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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Outerwall Inc. (MM) | NASDAQ:OUTR | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 52.00 | 48.31 | 52.20 | 0 | 01:00:00 |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
Large accelerated filer | ý | Accelerated filer | ¨ | ||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Class | Outstanding at July 23, 2015 | |
Common Stock, $0.001 par value | 18,127,265 |
Page | ||
PART I - FINANCIAL INFORMATION | ||
PART II - OTHER INFORMATION | ||
June 30, 2015 | December 31, 2014 | ||||||
Assets | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 237,708 | $ | 242,696 | |||
Accounts receivable, net of allowances of $979 and $2,223 | 33,432 | 48,590 | |||||
Content library | 146,556 | 180,121 | |||||
Prepaid expenses and other current assets | 60,064 | 39,837 | |||||
Total current assets | 477,760 | 511,244 | |||||
Property and equipment, net | 360,445 | 428,468 | |||||
Deferred income taxes | 2,480 | 11,378 | |||||
Goodwill and other intangible assets, net (Note 6) | 531,446 | 623,998 | |||||
Other long-term assets | 7,098 | 8,231 | |||||
Total assets | $ | 1,379,229 | $ | 1,583,319 | |||
Liabilities and Stockholders’ Equity | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 147,209 | $ | 168,633 | |||
Accrued payable to retailers | 114,815 | 126,290 | |||||
Other accrued liabilities | 134,566 | 137,126 | |||||
Current portion of long-term debt and other long-term liabilities | 18,490 | 20,416 | |||||
Deferred income taxes | 25,676 | 21,432 | |||||
Total current liabilities | 440,756 | 473,897 | |||||
Long-term debt and other long-term liabilities | 892,075 | 973,669 | |||||
Deferred income taxes | 22,237 | 38,375 | |||||
Total liabilities | 1,355,068 | 1,485,941 | |||||
Commitments and contingencies (Note 16) | |||||||
Stockholders’ Equity: | |||||||
Preferred stock, $0.001 par value - 5,000,000 shares authorized; no shares issued or outstanding | — | — | |||||
Common stock, $0.001 par value - 60,000,000 authorized; | |||||||
36,695,640 and 36,600,166 shares issued; | |||||||
18,169,984 and 18,926,242 shares outstanding; | 477,259 | 473,592 | |||||
Treasury stock | (1,055,447 | ) | (996,293 | ) | |||
Retained earnings | 599,332 | 620,389 | |||||
Accumulated other comprehensive income (loss) | 3,017 | (310 | ) | ||||
Total stockholders’ equity | 24,161 | 97,378 | |||||
Total liabilities and stockholders’ equity | $ | 1,379,229 | $ | 1,583,319 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Revenue | $ | 545,369 | $ | 546,527 | $ | 1,154,005 | $ | 1,144,289 | |||||||
Expenses: | |||||||||||||||
Direct operating(1) | 369,619 | 381,734 | 774,803 | 801,376 | |||||||||||
Marketing | 8,047 | 9,136 | 16,467 | 16,129 | |||||||||||
Research and development | 2,039 | 3,412 | 4,123 | 6,886 | |||||||||||
General and administrative | 48,783 | 48,596 | 97,339 | 101,204 | |||||||||||
Restructuring and lease termination costs (Note 11) | — | — | 15,851 | 557 | |||||||||||
Depreciation and other | 45,174 | 47,812 | 87,860 | 95,754 | |||||||||||
Amortization of intangible assets | 3,309 | 3,840 | 6,618 | 7,682 | |||||||||||
Goodwill impairment (Note 6) | 85,890 | — | 85,890 | — | |||||||||||
Total expenses | 562,861 | 494,530 | 1,088,951 | 1,029,588 | |||||||||||
Operating income (loss) | (17,492 | ) | 51,997 | 65,054 | 114,701 | ||||||||||
Other income (expense), net: | |||||||||||||||
Loss from equity method investments, net (Note 7) | (133 | ) | (10,541 | ) | (265 | ) | (19,909 | ) | |||||||
Interest expense, net | (12,183 | ) | (12,932 | ) | (24,254 | ) | (22,580 | ) | |||||||
Other income (expense), net | 642 | 1,614 | (1,704 | ) | 966 | ||||||||||
Total other income (expense), net | (11,674 | ) | (21,859 | ) | (26,223 | ) | (41,523 | ) | |||||||
Income (loss) from continuing operations before income taxes | (29,166 | ) | 30,138 | 38,831 | 73,178 | ||||||||||
Income tax expense | (18,185 | ) | (6,305 | ) | (44,027 | ) | (21,739 | ) | |||||||
Income (loss) from continuing operations | (47,351 | ) | 23,833 | (5,196 | ) | 51,439 | |||||||||
Income (loss) from discontinued operations, net of tax (Note 12) | 1,735 | (2,080 | ) | (4,821 | ) | (6,511 | ) | ||||||||
Net income (loss) | (45,616 | ) | 21,753 | (10,017 | ) | 44,928 | |||||||||
Foreign currency translation adjustment(2) | 473 | (336 | ) | 3,327 | 539 | ||||||||||
Comprehensive income (loss) | $ | (45,143 | ) | $ | 21,417 | $ | (6,690 | ) | $ | 45,467 | |||||
Income (loss) from continuing operations attributable to common shares (Note 13): | |||||||||||||||
Basic | $ | (47,472 | ) | $ | 23,016 | $ | (5,465 | ) | $ | 49,880 | |||||
Diluted | $ | (47,472 | ) | $ | 23,036 | $ | (5,465 | ) | $ | 49,918 | |||||
Basic earnings (loss) per common share (Note 13): | |||||||||||||||
Continuing operations | $ | (2.66 | ) | $ | 1.18 | $ | (0.30 | ) | $ | 2.30 | |||||
Discontinued operations | 0.10 | (0.11 | ) | (0.27 | ) | (0.30 | ) | ||||||||
Basic earnings (loss) per common share | $ | (2.56 | ) | $ | 1.07 | $ | (0.57 | ) | $ | 2.00 | |||||
Diluted earnings (loss) per common share (Note 13): | |||||||||||||||
Continuing operations | $ | (2.66 | ) | $ | 1.15 | $ | (0.30 | ) | $ | 2.24 | |||||
Discontinued operations | 0.10 | (0.10 | ) | (0.27 | ) | (0.29 | ) | ||||||||
Diluted earnings (loss) per common share | $ | (2.56 | ) | $ | 1.05 | $ | (0.57 | ) | $ | 1.95 | |||||
Weighted average common shares used in basic and diluted per share calculations (Note 13): | |||||||||||||||
Basic | 17,848 | 19,541 | 18,057 | 21,730 | |||||||||||
Diluted | 17,848 | 20,048 | 18,057 | 22,298 | |||||||||||
Dividends declared per common share (Note 19) | $ | 0.30 | $ | — | $ | 0.60 | $ | — |
(1) | “Direct operating” excludes “Depreciation and other” of $29.6 million and $58.0 million for the three and six months ended June 30, 2015, respectively, and $31.4 million and $63.1 million for the three and six months ended June 30, 2014, respectively. |
(2) | Foreign currency translation adjustment had no tax effect for the three and six months ended June 30, 2015 and 2014, respectively. |
Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||
Common Stock | Treasury Stock | Retained Earnings | ||||||||||||||||||||
Shares | Amount | Total | ||||||||||||||||||||
Balance, March 31, 2015 | 18,498,978 | $ | 473,225 | $ | (1,033,424 | ) | $ | 650,386 | $ | 2,544 | $ | 92,731 | ||||||||||
Proceeds from exercise of stock options, net | 41,217 | 2,159 | — | — | — | 2,159 | ||||||||||||||||
Adjustments related to tax withholding for share-based compensation | (2,425 | ) | (173 | ) | — | — | — | (173 | ) | |||||||||||||
Share-based payments expense | (83,249 | ) | 2,048 | — | — | — | 2,048 | |||||||||||||||
Repurchases of common stock | (284,537 | ) | — | (22,023 | ) | — | — | (22,023 | ) | |||||||||||||
Net loss | — | — | — | (45,616 | ) | — | (45,616 | ) | ||||||||||||||
Dividends (Note 19) | — | — | — | (5,438 | ) | — | (5,438 | ) | ||||||||||||||
Foreign currency translation adjustment(1) | — | — | — | — | 473 | 473 | ||||||||||||||||
Balance, June 30, 2015 | 18,169,984 | $ | 477,259 | $ | (1,055,447 | ) | $ | 599,332 | $ | 3,017 | $ | 24,161 |
(1) | Foreign currency translation adjustment has no tax effect for the three months ended June 30, 2015. |
Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||
Common Stock | Treasury Stock | Retained Earnings | ||||||||||||||||||||
Shares | Amount | Total | ||||||||||||||||||||
Balance, December 31, 2014 | 18,926,242 | $ | 473,592 | $ | (996,293 | ) | $ | 620,389 | $ | (310 | ) | $ | 97,378 | |||||||||
Proceeds from exercise of stock options, net | 48,042 | 2,498 | — | — | — | 2,498 | ||||||||||||||||
Adjustments related to tax withholding for share-based compensation | (55,225 | ) | (3,699 | ) | — | — | — | (3,699 | ) | |||||||||||||
Share-based payments expense | 152,657 | 4,710 | 3,577 | — | — | 8,287 | ||||||||||||||||
Excess tax benefit on share-based compensation expense | — | 158 | — | — | — | 158 | ||||||||||||||||
Repurchases of common stock | (901,732 | ) | — | (62,731 | ) | — | — | (62,731 | ) | |||||||||||||
Net loss | — | — | — | (10,017 | ) | — | (10,017 | ) | ||||||||||||||
Dividends (Note 19) | — | — | — | (11,040 | ) | — | (11,040 | ) | ||||||||||||||
Foreign currency translation adjustment(1) | — | — | — | — | 3,327 | 3,327 | ||||||||||||||||
Balance, June 30, 2015 | 18,169,984 | $ | 477,259 | $ | (1,055,447 | ) | $ | 599,332 | $ | 3,017 | $ | 24,161 |
(1) | Foreign currency translation adjustment has no tax effect for the six months ended June 30, 2015. |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Operating Activities: | |||||||||||||||
Net income (loss) | $ | (45,616 | ) | $ | 21,753 | $ | (10,017 | ) | $ | 44,928 | |||||
Adjustments to reconcile net income (loss) to net cash flows from operating activities: | |||||||||||||||
Depreciation and other | 45,174 | 49,154 | 93,718 | 98,258 | |||||||||||
Amortization of intangible assets | 3,309 | 3,847 | 6,662 | 7,695 | |||||||||||
Share-based payments expense | 3,289 | 3,079 | 7,192 | 6,844 | |||||||||||
Windfall excess tax benefits related to share-based payments | (160 | ) | (243 | ) | (686 | ) | (1,953 | ) | |||||||
Deferred income taxes | (1,392 | ) | (5,440 | ) | (3,939 | ) | (15,004 | ) | |||||||
Restructuring and lease termination costs(2) | — | — | 1,680 | — | |||||||||||
Loss from equity method investments, net | 133 | 10,541 | 265 | 19,909 | |||||||||||
Amortization of deferred financing fees and debt discount | 692 | 1,216 | 1,385 | 2,522 | |||||||||||
Loss from early extinguishment of debt | — | 1,963 | — | 1,963 | |||||||||||
Goodwill impairment (Note 6) | 85,890 | — | 85,890 | — | |||||||||||
Other | 383 | (1,040 | ) | (816 | ) | (1,164 | ) | ||||||||
Cash flows from changes in operating assets and liabilities: | |||||||||||||||
Accounts receivable, net | 3,254 | 11,283 | 15,077 | 5,331 | |||||||||||
Content library | 24,703 | 27,505 | 34,659 | 47,486 | |||||||||||
Prepaid expenses and other current assets | (18,976 | ) | (24,952 | ) | (22,082 | ) | 22,003 | ||||||||
Other assets | 154 | 599 | 322 | 1,036 | |||||||||||
Accounts payable | (20,617 | ) | (43,605 | ) | (17,697 | ) | (70,995 | ) | |||||||
Accrued payable to retailers | 6,931 | 8,762 | (11,510 | ) | (6,723 | ) | |||||||||
Other accrued liabilities | (12,008 | ) | (1,589 | ) | 1,112 | (4,716 | ) | ||||||||
Net cash flows from operating activities(1) | 75,143 | 62,833 | 181,215 | 157,420 | |||||||||||
Investing Activities: | |||||||||||||||
Purchases of property and equipment | (19,508 | ) | (26,076 | ) | (40,217 | ) | (53,016 | ) | |||||||
Proceeds from sale of property and equipment | 2,817 | 962 | 2,940 | 1,793 | |||||||||||
Cash paid for equity investments | — | — | — | (10,500 | ) | ||||||||||
Net cash flows used in investing activities(1) | (16,691 | ) | (25,114 | ) | (37,277 | ) | (61,723 | ) | |||||||
Financing Activities: | |||||||||||||||
Proceeds from issuance of senior unsecured notes | — | 295,500 | — | 295,500 | |||||||||||
Proceeds from new borrowing on Credit Facility | 77,000 | 230,000 | 112,000 | 505,000 | |||||||||||
Principal payments on Credit Facility | (68,875 | ) | (505,000 | ) | (185,750 | ) | (534,375 | ) | |||||||
Financing costs associated with Credit Facility and senior unsecured notes | — | (2,082 | ) | — | (2,082 | ) | |||||||||
Settlement and conversion of convertible debt | — | (17,720 | ) | — | (17,724 | ) | |||||||||
Repurchases of common stock | (22,023 | ) | (53,413 | ) | (62,731 | ) | (474,480 | ) | |||||||
Dividends paid (Note 19) | (5,417 | ) | — | (11,019 | ) | — | |||||||||
Principal payments on capital lease obligations and other debt | (3,033 | ) | (3,384 | ) | (6,278 | ) | (7,081 | ) | |||||||
Windfall excess tax benefits related to share-based payments | 160 | 243 | 686 | 1,953 | |||||||||||
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options | 1,887 | 563 | (1,201 | ) | (1,025 | ) | |||||||||
Net cash flows used in financing activities(1) | (20,301 | ) | (55,293 | ) | (154,293 | ) | (234,314 | ) |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Effect of exchange rate changes on cash | 1,623 | (746 | ) | 5,367 | 406 | ||||||||||
Change in cash and cash equivalents | 39,774 | (18,320 | ) | (4,988 | ) | (138,211 | ) | ||||||||
Cash and cash equivalents: | |||||||||||||||
Beginning of period | 197,934 | 251,546 | 242,696 | 371,437 | |||||||||||
End of period | $ | 237,708 | $ | 233,226 | $ | 237,708 | $ | 233,226 | |||||||
Supplemental disclosure of cash flow information: | |||||||||||||||
Cash paid during the period for interest | $ | 10,933 | $ | 3,198 | $ | 22,846 | $ | 17,210 | |||||||
Cash paid during the period for income taxes, net | $ | 53,905 | $ | 32,853 | $ | 66,896 | $ | 9,189 | |||||||
Supplemental disclosure of non-cash investing and financing activities: | |||||||||||||||
Purchases of property and equipment financed by capital lease obligations | $ | 257 | $ | 2,467 | $ | 977 | $ | 5,513 | |||||||
Purchases of property and equipment included in ending accounts payable | $ | 2,411 | $ | 1,724 | $ | 4,436 | $ | 1,724 | |||||||
Common stock issued on conversion of callable convertible debt | $ | — | $ | 12,715 | $ | — | $ | 12,715 | |||||||
Non-cash debt issue costs | $ | — | $ | 6,069 | $ | — | $ | 6,069 |
(1) | During the first quarter of 2015 we discontinued our Redbox operations in Canada. 2014 also includes the wind-down process of certain new ventures that were discontinued during 2013. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented. See Note 12: Discontinued Operations for cash flow disclosures related to our discontinued Redbox operations in Canada. |
(2) | The non-cash restructuring and lease termination costs in the six months ended June 30, 2015 of $1.7 million is composed of $6.9 million in impairments of lease related assets partially offset by a $5.2 million benefit resulting from the lease termination. |
Page | ||
• | Results of our Redbox Canada operations which were discontinued during the first quarter of 2015. See Note 12: Discontinued Operations for additional information; |
• | Restructuring and lease termination costs. See Note 11: Restructuring for additional information; and |
• | Basic and diluted earnings per share as a result of applying the two-class method of calculating earnings per share (the “Two-Class Method”). During the first quarter of 2015, the Two-Class Method became significantly more dilutive than the previously applied treasury stock method as a result of stock repurchases increasing the average number of unvested restricted awards (“participating securities”) as a percentage of total common shares outstanding. The impact of applying the Two-Class Method on both income from continuing operations and basic and diluted weighted average shares used to calculate earnings per common share is as follows: |
As Reported Under the Treasury Stock Method | Amount Allocated to Participating Securities | As Revised Under the Two-Class Method | |||||||||||||||||||||
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||
In thousands, except per share data | June 30, 2014 | June 30, 2014 | June 30, 2014 | ||||||||||||||||||||
