Coinstar, Inc. Announces 2011 Fourth Quarter and Full Year Results

Coinstar, Inc. Announces 2011 Fourth Quarter and Full Year Results

Company Drives 33.2% Revenue Growth and $1.00 EPS in Fourth Quarter; Expects Revenue to Top $2.2 Billion in 2012

2012 Initiatives Include Joint Venture with Verizon to Offer New Video Entertainment Choice

Company Announces Agreement to Acquire NCR's DVD Business Assets

BELLEVUE, Wash., Feb. 6, 2012 /PRNewswire/ -- Coinstar, Inc. (Nasdaq: CSTR) today announced financial results for the fourth quarter and full year ended December 31, 2011.

"Our strong finish in the fourth quarter capped a great year for Coinstar, including revenue over $1.8 billion, diluted EPS of $3.61 per share and free cash flow over $227 million," said Paul Davis, chief executive officer of Coinstar, Inc. "The strength of our core businesses provides a solid foundation that enables us to focus on key growth initiatives in 2012, including our joint venture with Verizon that was announced earlier today. We are delighted to be partnering with Verizon to offer consumers affordable entertainment in both physical and streaming formats and look forward to launching our service in the second half of the year."

Davis continued, "We also are very pleased to announce the acquisition of the assets of NCR's DVD business and the opportunity to work with NCR as we develop our portfolio of innovative, self-service concepts."

The acquisition is subject to Hart-Scott-Rodino Antitrust Improvement Act (HSR) review. Assuming HSR approval, the company expects the transaction to close no later than the third quarter of 2012.

Financial highlights for the 2011 fourth quarter and full year included:

2011 Fourth
Quarter 2011 Full Year

-- Revenue $520.5 million $1,845.4 million
-- Operating income $54.7 million $209.9 million
-- Adjusted EBITDA from
continuing operations (See Appendix
A) $100.4 million $373.0 million
-- Diluted earnings per share
from continuing operations $1.00 $3.61
-- Net cash flows from
operating activities from
continuing operations $144.9 million $406.5 million
-- Free cash flow from
continuing operations (See Appendix
A) $100.4 million $227.3 million

"Our results underscore our ability to grow our core businesses profitably and generate substantial free cash flow at the same time," said J. Scott Di Valerio, chief financial officer of Coinstar, Inc. "We are very pleased with the operational performance throughout the organization in 2011 and will continue to focus on the processes that drive success. Moving forward we are confident in our ability to execute enabling us to generate positive cash flows even as we fund our organic growth and strategic initiatives."

Revenue for the fourth quarter of 2011 increased 33.2% to $520.5 million compared with the fourth quarter of 2010, driven primarily by Redbox revenue growth of 39.5% to $445.6 million primarily reflecting new kiosk installations, strong performance of new release titles, and consumer acceptance of the price increase implemented October 31, 2011. Coin revenue grew 4.8% to $74.4 million, reflecting growth in same store sales.

Operating income for the fourth quarter of 2011 was $54.7 million, which resulted in an operating margin of 10.5%, compared with operating income of $43.2 million and an operating margin of 11.0% in the fourth quarter of 2010.

Income from continuing operations for the fourth quarter of 2011 was $31.5 million, or diluted earnings per share from continuing operations of $1.00, an increase in diluted earnings per share of 47.1% compared with $22.4 million, or $0.68 per share, in the fourth quarter of 2010.

For the 2011 full year revenue was $1,845.4 million, an increase of 28.5% compared with 2010. Operating income for 2011 was $209.9 million, which resulted in an operating margin of 11.4%, compared with operating income of $143.2 million and an operating margin of 10.0% in 2010. Income from continuing operations for 2011 was $115.0 million, or diluted earnings per share of $3.61, an increase in diluted earnings per share of 77.8% compared with income from continuing operations of $65.9 million, or $2.03 per share, in 2010.

Net cash flows from operating activities from continuing operations in the fourth quarter of 2011 was $144.9 million, compared with $87.0 million in the fourth quarter of 2010. Cash paid for capital expenditures for continuing operations for the fourth quarter of 2011 was $44.5 million, compared with $38.4 million in the fourth quarter of 2010. Free cash flow from continuing operations for the fourth quarter of 2011 was $100.4 million, compared with $48.6 million in the fourth quarter of 2010.

Guidance

Coinstar's guidance includes financial measures related to core and non-core activities. The core financial measures are non-GAAP financial measures as they exclude certain items related to non-core activities. Definitions of these terms are provided in Appendix A.

For the 2012 full year, Coinstar management expects:

-- Consolidated revenue between $2.075 billion and $2.250 billion;
-- Core adjusted EBITDA from continuing operations between $425 million and
$460 million;
-- Core EPS between $3.80 and $4.30 on a fully diluted basis; and
-- Free cash flow from continuing operations between $120 million and $145
million.

