Redbox 2007 Annual Report Download

Download and view the complete annual report

Please find the complete 2007 Redbox annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 72

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72

Table of contents

  • Page 1

  • Page 2

  • Page 3
    ... of principal executive offices) 98004 (Zip Code) (425) 943-8000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.001 par value (Title of Each Class) The NASDAQ Stock Market LLC (Name of Each Exchange on Which...

  • Page 4
    ... About Market Risk ...Item 8. Financial Statements and Supplementary Data ...Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures...Item 9B. Other Information ...PART III Item 10. Directors, Executive Officers and Corporate...

  • Page 5
    ... skill-crane machines, bulk vending machines and kiddie rides; and e-payment services such as money transfer services, prepaid wireless products, stored value cards, payroll cards, and prepaid debit cards. In addition, we offer self-service DVD kiosks where consumers can rent or purchase movies. We...

  • Page 6
    ... our option to acquire a majority ownership interest in the voting equity of Redbox Automated Retail, LLC ("Redbox") under the terms of the LLC Interest Purchase Agreement dated November 17, 2005. In conjunction with the option exercise and payment of $5.1 million, our ownership interest increased...

  • Page 7
    ... charged the same flat fee price. Our DVD kiosks are available in all states in the continental United States and Puerto Rico and offer our consumers with a more convenient home entertainment solution. In addition, our DVD kiosks provide an additional revenue stream to our retail partners...

  • Page 8
    ... machines and e-payment machines and equipment, as well as our related network and systems through appropriate technological solutions, and establish market acceptance of such products or services. We cannot assure you that new products or services that we attempt to commercialize will be successful...

  • Page 9
    ... movie content inventory through personal video recorders, pay-per-view/cable/ satellite and similar technologies, computer downloads, portable devices, and other mediums. • Decreased quality of movie content availability for self-service DVD distribution. • Decreased costs related to purchasing...

  • Page 10
    ... long distance accounts, stored value cards, debit cards and payroll services, face competition from a variety of types of providers, including, among others, national distributors of similar cards, other retailers who provide these services themselves, as well as money transfer companies. Many of...

  • Page 11
    ...-service coin machines. We also rely on trademarks, copyrights, trade secrets and other intellectual property to develop and maintain our competitive position. Although we protect our intellectual property in part by confidentiality agreements with our employees, consultants, vendors and corporate...

  • Page 12
    ... retailer, such as total revenue, e-payment capabilities, long-term non-cancelable contracts, installation of our machines and equipment in hightraffic, urban or rural locations and new product and service commitments. Together with other factors, an increase in service fees paid or other financial...

  • Page 13
    ... transaction fees we charge consumers to use our services • the amount of service fees that we pay to our retailers, • our ability to establish or maintain relationships with significant retailers on acceptable terms, • the successful operation of our coin-counting, e-payment and DVD network...

  • Page 14
    ...which affects our debt service obligations, • the timing of, and our ability to develop and successfully commercialize, new or enhanced products and services, • the level of product and price competition, • activities of and acquisitions or announcements by competitors, • the impact from any...

  • Page 15
    ...of contracts, administrative enforcement actions and fines, class action lawsuits, cease and desist orders and civil and criminal liability. The occurrence of one or more of these events, as well as the increased cost of compliance, could materially adversely affect our business, financial condition...

  • Page 16
    ... companies, chain stores and local convenience stores. Transaction volumes at existing agent locations often increase over time and new agents provide us with additional revenue. If agents decide to leave our network, or if we are unable to sign new agents, our revenue and profit growth rates...

  • Page 17
    ... financial performance is a direct reflection of customer use of and the ability to operate and service the coin-counting, entertainment and e-payment services machines and equipment used in our business. Severe weather, natural disasters and other events beyond our control can, for extended periods...

  • Page 18
    ... and investments, as well as the integration of acquired businesses, divert management time and other resources. In addition, we cannot assure you that any particular transaction, even if successfully completed, will ultimately benefit our business. Certain financial and operational risks related to...

  • Page 19
    ... new products or services by us or our competitors, • ineffective internal controls, • industry developments, and • economic or other external factors. In addition, the securities markets have experienced significant price and volume fluctuations that are unrelated to the operating performance...

