit facility. We had accounted for the loss from early retirement of debt as an extraordinary item in 2002. However, in accordance with SFAS No. 145, Rescission of FASB Statements No...

  • Page 27
    ... million increase in our net income from operations, offset by the timing of payments to our partners that decreased our retailer payable balance and to reductions of our accounts payable and accrued liabilities balances. Net cash used by investing activities for the year ended December 31, 2003 was...

  • Page 28
    ... future capital requirements will depend on a number of factors, including customer usage, the timing and number of installations, the number of available Coinstar units held in inventory, the type and scope of service enhancements, the cost of developing potential new product and service offerings...

  • Page 29
    ... 2003 2003 2003 2003 2002 2002 2002 2002 (in thousands, except per share data) (unaudited) Consolidated Statements of Operations: Revenue ...$46,366 $ 48,671 $ 43,102 Expenses: Direct operating ...20,590 20,384 18,568 Sales and marketing ...4,730 3,051 2,634 Product research and development ...1,389...

  • Page 30
    ... lack of comparable companies engaged in the coin processing business. In addition to fluctuations in revenue resulting from factors affecting customer usage, the timing of unit installations or de-installations may result in significant fluctuations in quarterly results. The rate of installations...

  • Page 31
    ..., we entered into an interest rate swap in order to manage our exposure to future interest rate and cash flow changes related to our floating interest rate debt. We entered into this swap in order to comply with certain of our credit facility requirements with Bank of America. The notional principal...

  • Page 32
    ... herein by reference to the Proxy Statement. Item 13. Certain Relationships and Related Transactions. The information required by this item is incorporated herein by reference to the Proxy Statement. Item 14. Principal Accountant Fees and Services. The information required by this item is...

  • Page 33
    ... of Designation of Series A Preferred Stock. Reference is made to Exhibit A of Exhibit 4.4. Form of Rights Certificate. Reference is made to Exhibit B of Exhibit 4.4. Credit Agreement dated as of April 18, 2002 among Registrant and Bank of America, N.A., for itself and as agent for US Bank National...

  • Page 34
    ... Form of Release Agreement. Employment Agreement between David W. Cole and the Registrant dated January 1, 2004. Coinstar, Inc. Stock Option Agreement, Grant to Chief Executive Officer. Registrant's Executive Deferred Compensation Plan. Form of Release Agreement. Employment Agreement between Richard...

  • Page 35
    ... to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003 (File Number 000-22555). (b) Reports on Form 8-K. On October 30, 2003, we filed a current report on Form 8-K dated October 30, 2003 under Items 7 and 12 issuing a press release announcing results for the...

  • Page 36
    ... on its behalf by the undersigned, thereunto duly authorized. Coinstar, Inc. By: /s/ BRIAN V. TURNER Brian V. Turner Chief Financial Officer Date: February 17, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

  • Page 37
    ... sheet of Coinstar, Inc. and subsidiaries as of December 31, 2003, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility...

  • Page 38
    ... 31, 2002, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP February 14, 2003 Seattle, Washington 34

  • Page 39
    ... thousands, except share data) December 31, 2003 2002 ASSETS CURRENT ASSETS: Cash and cash equivalents ...Cash being processed ...Deferred income taxes ...Prepaid expenses and other current assets ...Total current assets ...PROPERTY AND EQUIPMENT: Coinstar units ...Computers ...Office furniture and...

  • Page 40
    COINSTAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended December 31, 2003 2002 2001 REVENUE ...EXPENSES: Direct operating ...Sales and marketing ...Product research and development ...Selling, general and administrative ...Depreciation and amortization ...

  • Page 41
    ...shares under employee stock purchase plan ...Exercise of stock options, net ...Stock-based compensation expense ...Non-cash stock-based compensation . . Tax benefit on options and employee stock purchase plan ...Repurchase of common stock ...Comprehensive income: Net income ...Short-term investments...

