10-Q 1 a2015q310-q.htm 10-Q 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-22555
 OUTERWALL INC.
(Exact name of registrant as specified in its charter)
Delaware
 
94-3156448
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
 
1800 114th Avenue SE, Bellevue, Washington
 
98004
(Address of principal executive offices)
 
(Zip Code)
(425) 943-8000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
¨
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
 
Smaller reporting company
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at October 21, 2015
Common Stock, $0.001 par value
 
17,274,464




OUTERWALL INC.
FORM 10-Q
TABLE OF CONTENTS
  
Page
PART I - FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

OUTERWALL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
 
September 30,
2015
 
December 31,
2014
Assets

 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
195,603

 
$
242,696

Accounts receivable, net of allowances of $816 and $2,223
23,748

 
48,590

Content library
126,769

 
180,121

Prepaid expenses and other current assets
42,406

 
39,837

Total current assets
388,526

 
511,244

Property and equipment, net
341,002

 
428,468

Deferred income taxes
2,712

 
11,378

Goodwill and other intangible assets, net (Note 6)
528,138

 
623,998

Other long-term assets
6,443

 
8,231

Total assets
$
1,266,821

 
$
1,583,319

Liabilities and Stockholders’ Equity (Deficit)

 

Current Liabilities:

 

Accounts payable
$
119,148

 
$
168,633

Accrued payable to retailers
101,101

 
126,290

Other accrued liabilities
147,908

 
137,126

Current portion of long-term debt and other long-term liabilities
17,868

 
20,416

Deferred income taxes
9,501

 
21,432

Total current liabilities
395,526

 
473,897

Long-term debt and other long-term liabilities
856,275

 
973,669

Deferred income taxes
17,071

 
38,375

Total liabilities
1,268,872

 
1,485,941

Commitments and contingencies (Note 16)

 

Stockholders’ Equity (Deficit):

 

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 authorized;

 

36,710,717 and 36,600,166 shares issued;

 

 17,246,475 and 18,926,242 shares outstanding;
481,281

 
473,592

Treasury stock
(1,116,205
)
 
(996,293
)
Retained earnings
631,507

 
620,389

Accumulated other comprehensive income (loss)
1,366

 
(310
)
Total stockholders’ equity (deficit)
(2,051
)
 
97,378

Total liabilities and stockholders’ equity (deficit)
$
1,266,821

 
$
1,583,319



See accompanying Notes to Consolidated Financial Statements
3



OUTERWALL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenue
$
512,055

 
$
549,899

 
$
1,666,060

 
$
1,694,188

Expenses:
 
 
 
 
 
 
 
Direct operating(1)
340,199

 
379,442

 
1,115,002

 
1,180,818

Marketing
7,131

 
9,143

 
23,598

 
25,272

Research and development
1,514

 
2,999

 
5,637

 
9,885

General and administrative
47,818

 
47,586

 
145,157

 
148,790

Restructuring and lease termination costs (Note 11)

 

 
15,851

 
557

Depreciation and other
39,880

 
46,380

 
127,740

 
142,134

Amortization of intangible assets
3,308

 
3,665

 
9,926

 
11,347

Goodwill impairment (Note 6)

 

 
85,890

 

Total expenses
439,850

 
489,215

 
1,528,801

 
1,518,803

Operating income
72,205

 
60,684

 
137,259

 
175,385

Other expense, net:
 
 
 
 
 
 
 
Loss from equity method investments, net (Note 7)
(328
)
 
(11,352
)
 
(593
)
 
(31,261
)
Interest expense, net
(11,973
)
 
(12,465
)
 
(36,227
)
 
(35,045
)
Other, net
(1,384
)
 
(1,352
)
 
(3,088
)
 
(386
)
Total other expense, net
(13,685
)
 
(25,169
)
 
(39,908
)
 
(66,692
)
Income from continuing operations before income taxes
58,520

 
35,515

 
97,351

 
108,693

Income tax expense
(20,928
)
 
(13,392
)
 
(64,955
)
 
(35,131
)
Income from continuing operations
37,592

 
22,123

 
32,396

 
73,562

Loss from discontinued operations, net of tax (Note 12)
(256
)
 
(4,233
)
 
(5,077
)
 
(10,744
)
Net income
37,336

 
17,890

 
27,319

 
62,818

Foreign currency translation adjustment(2)
(1,651
)
 
(695
)
 
1,676

 
(156
)
Comprehensive income
$
35,685

 
$
17,195

 
$
28,995

 
$
62,662

 
 
 
 
 
 
 
 
Income from continuing operations attributable to common shares (Note 13):
 
 
 
 
 
 
 
Basic
$
36,462

 
$
21,384

 
$
31,491

 
$
71,268

Diluted
$
36,462

 
$
21,392

 
$
31,491

 
$
71,309

 
 
 
 
 
 
 
 
Basic earnings (loss) per common share (Note 13):
 
 
 
 
 
 
 
Continuing operations
$
2.12

 
$
1.14

 
$
1.77

 
$
3.43

Discontinued operations
(0.02
)
 
(0.23
)
 
(0.28
)
 
(0.52
)
Basic earnings per common share
$
2.10

 
$
0.91

 
$
1.49

 
$
2.91

 
 
 
 
 
 
 
 
Diluted earnings (loss) per common share (Note 13):
 
 
 
 
 
 
 
Continuing operations
$
2.12

 
$
1.12

 
$
1.77

 
$
3.37

Discontinued operations
(0.02
)
 
(0.22
)
 
(0.29
)
 
(0.51
)
Diluted earnings per common share
$
2.10

 
$
0.90

 
$
1.48

 
$
2.86

 
 
 
 
 
 
 
 
Weighted average common shares used in basic and diluted per share calculations (Note 13):
 
 
 
 
 
 
 
Basic
17,220

 
18,798

 
17,775

 
20,792

Diluted
17,229

 
19,021

 
17,789

 
21,186

 
 
 
 
 
 
 
 
Dividends declared per common share (Note 19)
$
0.30

 
$

 
$
0.90

 
$

(1)
“Direct operating” excludes “Depreciation and other” of $28.7 million and $86.7 million for the three and nine months ended September 30, 2015, respectively, and $31.2 million and $94.3 million for the three and nine months ended September 30, 2014, respectively.
(2)
Foreign currency translation adjustment had no tax effect for the three and nine months ended September 30, 2015 and 2014, respectively.