  • Page 20
    .... In addition, our main entertainment services office is located in Louisville, Colorado, our primary e-payment office is located in Chicago, Illinois and our primary money transfer office is located in the United Kingdom. Our corporate administrative, marketing and product development facility is...

  • Page 21
    ... the number of persons whose stock is in nominee or "street name" accounts through brokers. Dividends We have never paid any cash dividends on our capital stock. We currently intend to retain all future earnings to fund development and growth of our business, retire debt obligations or buy back...

  • Page 22
    ... of Coinstar, Inc. and related Notes thereto included elsewhere in this Annual Report. 2007 Year Ended December 31, 2006 2005 2004 (In thousands, except per share data) 2003 CONSOLIDATED STATEMENT OF OPERATIONS: REVENUE ...EXPENSES: Direct operating ...Operating taxes, net ...Marketing ...Research...

  • Page 23
    ..., bulk vending machines and kiddie rides; and e-payment services such as money transfer services, prepaid wireless products, stored value cards, payroll cards and prepaid debit cards. In addition, we offer self-service DVD kiosks where consumers can rent or purchase movies. We also offer a range of...

  • Page 24
    ... fully automated network of self-service coin-counting machines across the United States, Canada, Puerto Rico and in the United Kingdom. We estimate that at any one time, there is more than $10.5 billion worth of coin sitting idle in households in the United States. In 2007, consumers processed more...

  • Page 25
    ... and pay our retailers a fee based on commissions earned on the sales of e-payment services. Recent Events On January 1, 2008, we exercised our option to acquire a majority ownership interest in the voting equity of Redbox under the terms of the LLC Interest Purchase Agreement dated November...

  • Page 26
    ... as of December 31, 2007 and 2006, respectively; • E-payment services revenue is recognized at the point of sale based on our commissions earned, net of retailer fees. Money transfer revenue is recognized at the time the customer completes the transaction. Purchase price allocations: In connection...

  • Page 27
    ...as well as disclosure requirements in the financial statements of uncertain tax positions. As of the adoption date and as of December 31, 2007 we identified $1.2 million of unrecognized tax benefits which would affect our effective tax rate if recognized. In accordance with our accounting policy, we...

  • Page 28
    ... our coin-counting services and our e-payments services such as money transfer services, prepaid wireless products, stored value cards and payroll cards. Our entertainment revenues consist primarily of the revenues generated from our skill-crane machines, bulk vending machines and kiddie rides. (In...

  • Page 29
    ... certain factors, such as total revenue, e-payment capabilities, long-term non-cancelable contracts, installation of our machines in high traffic or urban or rural locations, new product commitments, co-op marketing incentive, or other criteria. (In millions, except percentages) 2007 2006 Year Ended...

  • Page 30
    ... in the second quarter of 2006. Research and Development Our research and development expenses consist primarily of development costs of our coin-counting machine software, network applications, machine improvements and new product development. (In millions, except percentages) 2007 2006 Year Ended...

  • Page 31
    ... expense consists of amortization of intangible assets, which are mainly comprised of the value assigned to our acquired retailer relationships and, to a lesser extent, internally developed software. (In millions, except percentages) 2007 2006 Year Ended December 31, $ Chng % Chng 2005 $ Chng % Chng...

  • Page 32
    ... to fund our operations of $18.5 million, cash in machine or in transit of $78.1 million and cash being processed of $100.0 million (which relates to our partner payable liability as recorded in "accrued liabilities payable to retailers" in the Consolidated Balance Sheet). Working capital was $104...

  • Page 33
    ... date of May 1, 2010. The loan is recorded in Other Assets on the Consolidated Balance Sheet as of December 31, 2007. On January 1, 2008, we exercised our option to acquire a majority ownership interest in the voting equity of Redbox under the terms of the LLC Interest Purchase Agreement dated...

  • Page 34
    ... least the next 12 months. After that time, the extent of additional financing needed, if any, will depend on the success of our business. If we significantly increase installations beyond planned levels or if coin-counting machine volumes generated or entertainment services machine plays are lower...

  • Page 35
    ...and the cost of developing potential new product and service offerings and enhancements. Off-Balance Sheet Arrangements As of December 31, 2007, off-balance sheet arrangements are comprised of our operating leases and letters of credit disclosed in Note 8 to our Consolidated Financial Statements. We...