For the 2012 first quarter, Coinstar management expects:

-- Consolidated revenue between $530 million and $555 million;
-- Core adjusted EBITDA from continuing operations between $94 million and
$104 million; and
-- Core EPS between $0.76 and $0.91 on a fully diluted basis.

Additional Information

Coinstar has provided additional comments on guidance in prepared remarks that also review the company's 2011 operating and financial results and 2012 initiatives. The prepared remarks are posted on the Investor Relations section of the corporate website at www.coinstarinc.com along with this press release and the fourth quarter Investor Update.

Conference Call

Paul Davis and J. Scott Di Valerio will host a conference call today at 2:00 p.m. PST (5:00 p.m. EST) to answer questions related to the company's business performance, financial results, guidance, and recent announcements. The conference call will be webcast live and archived on the Investor Relations section of Coinstar's website. A recording of the call will be available through February 20, 2012, at 888-286-8010 or 617-801-6888, passcode 94593099.

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® self-service DVD and video game rental and Coinstar® self-service coin-counting brands. The company has approximately 35,400 DVD kiosks and 20,200 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. For more information, visit www.coinstarinc.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," 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., Redbox, Verizon, or NCR, as well as from risks and uncertainties beyond Coinstar, Inc.'s control. Such risks and uncertainties include, but are not limited to, competition from other digital entertainment providers, the ability to achieve the strategic and financial objectives for our entry into a new business, our limited ability to direct the management or policies of the new joint venture, the ability to gain government approval for the NCR asset acquisition or acquire all of the desired assets in such transaction, failure to receive the expected benefits of the NCR relationship, the termination, non-renewal or renegotiation on materially adverse terms of our contracts with our significant retailers and suppliers, payment of increased fees to retailers, suppliers and other third-party providers, 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 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, 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. The table below provides a reconciliation of the most
comparable GAAP measure, income from continuing operations, to
adjusted EBITDA from continuing operations.

Three Months Twelve Months
Ended Ended
December 31, December 31,
------------ ------------
Dollars in
thousands 2011 2010 2011 2010
---------- ---- ---- ---- ----
Income from
continuing
operations $31,522 $22,415 $114,951 $65,894
Depreciation,
amortization, and
other 39,245 31,318 148,218 126,992
Interest expense,
net 4,944 7,673 23,822 34,705
Income taxes 17,862 13,668 69,777 43,032
Share-based
payments expense
(1) 6,849 5,140 16,211 16,016
----- ----- ------ ------
Adjusted EBITDA
from continuing
operations $100,422 $80,214 $372,979 $286,639
======== ======= ======== ========

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

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. The table below provides a
reconciliation of the most comparable GAAP measure, net cash flows
from 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 2011 2010 2011 2010
-------------------- ---- ---- ---- ----
Net cash provided by
operating activities
from continuing
operations $144,877 $86,994 $406,516 $315,619
Purchase of property
and equipment (44,457) (38,373) (179,236) (170,847)
------- ------- -------- --------
Free cash flow from
continuing
operations $100,420 $48,621 $227,280 $144,772
======== ======= ======== ========

Use of Core Non-GAAP Financial Measures in 2012 Guidance

We believe investors should consider our core results because they
are more indicative of our ongoing performance and trends and are
more consistent with how management evaluates our operational
results and trends.

Core 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, as well as before non-core adjustments,
which are net of applicable taxes and primarily include acquisition
expenses, such as advisor fees and closing costs, and non-recurring
gain/loss related to the formation of our joint venture with
Verizon, as well as gains/(losses) from equity investments, which
represent our share of income from entities we do not consolidate or
control.

Core EPS is defined as earnings per share from continuing operations
excluding non-core adjustments, which are net of applicable taxes
and primarily include acquisition expenses and non-recurring gains/
losses related to the formation of our joint venture with Verizon,
as well as gain/(loss) from equity investments.

COINSTAR, INC.
CONSOLIDATED STATEMENTS OF NET INCOME
(in thousands, except per share data)
(unaudited)
For the Three For the Twelve
Months Ended Months Ended
December 31, December 31,
------------ ------------
2011 2010 2011 2010
---- ---- ---- ----

Revenue $520,455 $390,756 $1,845,372 $1,436,421

Expenses:
Direct operating 365,664 278,737 1,283,351 1,000,941
Marketing 8,307 7,461 29,004 23,836
Research and development 4,018 2,509 11,557 7,437
General and administrative 48,562 27,576 163,357 128,629
Depreciation and other 38,560 30,633 145,478 123,687
Amortization of intangible assets 685 685 2,740 3,305
Litigation settlement - - - 5,379
--- --- --- -----
Total expenses 465,796 347,601 1,635,487 1,293,214
------- ------- --------- ---------