See accompanying Notes to Consolidated Financial Statements
4



OUTERWALL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
(unaudited)

 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Income
 
 
 
Common Stock
 
Treasury
Stock
 
Retained
Earnings
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
Balance, June 30, 2015
18,169,984

 
$
477,259

 
$
(1,055,447
)
 
$
599,332

 
$
3,017

 
$
24,161

Proceeds from exercise of stock options, net
950

 
54

 

 

 

 
54

Adjustments related to tax withholding for share-based compensation
(2,321
)
 
(153
)
 

 

 

 
(153
)
Share-based payments expense
16,448

 
3,588

 

 

 

 
3,588

Excess tax benefit on share-based compensation expense

 
533

 

 

 

 
533

Repurchases of common stock
(938,586
)
 

 
(60,758
)
 

 

 
(60,758
)
Net income

 

 

 
37,336

 

 
37,336

Dividends (Note 19)

 

 

 
(5,161
)
 

 
(5,161
)
Foreign currency translation adjustment(1)

 

 

 

 
(1,651
)
 
(1,651
)
Balance, September 30, 2015
17,246,475

 
$
481,281

 
$
(1,116,205
)
 
$
631,507

 
$
1,366

 
$
(2,051
)
(1)
Foreign currency translation adjustment has no tax effect for the three months ended September 30, 2015.
 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
Common Stock
 
Treasury
Stock
 
Retained
Earnings
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
Balance, December 31, 2014
18,926,242

 
$
473,592

 
$
(996,293
)
 
$
620,389

 
$
(310
)
 
$
97,378

Proceeds from exercise of stock options, net
48,992

 
2,552

 

 

 

 
2,552

Adjustments related to tax withholding for share-based compensation
(57,546
)
 
(3,852
)
 

 

 

 
(3,852
)
Share-based payments expense
169,105

 
8,298

 
3,577

 

 

 
11,875

Excess tax benefit on share-based compensation expense

 
691

 

 

 

 
691

Repurchases of common stock
(1,840,318
)
 

 
(123,489
)
 

 

 
(123,489
)
Net income

 

 

 
27,319

 

 
27,319

Dividends (Note 19)

 

 

 
(16,201
)
 

 
(16,201
)
Foreign currency translation adjustment(1)

 

 

 

 
1,676

 
1,676

Balance, September 30, 2015
17,246,475

 
$
481,281

 
$
(1,116,205
)
 
$
631,507

 
$
1,366

 
$
(2,051
)
(1)
Foreign currency translation adjustment has no tax effect for the nine months ended September 30, 2015.



See accompanying Notes to Consolidated Financial Statements
5



OUTERWALL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Operating Activities:
 
 
 
 
 
 
 
Net income
$
37,336

 
$
17,890

 
$
27,319

 
$
62,818

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
 
 
 
 
Depreciation and other
39,880

 
47,898

 
133,598

 
146,156

Amortization of intangible assets
3,308

 
3,671

 
9,970

 
11,366

Share-based payments expense
4,829

 
3,249

 
12,021

 
10,093

Windfall excess tax benefits related to share-based payments
(29
)
 
(35
)
 
(715
)
 
(1,988
)
Deferred income taxes
(21,741
)
 
(2,404
)
 
(25,680
)
 
(17,408
)
Restructuring and lease termination costs(2)

 

 
1,680

 

Loss from equity method investments, net
328

 
11,352

 
593

 
31,261

Amortization of deferred financing fees and debt discount
693

 
901

 
2,078

 
3,423

Loss from early extinguishment of debt

 
55

 

 
2,018

Goodwill impairment (Note 6)

 

 
85,890

 

Other
315

 
(313
)
 
(501
)
 
(1,477
)
Cash flows from changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable, net
9,655

 
12,133

 
24,732

 
17,464

Content library
18,546

 
1,314

 
53,205

 
48,800

Prepaid expenses and other current assets
17,188

 
1,044

 
(4,894
)
 
23,047

Other assets
84

 
611

 
406

 
1,647

Accounts payable
(28,383
)
 
(26,011
)
 
(46,080
)
 
(97,006
)
Accrued payable to retailers
(12,777
)
 
(21,099
)
 
(24,287
)
 
(27,822
)
Other accrued liabilities
16,327

 
(629
)
 
17,439

 
(5,345
)
Net cash flows from operating activities(1)
85,559

 
49,627

 
266,774

 
207,047

Investing Activities:
 
 
 
 
 
 
 
Purchases of property and equipment
(19,947
)
 
(19,295
)
 
(60,164
)
 
(72,311
)
Proceeds from sale of property and equipment
128

 
42

 
3,068

 
1,835

Cash paid for equity investments

 
(14,000
)
 

 
(24,500
)
Net cash flows used in investing activities(1)
(19,819
)
 
(33,253
)
 
(57,096
)
 
