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 March 31, 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 May 4, 2015 |
Common Stock, $0.001 par value | | 18,450,813 |
OUTERWALL INC.
FORM 10-Q
TABLE OF CONTENTS
|
| | |
| Page |
PART I - FINANCIAL INFORMATION | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
PART II - OTHER INFORMATION | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
OUTERWALL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited) |
| | | | | | | |
| March 31, 2015 | | December 31, 2014 |
Assets |
| | |
Current Assets: | | | |
Cash and cash equivalents | $ | 197,934 |
| | $ | 242,696 |
|
Accounts receivable, net of allowances of $1,128 and $2,223 | 36,644 |
| | 48,590 |
|
Content library | 172,500 |
| | 180,121 |
|
Prepaid expenses and other current assets | 42,908 |
| | 39,837 |
|
Total current assets | 449,986 |
| | 511,244 |
|
Property and equipment, net | 385,548 |
| | 428,468 |
|
Deferred income taxes | 2,231 |
| | 11,378 |
|
Goodwill and other intangible assets, net | 620,645 |
| | 623,998 |
|
Other long-term assets | 7,651 |
| | 8,231 |
|
Total assets | $ | 1,466,061 |
| | $ | 1,583,319 |
|
Liabilities and Stockholders’ Equity |
| |
|
Current Liabilities: |
| |
|
Accounts payable | $ | 165,336 |
| | $ | 168,633 |
|
Accrued payable to retailers | 107,082 |
| | 126,290 |
|
Other accrued liabilities | 146,921 |
| | 137,126 |
|
Current portion of long-term debt and other long-term liabilities | 19,544 |
| | 20,416 |
|
Deferred income taxes | 20,926 |
| | 21,432 |
|
Total current liabilities | 459,809 |
| | 473,897 |
|
Long-term debt and other long-term liabilities | 887,089 |
| | 973,669 |
|
Deferred income taxes | 26,432 |
| | 38,375 |
|
Total liabilities | 1,373,330 |
| | 1,485,941 |
|
Commitments and contingencies (Note 16) |
| |
|
Stockholders’ Equity: |
| |
|
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; |
| |
|
36,740,097 and 36,600,166 shares issued; |
| |
|
18,498,978 and 18,926,242 shares outstanding; | 473,225 |
| | 473,592 |
|
Treasury stock | (1,033,424 | ) | | (996,293 | ) |
Retained earnings | 650,386 |
| | 620,389 |
|
Accumulated other comprehensive income (loss) | 2,544 |
| | (310 | ) |
Total stockholders’ equity | 92,731 |
| | 97,378 |
|
Total liabilities and stockholders’ equity | $ | 1,466,061 |
| | $ | 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 |
| March 31, |
| 2015 | | 2014 |
Revenue | $ | 608,636 |
| | $ | 597,762 |
|
Expenses: | | | |
Direct operating(1) | 405,184 |
| | 419,642 |
|
Marketing | 8,420 |
| | 6,993 |
|
Research and development | 2,084 |
| | 3,474 |
|
General and administrative | 48,556 |
| | 52,608 |
|
Restructuring and lease termination costs (Note 11) | 15,851 |
| | 557 |
|
Depreciation and other | 42,686 |
| | 47,942 |
|
Amortization of intangible assets | 3,309 |
| | 3,842 |
|
Total expenses | 526,090 |
| | 535,058 |
|
Operating income | 82,546 |
| | 62,704 |
|
Other expense, net: | | | |
Loss from equity method investments, net (Note 7) | (132 | ) | | (9,368 | ) |
Interest expense, net | (12,071 | ) | | (9,648 | ) |
Other, net | (2,346 | ) | | (648 | ) |
Total other expense, net | (14,549 | ) | | (19,664 | ) |
Income from continuing operations before income taxes | 67,997 |
| | 43,040 |
|
Income tax expense | (25,842 | ) | | (15,434 | ) |
Income from continuing operations | 42,155 |
| | 27,606 |
|
Loss from discontinued operations, net of tax (Note 12) | (6,556 | ) | | (4,431 | ) |
Net income | 35,599 |
| | 23,175 |
|
Foreign currency translation adjustment(2) | 2,854 |
| | 875 |
|
Comprehensive income | $ | 38,453 |
| | $ | 24,050 |
|
| | | |
Income from continuing operations attributable to common shares (Note 13): | | | |
Basic | $ | 40,775 |
| | $ | 26,860 |
|
Diluted | $ | 40,776 |
| | $ | 26,879 |
|
| | | |
Basic earnings (loss) per common share (Note 13): | | | |
Continuing operations | $ | 2.23 |
| | $ | 1.12 |
|
Discontinued operations | (0.36 | ) | | (0.18 | ) |
Basic earnings per common share | $ | 1.87 |
| | $ | 0.94 |
|
| | | |
Diluted earnings (loss) per common share (Note 13): | | | |
Continuing operations | $ | 2.23 |
| | $ | 1.09 |
|
Discontinued operations | (0.36 | ) | | (0.18 | ) |
Diluted earnings per common share | $ | 1.87 |
| | $ | 0.91 |
|
| | | |
Weighted average common shares used in basic and diluted per share calculations (Note 13): | | | |
Basic | 18,269 |
| | 23,944 |
|
Diluted | 18,286 |
| | 24,575 |
|
| | | |
Dividends declared per common share (Note 19) | $ | 0.30 |
| | $ | — |
|
| |
(1) | “Direct operating” excludes depreciation and other of $30.2 million and $31.7 million for the three months ended March 31, 2015 and 2014, respectively. |
| |
(2) | Foreign currency translation adjustment had no tax effect for the three months ended March 31, 2015 and 2014, respectively. |
See accompanying Notes to Consolidated Financial Statements
4
OUTERWALL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | 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 | 6,825 |
| | 339 |
| | — |
| | — |
| | — |
| | 339 |
|
Adjustments related to tax withholding for share-based compensation | (52,800 | ) | | (3,526 | ) | | — |
| | — |
| | — |
| | (3,526 | ) |
Share-based payments expense | 235,906 |
| | 2,662 |
| | 3,577 |
| | — |
| | — |
| | 6,239 |
|
Excess tax benefit on share-based compensation expense | — |
| | 158 |
| | — |
| | — |
| | — |
| | 158 |
|
Repurchases of common stock | (617,195 | ) | | — |
| | (40,708 | ) | | — |
| | — |
| | (40,708 | ) |
Net income | — |
| | — |
| | — |
| | 35,599 |
| | — |
| | 35,599 |
|
Dividends (Note 19) | — |
| | — |
| | — |
| | (5,602 | ) | | — |
| | (5,602 | ) |
Foreign currency translation adjustment(1) | — |
| | — |
| | — |
| | — |
| | 2,854 |
| | 2,854 |
|
Balance, March 31, 2015 | 18,498,978 |
| | $ | 473,225 |
| | $ | (1,033,424 | ) | | $ | 650,386 |
| | $ | 2,544 |
| | $ | 92,731 |
|
| |
(1) | Foreign currency translation adjustment has no tax effect for the three months ended March 31, 2015. |
See accompanying Notes to Consolidated Financial Statements
5
OUTERWALL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) |
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2015 | | 2014 |
Operating Activities: | | | |
Net income | $ | 35,599 |
| | $ | 23,175 |
|
Adjustments to reconcile net income to net cash flows from operating activities: | | | |
Depreciation and other | 48,543 |
| | 49,104 |
|
Amortization of intangible assets | 3,353 |
