Outerwall 10-Q 2014 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-22555

OUTERWALL INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3156448
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
1800 114th Avenue SE, Bellevue, Washington	98004
(Address of principal executive offices)	(Zip Code)

(425) 943-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yesý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  ¨    No  ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at July 25, 2014
Common Stock, $0.001 par value	19,856,628

OUTERWALL INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013	1
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013	2
	Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2014	3
	Consolidated Statements of Cash Flows for the three and six months ended June 30, 2014 and 2013	4
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.	Controls and Procedures	62
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	77
SIGNATURE		78

OUTERWALL INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	June 30, 2014			December 31, 2013
Assets
Current Assets:
Cash and cash equivalents	$	233,226		$	371,437
Accounts receivable, net of allowances of $1,493 and $1,826	44,968			50,296
Content library	152,382			199,868
Prepaid expenses and other current assets	63,645			84,709
Total current assets	494,221			706,310
Property and equipment, net	475,740			520,865
Deferred income taxes	8,277			6,443
Goodwill and other intangible assets, net	630,995			638,690
Other long-term assets	9,725			19,075
Total assets	$	1,618,958		$	1,891,383
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	160,086		$	236,018
Accrued payable to retailers	127,773			134,140
Other accrued liabilities	131,044			134,127
Current portion of long-term debt and other long-term liabilities	53,008			103,889
Deferred income taxes	31,432			23,143
Total current liabilities	503,343			631,317
Long-term debt and other long-term liabilities	981,717			681,403
Deferred income taxes	36,937			58,528
Total liabilities	1,521,997			1,371,248
Commitments and contingencies (Note 17)
Debt conversion feature	163			1,446
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;
36,627,171 and 36,356,357 shares issued;
19,865,273 and 26,150,900 shares outstanding;	479,494			482,481
Treasury stock	(941,167		)	(476,796		)
Retained earnings	558,699			513,771
Accumulated other comprehensive loss	(228		)	(767		)
Total stockholders’ equity	96,798			518,689
Total liabilities and stockholders’ equity	$	1,618,958		$	1,891,383

See accompanying Notes to Consolidated Financial Statements

1

OUTERWALL INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Revenue	$	549,170		$	553,050		$	1,149,539		$	1,126,357
Expenses:
Direct operating(1)	386,059			363,950			810,704			768,845
Marketing	9,783			7,122			17,380			14,508
Research and development	3,412			2,354			6,886			4,661
General and administrative	48,974			54,294			101,965			107,755
Depreciation and other	49,180			47,331			98,275			93,911
Amortization of intangible assets	3,847			1,877			7,695			3,894
Total expenses	501,255			476,928			1,042,905			993,574
Operating income	47,915			76,122			106,634			132,783
Other income (expense), net:
Loss from equity method investments, net (Note 8)	(10,541		)	(9,629		)	(19,909		)	(16,654		)
Interest expense, net	(12,929		)	(12,018		)	(22,574		)	(17,551		)
Other, net	2,902			(980		)	1,158			(921		)
Total other expense, net	(20,568		)	(22,627		)	(41,325		)	(35,126		)
Income from continuing operations before income taxes	27,347			53,495			65,309			97,657
Income tax expense	(5,537		)	(3,082		)	(19,613		)	(19,237		)
Income from continuing operations	21,810			50,413			45,696			78,420
Loss from discontinued operations, net of tax (Note 13)	(57		)	(3,556		)	(768		)	(8,959		)
Net income	21,753			46,857			44,928			69,461
Foreign currency translation adjustment(2)	(336		)	(242		)	539			(2,156		)
Comprehensive income	$	21,417		$	46,615		$	45,467		$	67,305
Basic earnings (loss) per share:
Continuing operations	$	1.12		$	1.84		$	2.10		$	2.86
Discontinued operations	—			(0.13		)	(0.03		)	(0.33		)
Basic earnings per share	$	1.12		$	1.71		$	2.07		$	2.53
Diluted earnings (loss) per share:
Continuing operations	$	1.08		$	1.77		$	2.03		$	2.73
Discontinued operations	—			(0.13		)	(0.03		)	(0.31		)
Diluted earnings per share	$	1.08		$	1.64		$	2.00		$	2.42
Weighted average shares used in basic per share calculations	19,541			27,438			21,730			27,465
Weighted average shares used in diluted per share calculations (Note 14)	20,181			28,537			22,488			28,737

(1) “Direct operating” excludes depreciation and other of $32.2 million and $64.5 million for the three and six months ended June 30, 2014, respectively, and $31.3 million and $64.3 million for the three and six months ended June 30, 2013, respectively.

(2) Foreign currency translation adjustment had no tax effect for the three and six months ended June 30, 2014 and 2013, respectively.

See accompanying Notes to Consolidated Financial Statements

2

OUTERWALL INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

											Accumulated Other Comprehensive Loss
	Common Stock					Treasury			Retained
	Shares		Amount			Stock			Earnings					Total
Balance, March 31, 2014	20,390,589		$	485,537		$	(901,361	)	$	536,946	$	108		$	121,230
Proceeds from exercise of stock options, net	26,924		809			—			—		—			809
Adjustments related to tax withholding for share-based compensation	(3,982	)	(267		)	—			—		—			(267		)
Share-based payments expense	(19,479	)	3,079			—			—		—			3,079
Excess tax benefit on share-based compensation expense	—		514			—			—		—			514
Repurchases of common stock	(711,556	)	—			(50,000		)	—		—			(50,000		)
Conversion of callable convertible debt, net of tax	182,777		(10,914		)	10,194			—		—			(720		)
Adjustment of debt conversion feature classified as temporary equity	—		736			—			—		—			736
Net income	—		—			—			21,753		—			21,753
Foreign currency translation adjustment(1)	—		—			—			—		(336		)	(336		)
Balance, June 30, 2014	19,865,273		$	479,494		$	(941,167	)	$	558,699	$	(228	)	$	96,798

(1) Foreign currency translation adjustment has no tax effect for the three months ended June 30, 2014.

											Accumulated Other Comprehensive Loss
	Common Stock					Treasury			Retained
	Shares		Amount			Stock			Earnings					Total
Balance, December 31, 2013	26,150,900		$	482,481		$	(476,796	)	$	513,771	$	(767	)	$	518,689
Proceeds from exercise of stock options, net	83,877		2,790			—			—		—			2,790
Adjustments related to tax withholding for share-based compensation	(53,957	)	(3,815		)	—			—		—			(3,815		)
Share-based payments expense	240,894		6,844			—			—		—			6,844
Excess tax benefit on share-based compensation expense	—		825			—			—		—			825
Repurchases of common stock	(6,739,257	)	—			(474,569		)	—		—			(474,569		)
Conversion of callable convertible debt, net of tax	182,816		(10,914		)	10,198			—		—			(716		)
Adjustment of debt conversion feature classified as temporary equity	—		1,283			—			—		—			1,283
Net income	—		—			—			44,928		—			44,928
Foreign currency translation adjustment(1)	—		—			—			—		539			539
Balance, June 30, 2014	19,865,273		$	479,494		$	(941,167	)	$	558,699	$	(228	)	$	96,798

(1) Foreign currency translation adjustment has no tax effect for the six months ended June 30, 2014.

See accompanying Notes to Consolidated Financial Statements

3

OUTERWALL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Operating Activities:
Net income	$	21,753		$	46,857		$	44,928		$	69,461
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and other	49,154			47,617			98,258			94,509
Amortization of intangible assets	3,847			1,877			7,695			3,894
Share-based payments expense	3,079			3,843			6,844			8,680
Windfall excess tax benefits related to share-based payments	(243		)	(960		)	(1,953		)	(3,029		)
Deferred income taxes	(5,440		)	(47,327		)	(15,004		)	(36,911		)
Impairment expense	—			130			—			2,676
Loss from equity method investments, net	10,541			9,629			19,909			16,654
Amortization of deferred financing fees and debt discount	1,216			1,824			2,522			4,047
Loss from early extinguishment of debt	1,963			4,011			1,963			5,949
Other	(1,040		)	(482		)	(1,164		)	(1,811		)
Cash flows from changes in operating assets and liabilities:
Accounts receivable, net	11,283			(4,955		)	5,331			(2,650		)
Content library	27,505			(16,700		)	47,486			4,912
Prepaid expenses and other current assets	(24,952		)	(2,690		)	22,003			(10,611		)
Other assets	599			388			1,036			902
Accounts payable	(43,605		)	(40,389		)	(70,995		)	(55,458		)
Accrued payable to retailers	8,762			14,424			(6,723		)	(273		)
Other accrued liabilities	(1,589		)	13,077			(4,716		)	(14,763		)
Net cash flows from operating activities(1)	62,833			30,174			157,420			86,178
Investing Activities:
Purchases of property and equipment	(26,076		)	(36,111		)	(53,016		)	(84,244		)
Proceeds from sale of property and equipment	962			12,700			1,793			12,832
Net sales (purchases) of short term investments	—			43,000			—			(10,000		)
Receipt of note receivable principal	—			—			—			95
Cash paid for equity investments	—			—			(10,500		)	(14,000		)
Net cash flows from (used in) investing activities(1)	(25,114		)	19,589			(61,723		)	(95,317		)
Financing Activities:
Proceeds from issuance of senior unsecured notes	295,500			—			295,500			343,769
Proceeds from new borrowing on Credit Facility	230,000			—			505,000			—
Principal payments on Credit Facility	(505,000		)	(3,281		)	(534,375		)	(6,562		)
Financing costs associated with Credit Facility and senior unsecured notes	(2,082		)	(142		)	(2,082		)	(444		)
Conversion of convertible debt	(17,720		)	(107,179		)	(17,724		)	(169,634		)
Repurchases of common stock(2)	(53,413		)	(24,906		)	(474,480		)	(71,388		)
Principal payments on capital lease obligations and other debt	(3,384		)	(4,200		)	(7,081		)	(7,451		)
Windfall excess tax benefits related to share-based payments	243			960			1,953			3,029
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options	563			5,652			(1,025		)	6,745
Net cash flows from (used in) financing activities(1)	(55,293		)	(133,096		)	(234,314		)	98,064

4

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Effect of exchange rate changes on cash	(746		)	126			406			(1,574		)
Increase (decrease) in cash and cash equivalents	(18,320		)	(83,207		)	(138,211		)	87,351
Cash and cash equivalents:
Beginning of period	251,546			453,452			371,437			282,894
End of period	$	233,226		$	370,245		$	233,226		$	370,245
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	3,198		$	1,502		$	17,210		$	5,910
Cash paid during the period for income taxes, net	$	32,853		$	44,193		$	9,189		$	44,998
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment financed by capital lease obligations	$	2,467		$	2,160		$	5,513		$	5,615
Purchases of property and equipment included in ending accounts payable	$	1,724		$	9,460		$	1,724		$	9,460
Common stock issued on conversion of callable convertible debt	$	12,715		$	14,278		$	12,715		$	14,278
Non-cash debt issue costs(3)	$	6,069		$	—		$	6,069		$	6,231

(1) During 2013, we discontinued four ventures previously included in our New Ventures operating segment, Orango, Rubi, Crisp Market, and Star Studio. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented because they were not material.

(2) The total cost of repurchases of common stock during the three and six months ended June 30, 2014 was $50.0 million and $474.6 million, respectively, which includes $3.8 million in fees and expenses relating to the tender offer recorded as part of the cost of treasury stock in our Consolidated Balance Sheets. See Note 10: Repurchases of Common Stock for more information.

(3) 2014 Non-cash debt issue costs includes $4.5 million of debt discount and $1.5 million in deferred financing fees associated with our issuance of $300.0 million senior unsecured notes due 2021 and $0.1 million of deferred financing fees associated with the refinancing of our credit facility.

See accompanying Notes to Consolidated Financial Statements

5

INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Note 1	Basis of Presentation and Principles of Consolidation	7
Note 2	Summary of Significant Accounting Policies	9
Note 3	Organization and Business	9
Note 4	Cash and Cash Equivalents	10
Note 5	Prepaid Expenses and Other Current Assets and Other Accrued Liabilities	10
Note 6	Property and Equipment	11
Note 7	Goodwill and Other Intangible Assets	12
Note 8	Equity Method Investments and Related Party Transactions	13
Note 9	Debt and Other Long-Term Liabilities	15
Note 10	Repurchases of Common Stock	18
Note 11	Share-Based Payments	19
Note 12	Restructuring	21
Note 13	Discontinued Operations	22
Note 14	Earnings Per Share	23
Note 15	Business Segments and Enterprise-Wide Information	23
Note 16	Fair Value	26
Note 17	Commitments and Contingencies	27
Note 18	Guarantor Subsidiaries	28
Note 19	Income Taxes	39
Note 20	Subsequent Events	39

6

OUTERWALL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Basis of Presentation and Principles of Consolidation

The unaudited consolidated financial information included herein has been prepared by Outerwall Inc., pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements of Outerwall Inc. included herein reflect all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary to present fairly our consolidated financial position, results of operations, and cash flows for the periods presented. The financial information as of December 31, 2013, is derived from our 2013 Annual Report on Form 10-K. The consolidated financial statements included within this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2013 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The accompanying consolidated financial statements include the accounts of Outerwall Inc. and our wholly-owned subsidiaries. Investments in companies of which we may have significant influence, but not a controlling interest, are accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.

Revision of Previously Issued Financial Statements

During the second quarter of 2014, we identified adjustments to prior periods related to the amount of purchases of property and equipment included in ending accounts payable which impact the amounts presented as cash paid for purchases of property and equipment in the investing activities section of our consolidated statements of cash flows, the change in accounts payable within the operating activities section of the cash flow statement and the supplemental non-cash investing and financing activities disclosure of purchases of property and equipment included in ending accounts payable. We concluded that the error was not material to any of our prior period financial statements under the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality. We applied the guidance of SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements, and revised the prior period financial statements presented.

The impact of the immaterial error on our prior period consolidated statements of cash flows is presented in the following table:

	As Reported						Adjustment						As Revised
	Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended
Dollars in thousands	June 30, 2013						June 30, 2013						June 30, 2013
Cash flows from changes in operating assets and liabilities:
Accounts payable	$	(41,001	)	$	(70,972	)	$	612		$	15,514		$	(40,389	)	$	(55,458	)
Net cash flows from operating activities	$	29,562		$	70,664		$	612		$	15,514		$	30,174		$	86,178
Investing Activities:
Purchases of property and equipment	$	(35,499	)	$	(68,730	)	$	(612	)	$	(15,514	)	$	(36,111	)	$	(84,244	)
Net cash flows from investing activities	$	20,201		$	(79,803	)	$	(612	)	$	(15,514	)	$	19,589		$	(95,317	)
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment included in ending accounts payable	$	26,829		$	26,829		$	(17,369	)	$	(17,369	)	$	9,460		$	9,460

7

Accounting Pronouncements Adopted During the Current Year

In May 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. For public entities, the ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Our adoption of ASU No. 2013-05 in the first quarter of 2014 did not have a material impact on our financial position, results of operations or cash flows.

In November 2013, the FASB issued ASU 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This ASU requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss (NOL) carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when:

1. the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction, and

2. the entity intends to use the deferred tax asset for that purpose.

The ASU changes existing presentation requirements but does not require new recurring disclosures. The ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013 for public entities. Our adoption of ASU No. 2013-11 in the first quarter of 2014 did not have a material impact on our financial position, results of operations or cash flows.

Accounting Pronouncements Not Yet Adopted

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

ASU 2014-08 changes the requirements for reporting discontinued operations. Under the ASU discontinued operations is defined as either a:

• 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.

We are currently evaluating the impact of ASU 2014-08, which is effective for the us in our fiscal year beginning on January 1, 2015.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 sets forth a new revenue recognition model that requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. The amendments in the ASU can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. We are currently evaluating the impact of ASU 2014-09, which is effective for us in our fiscal year beginning on January 1, 2017.

8

Note 2: Summary of Significant Accounting Policies

Content Library

Content library consists of movies and video games available for rent or purchase. We obtain our movie and video game content primarily through revenue sharing agreements and license agreements with studios and game publishers, as well as through distributors and other suppliers. The cost of content mainly includes the cost of the movies and video games, labor, overhead, freight, and studio revenue sharing expenses. The content purchases are capitalized and amortized to their estimated salvage value as a component of direct operating expenses over the usage period. For purchased content that we expect to sell at the end of its useful life, we determine an estimated salvage value. Content salvage values are estimated based on the amounts that we have historically recovered on disposal. For licensed content that we do not expect to sell, no salvage value is provided. The useful lives and salvage value of our content library are periodically reviewed and evaluated. The amortization charges were derived utilizing rental curves based on historical performance of movies and games over their useful lives and recorded on an accelerated basis, reflecting higher rentals of movies and video games in the first few weeks after release, and substantially all of the amortization expense is recognized within one year of purchase.

In the second quarter of 2013, the Company completed a review of its content library amortization methodology and updated the methodology in order to add greater precision to product cost amortization. The previous method recognized accelerated amortization of content library costs at a rate faster than the decline in the content library's value due to the recognition of charges in addition to the normal rental curve amortization whenever individual discs were removed from kiosks, a process we define as "thinning". The Company's most recent analysis has shown that its amortization curves can reasonably capture the effect of thinning and therefore eliminates the need for additional charges at the time of thinning and provides a better correlation of costs to revenue. The modified approach to amortizing the cost of the content library is based on updated rental curves, which incorporate thinning estimates, and provides a more systematic method for recognizing the costs of movie and game titles. The Company anticipates that this new method will better align the recognition of costs with the related revenue.

The Company believes that the change in its content library amortization methodology, made on a prospective basis, is a change in accounting estimate that is effected by a change in accounting principle. The Company believes that the modified content library amortization methodology is preferable because it better reflects the pattern of consumption of the expected benefits of the content library. A copy of our auditor's preferability letter is filed as an exhibit to our 10-Q for the period ended June 30, 2013.

The effect of this change resulted in a reduction of product costs, as reported in direct operating expenses, of approximately $21.7 million in the second quarter of 2013, with those costs shifted to primarily the third and fourth quarters and some into 2014. The change resulted in a corresponding increase to the balance of our content library. In addition, the change in amortization methodology shifted product costs on titles purchased during the second half of 2013 into 2014 as amortization is less accelerated than under the prior method. Under the modified amortization methodology we continue to recognize substantially all of the amortization expense within one year of purchase.

Reclassifications

During 2013 we discontinued four new venture concepts, Rubi, Crisp Market, Orango, and Star Studio. We have reclassified the results of operations of these four ventures to discontinued operations for all periods presented in our Consolidated Statements of Comprehensive Income. See Note 13: Discontinued Operations for more information.

As of June 30, 2014, we reclassified certain deferred fees associated with the issuance of our Senior Notes due 2019 from Other long-term assets to Long-term debt and other long-term liabilities. We have reclassified these amounts for all periods presented in our Consolidated Balance Sheets.

Note 3: Organization and Business

Description of Business

We are a leading provider of automated retail solutions offering convenient products and services that benefit consumers and drive incremental retail traffic and revenue for retailers.

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Our core offerings in automated retail include our Redbox and Coinstar segments. Our Redbox segment consists of self-service kiosks where consumers can rent or purchase movies and video games. Our Coinstar segment consists of self-service coin-counting kiosks where consumers can convert their coins to cash or stored value products. We also offer self-service kiosks that exchange gift cards for cash under our Coinstar™ Exchange brand. Our New Ventures segment is focused on identifying, evaluating, building, or acquiring and developing innovative self-service concepts in the marketplace. New Ventures concepts are regularly assessed to determine whether continued funding or other alternatives are appropriate.

On July 23, 2013 we acquired the remaining 77.0% equity interest in our ecoATM business which provides an automated self-service kiosk system to purchase used mobile phones, tablets and MP3 players for cash. The primary reason for the business combination was to expand Outerwall’s presence in automated retail and gain exposure to the growing demand for refurbished products and mobile devices. Since the acquisition date, the results of ecoATM operations, with the exception of expense for rights to receive cash which are unallocated corporate expenses, are included in our New Ventures segment. See Note 15: Business Segments and Enterprise-Wide Informationfor more information. The majority of our New Ventures kiosks are those of our ecoATM business.

Our kiosks are located primarily in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, malls and restaurants. Our kiosk and location counts as of June 30, 2014, are as follows:

	Kiosks	Locations
Redbox	43,900	36,300
Coinstar	21,200	20,300
New Ventures	1,010	780
Total	66,110	57,380

Note 4: Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Our cash and cash equivalents were $233.2 million and $371.4 million at June 30, 2014, and December 31, 2013, respectively. Of this total, cash equivalents were $6.8 million and $65.8 million, respectively, and consisted of money market demand accounts and investment grade fixed income securities such as money market funds, certificate of deposits, and commercial paper. Our cash balances with financial institutions may exceed the deposit insurance limits.

Included in our cash and cash equivalents at June 30, 2014, and December 31, 2013, were $91.9 million and $85.5 million, respectively that we identified for settling our accrued payable to our retailer partners in relation to our Coinstar kiosks.

Separately included in our cash and cash equivalents at June 30, 2014, and December 31, 2013, were $58.8 million and $199.0 million, respectively in cash and cash equivalents held in financial institutions domestically and $16.6 million and $15.2 million, respectively in cash and cash equivalents held in foreign financial institutions.

Note 5: Prepaid Expenses and Other Current Assets and Other Accrued Liabilities

Prepaid expenses and other current assets:

Dollars in thousands	June 30, 2014		December 31, 2013
Income taxes receivable	$	14,333	$	37,466
Spare parts	14,031		18,975
Licenses	10,110		4,568
Electronic devices inventory	6,789		3,529
DVD cases and labels	1,566		2,596
Prepaid rent	912		1,302
Other	15,904		16,273
Total prepaid and other current assets	$	63,645	$	84,709

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Other accrued liabilities consist of the following:

Dollars in thousands	June 30, 2014		December 31, 2013
Payroll related expenses	$	34,896	$	33,852
Accrued content library expense	22,496		21,602
Business taxes	21,550		22,939
Insurance	13,259		13,379
Professional fees	4,728		930
Service contract provider expenses	6,841		8,134
Deferred rent expense	5,878		5,713
Accrued interest expense	7,914		7,015
Other	13,482		20,563
Total other accrued liabilities	$	131,044	$	134,127

Note 6: Property and Equipment

Dollars in thousands	June 30, 2014			December 31, 2013
Kiosks and components	$	1,136,353		$	1,105,761
Computers, servers, and software	225,852			226,389
Office furniture and equipment	8,229			7,260
Vehicles	6,401			6,553
Leasehold improvements	23,247			23,198
Property and equipment, at cost	1,400,082			1,369,161
Accumulated depreciation and amortization	(924,342		)	(848,296		)
Property and equipment, net	$	475,740		$	520,865

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Note 7: Goodwill and Other Intangible Assets

Goodwill

The carrying amount of goodwill was as follows:

Dollars in thousands	June 30, 2014		December 31, 2013
Goodwill	$	559,307	$	559,307

Other Intangible Assets

The gross amount of our other intangible assets and the related accumulated amortization were as follows:

Dollars in thousands	Amortization Period	June 30, 2014			December 31, 2013
Retailer relationships	5 - 10 years	$	53,295		$	53,295
Accumulated amortization		(20,839		)	(17,768		)
Retailer relationships, net		32,456			35,527
Developed technology	5 years	34,000			34,000
Accumulated amortization		(6,233		)	(2,833		)
Developed technology, net		27,767			31,167
Other	1 - 40 years	16,800			16,800
Accumulated amortization		(5,335		)	(4,111		)
Other, net		11,465			12,689
Total intangible assets, net		$	71,688		$	79,383

Amortization expense was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Dollars in thousands	2014		2013		2014		2013
Retailer relationships	$	1,535	$	1,568	$	3,071	$	3,145
Developed technology	1,700		—		3,400		—
Other	612		309		1,224		749
Total amortization of intangible assets	$	3,847	$	1,877	$	7,695	$	3,894

Assuming no future impairment, the expected future amortization as of June 30, 2014 is as follows:

Dollars in thousands	Retailer Relationships		Developed Technology		Other		Total
Remainder of 2014	$	2,361	$	3,400	$	1,225	$	6,986
2015	4,012		6,800		2,419		13,231
2016	4,012		6,800		2,307		13,119
2017	4,012		6,800		2,285		13,097
2018	4,012		3,967		1,664		9,643
2019	4,012		—		801		4,813
Thereafter	10,035		—		764		10,799
Total expected amortization	$	32,456	$	27,767	$	11,465	$	71,688

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Note 8: Equity Method Investments and Related Party Transactions

Redbox Instant^™ by Verizon

In February 2012, Redbox and Verizon Ventures IV LLC (“Verizon”), a wholly owned subsidiary of Verizon Communications Inc., entered into a Limited Liability Company Agreement (the “LLC Agreement”) and related arrangements. The LLC Agreement governs the relationship of the parties with respect to a joint venture, Redbox Instant by Verizon (the “Joint Venture”) formed for the primary purpose of developing, launching, marketing and operating a nationwide “over-the-top” video distribution service to provide consumers with access to video programming content, including linear content, delivered via broadband networks to video enabled viewing devices and offering rental of physical DVDs and Blu-ray^™ discs from Redbox kiosks. Redbox initially acquired a 35.0% ownership interest in the Joint Venture and made an initial capital contribution of $14.0 million in cash in February 2012 subsequent to the formation of the Joint Venture. The Joint Venture board of managers may request each member to make additional capital contributions, on a pro rata basis relative to its respective ownership interest. If a member does not make any or all of its requested capital contributions, as the case may be, the other contributing member generally may make such capital contributions. So long as Redbox contributes its pro rata share of the first $450.0 million of capital contributions to the Joint Venture, Redbox’s interest cannot be diluted below 10.0%. The following table summarizes Redbox's initial cash capital contribution and subsequent cash capital contributions representing its pro-rata share of requests made by the Joint Venture board of managers:

Dollars in thousands	Cash Contributions
2012	$	24,500
2013	28,000
2014	10,500
Total cash capital contributions	$	63,000

Redbox has certain rights to cause Verizon to acquire Redbox’s interest in the Joint Venture at fair value (generally following the fifth anniversary of the LLC Agreement or in limited circumstances, at an earlier period of time, the earliest point we could provide our notice of intent to withdraw is expected to be in March 2015) and Verizon has certain rights to acquire Redbox’s interest in the Joint Venture at fair value (generally following the seventh anniversary of the LLC Agreement, or, in limited circumstances, the fifth anniversary of the LLC Agreement).