(94,976
)
Financing Activities:
 
 
 
 
 
 
 
Proceeds from issuance of senior unsecured notes

 

 

 
295,500

Proceeds from new borrowing on Credit Facility
35,000

 
130,000

 
147,000

 
635,000

Principal payments on Credit Facility
(72,813
)
 
(86,875
)
 
(258,563
)
 
(621,250
)
Financing costs associated with Credit Facility and senior unsecured notes
(9
)
 
(824
)
 
(9
)
 
(2,906
)
Settlement and conversion of convertible debt

 
(33,425
)
 

 
(51,149
)
Repurchases of common stock
(60,758
)
 
(70,598
)
 
(123,489
)
 
(545,078
)
Dividends paid (Note 19)
(5,139
)
 

 
(16,158
)
 

Principal payments on capital lease obligations and other debt
(2,660
)
 
(3,516
)
 
(8,938
)
 
(10,597
)
Windfall excess tax benefits related to share-based payments
29

 
35

 
715

 
1,988

Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options
(45
)
 
(59
)
 
(1,246
)
 
(1,084
)
Net cash flows used in financing activities(1)
(106,395
)
 
(65,262
)
 
(260,688
)
 
(299,576
)


6


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Effect of exchange rate changes on cash
(1,450
)
 
563

 
3,917

 
969

Change in cash and cash equivalents
(42,105
)
 
(48,325
)
 
(47,093
)
 
(186,536
)
Cash and cash equivalents:
 
 
 
 
 
 
 
Beginning of period
237,708

 
233,226

 
242,696

 
371,437

End of period
$
195,603

 
$
184,901

 
$
195,603

 
$
184,901

Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
Cash paid during the period for interest
$
12,151

 
$
12,614

 
$
34,997

 
$
29,824

Cash paid during the period for income taxes, net
$
17,551

 
$
14,594

 
$
84,447

 
$
23,783

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
 
 
 
 
Purchases of property and equipment financed by capital lease obligations
$
994

 
$
1,901

 
$
1,971

 
$
7,414

Purchases of property and equipment included in ending accounts payable
$
3,422

 
$
5,869

 
$
3,422

 
$
5,869

Common stock issued on conversion of callable convertible debt
$

 
$
14,057

 
$

 
$
24,255

Non-cash debt issue costs
$

 
$

 
$

 
$
4,500

(1)
During the first quarter of 2015 we discontinued our Redbox operations in Canada. 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.
(2)
The non-cash restructuring and lease termination costs in the nine months ended September 30, 2015 of $1.7 million is composed of $6.9 million in impairments of lease related assets partially offset by a $5.2 million benefit resulting from the lease termination.


See accompanying Notes to Consolidated Financial Statements
7



INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




8


OUTERWALL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 and our Form 8-K filed on May 8, 2015. 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 and in our Form 8-K filed on May 8, 2015.
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:
 
As Reported Under the Treasury Stock Method
 
Amount Allocated to Participating Securities
 
As Revised Under the Two-Class Method
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Nine Months Ended
In thousands, except per share data
September 30, 2014
 
September 30, 2014
 
September 30, 2014
Income from continuing operations used in basic per share calculation
$
22,123

 
$
73,562

 
$
(739
)
 
$
(2,294
)
 
$
21,384

 
$
71,268

Income from continuing operations used in diluted per share calculation
$
22,123

 
$
73,562

 
$
(731
)
 
$
(2,253
)
 
$
21,392

 
$
71,309

Weighted average shares used in basic per share calculation
18,798

 
20,792

 

 

 
18,798

 
20,792

Weighted average shares used in diluted per share calculation
19,147

 
21,372

 
(126
)
 
(186
)
 
19,021

 
21,186

Basic earnings per common share from continuing operations
$
1.18

 
$
3.54

 
$
(0.04
)
 
$
(0.11
)
 
$
1.14

 
$
3.43

Diluted earnings per common share from continuing operations
$
1.16

 
$
3.44

 
$
(0.04
)
 
$
(0.07
)
 
$
1.12

 
$
3.37

See Note 13: Earnings Per Share for additional information.



9


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 May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 sets forth a new revenue recognition model that requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017. Early adoption is permitted to the original effective date of December 15, 2016. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. We are currently in the process of evaluating the impact of ASU 2014-09.
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. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Subtopic 835-30). This ASU provides additional guidance to ASU 2015-03, which did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-15 noted that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We are currently evaluating the impact of ASU 2015-03 and 2015-15, which are effective for us in our fiscal year beginning January 1, 2016. Early adoption is permitted.
In April 2015, the FASB issued ASU 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. We are currently evaluating the impact of ASU 2015-05, which is effective for us in our fiscal year beginning January 1, 2016, and do not expect this standard to have a material impact to our consolidated financial statements and related disclosures. Early adoption is permitted.


