OUTR Outerwall Inc. (MM)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 31, 2015

 

 

OUTERWALL INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		000-22555		94-3156448
(State or other jurisdiction of incorporation)		(Commission file number)		(I.R.S. Employer Identification Number)
1800 - 114th Avenue SE Bellevue, Washington				98004
(Address of principal executive offices)				(Zip Code)

Registrant’s telephone number, including area code: (425) 943-8000

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.01

Completion of Acquisition or Disposition of Assets.

On March 31, 2015, Outerwall Inc. (the “Company” or “we”) completed the disposal of Redbox Canada operations. As previously disclosed, in late January 2015, the Company made the decision to shut down its Redbox Canada operations as that business was not meeting the Company’s performance expectations. The value of the Redbox Canada content library and certain capitalized property and equipment consisting primarily of installation costs were amortized over the wind-down period ending on the effective disposal date of March 31, 2015. Redbox Canada kiosks were transferred to Redbox U.S. as partial satisfaction for intercompany debt. The kiosks will be utilized by the consolidated Company for future deployment into the Redbox U.S. network of kiosks. We estimate future cash expenditures after March 31, 2015 related to the disposition to be approximately $1.0 million. The shut down of Redbox Canada will be accounted for as discontinued operations in our financial statements.

The Company has included certain unaudited pro forma financial information giving effect to the disposal of Redbox Canada operations in Exhibit 99.1 hereto.

 

Item 2.05

Costs Associated with Exit or Disposal Activities.

On March 31, 2015, Redbox Automated Retail, LLC (“Redbox”), a wholly owned subsidiary of the Company, exercised its option to early terminate its lease of certain floors, representing 92,291 square feet of office space, of the premises located at One Tower Lane, Oak Brook Terrace, Illinois 60181, pursuant to the lease agreement (the “Lease”) between Redbox and Long Ridge Office Portfolio, L.P., dated December 22, 2009, as amended. The effective date of the early termination is July 31, 2016. The Lease is scheduled to expire in July 2021 with respect to the remaining premises subject to the Lease. The decision to early terminate certain floors is the result of the Company’s ongoing cost-savings initiatives and the shift of additional functions to our Los Angeles, California office to be closer to our studio partners.

In accordance with accounting for these exit and disposal activities regarding the Lease, the Company recorded pre-tax charges totaling $11.0 million as of March 31, 2015, the cease-use date. These pre-tax charges are comprised of $6.6 million in impairments of lease-related assets and $4.4 million as the estimated fair value of the remaining lease obligations through the effective date of the termination, including an early termination payment. We estimate future cash expenditures, net of tax benefits, after March 31, 2015 related to the termination of the Lease to be approximately $4.8 million.

 

Item 2.06

Material Impairments.

The information set forth in Item 2.05 of this Current Report on Form 8-K regarding asset impairments associated with the early Lease termination is incorporated herein by reference.

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Certain statements in this Current Report on Form 8-K are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words indicating future events, performance, results and actions, such as “will” and “expect,” and variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. The forward-looking statements in this Current Report on Form 8-K include statements regarding the Lease and the disposition and future use of assets related to Redbox Canada operations, including financial and accounting consequences. Forward-looking statements are not guarantees of future performance, actions, or results, which may vary materially from those expressed or implied in such statements. Differences may result from, among other things, actions taken by the Company or its management, including those beyond the Company’s control. Such risks and uncertainties include, but are not limited to, actions by the Company’s board and management, changes in strategic and financial objectives, and the ability to attract new retailers, penetrate new markets and distribution channels, and react to changing business demands. The foregoing list of risks and uncertainties is illustrative, but by no means exhaustive. For more information on factors that may affect future performance, actions, or results, please review “Risk Factors” described in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. These forward-looking statements reflect the Company’s expectations as of the date hereof. The Company undertakes no obligation to update the information provided herein.

 

Item 9.01

Financial Statements and Exhibits.

 

(b)	Pro forma financial information.

Unaudited pro forma condensed consolidated financial information required pursuant to Article 11 of Regulation S-X of the Securities Exchange Act of 1934, as amended, is attached hereto as Exhibit 99.1 and is incorporated by reference herein. The unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission on February 5, 2015.