| | 3,848 |
|
Share-based payments expense | 3,903 |
| | 3,765 |
|
Windfall excess tax benefits related to share-based payments | (526 | ) | | (1,710 | ) |
Deferred income taxes | (2,547 | ) | | (9,564 | ) |
Restructuring and lease termination costs(2) | 1,680 |
| | — |
|
Loss from equity method investments, net | 132 |
| | 9,368 |
|
Amortization of deferred financing fees and debt discount | 693 |
| | 1,306 |
|
Other | (1,198 | ) | | (124 | ) |
Cash flows from changes in operating assets and liabilities: | | | |
Accounts receivable, net | 11,823 |
| | (5,952 | ) |
Content library | 9,956 |
| | 19,981 |
|
Prepaid expenses and other current assets | (3,106 | ) | | 46,955 |
|
Other assets | 168 |
| | 437 |
|
Accounts payable | 2,920 |
| | (27,390 | ) |
Accrued payable to retailers | (18,441 | ) | | (15,485 | ) |
Other accrued liabilities | 13,120 |
| | (3,127 | ) |
Net cash flows from operating activities(1) | 106,072 |
| | 94,587 |
|
Investing Activities: | | | |
Purchases of property and equipment | (20,709 | ) | | (26,940 | ) |
Proceeds from sale of property and equipment | 123 |
| | 831 |
|
Cash paid for equity investments | — |
| | (10,500 | ) |
Net cash flows used in investing activities(1) | (20,586 | ) | | (36,609 | ) |
Financing Activities: | | | |
Proceeds from new borrowing on Credit Facility | 35,000 |
| | 275,000 |
|
Principal payments on Credit Facility | (116,875 | ) | | (29,375 | ) |
Settlement and conversion of convertible debt | — |
| | (4 | ) |
Repurchases of common stock | (40,708 | ) | | (421,067 | ) |
Dividends paid (Note 19) | (5,602 | ) | | — |
|
Principal payments on capital lease obligations and other debt | (3,245 | ) | | (3,697 | ) |
Windfall excess tax benefits related to share-based payments | 526 |
| | 1,710 |
|
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options | (3,088 | ) | | (1,588 | ) |
Net cash flows used in financing activities(1) | (133,992 | ) | | (179,021 | ) |
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2015 | | 2014 |
Effect of exchange rate changes on cash | 3,744 |
| | 1,152 |
|
Decrease in cash and cash equivalents | (44,762 | ) | | (119,891 | ) |
Cash and cash equivalents: | | | |
Beginning of period | 242,696 |
| | 371,437 |
|
End of period | $ | 197,934 |
| | $ | 251,546 |
|
Supplemental disclosure of cash flow information: | | | |
Cash paid during the period for interest | $ | 11,913 |
| | $ | 14,013 |
|
Cash paid during the period for income taxes, net | $ | 12,991 |
| | $ | 23,664 |
|
Supplemental disclosure of non-cash investing and financing activities: | | | |
Purchases of property and equipment financed by capital lease obligations | $ | 720 |
| | $ | 3,046 |
|
Purchases of property and equipment included in ending accounts payable | $ | 2,025 |
| | $ | 7,240 |
|
| |
(1) | During the first quarter of 2015, we discontinued our Redbox operations in Canada. The first quarter of 2014 also includes the wind-down process of certain new ventures that were discontinued during 2013. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented. See Note 12: Discontinued Operations for cash flow disclosures related to our discontinued Redbox operations in Canada. |
| |
(2) | The non-cash restructuring and lease termination costs in the first quarter of 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
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. 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.
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 recycle 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, financial institutions, convenience stores, malls and restaurants. Our kiosk and location counts as of March 31, 2015, are as follows: |
| | | | | |
| Kiosks | | Locations |
Redbox | 41,960 |
| | 34,430 |
|
Coinstar | 21,220 |
| | 20,010 |
|
ecoATM | 2,140 |
| | 1,900 |
|
All Other | 90 |
| | 90 |
|
Total | 65,410 |
| | 56,430 |
|
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 $197.9 million and $242.7 million at March 31, 2015, and December 31, 2014, respectively. Of this total, cash equivalents were $8.6 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 March 31, 2015, and December 31, 2014, were $68.7 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 March 31, 2015, and December 31, 2014, were $37.8 million and $66.5 million, respectively in cash and cash equivalents held in financial institutions domestically and $10.7 million and $11.6 million, respectively in cash and cash equivalents held in foreign financial institutions.
Note 4: Prepaid Expenses and Other Current Assets and Other Accrued Liabilities
Prepaid expenses and other current assets:
|
| | | | | | | |
Dollars in thousands | March 31, 2015 | | December 31, 2014 |
Spare parts | $ | 15,060 |
| | $ | 13,643 |
|
Licenses | 8,298 |
| | 5,881 |
|
Electronic devices inventory | 4,818 |
| | 5,259 |
|
Prepaid rent | 1,464 |
| | 1,446 |
|
DVD cases and labels | 1,093 |
| | 1,330 |
|
Income taxes receivable | 122 |
| | 113 |
|
Other | 12,053 |
| | 12,165 |
|
Total prepaid and other current assets | $ | 42,908 |
| | $ | 39,837 |
|
Other accrued liabilities consist of the following: |
| | | | | | | |
Dollars in thousands | March 31, 2015 | | December 31, 2014 |
Accrued content library expense | $ | 27,739 |
| | $ | 23,226 |
|
Payroll related expenses | 26,877 |
| | 33,343 |
|
Business taxes | 21,573 |
| | 21,629 |
|
Income taxes payable | 17,107 |
| | 9,463 |
|
Insurance | 9,852 |
| | 9,615 |
|
Deferred revenue | 7,073 |
| | 6,995 |
|
Accrued early lease termination and sublease expenses | 6,995 |
| | — |
|
Accrued interest expense | 6,455 |
| | 6,974 |
|
Service contract provider expenses | 3,744 |
| | 4,191 |
|
Deferred rent expense | 3,537 |
| | 6,162 |
|
Other | 15,969 |
| | 15,528 |
|
Total other accrued liabilities | $ | 146,921 |
| | $ | 137,126 |
|
Note 5: Property and Equipment
|
| | | | | | | |
Dollars in thousands | March 31, 2015 | | December 31, 2014 |
Kiosks and components | $ | 1,165,096 |
| | $ | 1,165,925 |
|
Computers, servers, and software | 194,825 |
| | 200,915 |
|
Leasehold improvements | 21,126 |
| | 29,625 |
|
Office furniture and equipment | 7,271 |
| | 9,218 |
|
Vehicles | 5,736 |
| | 6,234 |
|
Property and equipment, at cost | 1,394,054 |
| | 1,411,917 |
|
Accumulated depreciation and amortization | (1,008,506 | ) | | (983,449 | ) |
Property and equipment, net | $ | 385,548 |
| | $ | 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.
