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Coinstar, Inc. Announces 2010 Fourth Quarter and Full Year Results
Company Drives 55% Year Over Year Earnings Growth in 2010

BELLEVUE, Wash., Feb. 3, 2011 /PRNewswire via COMTEX/ --

Coinstar, Inc. (Nasdaq: CSTR) today announced financial results for the fourth quarter and full year ended December 31, 2010.

"We grew our fourth quarter revenue 31% over the prior year, and while this was not in line with our expectations, we still delivered $2.03 in earnings per share for the full year," said Paul Davis, chief executive officer of Coinstar, Inc. "We have taken definitive steps to correct the issues we encountered with our redbox business in the fourth quarter and will be tracking progress closely. Our coin business remains solid with same store sales growth of approximately 10% and redbox increased its unit market share to 29.8%. We remain optimistic about our core businesses as well as future opportunities with new automated retail concepts and we are committed to driving continued profitable growth."

Financial highlights for the 2010 fourth quarter and full year included:


2010 Fourth Quarter

2010 Full Year

  • Revenue

$ 390.8

million

$ 1,436.4

million

  • Income from operations

$ 43.2

million

$ 143.2

million

  • Adjusted EBITDA from continuing operations (See Appendix A)

$ 80.2

million

$ 286.6

million

  • Diluted earnings per share from continuing operations

$ 0.68


$ 2.03


  • Diluted earnings per share attributable to Coinstar, Inc.

$ 0.35


$ 1.57


  • Net cash provided by operating activities from continuing operations

$ 87.0

million

$ 315.6

million

  • Free cash flow from continuing operations (See Appendix A)

$ 48.6

million

$ 144.8

million

"Overall, this was a tremendous year for Coinstar exhibited by our revenue, adjusted EBITDA and EPS growth," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "Nonetheless, we did not finish the year as strongly as we expected. We do expect continued growth as we focus on providing a compelling offering to our consumers that is a significant benefit to our retail partners and increases our shareholder value."

Revenue for the fourth quarter of 2010 increased 31% to $390.8 million compared with the fourth quarter of 2009, driven primarily by growth in DVD revenue, which increased 38% to $319.6 million, and by Coin revenue which grew 7% to $71.2 million.

Income from operations for the fourth quarter of 2010 was $43.2 million, resulting in an operating margin of 11%, including $3.1 million in share-based payments expense related to the company's agreements with Sony Pictures Home Entertainment (Sony) and Paramount Home Entertainment Inc. This compares with income from operations of $29.7 million and an operating margin of 10% in the fourth quarter of 2009, which included $0.3 million in share-based payments expense related to the Sony agreement.

Income from continuing operations for the fourth quarter of 2010 was $22.4 million, with diluted earnings per share of $0.68, compared with $11.6 million, and $0.37, in the fourth quarter of 2009.

Coinstar recorded a loss from discontinued operations of $10.7 million, net of tax, or a loss of $0.33 per share, in the fourth quarter.

Net income attributable to Coinstar, Inc. for the fourth quarter of 2010, which includes both continuing and discontinued operations, was $11.7 million, with diluted earnings per share of $0.35. This compares with $3.4 million, and $0.11, in the fourth quarter of 2009.

Revenue for 2010 was $1,436.4 million, an increase of 39% compared with 2009. Income from operations for 2010 was $143.2 million compared with income from operations of $104.7 million in 2009.

Income from continuing operations for 2010 was $65.9 million, with diluted earnings per share of $2.03, compared with $43.7 million, and $1.31, in 2009.

Net income attributable to Coinstar, Inc. for 2010 was $51.0 million, with $1.57 per diluted share, including a loss, net of tax, of $14.9 million from discontinued operations. This compares with net income attributable to Coinstar, Inc. of $53.6 million, and $1.76, in 2009, which included income from discontinued operations, net of tax, of $13.6 million offset by a net loss of $3.6 million attributable to non-controlling interests.

Cash paid for capital expenditures for continuing operations for the fourth quarter of 2010 was $38.4 million, compared with $46.5 million in the fourth quarter of 2009. Free cash flow from continuing operations for the fourth quarter of 2010 was $48.6 million, compared with $8.4 million in the fourth quarter of 2009.

Coinstar announced that the company's board of directors authorized the repurchase of an additional $50million of Coinstar's common stock. The company currently has a total authorization to repurchase $74.5million of Coinstar's common stock.

Guidance

For the 2011 full year, Coinstar management expects:

  • Consolidated revenue between $1.70 billion and $1.85 billion;
  • EBITDA between $325 million and $355 million;
  • GAAP EPS from continuing operations between $2.60 and $3.10 on a fully diluted basis;
  • Free cash flow from continuing operations between $115 million and $140 million.