Income from continuing operations used in basic per share calculation | $ | 23,833 | $ | 51,439 | $ | (817 | ) | $ | (1,559 | ) | $ | 23,016 | $ | 49,880 | |||||||||
Income from continuing operations used in diluted per share calculation | $ | 23,833 | $ | 51,439 | $ | (797 | ) | $ | (1,521 | ) | $ | 23,036 | $ | 49,918 | |||||||||
Weighted average shares used in basic per share calculation | 19,541 | 21,730 | — | — | 19,541 | 21,730 | |||||||||||||||||
Weighted average shares used in diluted per share calculation | 20,181 | 22,488 | (133 | ) | (190 | ) | 20,048 | 22,298 | |||||||||||||||
Basic earnings per common share from continuing operations | $ | 1.22 | $ | 2.37 | $ | (0.04 | ) | $ | (0.07 | ) | $ | 1.18 | $ | 2.30 | |||||||||
Diluted earnings per common share from continuing operations | $ | 1.18 | $ | 2.29 | $ | (0.03 | ) | $ | (0.05 | ) | $ | 1.15 | $ | 2.24 |
• | Component of an entity, or group of components, that |
◦ | has been disposed of, meets the criteria to be classified as held-for-sale, or has been abandoned/spun-off and |
◦ | represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results, or a |
◦ | business or nonprofit activity that, on acquisition, meets the criteria to be classified as held-for-sale. |
• | To align with a change in how our chief operating decision maker evaluates business performance, we added ecoATM, our electronic device recycling business, as a separate reportable segment. Previously, the results of ecoATM along with those of other self-service concepts were included in our New Ventures segment. The combined results of the other self-service concepts, which include our product sampling kiosk concept SAMPLEit, are included in the All Other reporting category as they do not meet quantitative thresholds to be reported as a separate segment. See Note 14: Business Segments and Enterprise-Wide Information for additional information; and |
• | We discontinued our Redbox operations in Canada as the business was not meeting our performance expectations. We have reclassified the results of Redbox Canada to discontinued operations for all periods presented in our Consolidated Statements of Comprehensive Income (Loss). See Note 12: Discontinued Operations for additional information. |
Kiosks | Locations | ||||
Redbox | 41,340 | 33,840 | |||
Coinstar | 21,140 | 19,950 | |||
ecoATM | 2,260 | 2,020 | |||
All Other | 90 | 90 | |||
Total | 64,830 | 55,900 |
Dollars in thousands | June 30, 2015 | December 31, 2014 | |||||
Spare parts | $ | 14,600 | $ | 13,643 | |||
Licenses | 6,632 | 5,881 | |||||
Electronic devices inventory | 6,034 | 5,259 | |||||
Prepaid rent | 1,126 | 1,446 | |||||
DVD cases and labels | 1,121 | 1,330 | |||||
Income taxes receivable | 19,924 | 113 | |||||
Other | 10,627 | 12,165 | |||||
Total prepaid and other current assets | $ | 60,064 | $ | 39,837 |
Dollars in thousands | June 30, 2015 | December 31, 2014 | |||||
Payroll related expenses | $ | 36,537 | $ | 33,343 | |||
Studio revenue share and other content related expenses | 26,528 | 23,226 | |||||
Business taxes | 18,043 | 21,629 | |||||
Insurance | 9,906 | 9,615 | |||||
Deferred revenue | 7,716 | 6,995 | |||||
Accrued interest expense | 6,970 | 6,974 | |||||
Accrued early lease termination and sublease expenses | 6,263 | — | |||||
Service contract provider expenses | 5,213 | 4,191 | |||||
Deferred rent expense | 3,925 | 6,162 | |||||
Income taxes payable | 267 | 9,463 | |||||
Other | 13,198 | 15,528 | |||||
Total other accrued liabilities | $ | 134,566 | $ | 137,126 |
Dollars in thousands | June 30, 2015 | December 31, 2014 | |||||
Kiosks and components | $ | 1,164,339 | $ | 1,165,925 | |||
Computers, servers, and software | 196,280 | 200,915 | |||||
Leasehold improvements | 23,025 | 29,625 | |||||
Office furniture and equipment | 7,465 | 9,218 | |||||
Vehicles | 5,330 | 6,234 | |||||
Property and equipment, at cost | 1,396,439 | 1,411,917 | |||||
Accumulated depreciation and amortization | (1,035,994 | ) | (983,449 | ) | |||
Property and equipment, net | $ | 360,445 | $ | 428,468 |
Dollars in thousands | |||
Goodwill | $ | 559,307 | |
Accumulated impairment losses | (85,890 | ) | |
Net goodwill at June 30, 2015 | $ | 473,417 |
Dollars in thousands | December 31, 2014 | Goodwill Impairment | June 30, 2015 | ||||||||
Redbox | $ | 138,743 | $ | — | $ | 138,743 | |||||
Coinstar | 156,351 | — | 156,351 | ||||||||
ecoATM | 264,213 | (85,890 | ) | 178,323 | |||||||
Total goodwill | $ | 559,307 | $ | (85,890 | ) | $ | 473,417 |
Dollars in thousands | Amortization Period | June 30, 2015 | December 31, 2014 | ||||||
Retailer relationships | 5 - 10 years | $ | 53,295 | $ | 53,295 | ||||
Accumulated amortization | (25,206 | ) | (23,200 | ) | |||||
Retailer relationships, net | 28,089 | 30,095 | |||||||
Developed technology | 5 years | 34,000 | 34,000 | ||||||
Accumulated amortization | (13,033 | ) | (9,633 | ) | |||||
Developed technology, net | 20,967 | 24,367 | |||||||
Other | 1 - 40 years | 16,800 | 16,800 | ||||||
Accumulated amortization | (7,827 | ) | (6,571 | ) | |||||
Other, net | 8,973 | 10,229 | |||||||
Total intangible assets, net | $ | 58,029 | $ | 64,691 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
Dollars in thousands | 2015 | 2014 | 2015 | 2014 | |||||||||||
Retailer relationships | $ | 1,003 | $ | 1,535 | $ | 2,006 | $ | 3,071 | |||||||
Developed technology | 1,700 | 1,700 | 3,400 | 3,400 | |||||||||||
Other | 606 | 612 | 1,256 | 1,224 | |||||||||||
Total amortization of intangible assets | 3,309 | 3,847 | 6,662 | 7,695 | |||||||||||
Less: amortization included in discontinued operations | — | (7 | ) | (44 | ) | (13 | ) | ||||||||
Total amortization of intangible assets from continuing operations | $ | 3,309 | $ | 3,840 | $ | 6,618 | $ | 7,682 |
Dollars in thousands | Retailer Relationships | Developed Technology | Other | Total | |||||||||||
Remainder of 2015 | $ | 2,006 | $ | 3,400 | $ | 1,182 | $ | 6,588 | |||||||
2016 | 4,012 | 6,800 | 2,281 | 13,093 | |||||||||||
2017 | 4,012 | 6,800 | 2,281 | 13,093 | |||||||||||
2018 | 4,012 | 3,967 | 1,664 | 9,643 | |||||||||||
2019 | 4,012 | — | 801 | 4,813 | |||||||||||
2020 | 4,012 | — | 407 | 4,419 | |||||||||||
Thereafter | 6,023 | — | 357 | 6,380 | |||||||||||
Total expected amortization | $ | 28,089 | $ | 20,967 | $ | 8,973 | $ | 58,029 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
Dollars in thousands | 2015 | 2014 | 2015 | 2014 | |||||||||||
Proportionate share of net loss of equity method investees: | |||||||||||||||
Joint Venture | $ | — | $ | (9,567 | ) | $ | — | $ | (17,961 | ) | |||||
Pursuant Health, Inc. (fka SoloHealth, Inc.) | (133 | ) | (224 | ) | (265 | ) | (448 | ) | |||||||
Total proportionate share of net loss of equity method investees | (133 | ) | (9,791 | ) | (265 | ) | (18,409 | ) | |||||||
Amortization of difference in carrying amount and underlying equity in Joint Venture | — | (750 | ) | — | (1,500 | ) | |||||||||
Total loss from equity method investments | $ | (133 | ) | $ | (10,541 | ) | $ | (265 | ) | $ | (19,909 | ) |
Debt | Other Liabilities | Total | |||||||||||||||||||||||||||||||||
Senior Notes | Credit Facility | Total Debt | Capital Lease Obligations | Asset retirement obligations | Other long-term liabilities | ||||||||||||||||||||||||||||||
Dollars in thousands | Senior Unsecured Notes due 2019 | Senior Unsecured Notes due 2021 | Term Loans | Revolving Line of Credit | |||||||||||||||||||||||||||||||
As of June 30, 2015: | |||||||||||||||||||||||||||||||||||
Principal | $ | 350,000 | $ | 300,000 | $ | 142,500 | $ | 90,000 | $ | 882,500 | |||||||||||||||||||||||||
Discount | (3,786 | ) | (3,830 | ) | (298 | ) | — | (7,914 | ) | ||||||||||||||||||||||||||
Total | 346,214 | 296,170 | $ | 142,202 | 90,000 | 874,586 | $ | 9,876 | $ | 9,577 | $ | 16,526 | $ | 910,565 | |||||||||||||||||||||
Less: current portion | — | — | (11,250 | ) | — | (11,250 | ) | (7,240 | ) | — | — | (18,490 | ) | ||||||||||||||||||||||
Total long-term portion | $ | 346,214 | $ | 296,170 | $ | 130,952 | $ | 90,000 | $ | 863,336 | $ | 2,636 | $ | 9,577 | $ | 16,526 | $ | 892,075 | |||||||||||||||||
Unamortized deferred financing fees(1) | $ | 572 | $ | 1,266 | $ | — | $ | 2,632 | $ | 4,470 | $ | 4,470 |
Debt | Other Liabilities | Total | |||||||||||||||||||||||||||||||||
Senior Notes | Credit Facility | Total Debt | Capital Lease Obligations | Asset retirement obligations | Other long-term liabilities | ||||||||||||||||||||||||||||||
Dollars in thousands | Senior Unsecured Notes due 2019 | Senior Unsecured Notes due 2021 | Term Loans | Revolving Line of Credit | |||||||||||||||||||||||||||||||
As of December 31, 2014: | |||||||||||||||||||||||||||||||||||
Principal | $ | 350,000 | $ | 300,000 | $ | 146,250 | $ | 160,000 | $ | 956,250 | |||||||||||||||||||||||||
Discount | (4,296 | ) | (4,152 | ) | (335 | ) | — | (8,783 | ) | ||||||||||||||||||||||||||
Total | 345,704 | 295,848 | $ | 145,915 | 160,000 | 947,467 | $ | 15,391 | $ | 13,576 | $ | 17,651 | $ | 994,085 | |||||||||||||||||||||
Less: current portion | — | — | (9,390 | ) | — | (9,390 | ) | (11,026 | ) | — | — | (20,416 | ) | ||||||||||||||||||||||
Total long-term portion | $ | 345,704 | $ | 295,848 | $ | 136,525 | $ | 160,000 | $ | 938,077 | $ | 4,365 | $ | 13,576 | $ | 17,651 | $ | 973,669 | |||||||||||||||||
Unamortized deferred financing fees(1) | $ | 649 | $ | 1,372 | $ | — | $ | 2,965 | $ | 4,986 | $ | 4,986 |
(1) | Deferred financing fees are recorded in other long-term assets in our Consolidated Balance Sheets and are amortized on a straight line basis over the life of the related loan. |
Dollars in thousands | Three Months Ended | Six Months Ended | |||||||||||||
June 30, | June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Cash interest expense | $ | 11,499 | $ | 9,773 | $ | 22,894 | $ | 18,135 | |||||||
Non-cash interest expense: | |||||||||||||||
Amortization of debt discount | 434 | 753 | 869 | 1,555 | |||||||||||
Amortization of deferred financing fees | 258 | 463 | 516 | 967 | |||||||||||
Total non-cash interest expense | 692 | 1,216 | 1,385 | 2,522 | |||||||||||
Total cash and non-cash interest expense | 12,191 | 10,989 | 24,279 | 20,657 | |||||||||||
Loss from early extinguishment of debt | — | 1,963 | — | 1,963 | |||||||||||
Total interest expense | $ | 12,191 | $ | 12,952 | $ | 24,279 | $ | 22,620 |
Dollars in thousands | Repayment Amount | ||
Remainder of 2015 | $ | 5,625 | |
2016 | 13,125 | ||
2017 | 15,000 | ||
2018 | 18,750 | ||
2019 | 90,000 | ||
Total | $ | 142,500 |
Dollars in thousands | Board Authorization | ||
Authorized repurchase - as of January 1, 2015 | $ | 163,655 | |
Additional board authorization | 250,000 | ||
Proceeds from the exercise of stock options | 2,498 | ||
Repurchase of common stock from open market | (62,731 | ) | |
Authorized repurchase - as of June 30, 2015 | $ | 353,422 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
Dollars in thousands | 2015 | 2014 | 2015 | 2014 | |||||||||||
Share-based payments expense: | |||||||||||||||
Share-based compensation - stock options | $ | 40 | $ | 223 | $ | 181 | $ | 456 | |||||||
Share-based compensation - restricted stock | 2,039 | 3,443 | 4,598 | 6,357 | |||||||||||
Share-based payments for content arrangements | 1,241 | (587 | ) | 2,482 | 31 | ||||||||||
Total share-based payments expense | $ | 3,320 | $ | 3,079 | $ | 7,261 | $ | 6,844 | |||||||
Tax benefit on share-based payments expense | $ | 1,289 | $ | 1,182 | $ | 2,807 | $ | 2,627 |
June 30, 2015 | |||||
Dollars in thousands | Unrecognized Share-Based Payments Expense | Weighted-Average Remaining Life | |||
Unrecognized share-based payments expense: | |||||
Share-based compensation - stock options | $ | 248 | 1.4 years | ||
Share-based compensation - restricted stock | 21,968 | 2.6 years | |||
Share-based payments for content arrangements | 2,135 | 0.5 years | |||
Total unrecognized share-based payments expense | $ | 24,351 |
Shares in thousands | Options | Weighted Average Exercise Price | ||||
Outstanding, December 31, 2014 | 128 | $ | 52.59 | |||
Granted | — | — | ||||
Exercised | (48 | ) | 52.00 | |||
Canceled, expired, or forfeited | (24 | ) | 53.99 | |||
Outstanding, June 30, 2015 | 56 | 52.48 |
Options | |||||||
Shares and intrinsic value in thousands | Outstanding | Exercisable | |||||
Number | 56 | 40 | |||||
Weighted average per share exercise price | $ | 52.48 | $ | 51.79 | |||
Aggregate intrinsic value | $ | 1,320 | $ | 972 | |||
Weighted average remaining contractual term (in years) | 6.83 | 6.59 |
Shares in thousands | Restricted Stock Awards | Weighted Average Grant Date Fair Value | ||||
Non-vested, December 31, 2014 | 609 | $ | 62.35 | |||
Granted | 277 | 56.53 | ||||
Vested | (173 | ) | 59.46 | |||
Forfeited | (171 | ) | 60.71 | |||
Non-vested, June 30, 2015 | 542 | 61.00 |
Whole shares | Granted | Vested | Unvested | |||||
Paramount(1) | 350,000 | 350,000 | — |
(1) | Includes 95,000 shares that vested on January 1, 2015. |
Dollars in thousands | Expected Expense | ||
Remainder of 2015 | $ | 1,708 | |
2016 | 2,893 | ||
2017 | 510 | ||
Remaining total expected expense | $ | 5,111 |
• | Discontinuing our Redbox operations in Canada. The disposal was completed on March 31, 2015. See Note 12: Discontinued Operations for further information; |
• | Reducing the size of our Redbox headquarters facility in Oakbrook Terrace, Illinois through early termination of operating leases for certain floors. We ceased using the office space on March 31, 2015 and the effective date of the early termination is July 31, 2016. Prior to exercising our early termination option, the leases had been scheduled to expire in July 2021; and |
• | Implementing actions to further align costs with revenues in our continuing operations primarily through workforce reductions across the Company and subleasing a floor of a corporate facility. |
Six Months Ended | |||||||
June 30, | |||||||
Dollars in thousands | 2015 | 2014 | |||||
Redbox | |||||||
Severance | $ | 3,701 | $ | 534 | |||
Lease termination costs (excluding related asset impairments) | 4,567 | — | |||||
Total Redbox restructuring costs | 8,268 | 534 | |||||
Coinstar | |||||||
Severance | 492 | 23 | |||||
Lease termination costs (excluding related asset impairments) | 24 | — | |||||
Total Coinstar restructuring costs | 516 | 23 | |||||
ecoATM | |||||||
Severance | 127 | — | |||||
Lease termination costs (excluding related asset impairments) | — | — | |||||
Total ecoATM restructuring costs | 127 | — | |||||
Total restructuring costs in continuing operations | 8,911 | 557 | |||||
Restructuring costs in discontinued operations | 522 | 590 | |||||
Total restructuring costs | $ | 9,433 | $ | 1,147 |
Six Months Ended | |||||||
June 30, | |||||||
Dollars in thousands | 2015 | 2014 | |||||
Restructuring costs | $ | 9,433 | $ | 1,147 | |||
Impairment of lease related assets (see Note 5) | 6,940 | — | |||||
Total restructuring and lease termination costs | 16,373 | 1,147 | |||||
Less: restructuring costs included in discontinued operations | (522 | ) | (590 | ) | |||
Restructuring and lease termination costs from continuing operations | $ | 15,851 | $ | 557 |
Dollars in thousands | Severance Expense | Lease Termination Costs | Other | ||||||||
Beginning Balance - January 1, 2015 | $ | — | $ | — | $ | — | |||||
Costs charged to expense | 4,451 | 4,669 | 313 | ||||||||