10


Note 2: Organization and Business
Description of Business
We are a leading provider of automated retail solutions offering convenient products and services that benefit consumers and drive incremental retail traffic and revenue for retailers. During the first quarter of 2015:
To align with a change in how our chief operating decision maker evaluates business performance, we added ecoATM, our electronic device recycling business, as a separate reportable segment. Previously, the results of ecoATM along with those of other self-service concepts were included in our New Ventures segment. The combined results of the other self-service concepts, which include our product sampling kiosk concept SAMPLEit, are included in the All Other reporting category as they do not meet quantitative thresholds to be reported as a separate segment. See Note 14: Business Segments and Enterprise-Wide Information for additional information; and
We discontinued our Redbox operations in Canada as the business was not meeting our performance expectations. We have reclassified the results of Redbox Canada to discontinued operations for all periods presented in our Consolidated Statements of Comprehensive Income. See Note 12: Discontinued Operations for additional information.
Our core offerings in automated retail include our Redbox, Coinstar and ecoATM segments. Our Redbox segment consists of self-service kiosks where consumers can rent or purchase movies and video games. Our Coinstar segment consists of self-service coin-counting kiosks where consumers can convert their coins to cash or stored value products. We also offer self-service kiosks that exchange gift cards for cash under our Coinstar™ Exchange brand. Our ecoATM segment consists of self-service kiosks where consumers can sell electronic devices for cash. In addition to our three reportable segments, we also conduct business activities through other self-service concepts, where we identify, evaluate, build or acquire and develop innovative new self-service retail concepts and regularly assess these concepts to determine whether continued funding or other alternatives are appropriate.
Our kiosks are located primarily in supermarkets, drug stores, mass merchants, convenience stores, financial institutions, malls and restaurants. Our kiosk and location counts as of September 30, 2015, are as follows:
 
Kiosks
 
Locations
Redbox
40,790

 
33,310

Coinstar
21,110

 
19,910

ecoATM
2,210

 
1,980

All Other
110

 
110

Total
64,220

 
55,310

Note 3: Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Our cash and cash equivalents were $195.6 million and $242.7 million at September 30, 2015, and December 31, 2014, respectively. Of this total, cash equivalents were $9.3 million and $0.9 million, respectively, and consisted of money market demand accounts and investment grade fixed income securities such as money market funds, certificate of deposits, and commercial paper. Our cash balances with financial institutions may exceed the deposit insurance limits.
Included in our cash and cash equivalents at September 30, 2015, and December 31, 2014, were $73.6 million and $81.7 million, respectively that we identified for settling our accrued payables to our retailer partners in relation to our Coinstar kiosks.
Separately included in our cash and cash equivalents at September 30, 2015, and December 31, 2014, were $33.9 million and $66.5 million, respectively in cash and cash equivalents held in financial institutions domestically and $13.3 million and $11.6 million, respectively in cash and cash equivalents held in foreign financial institutions.


11


Note 4: Prepaid Expenses and Other Current Assets and Other Accrued Liabilities
Prepaid expenses and other current assets:
Dollars in thousands
September 30,
2015
 
December 31,
2014
Spare parts
$
12,620

 
$
13,643

Licenses
7,840

 
5,881

Electronic devices inventory
6,057

 
5,259

Income taxes receivable
1,936

 
113

Prepaid rent
1,566

 
1,446

DVD cases and labels
1,041

 
1,330

Other
11,346

 
12,165

Total prepaid and other current assets
$
42,406

 
$
39,837


Other accrued liabilities consist of the following:
Dollars in thousands
September 30,
2015
 
December 31,
2014
Payroll related expenses
$
39,543

 
$
33,343

Studio revenue share and other content related expenses
36,146

 
23,226

Business taxes
16,668

 
21,629

Insurance
9,745

 
9,615

Deferred revenue
8,001

 
6,995

Income taxes payable
6,526

 
9,463

Accrued interest expense
6,107

 
6,974

Accrued early lease termination and sublease expenses
5,692

 

Service contract provider expenses
5,277

 
4,191

Deferred rent expense
1,642

 
6,162

Other
12,561

 
15,528

Total other accrued liabilities
$
147,908

 
$
137,126

Note 5: Property and Equipment
Dollars in thousands
September 30,
2015
 
December 31,
2014
Kiosks and components
$
1,168,956

 
$
1,165,925

Computers, servers, and software
196,396

 
200,915

Leasehold improvements
23,319

 
29,625

Office furniture and equipment
7,461

 
9,218

Vehicles
5,545

 
6,234

Property and equipment, at cost
1,401,677

 
1,411,917

Accumulated depreciation and amortization
(1,060,675
)
 
(983,449
)
Property and equipment, net
$
341,002

 
$
428,468

During the first quarter of 2015, we recognized impairment charges of $6.9 million in connection with our early lease termination. See Note 11: Restructuring for additional information.


12


Note 6: Goodwill and Other Intangible Assets
Goodwill
 
We assess goodwill for potential impairment at the reporting unit level on an annual basis as of November 30, or whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. During the three months ended June 30, 2015, it became evident that revenue and profitability trends in our ecoATM reporting unit were not being achieved as expected. For example collection rates, revenue and profitability on a per kiosk basis experienced declines versus prior periods and expected seasonal trends. As a result, we revised our internal expectations for future revenue growth and profitability lower than our previous estimates. This is primarily driven by certain challenges in an increasingly competitive industry which impact the per kiosk device collection, revenue and profitability expectations and the timing and installation of kiosks. Further, while these competitive challenges grew more acute during the second quarter, we also experienced the loss of a key executive at ecoATM. This led to an indication in the second quarter of 2015 that ecoATM’s fair value was more likely than not below its carrying value.
As a result, we performed the first step of the goodwill impairment test with the assistance of a third-party valuation specialist. The first step of the impairment test was completed by comparing the carrying value of ecoATM, including goodwill, to its fair value determined using a weighted combination of a discounted cash flow (“DCF”) income based approach and a guideline public company market based approach. The DCF methodology requires significant judgment in selecting appropriate inputs including the risk adjusted market cost of capital for the discount rate, the terminal growth rate and projections of future cash flows, all of which are inherently uncertain. The guideline public company method involves significant judgment in selecting the appropriate inputs including the peer company group, the selection of relevant multiples and the determination of a reasonable control premium. Due to these significant judgments, the fair value determined in connection with the goodwill impairment test may not necessarily be indicative of the actual value that would be recognized in a future transaction. Completion of the first step of the impairment test determined that the carrying amount of ecoATM exceeded its fair value and that the second step of the impairment test needed to be performed.
Under the second step of the impairment test, we completed the process of estimating the fair value of ecoATM’s assets and liabilities, including intangible assets consisting of developed technology, trade name and covenants not to compete for the purpose of deriving an estimate of the implied fair value of goodwill. The estimate of the implied fair value of goodwill was then compared to the recorded goodwill to determine the amount of the impairment. Significant assumptions used in measuring the value of these assets and liabilities included the discount rates and obsolescence rates used in valuing the intangible assets, and replacement costs for valuing the tangible assets. The inputs and assumptions used in our goodwill impairment test are classified as Level 3 inputs within the fair value hierarchy.

