Note 17: 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:



CONSOLIDATING BALANCE SHEETS
(unaudited)
	As of March 31, 2015
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		Eliminations and Consolidation Reclassifications			Total
Assets
Current Assets:
Cash and cash equivalents	$	145,914		$	15,192	$	36,828	$	—		$	197,934
Accounts receivable, net of allowances	2,490			29,356		4,798		—			36,644
Content library	—			172,162		338		—			172,500
Prepaid expenses and other current assets	24,630			24,513		745		(6,980		)	42,908
Intercompany receivables	48,904			490,452		265		(539,621		)	—
Total current assets	221,938			731,675		42,974		(546,601		)	449,986
Property and equipment, net	123,224			246,045		16,279		—			385,548
Deferred income taxes	—			3,004		2,231		(3,004		)	2,231
Goodwill and other intangible assets, net	249,713			370,932		—		—			620,645
Other long-term assets	6,250			1,108		293		—			7,651
Investment in related parties	960,644			18,217		—		(978,861		)	—
Total assets	$	1,561,769		$	1,370,981	$	61,777	$	(1,528,466	)	$	1,466,061
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	15,770		$	148,364	$	1,202	$	—		$	165,336
Accrued payable to retailers	58,389			37,247		11,446		—			107,082
Other accrued liabilities	68,815			75,696		2,410		—			146,921
Current portion of long-term debt and other long-term liabilities	19,170			—		374		—			19,544
Deferred income taxes	—			27,906		—		(6,980		)	20,926
Intercompany payables	410,845			100,963		27,813		(539,621		)	—
Total current liabilities	572,989			390,176		43,245		(546,601		)	459,809
Long-term debt and other long-term liabilities	866,637			20,161		291		—			887,089
Deferred income taxes	29,412			—		24		(3,004		)	26,432
Total liabilities	1,469,038			410,337		43,560		(549,605		)	1,373,330
Commitments and contingencies
Stockholders’ Equity:
Preferred stock	—			—		—		—			—
Common stock	587,738			225,729		12,393		(352,635		)	473,225
Treasury stock	(1,033,424		)	—		—		—			(1,033,424		)
Retained earnings	539,274			734,915		2,423		(626,226		)	650,386
Accumulated other comprehensive income (loss)	(857		)	—		3,401		—			2,544
Total stockholders’ equity	92,731			960,644		18,217		(978,861		)	92,731
Total liabilities and stockholders’ equity	$	1,561,769		$	1,370,981	$	61,777	$	(1,528,466	)	$	1,466,061



CONSOLIDATING BALANCE SHEETS
(unaudited)
	As of December 31, 2014
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Assets
Current Assets:
Cash and cash equivalents	$	180,889		$	17,939		$	43,868		$	—		$	242,696
Accounts receivable, net of allowances	3,203			43,874			1,513			—			48,590
Content library	—			176,490			3,631			—			180,121
Prepaid expenses and other current assets	21,442			23,923			1,030			(6,558		)	39,837
Intercompany receivables	40,762			467,181			—			(507,943		)	—
Total current assets	246,296			729,407			50,042			(514,501		)	511,244
Property and equipment, net	133,923			263,412			31,133			—			428,468
Deferred income taxes	—			—			11,378			—			11,378
Goodwill and other intangible assets, net	249,717			374,281			—			—			623,998
Other long-term assets	6,665			1,231			335			—			8,231
Investment in related parties	917,234			(5,114		)	—			(912,120		)	—
Total assets	$	1,553,835		$	1,363,217		$	92,888		$	(1,426,621	)	$	1,583,319
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	12,899		$	153,260		$	2,474		$	—		$	168,633
Accrued payable to retailers	69,189			42,977			14,124			—			126,290
Other accrued liabilities	59,770			74,536			2,820			—			137,126
Current portion of long-term debt and other long-term liabilities	20,020			—			396			—			20,416
Deferred income taxes	—			27,961			29			(6,558		)	21,432
Intercompany payables	309,932			121,015			76,996			(507,943		)	—
Total current liabilities	471,810			419,749			96,839			(514,501		)	473,897
Long-term debt and other long-term liabilities	949,588			22,946			1,135			—			973,669
Deferred income taxes	35,058			3,288			29			—			38,375
Total liabilities	1,456,456			445,983			98,003			(514,501		)	1,485,941
Commitments and contingencies
Stockholders’ Equity:
Preferred stock	—			—			—			—			—
Common stock	588,105			225,729			12,393			(352,635		)	473,592
Treasury stock	(996,293		)	—			—			—			(996,293		)
Retained earnings	506,360			691,505			(17,991		)	(559,485		)	620,389
Accumulated other comprehensive income (loss)	(793		)	—			483			—			(310		)
Total stockholders’ equity	97,379			917,234			(5,115		)	(912,120		)	97,378
Total liabilities and stockholders’ equity	$	1,553,835		$	1,363,217		$	92,888		$	(1,426,621	)	$	1,583,319



CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
	Three Months Ended March 31, 2015
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Revenue	$	58,810		$	539,281		$	10,545		$	—		$	608,636
Expenses:
Direct operating	33,726			366,411			5,047			—			405,184
Marketing	1,514			6,906			—			—			8,420
Research and development	(84		)	2,168			—			—			2,084
General and administrative	12,056			36,295			205			—			48,556
Restructuring and lease termination costs	550			15,301			—			—			15,851
Depreciation and other	4,649			36,983			1,054			—			42,686
Amortization of intangible assets	3			3,306			—			—			3,309
Total expenses	52,414			467,370			6,306			—			526,090
Operating income	6,396			71,911			4,239			—			82,546
Other income (expense), net:
Loss from equity method investments, net	(132		)	—			—			—			(132		)
Interest income (expense), net	(12,396		)	375			(50		)	—			(12,071		)
Other, net	2,436			(16		)	(4,766		)	—			(2,346		)
Total other expense, net	(10,092		)	359			(4,816		)	—			(14,549		)
Income (loss) from continuing operations before income taxes	(3,696		)	72,270			(577		)	—			67,997
Income tax benefit (expense)	(548		)	(25,310		)	16			—			(25,842		)
Income (loss) from continuing operations	(4,244		)	46,960			(561		)	—			42,155
Income (loss) from discontinued operations, net of tax	1,524			(29,054		)	20,974			—			(6,556		)
Equity in income (loss) of subsidiaries	38,319			20,413			—			(58,732		)	—
Net income (loss)	35,599			38,319			20,413			(58,732		)	35,599
Foreign currency translation adjustment⁽¹⁾	(64		)	—			2,918			—			2,854
Comprehensive income (loss)	$	35,535		$	38,319		$	23,331		$	(58,732	)	$	38,453


(1)	Foreign currency translation adjustment had no tax effect in 2015.



CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
	Three Months Ended March 31, 2014
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Revenue	$	58,177		$	528,994		$	10,591		$	—		$	597,762
Expenses:
Direct operating	33,068			381,101			5,473			—			419,642
Marketing	1,127			5,810			56			—			6,993
Research and development	896			2,578			—			—			3,474
General and administrative	10,252			42,152			204			—			52,608
Restructuring and lease termination costs	23			534			—			—			557
Depreciation and other	9,102			37,740			1,100			—			47,942
Amortization of intangible assets	536			3,306			—			—			3,842
Total expenses	55,004			473,221			6,833			—			535,058
Operating income (loss)	3,173			55,773			3,758			—			62,704
Other income (expense), net:
Income (loss) from equity method investments, net	(224		)	(9,144		)	—			—			(9,368		)
Interest income (expense), net	(9,631		)	32			(49		)	—			(9,648		)
Other, net	1,607			64			(2,319		)	—			(648		)
Total other income (expense), net	(8,248		)	(9,048		)	(2,368		)	—			(19,664		)
Income (loss) from continuing operations before income taxes	(5,075		)	46,725			1,390			—			43,040
Income tax benefit (expense)	2,328			(17,515		)	(247		)	—			(15,434		)
Income (loss) from continuing operations	(2,747		)	29,210			1,143			—			27,606
Loss from discontinued operations, net of tax	(709		)	(147		)	(3,575		)	—			(4,431		)
Equity in income (loss) of subsidiaries	26,631			(2,432		)	—			(24,199		)	—
Net income (loss)	23,175			26,631			(2,432		)	(24,199		)	23,175
Foreign currency translation adjustment⁽¹⁾	(267		)	—			1,142			—			875
Comprehensive income (loss)	$	22,908		$	26,631		$	(1,290	)	$	(24,199	)	$	24,050


(1)	Foreign currency translation adjustment had no tax effect in 2014.



CONSOLIDATING STATEMENTS OF CASH FLOWS
(unaudited)
	Three Months Ended March 31, 2015
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Operating Activities:
Net income (loss)	$	35,599		$	38,319		$	20,413		$	(58,732	)	$	35,599
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and other	4,649			38,828			5,066			—			48,543
Amortization of intangible assets	3			3,306			44			—			3,353
Share-based payments expense	1,916			1,987			—			—			3,903
Windfall excess tax benefits related to share-based payments	(526		)	—			—			—			(526		)
Deferred income taxes	(6,070		)	(6,347		)	9,870			—			(2,547		)
Restructuring and lease termination costs	136			1,544			—			—			1,680
Loss from equity method investments, net	132			—			—			—			132
Amortization of deferred financing fees and debt discount	693			—			—			—			693
Other	(149		)	(322		)	(727		)	—			(1,198		)
Equity in (income) losses of subsidiaries	(38,319		)	(20,413		)	—			58,732			—
Cash flows from changes in operating assets and liabilities:
Accounts receivable, net	712			14,518			(3,407		)	—			11,823
Content library	—			6,663			3,293			—			9,956
Prepaid expenses and other current assets	(2,759		)	(591		)	244			—			(3,106		)
Other assets	15			122			31			—			168
Accounts payable	2,895			1,202			(1,177		)	—			2,920
Accrued payable to retailers	(10,800		)	(5,730		)	(1,911		)	—			(18,441		)
Other accrued liabilities	9,718			3,994			(592		)				13,120
Net cash flows from (used in) operating activities⁽¹⁾	(2,155		)	77,080			31,147			—			106,072
Investing Activities:
Purchases of property and equipment	(5,607		)	(14,721		)	(381		)	—			(20,709		)
Proceeds from sale of property and equipment	—			123			—			—			123
Investments in and advances to affiliates	106,713			(65,229		)	(41,484		)	—			—
Net cash flows from (used in) investing activities⁽¹⁾	101,106			(79,827		)	(41,865		)	—			(20,586		)
Financing Activities:
Proceeds from new borrowing of Credit Facility	35,000			—			—			—			35,000
Principal payments on Credit Facility	(116,875		)	—			—			—			(116,875		)
Dividends paid (Note 19)	(5,602		)	—			—			—			(5,602		)
Repurchases of common stock	(40,708		)	—			—			—			(40,708		)
Principal payments on capital lease obligations and other debt	(3,143		)	—			(102		)	—			(3,245		)
Windfall excess tax benefits related to share-based payments	526			—			—			—			526
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options	(3,088		)	—			—			—			(3,088		)
Net cash flows from (used in) financing activities⁽¹⁾	(133,890		)	—			(102		)	—			(133,992		)
Effect of exchange rate changes on cash	(36		)	—			3,780			—			3,744
Increase (decrease) in cash and cash equivalents	(34,975		)	(2,747		)	(7,040		)	—			(44,762		)
Cash and cash equivalents:
Beginning of period	180,889			17,939			43,868			—			242,696
End of period	$	145,914		$	15,192		$	36,828		$	—		$	197,934