Note 6: Goodwill and Other Intangible Assets
Goodwill
The carrying amount of goodwill was as follows: |
| | | | | | | |
Dollars in thousands | March 31, 2015 | | December 31, 2014 |
Goodwill | $ | 559,307 |
| | $ | 559,307 |
|
Other Intangible Assets
The gross amount of our other intangible assets and the related accumulated amortization were as follows:
|
| | | | | | | | | |
Dollars in thousands | Amortization Period | | March 31, 2015 | | December 31, 2014 |
Retailer relationships | 5 - 10 years | | $ | 53,295 |
| | $ | 53,295 |
|
Accumulated amortization | | | (24,203 | ) | | (23,200 | ) |
Retailer relationships, net | | | 29,092 |
| | 30,095 |
|
Developed technology | 5 years | | 34,000 |
| | 34,000 |
|
Accumulated amortization | | | (11,333 | ) | | (9,633 | ) |
Developed technology, net | | | 22,667 |
| | 24,367 |
|
Other | 1 - 40 years | | 16,800 |
| | 16,800 |
|
Accumulated amortization | | | (7,221 | ) | | (6,571 | ) |
Other, net | | | 9,579 |
| | 10,229 |
|
Total intangible assets, net | | | $ | 61,338 |
| | $ | 64,691 |
|
Amortization expense was as follows:
|
| | | | | | | |
| Three Months Ended |
| March 31, |
Dollars in thousands | 2015 | | 2014 |
Retailer relationships | $ | 1,003 |
| | $ | 1,536 |
|
Developed technology | 1,700 |
| | 1,700 |
|
Other | 650 |
| | 612 |
|
Total amortization of intangible assets | 3,353 |
| | 3,848 |
|
Less: amortization included in discontinued operations | (44 | ) | | (6 | ) |
Total amortization of intangible assets from continuing operations | $ | 3,309 |
| | $ | 3,842 |
|
Assuming no future impairment, the expected future amortization as of March 31, 2015 is as follows: |
| | | | | | | | | | | | | | | |
Dollars in thousands | Retailer Relationships | | Developed Technology | | Other | | Total |
Remainder of 2015 | $ | 3,009 |
| | $ | 5,100 |
| | $ | 1,787 |
| | $ | 9,896 |
|
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 |
| | — |
| | 765 |
| | 4,777 |
|
Thereafter | 6,023 |
| | — |
| | — |
| | 6,023 |
|
Total expected amortization | $ | 29,092 |
| | $ | 22,667 |
| | $ | 9,579 |
| | $ | 61,338 |
|
Note 7: Equity Method Investments
We include our equity method investments within other long-term assets on our Consolidated Balance Sheets. As of March 31, 2015 our $1.3 million investment in Pursuant Health, Inc., formerly known as SoloHealth, Inc., representing 10% ownership, was our only equity method investment.
Income (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 made 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 |
| March 31, |
Dollars in thousands | 2015 | | 2014 |
Proportionate share of net loss of equity method investees: | | | |
Joint Venture | $ | — |
| | $ | (8,394 | ) |
Pursuant Health, Inc. (fka SoloHealth, Inc.) | (132 | ) | | (224 | ) |
Total proportionate share of net loss of equity method investees | (132 | ) | | (8,618 | ) |
Amortization of difference in carrying amount and underlying equity in Joint Venture | — |
| | (750 | ) |
Total loss from equity method investments | $ | (132 | ) | | $ | (9,368 | ) |
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 March 31, 2015: | | | | | | | | | | | | | | | | | |
Principal | $ | 350,000 |
| | $ | 300,000 |
| | $ | 144,375 |
| | $ | 80,000 |
| | $ | 874,375 |
| | | | | | | |
|
Discount | (4,041 | ) | | (3,991 | ) | | (317 | ) | | — |
| | (8,349 | ) | | | | | | | |
|
Total | 345,959 |
| | 296,009 |
| | 144,058 |
| | 80,000 |
| | 866,026 |
| | $ | 12,652 |
| | $ | 12,663 |
| | $ | 15,292 |
| | $ | 906,633 |
|
Less: current portion | — |
| | — |
| | (10,313 | ) | | — |
| | (10,313 | ) | | (9,231 | ) | | — |
| | — |
| | (19,544 | ) |
Total long-term portion | $ | 345,959 |
| | $ | 296,009 |
| | $ | 133,745 |
| | $ | 80,000 |
| | $ | 855,713 |
| | $ | 3,421 |
| | $ | 12,663 |
| | $ | 15,292 |
| | $ | 887,089 |
|
| | | | | | | | | | | | | | | | | |
Unamortized deferred financing fees(1) | $ | 611 |
| | $ | 1,319 |
| | $ | — |
| | $ | 2,799 |
| | $ | 4,729 |
| | | | | | | | $ | 4,729 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
March 31, |
2015 | | 2014 |
Cash interest expense | $ | 11,395 |
| | $ | 8,362 |
|
Non-cash interest expense: | | | |
Amortization of debt discount | 435 |
| | 802 |
|
Amortization of deferred financing fees | 258 |
| | 504 |
|
Total non-cash interest expense | 693 |
| | 1,306 |
|
Total interest expense | $ | 12,088 |
| | $ | 9,668 |
|
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 March 31, 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. As of March 31, 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.
The New 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 March 31, 2015, the interest rate on amounts outstanding under the Credit Facility was 2.11% 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 | $ | 7,500 |
|
2016 | 13,125 |
|
2017 | 15,000 |
|
2018 | 18,750 |
|
2019 | 90,000 |
|
Total | $ | 144,375 |
|
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 three months ended March 31, 2015, we repurchased a total of 617,195 shares of our common stock, via open market repurchases with an average price per share of $65.96 for $40.7 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 | 339 |
|
Repurchase of common stock from open market | (40,708 | ) |
Authorized repurchase - as of March 31, 2015 | $ | 373,286 |
|
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 |
| March 31, |
Dollars in thousands | 2015 | | 2014 |
Share-based payments expense: | | | |
Share-based compensation - stock options | $ | 141 |
| | $ | 233 |
|
Share-based compensation - restricted stock | 2,559 |
| | 2,914 |
|
Share-based payments for content arrangements | 1,241 |
| | 618 |
|
Total share-based payments expense | $ | 3,941 |
| | $ | 3,765 |
|
Tax benefit on share-based payments expense | $ | 1,519 |
| | $ | 1,445 |
|
|
| | | | | |
| March 31, 2015 |
Dollars in thousands | Unrecognized Share-Based Payments Expense | | Weighted-Average Remaining Life |
Unrecognized share-based payments expense: | | | |
Share-based compensation - stock options | $ | 446 |
| | 1.7 years |
Share-based compensation - restricted stock | 26,516 |
| | 2.8 years |
Share-based payments for content arrangements | 3,376 |
| | 0.7 years |
Total unrecognized share-based payments expense | $ | 30,338 |
| | |
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 | (7 | ) | | 49.60 |
|
Canceled, expired, or forfeited | (16 | ) | | 53.75 |
|
Outstanding, March 31, 2015 | 105 |
| | 52.60 |
|
Certain information regarding stock options outstanding as of March 31, 2015, is as follows:
|
| | | | | | | |
| Options |
Shares and intrinsic value in thousands | Outstanding | | Exercisable |
Number | 105 |
| | 81 |
|
Weighted average per share exercise price | $ | 52.60 |
| | $ | 52.10 |
|
Aggregate intrinsic value | $ | 1,424 |
| | $ | 1,138 |
|
Weighted average remaining contractual term (in years) | 4.96 |
| | 4.41 |
|
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 | 262 |
| | 55.72 |
|
Vested | (157 | ) | | 59.28 |
|
Forfeited | (73 | ) | | 66.41 |
|
Non-vested, March 31, 2015 | 641 |
| | 60.04 |
|
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 March 31, 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 $1.9 million in expense associated with the issuance of rights to receive cash for the three months ended March 31, 2015. The expected future recognition of expense associated with the rights to receive cash as of March 31, 2015 is as follows:
|
| | | |
Dollars in thousands | Expected Expense |
Remainder of 2015 | $ | 2,690 |
|
2016 | 2,905 |
|
2017 | 511 |
|
Remaining total expected expense | $ | 6,106 |
|
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; and |
| |
• | 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. |
We do not expect significant future restructuring charges related to our first quarter 2015 restructuring activities. The total amount incurred for restructuring, exclusive of asset impairments incurred by reportable segment (on an allocated basis) and expense type is as follows:
|
| | | | | | | |
| Three Months Ended |
| March 31, |
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 |
| | 557 |
|
Total restructuring costs | $ | 9,433 |
| | $ | 1,114 |
|
During the first quarter of 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 lease termination costs.