Operating income 54,659 43,155 209,885 143,207

Other income (expense):
Foreign currency and other, net (331) 601 (1,335) 424
Interest income 961 24 2,161 159
Interest expense (5,905) (7,697) (25,983) (34,864)
(5,275) (7,072) (25,157) (34,281)
------ ------ ------- -------

Income from continuing operations
before income taxes 49,384 36,083 184,728 108,926
Income tax expense (17,862) (13,668) (69,777) (43,032)
------- ------- ------- -------
Income from continuing operations 31,522 22,415 114,951 65,894
Income (loss) from discontinued
operations, net of tax - (10,721) (11,068) (14,886)
Net income $31,522 $11,694 $103,883 $51,008
======= ======= ======== =======

Basic earnings (loss) per share
attributable to Coinstar, Inc.:
Continuing operations $1.04 $0.72 $3.76 $2.11
Discontinued operations - (0.34) (0.36) (0.48)
--- ----- ----- -----
Basic earnings per share
attributable to Coinstar, Inc. $1.04 $0.38 $3.40 $1.63
===== ===== ===== =====

Diluted earnings (loss) per share
attributable to Coinstar, Inc.:
Continuing operations $1.00 $0.68 $3.61 $2.03
Discontinued operations - (0.33) (0.35) (0.46)
--- ----- ----- -----
Diluted earnings per share
attributable to Coinstar, Inc. $1.00 $0.35 $3.26 $1.57
===== ===== ===== =====

Weighted average shares used in
basic per share calculations 30,261 30,981 30,520 31,268
Weighted average shares used in
diluted per share calculations 31,605 33,052 31,869 32,397

COINSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
December December
31, 31,
2011 2010
---- ----

Assets
Current Assets:
Cash and cash equivalents $341,855 $183,416
Accounts receivable, net of
allowances of $1,586 and $1,131 41,246 25,958
Content library 142,386 140,324
Deferred income taxes 101,341 13,644
Prepaid expenses and other current
assets 25,274 14,736
Assets of business held for sale - 110,316
--- -------
Total current assets 652,102 488,394

Property and equipment, net 499,178 444,687
Notes receivable 24,374 -
Deferred income taxes 647 59,696
Goodwill and other intangible assets 274,583 277,322
Other long-term assets 17,066 12,612
Total assets $1,467,950 $1,282,711
========== ==========

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $175,550 $161,551
Accrued payable to retailers 127,450 96,764
Other accrued liabilities 148,996 108,422
Current callable convertible debt - 173,146
Current portion of long-term debt 13,986 7,523
Current portion of capital lease
obligations 12,057 17,233
Liabilities of business held for
sale - 68,662
--- ------
Total current liabilities 478,039 633,301

Long-term debt and other long-term
liabilities 359,288 167,261
Capital lease obligations 11,768 12,158
Deferred tax liability 87,840 15
------ ---
Total liabilities 936,935 812,735

Commitments and contingencies - -
Debt conversion feature - 26,854

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 and 45,000,000
authorized;
35,251,932 and 34,813,203 shares
issued; 30,879,778 and
31,815,085 shares outstanding 481,249 434,169
Treasury stock (153,425) (90,076)
Retained earnings 205,862 101,979
Accumulated comprehensive loss (2,671) (2,950)
------ ------
Total stockholders' equity 531,015 443,122
------- -------
Total liabilities and stockholders'
equity $1,467,950 $1,282,711
========== ==========

COINSTAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three For the Twelve
Months Ended Months Ended
December 31, December 31,
------------ ------------
2011 2010 2011 2010
---- ---- ---- ----
Operating Activities:
Net income $31,522 $11,694 $103,883 $51,008
Adjustments to reconcile net income to net
cash flows from
operating activities from continuing
operations:
Depreciation and other 38,560 30,633 145,478 123,687
Amortization of intangible assets and
deferred financing fees 1,216 1,194 5,182 5,338
Share-based payments expense 6,849 5,140 16,211 16,016
Excess tax benefits on share-based
payments (40) (597) (2,471) (6,887)
Deferred income taxes 13,161 22,115 60,076 41,395
Loss (income) from discontinued
operations, net of tax - 10,721 11,068 14,886
Non-cash interest on convertible debt 1,694 1,560 6,551 6,037
Other 1,346 302 1,496 666
Cash flows from changes in operating
assets and liabilities from
continuing operations: 50,569 4,232 59,042 63,473
Net cash flows from operating activities
from continuing operations 144,877 86,994 406,516 315,619