Reclassification of deferred balances(1) | — | 5,260 | — | ||||||||
Costs paid or otherwise settled | (4,174 | ) | (3,666 | ) | (231 | ) | |||||
Ending Balance - June 30, 2015 | $ | 277 | $ | 6,263 | $ | 82 |
(1) | Deferred rent liabilities related to the early lease termination that were reclassified to present the outstanding liability related to the terminated leases. |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
Dollars in thousands | 2015 | 2014 | 2015 | 2014 | |||||||||||
Redbox Canada | $ | 1,735 | $ | (2,023 | ) | $ | (4,821 | ) | $ | (5,743 | ) | ||||
Certain new ventures | — | (57 | ) | — | (768 | ) | |||||||||
Net income (loss) on discontinued operations | $ | 1,735 | $ | (2,080 | ) | $ | (4,821 | ) | $ | (6,511 | ) |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
Dollars in thousands | 2015 | 2014 | 2015 | 2014 | |||||||||||
Major classes of line items constituting pretax loss of discontinued operations: | |||||||||||||||
Revenue | $ | — | $ | 2,643 | $ | 1,557 | $ | 5,250 | |||||||
Direct operating | 35 | 4,325 | 4,304 | 8,918 | |||||||||||
Marketing | (17 | ) | 647 | 112 | 1,251 | ||||||||||
General and administrative | 35 | 378 | 154 | 614 | |||||||||||
Restructuring and lease termination costs | — | — | 522 | — | |||||||||||
Depreciation and other | — | 1,368 | 5,858 | 2,521 | |||||||||||
Amortization of intangible assets | — | 7 | 44 | 13 | |||||||||||
Other income (expense), net | 166 | 1,291 | (4,329 | ) | 198 | ||||||||||
Pretax income (loss) of discontinued operations related to major classes of pretax loss | 113 | (2,791 | ) | (13,766 | ) | (7,869 | ) | ||||||||
Income tax benefit(1) | 1,622 | 768 | 8,945 | 2,126 | |||||||||||
Net income (loss) on discontinued operations | $ | 1,735 | $ | (2,023 | ) | $ | (4,821 | ) | $ | (5,743 | ) |
(1) | The income tax benefit for the six months ended June 30, 2015 includes a benefit on the rate differential between the U.S. and Canada. |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
Dollars in thousands | 2015 | 2014 | 2015 | 2014 | |||||||||||
Income (loss) on discontinued operations | $ | 1,735 | $ | (2,023 | ) | $ | (4,821 | ) | $ | (5,743 | ) | ||||
Adjustments to reconcile net loss to net cash flows from operating activities: | |||||||||||||||
Depreciation and amortization | — | 1,375 | 5,902 | 2,534 | |||||||||||
Content library | 148 | (60 | ) | 3,212 | 409 | ||||||||||
Prepaid and other current assets | 690 | (117 | ) | 1,234 | 29 | ||||||||||
Accounts payable | (1,095 | ) | 115 | (2,716 | ) | (851 | ) | ||||||||
Accrued payables to retailers | — | 150 | (155 | ) | 302 | ||||||||||
Other accrued liabilities | (585 | ) | (360 | ) | (617 | ) | (24 | ) | |||||||
Net cash flows from (used in) operating activities | $ | 893 | $ | (920 | ) | $ | 2,039 | $ | (3,344 | ) | |||||
Investing activities: | |||||||||||||||
Purchase of property, plant and equipment | — | (1,505 | ) | (278 | ) | (4,271 | ) | ||||||||
Total cash flows used in investing activities | $ | — | $ | (1,505 | ) | $ | (278 | ) | $ | (4,271 | ) |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
In thousands, except per share data | 2015 | 2014 | 2015 | 2014 | |||||||||||
Numerator | |||||||||||||||
Income (loss) from continuing operations | $ | (47,351 | ) | $ | 23,833 | $ | (5,196 | ) | $ | 51,439 | |||||
Income (loss) from discontinued operations, net of tax | 1,735 | (2,080 | ) | (4,821 | ) | (6,511 | ) | ||||||||
Net income (loss) | $ | (45,616 | ) | $ | 21,753 | $ | (10,017 | ) | $ | 44,928 | |||||
Income (loss) from continuing operations | $ | (47,351 | ) | $ | 23,833 | $ | (5,196 | ) | $ | 51,439 | |||||
Dividends and undistributed income allocated to participating shares | (121 | ) | (817 | ) | (269 | ) | (1,559 | ) | |||||||
Income (loss) from continuing operations to common shares - basic | (47,472 | ) | 23,016 | (5,465 | ) | 49,880 | |||||||||
Effect of reallocating undistributed income from continuing operations to participating shares | — | 20 | — | 38 | |||||||||||
Income (loss) from continuing operations to common shares - diluted | $ | (47,472 | ) | $ | 23,036 | $ | (5,465 | ) | $ | 49,918 | |||||
Denominator | |||||||||||||||
Weighted average common shares - basic | 17,848 | 19,541 | 18,057 | 21,730 | |||||||||||
Dilutive effect of share-based payment awards | — | 98 | — | 108 | |||||||||||
Dilutive effect of convertible debt | — | 409 | — | 460 | |||||||||||
Weighted average common shares - diluted(1) | 17,848 | 20,048 | 18,057 | 22,298 | |||||||||||
Basic earnings (loss) per common share: | |||||||||||||||
Continuing operations | $ | (2.66 | ) | $ | 1.18 | $ | (0.30 | ) | $ | 2.30 | |||||
Discontinued operations | 0.10 | (0.11 | ) | (0.27 | ) | (0.30 | ) | ||||||||
Basic earnings (loss) per common share | $ | (2.56 | ) | $ | 1.07 | $ | (0.57 | ) | $ | 2.00 | |||||
Diluted earnings (loss) per common share: | |||||||||||||||
Continuing operations | $ | (2.66 | ) | $ | 1.15 | $ | (0.30 | ) | $ | 2.24 | |||||
Discontinued operations | 0.10 | (0.10 | ) | (0.27 | ) | (0.29 | ) | ||||||||
Diluted earnings (loss) per common share | $ | (2.56 | ) | $ | 1.05 | $ | (0.57 | ) | $ | 1.95 | |||||
Stock options and share-based awards not included in diluted EPS calculation because their effect would have be antidilutive | 14 | 2 | 16 | 7 |
(1) | Participating securities were included in the calculation of diluted earnings per share using the two-class method, as this calculation was more dilutive than the calculation using the treasury stock method. |
• | Discontinued operations, consisting of our Redbox operations in Canada which we shut down during the first quarter of 2015. See Note 12: Discontinued Operations for further information; and |
• | The addition of our ecoATM segment and an All Other reporting category, which we added during the first quarter of 2015. |
Dollars in thousands | |||||||||||||||||||||||
Three Months Ended June 30, 2015 | Redbox | Coinstar | ecoATM | All Other | Corporate Unallocated | Total | |||||||||||||||||
Revenue | $ | 438,976 | $ | 80,279 | $ | 26,062 | $ | 52 | $ | — | $ | 545,369 | |||||||||||
Expenses: | |||||||||||||||||||||||
Direct operating | 301,444 | 39,358 | 27,227 | 1,078 | 512 | 369,619 | |||||||||||||||||
Marketing | 4,266 | 1,232 | 2,149 | 258 | 142 | 8,047 | |||||||||||||||||
Research and development | — | — | 1,549 | 1 | 489 | 2,039 | |||||||||||||||||
General and administrative | 34,336 | 7,768 | 2,094 | 2,644 | 1,941 | 48,783 | |||||||||||||||||
Goodwill impairment (Note 6) | — | — | 85,890 | — | — | 85,890 | |||||||||||||||||
Segment operating income (loss) | 98,930 | 31,921 | (92,847 | ) | (3,929 | ) | (3,084 | ) | 30,991 | ||||||||||||||
Less: depreciation, amortization and other | (33,063 | ) | (8,437 | ) | (6,305 | ) | (678 | ) | — | (48,483 | ) | ||||||||||||
Operating income (loss) | 65,867 | 23,484 | (99,152 | ) | (4,607 | ) | (3,084 | ) | (17,492 | ) | |||||||||||||
Loss from equity method investments, net | — | — | — | — | (133 | ) | (133 | ) | |||||||||||||||
Interest expense, net | — | — | — | — | (12,183 | ) | (12,183 | ) | |||||||||||||||
Other, net | — | — | — | — | 642 | 642 | |||||||||||||||||
Income (loss) from continuing operations before income taxes | $ | 65,867 | $ | 23,484 | $ | (99,152 | ) | $ | (4,607 | ) | $ | (14,758 | ) | $ | (29,166 | ) |
Dollars in thousands | |||||||||||||||||||||||
Three Months Ended June 30, 2014 | Redbox | Coinstar | ecoATM | All Other | Corporate Unallocated | Total | |||||||||||||||||
Revenue | $ | 442,838 | $ | 79,880 | $ | 23,799 | $ | 10 | $ | — | $ | 546,527 | |||||||||||
Expenses: | |||||||||||||||||||||||
Direct operating | 317,376 | 40,203 | 22,387 | 436 | 1,332 | 381,734 | |||||||||||||||||
Marketing | 5,533 | 1,557 | 927 | 220 | 899 | 9,136 | |||||||||||||||||
Research and development | 18 | 153 | 1,391 | 675 | 1,175 | 3,412 | |||||||||||||||||
General and administrative | 33,692 | 7,169 | 3,564 | 573 | 3,598 | 48,596 | |||||||||||||||||
Segment operating income (loss) | 86,219 | 30,798 | (4,470 | ) | (1,894 | ) | (7,004 | ) | 103,649 | ||||||||||||||
Less: depreciation, amortization and other | (38,783 | ) | (8,921 | ) | (3,812 | ) | (136 | ) | — | (51,652 | ) | ||||||||||||
Operating income (loss) | 47,436 | 21,877 | (8,282 | ) | (2,030 | ) | (7,004 | ) | 51,997 | ||||||||||||||
Loss from equity method investments, net | — | — | — | — | (10,541 | ) | (10,541 | ) | |||||||||||||||
Interest expense, net | — | — | — | — | (12,932 | ) | (12,932 | ) | |||||||||||||||
Other, net | — | — | — | — | 1,614 | 1,614 | |||||||||||||||||
Income (loss) from continuing operations before income taxes | $ | 47,436 | $ | 21,877 | $ | (8,282 | ) | $ | (2,030 | ) | $ | (28,863 | ) | $ | 30,138 |
Dollars in thousands | |||||||||||||||||||||||
Six Months Ended June 30, 2015 | Redbox | Coinstar | ecoATM | All Other | Corporate Unallocated | Total | |||||||||||||||||
Revenue | $ | 958,509 | $ | 149,609 | $ | 45,811 | $ | 76 | $ | — | $ | 1,154,005 | |||||||||||
Expenses: | |||||||||||||||||||||||
Direct operating | 644,379 | 76,621 | 50,033 | 2,269 | 1,501 | 774,803 | |||||||||||||||||
Marketing | 9,091 | 2,410 | 3,879 | 578 | 509 | 16,467 | |||||||||||||||||
Research and development | — | — | 3,005 | (84 | ) | 1,202 | 4,123 | ||||||||||||||||
General and administrative | 68,071 | 15,563 | 4,062 | 5,151 | 4,492 | 97,339 | |||||||||||||||||
Restructuring and lease termination costs (Note 11) | 15,174 | 550 | 127 | — | — | 15,851 | |||||||||||||||||
Goodwill impairment (Note 6) | — | — | 85,890 | — | — | 85,890 | |||||||||||||||||
Segment operating income (loss) | 221,794 | 54,465 | (101,185 | ) | (7,838 | ) | (7,704 | ) | 159,532 | ||||||||||||||
Less: depreciation, amortization and other | (64,670 | ) | (16,255 | ) | (12,207 | ) | (1,346 | ) | — | (94,478 | ) | ||||||||||||
Operating income (loss) | 157,124 | 38,210 | (113,392 | ) | (9,184 | ) | (7,704 | ) | 65,054 | ||||||||||||||
Loss from equity method investments, net | — | — | — | — | (265 | ) | (265 | ) | |||||||||||||||
Interest expense, net | — | — | — | — | (24,254 | ) | (24,254 | ) | |||||||||||||||
Other, net | — | — | — | — | (1,704 | ) | (1,704 | ) | |||||||||||||||
Income (loss) from continuing operations before income taxes | $ | 157,124 | $ | 38,210 | $ | (113,392 | ) | $ | (9,184 | ) | $ | (33,927 | ) | $ | 38,831 |
Dollars in thousands | |||||||||||||||||||||||
Six Months Ended June 30, 2014 | Redbox | Coinstar | ecoATM | All Other | Corporate Unallocated | Total | |||||||||||||||||
Revenue | $ | 955,887 | $ | 148,633 | $ | 39,745 | $ | 24 | $ | — | $ | 1,144,289 | |||||||||||
Expenses: | |||||||||||||||||||||||
Direct operating | 680,977 | 77,926 | 38,318 | 844 | 3,311 | 801,376 | |||||||||||||||||
Marketing | 9,993 | 2,563 | 1,595 | 381 | 1,597 | 16,129 | |||||||||||||||||
Research and development | 26 | 422 | 3,175 | 1,307 | 1,956 | 6,886 | |||||||||||||||||
General and administrative | 72,393 | 14,166 | 6,443 | 1,494 | 6,708 | 101,204 | |||||||||||||||||
Restructuring and lease termination costs (Note 11) | 534 | 23 | — | — | — | 557 | |||||||||||||||||
Segment operating income (loss) | 191,964 | 53,533 | (9,786 | ) | (4,002 | ) | (13,572 | ) | 218,137 | ||||||||||||||
Less: depreciation, amortization and other | (78,187 | ) | (17,484 | ) | (7,524 | ) | (241 | ) | — | (103,436 | ) | ||||||||||||
Operating income (loss) | 113,777 | 36,049 | (17,310 | ) | (4,243 | ) | (13,572 | ) | 114,701 | ||||||||||||||
Loss from equity method investments, net | — | — | — | — | (19,909 | ) | (19,909 | ) | |||||||||||||||
Interest expense, net | — | — | — | — | (22,580 | ) | (22,580 | ) | |||||||||||||||
Other, net | — | — | — | — | 966 | 966 | |||||||||||||||||
Income (loss) from continuing operations before income taxes | $ | 113,777 | $ | 36,049 | $ | (17,310 | ) | $ | (4,243 | ) | $ | (55,095 | ) | $ | 73,178 |
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||
Wal-Mart Stores Inc. | 16.4 | % | 15.1 | % | 16.4 | % | 15.2 | % | |||
Walgreen Co. | 13.5 | % | 13.7 | % | 14.0 | % | 14.0 | % | |||
The Kroger Company | 10.0 | % | 9.9 | % | 9.9 | % | 9.8 | % |
• | 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; or |
• | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. |
Fair Value at June 30, 2015 | Level 1 | Level 2 | Level 3 | ||||||||
Money market demand accounts and investment grade fixed income securities | $ | 22,012 | $ | — | $ | — | |||||
Fair Value at December 31, 2014 | Level 1 | Level 2 | Level 3 | ||||||||
Money market demand accounts and investment grade fixed income securities | $ | 916 | $ | — | $ | — |
• | We early terminated our operating lease of certain floors of our Redbox headquarters and recognized the fair value of the ongoing lease payments and other related costs through the effective date of termination, July 31, 2016, as of the cease use date, March 31, 2015. See Note 11: Restructuring for additional information; and |
• | We entered into a new operating lease of 16,085 square feet of office space in Woodland Hills, California which expires May 31, 2022. |
Dollars in thousands | Operating Leases(1) | ||
Remaining in 2015 | $ | 8,875 | |
2016 | 14,624 | ||
2017 | 10,718 | ||
2018 | 6,891 | ||
2019 | 6,123 | ||
Thereafter | 11,682 | ||
Total minimum lease commitments | 58,913 | ||
Less: sublease income | (1,955 | ) | |
Total minimum lease commitments, net | $ | 56,958 |
(1) | Includes all operating leases having an initial or remaining non-cancelable lease term in excess of one year. |
Dollars in thousands | Years Ended December 31, | ||||||||||||||
Total | Remaining in 2015 | 2016 | 2017 | ||||||||||||
Fox | $ | 224,013 | $ | 53,148 | $ | 106,134 | $ | 64,731 | |||||||
Warner | 167,570 | 54,366 | 92,245 | 20,959 | |||||||||||
Lionsgate | 91,707 | 44,225 | 47,482 | — | |||||||||||
Universal | 45,806 | 37,952 | 7,854 | — | |||||||||||
Paramount | 33,276 | 33,276 | — | — | |||||||||||
Sony(1) | 19,821 | 19,821 | — | — | |||||||||||
Total estimated commitments | $ | 582,193 | $ | 242,788 | $ | 253,715 | $ | 85,690 |
(1) | Subsequent to quarter end and not included in this table, Sony elected to exercise its option to extend our existing content license agreement with them. This will extend the license period through September 30, 2016. See Note 20: Subsequent Events for additional information. |
CONSOLIDATING BALANCE SHEETS | |||||||||||||||||||
(unaudited) | |||||||||||||||||||
As of June 30, 2015 | |||||||||||||||||||
(in thousands) | Outerwall Inc. | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations and Consolidation Reclassifications | Total | ||||||||||||||
Assets | |||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 171,245 | $ | 23,961 | $ | 42,502 | $ | — | $ | 237,708 | |||||||||
Accounts receivable, net of allowances | 3,558 | 29,103 | 771 | — | 33,432 | ||||||||||||||
Content library | — | 146,348 | 208 | — | 146,556 | ||||||||||||||
Prepaid expenses and other current assets | 36,874 | 26,083 | 1,129 | (4,022 | ) | 60,064 | |||||||||||||
Intercompany receivables | 30,171 | 541,671 | 428 | (572,270 | ) | — | |||||||||||||
Total current assets | 241,848 | 767,166 | 45,038 | (576,292 | ) | 477,760 | |||||||||||||
Property and equipment, net | 112,823 | 231,284 | 16,338 | — | 360,445 | ||||||||||||||
Deferred income taxes | — | 4,890 | 2,480 | (4,890 | ) | 2,480 | |||||||||||||