  • Page 42
    ... ...Loss on early retirement of debt ...Non-cash stock-based compensation ...Deferred taxes ...Cash provided (used) by changes in operating assets and liabilities Prepaid expenses and other current assets ...Other assets ...Accounts payable ...Accrued liabilities payable to retailers ...Accrued...

  • Page 43
    ... stated at fair value in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities. Our available-for-sale securities have maturities of one year or less and are reported at fair value based on quoted market prices...

  • Page 44
    ... revenues and expenses into U.S. dollars using the average monthly exchange rates. Translation gains and losses are reported as a separate component of accumulated other comprehensive income. Stock-based compensation: We account for stock-based awards to employees using the intrinsic value method...

  • Page 45
    COINSTAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 Year ended December 31, 2003 2002 2001 (in thousands, except per share data) Net income (loss) as reported: ...Add: Total stock-based employee compensation expense included in the ...

  • Page 46
    ... Product research and development: Costs incurred for product research and development activities are expensed as incurred. Software development costs are required to be capitalized when a product's technological feasibility has been established through the date the product is available for release...

  • Page 47
    ... line of credit ...Less current portion ...Long-term debt ... $ 13,250 2,500 15,750 (13,250) $ 2,500 $ 34,667 - 34,667 (13,917) $ 20,750 Bank of America credit facility: On April 18, 2002, we entered into a credit agreement with Bank of America, N.A., for itself and as agent for US Bank National...

  • Page 48
    ... and product development facility is located in a 46,070 square foot facility in Bellevue, Washington, under a lease that renewed on January 1, 2004 and expires December 1, 2009. The future minimum payments of this new lease are at a lower monthly rate than under the prior lease terms. We also lease...

  • Page 49
    COINSTAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 a portion of operating costs and minimum monthly payments, which escalate annually, based on a stated schedule. Each agreement allows us to renew each lease for one consecutive period ...

  • Page 50
    .... If debt levels exceed $40.0 million, we are limited to a total of $25.0 million in share repurchases between October 10, 2003 and May 20, 2005, the maturity date of the credit agreement. NOTE 10: STOCK-BASED COMPENSATION PLANS Stock options: During 2003, we granted options to employees under the...

  • Page 51
    ... 1997 Plan. Stock options have been granted to officers and employees to purchase common stock at prices ranging from $0.25 to $32.79 per share, which represented fair market value at the date of grants and our best estimate of fair market value for grants issued prior to our initial public offering...

  • Page 52
    ... 34.0% State income taxes, net of federal benefit ...3.6% 3.9% Research and development credits ...- (1.3)% Non-deductible foreign expenses ...0.5% 1.3% Other ...0.9% 1.6% Change in valuation allowance for deferred tax asset ...(1.8)% (306.2)% Utilization of net operating loss at an increased rate...

  • Page 53
    ... related to stock option activity which occurred during the year ended December 31, 2001. NOTE 12: INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing the net income (loss) available to common stockholders for the period by the weighted average number of common shares...

  • Page 54
    ... 31, 2003 2002 2001 (in thousands, except share data) Numerator: Net income from continuing operations ...Net loss from discontinued operations ...Denominator: Weighted average shares for basic calculation ...Warrants ...Incremental shares from employee stock options ...Weighted average shares for...

  • Page 55
    ... and Related Information, are components of an enterprise for which separate financial information is available and regularly reviewed by the chief operating decision-maker. We are organized into two reportable business segments: our North American business (which includes the United States and...

  • Page 56
    ...relationships with retailers and unique technological capabilities. We would like to thank our partners and shareholders for their support. At Coinstar, "change" was not only the premise on which the company was built, it's an overriding theme that keeps driving our organization forward. Very Truly...

  • Page 57
    ... Indiana Street, Suite 800 Golden, CO 80401 (303) 262-0600 Coinstar common stock is traded on the Nasdaq National Market System under the symbol CSTR. SAFE HARBOR STATEMENT: This annual report contains forward-looking statements relating to Coinstar's anticipated growth and future operating results...