For the 2011 first quarter, Coinstar management expects:

  • Consolidated revenue between $400 million and $420 million;
  • EBITDA between $50 million and $56 million;
  • GAAP EPS from continuing operations between $0.15 and $0.25 on a fully diluted basis.

Conference Call

Paul Davis and J. Scott Di Valerio will host a conference call today at 2:00 p.m. PDT (5:00 p.m. EDT) to review the fourth quarter results and discuss guidance. The conference call will be webcast live and archived on the Investor Relations section of Coinstar's website at www.coinstar.com. A recording of the call will be available approximately two hours after the call ends through February 17, 2011, at 1-888-286-8010 or 1-617-801-6888, passcode 42299302.

About Coinstar, Inc.

Coinstar, Inc. (NASDAQ: CSTR) is a leading provider of automated retail solutions offering convenient services that make life easier for consumers and drive incremental traffic and revenue for retailers. The company's core automated retail businesses include the well-known redbox(R) self-service DVD rental and Coinstar(R) self-service coin-counting brands. The company has approximately 30,200 DVD kiosks and 18,900 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. For more information, visit www.coinstar.com.

Safe Harbor for Forward-Looking Statements

Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "estimate," "expect," "intend," "anticipate," "goals," "will," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. The forward-looking statements in this release include statements regarding Coinstar, Inc.'s anticipated growth and future operating results. Forward-looking statements are not guarantees of future performance and actual results may vary materially from the results expressed or implied in such statements. Differences may result from actions taken by Coinstar, Inc., as well as from risks and uncertainties beyond Coinstar, Inc.'s control. Such risks and uncertainties include, but are not limited to, the inability to receive delivery of DVDs on the date of their initial release to the general public, or shortly thereafter, for home entertainment viewing, the effective management of our DVD inventory, the termination, non-renewal or renegotiation on materially adverse terms of our contracts with our significant retailers, payment of increased service fees to retailers, the ability to attract new retailers, penetrate new markets and distribution channels and react to changing consumer demands, the ability to achieve the strategic and financial objectives for our entry into or expansion of new businesses, the ability to adequately protect our intellectual property, actions relating to legal, regulatory, and similar proceedings and the application of substantial federal, state, local and foreign laws and regulations specific to our business. The foregoing list of risks and uncertainties is illustrative, but by no means exhaustive. For more information on factors that may affect future performance, please review "Risk Factors" described in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. These forward-looking statements reflect Coinstar, Inc.'s expectations as of the date of this release. Coinstar, Inc. undertakes no obligation to update the information provided herein.

(Financial Statements Follow)


Appendix A

Use of 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"). Non-GAAP measures are not a substitute for measures computed in accordance with GAAP. The definitions of such non-GAAP measures are provided below to allow the reader to reconcile non-GAAP data to that presented in accordance with GAAP. Our non-GAAP measures may be different from the presentation of financial information by other companies.

Adjusted EBITDA from continuing operations is defined as earnings before net interest expense, income taxes, depreciation, amortization and certain other non-cash charges including the write-off from early retirement of debt, and share-based expenses from continuing operations. We believe adjusted EBITDA from continuing operations 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. In addition, management uses this non-GAAP measure internally to evaluate performance and manage operations. See below for reconciliation of the most comparable GAAP measure, income from continuing operations, to adjusted EBITDA from continuing operations.




Three Months ended December 31,


Twelve Months ended December 31,

Dollars in thousands



2010


2009


2010


2009

Income from continuing operations


$

22,415

$

11,643

$

65,894

$

43,693

Depreciation, amortization, and other



31,318


24,681


126,992


89,981

Interest expense, net



7,673


9,817


34,705


34,248

Income taxes



13,668


8,285


43,032


25,720

Share-based expense



5,140


1,743


16,016


8,816

Early retirement of debt



0


0


0


1,082

Adjusted EBITDA from continuing operations


$

80,214

$

56,169

$

286,639

$

203,540

Free cash flow from continuing operations is defined as net cash provided by operating activities from continuing operations after cash paid for capital expenditures for continuing operations. 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 common stock. See below for reconciliation of the most comparable GAAP measure, net cash provided by operating activities from continuing operations, to free cash flow from continuing operations.