Based on the result of the second step of the goodwill impairment analysis, we recognized a non-cash, non-tax deductible charge for goodwill impairment of $85.9 million related to our ecoATM business segment in the second quarter of 2015.

As a result of the impairment recorded, the estimated fair value of the ecoATM reporting unit equaled its carrying value as of June 30, 2015. The estimate of ecoATM's fair value includes key assumptions with inherent uncertainty which may change in future periods and have a negative effect on the fair value resulting in potential future impairments, the most significant of which is our estimate of future cash flows predicated on estimated growth in kiosks, revenue and profitability measures. Additionally, fair value may be negatively impacted by changes in our strategy related to ecoATM and increased competition from companies whose primary business consists of the purchase of used electronics and with companies in other businesses who also have buyback programs.

Gross amount of goodwill and accumulated impairment charges that we have recorded are as follows:
Dollars in thousands
 
Goodwill
$
559,307

Accumulated impairment losses
(85,890
)
Net goodwill at September 30, 2015
$
473,417



13


A reconciliation of the beginning and ending carrying amounts of goodwill by segment is as follows:
Dollars in thousands
December 31,
2014
 
Goodwill Impairment
 
September 30,
2015
Redbox
$
138,743

 
$

 
$
138,743

Coinstar
156,351

 

 
156,351

ecoATM
264,213

 
(85,890
)
 
178,323

Total goodwill
$
559,307

 
$
(85,890
)
 
$
473,417

Other Intangible Assets
The gross amount of our other intangible assets and the related accumulated amortization were as follows:
Dollars in thousands
Amortization
Period
 
September 30,
2015
 
December 31,
2014
Retailer relationships
5 - 10 years
 
$
53,295

 
$
53,295

Accumulated amortization
 
 
(26,209
)
 
(23,200
)
Retailer relationships, net
 
 
27,086

 
30,095

Developed technology
5 years
 
34,000

 
34,000

Accumulated amortization
 
 
(14,733
)
 
(9,633
)
Developed technology, net
 
 
19,267

 
24,367

Other
1 - 40 years
 
16,800

 
16,800

Accumulated amortization
 
 
(8,432
)
 
(6,571
)
Other, net
 
 
8,368

 
10,229

Total intangible assets, net
 
 
$
54,721

 
$
64,691

Amortization expense was as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
Dollars in thousands
2015
 
2014
 
2015
 
2014
Retailer relationships
$
1,003

 
$
1,358

 
$
3,009

 
$
4,429

Developed technology
1,700

 
1,700

 
5,100

 
5,100

Other
605

 
613

 
1,861

 
1,837

Total amortization of intangible assets
3,308

 
3,671

 
9,970

 
11,366

Less: amortization included in discontinued operations

 
(6
)
 
(44
)
 
(19
)
Total amortization of intangible assets from continuing operations
$
3,308

 
$
3,665

 
$
9,926

 
$
11,347

Assuming no future impairment, the expected future amortization as of September 30, 2015, is as follows:
Dollars in thousands
Retailer
Relationships
 
Developed Technology
 
Other
 
Total
Remainder of 2015
$
1,003

 
$
1,700

 
$
577

 
$
3,280

2016
4,012

 
6,800

 
2,281

 
13,093

2017
4,012

 
6,800

 
2,281

 
13,093

2018
4,012

 
3,967

 
1,664

 
9,643

2019
4,012

 

 
801

 
4,813

2020
4,012

 

 
407

 
4,419

Thereafter
6,023

 

 
357

 
6,380

Total expected amortization
$
27,086

 
$
19,267

 
$
8,368

 
$
54,721



14


Note 7: Equity Method Investments

We include our equity method investments within other long-term assets on our Consolidated Balance Sheets. As of September 30, 2015, our $0.9 million investment in Pursuant Health, Inc., formerly known as SoloHealth, Inc., representing approximately 10% ownership, was our only equity method investment.
Loss from Equity Method Investments

On October 19, 2014, Redbox and Verizon Ventures IV LLC, a wholly owned subsidiary of Verizon Communications Inc., entered into an agreement whereby we would withdraw from Redbox Instant™ by Verizon (the “Joint Venture”) effective October 20, 2014. Pursuant to the Withdrawal Agreement, all of Redbox’s rights under the Joint Venture’s operating agreement were extinguished for a total of $16.8 million, paid to Redbox, and no further capital contributions were required.
Loss from equity method investments within our Consolidated Statements of Comprehensive Income is composed of the following:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
Dollars in thousands
2015
 
2014
 
2015
 
2014
Proportionate share of net loss of equity method investees:
 
 
 
 
 
 
 
Joint Venture
$

 
$
(10,378
)
 
$

 
$
(28,339
)
Pursuant Health, Inc. (fka SoloHealth, Inc.)
(328
)
 
(224
)
 
(593
)
 