Goodwill and other intangible assets, net | 249,709 | 281,737 | — | — | 531,446 | ||||||||||||||
Other long-term assets | 5,828 | 985 | 285 | — | 7,098 | ||||||||||||||
Investment in related parties | 916,223 | 30,486 | — | (946,709 | ) | — | |||||||||||||
Total assets | $ | 1,526,431 | $ | 1,316,548 | $ | 64,141 | $ | (1,527,891 | ) | $ | 1,379,229 | ||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Accounts payable | $ | 10,845 | $ | 136,143 | $ | 221 | $ | — | $ | 147,209 | |||||||||
Accrued payable to retailers | 69,668 | 32,295 | 12,852 | — | 114,815 | ||||||||||||||
Other accrued liabilities | 57,665 | 72,296 | 2,064 | 2,541 | 134,566 | ||||||||||||||
Current portion of long-term debt and other long-term liabilities | 18,116 | — | 374 | — | 18,490 | ||||||||||||||
Deferred income taxes | — | 32,239 | — | (6,563 | ) | 25,676 | |||||||||||||
Intercompany payables | 445,218 | 109,170 | 17,882 | (572,270 | ) | — | |||||||||||||
Total current liabilities | 601,512 | 382,143 | 33,393 | (576,292 | ) | 440,756 | |||||||||||||
Long-term debt and other long-term liabilities | 873,656 | 18,182 | 237 | — | 892,075 | ||||||||||||||
Deferred income taxes | 27,102 | — | 25 | (4,890 | ) | 22,237 | |||||||||||||
Total liabilities | 1,502,270 | 400,325 | 33,655 | (581,182 | ) | 1,355,068 | |||||||||||||
Commitments and contingencies | |||||||||||||||||||
Stockholders’ Equity: | |||||||||||||||||||
Preferred stock | — | — | — | — | — | ||||||||||||||
Common stock | 591,772 | 234,729 | 18,393 | (367,635 | ) | 477,259 | |||||||||||||
Treasury stock | (1,055,447 | ) | — | — | — | (1,055,447 | ) | ||||||||||||
Retained earnings | 488,055 | 681,494 | 8,857 | (579,074 | ) | 599,332 | |||||||||||||
Accumulated other comprehensive income (loss) | (219 | ) | — | 3,236 | — | 3,017 | |||||||||||||
Total stockholders’ equity | 24,161 | 916,223 | 30,486 | (946,709 | ) | 24,161 | |||||||||||||
Total liabilities and stockholders’ equity | $ | 1,526,431 | $ | 1,316,548 | $ | 64,141 | $ | (1,527,891 | ) | $ | 1,379,229 |
CONSOLIDATING BALANCE SHEETS | |||||||||||||||||||
(unaudited) | |||||||||||||||||||
As of December 31, 2014 | |||||||||||||||||||
(in thousands) | Outerwall Inc. | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations and Consolidation Reclassifications | Total | ||||||||||||||
Assets | |||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 180,889 | $ | 17,939 | $ | 43,868 | $ | — | $ | 242,696 | |||||||||
Accounts receivable, net of allowances | 3,203 | 43,874 | 1,513 | — | 48,590 | ||||||||||||||
Content library | — | 176,490 | 3,631 | — | 180,121 | ||||||||||||||
Prepaid expenses and other current assets | 21,442 | 23,923 | 1,030 | (6,558 | ) | 39,837 | |||||||||||||
Intercompany receivables | 40,762 | 467,181 | — | (507,943 | ) | — | |||||||||||||
Total current assets | 246,296 | 729,407 | 50,042 | (514,501 | ) | 511,244 | |||||||||||||
Property and equipment, net | 133,923 | 263,412 | 31,133 | — | 428,468 | ||||||||||||||
Deferred income taxes | — | — | 11,378 | — | 11,378 | ||||||||||||||
Goodwill and other intangible assets, net | 249,717 | 374,281 | — | — | 623,998 | ||||||||||||||
Other long-term assets | 6,665 | 1,231 | 335 | — | 8,231 | ||||||||||||||
Investment in related parties | 917,234 | (5,114 | ) | — | (912,120 | ) | — | ||||||||||||
Total assets | $ | 1,553,835 | $ | 1,363,217 | $ | 92,888 | $ | (1,426,621 | ) | $ | 1,583,319 | ||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Accounts payable | $ | 12,899 | $ | 153,260 | $ | 2,474 | $ | — | $ | 168,633 | |||||||||
Accrued payable to retailers | 69,189 | 42,977 | 14,124 | — | 126,290 | ||||||||||||||
Other accrued liabilities | 59,770 | 74,536 | 2,820 | — | 137,126 | ||||||||||||||
Current portion of long-term debt and other long-term liabilities | 20,020 | — | 396 | — | 20,416 | ||||||||||||||
Deferred income taxes | — | 27,961 | 29 | (6,558 | ) | 21,432 | |||||||||||||
Intercompany payables | 309,932 | 121,015 | 76,996 | (507,943 | ) | — | |||||||||||||
Total current liabilities | 471,810 | 419,749 | 96,839 | (514,501 | ) | 473,897 | |||||||||||||
Long-term debt and other long-term liabilities | 949,588 | 22,946 | 1,135 | — | 973,669 | ||||||||||||||
Deferred income taxes | 35,058 | 3,288 | 29 | — | 38,375 | ||||||||||||||
Total liabilities | 1,456,456 | 445,983 | 98,003 | (514,501 | ) | 1,485,941 | |||||||||||||
Commitments and contingencies | |||||||||||||||||||
Stockholders’ Equity: | |||||||||||||||||||
Preferred stock | — | — | — | — | — | ||||||||||||||
Common stock | 588,105 | 225,729 | 12,393 | (352,635 | ) | 473,592 | |||||||||||||
Treasury stock | (996,293 | ) | — | — | — | (996,293 | ) | ||||||||||||
Retained earnings | 506,360 | 691,505 | (17,991 | ) | (559,485 | ) | 620,389 | ||||||||||||
Accumulated other comprehensive income (loss) | (793 | ) | — | 483 | — | (310 | ) | ||||||||||||
Total stockholders’ equity | 97,379 | 917,234 | (5,115 | ) | (912,120 | ) | 97,378 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 1,553,835 | $ | 1,363,217 | $ | 92,888 | $ | (1,426,621 | ) | $ | 1,583,319 |
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||||
(unaudited) | |||||||||||||||||||
Three Months Ended June 30, 2015 | |||||||||||||||||||
(in thousands) | Outerwall Inc. | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations and Consolidation Reclassifications | Total | ||||||||||||||
Revenue | $ | 68,687 | $ | 465,039 | $ | 11,643 | $ | — | $ | 545,369 | |||||||||
Expenses: | |||||||||||||||||||
Direct operating | 35,397 | 328,952 | 5,270 | — | 369,619 | ||||||||||||||
Marketing | 1,477 | 6,543 | 27 | — | 8,047 | ||||||||||||||
Research and development | 1 | 2,038 | — | — | 2,039 | ||||||||||||||
General and administrative | 11,767 | 36,820 | 196 | — | 48,783 | ||||||||||||||
Depreciation and other | 8,051 | 36,063 | 1,060 | — | 45,174 | ||||||||||||||
Amortization of intangible assets | 4 | 3,305 | — | — | 3,309 | ||||||||||||||
Goodwill impairment (Note 6) | — | 85,890 | — | — | 85,890 | ||||||||||||||
Total expenses | 56,697 | 499,611 | 6,553 | — | 562,861 | ||||||||||||||
Operating income (loss) | 11,990 | (34,572 | ) | 5,090 | — | (17,492 | ) | ||||||||||||
Other income (expense), net: | |||||||||||||||||||
Loss from equity method investments, net | (133 | ) | — | — | — | (133 | ) | ||||||||||||
Interest income (expense), net | (12,485 | ) | 317 | (15 | ) | — | (12,183 | ) | |||||||||||
Other, net | 3,142 | 80 | (2,580 | ) | — | 642 | |||||||||||||
Total other income (expense), net | (9,476 | ) | 397 | (2,595 | ) | — | (11,674 | ) | |||||||||||
Income (loss) from continuing operations before income taxes | 2,514 | (34,175 | ) | 2,495 | — | (29,166 | ) | ||||||||||||
Income tax benefit (expense) | 5,981 | (23,736 | ) | (430 | ) | — | (18,185 | ) | |||||||||||
Income (loss) from continuing operations | 8,495 | (57,911 | ) | 2,065 | — | (47,351 | ) | ||||||||||||
Income (loss) from discontinued operations, net of tax | (856 | ) | 1,221 | 1,370 | — | 1,735 | |||||||||||||
Equity in income (loss) of subsidiaries | (53,255 | ) | 3,435 | — | 49,820 | — | |||||||||||||
Net income (loss) | (45,616 | ) | (53,255 | ) | 3,435 | 49,820 | (45,616 | ) | |||||||||||
Foreign currency translation adjustment(1) | 638 | — | (165 | ) | — | 473 | |||||||||||||
Comprehensive income (loss) | $ | (44,978 | ) | $ | (53,255 | ) | $ | 3,270 | $ | 49,820 | $ | (45,143 | ) |
(1) | Foreign currency translation adjustment had no tax effect for the three months ended June 30, 2015. |
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||||
(unaudited) | |||||||||||||||||||
Three Months Ended June 30, 2014 | |||||||||||||||||||
(in thousands) | Outerwall Inc. | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations and Consolidation Reclassifications | Total | ||||||||||||||
Revenue | $ | 68,085 | $ | 466,639 | $ | 11,803 | $ | — | $ | 546,527 | |||||||||
Expenses: | |||||||||||||||||||
Direct operating | 35,401 | 340,591 | 5,742 | — | 381,734 | ||||||||||||||
Marketing | 1,651 | 7,351 | 134 | — | 9,136 | ||||||||||||||
Research and development | 832 | 2,580 | — | — | 3,412 | ||||||||||||||
General and administrative | 10,365 | 37,995 | 236 | — | 48,596 | ||||||||||||||
Depreciation and other | 9,469 | 37,221 | 1,122 | — | 47,812 | ||||||||||||||
Amortization of intangible assets | 536 | 3,304 | — | — | 3,840 | ||||||||||||||
Total expenses | 58,254 | 429,042 | 7,234 | — | 494,530 | ||||||||||||||
Operating income | 9,831 | 37,597 | 4,569 | — | 51,997 | ||||||||||||||
Other income (expense), net: | |||||||||||||||||||
Loss from equity method investments, net | (224 | ) | (10,317 | ) | — | — | (10,541 | ) | |||||||||||
Interest income (expense), net | (12,971 | ) | 91 | (52 | ) | — | (12,932 | ) | |||||||||||
Other, net | 4,114 | 58 | (2,558 | ) | — | 1,614 | |||||||||||||
Total other expense, net | (9,081 | ) | (10,168 | ) | (2,610 | ) | — | (21,859 | ) | ||||||||||
Income from continuing operations before income taxes | 750 | 27,429 | 1,959 | — | 30,138 | ||||||||||||||
Income tax benefit (expense) | 920 | (6,935 | ) | (290 | ) | — | (6,305 | ) | |||||||||||
Income from continuing operations | 1,670 | 20,494 | 1,669 | — | 23,833 | ||||||||||||||
Loss from discontinued operations, net of tax | (94 | ) | (58 | ) | (1,928 | ) | — | (2,080 | ) | ||||||||||
Equity in income (loss) of subsidiaries | 20,177 | (259 | ) | — | (19,918 | ) | — | ||||||||||||
Net income (loss) | 21,753 | 20,177 | (259 | ) | (19,918 | ) | 21,753 | ||||||||||||
Foreign currency translation adjustment(1) | 297 | — | (633 | ) | — | (336 | ) | ||||||||||||
Comprehensive income (loss) | $ | 22,050 | $ | 20,177 | $ | (892 | ) | $ | (19,918 | ) | $ | 21,417 |
(1) | Foreign currency translation adjustment had no tax effect for the three months ended June 30, 2014. |
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||||
(unaudited) | |||||||||||||||||||
Six Months Ended June 30, 2015 | |||||||||||||||||||
(in thousands) | Outerwall Inc. | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations and Consolidation Reclassifications | Total | ||||||||||||||
Revenue | $ | 127,497 | $ | 1,004,320 | $ | 22,188 | $ | — | $ | 1,154,005 | |||||||||
Expenses: | |||||||||||||||||||
Direct operating | 69,123 | 695,363 | 10,317 | — | 774,803 | ||||||||||||||
Marketing | 2,991 | 13,449 | 27 | — | 16,467 | ||||||||||||||
Research and development | (83 | ) | 4,206 | — | — | 4,123 | |||||||||||||
General and administrative | 23,823 | 73,115 | 401 | — | 97,339 | ||||||||||||||
Restructuring and lease termination costs | 551 | 15,300 | — | — | 15,851 | ||||||||||||||
Depreciation and other | 12,700 | 73,046 | 2,114 | — | 87,860 | ||||||||||||||
Amortization of intangible assets | 7 | 6,611 | — | — | 6,618 | ||||||||||||||
Goodwill impairment (Note 6) | — | 85,890 | — | — | 85,890 | ||||||||||||||
Total expenses | 109,112 | 966,980 | 12,859 | — | 1,088,951 | ||||||||||||||
Operating income | 18,385 | 37,340 | 9,329 | — | 65,054 | ||||||||||||||
Other income (expense), net: | |||||||||||||||||||
Loss from equity method investments, net | (265 | ) | — | — | — | (265 | ) | ||||||||||||
Interest income (expense), net | (24,881 | ) | 692 | (65 | ) | — | (24,254 | ) | |||||||||||
Other, net | 5,578 | 64 | (7,346 | ) | — | (1,704 | ) | ||||||||||||
Total other income (expense), net | (19,568 | ) | 756 | (7,411 | ) | — | (26,223 | ) | |||||||||||
Income (loss) from continuing operations before income taxes | (1,183 | ) | 38,096 | 1,918 | — | 38,831 | |||||||||||||
Income tax benefit (expense) | 5,433 | (49,046 | ) | (414 | ) | — | (44,027 | ) | |||||||||||
Income (loss) from continuing operations | 4,250 | (10,950 | ) | 1,504 | — | (5,196 | ) | ||||||||||||
Income (loss) from discontinued operations, net of tax | 668 | (27,833 | ) | 22,344 | — | (4,821 | ) | ||||||||||||
Equity in income (loss) of subsidiaries | (14,935 | ) | 23,848 | — | (8,913 | ) | — | ||||||||||||
Net income (loss) | (10,017 | ) | (14,935 | ) | 23,848 | (8,913 | ) | (10,017 | ) | ||||||||||
Foreign currency translation adjustment(1) | 574 | — | 2,753 | — | 3,327 | ||||||||||||||
Comprehensive income (loss) | $ | (9,443 | ) | $ | (14,935 | ) | $ | 26,601 | $ | (8,913 | ) | $ | (6,690 | ) |
(1) | Foreign currency translation adjustment had no tax effect for the six months ended June 30, 2015. |
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||||
(unaudited) | |||||||||||||||||||
Six Months Ended June 30, 2014 | |||||||||||||||||||
(in thousands) | Outerwall Inc. | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations and Consolidation Reclassifications | Total | ||||||||||||||
Revenue | $ | 126,262 | $ | 995,633 | $ | 22,394 | $ | — | $ | 1,144,289 | |||||||||
Expenses: | |||||||||||||||||||
Direct operating | 68,469 | 721,692 | 11,215 | — | 801,376 | ||||||||||||||
Marketing | 2,778 | 13,161 | 190 | — | 16,129 | ||||||||||||||
Research and development | 1,728 | 5,158 | — | — | 6,886 | ||||||||||||||
General and administrative | 20,617 | 80,147 | 440 | — | 101,204 | ||||||||||||||
Restructuring and lease termination costs | 23 | 534 | — | — | 557 | ||||||||||||||
Depreciation and other | 18,571 | 74,961 | 2,222 | — | 95,754 | ||||||||||||||
Amortization of intangible assets | 1,072 | 6,610 | — | — | 7,682 | ||||||||||||||
Total expenses | 113,258 | 902,263 | 14,067 | — | 1,029,588 | ||||||||||||||
Operating income | 13,004 | 93,370 | 8,327 | — | 114,701 | ||||||||||||||
Other income (expense), net: | |||||||||||||||||||
Loss from equity method investments, net | (448 | ) | (19,461 | ) | — | — | (19,909 | ) | |||||||||||
Interest income (expense), net | (22,602 | ) | 123 | (101 | ) | — | (22,580 | ) | |||||||||||
Other, net | 5,721 | 122 | (4,877 | ) | — | 966 | |||||||||||||
Total other expense, net | (17,329 | ) | (19,216 | ) | (4,978 | ) | — | (41,523 | ) | ||||||||||
Income (loss) from continuing operations before income taxes | (4,325 | ) | 74,154 | 3,349 | — | 73,178 | |||||||||||||
Income tax benefit (expense) | 3,248 | (24,450 | ) | (537 | ) | — | (21,739 | ) | |||||||||||
Income (loss) from continuing operations | (1,077 | ) | 49,704 | 2,812 | — | 51,439 | |||||||||||||
Loss from discontinued operations, net of tax | (803 | ) | (205 | ) | (5,503 | ) | — | (6,511 | ) | ||||||||||
Equity in income (loss) of subsidiaries | 46,808 | (2,691 | ) | — | (44,117 | ) | — | ||||||||||||
Net income (loss) | 44,928 | 46,808 | (2,691 | ) | (44,117 | ) | 44,928 | ||||||||||||
Foreign currency translation adjustment(1) | 30 | — | 509 | — | 539 | ||||||||||||||
Comprehensive income (loss) | $ | 44,958 | $ | 46,808 | $ | (2,182 | ) | $ | (44,117 | ) | $ | 45,467 |
(1) | Foreign currency translation adjustment had no tax effect for the six months ended June 30, 2014. |
CONSOLIDATING STATEMENTS OF CASH FLOWS | |||||||||||||||||||
(unaudited) | |||||||||||||||||||
Six Months Ended June 30, 2015 | |||||||||||||||||||
(in thousands) | Outerwall Inc. | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations and Consolidation Reclassifications | Total | ||||||||||||||
Operating Activities: | |||||||||||||||||||
Net income (loss) | $ | (10,017 | ) | $ | (14,935 | ) | $ | 23,848 | $ | (8,913 | ) | $ | (10,017 | ) | |||||
Adjustments to reconcile net income (loss) to net cash flows from (used in) operating activities: | |||||||||||||||||||