Other Equity Method Investments

We make strategic equity investments in external companies that provide automated self-service kiosk solutions. Our equity method investments and ownership percentages as of June 30, 2014, were as follows:

Dollars in thousands	Equity Investment		Ownership Percentage
Joint Venture	$	—	35%
SoloHealth, Inc.	1,550		10%
Equity method investments	$	1,550

Our equity method investments are included within other long-term assets on our Consolidated Balance Sheets.

Since we acquired ecoATM on July 23, 2013, the results of ecoATM operations, with the exception of expense for rights to receive cash which are unallocated corporate expenses, are included in our New Ventures segment. See Note 15: Business Segments and Enterprise-Wide Informationfor more information.

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Income (Loss) from Equity Method Investments and Summarized Financial Information

Income (loss) from equity method investments within our Consolidated Statements of Comprehensive Income is composed of the following:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Dollars in thousands	2014			2013			2014			2013
Proportionate share of net loss of equity method investees:
Joint Venture	$	(9,567	)	$	(7,575	)	$	(17,961	)	$	(13,397	)
Other	(224		)	(1,435		)	(448		)	(2,019		)
Total proportionate share of net loss of equity method investees	(9,791		)	(9,010		)	(18,409		)	(15,416		)
Amortization of difference in carrying amount and underlying equity in Joint Venture	(750		)	(619		)	(1,500		)	(1,238		)
Total loss from equity method investments	$	(10,541	)	$	(9,629	)	$	(19,909	)	$	(16,654	)

Our proportional share of the Joint Venture summarized financial information presented in the table below, as provided to us by the Joint Venture, is based on our ownership percentage of 35%:

	Six Months Ended
Statement of Operations	June 30,
Dollars in thousands	2014		2013
Revenue	$	12,714	$	1,112
Cost of sales and service	22,273		8,040
Net loss and loss from continuing operations	51,167		37,568

Related Party Transactions

At June 30, 2014 and December 31, 2013, included within accounts receivable, net of allowance, on our Consolidated Balance Sheets, was $4.0 million and $5.9 million, respectively, due from the Joint Venture related to costs incurred by Redbox on behalf of the Joint Venture during the normal course of business.

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Note 9: Debt and Other Long-Term Liabilities

	Debt																	Other Liabilities								Total
	Senior Notes						Credit Facility					Convertible Notes			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, 2014:
Principal	$	350,000		$	300,000		$	150,000		$	165,000	$	33,424		$	998,424
Discount	(4,806		)	(4,473		)	(373		)	—		(181		)	(9,833		)
Total	345,194			295,527			149,627			$	165,000	33,243			988,591			$	19,778		$	13,389	$	12,967		$	1,034,725
Less: current portion	—			—			(7,500		)	—		(33,243		)	(40,743		)	(12,265		)	—		—			(53,008		)
Total long-term portion	$	345,194		$	295,527		$	142,127		$	165,000	$	—		$	947,848		$	7,513		$	13,389	$	12,967		$	981,717
Unamortized deferred financing fees(1)	$	773		$	1,478		$	—		$	3,301	$	25		$	5,577										$	5,577
	Debt																	Other Liabilities								Total
	Senior Notes						Credit Facility					Convertible Notes			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, 2013:
Principal	$	350,000		$	—		$	344,375		$	—	$	51,148		$	745,523
Discount	(5,317		)	—			—			—		(1,446		)	(6,763		)
Total	344,683			—			344,375			$	—	49,702			738,760			$	21,361		$	13,086	$	12,085		$	785,292
Less: current portion	—			—			(42,187		)	—		(49,702		)	(91,889		)	(11,997		)	—		(3		)	(103,889		)
Total long-term portion	$	344,683		$	—		$	302,188		$	—	$	—		$	646,871		$	9,364		$	13,086	$	12,082		$	681,403
Unamortized deferred financing fees(1)	$	832		$	—		$	1,259		$	2,749	$	186		$	5,026										$	5,026

⁽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.

Interest Expense

Dollars in thousands	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014		2013			2014		2013
Cash interest expense	$	9,770	$	7,506		$	18,129	$	10,412
Non-cash interest expense:
Amortization of debt discount	753		1,366			1,555		3,072
Amortization of deferred financing fees	463		457			967		975
Other	—		(81		)	—		(494		)
Total non-cash interest expense	1,216		1,742			2,522		3,553
Total cash and non-cash interest expense	10,986		9,248			20,651		13,965
Loss from early extinguishment of debt	1,963		4,011			1,963		5,949
Total interest expense	$	12,949	$	13,259		$	22,614	$	19,914

Senior Unsecured Notes Due 2019

On March 12, 2013, we and certain subsidiaries of ours, as subsidiary guarantors, entered into an indenture pursuant to which we issued $350.0 million principal amount of 6.000% Senior Notes due 2019 (the “Senior Notes due 2019”) at par for proceeds, net of expenses, of $343.8 million. The expenses were allocated between debt discount and deferred financing fees based on their nature. As of June 30, 2014, we were in compliance with the covenants of the related indenture.

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Senior Unsecured Notes Due 2021

On June 9, 2014, we and certain subsidiaries of ours, as subsidiary guarantors, entered into an indenture pursuant to which we issued $300.0 million principal amount of 5.875% Senior Notes due 2021 (the "Senior Notes due 2021") at par for proceeds, net of expenses, of $294.0 million. The expenses were allocated between debt discount and deferred financing fees based on their nature. The Senior Notes due 2021 and related guarantees:

• are general unsecured obligations and are effectively subordinated to all of our and our Subsidiary Guarantors’ existing and future secured debt to the extent of the collateral securing that secured debt, and

• will rank equally to all of our and our Subsidiary Guarantors’ other unsecured and unsubordinated indebtedness.

In addition, the Senior Notes due 2021

• will be effectively subordinated to all of the liabilities of our existing and future subsidiaries that are not guaranteeing the Senior Notes due 2021,

• require interest payable on June 15 and December 15 of each year, beginning on December 15, 2014, and

• mature on June 15, 2021.

We may redeem any of the Senior Notes due 2021:

• beginning on June 15, 2017 at a redemption price of 104.406% of their principal amount plus accrued and unpaid interest and additional interest, if any; then

• the redemption price will be 102.938% of their principal amount plus accrued and unpaid interest and additional interest, if any, for the twelve-month period beginning June 15, 2018; then

• the redemption price will be 101.469% of their principal amount plus accrued and unpaid interest and additional interest, if any, for the twelve-month period beginning June 15, 2019; and then

• the redemption price will be 100.000% of their principal amount plus accrued interest and unpaid interest and additional interest, if any, beginning on June 15, 2020.

• We may also redeem some or all of the notes before June 15, 2017 at a redemption price of 100.000% of the principal amount, plus accrued and unpaid interest and additional interest, if any, to the redemption date, plus an applicable “make-whole” premium.

• In addition, before June 15, 2017, we may redeem up to 35% of the aggregate principal amount with the proceeds of certain equity offerings at 105.875% of their principal amount plus accrued and unpaid interest and additional interest, if any; we may make such redemption only if, after any such redemption, at least 65% of the aggregate principal amount originally issued remains outstanding.

Upon a change of control as defined in the indenture related to the Senior Notes due 2021, we will be required to make an offer to purchase the Senior Notes due 2021 or any portion thereof. That purchase price will equal 101% of the principal amount of the Senior Notes due 2021 on the date of purchase plus accrued and unpaid interest and additional interest, if any. If we make certain asset sales and do not reinvest the proceeds or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the Senior Notes due 2021 at 100% of their principal amount, together with accrued and unpaid interest and additional interest, if any, to the date of purchase.

The terms of the Senior Notes due 2021 restrict our ability and the ability of certain of its subsidiaries to, among other things: incur additional indebtedness; create liens; pay dividends or make distributions in respect of capital stock; purchase or redeem capital stock; make investments or certain other restricted payments; sell assets; enter into transactions with stockholders or affiliates; or effect a consolidation or merger. However, these and other limitations set forth in the related indenture will be subject to a number of important qualifications and exceptions.

The indenture related to the Senior Notes due 2021 provides for customary events of default which include (subject in certain cases to grace and cure periods), among others: nonpayment of principal or interest or premium; breach of covenants or other agreements in the indenture; defaults in failure to pay certain other indebtedness; the failure to pay certain final judgments; the invalidity of certain of the Subsidiary Guarantors’ guarantees; and certain events of bankruptcy, insolvency or reorganization. Generally, if an event of default occurs and is continuing under the indenture, either the trustee or the holders of at least 25% in aggregate principal amount then outstanding may declare the principal amount plus accrued and unpaid interest to be immediately due and payable. As of June 30, 2014, we were in compliance with the covenants of the related indenture.

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In connection with the issuance of the Senior Notes due 2021 and related guarantees, we agreed to register the Senior Notes due 2021 and related guarantees under the Securities Act of 1933, as amended (the “Securities Act”) so as to allow holders of the Senior Notes due 2021 and related guarantees to exchange the Senior Notes due 2021 and the related guarantees for the same principal amount of a new issue of Senior Notes due 2021 and related guarantees (collectively, the “Exchange Notes”) with substantially identical terms, except that the Exchange Notes will generally be freely transferable under the Securities Act. If we fail to comply with these obligations on time (a “registration default”), we generally will be required to pay additional interest at a rate of 0.25% per annum for the first 90-day period following a registration default and an additional 0.25% per annum for each subsequent 90-day period that such additional interest continues to accrue (provided that such rate may not exceed 1.00% per annum).

Revolving Line of Credit and Term Loan

On June 24, 2014, we entered into the Third Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) providing for a senior secured credit facility (the "New Credit Facility"). The Amended and Restated Credit Agreement amended and restated in its entirety the Second Amended and Restated Credit Agreement dated as of November 20, 2007 and amended and restated as of April 29, 2009 and as of July 15, 2011 and all amendments and restatements thereto (the “Previous Credit Agreement”). The credit facility provided under the Previous Credit Agreement was replaced by the New Credit Facility. As a result of this refinancing activity, in the six months ended June 30, 2014, we recorded a loss on the extinguishment of the Previous Credit Facility of $1.7 million for certain previously capitalized and unamortized debt issuance costs. The loss on extinguishment is recorded within Interest expense, net in our Consolidated Statements of Comprehensive Income.

The New Credit Facility consists of (a) a $150.0 million amortizing term loan (the “Term Loan”) and (b) a $600.0 million revolving line of credit (the “Revolving Line”), which includes (i) a $75.0 million sublimit for the issuance of letters of credit, (ii) a $50.0 million sublimit for swingline loans and (iii) a $75.0 million sublimit for loans in certain foreign currencies available to us and certain wholly owned Company foreign subsidiaries (the “Foreign Borrowers”). We may, subject to applicable conditions and subject to obtaining commitments from lenders, request an increase in the Revolving Line of up to $200.0 million in aggregate (the “Accordion”).

We (or the Foreign Borrowers, if applicable), subject to applicable conditions, may generally elect interest rates on the Term Loan and Revolving Line calculated by reference to (a) LIBOR (“London Interbank Offered Rate”) (or the Canadian Dealer Offered Rate, in the case of loans denominated in Canadian Dollars or, if LIBOR is not available for a foreign currency, such other interest rate customarily used by Bank of America for such foreign currency) for given interest periods (the “LIBOR/Eurocurrency Rate”) or (b) on loans in U.S. Dollars made to us, Bank of America’s prime rate (or, if greater, (i) the average rate on overnight federal funds plus 0.50% or (ii) the daily floating one month LIBOR plus 1%) (the “Base Rate”), plus a margin determined by our consolidated net leverage ratio. For swingline borrowings, we will pay interest at the Base Rate, plus a margin determined by our consolidated net leverage ratio. For borrowings made with the LIBOR/Eurocurrency Rate, the margin ranges from 125 to 200 basis points, while for borrowings made with the Base Rate, the margin ranges from 25 to 100 basis points.

The Amended and Restated Credit Agreement requires quarterly principal amortization payments under the Term Loan as follows:

Year	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
2014						$	1,875	$	1,875
2015	$	1,875	$	1,875		$	2,813	$	2,813
2016	$	2,813	$	2,813		$	3,750	$	3,750
2017	$	3,750	$	3,750		$	3,750	$	3,750
2018	$	3,750	$	3,750		$	5,625	$	5,625
2019	$	5,625	$	84,373	(1)

⁽¹⁾ Any remaining principal balance is due and payable in full on June 24, 2019

The Revolving Line matures on June 24, 2019, at which time all outstanding borrowings must be repaid and all outstanding letters of credit must have been terminated or cash collateralized. The maturity date of the borrowings under the New Credit Facility may be accelerated to December 18, 2018 if our senior unsecured notes due 2019 remain outstanding on or after such date. We may prepay amounts borrowed under the Term Loan without premium or penalty (other than breakage costs in the case of borrowings made with the LIBOR/Eurocurrency Rate), but amounts prepaid may not be re-borrowed.

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The Amended and Restated Credit Agreement contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross defaults to certain other indebtedness, and events constituting a change of control. The occurrence of an event of default will increase the applicable rate of interest and could result in the acceleration of our obligations under the New Credit Facilities and the obligations of any or all of the Guarantors to pay the full amount of our (or any Foreign Borrower’s) obligations under the New Credit Facility.

The Amended and Restated Credit Agreement contains certain loan covenants, including, among others, financial covenants providing for a maximum consolidated net leverage ratio (i.e., consolidated total debt (net of certain cash and cash equivalents held by us and our domestic subsidiaries) to consolidated EBITDA) and a minimum consolidated interest coverage ratio, and limitations on our ability with regard to the incurrence of debt, the existence of liens, capital expenditures, stock repurchases and dividends, investments, and mergers, dispositions and acquisitions. Our obligations under the New Credit Facility are guaranteed by each of our direct and indirect U.S. subsidiaries (collectively, the “Guarantors”), and if any Foreign Borrower is added to the New Credit Facility, the Foreign Borrower’s obligations will be guaranteed by us and each of the Guarantors. As of June 30, 2014, the interest rate on amounts outstanding under the Credit Facility was 2.17% and we were in compliance with the covenants of the Credit Facility.

Convertible Debt

The aggregate outstanding principal of our 4.0% Convertible Senior Notes (the “Convertible Notes”) was $33.4 million and $51.1 million at June 30, 2014 and December 31, 2013, respectively. The Convertible Notes bear interest at a fixed rate of 4.0% per annum, payable semi-annually in arrears on each March 1 and September 1, and mature on September 1, 2014. The effective interest rate at issuance was 8.5%. As of June 30, 2014, we were in compliance with all covenants.

The Convertible Notes were convertible as of June 30, 2014 and December 31, 2013 and the debt conversion feature was classified as temporary equity on our Consolidated Balance Sheets. Convertible Note holders may elect to convert through August 29, 2014. Should the holders elect to convert, we will be required to pay them up to the full face value of the Convertible Notes in cash as well as deliver shares of our common stock for any excess conversion value. The number of potentially issued shares increases as the market price of our common stock increases. In the six months ended June 30, 2014, we retired a combined 17,724 Convertible Notes or $17.7 million in face value of Convertible Notes, through the note holders electing to convert, for $17.7 million in cash and the issuance of 182,816 shares of common stock. The amount by which the total consideration including cash paid and value of the shares issued exceeds the fair value of the Convertible Notes is recorded as a reduction of stockholders’ equity. The loss from early extinguishment of these Convertible Notes was approximately $0.2 million and is recorded in interest expense in our Consolidated Statements of Comprehensive Income.

Note 10: Repurchases of Common Stock

Board Authorization

On January 30, 2014, our Board of Directors approved an additional repurchase program of up to $500.0 million of our common stock plus the cash proceeds received from the exercise of stock options by our officers, directors, and employees. The Board also authorized a tender offer for up to $350.0 million with the option to increase the tender by up to 2% of outstanding shares.

Repurchases

In the six months ended June 30, 2014, we repurchased 1,447,556 shares of our common stock from the open market with an average price of $69.08 per share for $100.0 million. The repurchases were made under a pre-arranged stock trading plan in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The shares repurchased under the 10b5-1 plan were recorded as treasury shares and made in accordance with current share repurchase authorizations of the Board.

In addition, during the six months ended June 30, 2014, we accepted for payment an aggregate of 5,291,701 shares of our common stock at a final purchase price of $70.07 per share, for an aggregate cost of $370.8 million, excluding fees and expenses relating to the tender offer which expired on March 7, 2014. Fees and expenses relating to the tender offer totaled $3.8 million and were recorded as part of the cost of Treasury Stock in our Consolidated Balance Sheets.

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The following table presents a summary of our authorized stock repurchase balance:

Dollars in thousands	Board Authorization
Authorized repurchase - as of January 1, 2014 (1)	$	201,291
Additional board authorization (1)	500,000
Proceeds from the exercise of stock options	2,790
Repurchase of common stock from open market	(99,995		)
Repurchase from tender offer (2)	(370,789		)
Authorized repurchase - as of June 30, 2014 (1)	$	233,297

(1) In addition to these amounts, the repurchase program approved by our Board of Directors allows for the use of cash proceeds received from the exercise of stock options by our officers, directors, and employees.

(2) Excludes expenses of $3.8 million associated with the tender offer.

Note 11: Share-Based Payments

We currently grant share-based awards to our employees, non-employee directors and consultants under our 2011 Incentive Plan (the “Plan”). The Plan permits the granting of stock options, restricted stock, restricted stock units, and performance-based restricted stock.

Certain information regarding our share-based payments is as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
Dollars in thousands	2014			2013		2014		2013
Share-based payments expense:
Share-based compensation - stock options	$	223		$	321	$	456	$	898
Share-based compensation - restricted stock	3,443			2,691		6,357		5,306
Share-based payments for content arrangements	(587		)	831		31		2,476
Total share-based payments expense	$	3,079		$	3,843	$	6,844	$	8,680
Tax benefit on share-based payments expense	$	1,182		$	1,459	$	2,627	$	3,289

	June 30, 2013
Dollars in thousands	Unrecognized Share-Based Payments Expense		Weighted-Average Remaining Life
Unrecognized share-based payments expense:
Share-based compensation - stock options	$	1,205	2.3 years
Share-based compensation - restricted stock	27,322		2.6 years
Share-based payments for content arrangements	361		0.3 years
Total unrecognized share-based payments expense	$	28,888

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Share-Based Compensation

Stock options

Shares of common stock are issued upon exercise of stock options. The following table presents a summary of stock option activity for 2014:

Shares in thousands	Options		Weighted Average Exercise Price
Outstanding, December 31, 2013	248		$	45.72
Granted	—		$	—
Exercised	(84	)	$	33.27
Cancelled, expired, or forfeited	(12	)	$	52.13
Outstanding, June 30, 2014	152		$	52.07

Certain information regarding stock options outstanding as of June 30, 2014, is as follows:

	Options
Shares and intrinsic value in thousands	Outstanding		Exercisable
Number	152		78
Weighted average per share exercise price	$	52.07	$	50.70
Aggregate intrinsic value	$	1,120	$	685
Weighted average remaining contractual term (in years)	7.10		6.18

Restricted stock and performance based restricted stock awards

Restricted stock awards are granted to eligible employees, including executives, and non-employee directors. Awards granted to employees and executives vest annually in equal installments over four years. Non-employee director awards vest one year after the grant date. Performance-based restricted stock awards are granted to executives only, with established performance criteria approved by the Compensation Committee of the Board of Directors. The fair value of non-performance-based awards is based on the market price on the grant date and is recognized on a straight-line basis over the vesting period.

Awards of performance-based restricted stock made prior to 2013, once earned, vest in equal installments over three years from the date of grant. Awards of performance-based restricted stock made in and subsequent to 2013, once earned, vest in two installments over three years from the date of grant (65% of the award vests two years from the date of grant and the remaining 35% of the award vests three years from the date of grant). The restricted shares require no payment from the grantee. The fair value of performance-based awards is based on achieving specific performance conditions and is recognized over the vesting period.

The following table presents a summary of restricted stock award activity for 2014:

Shares in thousands	Restricted Stock Awards		Weighted Average Grant Date Fair Value
Non-vested, December 31, 2013	597		$	52.58
Granted	323		$	72.08
Vested	(167	)	$	50.29
Forfeited	(82	)	$	57.53
Non-vested, June 30, 2014	671		$	61.93

Share-Based Payments for Content Arrangements

We have granted restricted stock as part of content license agreements with certain movie studios. The expense related to these agreements is included within direct operating expenses in our Consolidated Statements of Comprehensive Income and is adjusted based on the number of unvested shares and market price of our common stock each reporting period. No restricted stock was granted for content arrangements during the six months ended June 30, 2014.

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Information related to the shares of restricted stock granted as part of these agreements as of June 30, 2014, is as follows:

Whole shares	Granted	Vested	Unvested	Remaining Vesting Period
Sony	193,348	164,346	29,002	0.1 years
Paramount	300,000	255,000	45,000	0.5 years
Total	493,348	419,346	74,002

Rights to Receive Cash

As a part of the acquisition of ecoATM, we issued replacement awards for unvested restricted stock and options in ecoATM with rights to receive cash equal to the per share merger consideration for restricted stock and net of the exercise price for options. The replacement awards vest in accordance with the terms of the original replaced award. The fair value of the original and replacement awards amounted to $32.1 million, $1.4 million of which was attributed to pre-combination services rendered and included in the calculation of total consideration transferred. The replacement awards are considered liability classified as they represent rights to receive cash. Expense associated with the post-combination awards will be recognized net of forfeitures, and cash payments will be made, in accordance with the awards' vesting schedule, generally on a monthly basis. We recognized $6.8 million in expense associated with the issuance of rights to receive cash for the six months ended June 30, 2014. The expected future recognition of expense associated with the rights to receive cash as of June 30, 2014 is as follows:

Dollars in thousands	Expected Expense
Remainder of 2014	$	6,445
2015	4,644
2016	2,992
2017	518
Total expected expense	$	14,599

Note 12: Restructuring

During the fourth quarter of 2013, as a result of a comprehensive operational review, we committed to a restructuring plan intended to, among other things, better align our cost structure with revenue growth in our core businesses. As part of the plan, we discontinued three concepts in our New Ventures operating segment. Also as part of the restructuring plan, we implemented actions to reduce costs in our continuing operations primarily through workforce reductions across the Company.  The closure of the three ventures and the workforce reductions were substantially complete as of March 31, 2014. See Note 13: Discontinued Operationsfor further information.

The total amount expected to be incurred in connection with the restructuring, exclusive of asset impairments, and the amount incurred during the three and six months ended June 30, 2014 by reportable segment (on an allocated basis) and expense type is as follows:

			Amounts Incurred
Dollars in thousands	Total Estimated Expense		Three Months Ended June 30, 2014			Six Months Ended June 30, 2014		Cumulative as of June 30, 2014
Redbox
Severance	$	4,305	$	—		$	535	$	4,305
Coinstar
Severance	748		—			23		748
Discontinued Operations
Severance	1,026		(9		)	155		1,026
Other	1,874		42			435		1,874
Total	$	7,953	$	33		$	1,148	$	7,953

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A reconciliation of the beginning and ending liability balance by expense type is as follows:

Dollars in thousands	Severance			Other
Beginning Balance - December 31, 2013	$	2,508		$	1,418
Costs charged to expense	713			435
Costs paid or otherwise settled	(3,221		)	(1,719		)
Ending Balance - June 30, 2014	$	—		$	134

The line items in our Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 in which the expenses are recorded are as follows:

	Three Months Ended June 30, 2014					Six Months Ended June 30, 2014
Dollars in thousands	Severance			Other		Severance		Other
Direct Operating	$	—		$	—	$	410	$	—
General and administrative	—			—		148		—
Loss from discontinued operations, net of tax	(9		)	42		155		435
Total expense	$	(9	)	$	42	$	713	$	435

Note 13: Discontinued Operations

Discontinuation of Certain New Ventures

During 2013, we discontinued four new venture concepts; Rubi, Crisp Market, Orango, and Star Studio. The wind-down process was substantially completed as of March 31, 2014. The results of the discontinued ventures, associated impairment and restructuring charges, net of tax, are recorded within Loss from discontinued operations, net of tax in our Consolidated Statements of Comprehensive Income (see Note 12: Restructuring). The discontinued concepts did not meet the criteria to be classified as held for sale and accordingly the assets and liabilities are not separately presented in our Consolidated Balance Sheets.