(672
)
Total proportionate share of net loss of equity method investees
(328
)
 
(10,602
)
 
(593
)
 
(29,011
)
Amortization of difference in carrying amount and underlying equity in Joint Venture

 
(750
)
 

 
(2,250
)
Total loss from equity method investments
$
(328
)
 
$
(11,352
)
 
$
(593
)
 
$
(31,261
)
Note 8: Debt and Other Long-Term Liabilities
 
Debt
 
Other Liabilities
 
Total
 
Senior Notes
 
Credit Facility
 
Total Debt
 
Capital Lease Obligations
 
Asset retirement obligations
 
Other long-term liabilities
 
Dollars in thousands
 Senior Unsecured Notes due 2019
 
 Senior Unsecured Notes due 2021
 
Term Loans
 
Revolving Line of Credit
 
 
 
 
 
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal
$
350,000

 
$
300,000

 
$
139,688

 
$
55,000

 
$
844,688

 
 
 
 
 
 
 

Discount
(3,530
)
 
(3,670
)
 
(279
)
 

 
(7,479
)
 
 
 
 
 
 
 

Total
346,470

 
296,330

 
139,409

 
55,000

 
837,209

 
$
8,177

 
$
9,497

 
$
19,260

 
$
874,143

Less: current portion

 

 
(12,188
)
 

 
(12,188
)
 
(5,680
)
 

 

 
(17,868
)
Total long-term portion
$
346,470

 
$
296,330

 
$
127,221

 
$
55,000

 
$
825,021

 
$
2,497

 
$
9,497

 
$
19,260

 
$
856,275

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized deferred financing fees(1)
$
534

 
$
1,213

 
$

 
$
2,467

 
$
4,214

 
 
 
 
 
 
 
$
4,214



15


 
Debt
 
Other Liabilities
 
Total
 
Senior Notes
 
Credit Facility
 
Total Debt
 
Capital Lease Obligations
 
Asset retirement obligations
 
Other long-term liabilities
 
Dollars in thousands
 Senior Unsecured Notes due 2019
 
 Senior Unsecured Notes due 2021
 
Term Loans
 
Revolving Line of Credit
 
 
 
 
 
As of December 31, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal
$
350,000

 
$
300,000

 
$
146,250

 
$
160,000

 
$
956,250

 
 
 
 
 
 
 
 
Discount
(4,296
)
 
(4,152
)
 
(335
)
 

 
(8,783
)
 
 
 
 
 
 
 
 
Total
345,704

 
295,848

 
145,915

 
160,000

 
947,467

 
$
15,391

 
$
13,576

 
$
17,651

 
$
994,085

Less: current portion

 

 
(9,390
)
 

 
(9,390
)
 
(11,026
)
 

 

 
(20,416
)
Total long-term portion
$
345,704

 
$
295,848

 
$
136,525

 
$
160,000

 
$
938,077

 
$
4,365

 
$
13,576

 
$
17,651

 
$
973,669

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Unamortized deferred financing fees(1)
$
649

 
$
1,372

 
$

 
$
2,965

 
$
4,986

 
 
 
 
 
 
 
$
4,986

(1)
Deferred financing fees are recorded in other long-term assets in our Consolidated Balance Sheets and are amortized on a straight line basis over the life of the related loan.
Interest Expense
Dollars in thousands
Three Months Ended
 
Nine Months Ended
September 30,
 
September 30,
2015
 
2014
 
2015
 
2014
Cash interest expense
$
11,297

 
$
11,519

 
$
34,191

 
$
29,654

Non-cash interest expense:
 
 
 
 
 
 
 
Amortization of debt discount
435

 
616

 
1,304

 
2,171

Amortization of deferred financing fees
258

 
285

 
774

 
1,252

Total non-cash interest expense
693

 
901

 
2,078

 
3,423

Total cash and non-cash interest expense
11,990

 
12,420

 
36,269

 
33,077

Loss from early extinguishment of debt

 
55

 

 
2,018

Total interest expense
$
11,990

 
$
12,475

 
$
36,269

 
$
35,095

Senior Unsecured Notes Due 2019
On March 12, 2013, we and certain subsidiaries of ours, as subsidiary guarantors, entered into an indenture pursuant to which we issued $350.0 million principal amount of 6.000% Senior Notes due 2019 (the “Senior Notes due 2019”) at par for proceeds, net of expenses, of $343.8 million. The expenses were allocated between debt discount and deferred financing fees based on their nature. As of September 30, 2015, we were in compliance with the covenants of the related indenture.
Senior Unsecured Notes Due 2021
On June 9, 2014, we and certain subsidiaries of ours, as subsidiary guarantors, entered into an indenture pursuant to which we issued $300.0 million principal amount of 5.875% Senior Notes due 2021 (the “Senior Notes due 2021”) at par for proceeds, net of expenses, of $294.0 million. The expenses were allocated between debt discount and deferred financing fees based on their nature.
During the second quarter of 2015, we registered the Senior Notes due 2021 and related guarantees under the Securities Act of 1933, as amended (the “Securities Act”) to allow holders to exchange the notes and related guarantees for the same principal amount of a new issue and related guarantees (collectively, the “Exchange Notes”) with substantially identical terms, except that the Exchange Notes are generally freely transferable under the Securities Act. The full principal amount of the Senior Notes due 2021 was exchanged for the Exchange Notes.
As of September 30, 2015, we were in compliance with the covenants of the related indenture.
Revolving Line of Credit and Term Loan
On June 24, 2014, we entered into the Third Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) providing for a senior secured credit facility (the “Credit Facility”). The Amended and Restated Credit Agreement amended and restated in its entirety the Second Amended and Restated Credit Agreement dated as of November 20, 2007 and amended and restated as of April 29, 2009 and as of July 15, 2011 and all amendments and restatements thereto.