Depreciation and other | 12,700 | 74,892 | 6,126 | — | 93,718 | ||||||||||||||
Amortization of intangible assets | 7 | 6,611 | 44 | — | 6,662 | ||||||||||||||
Share-based payments expense | 3,681 | 3,511 | — | — | 7,192 | ||||||||||||||
Windfall excess tax benefits related to share-based payments | (686 | ) | — | — | — | (686 | ) | ||||||||||||
Deferred income taxes | (8,029 | ) | (3,903 | ) | 7,993 | — | (3,939 | ) | |||||||||||
Restructuring and lease termination costs | 136 | 1,544 | — | — | 1,680 | ||||||||||||||
Loss from equity method investment, net | 265 | — | — | — | 265 | ||||||||||||||
Amortization of deferred financing fees and debt discount | 1,385 | — | — | — | 1,385 | ||||||||||||||
Goodwill impairment (Note 6) | — | 85,890 | — | — | 85,890 | ||||||||||||||
Other | (265 | ) | 176 | (727 | ) | — | (816 | ) | |||||||||||
Equity in (income) losses of subsidiaries | 14,935 | (23,848 | ) | — | 8,913 | — | |||||||||||||
Cash flows from changes in operating assets and liabilities: | |||||||||||||||||||
Accounts receivable, net | (357 | ) | 14,773 | 661 | — | 15,077 | |||||||||||||
Content library | — | 31,236 | 3,423 | — | 34,659 | ||||||||||||||
Prepaid expenses and other current assets | (17,957 | ) | (4,455 | ) | 330 | — | (22,082 | ) | |||||||||||
Other assets | 47 | 245 | 30 | — | 322 | ||||||||||||||
Accounts payable | (2,022 | ) | (13,438 | ) | (2,237 | ) | — | (17,697 | ) | ||||||||||
Accrued payable to retailers | 479 | (10,682 | ) | (1,307 | ) | — | (11,510 | ) | |||||||||||
Other accrued liabilities | 1,674 | 426 | (988 | ) | — | 1,112 | |||||||||||||
Net cash flows from (used in) operating activities(1) | (4,024 | ) | 148,043 | 37,196 | — | 181,215 | |||||||||||||
Investing Activities: | |||||||||||||||||||
Purchases of property and equipment | (13,869 | ) | (25,818 | ) | (530 | ) | — | (40,217 | ) | ||||||||||
Proceeds from sale of property and equipment | 17 | 2,923 | — | — | 2,940 | ||||||||||||||
Investments in and advances to affiliates | 161,753 | (119,126 | ) | (42,627 | ) | — | — | ||||||||||||
Net cash flows from (used in) investing activities(1) | 147,901 | (142,021 | ) | (43,157 | ) | — | (37,277 | ) | |||||||||||
Financing Activities: | |||||||||||||||||||
Proceeds from new borrowing of Credit Facility | 112,000 | — | — | — | 112,000 | ||||||||||||||
Principal payments on Credit Facility | (185,750 | ) | — | — | — | (185,750 | ) | ||||||||||||
Repurchases of common stock | (62,731 | ) | — | — | — | (62,731 | ) | ||||||||||||
Dividends paid (Note 19) | (11,019 | ) | — | — | — | (11,019 | ) | ||||||||||||
Principal payments on capital lease obligations and other debt | (6,080 | ) | — | (198 | ) | — | (6,278 | ) | |||||||||||
Windfall excess tax benefits related to share-based payments | 686 | — | — | — | 686 | ||||||||||||||
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options | (1,201 | ) | — | — | — | (1,201 | ) | ||||||||||||
Net cash flows from (used in) financing activities(1) | (154,095 | ) | — | (198 | ) | — | (154,293 | ) | |||||||||||
Effect of exchange rate changes on cash | 574 | — | 4,793 | — | 5,367 | ||||||||||||||
Increase (decrease) in cash and cash equivalents | (9,644 | ) | 6,022 | (1,366 | ) | — | (4,988 | ) | |||||||||||
Cash and cash equivalents: | |||||||||||||||||||
Beginning of period | 180,889 | 17,939 | 43,868 | — | 242,696 | ||||||||||||||
End of period | $ | 171,245 | $ | 23,961 | $ | 42,502 | $ | — | $ | 237,708 |
(1) | During the first quarter of 2015 we discontinued our Redbox operations in Canada. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented. See Note 12: Discontinued Operations for cash flow disclosures related to our discontinued Redbox operations in Canada. |
CONSOLIDATING STATEMENTS OF CASH FLOWS | |||||||||||||||||||
(unaudited) | |||||||||||||||||||
Six Months Ended June 30, 2014 | |||||||||||||||||||
(in thousands) | Outerwall Inc. | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations and Consolidation Reclassifications | Total | ||||||||||||||
Operating Activities: | |||||||||||||||||||
Net income (loss) | $ | 44,928 | $ | 46,808 | $ | (2,691 | ) | $ | (44,117 | ) | $ | 44,928 | |||||||
Adjustments to reconcile net income (loss) to net cash flows from operating activities: | |||||||||||||||||||
Depreciation and other | 18,554 | 75,912 | 3,792 | — | 98,258 | ||||||||||||||
Amortization of intangible assets | 1,072 | 6,623 | — | — | 7,695 | ||||||||||||||
Share-based payments expense | 5,451 | 1,393 | — | — | 6,844 | ||||||||||||||
Windfall excess tax benefits related to share-based payments | (1,953 | ) | — | — | — | (1,953 | ) | ||||||||||||
Deferred income taxes | (2,451 | ) | (10,855 | ) | (1,698 | ) | — | (15,004 | ) | ||||||||||
Loss from equity method investments, net | 448 | 19,461 | — | — | 19,909 | ||||||||||||||
Amortization of deferred financing fees and debt discount | 2,522 | — | — | — | 2,522 | ||||||||||||||
Loss from early extinguishment of debt | 1,963 | — | — | — | 1,963 | ||||||||||||||
Other | (1,011 | ) | (180 | ) | 27 | — | (1,164 | ) | |||||||||||
Equity in (income) losses of subsidiaries | (46,808 | ) | 2,691 | — | 44,117 | — | |||||||||||||
Cash flows from changes in operating assets and liabilities: | |||||||||||||||||||
Accounts receivable, net | 528 | 4,514 | 289 | — | 5,331 | ||||||||||||||
Content library | 36 | 47,037 | 413 | — | 47,486 | ||||||||||||||
Prepaid expenses and other current assets | 20,618 | 1,105 | 98 | 182 | 22,003 | ||||||||||||||
Other assets | 42 | 979 | 15 | — | 1,036 | ||||||||||||||
Accounts payable | (3,201 | ) | (67,218 | ) | (576 | ) | — | (70,995 | ) | ||||||||||
Accrued payable to retailers | 4,146 | (13,460 | ) | 2,591 | — | (6,723 | ) | ||||||||||||
Other accrued liabilities | (3,874 | ) | (978 | ) | 318 | (182 | ) | (4,716 | ) | ||||||||||
Net cash flows from (used in) operating activities(1) | 41,010 | 113,832 | 2,578 | — | 157,420 | ||||||||||||||
Investing Activities: | |||||||||||||||||||
Purchases of property and equipment | (17,458 | ) | (31,412 | ) | (4,146 | ) | — | (53,016 | ) | ||||||||||
Proceeds from sale of property and equipment | 750 | 1,043 | — | — | 1,793 | ||||||||||||||
Cash paid for equity investments | — | (10,500 | ) | — | — | (10,500 | ) | ||||||||||||
Investments in and advances to affiliates | 69,392 | (71,176 | ) | 1,784 | — | — | |||||||||||||
Net cash flows from (used in) investing activities(1) | 52,684 | (112,045 | ) | (2,362 | ) | — | (61,723 | ) | |||||||||||
Financing Activities: | |||||||||||||||||||
Proceeds from issuance of senior unsecured notes | 295,500 | — | — | — | 295,500 | ||||||||||||||
Proceeds from new borrowing on Credit Facility | 505,000 | — | — | — | 505,000 | ||||||||||||||
Principal payments on Credit Facility | (534,375 | ) | — | — | — | (534,375 | ) | ||||||||||||
Financing costs associated with Credit Facility and senior unsecured notes | (2,082 | ) | — | — | — | (2,082 | ) | ||||||||||||
Settlement and conversion of convertible debt | (17,724 | ) | — | — | — | (17,724 | ) | ||||||||||||
Repurchases of common stock | (474,480 | ) | — | — | — | (474,480 | ) | ||||||||||||
Principal payments on capital lease obligations and other debt | (6,863 | ) | (3 | ) | (215 | ) | — | (7,081 | ) | ||||||||||
Windfall excess tax benefits related to share-based payments | 1,953 | — | — | — | 1,953 | ||||||||||||||
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options | (1,025 | ) | — | — | — | (1,025 | ) | ||||||||||||
Net cash flows from (used in) financing activities(1) | (234,096 | ) | (3 | ) | (215 | ) | — | (234,314 | ) |
(in thousands) | Outerwall Inc. | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations and Consolidation Reclassifications | Total | ||||||||||||||
Effect of exchange rate changes on cash | 5 | — | 401 | — | 406 | ||||||||||||||
Increase (decrease) in cash and cash equivalents | (140,397 | ) | 1,784 | 402 | — | (138,211 | ) | ||||||||||||
Cash and cash equivalents: | |||||||||||||||||||
Beginning of period | 315,250 | 9,639 | 46,548 | — | 371,437 | ||||||||||||||
End of period | $ | 174,853 | $ | 11,423 | $ | 46,950 | $ | — | $ | 233,226 |
(1) | 2014 includes the wind-down process of certain new ventures that were discontinued during 2013. Cash flows from these discontinued operations were not significant and are not segregated from cash flows from continuing operations in all periods presented. |
• | Our Redbox business segment (“Redbox”), where consumers can rent or purchase movies and video games from self-service kiosks, is focused on the entertainment consumer sector. |
• | Our Coinstar business segment (“Coinstar”) is focused on the money consumer sector and provides self-service kiosks where consumers can convert their coins to cash and convert coins and paper bills to stored value products. We also offer self-service kiosks that exchange gift cards for cash under our Coinstar™ Exchange brand. |
• | Our ecoATM business segment (“ecoATM”) is focused on the consumer electronics sector and provides self-service kiosks where consumers can recycle certain electronic devices for cash and generates revenue through the sale of devices collected at our kiosks to third parties. |
• | Continue growing our Redbox business profitably. We are focused on profitably growing Redbox through increased revenue generation and improved kiosk-operations efficiency. |
• | Optimize and grow revenues from our Coinstar business. As with Redbox, we believe we can improve financial performance in our Coinstar business through kiosk optimization. We continue to focus on finding attractive locations for our kiosks, including through redeployment of underperforming kiosks to lower-kiosk-density or higher-consumer-traffic areas. Further, the Coinstar business continues to develop consumer-oriented products and services, such as Coinstar Exchange, and to expand into other channels, such as financial institutions, where we can leverage our Coinstar platform. |
• | Scale and grow our ecoATM business to profitability. We are focused on strategically scaling our ecoATM business while also enhancing existing kiosk performance in order to drive the business to profitability. We expect to increase revenue through continued focus on placing new kiosks in attractive locations and driving increased productivity at existing kiosks while also leveraging expenses as a percentage of revenue as the business scales. We plan to increase collections of devices and accelerate the ramp time of new kiosk installations in our mass merchant channel through targeted promotions and ongoing marketing to customers in our key demographic segments. |
• | Use our expertise to continue to develop our existing businesses and new innovative automated retail solutions. Through Redbox and Coinstar, we have demonstrated our ability to profitably scale automated retail solutions. We also leverage those core competencies to identify, evaluate, build or acquire, and develop new automated retail concepts through both organic and inorganic opportunities. For example, in the third quarter of 2013, we acquired ecoATM, one of our previous strategic investments. Further, we continue to make modest investments to test our product sampling kiosk concept, SAMPLEit. We are committed to addressing the changing needs and preferences of our consumers, including through strategic investments. |
• | Discontinued operations, consisting of our Redbox operations in Canada (“Redbox Canada”), which we shut down during the first quarter of 2015. See Note 12: Discontinued Operations in our Notes to Consolidated Financial Statements for additional information; |
• | Added ecoATM, our electronic device recycling business, as a separate reportable segment. Previously, the results of ecoATM along with those of other self-service concepts were included in our New Ventures segment. The combined results of the other self-service concepts, which include our product sampling kiosk concept SAMPLEit, are now included in the All Other reporting category as they do not meet quantitative thresholds to be reported as a separate segment. See Note 14: Business Segments and Enterprise-Wide Information in our Notes to Consolidated Financial Statements for additional information; and |
• | Calculated basic and diluted earnings per share under the two-class method (the “Two-Class Method”). During the first quarter of 2015, the Two-Class Method became significantly more dilutive than the previously applied treasury stock method as a result of stock repurchases increasing the average number of unvested restricted awards as a percentage of total common shares outstanding. See Note 13: Earnings Per Share in our Notes to Consolidated Financial Statements for additional information. |
• | On July 14, 2015, Sony elected to exercise its option to extend our existing content license agreement with them. This will extend the license period through September 30, 2016, with no further options to renew, and require us to issue 25,000 shares of additional restricted stock to Sony during the fourth quarter of 2015. See Note 20: Subsequent Events in our Notes to Consolidated Financial Statements for additional information. |
• | On July 28, 2015, the Board of directors declared a quarterly cash dividend of $0.30 per share expected to be paid on September 15, 2015, to all stockholders of record as of the close of business on August 28, 2015. |
• | On June 23, 2015, we paid a cash dividend of $0.30 per outstanding share of our common stock totaling approximately $5.4 million; |
• | On June 5, 2015, Redbox entered into an amendment to the existing April 22, 2010, agreement with Twentieth Century Fox Home Entertainment LLC (“Fox”) that maintains a 28-day window on Blu-ray Disc® and DVD titles through June 30, 2017, and includes a revenue sharing arrangement between Redbox and Fox; and |
• | During the three months ended June 30, 2015, we repurchased 284,537 shares of our common stock at an average price per share of $77.40 for $22.0 million. |
• | During the three months ended June 30, 2015, we recognized a goodwill impairment charge of $85.9 million related to our ecoATM business segment. See Note 6: Goodwill and Other Intangible Assets in our Notes to Consolidated Financial Statements and the ecoATM results section below for additional information. |
• | On March 31, 2015, we completed the shutdown of the Redbox Canada operations as the business was not meeting performance expectations. The value of the content library and certain capitalized property and equipment consisting primarily of installation costs were amortized over the wind-down period ending on the disposal date of March 31, 2015. See Note 12: Discontinued Operations in our Notes to Consolidated Financial Statements for additional information; |
• | On March 31, 2015, we reduced the size of our Redbox headquarters facility in Oakbrook Terrace, Illinois through early termination of operating leases for certain floors. See Redbox results discussion and Note 11: Restructuring in our Notes to Consolidated Financial Statements for additional information; |
• | On March 26, 2015, we entered into a revenue sharing agreement with Warner Home Video, a division of Warner Bros. Home Entertainment Inc., (the “Warner Agreement”) under which Redbox agrees to license minimum quantities of theatrical and direct-to-video titles for rental through March 31, 2017. The Warner Agreement maintains a 28-day window on such titles. |