|
| | | | | | | |
| Three Months Ended |
| March 31, |
Dollars in thousands | 2015 | | 2014 |
Restructuring costs | $ | 9,433 |
| | $ | 1,114 |
|
Impairment of lease related assets (see Note 5) | 6,940 |
| | — |
|
Total restructuring and lease termination costs | 16,373 |
| | 1,114 |
|
Less: restructuring costs included in discontinued operations | (522 | ) | | (557 | ) |
Restructuring and lease termination costs from continuing operations | $ | 15,851 |
| | $ | 557 |
|
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 |
|
Costs paid or otherwise settled | (1,752 | ) | | (2,614 | ) | | — |
|
Ending Balance - March 31, 2015 | $ | 2,699 |
| | $ | 2,055 |
| | $ | 313 |
|
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. We believe 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, 2014 discontinued operations includes a $1.2 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 |
| March 31, |
Dollars in thousands | 2015 | | 2014 |
Redbox Canada | $ | (6,556 | ) | | $ | (3,720 | ) |
Certain new ventures | — |
| | (711 | ) |
Net loss on discontinued operations | $ | (6,556 | ) | | $ | (4,431 | ) |
Redbox Canada
The disposition and operating results of Redbox Canada are presented in discontinued operations in our Consolidated Statements of Comprehensive Income for all periods presented. The following table sets forth the components of discontinued operations included in our Consolidated Statements of Comprehensive Income: |
| | | | | | | |
| Three Months Ended |
| March 31, |
Dollars in thousands | 2015 | | 2014 |
Major classes of line items constituting pretax loss of discontinued operations: |
|
|
|
|
|
Revenue | $ | 1,557 |
| | $ | 2,607 |
|
Direct operating | 4,269 |
| | 4,593 |
|
Marketing | 129 |
| | 604 |
|
General and administrative | 119 |
| | 236 |
|
Restructuring and lease termination costs | 522 |
| | — |
|
Depreciation and other | 5,858 |
| | 1,153 |
|
Amortization of intangible assets | 44 |
| | 6 |
|
Other expense, net | (4,495 | ) | | (1,093 | ) |
Pretax loss of discontinued operations related to major classes of pretax loss | (13,879 | ) | | (5,078 | ) |
Income tax benefit(1) | 7,323 |
| | 1,358 |
|
Net loss on discontinued operations | $ | (6,556 | ) | | $ | (3,720 | ) |
| |
(1) | The income tax benefit for the three months ended March 31, 2015 includes a benefit on the rate differential between the U.S. and Canada. |
We estimate the cash expenditures after March 31, 2015 related to the disposition of Redbox Canada to be approximately $1.0 million. Significant operating and investing cash flows of Redbox Canada were as follows:
|
| | | | | | | |
| Three Months Ended |
| March 31, |
Dollars in thousands | 2015 | | 2014 |
Net loss on discontinued operations | $ | (6,556 | ) | | $ | (3,720 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | |
Depreciation and amortization | 5,902 |
| | 1,159 |
|
Content library | 3,064 |
| | 469 |
|
Prepaid and other current assets | 544 |
| | 146 |
|
Accounts payable | (1,621 | ) | | (966 | ) |
Accrued payables to retailers | (155 | ) | | 152 |
|
Other accrued liabilities | (32 | ) | | 336 |
|
Net cash flows from operating activities | $ | 1,146 |
| | $ | (2,424 | ) |
Investing activities: | | | |
Purchase of property, plant and equipment | (278 | ) | | (2,766 | ) |
Total cash flows used in investing activities | $ | (278 | ) | | $ | (2,766 | ) |
Note 13: Earnings Per Share
Beginning in the first quarter of 2015, we began applying the two-class method of calculating basic and diluted earnings per share (the "Two-Class Method") as it 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 as a percentage of total common shares outstanding.
The Two-Class Method is an earnings allocation formula that treats a participating security, as having rights to earnings that otherwise would have been available to common shareholders and assumes all earnings for the period are distributed. Our unvested restricted stock awards granted are participating securities as they entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock.
Our calculation of basic and diluted earnings per share is as follows: |
| | | | | | | |
| Three Months Ended |
| March 31, |
In thousands, except per share data | 2015 | | 2014 |
Numerator | | | |
Income from continuing operations | $ | 42,155 |
| | $ | 27,606 |
|
Loss from discontinued operations | (6,556 | ) | | (4,431 | ) |
Net income | $ | 35,599 |
| | $ | 23,175 |
|
| | | |
Distributed income from continuing operations to common shares | $ | 5,454 |
| | $ | — |
|
Distributed income from continuing operations to participating shares | 148 |
| | — |
|
Total distributed income from continuing operations | $ | 5,602 |
| | $ | — |
|
| | | |
Undistributed income from continuing operations to common shares | $ | 35,321 |
| | $ | 26,860 |
|
Undistributed income from continuing operations to participating shares | 1,232 |
| | 746 |
|
Total undistributed income from continuing operations | $ | 36,553 |
| | $ | 27,606 |
|
| | | |
Income from continuing operations to common shares - basic | $ | 40,775 |
| | $ | 26,860 |
|
Undistributed income from continuing operations allocated to participating shares | 1,232 |
| | 746 |
|
Undistributed income from continuing operations reallocated to participating shares | (1,231 | ) | | (727 | ) |
Income from continuing operations to common shares - diluted | $ | 40,776 |
| | $ | 26,879 |
|
| | | |
Denominator | | | |
Weighted average common shares - basic | 18,269 |
| | 23,944 |
|
Dilutive effect of share-based payment awards | 17 |
| | 112 |
|
Dilutive effect of convertible debt | — |
| | 519 |
|
Weighted average common shares - diluted(1) | 18,286 |
| | 24,575 |
|
| | | |
Basic earnings (loss) per common share: | | | |
Continuing operations | $ | 2.23 |
| | $ | 1.12 |
|
Discontinued operations | (0.36 | ) | | (0.18 | ) |
Basic earnings per common share | $ | 1.87 |
| | $ | 0.94 |
|
| | | |
Diluted earnings (loss) per common share: | | | |
Continuing operations | $ | 2.23 |
| | $ | 1.09 |
|
Discontinued operations | (0.36 | ) | | (0.18 | ) |
Diluted earnings per common share | $ | 1.87 |
| | $ | 0.91 |
|
| | | |
Stock options and share-based awards not included in diluted EPS calculation because their effect would have be antidilutive | 3 |
| | 156 |
|
| |
(1) | Participating securities were included in the calculation of diluted earnings per share using the two-class method, as this calculation was more dilutive than the calculation using the treasury stock method. |
Note 14: Business Segments and Enterprise-Wide Information
Management, including our chief operating decision maker, who is our CEO, evaluates the performances of our business segments primarily on segment revenue and segment operating income before depreciation, amortization and other, and share-based compensation granted to executives, non-employee directors and employees (“segment operating income”). Segment operating income contains internally allocated costs of our shared service support functions, including but not limited to, corporate executive management, business development, sales, finance, legal, human resources, information technology and risk management. We also review depreciation and amortization allocated to each segment. Share-based payments expense related to share-based compensation granted to executives, non-employee directors and employees and expense related to the rights to receive cash issued in connection with our acquisition of ecoATM are not allocated to our segments and are included in the Corporate Unallocated column in the analysis and reconciliation below; however, share-based payments expense related to our content arrangements with certain movie studios has been allocated to our Redbox segment and is included within direct operating expenses. Our performance evaluation does not include segment assets.
