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 June 30, 2015
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		Eliminations and Consolidation Reclassifications			Total
Assets
Current Assets:
Cash and cash equivalents	$	171,245		$	23,961	$	42,502	$	—		$	237,708
Accounts receivable, net of allowances	3,558			29,103		771		—			33,432
Content library	—			146,348		208		—			146,556
Prepaid expenses and other current assets	36,874			26,083		1,129		(4,022		)	60,064
Intercompany receivables	30,171			541,671		428		(572,270		)	—
Total current assets	241,848			767,166		45,038		(576,292		)	477,760
Property and equipment, net	112,823			231,284		16,338		—			360,445
Deferred income taxes	—			4,890		2,480		(4,890		)	2,480
Goodwill and other intangible assets, net	249,709			281,737		—		—			531,446
Other long-term assets	5,828			985		285		—			7,098
Investment in related parties	916,223			30,486		—		(946,709		)	—
Total assets	$	1,526,431		$	1,316,548	$	64,141	$	(1,527,891	)	$	1,379,229
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	10,845		$	136,143	$	221	$	—		$	147,209
Accrued payable to retailers	69,668			32,295		12,852		—			114,815
Other accrued liabilities	57,665			72,296		2,064		2,541			134,566
Current portion of long-term debt and other long-term liabilities	18,116			—		374		—			18,490
Deferred income taxes	—			32,239		—		(6,563		)	25,676
Intercompany payables	445,218			109,170		17,882		(572,270		)	—
Total current liabilities	601,512			382,143		33,393		(576,292		)	440,756
Long-term debt and other long-term liabilities	873,656			18,182		237		—			892,075
Deferred income taxes	27,102			—		25		(4,890		)	22,237
Total liabilities	1,502,270			400,325		33,655		(581,182		)	1,355,068
Commitments and contingencies
Stockholders’ Equity:
Preferred stock	—			—		—		—			—
Common stock	591,772			234,729		18,393		(367,635		)	477,259
Treasury stock	(1,055,447		)	—		—		—			(1,055,447		)
Retained earnings	488,055			681,494		8,857		(579,074		)	599,332
Accumulated other comprehensive income (loss)	(219		)	—		3,236		—			3,017
Total stockholders’ equity	24,161			916,223		30,486		(946,709		)	24,161
Total liabilities and stockholders’ equity	$	1,526,431		$	1,316,548	$	64,141	$	(1,527,891	)	$	1,379,229



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 (LOSS)
(unaudited)
	Three Months Ended June 30, 2015
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications		Total
Revenue	$	68,687		$	465,039		$	11,643		$	—	$	545,369
Expenses:
Direct operating	35,397			328,952			5,270			—		369,619
Marketing	1,477			6,543			27			—		8,047
Research and development	1			2,038			—			—		2,039
General and administrative	11,767			36,820			196			—		48,783
Depreciation and other	8,051			36,063			1,060			—		45,174
Amortization of intangible assets	4			3,305			—			—		3,309
Goodwill impairment (Note 6)	—			85,890			—			—		85,890
Total expenses	56,697			499,611			6,553			—		562,861
Operating income (loss)	11,990			(34,572		)	5,090			—		(17,492		)
Other income (expense), net:
Loss from equity method investments, net	(133		)	—			—			—		(133		)
Interest income (expense), net	(12,485		)	317			(15		)	—		(12,183		)
Other, net	3,142			80			(2,580		)	—		642
Total other income (expense), net	(9,476		)	397			(2,595		)	—		(11,674		)
Income (loss) from continuing operations before income taxes	2,514			(34,175		)	2,495			—		(29,166		)
Income tax benefit (expense)	5,981			(23,736		)	(430		)	—		(18,185		)
Income (loss) from continuing operations	8,495			(57,911		)	2,065			—		(47,351		)
Income (loss) from discontinued operations, net of tax	(856		)	1,221			1,370			—		1,735
Equity in income (loss) of subsidiaries	(53,255		)	3,435			—			49,820		—
Net income (loss)	(45,616		)	(53,255		)	3,435			49,820		(45,616		)
Foreign currency translation adjustment⁽¹⁾	638			—			(165		)	—		473
Comprehensive income (loss)	$	(44,978	)	$	(53,255	)	$	3,270		$	49,820	$	(45,143	)


(1)	Foreign currency translation adjustment had no tax effect for the three months ended June 30, 2015.



CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(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		$	11,803		$	—		$	546,527
Expenses:
Direct operating	35,401			340,591			5,742			—			381,734
Marketing	1,651			7,351			134			—			9,136
Research and development	832			2,580			—			—			3,412
General and administrative	10,365			37,995			236			—			48,596
Depreciation and other	9,469			37,221			1,122			—			47,812
Amortization of intangible assets	536			3,304			—			—			3,840
Total expenses	58,254			429,042			7,234			—			494,530
Operating income	9,831			37,597			4,569			—			51,997
Other income (expense), net:
Loss from equity method investments, net	(224		)	(10,317		)	—			—			(10,541		)
Interest income (expense), net	(12,971		)	91			(52		)	—			(12,932		)
Other, net	4,114			58			(2,558		)	—			1,614
Total other expense, net	(9,081		)	(10,168		)	(2,610		)	—			(21,859		)
Income from continuing operations before income taxes	750			27,429			1,959			—			30,138
Income tax benefit (expense)	920			(6,935		)	(290		)	—			(6,305		)
Income from continuing operations	1,670			20,494			1,669			—			23,833
Loss from discontinued operations, net of tax	(94		)	(58		)	(1,928		)	—			(2,080		)
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 for the three months ended June 30, 2014.



CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
	Six Months Ended June 30, 2015
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Revenue	$	127,497		$	1,004,320		$	22,188		$	—		$	1,154,005
Expenses:
Direct operating	69,123			695,363			10,317			—			774,803
Marketing	2,991			13,449			27			—			16,467
Research and development	(83		)	4,206			—			—			4,123
General and administrative	23,823			73,115			401			—			97,339
Restructuring and lease termination costs	551			15,300			—			—			15,851
Depreciation and other	12,700			73,046			2,114			—			87,860
Amortization of intangible assets	7			6,611			—			—			6,618
Goodwill impairment (Note 6)	—			85,890			—			—			85,890
Total expenses	109,112			966,980			12,859			—			1,088,951
Operating income	18,385			37,340			9,329			—			65,054
Other income (expense), net:
Loss from equity method investments, net	(265		)	—			—			—			(265		)
Interest income (expense), net	(24,881		)	692			(65		)	—			(24,254		)
Other, net	5,578			64			(7,346		)	—			(1,704		)
Total other income (expense), net	(19,568		)	756			(7,411		)	—			(26,223		)
Income (loss) from continuing operations before income taxes	(1,183		)	38,096			1,918			—			38,831
Income tax benefit (expense)	5,433			(49,046		)	(414		)	—			(44,027		)
Income (loss) from continuing operations	4,250			(10,950		)	1,504			—			(5,196		)
Income (loss) from discontinued operations, net of tax	668			(27,833		)	22,344			—			(4,821		)
Equity in income (loss) of subsidiaries	(14,935		)	23,848			—			(8,913		)	—
Net income (loss)	(10,017		)	(14,935		)	23,848			(8,913		)	(10,017		)
Foreign currency translation adjustment⁽¹⁾	574			—			2,753			—			3,327
Comprehensive income (loss)	$	(9,443	)	$	(14,935	)	$	26,601		$	(8,913	)	$	(6,690	)


(1)	Foreign currency translation adjustment had no tax effect for the six months ended June 30, 2015.



CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(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		$	22,394		$	—		$	1,144,289
Expenses:
Direct operating	68,469			721,692			11,215			—			801,376
Marketing	2,778			13,161			190			—			16,129
Research and development	1,728			5,158			—			—			6,886
General and administrative	20,617			80,147			440			—			101,204
Restructuring and lease termination costs	23			534			—			—			557
Depreciation and other	18,571			74,961			2,222			—			95,754
Amortization of intangible assets	1,072			6,610			—			—			7,682
Total expenses	113,258			902,263			14,067			—			1,029,588
Operating income	13,004			93,370			8,327			—			114,701
Other income (expense), net:
Loss from equity method investments, net	(448		)	(19,461		)	—			—			(19,909		)
Interest income (expense), net	(22,602		)	123			(101		)	—			(22,580		)
Other, net	5,721			122			(4,877		)	—			966
Total other expense, net	(17,329		)	(19,216		)	(4,978		)	—			(41,523		)
Income (loss) from continuing operations before income taxes	(4,325		)	74,154			3,349			—			73,178
Income tax benefit (expense)	3,248			(24,450		)	(537		)	—			(21,739		)
Income (loss) from continuing operations	(1,077		)	49,704			2,812			—			51,439
Loss from discontinued operations, net of tax	(803		)	(205		)	(5,503		)	—			(6,511		)
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 for the six months ended June 30, 2014.