Summary Financial Information

The disposition and operating results of the discontinued ventures are presented in discontinued operations in our Consolidated Statements of Comprehensive Income for all periods presented. The continuing cash flows from these operations after discontinuation are insignificant and are not segregated from cash flows from continuing operations in all periods presented in our Consolidated Statements of Cash Flows.

The following table sets forth the components of discontinued operations included in our Consolidated Statements of Comprehensive Income:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Dollars in thousands	2014			2013			2014			2013
Revenue	$	—		$	1,180		$	100		$	2,599
Loss from discontinued operations before income tax	$	(95	)	$	(5,791	)	$	(1,259	)	$	(14,590	)
Income tax benefit	38			2,235			491			5,631
Loss from discontinued operations, net of tax	$	(57	)	(3,556		)	$	(768	)	$	(8,959	)

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Note 14: Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing the net income for the period by the weighted average number of common and dilutive potential common shares outstanding during the period. We consider restricted stock that provides the holder with a non-forfeitable right to receive dividends to be a participating security. Net income available to participating securities was not material for the periods presented.

Net income used for calculating basic and diluted EPS is the same for all periods presented. The following table sets forth the computation of shares used for the basic and diluted EPS calculations:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
In thousands	2014	2013	2014	2013
Weighted average shares used for basic EPS	19,541	27,438	21,730	27,465
Dilutive effect of stock options and other share-based awards	231	362	295	428
Dilutive effect of convertible debt	409	737	463	844
Weighted average shares used for diluted EPS	20,181	28,537	22,488	28,737
Stock options and share-based awards not included in diluted EPS calculation because their effect would be antidilutive	2	64	7	77

Note 15: Business Segments and Enterprise-Wide Information

Management, including our chief operating decision maker, who is our CEO, evaluates the performances of our business segments primarily on segment revenue and segment operating income before depreciation, amortization and other, and share-based compensation granted to executives, non-employee directors and employees (“segment operating income”). Segment operating income contains internally allocated costs of our shared service support functions, including but not limited to, corporate executive management, business development, sales, finance, legal, human resources, information technology and risk management. We also review depreciation and amortization allocated to each segment. Share-based payments expense related to share-based compensation granted to executives, non-employee directors and employees and expense related to the rights to receive cash issued in connection with our acquisition of ecoATM are not allocated to our segments and are included in the corporate unallocated column in the analysis and reconciliation below; however, share-based payments expense related to our content arrangements with certain movie studios has been allocated to our Redbox segment and is included within direct operating expenses. Our performance evaluation does not include segment assets.

On July 23, 2013, we completed the acquisition of ecoATM. Prior to July 23, 2013 we held a non-controlling equity interest in ecoATM and reported our share of ecoATM's operating results in loss from equity method investments in our Consolidated Statements of Comprehensive Income. Subsequent to our acquisition of ecoATM on July 23, 2013, the assets acquired and liabilities assumed, as well as the results of operations, with the exception of expense for rights to receive cash which are unallocated corporate expenses, are included in our New Ventures segment as our chief operating decision maker reviews the results in aggregate with other new ventures concepts.

During the year ended December 31, 2013, we discontinued the Rubi, Crisp Market, Orango and Star Studio concepts and accordingly their results of operations were reclassified from the New Ventures segment to Loss from discontinued operations, net of tax in our Consolidated Statements of Comprehensive Income for all periods presented. See Note 13: Discontinued Operationsfor further information.

Our analysis and reconciliation of our segment information to the consolidated financial statements that follows covers our results of operations, which consists of our Redbox, Coinstar and New Ventures segments. Unallocated general and administrative expenses relate to share-based compensation and expense related to the rights to receive cash issued in connection with our acquisition of ecoATM.

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Dollars in thousands
Three Months Ended June 30, 2014	Redbox			Coinstar			New Ventures			Corporate Unallocated			Total
Revenue	$	445,481		$	79,880		$	23,809		$	—		$	549,170
Expenses:
Direct operating	321,701			40,203			22,823			1,332			386,059
Marketing	6,180			1,557			1,147			899			9,783
Research and development	18			153			2,066			1,175			3,412
General and administrative	34,070			7,169			4,137			3,598			48,974
Segment operating income (loss)	83,512			30,798			(6,364		)	(7,004		)	100,942
Less: depreciation, amortization and other	(40,158		)	(8,921		)	(3,948		)	—			(53,027		)
Operating income (loss)	43,354			21,877			(10,312		)	(7,004		)	47,915
Loss from equity method investments, net	—			—			—			(10,541		)	(10,541		)
Interest expense, net	—			—			—			(12,929		)	(12,929		)
Other, net	—			—			—			2,902			2,902
Income (loss) from continuing operations before income taxes	$	43,354		$	21,877		$	(10,312	)	$	(27,572	)	$	27,347

Dollars in thousands
Three Months Ended June 30, 2013	Redbox			Coinstar			New Ventures			Corporate Unallocated			Total
Revenue	$	478,518		$	74,526		$	6		$	—		$	553,050
Expenses:
Direct operating	323,266			39,801			517			366			363,950
Marketing	5,975			952			108			87			7,122
Research and development	—			1,911			342			101			2,354
General and administrative	42,084			6,439			3,313			2,458			54,294
Segment operating income (loss)	107,193			25,423			(4,274		)	(3,012		)	125,330
Less: depreciation, amortization and other	(40,364		)	(8,770		)	(74		)	—			(49,208		)
Operating income (loss)	66,829			16,653			(4,348		)	(3,012		)	76,122
Loss from equity method investments, net	—			—			—			(9,629		)	(9,629		)
Interest expense, net	—			—			—			(12,018		)	(12,018		)
Other, net	—			—			—			(980		)	(980		)
Income (loss) from continuing operations before income taxes	$	66,829		$	16,653		$	(4,348	)	$	(25,639	)	$	53,495

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Dollars in thousands
Six Months Ended June 30, 2014	Redbox			Coinstar			New Ventures			Corporate Unallocated			Total
Revenue	$	961,137		$	148,633		$	39,769		$	—		$	1,149,539
Expenses:
Direct operating	690,305			77,926			39,162			3,311			810,704
Marketing	11,244			2,563			1,976			1,597			17,380
Research and development	26			422			4,482			1,956			6,886
General and administrative	73,131			14,189			7,937			6,708			101,965
Segment operating income (loss)	186,431			53,533			(13,788		)	(13,572		)	212,604
Less: depreciation, amortization and other	(80,721		)	(17,484		)	(7,765		)	—			(105,970		)
Operating income (loss)	105,710			36,049			(21,553		)	(13,572		)	106,634
Loss from equity method investments, net	—			—			—			(19,909		)	(19,909		)
Interest expense, net	—			—			—			(22,574		)	(22,574		)
Other, net	—			—			—			1,158			1,158
Income (loss) from continuing operations before income taxes	$	105,710		$	36,049		$	(21,553	)	$	(54,897	)	$	65,309

Dollars in thousands
Six Months Ended June 30, 2013	Redbox			Coinstar			New Ventures			Corporate Unallocated			Total
Revenue	$	986,438		$	139,909		$	10		$	—		$	1,126,357
Expenses:
Direct operating	689,947			77,457			734			707			768,845
Marketing	12,174			2,005			175			154			14,508
Research and development	4			3,679			797			181			4,661
General and administrative	84,946			12,728			4,919			5,162			107,755
Segment operating income (loss)	199,367			44,040			(6,615		)	(6,204		)	230,588
Less: depreciation, amortization and other	(80,741		)	(16,954		)	(110		)	—			(97,805		)
Operating income (loss)	118,626			27,086			(6,725		)	(6,204		)	132,783
Loss from equity method investments, net	—			—			—			(16,654		)	(16,654		)
Interest expense, net	—			—			—			(17,551		)	(17,551		)
Other, net	—			—			—			(921		)	(921		)
Income (loss) from continuing operations before income taxes	$	118,626		$	27,086		$	(6,725	)	$	(41,330	)	$	97,657

Significant Retailer Relationships

Our Redbox and Coinstar kiosks are primarily located within retailers. The following retailers accounted for 10% or more of our consolidated revenue:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Wal-Mart Stores Inc.	15.1	%	15.2	%	15.2	%	15.4	%
Walgreen Co.	13.7	%	14.8	%	13.9	%	15.0	%
The Kroger Company	9.9	%	10.2	%	9.8	%	10.2	%

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Note 16: Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs:

• 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.

The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

Assets and Liabilities Measured and Reported at Fair Value on a Recurring Basis

The following table presents our financial assets and (liabilities) that are measured and reported at fair value in our Consolidated Balance Sheets on a recurring basis, by level within the fair value hierarchy (in thousands):

Fair Value at June 30, 2014	Level 1		Level 2		Level 3
Money market demand accounts and investment grade fixed income securities	$	6,820	$	—	$	—
Fair Value at December 31, 2013	Level 1		Level 2		Level 3
Money market demand accounts and investment grade fixed income securities	$	65,800	$	—	$	—

Money Market Demand Accounts and Investment Grade Fixed Income Securities

We determine fair value for our money market demand accounts and investment grade fixed income securities based on quoted market prices. The fair value of these assets is included in cash and cash equivalents on our Consolidated Balance Sheets.

Assets and Liabilities Measured and Reported at Fair Value on a Nonrecurring Basis

We recognize or disclose the fair value of certain assets such as non-financial assets, primarily long-lived assets, goodwill, intangible assets and certain other assets in connection with impairment evaluations. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy.

Fair Value of Other Financial Instruments

The carrying value of our term loans approximates their fair value and falls under Level 2 of the fair value hierarchy.

We estimate the fair value of our convertible debt outstanding using a market rate of approximately 6.0% for similar high-yield debt at June 30, 2014, and December 31, 2013. The estimated fair value of our convertible debt was approximately $33.5 million and $50.5 million at June 30, 2014, and December 31, 2013, respectively, and was determined based on its stated terms, maturing on September 1, 2014, and an annual interest rate of 4.0%. The fair value estimate of our convertible debt falls under Level 3 of the fair value hierarchy. We have reported the carrying value of our convertible debt, face value less the unamortized debt discount, in our Consolidated Balance Sheets.

We estimated the fair value of our senior unsecured notes due 2019 and 2021 outstanding using market rates of approximately 6.0% and 5.875%, respectively, for similar high-yield debt at June 30, 2014. The estimated fair value of our senior unsecured notes due 2019 and 2021 was approximately $350.0 million and $300.0 million, respectively, at June 30, 2014. The estimated fair value of our senior unsecured notes due 2019 was approximately $350.0 million at December 31, 2013. These estimated fair values for our senior unsecured notes due 2019 and 2021 were determined based on their stated terms, maturing on March 15, 2019, and June 15, 2021, respectively, and annual interest rates of 6.0% and 5.875%. The fair value estimate of our senior unsecured notes falls under Level 3 of the fair value hierarchy. We have reported the carrying value of our senior unsecured notes, issued at par, in our Consolidated Balance Sheets.

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Note 17: Commitments and Contingencies

Purchase commitments

Pursuant to the manufacturing and services agreement entered into as part of the NCR Asset Acquisition, Outerwall, Redbox or an affiliate were committed to 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 were to equal less than $25.0 million, Outerwall was to pay NCR the difference between such aggregate amount and $25.0 million. As of June 30, 2014, our remaining commitment is $16.7 million under this arrangement.

Content Arrangement

On June 27, 2014 Sony notified us of their intent to extend our existing content license agreement with them. This will extend the license period through September 30, 2015 and require us to issue 25,000 shares of additional restricted stock to Sony during the third quarter of 2014. See Note 11: Share-Based Payments for more information about our share-based payments for content arrangements. As of June 30, 2014, after accounting for this extension, our commitment to purchase content from Sony was approximately $203.3 million.

Letters of Credit

As of June 30, 2014, we had six irrevocable standby letters of credit that totaled $8.6 million. These standby letters of credit, which expire at various times through May 2015, are used to collateralize certain obligations to third parties. As of June 30, 2014, no amounts were outstanding under these standby letter of credit agreements.

Legal Matters

In October 2009, an Illinois resident, Laurie Piechur, individually and on behalf of all others similarly situated, filed a putative class action complaint against our Redbox subsidiary in the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois. The plaintiff alleged that, among other things, Redbox charges consumers illegal and excessive late fees in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and that Redbox's rental terms violate the Illinois Rental Purchase Agreement Act or the Illinois Automatic Contract Renewal Act and the plaintiff is seeking monetary damages and other relief. In November 2009, Redbox removed the case to the U.S. District Court for the Southern District of Illinois. In February 2010, the District Court remanded the case to the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois. In May 2010, the court denied Redbox's motion to dismiss the plaintiff's complaint. In November 2011, the plaintiff moved for class certification, and Redbox moved for summary judgment. The court denied Redbox's motion for summary judgment in February 2012. The plaintiff filed an amended complaint on April 19, 2012, and an amended motion for class certification on June 5, 2012. The court denied Redbox's motion to dismiss the amended complaint. The amended class certification motion was briefed and argued. At the hearing on plaintiff's amended motion for class certification, the plaintiff dismissed all claims but two and is pursuing only her claims under the Illinois Rental Purchase Agreement Act and the Illinois Automatic Contract Renewal Act. On May 21, 2013, the court denied plaintiff's amended class action motion. On January 29, 2014, the Illinois Supreme Court denied plaintiff’s petition for leave to appeal the trial court’s denial of class certification. Redbox has moved to dismiss all remaining claims on mootness grounds. The motion is fully briefed.  The parties are waiting for the court to schedule a date for argument of the motion. We believe that the claims against us are without merit and intend to defend ourselves vigorously in this matter. Currently, no accrual has been established as it was not possible to estimate the possible loss or range of loss because this matter had not advanced to a stage where we could make any such estimate.

27

In March 2011, a California resident, Blake Boesky, individually and on behalf of all others similarly situated, filed a putative class action complaint against our Redbox subsidiary in the U.S. District Court for the Northern District of Illinois. The plaintiff alleges that Redbox retains personally identifiable information of consumers for a time period in excess of that allowed under the Video Privacy Protection Act, 18 U.S.C. §§ 2710, et seq. A substantially similar complaint was filed in the same court in March 2011 by an Illinois resident, Kevin Sterk. Since the filing of the complaint, Blake Boesky has been replaced by a different named plaintiff, Jiah Chung, and an amended complaint has been filed alleging disclosures of personally identifiable information, in addition to plaintiffs' claims of retention of such information. Plaintiffs are seeking statutory damages, injunctive relief, attorneys' fees, costs of suit, and interest. The court has consolidated the cases. The court denied Redbox's motion to dismiss the plaintiffs' claims upon interlocutory appeal. The U.S. Court of Appeals for the Seventh Circuit reversed the district court's denial of Redbox's motion to dismiss plaintiff's claims involving retention of information, holding that the plaintiffs could not maintain a suit for damages under this theory. On April 25, 2012, the plaintiffs amended their complaint to add claims under the Stored Communications Act, 18 U.S.C. § 2707, and for breach of contract. On May 9, 2012, Redbox moved to dismiss the amended complaint. On July 23, 2012, the court dismissed the added retention claims, except to the extent that plaintiffs seek injunctive, non-monetary relief. On August 16, 2013, the court granted summary judgment in Redbox's favor on all remaining claims, and entered a final judgment for Redbox. On September 16, 2013, plaintiff filed a notice of appeal. The appeal was fully briefed as of July 1, 2014.  The appellate court has not scheduled a date for argument. We believe that the claims against us are without merit and intend to defend ourselves vigorously in this matter. Currently, no accrual has been established as it is not possible to estimate the possible loss or range of loss because this matter had not advanced to a stage where we could make any such estimate.

In February 2011, a California resident, Michael Mehrens, individually and on behalf of all others similarly situated, filed a putative class action complaint against our Redbox subsidiary in the Superior Court of the State of California, County of Los Angeles. The plaintiff alleges that, among other things, Redbox violated California's Song-Beverly Credit Card Act of 1971 (“Song-Beverly”) with respect to the collection and recording of consumer personal identification information, and violated the California Business and Professions Code § 17200 based on the alleged violation of Song-Beverly. A similar complaint alleging violations of Song-Beverly and the right to privacy generally was filed in March 2011 in the Superior Court of the State of California, County of Alameda, by a California resident, John Sinibaldi. A third similar complaint alleging only a violation of Song-Beverly, was filed in March 2011 in the Superior Court of the State of California, County of San Diego, by a California resident, Richard Schiff. Plaintiffs are seeking compensatory damages and civil penalties, injunctive relief, attorneys' fees, costs of suit, and interest. Redbox removed the Mehrens case to the U.S. District Court for the Central District of California, the Sinibaldi case to the U.S. District Court for the Northern District of California, and the Schiff case to the U.S. District Court for the Southern District of California. The Sinibaldi case was subsequently transferred to the U.S. District Court for the Central District of California, where the Mehrens case is pending, and these two cases have been consolidated. At the same time, the plaintiffs substituted Nicolle DiSimone as the named plaintiff in the Mehrens case. After Redbox filed a motion to dismiss, stay, or transfer, the Schiff case was transferred to the U.S. District Court for the Central District of California. On January 4, 2013, the Court dismissed with prejudice the Schiff case for failure to prosecute and failure to comply with court rules and orders. Redbox moved to dismiss the DiSimone/Sinibaldi case, and DiSimone/Sinibaldi moved for class certification. In January 2012, the Court granted Redbox's motion to dismiss with prejudice and denied DiSimone/Sinibaldi's motion for class certification as moot. On February 2, 2012, Plaintiffs filed their notice of appeal. On June 6, 2014, the appellate court affirmed the dismissal of the case against Redbox. The deadline for filing a petition for certiorari is September 4, 2014. We believe that the claims against us are without merit and intend to defend ourselves vigorously in this matter. Currently, no accrual has been established as it is not possible to estimate the possible loss or range of loss because this matter had not advanced to a stage where we could make any such estimate.

Other Contingencies

During the three months ended March 31, 2013, we resolved a previously disclosed loss contingency related to a supply agreement and recorded a benefit of $11.4 million in the direct operating line item in our Consolidated Statements of Comprehensive Income.

Note 18: Guarantor Subsidiaries

Certain of our wholly-owned subsidiaries have, jointly and severally, fully and unconditionally guaranteed the Senior Notes. Pursuant to SEC regulations, we have presented in columnar format the condensed consolidating financial information for Outerwall Inc., the guarantor subsidiaries on a combined basis, and all non-guarantor subsidiaries on a combined basis in the following tables:

28

CONSOLIDATING BALANCE SHEETS
(unaudited)
	As of June 30, 2014
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Assets
Current Assets:
Cash and cash equivalents	$	174,853		$	11,423	$	46,950		$	—		$	233,226
Accounts receivable, net of allowances	1,501			41,158		2,309			—			44,968
Content library	—			149,659		2,723			—			152,382
Prepaid expenses and other current assets	42,508			26,448		894			(6,205		)	63,645
Intercompany receivables	141,001			389,994		5,899			(536,894		)	—
Total current assets	359,863			618,682		58,775			(543,099		)	494,221
Property and equipment, net	152,670			286,271		36,799			—			475,740
Deferred income taxes	—			—		8,277			—			8,277
Goodwill and other intangible assets, net	250,078			380,917		—			—			630,995
Other long-term assets	7,276			2,032		417			—			9,725
Investment in related parties	866,658			3,354		—			(870,012		)	—
Total assets	$	1,636,545		$	1,291,256	$	104,268		$	(1,413,111	)	$	1,618,958
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	13,620		$	144,395	$	2,071		$	—		$	160,086
Accrued payable to retailers	75,232			34,666		17,875			—			127,773
Other accrued liabilities	57,046			70,746		3,434			(182		)	131,044
Current portion of long-term debt and other long-term liabilities	52,604			—		404			—			53,008
Deferred income taxes	—			37,451		4			(6,023		)	31,432
Intercompany payables	335,204			129,446		72,244			(536,894		)	—
Total current liabilities	533,706			416,704		96,032			(543,099		)	503,343
Long-term debt and other long-term liabilities	962,161			18,348		1,208			—			981,717
Deferred income taxes	36,727			175		35			—			36,937
Total liabilities	1,532,594			435,227		97,275			(543,099		)	1,521,997
Commitments and contingencies
Debt conversion feature	163			—		—			—			163
Stockholders’ Equity:
Preferred stock	—			—		—			—			—
Common stock	594,007			225,729		12,393			(352,635		)	479,494
Treasury stock	(941,167		)	—		—			—			(941,167		)
Retained earnings	452,079			630,300		(6,303		)	(517,377		)	558,699
Accumulated other comprehensive income (loss)	(1,131		)	—		903			—			(228		)
Total stockholders’ equity	103,788			856,029		6,993			(870,012		)	96,798
Total liabilities and stockholders’ equity	$	1,636,545		$	1,291,256	$	104,268		$	(1,413,111	)	$	1,618,958

29

CONSOLIDATING BALANCE SHEETS
(unaudited)
	As of December 31, 2013
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Assets
Current Assets:
Cash and cash equivalents	$	315,250		$	9,639	$	46,548		$	—		$	371,437
Accounts receivable, net of allowances	2,029			45,672		2,595			—			50,296
Content library	37			196,695		3,136			—			199,868
Prepaid expenses and other current assets	67,664			28,234		960			(12,149		)	84,709
Intercompany receivables	180,100			355,418		5,093			(540,611		)	—
Total current assets	565,080			635,658		58,332			(552,760		)	706,310
Property and equipment, net	163,747			320,296		36,822			—			520,865
Deferred income taxes	—			—		6,412			31			6,443
Goodwill and other intangible assets, net	251,150			387,540		—			—			638,690
Other long-term assets	7,156			11,499		420			—			19,075
Investment in related parties	815,243			4,825		—			(820,068		)	—
Total assets	$	1,802,376		$	1,359,818	$	101,986		$	(1,372,797	)	$	1,891,383
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	17,336		$	215,703	$	2,979		$	—		$	236,018
Accrued payable to retailers	71,085			48,126		14,929			—			134,140
Other accrued liabilities	59,444			71,607		3,076			—			134,127
Current portion of long-term debt and other long-term liabilities	103,519			3		367			—			103,889
Deferred income taxes	—			35,292		—			(12,149		)	23,143
Intercompany payables	315,615			154,565		70,432			(540,612		)	—
Total current liabilities	566,999			525,296		91,783			(552,761		)	631,317
Long-term debt and other long-term liabilities	661,627			18,748		1,028			—			681,403
Deferred income taxes	45,307			13,190		—			31			58,528
Total liabilities	1,273,933			557,234		92,811			(552,730		)	1,371,248
Commitments and contingencies
Debt conversion feature	1,446			—		—			—			1,446
Stockholders’ Equity:
Preferred stock	—			—		—			—			—
Common stock	596,995			225,016		12,393			(351,923		)	482,481
Treasury stock	(476,796		)	—		—			—			(476,796		)
Retained earnings	407,959			577,568		(3,612		)	(468,144		)	513,771
Accumulated other comprehensive income (loss)	(1,161		)	—		394			—			(767		)
Total stockholders’ equity	526,997			802,584		9,175			(820,067		)	518,689
Total liabilities and stockholders’ equity	$	1,802,376		$	1,359,818	$	101,986		$	(1,372,797	)	$	1,891,383

30

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(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		$	14,446		$	—		$	549,170
Expenses:
Direct operating	35,401			340,591			10,067			—			386,059
Marketing	1,651			7,351			781			—			9,783
Research and development	832			2,580			—			—			3,412
General and administrative	10,365			38,067			542			—			48,974
Depreciation and other	9,469			37,732			1,979			—			49,180
Amortization of intangible assets	536			3,311			—			—			3,847
Total expenses	58,254			429,632			13,369			—			501,255
Operating income	9,831			37,007			1,077			—			47,915
Other income (expense), net:
Loss from equity method investments, net	(224		)	(10,317		)	—			—			(10,541		)
Interest income (expense), net	(12,971		)	91			(49		)	—			(12,929		)
Other, net	4,114			491			(1,703		)	—			2,902
Total other expense, net	(9,081		)	(9,735		)	(1,752		)	—			(20,568		)
Income (loss) from continuing operations before income taxes	750			27,272			(675		)	—			27,347
Income tax benefit (expense)	920			(6,873		)	416			—			(5,537		)
Income (loss) from continuing operations	1,670			20,399			(259		)	—			21,810
Loss from discontinued operations, net of tax	(94		)	37			—			—			(57		)
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 in 2014.