Changes in our Organizational Structure
During the first quarter of 2015, 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 product sampling kiosk concept SAMPLEit, are now included in the All Other reporting category in the reconciliation below as they do not meet quantitative thresholds to be reported as a separate segment. All goodwill previously allocated to the New Ventures segment has been allocated to the ecoATM segment.
Comparability of Segment Results
We have recast prior period results for the following:
| |
• | Discontinued operations, consisting of our Redbox operations in Canada which we shut down during the first quarter of 2015. See Note 12: Discontinued Operations for further information; and |
| |
• | The addition of our ecoATM segment and an All Other reporting category, which we added during the first quarter of 2015. |
Our analysis and reconciliation of our segment information to the consolidated financial statements that follows covers our results of operations, which consists of our Redbox, Coinstar and ecoATM segments, Corporate Unallocated expenses and All Other. All Other includes the results of other self-service concepts, which we regularly assess to determine whether continued funding or other alternatives are appropriate.
|
| | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | |
Three Months Ended March 31, 2015 | Redbox | | Coinstar | | ecoATM | | All Other | | Corporate Unallocated | | Total |
Revenue | $ | 519,533 |
| | $ | 69,330 |
| | $ | 19,749 |
| | $ | 24 |
| | $ | — |
| | $ | 608,636 |
|
Expenses: | | | | | | | | | | | |
Direct operating | 342,935 |
| | 37,263 |
| | 22,806 |
| | 1,191 |
| | 989 |
| | 405,184 |
|
Marketing | 4,825 |
| | 1,178 |
| | 1,730 |
| | 320 |
| | 367 |
| | 8,420 |
|
Research and development | — |
| | — |
| | 1,456 |
| | (85 | ) | | 713 |
| | 2,084 |
|
General and administrative | 33,735 |
| | 7,795 |
| | 1,968 |
| | 2,507 |
| | 2,551 |
| | 48,556 |
|
Restructuring and lease termination costs (Note 11) | 15,174 |
| | 550 |
| | 127 |
| | — |
| | — |
| | 15,851 |
|
Segment operating income (loss) | 122,864 |
| | 22,544 |
| | (8,338 | ) | | (3,909 | ) | | (4,620 | ) | | 128,541 |
|
Less: depreciation, amortization and other | (31,607 | ) | | (7,818 | ) | | (5,902 | ) | | (668 | ) | | — |
| | (45,995 | ) |
Operating income (loss) | 91,257 |
| | 14,726 |
| | (14,240 | ) | | (4,577 | ) | | (4,620 | ) | | 82,546 |
|
Loss from equity method investments, net | — |
| | — |
| | — |
| | — |
| | (132 | ) | | (132 | ) |
Interest expense, net | — |
| | — |
| | — |
| | — |
| | (12,071 | ) | | (12,071 | ) |
Other, net | — |
| | — |
| | — |
| | — |
| | (2,346 | ) | | (2,346 | ) |
Income (loss) from continuing operations before income taxes | $ | 91,257 |
| | $ | 14,726 |
| | $ | (14,240 | ) | | $ | (4,577 | ) | | $ | (19,169 | ) | | $ | 67,997 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | |
Three Months Ended March 31, 2014 | Redbox | | Coinstar | | ecoATM | | All Other | | Corporate Unallocated | | Total |
Revenue | $ | 513,049 |
| | $ | 68,753 |
| | $ | 15,946 |
| | $ | 14 |
| | $ | — |
| | $ | 597,762 |
|
Expenses: | | | | | | | | | | | |
Direct operating | 363,601 |
| | 37,723 |
| | 15,931 |
| | 408 |
| | 1,979 |
| | 419,642 |
|
Marketing | 4,460 |
| | 1,006 |
| | 668 |
| | 161 |
| | 698 |
| | 6,993 |
|
Research and development | 8 |
| | 269 |
| | 1,784 |
| | 632 |
| | 781 |
| | 3,474 |
|
General and administrative | 38,701 |
| | 6,997 |
| | 2,879 |
| | 921 |
| | 3,110 |
| | 52,608 |
|
Restructuring and lease termination costs (Note 11) | 534 |
| | 23 |
| | — |
| | — |
| | — |
| | 557 |
|
Segment operating income (loss) | 105,745 |
| | 22,735 |
| | (5,316 | ) | | (2,108 | ) | | (6,568 | ) | | 114,488 |
|
Less: depreciation, amortization and other | (39,404 | ) | | (8,563 | ) | | (3,712 | ) | | (105 | ) | | — |
| | (51,784 | ) |
Operating income (loss) | 66,341 |
| | 14,172 |
| | (9,028 | ) | | (2,213 | ) | | (6,568 | ) | | 62,704 |
|
Loss from equity method investments, net | — |
| | — |
| | — |
| | — |
| | (9,368 | ) | | (9,368 | ) |
Interest expense, net | — |
| | — |
| | — |
| | — |
| | (9,648 | ) | | (9,648 | ) |
Other, net | — |
| | — |
| | — |
| | — |
| | (648 | ) | | (648 | ) |
Income (loss) from continuing operations before income taxes | $ | 66,341 |
| | $ | 14,172 |
| | $ | (9,028 | ) | | $ | (2,213 | ) | | $ | (26,232 | ) | | $ | 43,040 |
|
Significant Retailer Relationships
The following retailers accounted for 10% or more of our consolidated revenue:
|
| | | | | |
| Three Months Ended |
| March 31, |
| 2015 | | 2014 |
Wal-Mart Stores Inc. | 16.3 | % | | 15.3 | % |
Walgreen Co. | 14.3 | % | | 14.2 | % |
Note 15: Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs:
| |
• | Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities; |
| |
• | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; or |
| |
• | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. |
The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Assets and Liabilities Measured and Reported at Fair Value on a Recurring Basis
The following table presents our financial assets and (liabilities) that are measured and reported at fair value in our Consolidated Balance Sheets on a recurring basis, by level within the fair value hierarchy (in thousands):
|
| | | | | | | | | | | |
Fair Value at March 31, 2015 | Level 1 | | Level 2 | | Level 3 |
Money market demand accounts and investment grade fixed income securities | $ | 8,589 |
| | $ | — |
| | $ | — |
|
| | | | | |
Fair Value at December 31, 2014 | Level 1 | | Level 2 | | Level 3 |
Money market demand accounts and investment grade fixed income securities | $ | 916 |
| | $ | — |
| | $ | — |
|
Money Market Demand Accounts and Investment Grade Fixed Income Securities
We determine fair value for our money market demand accounts and investment grade fixed income securities based on quoted market prices. The fair value of these assets is included in cash and cash equivalents on our Consolidated Balance Sheets.
Assets and Liabilities Measured and Reported at Fair Value on a Nonrecurring Basis
We recognize or disclose the fair value of certain assets such as non-financial assets, primarily long-lived assets, goodwill, intangible assets and certain other assets in connection with impairment evaluations. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy.
Fair Value of Other Financial Instruments
The carrying value of our term loans approximates their fair value and falls under Level 2 of the fair value hierarchy.
We estimated the fair value of our senior unsecured notes due 2019 and 2021 outstanding using market rates of approximately 6.000% and 5.875%, respectively, for similar high-yield debt at March 31, 2015. The estimated fair value of our senior unsecured notes due 2019 and 2021 was approximately $350.0 million and $300.0 million, at March 31, 2015 and December 31, 2014, respectively. These estimated fair values for our senior unsecured notes due 2019 and 2021 were determined based on their stated terms, maturing on March 15, 2019 and June 15, 2021, respectively, and annual interest rates of 6.000% and 5.875%. The fair value estimate of our senior unsecured notes falls under Level 3 of the fair value hierarchy. We have reported the carrying value, face value less the unamortized debt discount, of our senior unsecured notes, issued at par, in our Consolidated Balance Sheets.