  • Page 36
    ... with the current year presentation. Dec. 31, 2007(1) Sept. 30, 2007(2) Three Month Periods Ended June 30, March 31, Dec. 31, Sept. 30, 2007 2007 2006 2006 (In thousands, except per share data) (unaudited) June 30, 2006(3) March 31, 2006 Consolidated Statement of Operations: Revenue ...$133,314...

  • Page 37
    ... registered public accounting firm, on the effectiveness of our internal control over financial reporting is set forth on page 41. (c) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting during our fourth fiscal quarter ended...

  • Page 38
    ..., Sesame Mergeco, Inc., ACMI Holdings, Inc., American Coin Merchandising, Inc. and Wellspring Capital Management LLC, as Stockholder Representative. (1) LLC Interest Purchase Agreement dated November 17, 2005 by and among Redbox Automated Retail, LLC, McDonald's Ventures, LLC and Registrant. (2) 36

  • Page 39
    .... (3) Agreement for the Sale and Purchase of the Entire Issued Share Capital of Travelex Money Transfer Limited dated April 30, 2006 by and among Travelex Limited, Registrant and Travelex Group Limited. (22) Stock Purchase Agreement dated July 19, 2007 by and among Coinstar E-Payment Services Inc...

  • Page 40
    ... Officer dated October 8, 2001. (17) Voting Agreement between Levine Investments Limited Partnership and Registrant dated November 1, 2005. (18) 2006 Incentive Compensation Plan. (19) Lease Agreement dated November 1, 2005, by and between Van Nuys Airpark Building 5, LLC and Adventure Vending...

  • Page 41
    ... the Registrant's Annual Report on Form 10-K for the year ended December 31, 2006 (File Number 000-22555). (31) Incorporated by reference to the Registrant's Form 8-K filed on July 25, 2007 (File Number 000-22555). (32) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for...

  • Page 42
    ... by the undersigned, thereunto duly authorized. Coinstar, Inc. By: /s/ BRIAN V. TURNER Brian V. Turner Chief Financial Officer Date: February 28, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the...

  • Page 43
    ... Accounting Oversight Board (United States), the consolidated balance sheets of Coinstar, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period...

  • Page 44
    ... operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based...

  • Page 45
    ...accounts of $1,489 and $1,050 at December 31, 2007 and 2006, respectively ...49,809 Inventory ...33,360 Deferred income taxes ...3,459 Prepaid expenses and other current assets ...18,747 Total current assets ...PROPERTY AND EQUIPMENT, NET ...DEFERRED INCOME TAXES ...OTHER ASSETS...EQUITY INVESTMENTS...

  • Page 46
    COINSTAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended December 31, 2007 2006 2005 REVENUE ...EXPENSES: Direct operating ...Operating taxes, net ...Marketing ...Research and development ...General and administrative ...Depreciation and other ......

  • Page 47
    ... employee stock purchase plan ...82,454 989 Proceeds from exercise of stock options, net ...323,633 4,559 Stock-based compensation expense ...Tax benefit on share-based compensation ...Equity purchase of assets, net of issuance cost of $66 ...Net income ...Short-term investments net of tax benefit...

  • Page 48
    ...compensation ...Excess tax benefit on share based awards . Deferred income taxes ...(Income) loss from equity investments . . Return on equity investments ...Other ...Cash (used) provided by changes in operating assets and Accounts receivable...Inventory ...Prepaid expenses and other current assets...

  • Page 49
    ... self-service DVD kiosks where consumers can rent or purchase movies. Our services, in one form or another, are currently offered in supermarkets, mass merchandisers, warehouse clubs, drugstores, universities, shopping malls and convenience stores in the United States, Canada, Mexico, Puerto Rico...

  • Page 50
    ... date of May 1, 2010. The loan is recorded in Other Assets on the Consolidated Balance Sheet as of December 31, 2007. On January 1, 2008, we exercised our option to acquire a majority ownership interest in the voting equity of Redbox under the terms of the LLC Interest Purchase Agreement dated...

  • Page 51
    ... of retailer fees. Money transfer revenue is recognized at the time the customer completes the transaction. Fees paid to retailers: Fees paid to retailers relate to the amount we pay our retailers for the benefit of placing our machines in their stores and their agreement to provide certain services...

  • Page 52
    ... operating expenses." The fee arrangements are based on our negotiations and evaluation of certain factors with the retailers such as total revenue, e-payment capabilities, long-term non-cancelable contracts, installation of our machines in high traffic and/or urban or rural locations, new product...