31

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
	Three Months Ended June 30, 2013
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Revenue	$	63,504		$	477,012		$	12,534		$	—		$	553,050
Expenses:
Direct operating	34,990			318,774			12,640			(2,454		)	363,950
Marketing	1,058			5,376			688			—			7,122
Research and development	2,042			312			—			—			2,354
General and administrative	9,091			42,383			366			2,454			54,294
Depreciation and other	7,252			38,833			1,246			—			47,331
Amortization of intangible assets	569			1,308			—			—			1,877
Total expenses	55,002			406,986			14,940			—			476,928
Operating income (loss)	8,502			70,026			(2,406		)	—			76,122
Other income (expense), net:
Loss from equity method investments, net	(1,435		)	(8,194		)	—			—			(9,629		)
Interest expense, net	(12,010		)	(4		)	(4		)	—			(12,018		)
Other, net	(2,981		)	2,015			(14		)	—			(980		)
Total other expense, net	(16,426		)	(6,183		)	(18		)	—			(22,627		)
Income (loss) from continuing operations before income taxes	(7,924		)	63,843			(2,424		)	—			53,495
Income tax benefit (expense)	19,455			(23,278		)	741			—			(3,082		)
Income (loss) from continuing operations	11,531			40,565			(1,683		)	—			50,413
Loss from discontinued operations, net of tax	(3,304		)	(252		)	—			—			(3,556		)
Equity in income (loss) of subsidiaries	38,630			(1,683		)	—			(36,947		)	—
Net income (loss)	46,857			38,630			(1,683		)	(36,947		)	46,857
Foreign currency translation adjustment(1)	188			—			(430		)	—			(242		)
Comprehensive income (loss)	$	47,045		$	38,630		$	(2,113	)	$	(36,947	)	$	46,615

(1) Foreign currency translation adjustment had no tax effect in 2013.

32

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(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		$	27,644		$	—		$	1,149,539
Expenses:
Direct operating	68,469			722,102			20,133			—			810,704
Marketing	2,778			13,161			1,441			—			17,380
Research and development	1,728			5,158			—			—			6,886
General and administrative	20,640			80,416			909			—			101,965
Depreciation and other	18,571			75,912			3,792			—			98,275
Amortization of intangible assets	1,072			6,623			—			—			7,695
Total expenses	113,258			903,372			26,275			—			1,042,905
Operating income (loss)	13,004			92,261			1,369			—			106,634
Other income (expense), net:
Loss from equity method investments, net	(448		)	(19,461		)	—			—			(19,909		)
Interest income (expense), net	(22,602		)	123			(95		)	—			(22,574		)
Other, net	5,721			836			(5,399		)	—			1,158
Total other expense, net	(17,329		)	(18,502		)	(5,494		)	—			(41,325		)
Income (loss) from continuing operations before income taxes	(4,325		)	73,759			(4,125		)	—			65,309
Income tax benefit (expense)	3,248			(24,295		)	1,434			—			(19,613		)
Income (loss) from continuing operations	(1,077		)	49,464			(2,691		)	—			45,696
Loss from discontinued operations, net of tax	(803		)	35			—			—			(768		)
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 in 2014.

33

CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
	Six Months Ended June 30, 2013
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Revenue	$	119,080		$	983,724		$	23,553		$	—		$	1,126,357
Expenses:
Direct operating	67,750			681,716			24,090			(4,711		)	768,845
Marketing	2,192			11,163			1,153			—			14,508
Research and development	4,658			3			—			—			4,661
General and administrative	16,802			85,526			716			4,711			107,755
Depreciation and other	14,044			77,573			2,294			—			93,911
Amortization of intangible assets	1,139			2,755			—			—			3,894
Total expenses	106,585			858,736			28,253			—			993,574
Operating income (loss)	12,495			124,988			(4,700		)	—			132,783
Other income (expense), net:
Loss from equity method investments, net	(2,019		)	(14,635		)	—			—			(16,654		)
Interest income (expense), net	(17,954		)	453			(50		)	—			(17,551		)
Other, net	(1,090		)	211			(42		)	—			(921		)
Total other expense, net	(21,063		)	(13,971		)	(92		)	—			(35,126		)
Income (loss) from continuing operations before income taxes	(8,568		)	111,017			(4,792		)	—			97,657
Income tax benefit (expense)	21,563			(42,249		)	1,449			—			(19,237		)
Income (loss) from continuing operations	12,995			68,768			(3,343		)	—			78,420
Loss from discontinued operations, net of tax	(8,251		)	(708		)	—			—			(8,959		)
Equity in income (loss) of subsidiaries	64,717			(3,343		)	—			(61,374		)	—
Net income (loss)	69,461			64,717			(3,343		)	(61,374		)	69,461
Foreign currency translation adjustment(1)	21			—			(2,177		)	—			(2,156		)
Comprehensive income (loss)	$	69,482		$	64,717		$	(5,520	)	$	(61,374	)	$	67,305

(1) Foreign currency translation adjustment had no tax effect in 2013.

34

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 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		)
Impairment Expense(1)	—			—			—			—			—
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 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 of 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		)
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		)

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	Six Months Ended June 30, 2014
	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) During 2013, we discontinued four ventures previously included in our New Ventures operating segment, Orango, Rubi, Crisp Market, and Star Studio. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented because they were not material.

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CONSOLIDATING STATEMENTS OF CASH FLOWS
(unaudited)
	Six Months Ended June 30, 2013
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Operating Activities:
Net income (loss)	$	69,461		$	64,717		$	(3,343	)	$	(61,374	)	$	69,461
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and other	14,642			77,573			2,294			—			94,509
Amortization of intangible assets	1,139			2,755			—			—			3,894
Share-based payments expense	5,063			3,617			—			—			8,680
Windfall excess tax benefits related to share-based payments	(3,029		)	—			—			—			(3,029		)
Deferred income taxes	10,915			(46,283		)	(1,543		)	—			(36,911		)
Impairment Expense	2,676			—			—			—			2,676
Loss from equity method investments, net	2,019			14,635			—			—			16,654
Amortization of deferred financing fees and debt discount	4,047			—			—			—			4,047
Loss from early extinguishment of debt	5,949			—			—			—			5,949
Other	(1,536		)	(272		)	(3		)	—			(1,811		)
Equity in (income) losses of subsidiaries	(64,717		)	3,343			—			61,374			—
Cash flows from changes in operating assets and liabilities:
Accounts receivable, net	(555		)	(791		)	(1,304		)	—			(2,650		)
Content library	680			5,459			(1,227		)	—			4,912
Prepaid expenses and other current assets	(3,176		)	(6,951		)	(484		)	—			(10,611		)
Other assets	145			744			13			—			902
Accounts payable	3,221			(59,380		)	347			354			(55,458		)
Accrued payable to retailers	2,869			(5,097		)	1,955			—			(273		)
Other accrued liabilities	1,542			(16,177		)	(128		)	—			(14,763		)
Net cash flows from (used in) operating activities(1)	51,355			37,892			(3,423		)	354			86,178
Investing Activities:
Purchases of property and equipment	(32,037		)	(40,988		)	(11,219		)	—			(84,244		)
Proceeds from sale of property and equipment	12,079			750			3			—			12,832
Net sales (purchases) of short term investments	(10,000		)	—			—			—			(10,000		)
Receipt of note receivable principal	95			—			—			—			95
Cash paid for equity investments	—			(14,000		)	—			—			(14,000		)
Investments in and advances to affiliates	(31,177		)	20,373			10,804			—			—
Net cash flows used in investing activities(1)	(61,040		)	(33,865		)	(412		)	—			(95,317		)
Financing Activities:
Proceeds from issuance of senior unsecured notes	343,769			—			—			—			343,769
Proceeds from new borrowing on Credit Facility	—			—			—			—			—
Principal payments on Credit Facility	(6,562		)	—			—			—			(6,562		)
Financing costs associated with Credit Facility and senior unsecured notes	(444		)	—			—			—			(444		)
Conversion of convertible debt	(169,634		)	—			—			—			(169,634		)
Repurchases of common stock	(71,388		)	—			—			—			(71,388		)
Principal payments on capital lease obligations and other debt	(7,053		)	(203		)	(195		)	—			(7,451		)
Windfall excess tax benefits related to share-based payments	3,029			—			—			—			3,029
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options	6,745			—			—			—			6,745
Net cash flows from (used in) financing activities(1)	98,462			(203		)	(195		)	—			98,064

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	Six Months Ended June 30, 2013
	Outerwall Inc.		Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Effect of exchange rate changes on cash	21		—		(1,595		)	—			(1,574		)
Increase (decrease) in cash and cash equivalents	88,798		3,824		(5,625		)	354			87,351
Cash and cash equivalents:
Beginning of period	242,489		—		40,759			(354		)	282,894
End of period	$	331,287	$	3,824	$	35,134		$	—		$	370,245

(1) During 2013, we discontinued four ventures previously included in our New Ventures operating segment, Orango, Rubi, Crisp Market, and Star Studio. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented because they were not material.

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Note 19: Income Taxes

During the second quarter of 2014 we reported a $2.3 million discrete tax benefit related to the recognition of a worthless stock deduction from an outside basis difference in a corporate subsidiary. Our effective tax rate was 20.3% and 30.0% for the three and six months ended June 30, 2014, respectively. Our effective tax rate in 2014 was lower than the U.S. Federal statutory rate of 35.0% due primarily to the worthless stock deduction and the Domestic Production Activities Deduction, which we are entitled to based on our domestic manufacturing activities, which were recorded net of a contingency reserve, offset partially by state income taxes.

During the second quarter of 2013, we entered into an arrangement to sell certain NCR kiosks and a series of transactions to reorganize Redbox related subsidiary structures through the sale of a wholly owned subsidiary. Total proceeds from the sale of the subsidiary were $11.8 million. As a result of the series of transactions we recorded a discrete one-time tax benefit of $17.8 million, net of a valuation allowance, through the realization of various capital and ordinary gains and losses. Our effective tax was 5.8% and 19.7% for the three and six months ended June 30, 2013, respectively. Our effective tax rate in 2013 was lower than the U.S. Federal statutory rate of 35.0% due primarily to the discrete one-time tax benefit of $17.8 million, offset partially by state income taxes.

Note 20: Subsequent Events

The Convertible Notes mature on September 1, 2014 and were convertible as of June 30, 2014. As of July 29, 2014, we have received notification from certain Convertible Note holders of their intent to convert $4.7 million in principal value of notes. Upon conversion we will pay the full face value of the Convertible Notes in cash as well as deliver shares of our common stock for any excess conversion value above the face value determined based on a formula utilizing our stock price during a 25 consecutive trading day period from the time we receive a conversion notice and will record a loss if the fair value of the debt exceeds its net carrying value upon conversion.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Except for the consolidated historical information, the following discussion contains forward-looking statements that involve risks and uncertainties, such as our objectives, expectations and intentions. Our actual results could differ materially from results that may be anticipated by such forward-looking statements and discussed elsewhere herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and those discussed under “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q and in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (our “2013 Form 10-K”). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.

Overview

We are a leading provider of automated retail solutions offering convenient products and services that benefit consumers and drive incremental retail traffic and revenue for retailers. While we are focused on four consumer sectors, collectively our business segments and strategic investments currently operate within five consumer sectors: Entertainment, Money, Electronics, Beauty & Consumer Packaged Goods, and Health.

Our automated retail business model leverages technology advancements that allow delivery of new and innovative consumer products in a compact, automated format. We believe this model positions us to address retailers’ increasing need to provide more in less space driven by increased urbanization and consumers’ increasing expectation of instant gratification. Our products and services can be found at approximately 66,110 kiosks in leading supermarkets, drug stores, mass merchants, financial institutions, convenience stores, malls and restaurants.

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Core Offerings

We have two core businesses:

• 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.

New Ventures

We identify, evaluate, build or acquire and develop innovative new self-service concepts in the automated retail space in our New Ventures business segment (“New Ventures”). Self-service kiosk concepts we are currently exploring in the marketplace represent the Electronics and Beauty & Consumer Packaged Goods consumer sectors. New Ventures concepts are regularly assessed to determine whether continued funding or other alternatives are appropriate. Subsequent to our acquisition of ecoATM in the third quarter of 2013, results from ecoATM are included within our New Ventures segment results.

Strategic Investments and Joint Venture

We make strategic investments in external companies that provide automated self-service kiosk solutions. Current investments address the Entertainment sector through our Redbox Instant by Verizon joint venture and the Health sector with our investment in SoloHealth, Inc. See Note 8: Equity Method Investments and Related Party Transactionsin our Notes to Consolidated Financial Statements for more information and information regarding our acquisition of ecoATM, one of our prior strategic investments.

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Strategy

Our strategy is based upon leveraging our core competencies in the automated retail space to provide the consumer with convenience and value and to help retailers drive incremental traffic and revenue. Our competencies include success in building strong consumer and retailer relationships, and in deploying, scaling and managing kiosk businesses. We build strong retailer relationships by providing retailers with turnkey solutions that complement their businesses without significant outlays of time and financial resources. We believe we have significant opportunities to continue to grow our revenues, profitability and cash flow by capitalizing on our strengths and favorable industry trends through the execution of the following strategies:

• Continue growing our Redbox business profitably. We are focused on profitably growing Redbox through increased revenue generation and improved kiosk-operations efficiency.

We expect to continue to grow revenue through attracting new customers, improving the Blu-ray rental mix, and utilizing our customer management tools. Blu-ray drives revenue growth by shifting rentals to its higher revenue price point, $1.50 per night, and higher margin dollars per rental. Not only does Blu-ray provide a strong financial benefit to our business, but it also offers consumers a better viewing experience due to superior picture and sound quality compared to other home video rental formats (including digital streaming). Further, our customer management tools allow us to provide personalized recommendations and promotions to our customers, which helps us generate incremental revenue.

While we have substantially completed the build out of our Redbox network in the U.S., we believe we can improve financial performance by redeploying underperforming kiosks to lower kiosk density or higher-consumer-traffic areas. We also have retrofitted a significant percentage of our existing kiosks to provide increased capacity, which enables Redbox to retain discs in the kiosks longer without a material increase in product cost thereby allowing us to provide greater title selection and copy depth to generate incremental rentals. Our kiosk retrofit has yielded the equivalent of approximately 5,000 kiosks of new capacity at significantly lower cost as compared to equivalent new kiosk installation. We also continuously improve our proprietary algorithms allowing Redbox to more accurately predict daily title availability and demand at individual kiosk locations.

• 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.

• 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, which provides an automated self-service kiosk system where consumers can recycle mobile devices for cash. Further, we continue to make modest investments to test our product sampling kiosk venture, SAMPLEit. We are committed to addressing the changing needs and preferences of our consumers, including through strategic investment such as our joint venture Redbox Instant by Verizon.

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Recent Events

Q2 2014 Events

• On June 27, 2014, Sony notified us of their intent to extend our existing content license agreement with them. This extension will extend the license period through September 30, 2015.

• On June 24, 2014, we entered into a new credit facility arrangement consisting of a senior secured $600.0 million revolving line of credit that, under certain conditions, may be increased up to an additional $200.0 million in aggregate, and a senior secured $150.0 million amortizing term loan. The maturity of the credit facility is extended until June 24, 2019.

• On June 9, 2014, we consummated a private offering to sell $300.0 million in aggregate principal amount of senior unsecured notes due 2021. We used the proceeds to repay indebtedness under our prior credit facility and for general corporate purposes.

• During the three months ended June, 30, 2014, we repurchased 711,556 shares of our common stock at an average price of $70.27 per share for $50.0 million. The repurchases were made under a pre-arranged stock trading plan in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The shares repurchased under the 10b5-1 plan were recorded as treasury shares and made in accordance with current share repurchase authorizations of the Board.

Q1 2014 Events

• During January 2014, we repurchased 736,000 shares of our common stock at an average price of $67.93 per share for $50.0 million. The repurchases were made under a pre-arranged stock trading plan in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The shares repurchased under the 10b5-1 plan were recorded as treasury shares and made in accordance with current share repurchase authorizations of the Board.

• During the three months ended March 31, 2014, we executed a tender offer in which we accepted for payment an aggregate of 5,291,701 shares of our common stock at a final purchase price of $70.07 per share, for an aggregate cost of $370.8 million, excluding fees and expenses. See Note 10: Repurchases of Common Stock in our Notes to Consolidated Financial Statements for more information.

Consolidated Results

The discussion and analysis that follows covers our results from continuing operations:

	Three Months Ended									Six Months Ended
	June 30,				Change					June 30,				Change
Dollars in thousands, except per share amounts	2014		2013		$			%		2014		2013		$			%
Revenue	$	549,170	$	553,050	$	(3,880	)	(0.7	)%	$	1,149,539	$	1,126,357	$	23,182		2.1	%
Operating income	$	47,915	$	76,122	$	(28,207	)	(37.1	)%	$	106,634	$	132,783	$	(26,149	)	(19.7	)%
Income from continuing operations	$	21,810	$	50,413	$	(28,603	)	(56.7	)%	$	45,696	$	78,420	$	(32,724	)	(41.7	)%
Diluted earnings per share from continuing operations	$	1.08	$	1.77	$	(0.69	)	(39.0	)%	$	2.03	$	2.73	$	(0.70	)	(25.6	)%

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Comparing three months ended June 30, 2014 to three months endedJune 30, 2013

Revenue decreased $3.9 million, or 0.7%, primarily due to:

• $33.0 million decrease from our Redbox segment primarily due to a 7.8% decrease in same store sales principally due to a considerably weaker release schedule in the second quarter of 2014 that resulted in 9.3% fewer rentals in the second quarter of 2014 compared to the second quarter of 2013; partially offset by

• $23.8 millionincrease from our New Ventures segment primarily due to the inclusion of ecoATM results in the second quarter of 2014 subsequent to our acquisition of ecoATM on July 23, 2013;

• $5.4 millionincrease from our Coinstar segment, primarily due to growth of U.S. same store sales driven by a price increase implemented across all grocery locations in the U.S. which was effective October 1, 2013, higher volume in the U.K. due to an increased U.K. kiosk base, higher U.K. same store sales and growth in the number of Coinstar Exchange kiosks.

Operating income decreased $28.2 million, or 37.1%, primarily due to:

• $23.5 million decrease in operating income within our Redbox segment primarily due to a $33.0 million decrease in revenue partially offset by a $8.0 million decrease in general and administrative expenses and a $1.6 million decrease in direct operating expenses. Product cost for second quarter of 2013 would have been $29.4 million higher had the new methodology been in place for the duration of the respective license periods of the titles in the content library as costs would have shifted from prior periods;

• $6.0 million increase in operating loss within our New Ventures segment which includes only the continuing operations related to our ecoATM and SAMPLEit concepts, from investments being made to scale the ecoATM business. Our New Ventures segment revenue and expense growth was primarily attributable to the results of ecoATM being included within New Ventures since its acquisition; and

• $4.0 million increase in share based expense not allocated to our segments primarily as a result 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; partially offset by

• $5.2 million increase in operating income within our Coinstar segment.

Income from continuing operations decreased $28.6 million, or 56.7%, primarily due to:

• Decreased operating income as described above;

• Increased income tax expense

• Increased loss from equity method investments; and

• Increased interest expense due to increased borrowings; partially offset by

• Increased other income.

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Comparing six months ended June 30, 2014 to six months ended June 30, 2013

Revenue increased$23.2 million, or 2.1%, primarily due to:

• $39.8 million increase from our New Ventures segment primarily due to the inclusion of ecoATM results in the second quarter of 2014 subsequent to our acquisition of ecoATM on July 23, 2013; and

• $8.7 million increase from our Coinstar segment, primarily due to growth of U.S. same store sales driven by a price increase implemented across all grocery locations in the U.S. which was effective October 1, 2013, higher volume in the U.K. due to an increased U.K. kiosk base, higher U.K. same store sales and growth in the number of Coinstar Exchange kiosks; partially offset by

• $25.3 million decrease from our Redbox segment primarily due to a 3.3% decrease in same store sales due primarily to a considerably weaker release schedule in the second quarter of 2014 that resulted in 3.9% fewer rentals in the first six months of 2014 compared to the first six months of 2013.

Operating income decreased$26.1 million, or 19.7%, primarily due to:

• $12.9 million decrease in operating income within our Redbox segment primarily due to a $25.3 million decrease in revenue partially offset by a $11.8 million decrease in general and administrative expenses. Product cost for the six months endedJune 30, 2013 would have been $23.8 million higher had the new methodology been in place for the duration of the respective license periods of the titles in the content library as costs would have shifted from prior periods; and

• $14.8 million increase in operating loss within our New Ventures segment, which includes only the continuing operations related to our ecoATM and SAMPLEit concepts, from investments being made to scale the ecoATM business. Our New Ventures segment revenue and expense growth was primarily attributable to the results of ecoATM being included within New Ventures since its acquisition on July 23, 2013; and

• $7.4 million increase in share based expense not allocated to our segments primarily as a result 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; partially offset by

• $23.2 million increase in revenue as described above; and

• $9.0 million increase in operating income within our Coinstar segment.

Income from continuing operations decreased$32.7 million, or 41.7%, primarily due to:

• Decreased operating income as described above;

• Increased interest expense due to increased borrowings:

• Increased loss from equity method investments; and

• Increased income tax expense; partially offset by

• Increased other income.

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Share-Based Payments and Rights to Receive Cash

Our share-based payments consist of share-based compensation granted to executives, non-employee directors and employees and share-based payments granted to movie studios as part of content agreements. We grant stock options, restricted stock and performance-based restricted stock to executives and non-employee directors and restricted stock to our employees. In connection with our acquisition of ecoATM, we also granted certain rights to receive cash. We also granted restricted stock to certain movie studios as part of content agreements with our Redbox segment. The expense associated with the grants to movie studios is allocated to our Redbox segment and included within direct operating expenses. The expenses associated with share-based compensation to our executives, non-employee directors, employees and related to the rights to receive cash issued in connection with our acquisition of ecoATM are part of our shared services support function and are not allocated to our segments. The components of our unallocated share-based compensation expense are presented in the following table.

Unallocated Share-Based Compensation and Rights to Receive Cash Expense

	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
Dollars in thousands	2014		2013		$		%		2014		2013		$		%
Direct operating	$	1,332	$	366	$	966	263.9	%	$	3,311	$	707	$	2,604	368.3	%
Marketing	899		87		812		933.3	%	1,597		154		1,443		NM*
Research and development	1,175		101		1,074		1,063.4	%	1,956		181		1,775		980.7	%
General and administrative	3,598		2,458		1,140		46.4	%	6,708		5,162		1,546		29.9	%
Total	$	7,004	$	3,012	$	3,992	132.5	%	$	13,572	$	6,204	$	7,368	118.8	%

* Not meaningful

Unallocated share-based compensation expense increased$4.0 million, or 132.5% and $7.4 million, or 118.8% during the three and six months endedJune 30, 2014, respectively, due to 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 changes in the fair value of restricted stock awards granted. On June 27, 2014 Sony notified us of their intent to extend our existing content license agreement with them. This will extend the license period through September 30, 2015 and require us to issue 25,000 shares of additional restricted stock to Sony during the third quarter of 2014. This requirement has no impact on the current period amounts shown in the table above. The recognition of expense associated with this requirement will begin in the third quarter of 2014. See Note 11: Share-Based Payments in our Notes to Consolidated Financial Statements for more information.

Segment Results

Our discussion and analysis that follows covers results of operations for our Redbox, Coinstar and New Ventures segments.

We manage our business by evaluating the financial results of our segments, focusing primarily on segment revenue and segment operating income before depreciation, amortization and other and share-based compensation granted to executives, non-employee directors and employees (“segment operating income”). Segment operating income contains internally allocated costs of our shared services support functions, including but not limited to, corporate executive management, business development, sales, customer service, finance, legal, human resources, information technology, and risk management. We also review depreciation and amortization allocated to each segment.

Management utilizes segment revenue and segment operating income to evaluate the health of our business segments and in consideration of allocating resources among our business segments. Specifically, our CEO evaluates segment revenue and segment operating income, and assesses the performance of each business segment based on these measures, as well as, among other things, the prospects of each of the segments and how they fit into our overall strategy. Our CEO then decides how resources should be allocated among our business segments. For example, if a segment’s revenue increases more than expected, our CEO may consider allocating more financial or other resources to that segment in the future. We periodically evaluate our shared services support function’s allocation methods used for segment reporting purposes, which may result in changes to segment allocations in future periods.

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We also review same store sales, which we calculate for our segments on a location basis. Most of our locations have a single kiosk, but in locations with a high-performing kiosk, we may add additional kiosks to drive incremental revenue and provide a broader product offering. Same store sales reflects the change in revenue from locations that have been operating for more than 13 months by the end of the reporting period compared with the same locations in the same period of the prior year. The same store sales metric is not applicable to our ecoATM business because transactions at the kiosk are for product acquisition, not sales.