Note 16: Commitments and Contingencies
Lease Commitments
Operating Leases
During the first quarter of 2015, we made the following changes to our operating leases:
| |
• | We early terminated our operating lease of certain floors of our Redbox headquarters and recognized the fair value of the ongoing lease payments and other related costs through the effective date of termination, July 31, 2016, as of the cease use date, March 31, 2015. See Note 11: Restructuring for additional information; and |
| |
• | We entered into a new operating lease of 16,085 square feet of office space in Woodland Hills, California which expires May 31, 2022. |
As of March 31, 2015, our future minimum lease payments, net of sublease income are as follows: |
| | | |
Dollars in thousands | Operating Leases(1) |
Remaining in 2015 | $ | 13,617 |
|
2016 | 17,193 |
|
2017 | 10,161 |
|
2018 | 6,374 |
|
2019 | 5,637 |
|
Thereafter | 10,873 |
|
Total minimum lease commitments | 63,855 |
|
Less: sublease income | (1,412 | ) |
Total minimum lease commitments, net | $ | 62,443 |
|
| |
(1) | Includes all operating leases having an initial or remaining non-cancelable lease term in excess of one year. |
Purchase commitments
Pursuant to the manufacturing and services agreement entered into as part of the NCR Asset Acquisition, Outerwall, Redbox or an affiliate were committed to purchase goods and services from NCR for a period of five years from June 22, 2012. At the end of the five-year period, if the aggregate amount paid in margin to NCR for goods and services delivered were to equal less than $25.0 million, Outerwall was to pay NCR the difference between such aggregate amount and $25.0 million. We made no purchases in the three months ended March 31, 2015. As of March 31, 2015, our remaining commitment is $15.8 million under this arrangement.
We have also entered into other certain miscellaneous purchase agreements, which resulted in total purchase commitments of $22.2 million as of March 31, 2015.
Content License Agreements
On March 26, 2015, we entered into a revenue sharing agreement with Warner Home Video, a division of Warner Bros. Home Entertainment Inc., (the "Warner Agreement") under which Redbox agrees to license minimum quantities of theatrical and direct-to-video titles for rental through March 31, 2017. The Warner Agreement maintains a 28-day window on such titles.
We have entered into certain license agreements to obtain content for movie and video game rentals. A summary of the estimated commitments in relation to these agreements as of March 31, 2015 is presented in the following table:
|
| | | | | | | | | | | | | | | |
Dollars in thousands | | | Years Ended December 31, |
Total | | 2015 | | 2016 | | 2017 |
Warner | $ | 206,110 |
| | $ | 87,081 |
| | $ | 98,237 |
| | $ | 20,792 |
|
Lionsgate | 123,376 |
| | 69,699 |
| | 53,677 |
| | — |
|
Universal | 111,085 |
| | 102,550 |
| | 8,535 |
| | — |
|
Sony | 95,934 |
| | 95,934 |
| | — |
| | — |
|
Paramount | 88,963 |
| | 88,963 |
| | — |
| | — |
|
Fox | 48,842 |
| | 48,842 |
| | — |
| | — |
|
Total estimated commitments | $ | 674,310 |
| | $ | 493,069 |
| | $ | 160,449 |
| | $ | 20,792 |
|
Letters of Credit
As of March 31, 2015, we had six irrevocable standby letters of credit that totaled $6.4 million. These standby letters of credit, which expire at various times through October 2015, are used to collateralize certain obligations to third parties. As of March 31, 2015, no amounts were outstanding under these standby letter of credit agreements.
Legal Matters
In October 2009, an Illinois resident, Laurie Piechur, individually and on behalf of all others similarly situated, filed a putative class action complaint against our Redbox subsidiary in the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois. The plaintiff alleged that, among other things, Redbox charges consumers illegal and excessive late fees in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and that Redbox's rental terms violate the Illinois Rental Purchase Agreement Act or the Illinois Automatic Contract Renewal Act and the plaintiff is seeking monetary damages and other relief. In November 2009, Redbox removed the case to the U.S. District Court for the Southern District of Illinois. In February 2010, the District Court remanded the case to the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois. In May 2010, the court denied Redbox's motion to dismiss the plaintiff's complaint. In November 2011, the plaintiff moved for class certification, and Redbox moved for summary judgment. The court denied Redbox's motion for summary judgment in February 2012. The plaintiff filed an amended complaint on April 19, 2012, and an amended motion for class certification on June 5, 2012. The court denied Redbox's motion to dismiss the amended complaint. The amended class certification motion was briefed and argued. At the hearing on plaintiff's amended motion for class certification, the plaintiff dismissed all claims but two and is pursuing only her claims under the Illinois Rental Purchase Agreement Act and the Illinois Automatic Contract Renewal Act. On May 21, 2013, the court denied plaintiff's amended class action motion. On January 29, 2014, the Illinois Supreme Court denied plaintiff’s petition for leave to appeal the trial court’s denial of class certification. Redbox has moved to dismiss all remaining claims on mootness grounds, and the Court granted Redbox’s motion on December 11, 2014. The plaintiffs appealed on January 7, 2015. We believe that the claims against us are without merit and intend to defend ourselves vigorously in this matter. Currently, no accrual has been established as it was not possible to estimate the possible loss or range of loss because this matter had not advanced to a stage where we could make any such estimate.
Note 17: Guarantor Subsidiaries
Certain of our wholly owned subsidiaries have, jointly and severally, fully and unconditionally guaranteed the Senior Notes. Pursuant to SEC regulations, we have presented in columnar format the condensed consolidating financial information for Outerwall Inc., the guarantor subsidiaries on a combined basis, and all non-guarantor subsidiaries on a combined basis in the following tables:
|
| | | | | | | | | | | | | | | | | | | |
CONSOLIDATING BALANCE SHEETS |
(unaudited) |
| As of March 31, 2015 |