 

(d)

Exhibits

 

Exhibit No.		Description
99.1		Unaudited Pro Forma Condensed Consolidated Financial Information

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				OUTERWALL INC.
Date: April 6, 2015				By:		/s/ Galen C. Smith
						Galen C. Smith
						Chief Financial Officer

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Exhibit Index

 

Exhibit No.		Description
99.1		Unaudited Pro Forma Condensed Consolidated Financial Information

Exhibit 99.1

Unaudited Pro Forma Condensed Consolidated Financial Information

On March 31, 2015, Outerwall Inc. (the “Company”) completed the disposal of its Redbox Canada operations. The Redbox Canada operations will be reported as discontinued operations in the Company’s consolidated financial statements starting with the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2015.

The following Unaudited Pro Forma Condensed Consolidated Financial Information should be read in conjunction with the Company’s historical audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission on February 5, 2015.

The following Unaudited Pro Forma Condensed Consolidated Statements of Comprehensive Income for the twelve months ended December 31, 2014, 2013, and 2012 are prepared as though the disposal of the Redbox Canada operations occurred as of January 1, 2012 and the operating results of the Redbox Canada operations are excluded from our condensed consolidated financial statements. The following Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2014 is prepared as if the disposition of the Redbox Canada operations occurred as of December 31, 2014. Pro forma adjustments are described in the Notes to Unaudited Pro Forma Condensed Consolidated Financial Information, and are based upon available information and certain assumptions that we believe are reasonable.

The following Unaudited Pro Forma Condensed Consolidated Financial Information is presented for illustrative and informational purposes only and is not intended to represent or be indicative of the financial condition or results of operations that would actually have been recorded if the disposition of the Redbox Canada operations had occurred as of or during the periods presented. In addition, the Unaudited Pro Forma Condensed Consolidated Financial Information is not intended to represent our financial position or results of operations for any future date or period.

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OUTERWALL INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the year ended December 31, 2014

(in thousands, except per share data)

(unaudited)

 

		As Reported				Redbox Canada Adjustment				Pro Forma Adjustments				Pro Forma Outerwall Inc.
Revenue		$	2,303,003			$	(11,417	)		$	—			$	2,291,586
Expenses:
Direct operating			1,601,748				(20,027	)			—				1,581,721
Marketing			38,240				(2,947	)			—				35,293
Research and development			13,047				—				—				13,047
General and administrative			191,721				(1,078	)			—				190,643
Depreciation and other			195,178				(7,354	)			—				187,824
Amortization of intangible assets			14,692				(38	)			—				14,654
Total expenses			2,054,626				(31,444	)			—				2,023,182
Operating income			248,377				20,027				—				268,404
Other income (expense), net:
Loss from equity method investments, net			(28,734	)			—				—				(28,734	)
Interest expense, net			(47,636	)			(8	)			—				(47,644	)
Other, net			(4,873	)			3,688				—				(1,185	)
Total other income (expense), net			(81,243	)			3,680				—				(77,563	)
Income from continuing operations before income taxes			167,134				23,707				—				190,841
Income tax expense			(59,748	)			(6,416	)			—				(66,164	)
Income from continuing operations		$	107,386			$	17,291			$	—			$	124,677
Income from continuing operations per share – basic		$	5.32											$	6.17
Income from continuing operations per share – diluted		$	5.19											$	6.02
Weighted average number of shares – basic			20,192												20,192
Weighted average number of shares – diluted			20,699												20,699

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OUTERWALL INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the year ended December 31, 2013

(in thousands, except per share data)

(unaudited)

 

		As Reported				Redbox Canada Adjustment				Pro Forma Adjustments				Pro Forma Outerwall Inc.
Revenue		$	2,306,601			$	(6,816	)		$	—			$	2,299,785
Expenses:
Direct operating			1,575,277				(18,278	)			—				1,556,999
Marketing			32,402				(2,175	)			—				30,227
Research and development			13,084				(2	)			—				13,082
General and administrative			221,776				(3,088	)			—				218,688
Depreciation and other			192,161				(2,760	)			—				189,401
Amortization of intangible assets			10,933				(26	)			—				10,907
Total expenses			2,045,633				(26,329	)			—				2,019,304
Operating income			260,968				19,513				—				280,481
Other income (expense), net:
Income from equity method investments, net			19,928				—				—				19,928
Interest expense, net			(32,801	)			(6	)			—				(32,807	)
Other, net			(5,527	)			323				—				(5,204	)
Total other income (expense), net			(18,400	)			317				—				(18,083	)
Income from continuing operations before income taxes			242,568				19,830				—				262,398
Income tax expense			(34,477	)			(5,233	)			—				(39,710	)
Income from continuing operations		$	208,091			$	14,597			$	—			$	222,688
Income from continuing operations per share – basic		$	7.65											$	8.18
Income from continuing operations per share – diluted		$	7.33											$	7.85
Weighted average number of shares – basic			27,216												27,216
Weighted average number of shares – diluted			28,381												28,381