16


The Credit Facility consists of (a) a $150.0 million amortizing term loan (the “Term Loan”) and (b) a $600.0 million revolving line of credit (the “Revolving Line”), which includes (i) a $75.0 million sublimit for the issuance of letters of credit, (ii) a $50.0 million sublimit for swingline loans and (iii) a $75.0 million sublimit for loans in certain foreign currencies available to us and certain wholly owned Company foreign subsidiaries (the “Foreign Borrowers”). We may, subject to applicable conditions and subject to obtaining commitments from lenders, request an increase in the Revolving Line of up to $200.0 million in aggregate (the “Accordion”). As of September 30, 2015, the interest rate on amounts outstanding under the Credit Facility was 1.95% and we were in compliance with the covenants of the Credit Facility.
The Amended and Restated Credit Agreement requires principal amortization payments under the Term Loan as follows:
Dollars in thousands
Repayment Amount
Remainder of 2015
$
2,813

2016
13,125

2017
15,000

2018
18,750

2019
90,000

Total
$
139,688

 
Note 9: Repurchases of Common Stock
Board Authorization
On February 3, 2015, the Board approved an additional stock repurchase authorization of up to $250.0 million of its common stock plus the cash proceeds received from the exercise of stock options by our executives, non-employee directors and employees.
Repurchases
In the nine months ended September 30, 2015, we repurchased a total of 1,840,318 shares of our common stock, via open market repurchases and a 10b5-1 plan, with an average price per share of $67.10 for $123.5 million.
The following table presents a summary of our authorized stock repurchase balance:
Dollars in thousands
Board Authorization
Authorized repurchase - as of January 1, 2015
$
163,655

Additional board authorization
250,000

Proceeds from the exercise of stock options
2,552

Repurchase of common stock from open market
(123,489
)
Authorized repurchase - as of September 30, 2015
$
292,718



17


Note 10: Share-Based Payments
We currently grant share-based awards to our executives, non-employee directors and employees under our 2011 Incentive Plan (the “Plan”). The Plan permits the granting of stock options, restricted stock, restricted stock units, and performance-based restricted stock.
Certain information regarding our share-based payments is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
Dollars in thousands
2015
 
2014
 
2015
 
2014
Share-based payments expense:
 
 
 
 
 
 
 
Share-based compensation - stock options
$
57

 
$
163

 
$
238

 
$
619

Share-based compensation - restricted stock
3,566

 
3,115

 
8,164

 
9,472

Share-based payments for content arrangements
1,241

 
(29
)
 
3,723

 
2

Total share-based payments expense
$
4,864

 
$
3,249

 
$
12,125

 
$
10,093

Tax benefit on share-based payments expense
$
1,888

 
$
1,246

 
$
4,696

 
$
3,873

 
September 30, 2015
Dollars in thousands
Unrecognized Share-Based Payments Expense
 
Weighted-Average Remaining Life
Unrecognized share-based payments expense:
 
 
 
Share-based compensation - stock options
$
202

 
1.2 years
Share-based compensation - restricted stock
20,656

 
2.4 years
Share-based payments for content arrangements
894

 
0.5 years
Total unrecognized share-based payments expense
$
21,752

 
 
Share-Based Compensation
Stock options
Shares of common stock are issued upon exercise of stock options. The following table presents a summary of stock option activity for 2015:
Shares in thousands
Options
 
Weighted Average Exercise Price
Outstanding, December 31, 2014
128

 
$
52.59

Granted

 

Exercised
(49
)
 
52.10

Canceled, expired, or forfeited
(24
)
 
53.99

Outstanding, September 30, 2015
55

 
52.40

Certain information regarding stock options outstanding as of September 30, 2015, is as follows:
 
Options
Shares and intrinsic value in thousands
Outstanding
 
Exercisable
Number
55

 
39

Weighted average per share exercise price
$
52.40

 
$
51.67

Aggregate intrinsic value
$
284

 
$
240

Weighted average remaining contractual term (in years)
6.58

 
6.34



18


Restricted stock and performance based restricted stock awards
Restricted stock awards are granted to eligible executives, non-employee directors and employees. Awards granted to employees and executives vest annually in equal installments over four years. Non-employee director awards vest one year after the grant date. Performance-based restricted stock awards are granted to executives only, with established performance criteria approved by the Compensation Committee of the Board of Directors. The fair value of non-performance-based awards is based on the market price on the grant date. We estimate forfeitures for restricted stock awards and recognize share-based compensation expense for only those awards expected to vest.
Awards of performance-based restricted stock made prior to 2013, once earned, vest in equal installments over three years from the date of grant. Awards of performance-based restricted stock made in and subsequent to 2013, once earned, vest in two installments over three years from the date of grant (65% of the award vests two years from the date of grant and the remaining 35% of the award vests three years from the date of grant). The restricted shares require no payment from the grantee. The fair value of performance-based awards is based on achieving specific performance conditions and is recognized over the vesting period.
The following table presents a summary of restricted stock award activity for 2015:
Shares in thousands
Restricted Stock Awards
 
Weighted Average Grant Date Fair Value
Non-vested, December 31, 2014
609

 
$
62.35

Granted
325

 
67.04

Vested
(180
)
 
59.31

Forfeited
(201
)
 