Detailed financial information about our business segments, including significant customer relationships is provided in Note 15: Business Segments and Enterprise-Wide Informationin our Notes to Consolidated Financial Statements.

Redbox

	Three Months Ended											Six Months Ended
Dollars in thousands, except net revenue per rental amounts	June 30,						Change					June 30,						Change
	2014			2013			$			%		2014			2013			$			%
Revenue	$	445,481		$	478,518		$	(33,037	)	(6.9	)%	$	961,137		$	986,438		$	(25,301	)	(2.6	)%
Expenses:
Direct operating	321,701			323,266			(1,565		)	(0.5	)%	690,305			689,947			358			0.1	%
Marketing	6,180			5,975			205			3.4	%	11,244			12,174			(930		)	(7.6	)%
Research and development	18			—			18			NM**		26			4			22			NM**
General and administrative	34,070			42,084			(8,014		)	(19.0	)%	73,131			84,946			(11,815		)	(13.9	)%
Segment operating income	83,512			107,193			(23,681		)	(22.1	)%	186,431			199,367			(12,936		)	(6.5	)%
Less: depreciation and amortization	(40,158		)	(40,364		)	206			(0.5	)%	(80,721		)	(80,741		)	20			—	%
Operating income	$	43,354		$	66,829		$	(23,475	)	(35.1	)%	$	105,710		$	118,626		$	(12,916	)	(10.9	)%
Operating income as a percentage of revenue	9.7		%	14.0		%						11.0		%	12.0		%
Same store sales growth (decline)	(7.8		)%	(6.8		)%						(3.3		)%	(9.4		)%
Effect on change in revenue from same store sales growth (decline)	$	(37,102	)	$	(30,434	)	$	(6,668	)	21.9	%	$	(32,269	)	$	(89,068	)	$	56,799		(63.8	)%
Ending number of kiosks*	43,900			43,600			300			0.7	%	43,900			43,600			300			0.7	%
Total rentals (in thousands)*	169,322			186,684			(17,362		)	(9.3	)%	369,294			384,227			(14,933		)	(3.9	)%
Net revenue per rental	$	2.63		$	2.56		$	0.07		2.7	%	$	2.60		$	2.56		$	0.04		1.6	%

* Excludes kiosks and the impact of kiosks acquired as part of the 2012 NCR Asset Acquisition which occurred on June 22, 2012. We acquired approximately 6,200 active kiosks. Approximately 1,900 of these kiosks remained in service at December 31, 2012. During the first quarter of 2013, we replaced 100 of these kiosks with Redbox kiosks and we removed but did not replace 1,500 more. As a result, there were approximately 300 of these kiosks still in service at March 31, 2013. During the three months ended June 30, 2013, kiosks acquired as part of the NCR acquisition made a negligible contribution to revenue. During the six months ended June 30, 2013, kiosks acquired as part of the NCR acquisition generated revenue of approximately $2.7 million from 0.8 million rentals.

** Not meaningful

46

The comparable performance of our content library is continually affected by seasonality, the timing of the release slate and the relative attractiveness of titles available for rent in a particular quarter or year which may have lingering effects in subsequent periods. Compared with prior periods when kiosk installations were increasing and helping drive growth, Redbox revenue and other operating results may be more affected by these factors.

Comparing three months ended June 30, 2014 to three months endedJune 30, 2013

Revenue decreased $33.0 million, or 6.9%, primarily due to the following:

• $37.1 million decrease from a 7.8% decrease in same store sales which we believe to be primarily the result of a considerably weaker release schedule in the second quarter of 2014 that resulted in 9.3% fewer rentals in the second quarter of 2014 compared to the second quarter of 2013. The second quarter 2014 total box office (calculated as the total box office of titles with total North American box office receipts of at least $5.0 million) was 37.5% lower than the second quarter of 2013. The impact of the overall weaker releases in the second quarter of 2014 was further compounded by the timing of releases throughout the quarter and the resulting scarcity of strong content available for rent in the final month of the period. 9.5% of the total second quarter 2014 box office was released in June 2014 compared to 35.0% of the total box office for the second quarter of 2013 that was released in June 2013.

• The same store sales decrease was partially offset by $4.1 million in sales from newly installed or relocated kiosks including the replacement of the remaining NCR kiosks.

Net revenue per rental increased $0.07 to $2.63 primarily due to a higher comparable percentage of Blu-ray rentals as a percent of total disc rentals, a 29.1% reduction in promotional dollars as we continued efforts to increase promotional efficiency through customer-specific offerings and continued stabilization in single night rentals. This was partially offset by a shift in the mix of total disc rentals as video game rentals, which have a higher daily rental fee, decreased from 2.1% to 1.8% of total disc rentals. Video game rentals were 22.7% lower in the second quarter of 2014 due to a lighter release slate due primarily to shifts in the video game release schedule. The market shift in the availability of titles is primarily due to the release of the new generation gaming consoles in the fourth quarter of 2013.

While the number of Blu-ray rentals decreased 3.9% from the second quarter of 2013 due to the overall weak content releases in the second quarter of 2014, Blu-ray rentals were 14.1% of total disc rentals in the second quarter of 2014 compared to 13.3% of total disc rentals in the second quarter of 2013. We consider Blu-ray a key focus for future revenue growth as it has a higher revenue and margin dollar per rental and offers consumers a better viewing experience due to superior picture and sound quality compared to other options such as digital streaming and video on demand.

Operating income decreased $23.5 million, or 35.1%, primarily due to:

• $33.0 million decrease in revenue as described above; and

• $1.6 million decrease in direct operating expenses primarily due to:

◦ Product costs increased $4.3 million to $194.7 million resulting in a 3.9% decrease in gross margin from 60.2% for the second quarter of 2013 to 56.3% for the second quarter of 2014. In the second quarter of 2013, we implemented a change to how we amortize our product costs in our content library that was prospectively applied as explained in Note 2: Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements resulting in a $21.7 million benefit which was recorded in the second quarter of 2013 to reflect an increase in the ending value of the Redbox content library as of June 30, 2013. For comparability purposes, product cost for second quarter of 2013 would have been $29.4 million higher had the new methodology been applied retrospectively as costs would have shifted from prior periods into the second quarter of 2013. Gross margin was also impacted due to the performance of the content library as a result of the weak release schedule and was partially offset by benefits from reduced promotional activity and a $1.4 million decrease in studio-related share-based expenses in the second quarter of 2014 primarily due to a lower number of unvested shares on the last day of the calculation period.

◦ The decrease in gross margin was partially offset by lower retailer revenue sharing expenses primarily due to lower revenue, lower payment card processing fees due to fewer rentals and decreases in supply chain expenses due to cost containment measures.

◦ Direct operating expenses as a percent of revenue for the second quarter of 2014 were 72.2% as compared to 67.6% in the prior period not including the comparability impact arising from the change to how we amortize our product costs.

• $8.0 million decrease in general and administrative expenses primarily due to expense reductions attributable to corporate restructuring, lower variable expenses, lower legal fees and general cost containment initiatives.

47

Comparing six months ended June 30, 2014 to six months ended June 30, 2013

Revenue decreased$25.3 million, or 2.6%, primarily due to the following:

• $32.3 million decrease from a 3.3% decrease in same store sales which we believe to be primarily the result of a considerably weaker release schedule in the second quarter of 2014 that resulted in 3.9% fewer rentals in the first six months of 2014 compared to the first six months of 2013. Total box office (calculated as the total box office of titles with total North American box office receipts of at least $5.0 million) was relatively flat when comparing the first six months of 2014 to the first six months of 2013. However, while the first quarter of 2014 total box office was 28.1% higher than the first quarter of 2013, the second quarter 2014 total box office was 37.5% lower than the second quarter of 2013. The impact of the overall weaker releases in the second quarter of 2014 was further compounded by the timing of releases throughout the quarter and the resulting scarcity of strong content available for rent in the final month of the period. 2.6% of the total box office for the first six months of 2014 was released in June 2014 compared to 15.2% of the total box office for the first six months of 2013 that was released in June 2013.

• $2.7 million decrease from 2013 from revenue earned by kiosks acquired from NCR that were subsequently closed and removed from service.

• These decreases were partially offset by $9.7 million in revenue from newly installed or relocated kiosks including the replacement of the remaining NCR kiosks.

Net revenue per rental increased $0.04 to $2.60 primarily due to a higher comparable percentage of Blu-ray rentals as a percent of total disc rentals, a 33.7% reduction in promotional dollars as we continued efforts to increase promotional efficiency through customer-specific offerings and stabilization in single night rentals. This was partially offset by a shift in the mix of total disc rentals as video game rentals, which have a higher daily rental fee, decreased from 2.1% to 1.6% of total disc rentals. Video game rentals were 28.1% lower in the first half of 2014 due to a lighter release slate due primarily to shifts in the video game release schedule. The market shift in the availability of titles is primarily due to the release of the new generation gaming consoles in the fourth quarter of 2013.

While the number of Blu-ray rentals decreased from the second quarter of 2013 due to the overall weak content releases in the second quarter of 2014, the number of Blu-ray rentals increased 11.7% from the first half of 2013 to 14.7% of total disc rentals in the first half of 2014.

Operating income decreased $12.9 million, or 10.9%, primarily due to the following:

• $25.3 million decrease in revenue as described above; and

• $0.4 millionincrease in direct operating expenses primarily due to:

◦ Product costs increased $8.3 million to $422.0 million in the first half of 2014 resulting in a 2.0% decrease in gross margin from 58.1% for the first six months of 2013 to 56.1% for the first six months of 2014. In the second quarter of 2013, we implemented a change to how we amortize our product costs in our content library that was prospectively applied as explained in Note 2: Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements resulting in a $21.7 million benefit which was recorded in the second quarter of 2013 to reflect an increase in the ending value of the Redbox content library as of June 30, 2013. For comparability purposes, product cost for the first half of 2013 would have been $23.8 million higher had the new methodology been applied retrospectively as costs would have shifted from prior periods into the first half of 2013. Gross margin was also impacted due to the performance of the content library as a result of the weak release schedule in the second quarter of 2014 was partially offset by benefits from reduced promotional activity, a $2.4 million decrease in studio-related share-based expenses primarily due to a lower number of unvested shares on the last day of the calculation period and the closing of the underperforming NCR kiosks. The first half of 2013 also benefited from an $11.4 million reduction in a loss contingency that had been previously expensed in 2012.

◦ The decrease in gross margin was partially offset by lower retailer revenue sharing expenses primarily due to lower revenue, lower payment card processing fees due to fewer rentals and general cost containment initiatives.

◦ Direct operating expenses as a percent of revenue for the first six months of 2014 were 71.8% as compared to 69.9% in the prior period not including the comparability impact arising from the change to how we amortize our product costs.

• $11.8 milliondecrease in general and administrative expenses primarily due to expense reductions attributable to corporate restructuring, lower variable expenses, lower legal fees and general cost containment initiatives; and

• $0.9 milliondecrease in marketing costs due to cost containment initiatives and moving from more expensive general awareness marketing campaigns to more efficient title and customer-specific marketing campaigns.

48

Coinstar

	Three Months Ended											Six Months Ended
Dollars in thousands, except average transaction size	June 30,						Change					June 30,						Change
	2014			2013			$			%		2014			2013			$			%
Revenue	$	79,880		$	74,526		$	5,354		7.2	%	$	148,633		$	139,909		$	8,724		6.2	%
Expenses:
Direct operating	40,203			39,801			402			1.0	%	77,926			77,457			469			0.6	%
Marketing	1,557			952			605			63.6	%	2,563			2,005			558			27.8	%
Research and development	153			1,911			(1,758		)	(92.0	)%	422			3,679			(3,257		)	(88.5	)%
General and administrative	7,169			6,439			730			11.3	%	14,189			12,728			1,461			11.5	%
Segment operating income	30,798			25,423			5,375			21.1	%	53,533			44,040			9,493			21.6	%
Less: Depreciation and amortization	(8,921		)	(8,770		)	(151		)	1.7	%	(17,484		)	(16,954		)	(530		)	3.1	%
Operating income	$	21,877		$	16,653		$	5,224		31.4	%	$	36,049		$	27,086		$	8,963		33.1	%
Operating income as a percentage of revenue	27.4		%	22.3		%						24.3		%	19.4		%
Same store sales growth	6.7		%	(1.1		)%						4.9		%	(0.4		)%
Ending number of kiosks	21,200			20,700			500			2.4	%	21,200			20,700			500			2.4	%
Total transactions (in thousands)	18,850			19,667			(817		)	(4.2	)%	35,438			37,054			(1,616		)	(4.4	)%
Average transaction size	$	41.32		$	41.18		$	0.14		0.3	%	$	41.19		$	40.26		$	0.93		2.3	%

Comparing three months ended June 30, 2014 to three months endedJune 30, 2013

Revenue increased $5.4 million, or 7.2%, primarily due to growth of U.S. same store sales, higher volume in the U.K. due to an increased U.K. kiosk base, higher U.K. same store sales and a growth in the number of Coinstar Exchange kiosks. The increase in same store sales in the U.S. was driven by the price increase implemented across all grocery locations in the U.S. effective October 1, 2013. The average coin-to-voucher transaction size continued to increase while overall transactions have declined. The decline in transactions is the result of larger pours and less frequent visits, a decrease in the U.S. kiosk base year over year as a result of optimization efforts, and the impact of the Royal Canadian Mint’s penny reclamation efforts in Canada.

Operating income increased $5.2 million, or 31.4%, primarily due to the following:

• $5.4 million increase in revenue as described above;

• $1.8 million decrease in research and development expenses primarily due to a reduction in kiosk hardware and software engineering efforts for Coinstar and for Coinstar Exchange; partially offset by

• $0.7 million increase in general and administrative expenses primarily due to increased expenses associated with the growth of our Coinstar Exchange business,

• $0.6 million increase in marketing expenses primarily due to media buys for print, online and radio to support the growth of our Coinstar Exchange business,

• $0.4 million increase in direct operating expenses due to increased selling, customer service and kiosk re-manufacturing costs to support higher revenues; and

• $0.2 million increase in depreciation and amortization expense due to higher depreciation expense as a result of continued investment in our technology infrastructure.

49

Comparing six months ended June 30, 2014 to six months ended June 30, 2013

Revenue increased$8.7 million, or 6.2%, primarily due to growth of U.S. same store sales, higher volume in the U.K. due to an increased U.K. kiosk base, higher U.K. same store sales and a growth in the number of Coinstar Exchange kiosks. The increase in same store sales in the U.S. was driven by the price increase implemented across all grocery locations in the U.S. which was effective October 1, 2013. The average coin-to-voucher transaction size continued to increase while overall transactions have declined. The decline in transactions is the result of larger pours and less frequent visits, a decrease in the U.S. kiosk base year over year as a result of optimization efforts, and the impact of the penny reclamation in Canada.

Operating income increased$9.0 million, or 33.1%, primarily due to the following:

• $8.7 million increase in revenue as described above;

• $3.3 million decrease in research and development expenses primarily due to a reduction in kiosk hardware and software engineering efforts for Coinstar and for Coinstar Exchange; partially offset by

• $1.5 million increase in general and administrative expenses primarily due to increased expenses associated with the growth of our Coinstar Exchange business,

• $0.6 million increase in marketing expenses primarily due to media buys for print, online and radio to support the growth of our Coinstar Exchange business,

• $0.5 million increase in direct operating expenses due to increased selling, customer service and kiosk re-manufacturing costs to support higher revenues; and

• $0.5 million increase in depreciation and amortization expense due to higher depreciation expense as a result of continued investment in our technology infrastructure

New Ventures

	Three Months Ended									Six Months Ended
Dollars in thousands	June 30,						Change			June 30,						Change
	2014			2013			$			2014			2013			$
Revenue	$	23,809		$	6		$	23,803		$	39,769		$	10		$	39,759
Expenses:
Direct operating	22,823			517			22,306			39,162			734			38,428
Marketing	1,147			108			1,039			1,976			175			1,801
Research and development	2,066			342			1,724			4,482			797			3,685
General and administrative	4,137			3,313			824			7,937			4,919			3,018
Segment operating loss	(6,364		)	(4,274		)	(2,090		)	(13,788		)	(6,615		)	(7,173		)
Less: depreciation and amortization	(3,948		)	(74		)	(3,874		)	(7,765		)	(110		)	(7,655		)
Operating loss	$	(10,312	)	$	(4,348	)	$	(5,964	)	$	(21,553	)	$	(6,725	)	$	(14,828	)
Ending number of kiosks	1,010			9			1,001			1,010			9			1,001

On July 23, 2013 we completed the acquisition of ecoATM. The primary reason for the business combination was to expand Outerwall’s presence in automated retail and gain exposure to the growing demand for refurbished electronic products and mobile devices. Also during 2013; with the exception of our product sampling kiosk venture, SAMPLEit, and the newly acquired ecoATM; we discontinued all other ventures and reclassified their results of operations to discontinued operations for all periods presented. See Note 13: Discontinued Operations for more information. The New Ventures results of operations presented here represent allocated corporate expenses, the results of SAMPLEit in the three and six months ended June 30, 2013 and the results of ecoATM and SAMPLEit in the three and six months ended June 30, 2014.

50

Comparing three months ended June 30, 2014 to three months endedJune 30, 2013

Revenue increased $23.8 million primarily due to the acquisition of ecoATM as previously described. The key drivers of ecoATM revenue are devices collected per kiosk per day, the percentage of those devices that are non-scrap and the average selling price that ecoATM receives when reselling the devices. In the second quarter of 2014, we continued to see improvement in devices collected per kiosk per day through more competitive pricing and kiosk enhancements, as well as an increase in the percentage of high value devices collected. These two factors, along with our higher installed kiosk base, combined to increase our revenue $7.8 million from the first quarter. As we expand our installed kiosk base, we expect our revenue to grow from these new kiosks, as well as the continued ramping of kiosks installed during the first half of 2014. Additionally, we expect our expenses to increase due to operating these additional kiosks.

Operating loss increased $6.0 million primarily due to the following;

• $22.3 million increase in direct operating expenses mainly due to costs associated with the acquisition, transportation and processing of mobile devices in our ecoATM business, as well as costs for servicing of our kiosks and payments to our retailers for use of their space. As we install additional ecoATM kiosks and our existing kiosks continue to ramp, we expect to leverage the fixed cost portions of our direct operating expenses;

• $3.9 million increase in depreciation and amortization expense from depreciation on our installed kiosks and amortization expense related to certain ecoATM intangible assets acquired as part of the business combination;

• $1.7 million increase in research and development expense primarily at ecoATM due to continued development of our kiosk hardware and software platforms;

• $1.0 million increase in marketing costs mainly due to costs to promote the ecoATM and SAMPLEit kiosks, as well as additional headcount to support our installed kiosk base; and

• $0.8 million increase in general and administrative expense primarily due to higher costs to support the continued growth in our installed kiosk base, as well as expenses related to facilities expansion, human resource programs, the continued implementation and maintenance of our enterprise resource planning system; partially offset by

• $23.8 million increase in revenue described above.

51

Comparing six months ended June 30, 2014 to six months ended June 30, 2013

Revenue increased $39.8 million primarily due to the acquisition of ecoATM as previously described. While there are several drivers that impact ecoATM revenue, the key revenue drivers are devices collected per kiosk per day, the percentage of those devices that are high value devices and the average selling price that ecoATM receives when reselling the devices. In 2014, we continue to see improvement in devices collected per kiosk per day through more competitive pricing and kiosk enhancements, including the software solution we deployed in Q4 2013 to address the locked iPhone issue. As we expand our installed kiosk base, we expect our revenue to grow from these new kiosks, as well as the continued ramping of kiosks installed during the first half of 2014. Additionally, we expect our expenses to increase due to operating these additional kiosks.

Operating loss increased $14.8 million primarily due to the following;

• $38.4 million increase in direct operating expenses mainly due to costs associated with the acquisition, transportation and processing of mobile devices in our ecoATM business, as well as costs for servicing of our kiosks and payments to our retailers for use of their space. As we install additional ecoATM kiosks and our existing kiosks continue to ramp, we expect to leverage the fixed cost portions of our direct operating expenses;

• $7.7 million increase in depreciation and amortization expense from depreciation on our installed kiosks and amortization expense related to certain ecoATM intangible assets acquired as part of the business combination;

• $3.7 million increase in research and development expense mainly at ecoATM due to continued development of our kiosk hardware and software platforms;

• $3.0 million increase in general and administrative expense primarily due to higher costs to support the continued growth in our installed kiosk base, as well as expenses related to facilities expansion, human resource programs, the continued implementation and maintenance of our enterprise resource planning system; and

• $1.8 million increase in marketing costs primarily due to costs to promote the ecoATM and SAMPLEit kiosks, as well as additional headcount to support our installed kiosk base, partially offset by

• $39.8 million increase in revenue described above.

Loss from equity method investments

Comparing three months ended June 30, 2014 to three months endedJune 30, 2013

Loss from equity method investments increased to $10.5 million from $9.6 million primarily due to an increased loss from our investment in Redbox Instant by Verizon.

Additional financial information about our equity method investments is provided inNote 8: Equity Method Investments and Related Party Transactions in our Notes to Consolidated Financial Statements.

Comparing six months ended June 30, 2014 to six months ended June 30, 2013

Loss from equity method investments increased to $19.9 million from $16.7 million primarily due to an increased loss from our investment in Redbox Instant by Verizon.

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Interest Expense, Net

Dollars in thousands	Three Months Ended											Six Months Ended
	June 30,						Change					June 30,						Change
	2014			2013			$			%		2014			2013			$			%
Cash interest expense	$	9,770		$	7,506		$	2,264		30.2	%	$	18,129		$	10,412		$	7,717		74.1	%
Non-cash interest expense:
Amortization of debt discount	753			1,366			(613		)	(44.9	)%	1,555			3,072			(1,517		)	(49.4	)%
Amortization of deferred financing fees	463			457			6			1.3	%	967			975			(8		)	(0.8	)%
Other	—			(81		)	81			(100.0	)%	—			(494		)	494			(100.0	)%
Total non-cash interest expense	1,216			1,742			(526		)	(30.2	)%	2,522			3,553			(1,031		)	(29.0	)%
Total cash and non-cash interest expense	10,986			9,248			1,738			18.8	%	20,651			13,965			6,686			47.9	%
Loss from early extinguishment of debt	1,963			4,011			(2,048		)	(51.1	)%	1,963			5,949			(3,986		)	(67.0	)%
Total interest expense	$	12,949		$	13,259		$	(310	)	(2.3	)%	$	22,614		$	19,914		$	2,700		13.6	%
Interest income	(20		)	(1,241		)	1,221			(98.4	)%	(40		)	(2,363		)	2,323			(98.3	)%
Interest expense, net	12,929			12,018			911			7.6	%	22,574			17,551			5,023			28.6	%

Comparing three months ended June 30, 2014 to three months endedJune 30, 2013

Interest expense, net increased $0.9 million, or 7.6%, primarily due to interest expense from increased borrowing. This was partially offset by a $2.0 million decrease in losses from the early extinguishment or conversion of debt and a $1.2 million decrease in interest income primarily due to the prior period including income from a note receivable which settled in the second half of 2013.

Comparing six months ended June 30, 2014 to six months ended June 30, 2013

Interest expense, net increased $5.0 million, or 28.6%, primarily due to interest expense from increased borrowing and a $2.3 million decrease in interest income primarily due to the prior period including income from a note receivable which settled in the second half of 2013. This was partially offset by a $4.0 million decrease in losses from the early extinguishment or conversion of debt.

See Note 9: Debt and Other Long-Term Liabilities in our Notes to Consolidated Financial Statements for more information.

Income Tax Expense

Our effective tax rate was 20.3% and 5.8% for the three months endedJune 30, 2014 and 2013, respectively, and 30.0% and 19.7% for the six months endedJune 30, 2014 and 2013, respectively. Our effective tax rate in 2014 was lower than the U.S. Federal statutory rate of 35.0% due primarily to a worthless stock deduction and the Domestic Production Activities Deduction, which we are entitled to based on our domestic manufacturing activities, which were recorded net of a contingency reserve, offset partially by state income taxes.  Our effective tax rate in 2013 was lower than the U.S. Federal statutory rate of 35.0% due primarily to a discrete one-time tax benefit of $17.8 million, which is net of a valuation allowance, realized from an arrangement to sell certain NCR kiosks and a series of transactions to recognize Redbox related subsidiary structures through the sale of a wholly owned subsidiary, partially offset by state income taxes. This series of transactions decreased our effective tax rate by 33.3%, and 18.2% for the three and six months ended June 30, 2013, respectively.

53

Non-GAAP Financial Measures

Non-GAAP measures may be provided as a complement to results provided in accordance with United States generally accepted accounting principles (“GAAP”).

We use the following non-GAAP financial measures to evaluate our financial results:

• 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.