(in thousands) | Outerwall Inc. | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Eliminations and Consolidation Reclassifications | | Total |
Assets | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 145,914 |
| | $ | 15,192 |
| | $ | 36,828 |
| | $ | — |
| | $ | 197,934 |
|
Accounts receivable, net of allowances | 2,490 |
| | 29,356 |
| | 4,798 |
| | — |
| | 36,644 |
|
Content library | — |
| | 172,162 |
| | 338 |
| | — |
| | 172,500 |
|
Prepaid expenses and other current assets | 24,630 |
| | 24,513 |
| | 745 |
| | (6,980 | ) | | 42,908 |
|
Intercompany receivables | 48,904 |
| | 490,452 |
| | 265 |
| | (539,621 | ) | | — |
|
Total current assets | 221,938 |
| | 731,675 |
| | 42,974 |
| | (546,601 | ) | | 449,986 |
|
Property and equipment, net | 123,224 |
| | 246,045 |
| | 16,279 |
| | — |
| | 385,548 |
|
Deferred income taxes | — |
| | 3,004 |
| | 2,231 |
| | (3,004 | ) | | 2,231 |
|
Goodwill and other intangible assets, net | 249,713 |
| | 370,932 |
| | — |
| | — |
| | 620,645 |
|
Other long-term assets | 6,250 |
| | 1,108 |
| | 293 |
| | — |
| | 7,651 |
|
Investment in related parties | 960,644 |
| | 18,217 |
| | — |
| | (978,861 | ) | | — |
|
Total assets | $ | 1,561,769 |
| | $ | 1,370,981 |
| | $ | 61,777 |
| | $ | (1,528,466 | ) | | $ | 1,466,061 |
|
Liabilities and Stockholders’ Equity | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Accounts payable | $ | 15,770 |
| | $ | 148,364 |
| | $ | 1,202 |
| | $ | — |
| | $ | 165,336 |
|
Accrued payable to retailers | 58,389 |
| | 37,247 |
| | 11,446 |
| | — |
| | 107,082 |
|
Other accrued liabilities | 68,815 |
| | 75,696 |
| | 2,410 |
| | — |
| | 146,921 |
|
Current portion of long-term debt and other long-term liabilities | 19,170 |
| | — |
| | 374 |
| | — |
| | 19,544 |
|
Deferred income taxes | — |
| | 27,906 |
| | — |
| | (6,980 | ) | | 20,926 |
|
Intercompany payables | 410,845 |
| | 100,963 |
| | 27,813 |
| | (539,621 | ) | | — |
|
Total current liabilities | 572,989 |
| | 390,176 |
| | 43,245 |
| | (546,601 | ) | | 459,809 |
|
Long-term debt and other long-term liabilities | 866,637 |
| | 20,161 |
| | 291 |
| | — |
| | 887,089 |
|
Deferred income taxes | 29,412 |
| | — |
| | 24 |
| | (3,004 | ) | | 26,432 |
|
Total liabilities | 1,469,038 |
| | 410,337 |
| | 43,560 |
| | (549,605 | ) | | 1,373,330 |
|
Commitments and contingencies | | | | | | | | | |
Stockholders’ Equity: | | | | | | | | | |
Preferred stock | — |
| | — |
| | — |
| | — |
| | — |
|
Common stock | 587,738 |
| | 225,729 |
| | 12,393 |
| | (352,635 | ) | | 473,225 |
|
Treasury stock | (1,033,424 | ) | | — |
| | — |
| | — |
| | (1,033,424 | ) |
Retained earnings | 539,274 |
| | 734,915 |
| | 2,423 |
| | (626,226 | ) | | 650,386 |
|
Accumulated other comprehensive income (loss) | (857 | ) | | — |
| | 3,401 |
| | — |
| | 2,544 |
|
Total stockholders’ equity | 92,731 |
| | 960,644 |
| | 18,217 |
| | (978,861 | ) | | 92,731 |
|
Total liabilities and stockholders’ equity | $ | 1,561,769 |
| | $ | 1,370,981 |
| | $ | 61,777 |
| | $ | (1,528,466 | ) | | $ | 1,466,061 |
|
|
| | | | | | | | | | | | | | | | | | | |
CONSOLIDATING BALANCE SHEETS |
(unaudited) |
| As of December 31, 2014 |
(in thousands) | Outerwall Inc. | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Eliminations and Consolidation Reclassifications | | Total |
Assets | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 180,889 |
| | $ | 17,939 |
| | $ | 43,868 |
| | $ | — |
| | $ | 242,696 |
|
Accounts receivable, net of allowances | 3,203 |
| | 43,874 |
| | 1,513 |
| | — |
| | 48,590 |
|
Content library | — |
| | 176,490 |
| | 3,631 |
| | — |
| | 180,121 |
|
Prepaid expenses and other current assets | 21,442 |
| | 23,923 |
| | 1,030 |
| | (6,558 | ) | | 39,837 |
|
Intercompany receivables | 40,762 |
| | 467,181 |
| | — |
| | (507,943 | ) | | — |
|
Total current assets | 246,296 |
| | 729,407 |
| | 50,042 |
| | (514,501 | ) | | 511,244 |
|
Property and equipment, net | 133,923 |
| | 263,412 |
| | 31,133 |
| | — |
| | 428,468 |
|
Deferred income taxes | — |
| | — |
| | 11,378 |
| | — |
| | 11,378 |
|
Goodwill and other intangible assets, net | 249,717 |
| | 374,281 |
| | — |
| | — |
| | 623,998 |
|
Other long-term assets | 6,665 |
| | 1,231 |
| | 335 |
| | — |
| | 8,231 |
|
Investment in related parties | 917,234 |
| | (5,114 | ) | | — |
| | (912,120 | ) | | — |
|
Total assets | $ | 1,553,835 |
| | $ | 1,363,217 |
| | $ | 92,888 |
| | $ | (1,426,621 | ) | | $ | 1,583,319 |
|
Liabilities and Stockholders’ Equity | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Accounts payable | $ | 12,899 |
| | $ | 153,260 |
| | $ | 2,474 |
| | $ | — |
| | $ | 168,633 |
|
Accrued payable to retailers | 69,189 |
| | 42,977 |
| | 14,124 |
| | — |
| | 126,290 |
|
Other accrued liabilities | 59,770 |
| | 74,536 |
| | 2,820 |
| | — |
| | 137,126 |
|
Current portion of long-term debt and other long-term liabilities | 20,020 |
| | — |
| | 396 |
| | — |
| | 20,416 |
|
Deferred income taxes | — |
| | 27,961 |
| | 29 |
| | (6,558 | ) | | 21,432 |
|
Intercompany payables | 309,932 |
| | 121,015 |
| | 76,996 |
| | (507,943 | ) | | — |
|
Total current liabilities | 471,810 |
| | 419,749 |
| | 96,839 |
| | (514,501 | ) | | 473,897 |
|
Long-term debt and other long-term liabilities | 949,588 |
| | 22,946 |
| | 1,135 |
| | — |
| | 973,669 |
|
Deferred income taxes | 35,058 |
| | 3,288 |
| | 29 |
| | — |
| | 38,375 |
|
Total liabilities | 1,456,456 |
| | 445,983 |
| | 98,003 |
| | (514,501 | ) | | 1,485,941 |
|
Commitments and contingencies | | | | | | | | | |
Stockholders’ Equity: | | | | | | | | | |
Preferred stock | — |
| | — |
| | — |
| | — |
| | — |
|
Common stock | 588,105 |
| | 225,729 |
| | 12,393 |
| | (352,635 | ) | | 473,592 |
|
Treasury stock | (996,293 | ) | | — |
| | — |
| | — |
| | (996,293 | ) |
Retained earnings | 506,360 |
| | 691,505 |
| | (17,991 | ) | | (559,485 | ) | | 620,389 |
|
Accumulated other comprehensive income (loss) | (793 | ) | | — |
| | 483 |
| | — |
| | (310 | ) |
Total stockholders’ equity | 97,379 |
| | 917,234 |
| | (5,115 | ) | | (912,120 | ) | | 97,378 |
|
Total liabilities and stockholders’ equity | $ | 1,553,835 |
| | $ | 1,363,217 |
| | $ | 92,888 |
| | $ | (1,426,621 | ) | | $ | 1,583,319 |
|
|
| | | | | | | | | | | | | | | | | | | |
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME |
(unaudited) |
| Three Months Ended March 31, 2015 |
(in thousands) | Outerwall Inc. | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Eliminations and Consolidation Reclassifications | | Total |
