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, 2014, is derived from our 2014 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 2014 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.

Reclassifications

To be consistent with our 2015 reporting, the following have been retrospectively reported in our Consolidated Statements of Comprehensive Income for all periods presented with no effect on net income, cash flows or stockholder's equity:


•	Results of our Redbox Canada operations which were discontinued during the first quarter of 2015. See Note 12: Discontinued Operations for additional information;


•	Restructuring and lease termination costs. See Note 11: Restructuring for additional information; and

•

Basic and diluted earnings per share as a result of applying the two-class method of calculating earnings per share (the "Two-Class Method") during the first quarter of 2015. The Two-Class Method became significantly more dilutive than the previously applied treasury stock method as a result of stock repurchases increasing the average number of unvested restricted awards ("participating securities") as a percentage of total common shares outstanding. The impact of applying the Two-Class Method on both income from continuing operations and basic and diluted weighted average shares used to calculate earnings per common share is as follows:



	Three Months Ended, March 31, 2014
In thousands, except per share data	As Reported Under the Treasury Stock Method		Amount Allocated to Participating Securities			As Revised Under the Two-Class Method
Income from continuing operations used in basic per share calculation	$	27,606	$	(746	)	$	26,860
Income from continuing operations used in diluted per share calculation	$	27,606	$	(727	)	$	26,879
Weighted average shares used in basic per share calculation	23,944		—			23,944
Weighted average shares used in diluted per share calculation	24,775		(200		)	24,575
Basic earnings per common share from continuing operations	$	1.15	$	(0.03	)	$	1.12
Diluted earnings per common share from continuing operations	$	1.11	$	(0.02	)	$	1.09

See Note 13: Earnings Per Share for additional information.

Revision of Previously Issued Financial Statements

During the second quarter of 2014, we identified adjustments to prior periods related to 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:



	Three Months Ended, March 31, 2014
Dollars in thousands	As Reported			Adjustment			As Revised
Cash flows from changes in operating assets and liabilities:
Accounts payable	$	(27,672	)	$	282		$	(27,390	)
Net cash flows from operating activities	$	94,305		$	282		$	94,587
Investing Activities:
Purchases of property and equipment	$	(26,658	)	$	(282	)	$	(26,940	)
Net cash flows from investing activities	$	(36,327	)	$	(282	)	$	(36,609	)
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment included in ending accounts payable	$	13,120		$	(5,880	)	$	7,240

Accounting Pronouncements Adopted During the Current Year

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 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 adopted the provisions of ASU 2014-08 during the first quarter of 2015 and applied the guidance to our disposition of our Redbox operations in Canada ("Redbox Canada"). See Note 12: Discontinued Operations for additional information.

Accounting Pronouncements Not Yet Adopted

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on our consolidated financial statements, from those disclosed in our 2014 Annual Report on Form 10-K, except for the following:

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, instead of as a deferred charge. We are currently evaluating the impact of ASU 2015-03, which is effective for us in our fiscal year beginning January 1, 2016. Early adoption is permitted.