These measures, the definitions of which are presented below, are non-GAAP because they exclude certain amounts which are included in the most directly comparable measure calculated and presented in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for our GAAP financial measures and may not be comparable with similarly titled measures of other companies.

Core and Non-Core Results

We distinguish our core activities, those associated with our primary operations which we directly control, from non-core activities. Non-core activities are primarily nonrecurring events or events we do not directly control. Our non-core adjustments for the periods presented include i) restructuring costs associated with actions to reduce costs in our continuing operations primarily through workforce reductions across the Company, ii) acquisition costs primarily related to the acquisition of ecoATM, iii) compensation expense for rights to receive cash issued in conjunction with our acquisition of ecoATM and attributable to post-combination services as they are fixed amount acquisition related awards and not indicative of the directly controllable future business results, iv) income or loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control, and v) tax benefits related to a net operating loss adjustment and the recognition of a worthless stock deduction in a corporate subsidiary ("Non-Core Adjustments").

We believe investors should consider our core results because they are more indicative of our ongoing performance and trends, are more consistent with how management evaluates our operational results and trends, provide meaningful supplemental information to investors through the exclusion of certain expenses which are either non-recurring or may not be indicative of our directly controllable business operating results, allow for greater transparency in assessing our performance, help investors better analyze the results of our business and assist in forecasting future periods.

54

Core Adjusted EBITDA from continuing operations

Our non-GAAP financial measure core adjusted EBITDA from continuing operations is defined as earnings from continuing operations before depreciation, amortization and other; interest expense, net; income taxes; share-based payments expense; and Non-Core Adjustments.

A reconciliation of core adjusted EBITDA from continuing operations to net income from continuing operations, the most comparable GAAP financial measure, is presented in the following table:

	Three Months Ended									Six Months Ended
	June 30,				Change					June 30,				Change
Dollars in thousands	2014		2013		$			%		2014		2013		$			%
Net income from continuing operations	$	21,810	$	50,413	$	(28,603	)	(56.7	)%	$	45,696	$	78,420	$	(32,724	)	(41.7	)%
Depreciation, amortization and other	53,027		49,208		3,819			7.8	%	105,970		97,805		8,165			8.3	%
Interest expense, net	12,929		12,018		911			7.6	%	22,574		17,551		5,023			28.6	%
Income taxes	5,537		3,082		2,455			79.7	%	19,613		19,237		376			2.0	%
Share-based payments expense(1)	3,079		3,843		(764		)	(19.9	)%	6,844		8,680		(1,836		)	(21.2	)%
Adjusted EBITDA from continuing operations	96,382		118,564		(22,182		)	(18.7	)%	200,697		221,693		(20,996		)	(9.5	)%
Non-Core Adjustments:
Restructuring costs	—		—		—			NM*		469		—		469			NM*
Acquisition costs	—		1,666		(1,666		)	(100.0	)%	—		1,666		(1,666		)	(100.0	)%
Rights to receive cash issued in connection with the acquisition of ecoATM	3,338		—		3,338			NM*		6,759		—		6,759			NM*
Loss from equity method investments	10,541		9,629		912			9.5	%	19,909		16,654		3,255			19.5	%
Core adjusted EBITDA from continuing operations	$	110,261	$	129,859	$	(19,598	)	(15.1	)%	$	227,834	$	240,013	$	(12,179	)	(5.1	)%

 *     Not Meaningful

(1) Includes both non-cash share-based compensation for executives, non-employee directors and employees as well as share-based payments for content arrangements.

Comparing three months ended June 30, 2014 to three months endedJune 30, 2013

The decrease in our core adjusted EBITDA from continuing operations was primarily due to decreased segment operating income in our Redbox segment and increased segment operating loss in our New Ventures segment partially offset by increased segment operating income in our Coinstar segment. The other significant components of core adjusted EBITDA from continuing operations have been discussed previously in the Results of Operations section above.

Comparing six months ended June 30, 2014 to six months ended June 30, 2013

The decrease in our core adjusted EBITDA from continuing operations was primarily due to decreased segment operating income in our Redbox segment and increased segment operating loss in our New Ventures segment partially offset by increased segment operating income in our Coinstar segment. The other significant components of core adjusted EBITDA from continuing operations have been discussed previously in the Results of Operations section above.

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Core Diluted EPS from continuing operations

Our non-GAAP financial measure core diluted EPS from continuing operations is defined as diluted earnings per share from continuing operations excluding Non-Core Adjustments, net of applicable taxes.

A reconciliation of core diluted EPS from continuing operations to diluted EPS from continuing operations, the most comparable GAAP financial measure, is presented in the following table:

	Three Months Ended										Six Months Ended
	June 30,					Change					June 30,					Change
	2014			2013		$			%		2014			2013		$			%
Diluted EPS from continuing operations	$	1.08		$	1.77	$	(0.69	)	(39.0	)%	$	2.03		$	2.73	$	(0.70	)	(25.6	)%
Non-Core Adjustments, net of tax:(1)
Restructuring costs	—			—		—			NM*		0.01			—		0.01			NM*
Acquisition costs	—			0.06		(0.06		)	(100.0	)%	—			0.06		(0.06		)	(100.0	)%
Rights to receive cash issued in connection with the acquisition of ecoATM	0.13			—		0.13			NM*		0.23			—		0.23			NM*
Loss from equity method investments	0.32			0.21		0.11			52.4	%	0.53			0.36		0.17			47.2	%
Tax benefit from net operating loss adjustment	—			—		—			NM*		(0.04		)	—		(0.04		)	NM*
Tax benefit of worthless stock deduction	(0.11		)	—		(0.11		)	NM*		(0.10		)	—		(0.10		)	NM*
Core diluted EPS from continuing operations	$	1.42		$	2.04	$	(0.62	)	(30.4	)%	$	2.66		$	3.15	$	(0.49	)	(15.6	)%

 *     Not Meaningful

(1) Non-Core Adjustments are presented after-tax using the applicable effective tax rate for the respective periods.

Free Cash Flow

Our non-GAAP financial measure free cash flow is defined as net cash provided by operating activities after capital expenditures. We believe free cash flow is an important non-GAAP measure as it provides additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our securities. A reconciliation of free cash flow to net cash provided by operating activities, the most comparable GAAP financial measure, is presented in the following table:

	Three Months Ended										Six Months Ended
	June 30,						Change				June 30,						Change
Dollars in thousands	2014			2013			$		%		2014			2013			$		%
Net cash provided by operating activities	$	62,833		$	30,174		$	32,659	108.2	%	$	157,420		$	86,178		$	71,242	82.7	%
Purchase of property and equipment	(26,076		)	(36,111		)	10,035		(27.8	)%	(53,016		)	(84,244		)	31,228		(37.1	)%
Free cash flow	$	36,757		$	(5,937	)	$	42,694	719.1	%	$	104,404		$	1,934		$	102,470	5,298.3	%

An analysis of our net cash from operating activities and used in investing and financing activities is provided below.

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Net Debt and Net Leverage Ratio

Our non-GAAP financial measure net debt is defined as the total face value of outstanding debt, including capital leases, less cash and cash equivalents held in financial institutions domestically. Our non-GAAP financial measure net leverage ratio is defined as net debt divided by core adjusted EBITDA from continuing operations for the last twelve months (LTM). We believe net debt and net leverage ratio are important non-GAAP measures because they:

• 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.

A reconciliation of net debt to total outstanding debt including capital leases, the most comparable GAAP financial measure, is presented in the following table:

	June 30, 2014			December 31, 2013			Change
Dollars in thousands							$			%
Senior unsecured notes(1)	$	650,000		$	350,000		$	300,000		85.7	%
Term loans(1)	150,000			344,375			(194,375		)	(56.4	)%
Revolving line of credit	165,000			—			165,000			NM*
Convertible debt(2)	33,424			51,148			(17,724		)	(34.7	)%
Capital leases	19,778			21,361			(1,583		)	(7.4	)%
Total principal value of outstanding debt including capital leases	1,018,202			766,884			251,318			32.8	%
Less domestic cash and cash equivalents held in financial institutions	(58,779		)	(199,027		)	140,248			(70.5	)%
Net debt	959,423			567,857			391,566			69.0	%
LTM Core adjusted EBITDA from continuing operations(3)	$	479,473		$	491,652		$	(12,179	)	(2.5	)%
Net leverage ratio	2.00			1.15

*     Not Meaningful

(1) The senior unsecured notes on our Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 included $9.3 million and $5.3 million in associated debt discount, respectively. The Term loan on our Consolidated Balance Sheets as of June 30, 2014 included $0.4 million in associated debt discount. There was no associated debt discount with the Term loans as of December 31, 2013.

(2) The convertible debt balance on our Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 included $0.2 million and $1.4 million, respectively, in associated debt discount.

(3) LTM Core Adjusted EBITDA from continuing operations for the twelve months ended June 30, 2014 and December 31, 2013 was determined as follows:

Dollars in thousands
Core adjusted EBITDA from continuing operations for the six months ended June 30, 2014	$	227,834
Add: Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2013(A)	491,652
Less: Core adjusted EBITDA from continuing operations for the six months ended June 30, 2013	(240,013		)
LTM Core adjusted EBITDA from continuing operations for the twelve months ended June 30, 2014	$	479,473

(A) Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2013 is obtained from our Annual Report on Form 10-K for the period ended December 31, 2013, where it is reconciled to net income from continuing operations, the most comparable GAAP financial measure, and represents the LTM core adjusted EBITDA from continuing operations we use in our calculation of net leverage ratio as of December 31, 2013.

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Liquidity and Capital Resources

We believe our existing cash, cash equivalents and amounts available to us under our Credit Facility will be sufficient to fund our cash requirements and capital expenditure needs for at least the next 12 months. After that time, the extent of additional financing needed, if any, will depend on the success of our business. If we significantly increase kiosk installations beyond planned levels or if our Redbox, Coinstar or New Venture kiosks generate lower than anticipated revenue or operating results, then our cash needs may increase. Furthermore, our future capital requirements will depend on a number of factors, including consumer use of our services, the timing and number of machine installations, the number of available installable kiosks, the type and scope of service enhancements, the cost of developing potential new product service offerings, and enhancements, and cash required to fund potential future acquisitions, investment or capital returns to shareholders such as through share repurchases. We intend to continually explore ways to enhance our capital structure, including through potential debt issuances, which we may use to add cash to our balance sheet, for general corporate purposes or to fund repayment of our existing debt.

The following is an analysis of our year-to-date cash flows:

Net Cash from Operating Activities

Our net cash from operating activities increased by $71.2 million primarily due to the following:

• $71.4 million increase in net cash inflows from changes in working capital primarily due to changes in content library, prepaid expenses, and other current assets, including a cash tax refund in the amount of $24.0 million received in January 2014, other accrued liabilities, and accrued payables to retailers; and

• $24.5 million decrease in net income to $44.9 million as discussed in the Consolidated Results section above:

• $24.4 million increase in net non-cash expenses included in net income primarily due to a $21.9 million decrease in change in deferred taxes.

Net Cash used in Investing Activities

We used $61.7 million of net cash in our investing activities primarily due to:

• $53.0 million used for purchases of property and equipment for kiosks and corporate infrastructure, including information technology primarily related to our Enterprise Resource Planning implementation; and

• $10.5 million used for capital contributions to our Redbox Instant by Verizon Joint Venture.

Net Cash used in Financing Activities

We used $234.3 million of net cash from our financing activities primarily due to:

• $534.4 million used for repayments of our Credit Facility;

• $474.5 million used to repurchase our common stock;

• $17.7 million used to repurchase convertible debt

• $7.1 million used to pay capital lease obligations and other debt; partially offset by

• $505.0 million from borrowings from our Credit Facility primarily to fund share repurchases; and

• $295.5 million from issuance of our senior unsecured notes due 2021.

Cash and Cash Equivalents

A portion of our business involves collecting and processing large volumes of cash, most of it in the form of coins. As of June 30, 2014, our cash and cash equivalent balance was $233.2 million, of which $91.9 million was identified for settling our payable to the retailer partners in relation to our Coinstar kiosks. The remaining balance of our cash and cash equivalents was available for use to support our liquidity needs.

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Debt

Debt comprises the following:

	Senior Notes						Credit Facility					Convertible Notes			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, 2014:
Principal	$	350,000		$	300,000		$	150,000		$	165,000	$	33,424		$	998,424
Discount	(4,806		)	(4,473		)	(373		)	—		(181		)	(9,833		)
Total	345,194			295,527			149,627			$	165,000	33,243			988,591
Less: current portion	—			—			(7,500		)	—		(33,243		)	(40,743		)
Total long-term portion	$	345,194		$	295,527		$	142,127		$	165,000	$	—		$	947,848

Senior Unsecured Notes Due 2019

On March 12, 2013, we and certain subsidiaries of ours, as subsidiary guarantors (the “Subsidiary Guarantors”), entered into an indenture pursuant to which we issued $350.0 million principal amount of 6.000% Senior Notes due 2019 (the “Senior Notes due 2019”) at par for proceeds, net of expenses, of $343.8 million. As of June 30, 2014, we were in compliance with the covenants of the related indenture. A more detailed description of the Senior Notes due 2019 can be found in our 2013 Annual Report on Form 10-K.

Senior Unsecured Notes Due 2021

On June 9, 2014, we and certain subsidiaries of ours, as subsidiary guarantors, entered into an indenture pursuant to which we issued $300.0 million principal amount of 5.875% Senior Notes due 2021 (the "Senior Notes due 2021") at par for proceeds, net of expenses, of $294.0 million and the Subsidiary Guarantors agreed to guarantee the Senior Notes due 2021. The Senior Notes due 2021 and related guarantees:

• are general unsecured obligations and are effectively subordinated to all of our and our Subsidiary Guarantors’ existing and future secured debt to the extent of the collateral securing that secured debt, and

• will rank equally to all of our and our Subsidiary Guarantors’ other unsecured and unsubordinated indebtedness.

In addition, the Senior Notes due 2021

• will be effectively subordinated to all of the liabilities of our existing and future subsidiaries that are not guaranteeing the Senior Notes due 2021,

• require interest payable on June 15 and December 15 of each year, beginning on December 15, 2014, and

• mature on June 15, 2021.

We may redeem any of the Senior Notes due 2021:

• beginning on June 15, 2017 at a redemption price of 104.406% of their principal amount plus accrued and unpaid interest and additional interest, if any; then

• the redemption price will be 102.938% of their principal amount plus accrued and unpaid interest and additional interest, if any, for the twelve-month period beginning June 15, 2018; then

• the redemption price will be 101.469% of their principal amount plus accrued and unpaid interest and additional interest, if any, for the twelve-month period beginning June 15, 2019; and then

• the redemption price will be 100% of their principal amount plus accrued interest and unpaid interest and additional interest, if any, beginning on June 15, 2020.

• We may also redeem some or all of the notes before June 15, 2017 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest and additional interest, if any, to the redemption date, plus an applicable “make-whole” premium.

• In addition, before June 15, 2017, we may redeem up to 35% of the aggregate principal amount with the proceeds of certain equity offerings at 105.875% of their principal amount plus accrued and unpaid interest and additional interest, if any; we may make such redemption only if, after any such redemption, at least 65% of the aggregate principal amount originally issued remains outstanding.

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Upon a change of control as defined in the indenture related to the Senior Notes due 2021, we will be required to make an offer to purchase the Senior Notes due 2021 or any portion thereof. That purchase price will equal 101% of the principal amount of the Senior Notes due 2021 on the date of purchase plus accrued and unpaid interest and additional interest, if any. If we make certain asset sales and do not reinvest the proceeds or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the Senior Notes due 2021 at 100% of their principal amount, together with accrued and unpaid interest and additional interest, if any, to the date of purchase.

The terms of the Senior Notes due 2021 restrict our ability and the ability of certain of its subsidiaries to, among other things: incur additional indebtedness; create liens; pay dividends or make distributions in respect of capital stock; purchase or redeem capital stock; make investments or certain other restricted payments; sell assets; enter into transactions with stockholders or affiliates; or effect a consolidation or merger. However, these and other limitations set forth in the related indenture will be subject to a number of important qualifications and exceptions.

The indenture related to the Senior Notes due 2021 provides for customary events of default which include (subject in certain cases to grace and cure periods), among others: nonpayment of principal or interest or premium; breach of covenants or other agreements in the indenture; defaults in failure to pay certain other indebtedness; the failure to pay certain final judgments; the invalidity of certain of the Subsidiary Guarantors’ guarantees; and certain events of bankruptcy, insolvency or reorganization. Generally, if an event of default occurs and is continuing under the indenture, either the trustee or the holders of at least 25% in aggregate principal amount then outstanding may declare the principal amount plus accrued and unpaid interest to be immediately due and payable. As of June 30, 2014, we were in compliance with the covenants of the related indenture.

In connection with the issuance of the Senior Notes due 2021 and related guarantees, we agreed to register the Senior Notes due 2021 and related guarantees under the Securities Act of 1933, as amended (the “Securities Act”) so as to allow holders of the Senior Notes due 2021 and related guarantees to exchange the Senior Notes due 2021 and the related guarantees for the same principal amount of a new issue of Senior Notes due 2021 and related guarantees (collectively, the “Exchange Notes”) with substantially identical terms, except that the Exchange Notes will generally be freely transferable under the Securities Act. If we fail to comply with these obligations on time (a “registration default”), we generally will be required to pay additional interest at a rate of 0.25% per annum for the first 90-day period following a registration default and an additional 0.25% per annum for each subsequent 90-day period that such additional interest continues to accrue (provided that such rate may not exceed 1.00% per annum).

Revolving Line of Credit and Term Loan

On June 24, 2014, we entered into the Third Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) providing for a senior secured credit facility (the "New Credit Facility"). The Amended and Restated Credit Agreement amended and restated in its entirety the Second Amended and Restated Credit Agreement dated as of November 20, 2007 and amended and restated as of April 29, 2009 and as of July 15, 2011 and all amendments and restatements thereto (the “Previous Credit Agreement”). The credit facility provided under the Previous Credit Agreement was replaced by the New Credit Facility. As a result of this refinancing activity, in the six months ended June 30, 2014, we recorded a loss on the extinguishment of the Previous Credit Facility of $1.7 million for certain previously capitalized and unamortized debt issuance costs. The loss on extinguishment is recorded within Interest expense, net in our Consolidated Statements of Comprehensive Income.

The New Credit Facility consists of (a) a $150.0 million amortizing term loan (the “Term Loan”) and (b) a $600.0 million revolving line of credit (the “Revolving Line”), which includes (i) a $75.0 million sublimit for the issuance of letters of credit, (ii) a $50.0 million sublimit for swingline loans and (iii) a $75.0 million sublimit for loans in certain foreign currencies available to us and certain wholly owned Company foreign subsidiaries (the “Foreign Borrowers”). We may, subject to applicable conditions and subject to obtaining commitments from lenders, request an increase in the Revolving Line of up to $200.0 million in aggregate (the “Accordion”).

We (or the Foreign Borrowers, if applicable), subject to applicable conditions, may generally elect interest rates on the Term Loan and Revolving Line calculated by reference to (a) LIBOR (“London Interbank Offered Rate”) (or the Canadian Dealer Offered Rate, in the case of loans denominated in Canadian Dollars or, if LIBOR is not available for a foreign currency, such other interest rate customarily used by Bank of America for such foreign currency) for given interest periods (the “LIBOR/Eurocurrency Rate”) or (b) on loans in U.S. Dollars made to us, Bank of America’s prime rate (or, if greater, (i) the average rate on overnight federal funds plus 0.50% or (ii) the daily floating one month LIBOR plus 1%) (the “Base Rate”), plus a margin determined by our consolidated net leverage ratio. For swingline borrowings, we will pay interest at the Base Rate, plus a margin determined by our consolidated net leverage ratio. For borrowings made with the LIBOR/Eurocurrency Rate, the margin ranges from 125 to 200 basis points, while for borrowings made with the Base Rate, the margin ranges from 25 to 100 basis points.

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The Amended and Restated Credit Agreement requires quarterly principal amortization payments under the Term Loan as follows:

Year	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
2014						$	1,875	$	1,875
2015	$	1,875	$	1,875		$	2,813	$	2,813
2016	$	2,813	$	2,813		$	3,750	$	3,750
2017	$	3,750	$	3,750		$	3,750	$	3,750
2018	$	3,750	$	3,750		$	5,625	$	5,625
2019	$	5,625	$	84,373	(1)

⁽¹⁾ Any remaining principal balance is due and payable in full on June 24, 2019

The Revolving Line also matures on June 24, 2019, at which time all outstanding borrowings must be repaid and all outstanding letters of credit must have been terminated or cash collateralized. The maturity date of the borrowings under the New Credit Facility may be accelerated to December 18, 2018 if our senior unsecured notes due 2019 remain outstanding on or after such date. We may prepay amounts borrowed under the Term Loan without premium or penalty (other than breakage costs in the case of borrowings made with the LIBOR/Eurocurrency Rate), but amounts prepaid may not be re-borrowed.

The Amended and Restated Credit Agreement contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross defaults to certain other indebtedness, and events constituting a change of control. The occurrence of an event of default will increase the applicable rate of interest and could result in the acceleration of our obligations under the New Credit Facilities and the obligations of any or all of the Guarantors to pay the full amount of our (or any Foreign Borrower’s) obligations under the New Credit Facility.

The Amended and Restated Credit Agreement contains certain loan covenants, including, among others, financial covenants providing for a maximum consolidated net leverage ratio (i.e., consolidated total debt (net of certain cash and cash equivalents held by us and our domestic subsidiaries) to consolidated EBITDA) and a minimum consolidated interest coverage ratio, and limitations on our ability with regard to the incurrence of debt, the existence of liens, capital expenditures, stock repurchases and dividends, investments, and mergers, dispositions and acquisitions. Our obligations under the New Credit Facility are guaranteed by each of our direct and indirect U.S. subsidiaries (collectively, the “Guarantors”), and if any Foreign Borrower is added to the New Credit Facility, the Foreign Borrower’s obligations will be guaranteed by us and each of the Guarantors. As of June 30, 2014, the interest rate on amounts outstanding under the Credit Facility was 2.17% and we were in compliance with the covenants of the Credit Facility.

Convertible Debt

The aggregate outstanding principal of our 4.0% Convertible Senior Notes (the “Convertible Notes”) was $33.4 million and $51.1 million at June 30, 2014 and December 31, 2013, respectively. The Convertible Notes bear interest at a fixed rate of 4.0% per annum, payable semi-annually in arrears on each March 1 and September 1, and mature on September 1, 2014. The effective interest rate at issuance was 8.5%. As of June 30, 2014, we were in compliance with all covenants.

The Convertible Notes were convertible as of June 30, 2014 and December 31, 2013 and the debt conversion feature was classified as temporary equity on our Consolidated Balance Sheets. Convertible Note holders may elect to convert through August 29, 2014. Should the holders elect to convert, we will be required to pay them up to the full face value of the Convertible Notes in cash as well as deliver shares of our common stock for any excess conversion value. The number of potentially issued shares increases as the market price of our common stock increases. In the six months ended June 30, 2014, we retired a combined 17,724 Convertible Notes or $17.7 million in face value of Convertible Notes, through the note holders electing to convert, for $17.7 million in cash and the issuance of 182,816 shares of common stock. The amount by which the total consideration including cash paid and value of the shares issued exceeds the fair value of the Convertible Notes is recorded as a reduction of stockholders’ equity. The loss from early extinguishment of these Convertible Notes was approximately $0.2 million and is recorded in interest expense in our Consolidated Statements of Comprehensive Income.

Letters of Credit

As of June 30, 2014, we had six irrevocable standby letters of credit that totaled $8.6 million. These standby letters of credit, which expire at various times through May 2015, are used to collateralize certain obligations to third parties. As of June 30, 2014, no amounts were outstanding under these standby letter of credit agreements.

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Other Contingencies

During the three months ended March 31, 2013, we resolved a previously disclosed loss contingency related to a supply agreement and recorded a benefit of $11.4 million in the direct operating line item in our Consolidated Statements of Comprehensive Income.

Contractual Payment Obligations

As of June 30, 2014, other than the following, there have been no material changes during the period covered by this report to our contractual obligations specified in the table of contractual obligations included in our 2013 Form 10-K:

On June 27, 2014 Sony notified us of their intent to extend our existing content license agreement with them. This will extend the license period through September 30, 2015 and require us to issue 25,000 shares of additional restricted stock to Sony during the third quarter of 2014. See Note 11: Share-Based Payments for more information about our share-based payments for content arrangements. As of June 30, 2014, after accounting for this extension, our commitment to purchase content from Sony was approximately $203.3 million.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements have been prepared in accordance with US GAAP. Preparation of these statements requires management to make judgments and estimates. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the present circumstances. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our 2013 Form 10-K at Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In the second quarter of 2013, we updated our methodology for amortizing our Redbox content library. The amortization charges are still recorded on an accelerated basis and substantially all of the amortization expense is recognized within one year of purchase. Our updated methodology is more precise in the utilization of our rental curves, which incorporate thinning estimates in amortizing content costs. We update our rental curves on a quarterly basis to better reflect changes in these rental curves prospectively. See Note 2: Summary of Significant Accounting Policiesin our Notes to Consolidated Financial Statements.