Investing Activities:
Purchases of property and equipment (44,457) (38,373) (179,236) (170,847)
Proceeds from sale of property and
equipment 143 111 695 1,143
Proceeds from sale of businesses, net (4,001) 539 8,220 26,617
Equity investment (2,592) - (4,912) -
------ --- ------ ---
Net cash flows from investing activities
from continuing operations (50,907) (37,723) (175,233) (143,087)

Financing Activities:
Principal payments on capital lease
obligations and other debt (6,057) (8,109) (28,202) (36,312)
Borrowing from term loan - - 175,000 -
Principal payments on term loan (2,188) - (4,375) -
Net payment on revolving line of credit - - (150,000) (75,000)
Financing costs associated with credit
facility and convertible debt - - (4,196) -
Excess tax benefits related to share-
based payments 40 597 2,471 6,887
Repurchases of common stock and ASR
program - - (63,349) (49,245)
Proceeds from exercise of stock options 1,079 3,665 3,261 31,624
----- ----- ----- ------
Net cash flows from financing activities
from continuing operations (7,126) (3,847) (69,390) (122,046)

Effect of exchange rate changes on cash (289) (685) (454) (637)
---- ---- ---- ----

Increase in cash and cash equivalents from
continuing operations 86,555 44,739 161,439 49,849

Cash flows from discontinued operations:
Operating cash flows - (17,578) 9,678 (9,524)
Investing cash flows - 9,533 (12,678) (2,600)
Financing cash flows - - - (166)
--- --- ----
- (8,045) (3,000) (12,290)

Increase in cash and cash equivalents 86,555 36,694 158,439 37,559
Cash and cash equivalents:
Beginning of period 255,300 146,722 183,416 145,857
------- ------- ------- -------
End of period $341,855 $183,416 $341,855 $183,416
======== ======== ======== ========

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

During the first quarter of 2011, we added a segment, New Ventures,
to our existing segments, Redbox, formerly named DVD Services, and
Coin, formerly named Coin Services, to reflect changes in how our
chief executive officer manages our businesses and allocates
resources for the future growth of the company.

As a complement to our Consolidated Statements of Net Income, we are
providing the following information related to our business
segments, which includes segment operating income (loss).
Management, including our chief executive officer, evaluates the
performances of our business segments primarily on segment revenue
and segment operating income from continuing operations before
depreciation, amortization and other, and certain share-based
payments ("segment operating income"). We utilize segment revenue
and segment operating income because we believe they provide useful
information for effectively allocating resources among business
segments, evaluating the health of our business segments based on
metrics that management can actively influence, and gauging our
investments and our ability to service, incur or pay down debt.

Three Months Twelve Months
Ended December Ended December
31, 31,
--------------- --------------
Dollars in thousands 2011 2010 2011 2010
-------------------- ---- ---- ---- ----
Revenue:
Redbox $445,591 $319,397 $1,561,598 $1,159,709
Coin 74,448 71,033 282,382 275,982
New Ventures 416 326 1,392 730
Consolidated revenue $520,455 $390,756 $1,845,372 $1,436,421
======== ======== ========== ==========

Segment operating income reconciled to GAAP operating income

Three Months Twelve Months
Ended December Ended December
31, 31,
--------------- --------------
Dollars in
thousands 2011 2010 2011 2010
---------- ---- ---- ---- ----
Segment operating
income (loss)
(1)
Redbox (2) $76,595 $53,734 $284,932 $190,850
Coin 25,678 25,382 100,966 96,317
New Ventures (6,068) (2,560) (17,815) (8,223)
Subtotal 96,205 76,556 368,083 278,944

Depreciation,
amortization and
other:
Redbox 30,062 23,503 115,430 93,445
Coin 9,176 7,632 31,922 29,721
New Ventures 7 183 866 3,826
Total
depreciation,
amortization and
other 39,245 31,318 148,218 126,992

Share-based
compensation
expense 2,301 2,083 9,980 8,745

Operating income
(loss):
Redbox 46,533 30,231 169,502 97,405
Coin 16,502 17,750 69,044 66,596
New Ventures (6,075) (2,743) (18,681) (12,049)
Share-based
compensation
expense (2,301) (2,083) (9,980) (8,745)
Total operating
income $54,659 $43,155 $209,885 $143,207
======= ======= ======== ========

(1) Operating income (loss) before depreciation, amortization and
other, and share-based compensation expense
(2) Share-based payments expense related to our content arrangements
have been allocated to our Redbox segment

SOURCE Coinstar, Inc.

Coinstar, Inc.

CONTACT: Media, Marci Maule, Director of Public Relations, +1-425-943-8277, marci.maule@coinstar.com, or Financial Analysts and Investors, Rosemary Moothart, Director of Investor Relations, +1-425-943-8140, rosemary.moothart@coinstar.com, both of Coinstar, Inc.

Web Site: http://www.coinstar.com

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