• | On March 18, 2015, we paid a cash dividend of $0.30 per outstanding share of our common stock totaling approximately $5.6 million; and |
• | During the three months ended March 31, 2015, we repurchased 617,195 shares of our common stock at an average price of $65.96 per share for $40.7 million. |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
Dollars in thousands, except per share amounts | 2015 | 2014 | $ | % | 2015 | 2014 | $ | % | |||||||||||||||||||||
Revenue | $ | 545,369 | $ | 546,527 | $ | (1,158 | ) | (0.2 | )% | $ | 1,154,005 | $ | 1,144,289 | $ | 9,716 | 0.8 | % | ||||||||||||
Operating income (loss) | $ | (17,492 | ) | $ | 51,997 | $ | (69,489 | ) | (133.6 | )% | $ | 65,054 | $ | 114,701 | $ | (49,647 | ) | (43.3 | )% | ||||||||||
Income (loss) from continuing operations | $ | (47,351 | ) | $ | 23,833 | $ | (71,184 | ) | (298.7 | )% | $ | (5,196 | ) | $ | 51,439 | $ | (56,635 | ) | (110.1 | )% | |||||||||
Diluted earnings (loss) from continuing operations per common share | $ | (2.66 | ) | $ | 1.15 | $ | (3.81 | ) | (331.3 | )% | $ | (0.30 | ) | $ | 2.24 | $ | (2.54 | ) | (113.4 | )% |
• | $3.9 million decrease from our Redbox segment primarily due to a 0.6% decrease in same store sales driven by a decline in rentals and the removal of underperforming kiosks, partially offset by price increases for movie content implemented in December 2014. Movie rentals were also impacted by the relative strength of content and the timing of the release slate; |
• | $2.3 million increase from our ecoATM segment primarily due to the increase in number of kiosks installed partially offset by a decrease in the average selling prices of value devices sold; and |
• | $0.4 million increase from our Coinstar segment, primarily due to the increase in number of Coinstar Exchange kiosks installed partially offset by lower volume in U.S. Coinstar kiosks. |
• | $90.9 million increase in operating loss within our ecoATM segment, primarily due to the $85.9 million goodwill impairment charge recognized in 2015. Excluding the $85.9 million goodwill impairment charge, operating loss increased $5.0 million for our ecoATM segment primarily due to an increase in direct operating expenses and depreciation associated with the increase in the installed kiosk base; partially offset by |
• | $18.4 million increase in operating income within our Redbox segment primarily due to: |
◦ | $15.9 million decrease in direct operating expenses driven primarily by lower product costs and rental volume; and |
◦ | $5.7 million decrease in depreciation and amortization primarily from lower kiosk related depreciation; partially offset by |
◦ | $3.9 million decrease in revenue. |
• | $3.9 million decrease in share based expense not allocated to our segments primarily due to the continued vesting of rights to receive cash we issued as replacement awards for unvested restricted stock as part of our acquisition of ecoATM in the third quarter of 2013; and |
• | $1.6 million increase in operating income within our Coinstar segment primarily due to a $0.4 million increase in revenue and lower operating expenses including depreciation and amortization, direct operating and research and development offset by general administrative, restructuring and marketing expenses. |
• | $69.5 million decrease in operating income as described above; and |
• | $11.9 million increase in income tax expense; partially offset by |
• | $10.4 million lower losses from equity method investments due to our withdrawal from Redbox Instant by Verizon during the fourth quarter of 2014. |
• | $6.1 million increase from our ecoATM segment primarily due to the increase in number of kiosks installed partially offset by a decrease in the average selling prices of value devices sold; |
• | $2.6 million increase from our Redbox segment primarily due to a 0.5% increase in same store sales driven by the benefit of price increases on the first six months of 2015, substantially offset by a decline in rentals during the first half of 2015 and the removal of underperforming kiosks. Movie rentals were also impacted by the relative strength of content and the timing of the release slate; and |
• | $1.0 million increase from our Coinstar segment, primarily due to the increase in number of Coinstar Exchange kiosks installed partially offset by lower transactions in U.S. Coinstar kiosks. |
• | $96.1 million increase in operating loss within our ecoATM segment, primarily due to the $85.9 million goodwill impairment charge recognized in 2015. Excluding the $85.9 million goodwill impairment charge, operating loss increased $10.2 million for our ecoATM segment primarily due to an increase in direct operating expenses and depreciation associated with the increase in the installed kiosk base; partially offset by |
• | $43.3 million increase in operating income within our Redbox segment primarily due to: |
◦ | $36.6 million decrease in direct operating expenses driven primarily by lower product costs and rental volume; |
◦ | $13.5 million decrease in depreciation and amortization primarily from lower kiosk related depreciation; |
◦ | $4.3 million decrease in general and administrative expenses driven by ongoing cost reduction initiatives; and |
◦ | $2.6 million in revenue growth; partially offset by |
◦ | $14.6 million increase in restructuring and lease termination costs related mainly to early lease termination of certain floors at our Redbox headquarters and severance costs. |
• | $5.9 million decrease in share based expense not allocated to our segments primarily due to the continued vesting of rights to receive cash we issued as replacement awards for unvested restricted stock as part of our acquisition of ecoATM in the third quarter of 2013; and |
• | $2.2 million increase in operating income within our Coinstar segment primarily due to a $1.0 million increase in revenue and lower operating expenses including depreciation and amortization, direct operating and research and development offset by general administrative, restructuring and marketing expenses. |
• | $49.6 million decrease in operating income as described above; |
• | $22.3 million increase in income tax expense; |
• | $2.7 million increase in other expenses primarily related to foreign exchange; and |
• | $1.7 million increase in interest expense primarily due to a shift in the composition of our debt to higher fixed rate debt, partially offset by lower borrowings; partially offset by |
• | $19.6 million lower losses from equity method investments due to our withdrawal from Redbox Instant by Verizon during the fourth quarter of 2014. |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
Dollars in thousands | 2015 | 2014 | $ | % | 2015 | 2014 | $ | % | |||||||||||||||||||||
Direct operating | $ | 512 | $ | 1,332 | $ | (820 | ) | (61.6 | )% | $ | 1,501 | $ | 3,311 | $ | (1,810 | ) | (54.7 | )% | |||||||||||
Marketing | 142 | 899 | (757 | ) | (84.2 | )% | 509 | 1,597 | (1,088 | ) | (68.1 | )% | |||||||||||||||||
Research and development | 489 | 1,175 | (686 | ) | (58.4 | )% | 1,202 | 1,956 | (754 | ) | (38.5 | )% | |||||||||||||||||
General and administrative | 1,941 | 3,598 | (1,657 | ) | (46.1 | )% | 4,492 | 6,708 | (2,216 | ) | (33.0 | )% | |||||||||||||||||
Total | $ | 3,084 | $ | 7,004 | $ | (3,920 | ) | (56.0 | )% | $ | 7,704 | $ | 13,572 | $ | (5,868 | ) | (43.2 | )% |
* | Not Meaningful |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
Dollars in thousands, except net revenue per rental amounts | June 30, | Change | June 30, | Change | |||||||||||||||||||||||||
2015 | 2014 | $ | % | 2015 | 2014 | $ | % | ||||||||||||||||||||||
Revenue | $ | 438,976 | $ | 442,838 | $ | (3,862 | ) | (0.9 | )% | $ | 958,509 | $ | 955,887 | $ | 2,622 | 0.3 | % | ||||||||||||
Expenses: | |||||||||||||||||||||||||||||
Direct operating | 301,444 | 317,376 | (15,932 | ) | (5.0 | )% | 644,379 | 680,977 | (36,598 | ) | (5.4 | )% | |||||||||||||||||
Marketing | 4,266 | 5,533 | (1,267 | ) | (22.9 | )% | 9,091 | 9,993 | (902 | ) | (9.0 | )% | |||||||||||||||||
Research and development | — | 18 | (18 | ) | (100.0 | )% | — | 26 | (26 | ) | (100.0 | )% | |||||||||||||||||
General and administrative | 34,336 | 33,692 | 644 | 1.9 | % | 68,071 | 72,393 | (4,322 | ) | (6.0 | )% | ||||||||||||||||||
Restructuring and lease termination costs (Note 11) | — | — | — | — | % | 15,174 | 534 | 14,640 | NM* | ||||||||||||||||||||
Segment operating income | 98,930 | 86,219 | 12,711 | 14.7 | % | 221,794 | 191,964 | 29,830 | 15.5 | % | |||||||||||||||||||
Less: depreciation and amortization | (33,063 | ) | (38,783 | ) | 5,720 | (14.7 | )% | (64,670 | ) | (78,187 | ) | 13,517 | (17.3 | )% | |||||||||||||||
Operating income | $ | 65,867 | $ | 47,436 | $ | 18,431 | 38.9 | % | $ | 157,124 | $ | 113,777 | $ | 43,347 | 38.1 | % | |||||||||||||
Operating income as a percentage of revenue | 15.0 | % | 10.7 | % | 16.4 | % | 11.9 | % | |||||||||||||||||||||
Same store sales growth (decline) | (0.6 | )% | (7.8 | )% | 0.5 | % | (3.3 | )% | |||||||||||||||||||||
Effect on change in revenue from same store sales growth (decline) | $ | (2,663 | ) | $ | (36,876 | ) | $ | 34,213 | (92.8 | )% | $ | 4,573 | $ | (32,161 | ) | $ | 36,734 | (114.2 | )% | ||||||||||
Ending number of kiosks | 41,340 | 42,550 | (1,210 | ) | (2.8 | )% | 41,340 | 42,550 | (1,210 | ) | (2.8 | )% | |||||||||||||||||
Total rentals (in thousands) | 146,047 | 168,122 | (22,075 | ) | (13.1 | )% | 319,094 | 366,892 | (47,798 | ) | (13.0 | )% | |||||||||||||||||
Net revenue per rental | $ | 3.00 | $ | 2.63 | $ | 0.37 | 14.1 | % | $ | 3.00 | $ | 2.60 | $ | 0.40 | 15.4 | % |
* | Not Meaningful |
• | On June 12, 2015, Redbox announced plans to expand the availability of new generation games to all kiosks nationwide in 2015; and |
• | On June 5, 2015, Redbox entered into an amendment to the April 22, 2010, agreement with Fox that maintains a 28-day window on Blu-ray Disc and DVD titles through June 30, 2017, and includes a revenue sharing arrangement between Redbox and Fox. |
• | During the first quarter of 2015, we made the decision to shut down our Redbox Canada operations as the business was not meeting the company's performance expectations. The results of Redbox Canada have been presented as discontinued operations on our Consolidated Statements of Comprehensive Income and are no longer included in segment operating results presented above. See Note 12: Discontinued Operations in our Notes to Consolidated Financial Statements for additional information; |
• | On March 31, as part of restructuring efforts, we reduced the size of our Redbox headquarters facility in Oakbrook Terrace, Illinois through early termination of operating leases for certain floors. In accordance with accounting for exit and disposal activities, we recorded pre-tax charges totaling $11.0 million at the cease use date, March 31, 2015. These charges include $4.4 million for the estimated fair value of our remaining lease obligations including an early termination penalty and $6.6 million in impairments of lease related assets. We have included these costs in restructuring and lease termination costs in our Consolidated Statements of Comprehensive Income; and |
• | On March 26, 2015, we entered into the Warner Agreement under which Redbox agrees to license minimum quantities of theatrical and direct-to-video titles for rental through March 31, 2017. The Warner Agreement maintains a 28-day window on such titles. |
• | $2.7 million decrease from a 0.6% decrease in same store sales primarily due to: |
◦ | A 13.1% decline in total disc rentals primarily driven by a decline in video game rentals from a consumer transition to new generation platforms, lower demand from price-sensitive customers following the price increases discussed below and the expected secular decline in the market. Movie rentals were also impacted by the relative attractiveness of titles available for rent and the timing of the release slate. |
▪ | While the total box office (representing titles with North American box office receipts of at least $5.0 million) of titles released during the second quarter of 2015 increased 53.9% as compared to the second quarter of 2014, there was a higher percentage of total content released later in the current period therefore having a shorter period to generate revenue. During the second quarter of 2015, 38.2% of the titles and 45.6% of the total box office for titles released during the quarter were released in the last month. By comparison, during the second quarter of 2014, 12.9% of the titles and 9.5% of the total box office for titles released during the quarter were released in the last month. |
▪ | Demand was also negatively affected by an increase in competition for viewer time due to several significant theatrical releases during the second quarter of 2015 particularly in the last month of the period which created competition when a significant portion of our box office was released. |
◦ | We continue to invest in customer-specific promotional offerings to lessen the negative impact on demand driven by the price increase and secular decline. |
◦ | The negative impact on revenue from the decline in rentals was substantially offset by price increases. We implemented a 30 cent increase in the rental price for DVDs to $1.50 per day, effective December 2, 2014, a 50 cent increase in the rental price for Blu-ray Discs to $2.00 per day, effective December 2, 2014, and a $1.00 increase in the rental price for video games to $3.00 per day, effective January 6, 2015. Revenue from movie rentals increased 0.7% as the net result of the impacts discussed above. |
• | $1.2 million decrease in revenue from kiosks removed subsequent to the second quarter of 2014 due to continued efforts to optimize our network by removing underperforming kiosks. |
• | The impact of the increase in daily rental prices discussed above partially offset by an expected increase in single night rental activity as a result of the price increases; and |
• | An increase in Blu-ray revenue which represented 18.1% of total revenue and 14.1% of total disc rentals during the second quarter of 2015 as compared with 16.7% and 14.0% during the prior year. Blu-ray revenue increased 7.8% compared to the second quarter of 2014 primarily due to the price increase discussed above; partially offset by |
• | A decrease in video game revenue which represented 2.4% of total revenue and 0.9% of total disc rentals during the second quarter of 2015 as compared with 3.9% and 1.8% during the prior year primarily due to consumer transition to new generation platforms as the number of discs we stocked in our kiosks was down 47.1% in the second quarter of 2015 as compared to the prior year. As indicated above, we expect to invest more in video games later in the year to expand the availability of new generation games to all kiosks nationwide as additional titles become available for new generation platforms. Video games also were impacted by lower demand from price-sensitive customers and an expected increase in single night rental activity driven by the price change. |