The preceding explanation of the updated in amortization methodology for our Redbox content library is included here because it impacts the comparability of first quarter 2014 and 2013 results of operations. There have been no material changes to the critical accounting policies previously disclosed in our 2013 Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our reported market risks and risk management policies since the filing of our 2013 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report and has determined that such disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

We also maintain a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). No changes in our internal control over financial reporting occurred during the year-to-date period ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In October 2009, an Illinois resident, Laurie Piechur, individually and on behalf of all others similarly situated, filed a putative class action complaint against our Redbox subsidiary in the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois. The plaintiff alleged that, among other things, Redbox charges consumers illegal and excessive late fees in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and that Redbox's rental terms violate the Illinois Rental Purchase Agreement Act or the Illinois Automatic Contract Renewal Act and the plaintiff is seeking monetary damages and other relief. In November 2009, Redbox removed the case to the U.S. District Court for the Southern District of Illinois. In February 2010, the District Court remanded the case to the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois. In May 2010, the court denied Redbox's motion to dismiss the plaintiff's complaint. In November 2011, the plaintiff moved for class certification, and Redbox moved for summary judgment. The court denied Redbox's motion for summary judgment in February 2012. The plaintiff filed an amended complaint on April 19, 2012, and an amended motion for class certification on June 5, 2012. The court denied Redbox's motion to dismiss the amended complaint. The amended class certification motion was briefed and argued. At the hearing on plaintiff's amended motion for class certification, the plaintiff dismissed all claims but two and is pursuing only her claims under the Illinois Rental Purchase Agreement Act and the Illinois Automatic Contract Renewal Act. On May 21, 2013, the court denied plaintiff's amended class action motion. On January 29, 2014, the Illinois Supreme Court denied plaintiff’s petition for leave to appeal the trial court’s denial of class certification. Redbox has moved to dismiss all remaining claims on mootness grounds. The motion is fully briefed.  The parties are waiting for the court to schedule a date for argument of the motion. We believe that the claims against us are without merit and intend to defend ourselves vigorously in this matter. Currently, no accrual has been established as it was not possible to estimate the possible loss or range of loss because this matter had not advanced to a stage where we could make any such estimate.

In March 2011, a California resident, Blake Boesky, individually and on behalf of all others similarly situated, filed a putative class action complaint against our Redbox subsidiary in the U.S. District Court for the Northern District of Illinois. The plaintiff alleges that Redbox retains personally identifiable information of consumers for a time period in excess of that allowed under the Video Privacy Protection Act, 18 U.S.C. §§ 2710, et seq. A substantially similar complaint was filed in the same court in March 2011 by an Illinois resident, Kevin Sterk. Since the filing of the complaint, Blake Boesky has been replaced by a different named plaintiff, Jiah Chung, and an amended complaint has been filed alleging disclosures of personally identifiable information, in addition to plaintiffs' claims of retention of such information. Plaintiffs are seeking statutory damages, injunctive relief, attorneys' fees, costs of suit, and interest. The court has consolidated the cases. The court denied Redbox's motion to dismiss the plaintiffs' claims upon interlocutory appeal. The U.S. Court of Appeals for the Seventh Circuit reversed the district court's denial of Redbox's motion to dismiss plaintiff's claims involving retention of information, holding that the plaintiffs could not maintain a suit for damages under this theory. On April 25, 2012, the plaintiffs amended their complaint to add claims under the Stored Communications Act, 18 U.S.C. § 2707, and for breach of contract. On May 9, 2012, Redbox moved to dismiss the amended complaint. On July 23, 2012, the court dismissed the added retention claims, except to the extent that plaintiffs seek injunctive, non-monetary relief. On August 16, 2013, the court granted summary judgment in Redbox's favor on all remaining claims, and entered a final judgment for Redbox. On September 16, 2013, plaintiff filed a notice of appeal. The appeal was fully briefed as of July 1, 2014.  The appellate court has not scheduled a date for argument. We believe that the claims against us are without merit and intend to defend ourselves vigorously in this matter. Currently, no accrual has been established as it is not possible to estimate the possible loss or range of loss because this matter had not advanced to a stage where we could make any such estimate.

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In February 2011, a California resident, Michael Mehrens, individually and on behalf of all others similarly situated, filed a putative class action complaint against our Redbox subsidiary in the Superior Court of the State of California, County of Los Angeles. The plaintiff alleges that, among other things, Redbox violated California's Song-Beverly Credit Card Act of 1971 (“Song-Beverly”) with respect to the collection and recording of consumer personal identification information, and violated the California Business and Professions Code § 17200 based on the alleged violation of Song-Beverly. A similar complaint alleging violations of Song-Beverly and the right to privacy generally was filed in March 2011 in the Superior Court of the State of California, County of Alameda, by a California resident, John Sinibaldi. A third similar complaint alleging only a violation of Song-Beverly, was filed in March 2011 in the Superior Court of the State of California, County of San Diego, by a California resident, Richard Schiff. Plaintiffs are seeking compensatory damages and civil penalties, injunctive relief, attorneys' fees, costs of suit, and interest. Redbox removed the Mehrens case to the U.S. District Court for the Central District of California, the Sinibaldi case to the U.S. District Court for the Northern District of California, and the Schiff case to the U.S. District Court for the Southern District of California. The Sinibaldi case was subsequently transferred to the U.S. District Court for the Central District of California, where the Mehrens case is pending, and these two cases have been consolidated. At the same time, the plaintiffs substituted Nicolle DiSimone as the named plaintiff in the Mehrens case. After Redbox filed a motion to dismiss, stay, or transfer, the Schiff case was transferred to the U.S. District Court for the Central District of California. On January 4, 2013, the Court dismissed with prejudice the Schiff case for failure to prosecute and failure to comply with court rules and orders. Redbox moved to dismiss the DiSimone/Sinibaldi case, and DiSimone/Sinibaldi moved for class certification. In January 2012, the Court granted Redbox's motion to dismiss with prejudice and denied DiSimone/Sinibaldi's motion for class certification as moot. On February 2, 2012, Plaintiffs filed their notice of appeal. On June 6, 2014, the appellate court affirmed the dismissal of the case against Redbox. The deadline for filing a petition for certiorari is September 4, 2014. We believe that the claims against us are without merit and intend to defend ourselves vigorously in this matter. Currently, no accrual has been established as it is not possible to estimate the possible loss or range of loss because this matter had not advanced to a stage where we could make any such estimate.

ITEM 1A. RISK FACTORS

You should carefully consider the following risk factors that may affect our business, including our financial condition and results of operations. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business. If any of the following risks or uncertainties actually occur, our business could be harmed, the trading price of our common stock could decline and you could lose all or part of your investment in us.

Risks Related to Competition, Evolving Technologies and Consumer Preferences in Our Industry

Competitive pressures could seriously harm our business, financial condition and results of operations.

Our Redbox business faces competition from many other providers, including those using other distribution channels, having more experience, greater or more appealing inventory, better financing, and better relationships with those in the movie and video game industries, than we have, including:

• mail-delivery and online content providers, like Netflix, iTunes or Amazon;

• cable, satellite, and telecommunications providers, like Comcast or DISH Network;

• traditional movie programmers, like HBO or Showtime;

• traditional brick and mortar video retailers, and other DVD kiosk businesses;

• other retailers like Walmart and other chain stores selling DVDs and video games;

• other forms of video game rental providers, like GameFly;

• noncommercial sources like libraries; and;

• general competition from other forms of entertainment, such as movie theaters, television and sporting events.

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Our Coinstar business faces competition from supermarkets, banks and other companies that purchase and operate coin-counting equipment from companies such as ScanCoin, Cummins-Allison Corporation and others. Our retailers may choose to replace our coin-counting kiosks with competitor machines and operate such kiosks themselves or through a third party, or not carry coin-counting kiosks at all deciding that floor space could be used for other purposes. In addition, retailers, some of which have significantly more resources than we do, may decide to enter the coin-counting market. Some banks and other competitors already provide coin-counting free of charge or for an amount that yields very low margins or that may not generate a profit at all. An expansion of the coin-counting services provided or a reduction in related fees charged by any of these competitors or retailer decisions to use floor space for other than coin-counting, could materially and adversely affect our business and results of operations.

Our ecoATM business faces competition from companies whose primary business consists of the purchase of used electronics, including online retailers and web sites such as Gazelle, as well as brick and mortar stores which buy back used electronics. The business also faces competition from companies in other businesses who also have buyback programs, such as GameStop, Best Buy, Target, Apple, AT&T, Verizon and Sprint. These competitors may have significantly more resources than we do or offer their customers a higher price or more convenient offering than we do for the same item. Both the proliferation of such programs and the perceived value to consumers provided by such programs could materially and adversely affect our business and results of operations.

In addition, the nature and extent of consolidations and bankruptcies, which often occur during or as a result of economic downturns, in markets where we install our kiosks, particularly the supermarket and other retailing industries, could adversely affect our operations, including our competitive position, as the number of installations and potential retail users of our kiosks could be significantly reduced. See the risk factor below entitled, “-Events outside of our control, including the current economic environment, have negatively affected, and could continue to negatively affect, consumers’ use of our products and services.”

There are many risks related to our Redbox business that may negatively impact our business.

The home video industry is highly competitive with many factors affecting our ability to profitably manage our Redbox business. We have invested, and plan to continue to invest, substantially to establish and maintain our infrastructure of Redbox kiosks in the U.S. and Canada. Because we have now substantially completed our U.S. build-out of Redbox kiosks, future growth of our Redbox business in the U.S. will depend substantially upon growth in same store sales. As a result, we expect our Redbox business to grow more slowly in the future, compared with our historical experience. In addition, the home video distribution market is rapidly evolving as newer technologies and distribution channels compete for market share, and demand for physical distribution of movies will likely decrease over the long-term. If it does, our business, operating results and financial condition could be materially and adversely affected. Some of the risks that could negatively impact our participation in this industry include:

• Changes in consumer content delivery preferences, including increased use of digital video recorders, pay-per-view delivered by cable or satellite providers and similar technologies, digital downloads, online streaming, portable devices, and other mediums, video-on-demand, subscription video-on-demand, disposable or download-to-burn DVDs, DVDs with enhanced picture, sound quality or bonus content, or less demand for high volume of new movie content due to such things as larger home DVD and downloaded movie libraries;

• Increased availability of digital movie content inventory through digital video recorders, pay-per-view delivered by cable or satellite providers and similar technologies, online streaming, digital downloads, portable devices, digital lockers, and other mediums;

• Decreased quantity and quality of movie content availability for DVD distribution due to changes in quantity of new releases by studios, movie content failing to appeal to consumers’ tastes, increased focus on digital sales, and other general industry-related factors, including financial disruptions, and labor conflicts;

• Due to arrangements with certain studios that provide content on a delayed basis, the availability of some new releases in our kiosks may shift to times when consumers are relatively less likely to rent movies, or may be in genres that are off seasonally, such as a holiday movie unavailable until January; and

• Decreased costs for consumers to purchase or receive movie content, including less expensive DVDs, more aggressive competitor pricing strategies and piracy.

Adverse developments relating to any of these risks, as well as others relating to our participation in the home video industry, could significantly affect our business, financial condition and operating results.

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Risks Related to the Business

The termination, non-renewal or renegotiation on materially adverse terms of our contracts or relationships with one or more of our significant retailers, studios or game publishers could seriously harm our business, financial condition and results of operations.

The success of our business depends in large part on our ability to maintain contractual relationships with our partners in profitable locations. Certain contract provisions with our partners vary, including product and service offerings, the service fees we are committed to pay, and the ability to cancel the contract upon notice after a certain period of time. For Redbox and Coinstar, we typically enter multi-year kiosk installation agreements that automatically renew until we or the retailer gives notice of termination. Our typical ecoATM agreements with mall operators allow the operators to terminate for convenience with minimal notice. We strive to provide direct and indirect benefits to our partners that are superior to, or competitive with, other providers or systems or alternative uses of the floor space that our kiosks occupy. If we are unable to provide them with adequate benefits, we may be unable to maintain or renew our contractual relationships on acceptable terms, causing our business, financial condition and results of operations to suffer.

We do a substantial amount of our business with certain retailers. For example, we have significant relationships with Wal-Mart Stores, Inc., Walgreen Co., and The Kroger Company, which accounted for approximately 15.3%, 14.6%, and 10.0% of our consolidated revenue from continuing operations, respectively, during 2013. In addition, our ecoATM business is largely concentrated within the largest mall operators in the United States. Although we have had, and expect to continue to have, a successful relationship with these partners, changes to these relationships will continue to occur both in the long and short-term, some of which could adversely affect our business and reputation. For example, our Coinstar and Redbox relationship with Walmart is governed by contracts that provide either party the right to terminate the contracts in their entirety, or as to any store serviced by the contracts, with or without cause, on as little as 90 days’ notice. Cancellation, adverse renegotiation of or other changes to these relationships could seriously harm our business and reputation.

Our business also depends on our ability to obtain adequate content from movie studios and video game publishers. We have entered into licensing agreements with certain studios to provide delivery of their DVDs by the “street date,” the first date on which DVD releases are available to the general public for home entertainment purposes on either a rental or sell-through basis. In addition, we have licensing arrangements with other studios that make DVDs available for rent 28 days after the street date. If we are unable to maintain or renew our current relationships to obtain movie or video game content on acceptable terms, our business, financial condition and results of operations may suffer.

Our inability to receive delivery of DVDs on the date of their initial release to the general public, or shortly thereafter, for home entertainment viewing could adversely affect our Redbox business.

Traditionally, businesses that rented movies in physical formats, such as DVDs, had enjoyed a competitive advantage over other movie distribution rental channels. After the initial theatrical release of a movie, the major studios generally had made their movies available on physical formats for a 30- to 45-day release window before release to other movie distribution rental channels, such as pay-per view, video-on-demand, premium television, basic cable, and network and syndicated television.

However, in recent years, certain movie studios have changed or are changing and other movie studios could change their practices, including shortening or discontinuing altogether, or otherwise restricting, movie distribution windows, including making video-on-demand or other digital delivery methods available prior to or simultaneous with the physical DVD release. For example, certain movie studios have made new release titles available on video-on-demand or for online purchase on the same date as the DVD release, and certain movies have been made available via premium video-on-demand while they are still in theaters. Further, some studios have implemented restrictions on renting DVDs for weeks following the initial release of the same title for purchase. For example, Redbox has entered into arrangements with certain studios that include delayed rental windows. Entering into these studio licensing arrangements that contain a delayed rental window may decrease consumer satisfaction and consumer demand, and we may lose consumers to our competitors that offer DVD titles without a delayed rental window. In addition, studios may seek to impose longer delays, or studios that currently provide content on street date may seek similar delays. Any of these developments could have a material adverse effect on our business, financial condition and results of operations. For example, we believe that the 28-day delayed rental window of certain of our DVD titles during the holiday season negatively impacted our fourth quarter 2010 rental and financial results.

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If we do not manage our content library effectively, our business, financial condition and results of operations could be materially and adversely affected.

A critical element of our Redbox business model is to optimize our library of DVD titles, formats, and copy depth to achieve satisfactory availability rates to meet consumer demand while also maximizing margins. If we do not timely acquire sufficient DVD titles, due to, for example, not correctly anticipating demand, intentionally acquiring fewer copies than needed to fully satisfy demand or the lack of available titles, we may not appropriately satisfy consumer demand, which could decrease consumer satisfaction and we could lose consumers to competitors. Conversely, if we attempt to mitigate this risk and acquire a larger number of copies to achieve higher availability rates for select titles or a wider range of titles, our library utilization would become less efficient and our margins for the Redbox business would be adversely affected. Our ability to accurately predict consumer demand as well as market factors, such as our ability to obtain satisfactory distribution arrangements, may impact our ability to timely acquire appropriate quantities of certain DVD titles. In addition, if we are unable to obtain or maintain favorable terms from our suppliers with respect to such matters as timely movie access, copy depth, formats and product destruction, among others, or if the price of DVDs increases or decreases generally or for certain titles, our library may become unbalanced and our margins may be adversely affected. For example, we believe that in the fourth quarter of 2010, we purchased too many copies of DVDs for our kiosks, and removed older titles too early, negatively impacting our revenues and gross margins.

Further, the delay in our ability to rent certain studios’ DVD titles pursuant to a delayed rental window may negatively affect consumer satisfaction and demand, and we could lose consumers to our competitors because of the timing of our library. In addition, if we are unable to comply with, or lack the necessary internal controls to ensure appropriate documentation and tracking of our content library, we may, among other things, violate certain of our studio licensing arrangements, be forced to pay a fee for unaccounted for DVDs and be susceptible to risks of theft and misuse of property, any of which may negatively affect our margins in the Redbox business. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

For example, we have entered into licensing agreements with certain studios to provide delivery of their DVDs by the “street date,” and with other studios to make DVDs available for rent 28 days or more after the street date. Our business, financial condition and results of operations could be materially and adversely affected if these agreements do not provide the expected benefits to us. For example, these agreements require us to license minimum quantities of theatrical and direct-to-video DVDs for rental at our kiosks. If the titles or format provided are not attractive to our consumers, we will be required to purchase too many copies of undesirable titles or an undesirable format, possibly in substantial amounts, which could adversely affect our Redbox business by decreasing consumer demand for offered DVD titles and consumer satisfaction with our services or negatively impacting margins. If studios that do not have a delayed rental window elect to delay the general release of DVDs to the rental market for significant periods after they are released for retail sales, demand for rental of these titles may be adversely affected. If consumers choose to rent these DVD titles from our competitors, purchase the DVD titles rather than rent from us, or find our DVD title selection unbalanced or unappealing, our business, operating results and financial condition could be materially and adversely affected. In addition, we have incurred, and may continue to incur, additional non-cash increases to operating expenses, which are amortized over the terms of any such arrangements, that also could have a dilutive impact on our stockholders, such as the issuance of equity under certain of our existing studio contracts or to the extent we enter into similar arrangements with other movie studios in the future. Further, if some or all of these agreements prove beneficial but are early terminated, we could be negatively impacted. Moreover, if we cannot maintain similar arrangements in the future with these or other studios or distributors, or these arrangements do not provide the expected benefits to us, our business could suffer.

Our failure to meet consumer expectations with respect to pricing our products and services may adversely affect our business and results of operations.

Demand for our products and services may be sensitive to pricing changes. We evaluate and update our pricing strategies from time to time, and changes we institute may have a significant impact on, among other things, our revenue and net income. For example, in October 2013, we increased the typical coin-counting transaction fee from 9.8% to 10.9%, and, in October 2011, we increased the daily rental fee for standard definition DVDs from $1.00 to $1.20. In the future, other fee increases or pricing changes may deter consumers from using our kiosks or reduce the frequency of their usage.

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Payment of increased fees to retailers or other third party service providers could negatively affect our business results.

We face ongoing pricing pressure from our retailers to increase the service fees we pay to them on our products and services or to make other financial concessions to win or retain their business. If we are unable to respond effectively to ongoing pricing-related pressures, we may fail to win or retain certain accounts. Our fee arrangements are based on our evaluation of unique factors with each retailer, such as total revenue, long-term, non-cancelable contracts, installation of our kiosks in high-traffic, geographic locations and new product and service commitments. Together with other factors, an increase in service fees paid, or other financial concessions made, to our retailers could significantly increase our direct operating expenses in future periods and harm our business. In addition, we accept payment for movie and game rentals through debit and credit card transactions. For these payments, we pay interchange and other fees, which have increased and may increase further over time. Further, because Redbox processes millions of small dollar amount transactions, and interchange fees represent a larger percentage of card processing costs compared to a typical retailer, we are relatively more susceptible to any fee increase. When interchange or other fees increase, it generally raises our operating costs and lowers our profit margins or requires that we charge our customers more for our products and services.

We may be unable to attract new partners, broaden current partner relationships, and penetrate new markets and distribution channels.

In order to increase our kiosk installations, we need to attract new partners, broaden relationships with current partners, and develop operational efficiencies that make it feasible for us to penetrate lower density markets or new distribution channels, such as Coinstar kiosks in banks and credit unions and ecoATM kiosks in shopping malls. We may be unable to attract retailers or drive down costs relating to the manufacture, installation or servicing of our kiosks to levels that would enable us to operate profitably in lower density markets or penetrate new distribution channels. If we are unable to do so, our future financial performance could be adversely affected.

Our future operating results may fluctuate.

Our future operating results will depend significantly on our ability to continue to drive new and repeat use of our Redbox and Coinstar kiosks, our ability to develop and commercialize new products and services, such as ecoATM, and the costs incurred to do so, and our ability to successfully integrate acquisitions and other third-party relationships into our operations. Our operating results have a history of fluctuating and may continue to fluctuate based upon many factors, including fluctuations in revenue generated by and operating expenses incurred by our different lines of business, seasonality, the timing of the release slate and the relative attractiveness of the titles available for rent in a particular quarter or year which may have lingering effects in subsequent periods, fluctuations in consumer rental patterns, including the number of movies rented per visit, the type of DVDs they want to rent and for how long, and the level of DVD migration between kiosks.

If we cannot manage our growth effectively, we could experience a material adverse effect on our business, financial condition and results of operations.

We have experienced substantial growth in our business, particularly due to the rapid expansion of Redbox, and more recently, the acquisition of ecoATM. This growth has placed, and may continue to place, significant demands on our operational, financial and administrative infrastructure and our management. As our operations have grown in size, scope and complexity, we have focused on integrating, as appropriate, and improving and upgrading our systems and infrastructure, both those relating to providing attractive and efficient consumer products and services and those relating to our administration and internal systems, processes and controls. For example, management has had to adapt to and provide for oversight of a more decentralized organization as Redbox and ecoATM operations have remained primarily in Oakbrook Terrace, Illinois, and San Diego, California, respectively, while Outerwall’s corporate headquarters and Coinstar operations have remained in Bellevue, Washington. This integration and expansion of our administration, processes, systems and infrastructure have required us to commit and will continue to cause us to commit, substantial financial, operational and technical resources to managing our business. Further, our growth could strain our ability to provide popular and reliable product and service levels, including for our New Ventures, for our consumers, develop and improve our operational, financial and management controls in a timely and efficient manner, enhance our reporting systems and processes as may be required, and recruit, train and retain highly-skilled personnel.

Although we believe that the total addressable market for automated kiosks is large, we cannot be certain about its size, the most effective plan for locating kiosks, or the optimum market density. Because the kiosk market and our business model are continually evolving, we have incomplete data and track records for predicting kiosk and market performance in future periods. As a result, we may make errors in predicting and reacting to relevant business trends, which could have a material adverse effect on our business, financial condition and results of operations. For example, we may, among other things, over-install kiosks in certain geographic areas leading to non-accretive installations, and we cannot be certain that historical revenue ramps for new kiosks will be sustainable in the future.

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Managing our growth will require significant expenditures and allocation of valuable management and operational resources. If we fail to achieve the necessary level of efficiency in our organization, including otherwise effectively growing our business lines, our business, operating results and financial condition could be harmed.

If we cannot execute on our strategy and offer new automated retail products and services, our business could suffer.

Our strategy is based upon leveraging our core competencies in the automated retail space to provide the consumer with convenience and value and to help retailers drive incremental traffic and revenue. To be competitive, we need to offer new product and service offerings that are accepted by the market and establish third-party relationships necessary to develop and commercialize such product and service offerings. We are exploring new businesses to enter, and new products and services to offer, including through our New Ventures segment; however, the complexities and structures of these new businesses and products could create conflicting priorities, constrain limited resources, and negatively impact our core businesses. We may use our financial resources and management’s time and focus to invest in other companies offering automated retail services, such as our acquisition of ecoATM, we may seek to grow businesses organically, such as our SAMPLEit^TM product sampling kiosk venture, or we may seek to offer new products on our current kiosks, such as new Coin-to-Commerce products on our Coinstar kiosks. We may enter into joint ventures, such as Redbox Instant by Verizon, through which we may expand our product offerings. Any new business opportunity also may have its own unique risks related to operations, finances, intellectual property, technology, legal and regulatory issues, corporate governance or other challenges, for which we may have limited or no prior experience. In addition, if we fail to timely establish or maintain relationships with significant retailers and suppliers, we may not be able to provide our consumers with desirable new products and services. Further, in order to develop and commercialize certain new products and services, we will need to create new kiosks or enhance the capabilities of our current kiosks, as well as adapt our related networks and systems through appropriate technological solutions for an automated retail environment, and establish market acceptance of such products or services. We cannot assure you that new products or services that we provide will be successful or profitable.

Our investment in Redbox Instant by Verizon may not be successful, and may limit our ability to provide or participate in other “over the top” video distribution services in the United States.