CONSOLIDATING STATEMENTS OF CASH FLOWS
(unaudited)
	Six Months Ended June 30, 2015
(in thousands)	Outerwall Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations and Consolidation Reclassifications			Total
Operating Activities:
Net income (loss)	$	(10,017	)	$	(14,935	)	$	23,848		$	(8,913	)	$	(10,017	)
Adjustments to reconcile net income (loss) to net cash flows from (used in) operating activities:
Depreciation and other	12,700			74,892			6,126			—			93,718
Amortization of intangible assets	7			6,611			44			—			6,662
Share-based payments expense	3,681			3,511			—			—			7,192
Windfall excess tax benefits related to share-based payments	(686		)	—			—			—			(686		)
Deferred income taxes	(8,029		)	(3,903		)	7,993			—			(3,939		)
Restructuring and lease termination costs	136			1,544			—			—			1,680
Loss from equity method investment, net	265			—			—			—			265
Amortization of deferred financing fees and debt discount	1,385			—			—			—			1,385
Goodwill impairment (Note 6)	—			85,890			—			—			85,890
Other	(265		)	176			(727		)	—			(816		)
Equity in (income) losses of subsidiaries	14,935			(23,848		)	—			8,913			—
Cash flows from changes in operating assets and liabilities:
Accounts receivable, net	(357		)	14,773			661			—			15,077
Content library	—			31,236			3,423			—			34,659
Prepaid expenses and other current assets	(17,957		)	(4,455		)	330			—			(22,082		)
Other assets	47			245			30			—			322
Accounts payable	(2,022		)	(13,438		)	(2,237		)	—			(17,697		)
Accrued payable to retailers	479			(10,682		)	(1,307		)	—			(11,510		)
Other accrued liabilities	1,674			426			(988		)	—			1,112
Net cash flows from (used in) operating activities⁽¹⁾	(4,024		)	148,043			37,196			—			181,215
Investing Activities:
Purchases of property and equipment	(13,869		)	(25,818		)	(530		)	—			(40,217		)
Proceeds from sale of property and equipment	17			2,923			—			—			2,940
Investments in and advances to affiliates	161,753			(119,126		)	(42,627		)	—			—
Net cash flows from (used in) investing activities⁽¹⁾	147,901			(142,021		)	(43,157		)	—			(37,277		)
Financing Activities:
Proceeds from new borrowing of Credit Facility	112,000			—			—			—			112,000
Principal payments on Credit Facility	(185,750		)	—			—			—			(185,750		)
Repurchases of common stock	(62,731		)	—			—			—			(62,731		)
Dividends paid (Note 19)	(11,019		)	—			—			—			(11,019		)
Principal payments on capital lease obligations and other debt	(6,080		)	—			(198		)	—			(6,278		)
Windfall excess tax benefits related to share-based payments	686			—			—			—			686
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options	(1,201		)	—			—			—			(1,201		)
Net cash flows from (used in) financing activities⁽¹⁾	(154,095		)	—			(198		)	—			(154,293		)
Effect of exchange rate changes on cash	574			—			4,793			—			5,367
Increase (decrease) in cash and cash equivalents	(9,644		)	6,022			(1,366		)	—			(4,988		)
Cash and cash equivalents:
Beginning of period	180,889			17,939			43,868			—			242,696
End of period	$	171,245		$	23,961		$	42,502		$	—		$	237,708


(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)
	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 (loss) 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		)
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 (used in) 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 on 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		)
Settlement and 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		)



(in thousands)	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)	2014 includes the wind-down process of certain new ventures that were discontinued during 2013. Cash flows from these discontinued operations were not significant and are not segregated from cash flows from continuing operations in all periods presented.