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OUTERWALL INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the year ended December 31, 2012

(in thousands, except per share data)

(unaudited)

 

		As Reported				Redbox Canada Adjustment				Pro Forma Adjustments				Pro Forma Outerwall Inc.
Revenue		$	2,199,884			$	(1,733	)		$	—			$	2,198,151
Expenses:
Direct operating			1,498,819				(6,297	)			—				1,492,522
Marketing			25,979				(1,822	)			—				24,157
Research and development			6,757				—				—				6,757
General and administrative			204,519				(987	)			—				203,532
Depreciation and other			179,027				(694	)			—				178,333
Amortization of intangible assets			5,378				(21	)			—				5,357
Total expenses			1,920,479				(9,821	)			—				1,910,658
Operating income			279,405				8,088				—				287,493
Other income (expense), net:
Loss from equity method investments, net			(5,184	)			—				—				(5,184	)
Interest expense, net			(15,648	)			8				—				(15,640	)
Other, net			(180	)			25				—				(155	)
Total other income (expense), net			(21,012	)			33				—				(20,979	)
Income from continuing operations before income taxes			258,393				8,121				—				266,514
Income tax expense			(97,941	)			(2,270	)			—				(100,211	)
Income from continuing operations		$	160,452			$	5,851			$	—			$	166,303
Income from continuing operations per share – basic		$	5.30											$	5.49
Income from continuing operations per share – diluted		$	4.99											$	5.17
Weighted average number of shares – basic			30,305												30,305
Weighted average number of shares – diluted			32,174												32,174

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OUTERWALL INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As of December 31, 2014

(in thousands, except share data)

(unaudited)

 

		As Reported				Redbox Canada Adjustment				Pro Forma Adjustments				Pro Forma Outerwall Inc.
Assets
Current Assets:
Cash and cash equivalents		$	242,696			$	(1,042	)		$	—			$	241,654
Accounts receivable, net of allowances			48,590				(1,085	)			—				47,505
Content library			180,121				(3,631	)			—				176,490
Prepaid expenses and other current assets			39,837				(297	)			5,483	(a)			45,023
Total current assets			511,244				(6,055	)			5,483				510,672
Property and equipment, net			428,468				(14,826	)			9,378	(b)			423,020
Deferred income taxes			11,378				—				(9,160	)(a)			2,218
Goodwill and other intangible assets, net			623,998				(43	)			—				623,955
Other long-term assets			8,231				(67	)			—				8,164
Total assets		$	1,583,319			$	(20,991	)		$	5,701			$	1,568,029
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable		$	168,633			$	(2,673	)		$	—			$	165,960
Accrued payable to retailers			126,290				(165	)			—				126,125
Other accrued liabilities			137,126				(870	)			(9,440	)(a)			126,816
Current portion of long-term debt and other long-term liabilities			20,416				—				—				20,416
Deferred income taxes			21,432				—				(28	)(a)			21,404
Total current liabilities			473,897				(3,708	)			(9,468	)			460,721
Long-term debt and other long-term liabilities			973,669				(790	)			—				972,879
Deferred income taxes			38,375				—				(590	)(a)			37,785
Total liabilities			1,485,941				(4,498	)			(10,058	)			1,471,385
Total stockholders’ equity			97,378				(16,493	)			15,759				96,644
Total liabilities and stockholders’ equity		$	1,583,319			$	(20,991	)		$	5,701			$	1,568,029

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Notes To Unaudited Pro Forma Condensed Consolidated Financial Information

Note A – Pro Forma Adjustments

The following is a summary of the pro forma adjustments reflected in the Unaudited Pro Forma Condensed Consolidated Financial Information based on preliminary estimates, which may change as additional information is obtained:

(a)  -  Income Taxes

Reflects the adjustments to income tax payables, receivables, deferred tax assets, and deferred tax liabilities including the estimated benefit arising from a bad debt expense deduction associated with intercompany loan forgiveness which will be retained by the consolidated Company related to the shut-down of Redbox Canada GP.

(b)  -  Redbox Kiosks

Reflects the adjustments to transfer Redbox Canada kiosks to Redbox U.S. as partial satisfaction for intercompany debt. The kiosks will be utilized by the consolidated Company for future deployment into the Redbox U.S. network of kiosks.