We have a minority ownership interest in Redbox Instant by Verizon, a joint venture with Verizon Communications to provide “over-the-top” video distribution services that also offers rental of physical DVDs and Blu-ray Discs from our kiosks. As of June 30, 2014, we have invested $63.0 million in cash in the joint venture and granted it a license to use certain Redbox trademarks. We could be requested to make substantial additional cash contributions to the joint venture, but we do not control the timing or amount of such requested capital contributions. Under the joint venture agreement, if we do not contribute our pro rata portion of the first $450.0 million in requested capital contributions, our ownership interest in the joint venture could be diluted and we could lose certain contractual rights in the joint venture, such as the right to veto certain material decisions by the joint venture. As long as we fund our pro rata portion of the first $450.0 million in capital contributions, our ownership interest in the joint venture cannot be diluted below a floor of 10% if the joint venture makes additional capital requests and we are not able to fund our pro rata portion of such requests. In addition, each of our Amended and Restated Credit Agreement, the indenture governing the Senior Notes due 2019, and the indenture governing the Senior Notes due 2021 restricts our ability to make investments in the joint venture above certain thresholds. Under the joint venture agreement, we have also agreed to certain restrictions on our ability in the United States to participate in the marketing or operation of an “over-the-top” video distribution service, or to provide physical DVD or Blu-Ray disc rental services in connection with certain other video services. These restrictions may substantially limit our ability to participate in the digital video distribution market except through the joint venture, which we do not control. In addition, Verizon has certain rights to acquire our ownership interest in the joint venture following February 3, 2019, or in limited circumstances, following February 3, 2017. These exclusivity provisions and rights in favor of Verizon could leave us without an interest in an “over-the-top” video distribution business in the future. Further, the joint venture agreement contains certain restrictions on the transfer or encumbrance of our ownership interest in the joint venture, including not generally being able to sell or transfer our interest to an unaffiliated third party before February 3, 2017. After February 3, 2017, we are permitted to transfer our ownership interest in the joint venture only under certain circumstances. These transfer restrictions as well other restrictions, including those discussed above, could substantially reduce the value of our ownership interest in the joint venture as well as negatively affect our ability to run our business.

Redbox Instant by Verizon faces competition from many other providers, such as Netflix and Amazon, who may have more experience, greater or more appealing inventory, better financing, or better relationships with those in the industry. If consumers do not find the Redbox Instant by Verizon offering compelling, the joint venture may not be successful, which could materially and adversely affect our business.

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Acquisitions and investments involve risks that could harm our business and impair our ability to realize potential benefits from such acquisitions and investments.

As part of our business strategy, we have in the past sought, and may in the future seek, to acquire or invest in businesses, products or technologies that we feel could complement or expand our business. For example, in 2012, we entered into a joint venture to launch Redbox Instant by Verizon and in July 2013, we acquired ecoATM. However, we may be unable to adequately address the financial, legal and operational risks raised by such acquisitions or investments and may not successfully integrate these acquisitions or investments, which could harm our business and prevent us from realizing the projected benefits of the acquisitions and investments. In addition, we may not have the right or power to direct the management or policies of companies we have invested in. For example, Redbox Instant by Verizon may take action contrary to our interests, although we may nonetheless be called to invest additional sums. Further, the evaluation and negotiation of potential acquisitions and investments, as well as the integration of acquired businesses, divert management time and other resources. Accordingly, we cannot assure you that any particular transaction, even if successfully completed, will ultimately benefit our business. Certain financial and operational risks related to acquisitions and investments that may have a material impact on our business are:

• the assumption of known and unknown liabilities of an acquired company, including employee and intellectual property claims and other violations of applicable law;

• losses related to acquisitions and investments;

• managing relationships with other investors and the companies in which we have made investments, including, in some cases, as minority partner;

• reduced liquidity, including through the use of cash resources and incurrence of debt and contingent liabilities in funding acquisitions and investments;

• entrance into markets in which we have no direct prior experience, such as the digital market through our joint venture, Redbox Instant by Verizon, and where we face competition from many other companies, including those having more experience, better financing, or better relationships with others in the industry than we have;

• impairment of goodwill and acquired intangible assets arising from our arrangements and investments;

• difficulties and expenses in assimilating the operations, products, technology, information systems or personnel of an acquired company, acquired assets or joint ventures;

• inability to efficiently divest unsuccessful acquisitions and investments;

• stockholder dilution if an acquisition is consummated through an issuance of our securities;

• imposition of restrictive covenants and increased debt service obligations that provide us less flexibility in how we operate our business to the extent we borrow to finance an acquisition or investment;

• amortization expenses related to acquired intangible assets and other adverse accounting consequences;

• costs incurred in identifying and performing due diligence on potential targets and negotiating agreements that may or may not be successful, including payment of break-up fees if transactions are not closed; and

• impairment of relationships with employees, retailers and affiliates of our business and the acquired business.

Changes in our effective income tax rate and cash taxes paid could adversely affect our profitability and cash flows.

Our effective income tax rate and cash taxes paid are influenced by a number of factors, including changes in tax law, interpretation of existing laws, transactions incurred during the period, the utilization or expiration of net operating loss carryforwards, and our ability to sustain our reporting positions on examination. Changes in any of those factors could change our effective tax rate and cash taxes paid, which could adversely affect our profitability and cash flows. For example, we exhausted the majority of our net operating loss carryforwards in fiscal year 2013, and we expect to have a higher effective tax rate in fiscal year 2014 than in fiscal year 2013. If we continue to be profitable, we expect our cash tax obligations in fiscal 2014 and future periods to continue to be significant. In addition, the expansion of our operations outside of the United States may cause greater volatility in our effective tax rate.

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We depend upon third-party manufacturers, suppliers and service providers for key components and substantial support for our kiosks.

We conduct limited manufacturing operations and depend on outside parties to manufacture key components of our kiosks. We intend to continue to expand our installed base of kiosks. Such expansion may be limited by the manufacturing capacity of our third-party manufacturers and suppliers. Third-party manufacturers may not be able to meet our manufacturing needs in a satisfactory and timely manner. If there is an unanticipated increase in demand for our kiosks or our manufacturing needs are not met in a timely and satisfactory manner, we may be unable to meet demand due to manufacturing limitations.

Some key hardware components used in our kiosks are obtained from a limited number of suppliers. We may be unable to continue to obtain an adequate supply of these components from our suppliers in a timely manner or, if necessary, from alternative sources. If we are unable to obtain sufficient quantities of components from our current suppliers or locate alternative sources of supply on a timely basis, we may experience delays in installing or maintaining our kiosks, either of which could seriously harm our business, financial condition and results of operations.

In addition, we rely on third-party service providers for substantial support and service efforts that we currently do not provide directly. In particular, we contract with third-party providers to arrange for pick-up, processing and depositing of coins, as well as to provide limited servicing of our kiosks. We generally contract with a single transportation provider and coin processor to service a particular region. We do not currently have, nor do we expect to have in the foreseeable future, the internal capability to provide back-up coin processing service in the event of a sudden disruption in service from a commercial coin processor. Any failure by us to maintain our existing coin processing relationships or to establish new relationships on a timely basis or on acceptable terms could harm our business, financial condition and results of operations.

There are risks associated with conducting our business and sourcing goods internationally.

We currently have Redbox operations in Canada and Coinstar operations in Canada, the United Kingdom and Ireland. We expect to continue our deployment of kiosks internationally. Accordingly, political uncertainties, economic changes, exchange rate fluctuations, restrictions on the repatriation of funds, adverse changes in legal requirements, including tax, tariff and trade regulations, difficulties with foreign distributors and other difficulties in managing an organization outside the United States, could seriously harm the development of our business and ability to operate profitably. Further, as we do more business in an increasing number of countries, our business becomes more exposed to the impact of the political and economic uncertainties, including government oversight, of foreign jurisdictions.

We purchase products from vendors that obtain a significant percentage of such products from foreign manufacturers. As a result, we are subject to changes in governmental policies, exchange rate fluctuations, various product quality standards, the imposition of tariffs, import and export controls, transportation delays and interruptions and political and economic disruptions which could disrupt the supply and timely delivery of products manufactured abroad. In addition, we could be affected by labor strikes in the sea shipping, trucking and railroad industries. A reduction or interruption in supplies, or a significant increase in the price of one or more supplies could have a material adverse effect on our business.

Events outside of our control, including the current economic environment, have negatively affected, and could continue to negatively affect, consumers’ use of our products and services.

Our consumers’ use of many of our products and services is dependent on discretionary spending, which is affected by, among other things, economic and political conditions, consumer confidence, interest and tax rates, and financial and housing markets. With economic uncertainty still affecting potential consumers, we may be impacted by more conservative purchasing tendencies with fewer non-essential products and services purchases during the coming periods if the current economic environment continues. In addition, because our business relies in part on consumers initially visiting retailers to purchase products and services that are not necessarily our products and services, if consumers are visiting retailers less frequently and being more careful with their money when they do, these tendencies may also negatively impact our business.

Further, our ability to obtain additional funding in the future, if and as needed, through equity issuances or loans, or otherwise meet our current obligations to third parties, could be adversely affected if the economic environment continues to be difficult. In addition, the ability of third parties to honor their obligations to us could be negatively impacted, as retailers, suppliers and other parties deal with the difficult economic environment. Finally, there may be consequences that will ultimately result from the current economic conditions that are not yet known, and any one or more of these unknown consequences (as well as those currently being experienced) could potentially have a material adverse effect on our financial condition, operating results and liquidity, as well as our business generally.

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Our business can be adversely affected by severe weather, natural disasters and other events beyond our control, such as earthquakes, fires, power failures, telecommunication loss and terrorist attacks.

A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could harm our ability to conduct normal business operations and our operating results. For example, our corporate headquarters and certain critical business operations are located in the Bellevue, Washington area, which is near major earthquake faults. While we have taken steps to protect the security of critical business processes and systems and have established certain back-up systems and disaster recovery procedures, any disruptions, whether due to inadequate back-up or disaster recovery planning, failures of information technology systems, interruptions in the communications network, or other factors, could seriously harm our business, financial condition and results of operations.

In addition, our operational and financial performance is a direct reflection of consumer use of and the ability to operate and service our kiosks used in our business. Severe weather, natural disasters and other events beyond our control can, for extended periods of time, significantly reduce consumer use of our products and services as well as interrupt the ability of our employees and third-party providers to operate and service our kiosks. For example, in October 2012, Hurricane Sandy caused disruptions to our normal operations in the impacted region for an extended period of time. In some cases, severe weather, natural disasters and other events beyond our control may result in extensive damage to, or destruction of, our infrastructure and equipment, including loss of kiosks used to provide our products and services, which losses may not be fully covered by insurance.

Defects, failures or security breaches in and inadequate upgrades of, or changes to, our operating systems could harm our business.

The operation of our business depends on sophisticated software, hardware, computer networking and communication services that may contain undetected errors or may be subject to failures or complications. These errors, failures or complications may arise particularly when new, changed or enhanced products or services are added. In the past, there have been limited delays and disruptions resulting from upgrading or improving these operating systems. Future upgrades, improvements or changes that may be necessary to expand and maintain our business could result in delays or disruptions or may not be timely or appropriately made, any of which could seriously harm our operations.

Further, certain aspects of the operating systems relating to our business are provided by third parties, including telecommunications. Accordingly, the effectiveness of these operating systems is, to a certain degree, dependent on the actions and decisions of third parties over whom we may have limited control.

Failure to adequately comply with information security policies, standards or legal requirements or to safeguard against breaches of such policies could adversely affect our operations and could damage our business, reputation, financial position and results of operations.

As our business expands to provide new products and services, such as Redbox Instant by Verizon, ecoATM kiosks, and Coinstar’s gift card exchange business, we are increasing the amount of consumer data that we collect, transfer and retain as part of our business. These activities are subject to laws and regulations, as well as industry standards, in the United States and other jurisdictions in which our products and services are available. These requirements, which often differ materially and sometimes conflict among the many jurisdictions in which we operate, are designed to protect the privacy of consumers’ personal information and to prevent that information from being inappropriately used or disclosed. We maintain and review technical and operational safeguards designed to protect this information and generally require third party vendors and others with whom we work to do so as well. However, despite those safeguards, it is possible that hackers, employees acting contrary to our policies, third-party agents or others could improperly access relevant systems or improperly obtain or disclose data about our consumers, or that we may be determined not to be in compliance with applicable legal requirements and industry standards for data security, such as the Payment Card Industry guidelines. A breach or purported breach of relevant security policies that compromises consumer data or determination of non-compliance with applicable legal requirements or industry standards for data security could expose us to regulatory enforcement actions, card association or other monetary fines or sanctions, or contractual liabilities, limit our ability to provide our products and services, subject us to legal action and related costs and damage our business reputation, financial position, and results of operations.

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Our business involves the movement of large sums of money, and, as a result, our business is particularly dependent on our ability to process and settle transactions accurately and efficiently.

Our business involves the movement of large sums of money. Our Coinstar business requires the effective transfer of large sums of money between many different locations. Because we are responsible for large sums of money that often are substantially greater than the revenues generated, the success of our business particularly depends upon the efficient, secure, and error-free handling of the money. We rely on the ability of our employees and our operating systems and network to process these transactions in an efficient, uninterrupted and error-free manner. In the event of a breakdown, catastrophic event, security breach, improper operation or any other event impacting our systems or network or our vendors’ systems or processes, or improper or other actions taken by employees, or third party vendors, we could suffer financial loss, loss of consumers, regulatory sanctions and damage to our reputation.

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

Our success depends, in part, on our ability to protect our intellectual property and maintain the proprietary nature of our technology through a combination of patents, licenses and other intellectual property arrangements, without infringing the proprietary rights of third parties. We have over 100 United States and international patents, for example, patents regarding kiosk security and inventory management related to our Redbox business, and patents regarding kiosk networking, fraud avoidance and voucher authentication related to our Coinstar business. We also have additional patents and patent applications pending in the United States and several foreign jurisdictions related to our New Venture kiosk technologies. In addition, we may apply for or obtain (through development, acquisition or otherwise) additional patents regarding technologies used in our businesses.

Our patents may not be held valid if challenged, our patent applications may not be issued, and other parties may claim rights in or ownership of our patents and other proprietary rights. Since many patent applications in the United States are not publicly disclosed until 18 months after the patent has been applied for, others may have filed applications, which, if issued as patents, could cover our products or technology. Patents issued to us may be circumvented or fail to provide adequate protection of our technologies. Our competitors might independently develop or patent technologies that are substantially equivalent or superior to our technologies. Further, since patent terms are limited, other parties may begin practicing our patented technologies when our related patents expire. For example, certain United States patent rights based on an early patent application primarily relating to our coin-counting business expired in September 2012.

In addition, certain parties may assert claims of patent infringement or misappropriation against us based on current or pending United States or foreign patents, copyrights or trade secrets, or contracts. If such claims were successful, our business could be harmed. Defending ourselves, our retailers or other third parties against these types of claims, regardless of their merits, could require us to incur substantial costs and divert the attention of key personnel. Parties making these types of claims may be able to obtain injunctive or other equitable relief, which could effectively block or impair our ability to provide our DVD or coin-counting products and services or other new products and services in the United States or abroad. Such claims could also result in an award of substantial damages. If third parties have, or obtain, proprietary rights that our products or services infringe, we may be unable to obtain necessary licenses from others at a reasonable cost or at all. In addition, if we instigate litigation to enforce our patents or protect our other proprietary rights, or to determine the validity and scope of other parties’ proprietary rights, such litigation could cause us to spend significant financial and management resources. We also rely on trademarks, copyrights, trade secrets and other intellectual property to develop and maintain our competitive position. Although we protect our intellectual property in part by confidentiality and other agreements with our employees, consultants, vendors and corporate partners, these parties may breach these agreements. We may have inadequate remedies for any such breach and our trade secrets may otherwise become known or be discovered independently by our competitors. The failure to protect our intellectual property rights effectively or to avoid infringing the intellectual property rights of others, as well as unfavorable rulings or settlements, could seriously harm our business, financial condition and results of operations.

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Litigation, arbitration, mediation, regulatory actions, investigations or other legal proceedings could result in material rulings, decisions, settlements, fines, penalties or publicity that could adversely affect our business, financial condition and results of operations.

Our business has in the past been, and may in the future continue to be, party to class actions, regulatory actions, investigations, arbitration, mediation and other legal proceedings. The outcome of such proceedings is often difficult to assess or quantify. Plaintiffs, regulatory bodies or other parties may seek very large or indeterminate amounts of money from us or substantial restrictions on our business activities, and the results, including the magnitude, of lawsuits, actions, settlements, decisions and investigations may remain unknown for substantial periods of time. The cost to defend, settle or otherwise finalize lawsuits, regulatory actions, investigations, arbitrations, mediations or other legal proceedings may be significant and such proceedings may divert management’s time. For example, in recent years we have been involved in consumer class action lawsuits, a securities class action and derivative lawsuit, and studio litigation, as well as other litigation in the ordinary course of business. In addition, there may be adverse publicity associated with any such developments that could decrease consumer acceptance of our products and services. As a result, litigation, arbitration, mediation, regulatory actions or investigations involving us or our affiliates may adversely affect our business, financial condition and results of operations.

We are subject to substantial federal, state, local and foreign laws and government regulation specific to our business.

Our business is subject to federal, state, local and foreign laws and government regulation, including those relating to copyright law, access to kiosks in public places, consumer privacy and protection, data protection and information security, taxes, secondhand dealers, vehicle safety, charitable fundraising, the transfer of money or things of value, coins, currency controls, weights and measures, payment cards and other payment instruments, food and beverages, sweepstakes, and contests. The application of existing laws and regulations, changes in laws or enactment of new laws and regulations, that apply, or may in the future apply, to our current or future products or services, changes in governmental authorities’ interpretation of the application of various government regulations to our business, or the failure or inability to gain and retain required permits and approvals could materially and adversely affect our business.

For example, if U.S. copyright law were altered to amend or eliminate the First Sale Doctrine, our business could be adversely affected. Under U.S. copyright law, the First Sale Doctrine provides that once a copyright owner sells a copy of his work, the copyright owner relinquishes all further rights to sell or otherwise dispose of that copy. While the copyright owner retains the underlying copyright to the expression fixed in the work, the copyright owner gives up his ability to control the fate of the work once sold. As such, once we purchase a DVD in the market, we are permitted to re-sell it, rent it or otherwise dispose of it. Although the majority of our content library is licensed directly from studios, and not purchased, if Congress or the courts were to change, or substantially limit, this First Sale Doctrine, our ability to obtain certain purchased content and then rent it could be adversely affected.

In addition, many jurisdictions require us to obtain certain licenses in connection with the operations of our businesses. There can be no assurance that we will be granted all necessary licenses or permits in the future, that current licenses or permits will be renewed or that regulators will not revoke current licenses or permits. Given the unique nature of our business and new products and services we may develop or acquire in the future, the application of various laws and regulations to our business is uncertain. Further, as governmental and regulatory scrutiny and action with regard to many aspects of our business increase, we expect that our costs of complying with the applicable legal requirements may increase, perhaps substantially.

ecoATM is subject to secondhand dealer laws that regulate the purchase of used goods, such as the phones it purchases from consumers. Such laws contain requirements, or laws may be amended or enacted to create requirements, with which we cannot comply, thus requiring us to cease operations in certain jurisdictions. Moreover, a few legislatures have in the past enacted secondhand dealer laws which directly target our ecoATM business, or potentially Coinstar’s gift card exchange business, and restrict or prohibit us from operating. If additional similar laws are enacted at either the state or local level, our ability to operate may be adversely impacted, thereby damaging our business and results of operations.

Failure to comply with these laws and regulations could result in, among other things, revocation of required licenses or permits, loss of approved status, termination of contracts, administrative enforcement actions and fines, class action lawsuits, cease and desist orders and civil and criminal liability. The occurrence of one or more of these events, as well as the increased cost of compliance, could materially adversely affect our business, financial condition and results of operations.

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The loss of key personnel or the inability of replacements to quickly and successfully perform in their new roles could adversely affect our business.

In recent years, we have experienced significant changes in our senior management team, including our CEO and CFO succession 2013 and changes in the presidents of our business lines in 2013 and 2014. Further changes in senior management could result in disruptions to our operations. If we lose or terminate the services of one or more of our current executives or key employees or if one or more of our current or former executives or key employees joins a competitor or otherwise leaves or competes with us, it could harm our business and our ability to successfully implement our business plan. Additionally, if we are unable to timely hire qualified replacements for our executive and other key positions, our ability to execute our business plan could be harmed. Even if we can timely hire qualified replacements, we would expect to experience operational disruptions and inefficiencies during any transition.

Risks Related to Our Indebtedness

Our obligations under our substantial debt could adversely affect our cash flow and business.

As of June 30, 2014, the total principal value of our outstanding debt, including capital leases, was $1,018.2 million. Our level of indebtedness could have important consequences for you, including:

• increasing our vulnerability to general adverse economic and industry conditions;

• requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

• restricting us from making strategic acquisitions or investments or causing us to make non-strategic divestitures;

• limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes;

• limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate, placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting; and

• exposing us to variability in interest rates, as our borrowings under our credit facility bear interest at variable rates determined by prevailing interest rates and our leverage ratio.

If we are unable to meet our debt obligations, we could be forced to restructure or refinance such obligations, seek additional equity financing or sell assets, which we may not be able to do on satisfactory terms or at all. As a result, we could default on those obligations, which could prevent or impede us from fulfilling our obligations and adversely affect our business.

To service or repay our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on our indebtedness, including without limitation any payments required to be made to holders of the Senior Notes due 2021, the Senior Notes due 2019, the Convertible Notes, or under our New Credit Facility, and to fund our operations, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. For example, we exhausted our net operating loss carryforwards in fiscal year 2013. If we continue to be profitable, we expect our cash tax obligations in fiscal 2014 and future periods to be significantly higher than in prior periods, which may have an adverse impact on our ability to service our indebtedness. In addition, a weaker studio release schedule in the second quarter of 2014 adversely affected Redbox revenue.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness when due or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity, sell assets, reduce or delay capital expenditures, seek additional equity financing or seek other third-party financing to satisfy such obligations. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. Our failure to fund indebtedness obligations at any time could constitute an event of default under the instruments governing such indebtedness, and could trigger a cross default under our other outstanding debt, which could result in an acceleration of such indebtedness.

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If we do not comply with the covenants in the Amended and Restated Credit Agreement that governs our New Credit Facility, the indentures that govern our Senior Notes due 2019, our Senior Notes due 2021, or our Convertible Notes, respectively, we may not have the funds necessary to pay all of our indebtedness that could become due.

The Amended and Restated Credit Agreement governing our New Credit Facility and the indentures that govern our Senior Notes due 2019, our Senior Notes due 2021 and our Convertible Notes require us to comply with certain covenants that may limit our ability to engage in activities that may be in our long-term best interests. For example, our Amended and Restated Credit Agreement prohibits us from incurring any additional indebtedness, except in specified circumstances, without lender approval. Further, our Amended and Restated Credit Agreement restricts our ability to acquire and dispose of assets, engage in mergers or reorganizations, pay dividends or make investments or capital expenditures. Other restrictive covenants require that we meet a maximum consolidated net leverage ratio and a minimum consolidated interest coverage ratio, each as defined in our Amended and Restated Credit Agreement. A violation of any of these covenants could cause an event of default under our Amended and Restated Credit Agreement, which could result in the acceleration of our outstanding indebtedness.

Our failure to comply with these covenants or others under our indentures could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness, which would adversely affect our financial health. We cannot assure you that we would have sufficient funds to repay all the outstanding amounts, and any acceleration of amounts due under our Amended and Restated Credit Agreement or the indentures governing our outstanding indebtedness likely would have a material adverse effect on us.

ITEM 2. UNREGISTERED SALES OF EQUITY, SECURITIES, AND USE OF PROCEEDS

The following table summarizes information regarding shares repurchased during the quarter ended June 30, 2014:

	Total Number of Shares Repurchased		Average Price Paid per Share		Total Number of  Shares Purchased as Part of Publicly Announced Repurchase Plans or Programs	Maximum  Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs		(2)
4/1/14 - 4/30/14	1,983		$	69.05	—	$	282,490
5/1/14 - 5/31/14	591,607		$	70.50	590,600	$	241,659
6/1/14 - 6/30/14	121,948		$	69.05	120,956	$	233,297	(3)
	715,538	(1)			711,556

(1) Includes 3,982 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) Dollars in thousands

(3) On January 30, 2014, our Board of Directors approved an additional repurchase program of up to $500.0 million of our common stock plus the cash proceeds received from the exercise of stock options by our officers, directors, and employees.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

The following exhibits are filed herewith and this list is intended to constitute the exhibit index.

Exhibit Number	Description of Document
2.1	First Amendment to Limited Liability Company Agreement of Verizon and Redbox Digital Entertainment Services, LLC.
2.2	Second Amendment to Limited Liability Company Agreement of Verizon and Redbox Digital Entertainment Services, LLC.
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.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

OUTERWALL INC.
By:	/s/ Galen C. Smith
	Galen C. Smith
	Chief Financial Officer
	July 31, 2014

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