• | $15.9 million decrease in direct operating expenses, which were 68.7% of revenue during the second quarter of 2015 as compared with 71.7% during the prior year primarily as a result of: |
◦ | $5.5 million decrease in product costs to $186.4 million primarily due to lower spending on content in the second quarter of 2015 specifically in the games category in response to consumer transition to new generation platforms that combined with the revenue impacts discussed above increased gross margin 0.8% to 57.5% during the second quarter of 2015; and |
◦ | Direct operating expenses were also impacted by lower credit card fees driven by the lower volume of rentals, lower wireless network charges tied to data usage under new contracts starting in January 2015 and cost containment initiatives related to third party fees for customer service. |
• | $5.7 million decrease in depreciation and amortization expenses primarily due to the benefit from kiosk assets that are depreciated over three to five years becoming fully depreciated, partially offset by higher depreciation expense as a result of continued investment in our corporate technology infrastructure and additional depreciation for newly installed or replaced kiosks; and |
• | $1.3 million decrease in marketing spend due to cost containment measures; partially offset by |
• | $3.9 million decrease in revenue as described above. |
• | $4.6 million increase from a 0.5% increase in same store sales primarily due to: |
◦ | The benefit from the price increases on the first six months of 2015 as discussed above; partially offset by |
◦ | A 13.0% decline in rentals for the first six months of 2015 primarily driven by a decline in video game rentals from a consumer transition to new generation platforms, lower demand from price-sensitive customers following the price increases and the expected secular decline in the market. Movie rentals were also impacted by the relative attractiveness of titles available for rent and the timing of the release slate. |
▪ | Total box office of titles released during the first six months of 2015 decreased 6.6% compared to the first six months of 2014 with a higher percentage of total content released later in the current period therefore having a shorter period to generate revenue. During the first six months of 2015, 18.3% of the titles and 20.5% of the total box office for titles released during the period were released in the last month. By comparison, during the first six months of 2014, 5.3% of the titles and 2.6% of the total box office for titles released during the period were released in the last month. |
▪ | Demand was also negatively affected by an increase in competition for viewer time due to several significant theatrical releases during the first six months of 2015, particularly in the last month of the period which created competition when a significant portion of our box office was released. |
◦ | We continued investment in customer-specific promotional offerings throughout the first six months of 2015 to lessen the negative impact on demand driven by the price increase and secular decline. |
◦ | Revenue from movie rentals increased 1.4% primarily due to the price increases despite the negative impacts on demand. |
• | $2.0 million decrease in revenue from kiosks removed subsequent to the second half of 2014 due to continued efforts to optimize our network by removing underperforming kiosks. |
• | The impact of the increase in daily rental prices discussed above partially offset by an expected increase in single night rental activity as a result of the price increases; and |
• | An increase in Blu-ray revenue which represented 18.2% of total revenue and 14.3% of total disc rentals during the first six months of 2015 as compared with 17.2% and 14.7% during the prior year. Blu-ray revenue increased 6.1% compared to the first six months of 2014 primarily due to the price increase discussed above. Blu-ray rentals were negatively impacted by lower demand from price-sensitive customers as discussed above, fewer releases and a resulting lower availability of recent Blu-ray content in the first quarter of 2015 compared to the prior year and the secular decline in the market; partially offset by |
• | A decrease in video game revenue which represented 2.7% of total revenue and 1.1% of total disc rentals during the first six months of 2015 as compared with 3.6% and 1.6% during the prior year primarily due to consumer transition to new generation platforms and under performance of titles released in the fourth quarter of 2014. Video games also were impacted by lower demand from price-sensitive customers and an expected increase in single night rental activity driven by the price change. |
• | $36.6 million decrease in direct operating expenses, which were 67.2% of revenue during the first six months of 2015 as compared with 71.2% during the prior year primarily as a result of: |
◦ | $19.3 million decrease in product costs to $396.8 million primarily due to lower spending on content in the first six months of 2015 due to fewer movie releases primarily in January, a lower average cost per disc in the |
◦ | Direct operating expenses were also impacted by lower credit card fees driven by the lower volume of rentals, lower wireless network charges tied to data usage under new contracts starting in January 2015 and lower costs due to cost containment initiatives related to the field and third party fees for customer service. |
• | $13.5 million decrease in depreciation and amortization expenses primarily due to the benefit from kiosk assets that are depreciated over three to five years becoming fully depreciated, partially offset by higher depreciation expense as a result of continued investment in our corporate technology infrastructure and additional depreciation for newly installed or replaced kiosks; |
• | $4.3 million decrease in general and administrative expenses primarily as a result of ongoing cost reduction initiatives and lower variable expenses associated with IT infrastructure costs, temporary staffing, legal and professional fees; |
• | $2.6 million increase in revenue as described above; and |
• | $0.9 million decrease in marketing spend due to cost containment measures; partially offset by |
• | $15.2 million of restructuring and lease termination charges incurred in the first quarter of 2015, which included restructuring efforts surrounding our Redbox facility as discussed above and severance related expenses. |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
Dollars in thousands, except average transaction size | June 30, | Change | June 30, | Change | |||||||||||||||||||||||||
2015 | 2014 | $ | % | 2015 | 2014 | $ | % | ||||||||||||||||||||||
Revenue | $ | 80,279 | $ | 79,880 | $ | 399 | 0.5 | % | $ | 149,609 | $ | 148,633 | $ | 976 | 0.7 | % | |||||||||||||
Expenses: | |||||||||||||||||||||||||||||
Direct operating | 39,358 | 40,203 | (845 | ) | (2.1 | )% | 76,621 | 77,926 | (1,305 | ) | (1.7 | )% | |||||||||||||||||
Marketing | 1,232 | 1,557 | (325 | ) | (20.9 | )% | 2,410 | 2,563 | (153 | ) | (6.0 | )% | |||||||||||||||||
Research and development | — | 153 | (153 | ) | (100.0 | )% | — | 422 | (422 | ) | (100.0 | )% | |||||||||||||||||
General and administrative | 7,768 | 7,169 | 599 | 8.4 | % | 15,563 | 14,166 | 1,397 | 9.9 | % | |||||||||||||||||||
Restructuring and lease termination costs (Note 11) | — | — | — | — | % | 550 | 23 | 527 | NM* | ||||||||||||||||||||
Segment operating income | 31,921 | 30,798 | 1,123 | 3.6 | % | 54,465 | 53,533 | 932 | 1.7 | % | |||||||||||||||||||
Less: Depreciation and amortization | (8,437 | ) | (8,921 | ) | 484 | (5.4 | )% | (16,255 | ) | (17,484 | ) | 1,229 | (7.0 | )% | |||||||||||||||
Operating income | $ | 23,484 | $ | 21,877 | $ | 1,607 | 7.3 | % | $ | 38,210 | $ | 36,049 | $ | 2,161 | 6.0 | % | |||||||||||||
Operating income as a percentage of revenue | 29.3 | % | 27.4 | % | 25.5 | % | 24.3 | % | |||||||||||||||||||||
Same store sales growth | 1.9 | % | 6.7 | % | 1.4 | % | 4.9 | % | |||||||||||||||||||||
Ending number of kiosks | 21,140 | 21,200 | (60 | ) | (0.3 | )% | 21,140 | 21,200 | (60 | ) | (0.3 | )% | |||||||||||||||||
Total transactions (in thousands) | 18,200 | 18,850 | (650 | ) | (3.4 | )% | 34,116 | 35,438 | (1,322 | ) | (3.7 | )% | |||||||||||||||||
Average transaction size | $ | 43.03 | $ | 41.32 | $ | 1.71 | 4.1 | % | $ | 42.78 | $ | 41.19 | $ | 1.59 | 3.9 | % |
* | Not Meaningful |
• | $0.8 million decrease in direct operating expenses due to lower wireless charges tied to data usage under new contracts in 2015, lower vehicle fleet expenses including fuel cost savings from reduced gas prices, and reduction in selling and customer service costs, partially offset by increased revenue sharing costs; |
• | $0.5 million decrease in depreciation and amortization expense primarily due to intangible assets related to customer contracts being fully amortized in August 2014; |
• | $0.4 million increase in revenue as described above; and |
• | $0.3 million decrease in marketing expense due to an expected shift in timing of marketing expenses to the second half of 2015 compared to the prior year period; partially offset by |
• | $0.6 million increase in general and administrative expenses primarily due to an increase in technology costs, partially offset by lower shared services costs related to professional fees, business taxes, temporary staffing and facilities expenses as a result of an overall reduction in organization costs. |
• | $1.3 million decrease in direct operating expenses due to lower wireless charges tied to data usage under new contracts in 2015, lower vehicle fleet expenses including fuel cost savings from reduced gas prices, reduction in selling and customer service costs, partially offset by increased revenue sharing costs; |
• | $1.2 million decrease in depreciation and amortization expense primarily due to intangible assets related to customer contracts being fully amortized in August 2014; |
• | $1.0 million increase in revenue as described above; and |
• | $0.4 million decrease in research and development expense; partially offset by |
• | $1.4 million increase in general and administrative expenses primarily due to an increase in technology costs, partially offset by a lower shared services costs related to professional fees, business taxes, temporary staffing and facilities expenses as a result of an overall reduction in organization costs; and |
• | $0.5 million increase in allocated restructuring expenses related to the subleasing of certain corporate facilities and severance expense from our ongoing cost saving initiatives. |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
Dollars in thousands, except average selling price of value devices sold | June 30, | Change | June 30, | Change | |||||||||||||||||||||||||
2015 | 2014 | $ | % | 2015 | 2014 | $ | % | ||||||||||||||||||||||
Revenue | $ | 26,062 | $ | 23,799 | $ | 2,263 | 9.5 | % | $ | 45,811 | $ | 39,745 | $ | 6,066 | 15.3 | % | |||||||||||||
Expenses: | |||||||||||||||||||||||||||||
Direct operating | 27,227 | 22,387 | 4,840 | 21.6 | % | 50,033 | 38,318 | 11,715 | 30.6 | % | |||||||||||||||||||
Marketing | 2,149 | 927 | 1,222 | 131.8 | % | 3,879 | 1,595 | 2,284 | 143.2 | % | |||||||||||||||||||
Research and development | 1,549 | 1,391 | 158 | 11.4 | % | 3,005 | 3,175 | (170 | ) | (5.4 | )% | ||||||||||||||||||
General and administrative | 2,094 | 3,564 | (1,470 | ) | (41.2 | )% | 4,062 | 6,443 | (2,381 | ) | (37.0 | )% | |||||||||||||||||
Restructuring and lease termination costs (Note 11) | — | — | — | — | % | 127 | — | 127 | NM* | ||||||||||||||||||||
Goodwill impairment (Note 6) | 85,890 | — | 85,890 | NM* | 85,890 | — | 85,890 | NM* | |||||||||||||||||||||
Segment operating loss | (92,847 | ) | (4,470 | ) | (88,377 | ) | NM* | (101,185 | ) | (9,786 | ) | (91,399 | ) | NM* | |||||||||||||||
Less: depreciation and amortization | (6,305 | ) | (3,812 | ) | (2,493 | ) | 65.4 | % | (12,207 | ) | (7,524 | ) | (4,683 | ) | 62.2 | % | |||||||||||||
Operating loss | $ | (99,152 | ) | $ | (8,282 | ) | $ | (90,870 | ) | NM* | $ | (113,392 | ) | $ | (17,310 | ) | $ | (96,082 | ) | NM* | |||||||||
Ending number of kiosks | 2,260 | 980 | 1,280 | 130.6 | % | 2,260 | 980 | 1,280 | 130.6 | % | |||||||||||||||||||
Average selling price of value devices sold | $ | 61.72 | $ | 91.55 | $ | (29.83 | ) | (32.6 | )% | $ | 61.09 | $ | 92.66 | $ | (31.57 | ) | (34.1 | )% | |||||||||||
Number of value devices sold | 409,331 | 249,969 | 159,362 | 63.8 | % | 726,465 | 416,909 | 309,556 | 74.3 | % | |||||||||||||||||||
Number of overall devices sold | 704,450 | 325,321 | 379,129 | 116.5 | % | 1,223,083 | 566,320 | 656,763 | 116.0 | % |
* | Not Meaningful |
• | $4.8 million increase in direct operating expenses mainly due to costs associated with our increased installed ecoATM kiosk base, including the acquisition, transportation and processing of electronic devices, servicing of kiosks and payments to retailers. As we install additional kiosks and existing kiosks continue to ramp, we expect to leverage the fixed cost portions of our direct operating expenses; |
• | $2.5 million increase in depreciation and amortization expense primarily from depreciation on our increased installed ecoATM kiosk base; and |
• | $1.2 million increase in marketing costs primarily due to costs to promote the ecoATM brand and raise awareness to the consumer combined with additional headcount to support our installed ecoATM kiosk base; partially offset by |
• | $2.3 million increase in revenue described above; and |
• | $1.5 million decrease in general and administrative expense primarily from a reduction in headcount, lower data facilities costs, and lower temp staffing as a result of an overall reduction in organization costs. |
• | $11.7 million increase in direct operating expenses mainly due to costs associated with our increased installed ecoATM kiosk base, including the acquisition, transportation and processing of electronic devices, servicing of kiosks and payments to retailers. As we install additional kiosks and existing kiosks continue to ramp, we expect to leverage the fixed cost portions of our direct operating expenses; |
• | $4.7 million increase in depreciation and amortization expense from depreciation on our increased installed ecoATM kiosk base; and |
• | $2.3 million increase in marketing costs primarily due to costs to promote the ecoATM brand and raise awareness to the consumer combined with additional headcount to support our installed ecoATM kiosk base; partially offset by |
• | $6.1 million increase in revenue described above; and |
• | $2.4 million decrease in general and administrative expense primarily from a reduction in headcount, lower data facilities costs, and lower temp staffing as a result of an overall reduction in organization costs. |
Dollars in thousands | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
2015 | 2014 | $ | % | 2015 | 2014 | $ | % | ||||||||||||||||||||||
Cash interest expense | $ | 11,499 | $ | 9,773 | $ | 1,726 | 17.7 | % | $ | 22,894 | $ | 18,135 | $ | 4,759 | 26.2 | % | |||||||||||||
Non-cash interest expense: | |||||||||||||||||||||||||||||