65.22

Non-vested, September 30, 2015
553

 
65.88

Share-Based Payments for Content Arrangements
We have granted restricted stock as part of content license agreements with certain movie studios. The expense related to these agreements is included within direct operating expenses in our Consolidated Statements of Comprehensive Income and is adjusted based on the number of unvested shares and market price of our common stock each reporting period. During the first quarter of 2015, 50,000 shares of restricted stock were granted and immediately vested pursuant to a revenue sharing agreement with Paramount.
Information related to the shares of restricted stock granted as part of these agreements as of September 30, 2015, is as follows:
Whole shares
Granted
 
Vested
 
Unvested
Paramount(1)
350,000

 
350,000

 

(1)
Includes 95,000 shares that vested on January 1, 2015.
Rights to Receive Cash
As a part of the acquisition of ecoATM, we issued replacement awards for unvested restricted stock and options in ecoATM with rights to receive cash equal to the per share merger consideration for restricted stock and net of the exercise price for options. The replacement awards vest in accordance with the terms of the original replaced award. The replacement awards are considered liability classified as they represent rights to receive cash. Expense associated with the post-combination awards is recognized net of forfeitures, and cash payments are made in accordance with the awards' vesting schedule, generally on a monthly basis. We recognized $3.8 million in expense associated with the issuance of rights to receive cash for the nine months ended September 30, 2015. The expected future recognition of expense associated with the rights to receive cash as of September 30, 2015 is as follows:
Dollars in thousands
Expected Expense
Remainder of 2015
$
639

2016
2,156

2017
335

Remaining total expected expense
$
3,130




19


Note 11: Restructuring
During the first quarter of 2015, we recorded restructuring charges arising from the following activities:
Discontinuing our Redbox operations in Canada. The disposal was completed on March 31, 2015. See Note 12: Discontinued Operations for further information;
Reducing the size of our Redbox headquarters facility in Oakbrook Terrace, Illinois through early termination of operating leases for certain floors. We ceased using the office space on March 31, 2015 and the effective date of the early termination is July 31, 2016. Prior to exercising our early termination option, the leases had been scheduled to expire in July 2021; and
Implementing actions to further align costs with revenues in our continuing operations primarily through workforce reductions across the Company and subleasing a floor of a corporate facility.
There were no significant restructuring charges in the third quarter of 2015 or 2014. The total amount incurred for restructuring, exclusive of asset impairments incurred by reportable segment (on an allocated basis) and expense type is as follows:
 
Nine Months Ended
 
September 30,
Dollars in thousands
2015
 
2014
Redbox
 
 
 
Severance
$
3,701

 
$
534

Lease termination costs (excluding related asset impairments)
4,567

 

Total Redbox restructuring costs
8,268

 
534

Coinstar
 
 
 
Severance
492

 
23

Lease termination costs (excluding related asset impairments)
24

 

Total Coinstar restructuring costs
516

 
23

ecoATM
 
 
 
Severance
127

 

Lease termination costs (excluding related asset impairments)

 

Total ecoATM restructuring costs
127

 

Total restructuring costs in continuing operations
8,911

 
557

Restructuring costs in discontinued operations
522

 
590

Total restructuring costs
$
9,433

 
$
1,147


During the nine months ended September 30, 2015, we recognized $16.4 million in charges in connection with our restructuring and early lease termination including $6.9 million in impairments of lease related assets, and $9.4 million in restructuring costs, which include severance and net lease termination costs.
 
Nine Months Ended
 
September 30,
Dollars in thousands
2015
 
2014
Restructuring costs
$
9,433

 
$
1,147

Impairment of lease related assets (see Note 5)
6,940

 

Total restructuring and lease termination costs
16,373

 
1,147

Less: restructuring costs included in discontinued operations
(522
)
 
(590
)
Restructuring and lease termination costs from continuing operations
$
15,851

 
$
557



20


A reconciliation of the beginning and ending liability balance by expense type is as follows:
Dollars in thousands
Severance Expense
 
Lease Termination Costs
 
Other
Beginning Balance - January 1, 2015
$

 
$

 
$

Costs charged to expense
4,451

 
4,669

 
313

Reclassification of deferred balances(1)

 
5,260

 

Costs paid or otherwise settled
(4,451
)
 
(4,237
)
 
(265
)
Ending Balance - September 30, 2015
$

 
$
5,692

 
$
48

(1)
Deferred rent liabilities related to the early lease termination that were reclassified to present the outstanding liability related to the terminated leases.

Note 12: Discontinued Operations
Summary Financial Information
On January 23, 2015, we made the decision to shut down our Redbox Canada operations as the business was not meeting the company's performance expectations. This represents a strategic shift which has a major effect on our operations as it represents a significant geographical area for our Redbox segment and the losses generated were significant to our total operations. On March 31, 2015, we completed the disposal of the Redbox Canada operations. As a result, we updated certain estimates used in the preparation of the financial statements and the remaining value of the content library and certain capitalized property and equipment consisting primarily of installation costs were amortized over the wind-down period ending March 31, 2015. We have reclassified the results of Redbox Canada to discontinued operations for all periods presented in our Consolidated Statements of Comprehensive Income.
In addition to Redbox Canada, discontinued operations for the nine months ended September 30, 2014 included a $1.3 million pretax loss from operations and a $0.5 million income tax benefit related to the wind-down process of certain new ventures that were discontinued during 2013. Continuing cash flows from the wind-down process were not material. Total loss on discontinued operations is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
Dollars in thousands
2015
 
2014
 
2015
 
2014
Redbox Canada
$
(256
)
 
$
(4,233
)
 
$
(5,077
)
 
$
(9,976
)
Certain new ventures

 

 

 
(768
)
Loss on discontinued operations
$
(256
)
 
$
(4,233
)
 
$
(5,077
)