(1)	During the first quarter of 2015 we discontinued our Redbox operations in Canada. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented. See Note 12: Discontinued Operations for cash flow disclosures related to our discontinued Redbox operations in Canada.



CONSOLIDATING STATEMENTS OF CASH FLOWS
(unaudited)
	Three Months Ended March 31, 2014
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Operating Activities:
Net income (loss)	$	23,175		$	26,631		$	(2,432	)	$	(24,199	)	$	23,175
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and other	9,111			38,180			1,813			—			49,104
Amortization of intangible assets	536			3,312			—			—			3,848
Share-based payments expense	2,575			1,190			—			—			3,765
Windfall excess tax benefits related to share-based payments	(1,710		)	—			—			—			(1,710		)
Deferred income taxes	2,927			(11,261		)	(1,230		)	—			(9,564		)
Loss (income) from equity method investments, net	224			9,144			—			—			9,368
Amortization of deferred financing fees and debt discount	1,306			—			—			—			1,306
Other	(130		)	(11		)	17			—			(124		)
Equity in (income) losses of subsidiaries	(26,631		)	2,432			—			24,199			—
Cash flows from changes in operating assets and liabilities:
Accounts receivable, net	609			(6,532		)	(29		)	—			(5,952		)
Content library	36			19,373			572			—			19,981
Prepaid expenses and other current assets	47,126			(439		)	281			(13		)	46,955
Other assets	14			431			(8		)	—			437
Accounts payable	(1,276		)	(25,159		)	(955		)	—			(27,390		)
Accrued payable to retailers	(7,642		)	(8,213		)	370			—			(15,485		)
Other accrued liabilities	(13,179		)	9,612			427			13			(3,127		)
Net cash flows from (used in) operating activities⁽¹⁾	37,071			58,690			(1,174		)	—			94,587
Investing Activities:
Purchases of property and equipment	(9,239		)	(15,316		)	(2,385		)	—			(26,940		)
Proceeds from sale of property and equipment	—			831			—			—			831
Cash paid for equity investments	—			(10,500		)	—			—			(10,500		)
Investments in and advances to affiliates	31,807			(31,385		)	(422		)	—			—
Net cash flows from (used in) investing activities⁽¹⁾	22,568			(56,370		)	(2,807		)	—			(36,609		)
Financing Activities:
Proceeds from new borrowing on Credit Facility	275,000			—			—			—			275,000
Principal payments on Credit Facility	(29,375		)	—			—			—			(29,375		)
Conversion of convertible debt	(4		)	—			—			—			(4		)
Repurchases of common stock	(421,067		)	—			—			—			(421,067		)
Principal payments on capital lease obligations and other debt	(3,602		)	(3		)	(92		)	—			(3,697		)
Windfall excess tax benefits related to share-based payments	1,710			—			—			—			1,710
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options	(1,588		)	—			—			—			(1,588		)
Net cash flows from (used in) financing activities⁽¹⁾	(178,926		)	(3		)	(92		)	—			(179,021		)
Effect of exchange rate changes on cash	(267		)	—			1,419			—			1,152
Increase (decrease) in cash and cash equivalents	(119,554		)	2,317			(2,654		)	—			(119,891		)
Cash and cash equivalents:
Beginning of period	315,250			9,639			46,548			—			371,437
End of period	$	195,696		$	11,956		$	43,894		$	—		$	251,546

(1)

During the first quarter of 2015 we discontinued our Redbox operations in Canada. The first quarter of 2014 also includes the wind-down process of certain new ventures that were discontinued during 2013. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented. See Note 12: Discontinued Operations for cash flow disclosures related to our discontinued Redbox operations in Canada.