Amortization of debt discount | 434 | 753 | (319 | ) | (42.4 | )% | 869 | 1,555 | (686 | ) | (44.1 | )% | |||||||||||||||||
Amortization of deferred financing fees | 258 | 463 | (205 | ) | (44.3 | )% | 516 | 967 | (451 | ) | (46.6 | )% | |||||||||||||||||
Total non-cash interest expense | 692 | 1,216 | (524 | ) | (43.1 | )% | 1,385 | 2,522 | (1,137 | ) | (45.1 | )% | |||||||||||||||||
Loss from early extinguishment of debt | — | 1,963 | (1,963 | ) | (100.0 | )% | — | 1,963 | (1,963 | ) | (100.0 | )% | |||||||||||||||||
Total cash and non-cash interest expense | 12,191 | 12,952 | (761 | ) | (5.9 | )% | 24,279 | 22,620 | 1,659 | 7.3 | % | ||||||||||||||||||
Interest income | (8 | ) | (20 | ) | 12 | (60.0 | )% | (25 | ) | (40 | ) | 15 | (37.5 | )% | |||||||||||||||
Interest expense, net | $ | 12,183 | $ | 12,932 | $ | (749 | ) | (5.8 | )% | $ | 24,254 | $ | 22,580 | $ | 1,674 | 7.4 | % |
Dollars in thousands | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
2015 | 2014 | $ | % | 2015 | 2014 | $ | % | ||||||||||||||||||||||
Other income (expense), net | $ | 642 | $ | 1,614 | $ | (972 | ) | (60.2 | )% | $ | (1,704 | ) | $ | 966 | $ | (2,670 | ) | (276.4 | )% |
• | Core adjusted EBITDA from continuing operations; |
• | Core diluted earnings per share (“EPS”) from continuing operations; |
• | Free cash flow; and |
• | Net debt and net leverage ratio. |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
Dollars in thousands | 2015 | 2014 | $ | % | 2015 | 2014 | $ | % | |||||||||||||||||||||
Net income (loss) from continuing operations | $ | (47,351 | ) | $ | 23,833 | $ | (71,184 | ) | (298.7 | )% | $ | (5,196 | ) | $ | 51,439 | $ | (56,635 | ) | (110.1 | )% | |||||||||
Depreciation, amortization and other | 48,483 | 51,652 | (3,169 | ) | (6.1 | )% | 94,478 | 103,436 | (8,958 | ) | (8.7 | )% | |||||||||||||||||
Interest expense, net | 12,183 | 12,932 | (749 | ) | (5.8 | )% | 24,254 | 22,580 | 1,674 | 7.4 | % | ||||||||||||||||||
Income taxes | 18,185 | 6,305 | 11,880 | 188.4 | % | 44,027 | 21,739 | 22,288 | 102.5 | % | |||||||||||||||||||
Share-based payments expense(1) | 3,320 | 3,079 | 241 | 7.8 | % | 7,261 | 6,844 | 417 | 6.1 | % | |||||||||||||||||||
Adjusted EBITDA from continuing operations | 34,820 | 97,801 | (62,981 | ) | (64.4 | )% | 164,824 | 206,038 | (41,214 | ) | (20.0 | )% | |||||||||||||||||
Non-Core Adjustments: | |||||||||||||||||||||||||||||
Goodwill impairment | 85,890 | — | 85,890 | NM* | 85,890 | — | 85,890 | NM* | |||||||||||||||||||||
Restructuring costs | — | — | — | — | % | 15,851 | 469 | 15,382 | NM* | ||||||||||||||||||||
Rights to receive cash issued in connection with the acquisition of ecoATM | 1,005 | 3,338 | (2,333 | ) | (69.9 | )% | 2,925 | 6,759 | (3,834 | ) | (56.7 | )% | |||||||||||||||||
Loss from equity method investments, net | 133 | 10,541 | (10,408 | ) | (98.7 | )% | 265 | 19,909 | (19,644 | ) | (98.7 | )% | |||||||||||||||||
Core adjusted EBITDA from continuing operations | $ | 121,848 | $ | 111,680 | $ | 10,168 | 9.1 | % | $ | 269,755 | $ | 233,175 | $ | 36,580 | 15.7 | % |
* | Not Meaningful |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
2015 | 2014 | $ | % | 2015 | 2014 | $ | % | ||||||||||||||||||||||
Diluted EPS from continuing operations per common share (two-class method) | $ | (2.66 | ) | $ | 1.15 | $ | (3.81 | ) | (331.3 | )% | $ | (0.30 | ) | $ | 2.24 | $ | (2.54 | ) | (113.4 | )% | |||||||||
Adjustment from participating securities allocation and share differential to treasury stock method(1) | 0.03 | 0.03 | — | — | % | 0.01 | 0.05 | (0.04 | ) | (80.0 | )% | ||||||||||||||||||
Diluted EPS from continuing operations (treasury stock method) | (2.63 | ) | 1.18 | (3.81 | ) | (322.9 | )% | (0.29 | ) | 2.29 | (2.58 | ) | (112.7 | )% | |||||||||||||||
Non-Core Adjustments, net of tax:(1) | |||||||||||||||||||||||||||||
Goodwill impairment | 4.77 | — | 4.77 | NM* | 4.71 | — | 4.71 | NM* | |||||||||||||||||||||
Restructuring costs | — | — | — | — | % | 0.53 | 0.01 | 0.52 | NM* | ||||||||||||||||||||
Rights to receive cash issued in connection with the acquisition of ecoATM | 0.04 | 0.13 | (0.09 | ) | (69.2 | )% | 0.11 | 0.23 | (0.12 | ) | (52.2 | )% | |||||||||||||||||
Loss from equity method investments, net | 0.01 | 0.32 | (0.31 | ) | (96.9 | )% | 0.01 | 0.53 | (0.52 | ) | (98.1 | )% | |||||||||||||||||
Tax benefit from net operating loss adjustment | — | — | — | — | % | — | (0.04 | ) | 0.04 | (100.0 | )% | ||||||||||||||||||
Tax benefit of worthless stock deduction | — | (0.11 | ) | 0.11 | (100.0 | )% | — | (0.10 | ) | 0.10 | (100.0 | )% | |||||||||||||||||
Core diluted EPS from continuing operations | $ | 2.19 | $ | 1.52 | $ | 0.67 | 44.1 | % | $ | 5.07 | $ | 2.92 | $ | 2.15 | 73.6 | % |
* | Not Meaningful |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
In thousands | 2015 | 2014 | 2015 | 2014 | |||||||||||
Income (loss) from continuing operations attributable to common shares | $ | (47,472 | ) | $ | 23,036 | $ | (5,465 | ) | $ | 49,918 | |||||
Add: income from continuing operations allocated to participating securities | 121 | 797 | 269 | 1,521 | |||||||||||
Income (loss) from continuing operations | $ | (47,351 | ) | $ | 23,833 | $ | (5,196 | ) | $ | 51,439 | |||||
Weighted average diluted common shares | 17,848 | 20,048 | 18,057 | 22,298 | |||||||||||
Add: diluted common equivalent shares of participating securities | 127 | 133 | 181 | 190 | |||||||||||
Add: dilutive securities under treasury stock method | 14 | — | 16 | — | |||||||||||
Weighted average diluted shares (treasury stock method) | 17,989 | 20,181 | 18,254 | 22,488 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
Dollars in thousands | 2015 | 2014 | $ | % | 2015 | 2014 | $ | % | |||||||||||||||||||||
Net cash provided by operating activities | $ | 75,143 | $ | 62,833 | $ | 12,310 | 19.6 | % | $ | 181,215 | $ | 157,420 | $ | 23,795 | 15.1 | % | |||||||||||||
Purchase of property and equipment | (19,508 | ) | (26,076 | ) | 6,568 | (25.2 | )% | (40,217 | ) | (53,016 | ) | 12,799 | (24.1 | )% | |||||||||||||||
Free cash flow | $ | 55,635 | $ | 36,757 | $ | 18,878 | 51.4 | % | $ | 140,998 | $ | 104,404 | $ | 36,594 | 35.1 | % |
• | are used to assess the degree of leverage by management; |
• | provide additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our securities as well as additional information about our capital structure; and |
• | are reported quarterly to support covenant compliance under our credit agreement. |
June 30, 2015 | December 31, 2014 | Change | ||||||||||||
Dollars in thousands | $ | % | ||||||||||||
Senior unsecured notes(1) | $ | 650,000 | $ | 650,000 | $ | — | — | % | ||||||
Term loans(1) | 142,500 | 146,250 | (3,750 | ) | (2.6 | )% | ||||||||
Revolving line of credit | 90,000 | 160,000 | (70,000 | ) | (43.8 | )% | ||||||||
Capital leases | 9,876 | 15,391 | (5,515 | ) | (35.8 | )% | ||||||||
Total principal value of outstanding debt including capital leases | 892,376 | 971,641 | (79,265 | ) | (8.2 | )% | ||||||||
Less domestic cash and cash equivalents held in financial institutions | (62,609 | ) | (66,546 | ) | 3,937 | (5.9 | )% | |||||||
Net debt | 829,767 | 905,095 | (75,328 | ) | (8.3 | )% | ||||||||
LTM Core adjusted EBITDA from continuing operations(2) | $ | 533,400 | $ | 496,820 | $ | 36,580 | 7.4 | % | ||||||
Net leverage ratio | 1.56 | 1.82 |
(1) | See debt section of Liquidity and Capital Resources below and Note 8: Debt and Other Long-Term Liabilities in our Notes to Consolidated Financial Statements for detail of associated debt discount. |
Dollars in thousands | |||
Core adjusted EBITDA from continuing operations for the six months ended June 30, 2015 | $ | 269,755 | |
Add: Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014 (1) | 496,820 | ||
Less: Core adjusted EBITDA from continuing operations for the six months ended June 30, 2014 | (233,175 | ) | |
LTM Core adjusted EBITDA from continuing operations for the twelve months ended June 30, 2015 | $ | 533,400 |
• | $72.3 million change in net non-cash income and expense included in net income; and |
• | $6.5 million decrease in net cash outflows from changes in working capital primarily due to changes in prepaid expenses and other current assets, content library, accounts payable, other accrued liabilities, accrued payable to retailers, and accounts receivable, partially offset by |
• | $54.9 million decrease in net income to a loss of $10.0 million. |
• | $40.2 million for the purchases of property and equipment for kiosks and corporate infrastructure; partially offset by |
• | $2.9 million for proceeds from the sale of property and equipment. |
• | $73.8 million in net payments for borrowings from our Credit Facility; |
• | $62.7 million for repurchases of our common stock; |
• | $11.0 million for dividends paid; |
• | $6.3 million to pay capital lease obligations and other debt; and |
• | $1.2 million for withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options. |
Senior Notes | Credit Facility | Total Debt | |||||||||||||||||
Dollars in thousands | Senior Unsecured Notes due 2019 | Senior Unsecured Notes due 2021 | Term Loans | Revolving Line of Credit | |||||||||||||||
As of June 30, 2015 | |||||||||||||||||||
Principal | $ | 350,000 | $ | 300,000 | $ | 142,500 | $ | 90,000 | $ | 882,500 | |||||||||
Discount | (3,786 | ) | (3,830 | ) | (298 | ) | — | (7,914 | ) | ||||||||||
Total | 346,214 | 296,170 | 142,202 | 90,000 | 874,586 | ||||||||||||||
Less: current portion | — | — | (11,250 | ) | — | (11,250 | ) | ||||||||||||
Total long-term portion | $ | 346,214 | $ | 296,170 | $ | 130,952 | $ | 90,000 | $ | 863,336 |
Dollars in thousands | Repayment Amount | ||
Remainder of 2015 | $ | 5,625 | |
2016 | 13,125 | ||
2017 | 15,000 | ||
2018 | 18,750 | ||
2019 | 90,000 | ||
Total | $ | 142,500 |
• | We early terminated operating leases for certain floors of our Redbox headquarters and recognized the fair value of the ongoing lease payments and other related costs through the effective date of termination, July 31, 2016, as of the cease use date, March 31, 2015. See Note 11: Restructuring for additional information; and |
• | We entered into a new operating lease of 16,085 square feet of office space in Woodland Hills, California which expires May 31, 2022. |
• | On July 14, 2015, Sony elected to exercise its option to extend our existing content license agreement with them. This will extend the license period through September 30, 2016. See Note 20: Subsequent Events in our Notes to Consolidated Financial Statements for additional information. |
• | On June 5, 2015, Redbox entered into an amendment to the April 22, 2010, agreement with Fox that maintains a 28-day window on Blu-ray Disc and DVD titles through June 30, 2017; and |
• | On March 26, 2015, we entered into the Warner Agreement under which Redbox agrees to license minimum quantities of theatrical and direct-to-video titles for rental through March 31, 2017. The Warner Agreement maintains a 28-day window on such titles. |
Dollars in thousands | Total | Remaining in 2015 | 2016 & 2017 | 2018 & 2019 | 2020 & Beyond | ||||||||||||||
Long-term debt and other(1) | $ | 882,500 | $ | 95,625 | $ | 28,125 | $ | 458,750 | $ | 300,000 | |||||||||
Contractual interest on long-term debt | 184,500 | 19,313 | 77,250 | 61,500 | 26,437 | ||||||||||||||
Capital lease obligations | 10,265 | 5,595 | 3,971 | 562 | 137 | ||||||||||||||
Operating lease obligations, net(2) | 56,958 | 8,344 | 23,918 | 13,014 | 11,682 | ||||||||||||||
Purchase obligations(3)(4) | 41,901 | 30,308 | 11,593 | — | — | ||||||||||||||
Asset retirement obligations | 10,433 | — | — | — | 10,433 | ||||||||||||||
Content agreement obligations(3)(5) | 582,193 | 242,788 | 339,405 | — | — | ||||||||||||||
Retailer revenue share obligations | 4,983 | 1,677 | 3,143 | 163 | — | ||||||||||||||
Total | $ | 1,773,733 | $ | 403,650 | $ | 487,405 | $ | 533,989 | $ | 348,689 |
(1) | See Note 8: Debt and Other Long-Term Liabilities in our Notes to Consolidated Financial Statements. |
(2) | Net of sublease income of $2.0 million. See Note 16: Commitments and Contingencies in our Notes to Consolidated Financial Statements. |
(3) | See Note 16: Commitments and Contingencies in our Notes to Consolidated Financial Statements. |
(4) | Excludes any amounts associated with the manufacturing and services agreement entered into as part of the NCR Asset Acquisition, pursuant to which Outerwall, Redbox or an affiliate will purchase goods and services from NCR for a period of five years from June 22, 2012. At the end of the five-year period, if the aggregate amount paid in margin to NCR for goods and services delivered equals less than $25.0 million, Outerwall will pay NCR the difference between such aggregate amount and $25.0 million. As of June 30, 2015, the remaining commitment is $15.8 million under this agreement. |
(5) | Subsequent to quarter end and not included in this table, Sony elected to exercise its option to extend our existing content license agreement with them. This will extend the license period through September 30, 2016. See Note 20: Subsequent Events in our Notes to Consolidated Financial Statements for additional information. |
Total Number of Shares Repurchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans or Programs | Maximum Approximate Dollar Value (in thousands) of Shares that May Yet be Purchased Under the Plans or Programs(2) | ||||||||||
4/1/15 - 4/30/15 | 1,306 | $ | 67.08 | — | $ | 373,286 | |||||||
5/1/15 - 5/31/15 | 70,774 | $ | 78.18 | 70,325 | $ | 369,924 | |||||||
6/1/15 - 6/30/15 | 214,882 | $ | 77.14 | 214,212 | $ | 353,422 | |||||||
286,962 | 284,537 |
(1) | Includes 2,425 shares tendered for tax withholding on vesting of restricted stock awards, none of which are included against the dollar value of shares that may be purchased under programs approved by our Board of Directors. |
(2) | On February 3, 2015, our Board of Directors approved an additional repurchase program of up to $250.0 million of our common stock plus the cash proceeds received from the exercise of stock options by our executives, non-employee directors and employees. |
Exhibit Number | Description of Document | |
10.1* | 2015 Incentive Compensation Plan for Line of Business Leaders. | |
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. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase. |
OUTERWALL INC. | |||
By: | /s/ Galen C. Smith | ||
Galen C. Smith | |||
Chief Financial Officer | |||
July 30, 2015 |
• | Appendix A: Applicable for Redbox Line of Business Leader |
• | Appendix B: Applicable for Coinstar Line of Business Leader |
1. | I have reviewed this quarterly report on Form 10-Q of Outerwall Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report: |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
By: /s/ Nora M. Denzel |
Nora M. Denzel |
Interim Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Outerwall Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report: |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
By: /s/ Galen C. Smith |
Galen C. Smith |
Chief Financial Officer |
By: /s/ Nora M. Denzel |
Nora M. Denzel |
Interim Chief Executive Officer |
By: /s/ Galen C. Smith |
Galen C. Smith |
Chief Financial Officer |
1 Year Outerwall Inc. Chart |
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