  • Page 53
    ...as well as disclosure requirements in the financial statements of uncertain tax positions. As of the adoption date and as of December 31, 2007 we identified $1.2 million of unrecognized tax benefits which would affect our effective tax rate if recognized. In accordance with our accounting policy, we...

  • Page 54
    ... States jurisdictions, we are generally not subject to income tax examination for years prior to 1998. Research and development: Costs incurred for research and development activities are expensed as incurred. Software costs developed for internal use are accounted for under Statement of Position...

  • Page 55
    ... we do business. In addition to company-owned locations, CMT has agreements with banks, post offices, and other retail locations to offer its service. CMT was established in mid-2003 and uses leading edge Internet-based technology to provide consumers with an easy-to-use, reliable and cost-effective...

  • Page 56
    ... Wal-Mart locations. This decision, along with other contract terminations or decisions to scale-back the number of entertainment machines with other retail partners as well as macro-economic trends negatively affecting the entertainment service industry, resulted in a non-cash impairment charge of...

  • Page 57
    ... term loan balance of $250.0 million had been reduced to $187.0 million. Fees for this facility of approximately $5.7 million were being amortized over the life of the revolving line of credit and the term loan which were 5 years and 7 years, respectively. On November 20, 2007, the outstanding term...

  • Page 58
    ... recorded in the consolidated statements. In conjunction with the repayment of the term loan, we no longer hold the interest rate cap and floor as of December 31, 2007. NOTE 8: COMMITMENTS Lease commitments: Our corporate administrative, marketing and product development facility is located...

  • Page 59
    ...on United States Treasury zero-coupon issues with an equivalent remaining term. We have not paid dividends in the past and do not plan to pay any dividends in the foreseeable future. The following table summarizes stock-based compensation expense and the related deferred tax benefit for stock option...

  • Page 60
    ... Plan. Stock options have been granted to officers and employees to purchase common stock at prices ranging from $0.70 to $34.45 per share, which represented the 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 61
    ... are granted to certain officers and non-employee directors under the 1997 Plan, which vests annually over four years and one year, respectively. During 2007, 2006 and 2005, we granted 69,171, 7,500 and 85,050, respectively, restricted stock awards with a weighted average fair value of $30.48, $22...

  • Page 62
    ...by applying the U.S. statutory rate to (loss) income before income taxes. A reconciliation of the difference follows: 2007 December 31, 2006 2005 U.S. federal tax expense (benefit) at the statutory rate ...State income taxes, net of federal impact ...Incentive stock options ...Impact of meeting the...

  • Page 63
    ... give effect for changes in tax rates and to true-up net operating losses carried forward to actual tax returns filed. In May 2006, we acquired CMT and recorded a deferred tax liability of $2.7 million representing acquired intangibles that had no tax basis. This deferred tax liability is available...

  • Page 64
    ... amount of the related deferred tax balances resulting in a charge of $1.1 million and a benefit of $1.0 million, respectively. The income tax benefit from stock option exercises in excess of the amounts recognized in the consolidated statements of operations as of December 31, 2007, 2006 and 2005...

  • Page 65
    ... self-service coin machines. NOTE 15: BUSINESS SEGMENT INFORMATION FASB Statement No. 131, Disclosure about Segments of an Enterprise and Related Information, requires that companies report separately in the financial statements certain financial and descriptive information about operating segments...

  • Page 66
    ...member of a limited liability company which has agreed to lease to Coinstar a 31,000 square foot building located in Louisville, Colorado. The terms of the agreement provide for a ten year lease term, commencing March 1, 2003, at monthly rental payments ranging from $25,353 for the first year to $33...

  • Page 67
    ...2008, we exercised our option to acquire a majority ownership interest in the voting equity of Redbox under the terms of the LLC Interest Purchase Agreement dated November 17, 2005. In conjunction with the option exercise and payment of $5.1 million, our ownership interest increased from 47.3% to 51...

  • Page 68
    (This page intentionally left blank)

  • Page 69
    .... All values assume reinvestment of dividends and are plotted below as of December 31 of each fiscal year shown. The stock price performance shown in the graph is historical and not necessarily indicative of future price performance. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN AMONG COINSTAR, INC...

  • Page 70

  • Page 71

  • Page 72