Three Months Ended


Twelve Months Ended




December 31,


December 31,

Dollars in thousands



2010


2009


2010


2009

Net cash provided by operating activities from continuing operations


$

86,994

$

54,898

$

315,619

$

123,890

Purchase of property and equipment



(38,373)


(46,545)


(170,847)


(148,467)

Free cash flow from continuing operations


$

48,621

$

8,353

$

144,772

$

(24,577)

Coinstar, Inc.
Consolidated Statements of Net Income
(in thousands, except per share data)
(unaudited)








For the Three Months Ended


For the Twelve Months Ended



December 31,


December 31,



2010


2009


2010


2009










Revenue

$

390,756

$

298,301

$

1,436,421

$

1,032,623










Expenses:









Direct operating


278,737


213,157


1,000,941


716,041

Marketing


7,461


4,642


23,836


15,479

Research and development


2,509


1,396


7,437


5,312

General and administrative


27,576


24,730


128,629


101,098

Depreciation and other


30,633


23,802


123,687


86,418

Amortization of intangible assets


685


879


3,305


3,563

Litigation settlement


0


0


5,379


0

Proxy contest


0


0


0


0

Total expenses


347,601


268,606


1,293,214


927,911

Income from operations


43,155


29,695


143,207


104,712

Other income (expense):









Foreign currency and other, net


601


50


424


31

Interest income


24


(40)


159


0

Interest expense


(7,697)


(9,777)


(34,864)


(34,248)

Early retirement of debt


0


0


0


(1,082)



(7,072)


(9,767)


(34,281)


(35,299)

Income from continuing operations before income taxes


36,083


19,928


108,926


69,413

Income tax expense


(13,668)


(8,285)


(43,032)


(25,720)

Income from continuing operations


22,415


11,643


65,894


43,693

Income (loss) from discontinued operations, net of tax


(10,721)


(8,284)


(14,886)


13,577

Net income


11,694


3,359


51,008


57,270

Less: Net income attributable to non-controlling interests


0


0


0


(3,627)

Net income attributable to Coinstar, Inc

$

11,694

$

3,359

$

51,008

$

53,643










Basic earnings per share from continuing operations attributable









to Coinstar, Inc.

$

0.72

$

0.38

$

2.11

$

1.33

Basic earnings (loss) per share from discontinued operations









attributable to Coinstar, Inc.


(0.34)


(0.27)


(0.48)


0.45

Basic earnings per share attributable to Coinstar, Inc.

$

0.38

$

0.11


1.63


1.78










Diluted earnings per share from continuing operations attributable









to Coinstar, Inc.

$

0.68

$

0.37

$

2.03

$

1.31

Diluted earnings (loss) per share from discontinued operations









attributable to Coinstar, Inc.


(0.33)


(0.26)


(0.46)


0.45

Diluted earnings per share attributable to Coinstar, Inc.

$

0.35

$

0.11

$

1.57

$

1.76










Shares used in basic per share calculations


30,981


30,979


31,268


30,152

Shares used in diluted per share calculations


33,052


31,288


32,397


30,514

Coinstar, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)








December 31,


December 31,



2010


2009






Assets





Current Assets:





Cash and cash equivalents

$

71,287

$

19,386

Cash in machine or in transit


39,603


57,141

Cash being processed


72,526


69,330

Accounts receivable, net of allowances of $272 and $99


25,958


19,265

DVD library


140,324


95,531

Deferred income taxes


13,644


12,350

Prepaid expenses and other current assets


14,736


7,756

Assets of businesses held for sale


110,316


159,318

Total current assets


488,394


440,077






Property and equipment, net


444,687


386,433

Deferred income taxes


59,696


99,195

Other assets


12,612


14,358

Intangible assets subject to amortization, net


9,572


14,986

Goodwill


267,750


267,750

Total assets

$

1,282,711

$

1,222,799






Liabilities and Stockholders' Equity





Current Liabilities:





Accounts payable

$

161,551

$

80,077

Accrued payable to retailers


96,764


92,585

Other accrued liabilities


108,422


80,024

Current callable convertible debt


173,146


0

Current portion of long-term debt


7,523


6,812

Current portion of capital lease obligations


17,233


26,322

Liabilities of businesses held for sale


68,662


88,950

Total current liabilities


633,301


374,770






Long-term debt and other


167,261


409,387

Capital lease obligations


12,158


26,234

Deferred tax liability


15


17

Total liabilities


812,735


810,408






Commitments and contingencies










Debt conversion feature


26,854


0






Stockholders' Equity:





Preferred stock, $0.001 par value - 5,000,000 shares authorized; no





shares issued or outstanding


0


0

Common stock, $0.001 par value - 60,000,000 and 45,000,000 authorized;





34,813,203 and 33,002,865 shares issued; 31,815,085 and





31,076,784 shares outstanding


434,169


406,333

Retained earnings


101,979


50,971

Treasury stock


(90,076)


(40,831)

Accumulated comprehensive loss


(2,950)


(4,082)

Total stockholders' equity


443,122


412,391

Total liabilities and stockholders' equity

$

1,282,711

$

1,222,799

Coinstar, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)








For the Three Months Ended


For the Twelve Months Ended



December 31,


December 31,



2010


2009


2010


2009

Operating Activities:









Net income

$

11,694

$

3,359

$

51,008

$

57,270

Adjustments to reconcile net income to net cash flows provided by









operating activities from continuing operations:









Depreciation and other


30,633


23,802


123,687


86,418

Amortization of intangible assets and deferred financing fees


1,194


1,387


5,338


5,037

Share-based payments


5,140


1,743


16,016


8,816

Excess tax benefits on share-based payments


(597)


0


(6,887)


0

Deferred income taxes


22,115


11,197


41,395


14,682

(Gain) loss from discontinued operations, net of tax


10,721


8,284


14,886


(13,577)

Loss on early retirement of debt


0


0


0


1,082

Non-cash interest on convertible debt


1,560


1,438


6,037


1,918

Other


302


460


666


861

Cash provided (used) by changes in operating assets and liabilities from









continuing operations:


4,232


3,228


63,473


(38,617)

Net cash provided by operating activities from continuing operations


86,994


54,898


315,619


123,890










Investing Activities:









Purchase of property and equipment


(38,373)


(46,545)


(170,847)


(148,467)

Proceeds from sale of property and equipment


111


91


1,143


291

Cash paid for acquisition, net of cash acquired


0


230


0


71

Proceeds from sale of electronic payment services business


539


0


26,617


0

Net cash used by investing activities from continuing operations


(37,723)


(46,224)


(143,087)


(148,105)










Financing Activities:









Principal payments on capital lease obligations and other debt


(8,109)


(8,619)


(36,312)


(27,204)

Proceeds from capital lease financing


0


0


0


22,020

Net borrowings (payments) on credit facility


0


77,500


(75,000)


42,500

Pay-off of term loan


0


(87,500)


0


(87,500)

Issuance of convertible debt, net of underwriting discounts and commissions of $6,000


0


0


0


194,000

Financing costs associated with revolving line of credit and convertible debt


0


0


0


(3,984)

Cash used to purchase remaining non-controlling interests in Redbox


0


0


0


(113,867)

Excess tax benefits related to share-based payments


597


0


6,887


0

Repurchase of common stock


0


0


(49,245)


0

Proceeds from exercise of stock options


3,665


5,085


31,624


15,974

Net cash provided (used) by financing activities from continuing operations


(3,847)


(13,534)


(122,046)


41,939










Effect of exchange rate changes on cash


(685)


517


(637)


3,466

Increase (decrease) in cash and cash equivalents, cash in machine









or in transit, and cash being processed from continuing operations


44,739


(4,343)


49,849


21,190










Cash flows from discontinued operations:









Operating cash flows


(17,578)


15,279


(9,524)


(8,272)

Investing cash flows


9,533


(4,348)


(2,600)


(5,026)

Financing cash flows


0


(17)


(166)


(2,536)



(8,045)


10,914


(12,290)


(15,834)

Increase in cash and cash equivalents, cash in machine









or in transit, and cash being processed


36,694


6,571


37,559


5,356

Cash and cash equivalents, cash in machine or in transit, and cash









being processed:









Beginning of period


146,722


139,286


145,857


140,501

End of period

$

183,416

$

145,857

$

183,416

$

145,857

Coinstar, Inc.
Business Segment Information
(in thousands)
(unaudited)

At December 31, 2010, we reflected both the E-payment and Money Transfer businesses as discontinued operations for all periods presented. As a result, our business segments are now DVD services and Coin services. The operating costs related to continuing corporate activities have been reallocated to these two segments.


Three Months


Twelve Months


Ended December 31,


Ended December 31,


2010


2009


2010


2009


(in thousands)


(in thousands)

Revenue:








DVD services

$ 319,582


$ 231,804


$ 1,160,110


$ 773,511

Coin services

71,174


66,497


276,311


259,112









Consolidated revenue

$ 390,756


$ 298,301


$ 1,436,421


$ 1,032,623

As a complement to our Consolidated Statements of Net Income, we are providing the following information related to our business segments:


Three Months


Twelve Months


Ended December 31,

Ended December 31,


2010


2009


2010


2009


(in thousands)


(in thousands)

Operating income before depreciation/amortization and stock-based
compensation/share-based payments:








DVD services

$ 55,408


$ 29,460


$ 192,563


$ 101,908

Coin services

24,205


26,659


93,652


101,601

Subtotal

79,613


56,119


286,215


203,509









Depreciation, amortization and other








DVD services

(23,558)


(17,283)


(93,641)


(60,731)

Coin services

(7,760)


(7,398)


(33,351)


(29,250)

Subtotal

(31,318)


(24,681)


(126,992)


(89,981)









Income from operations








DVD services

31,850


12,177


98,922


41,177

Coin services

16,445


19,261


60,301


72,351

Subtotal

48,295


31,438


159,223


113,528









Stock-based compensation and share-based payments

(5,140)


(1,743)


(16,016)


(8,816)









Total Income from operations

$ 43,155


$ 29,695


$ 143,207


$ 104,712

SOURCE Coinstar, Inc.