Revenue | $ | 58,810 |
| | $ | 539,281 |
| | $ | 10,545 |
| | $ | — |
| | $ | 608,636 |
|
Expenses: | | | | | | | | | |
Direct operating | 33,726 |
| | 366,411 |
| | 5,047 |
| | — |
| | 405,184 |
|
Marketing | 1,514 |
| | 6,906 |
| | — |
| | — |
| | 8,420 |
|
Research and development | (84 | ) | | 2,168 |
| | — |
| | — |
| | 2,084 |
|
General and administrative | 12,056 |
| | 36,295 |
| | 205 |
| | — |
| | 48,556 |
|
Restructuring and lease termination costs | 550 |
| | 15,301 |
| | — |
| | — |
| | 15,851 |
|
Depreciation and other | 4,649 |
| | 36,983 |
| | 1,054 |
| | — |
| | 42,686 |
|
Amortization of intangible assets | 3 |
| | 3,306 |
| | — |
| | — |
| | 3,309 |
|
Total expenses | 52,414 |
| | 467,370 |
| | 6,306 |
| | — |
| | 526,090 |
|
Operating income | 6,396 |
| | 71,911 |
| | 4,239 |
| | — |
| | 82,546 |
|
Other income (expense), net: | | | | | | | | | |
Loss from equity method investments, net | (132 | ) | | — |
| | — |
| | — |
| | (132 | ) |
Interest income (expense), net | (12,396 | ) | | 375 |
| | (50 | ) | | — |
| | (12,071 | ) |
Other, net | 2,436 |
| | (16 | ) | | (4,766 | ) | | — |
| | (2,346 | ) |
Total other expense, net | (10,092 | ) | | 359 |
| | (4,816 | ) | | — |
| | (14,549 | ) |
Income (loss) from continuing operations before income taxes | (3,696 | ) | | 72,270 |
| | (577 | ) | | — |
| | 67,997 |
|
Income tax benefit (expense) | (548 | ) | | (25,310 | ) | | 16 |
| | — |
| | (25,842 | ) |
Income (loss) from continuing operations | (4,244 | ) | | 46,960 |
| | (561 | ) | | — |
| | 42,155 |
|
Income (loss) from discontinued operations, net of tax | 1,524 |
| | (29,054 | ) | | 20,974 |
| | — |
| | (6,556 | ) |
Equity in income (loss) of subsidiaries | 38,319 |
| | 20,413 |
| | — |
| | (58,732 | ) | | — |
|
Net income (loss) | 35,599 |
| | 38,319 |
| | 20,413 |
| | (58,732 | ) | | 35,599 |
|
Foreign currency translation adjustment(1) | (64 | ) | | — |
| | 2,918 |
| | — |
| | 2,854 |
|
Comprehensive income (loss) | $ | 35,535 |
| | $ | 38,319 |
| | $ | 23,331 |
| | $ | (58,732 | ) | | $ | 38,453 |
|
| |
(1) | Foreign currency translation adjustment had no tax effect in 2015. |
|
| | | | | | | | | | | | | | | | | | | |
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME |
(unaudited) |
| Three Months Ended March 31, 2014 |
(in thousands) | Outerwall Inc. | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Eliminations and Consolidation Reclassifications | | Total |
Revenue | $ | 58,177 |
| | $ | 528,994 |
| | $ | 10,591 |
| | $ | — |
| | $ | 597,762 |
|
Expenses: | | | | | | | | | |
Direct operating | 33,068 |
| | 381,101 |
| | 5,473 |
| | — |
| | 419,642 |
|
Marketing | 1,127 |
| | 5,810 |
| | 56 |
| | — |
| | 6,993 |
|
Research and development | 896 |
| | 2,578 |
| | — |
| | — |
| | 3,474 |
|
General and administrative | 10,252 |
| | 42,152 |
| | 204 |
| | — |
| | 52,608 |
|
Restructuring and lease termination costs | 23 |
| | 534 |
| | — |
| | — |
| | 557 |
|
Depreciation and other | 9,102 |
| | 37,740 |
| | 1,100 |
| | — |
| | 47,942 |
|
Amortization of intangible assets | 536 |
| | 3,306 |
| | — |
| | — |
| | 3,842 |
|
Total expenses | 55,004 |
| | 473,221 |
| | 6,833 |
| | — |
| | 535,058 |
|
Operating income (loss) | 3,173 |
| | 55,773 |
| | 3,758 |
| | — |
| | 62,704 |
|
Other income (expense), net: | | | | | | | | | |
Income (loss) from equity method investments, net | (224 | ) | | (9,144 | ) | | — |
| | — |
| | (9,368 | ) |
Interest income (expense), net | (9,631 | ) | | 32 |
| | (49 | ) | | — |
| | (9,648 | ) |
Other, net | 1,607 |
| | 64 |
| | (2,319 | ) | | — |
| | (648 | ) |
Total other income (expense), net | (8,248 | ) | | (9,048 | ) | | (2,368 | ) | | — |
| | (19,664 | ) |
Income (loss) from continuing operations before income taxes | (5,075 | ) | | 46,725 |
| | 1,390 |
| | — |
| | 43,040 |
|
Income tax benefit (expense) | 2,328 |
| | (17,515 | ) | | (247 | ) | | — |
| | (15,434 | ) |
Income (loss) from continuing operations | (2,747 | ) | | 29,210 |
| | 1,143 |
| | — |
| | 27,606 |
|
Loss from discontinued operations, net of tax | (709 | ) | | (147 | ) | | (3,575 | ) | | — |
| | (4,431 | ) |
Equity in income (loss) of subsidiaries | 26,631 |
| | (2,432 | ) | | — |
| | (24,199 | ) | | — |
|
Net income (loss) | 23,175 |
| | 26,631 |
| | (2,432 | ) | | (24,199 | ) | | 23,175 |
|
Foreign currency translation adjustment(1) | (267 | ) | | — |
| | 1,142 |
| | — |
| | 875 |
|
Comprehensive income (loss) | $ | 22,908 |
| | $ | 26,631 |
| | $ | (1,290 | ) | | $ | (24,199 | ) | | $ | 24,050 |
|
| |
(1) | Foreign currency translation adjustment had no tax effect in 2014. |
|
| | | | | | | | | | | | | | | | | | | |
CONSOLIDATING STATEMENTS OF CASH FLOWS |
(unaudited) |
| Three Months Ended March 31, 2015 |
(in thousands) | Outerwall Inc. | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Eliminations and Consolidation Reclassifications | | Total |
Operating Activities: | | | | | | | | | |
Net income (loss) | $ | 35,599 |
| | $ | 38,319 |
| | $ | 20,413 |
| | $ | (58,732 | ) | | $ | 35,599 |
|
Adjustments to reconcile net income to net cash flows from operating activities: | | | | | | | | | |
Depreciation and other | 4,649 |
| | 38,828 |
| | 5,066 |
| | — |
| | 48,543 |
|
Amortization of intangible assets | 3 |
| | 3,306 |
| | 44 |
| | — |
| | 3,353 |
|
Share-based payments expense | 1,916 |
| | 1,987 |
| | — |
| | — |
| | 3,903 |
|
Windfall excess tax benefits related to share-based payments | (526 | ) | | — |
| | — |
| | — |
| | (526 | ) |
Deferred income taxes | (6,070 | ) | | (6,347 | ) | | 9,870 |
| | — |
| | (2,547 | ) |
Restructuring and lease termination costs | 136 |
| | 1,544 |
| | — |
| | — |
| | 1,680 |
|
Loss from equity method investments, net | 132 |
| | — |
| | — |
| | — |
| | 132 |
|
Amortization of deferred financing fees and debt discount | 693 |
| | — |
| | — |
| | — |
| | 693 |
|
Other | (149 | ) | | (322 | ) | | (727 | ) | | — |
| | (1,198 | ) |
Equity in (income) losses of subsidiaries | (38,319 | ) | | (20,413 | ) | | — |
| | 58,732 |
| | — |
|
Cash flows from changes in operating assets and liabilities: | | | | | | | | | |
Accounts receivable, net | 712 |
| | 14,518 |
| | (3,407 | ) | | — |
| | 11,823 |
|
Content library | — |
| | 6,663 |
| | 3,293 |
| | — |
| | 9,956 |
|
Prepaid expenses and other current assets | (2,759 | ) | | (591 | ) | | 244 |
| | — |
| | (3,106 | ) |
Other assets | 15 |
| | 122 |
| | 31 |
| | — |
| | 168 |
|
Accounts payable | 2,895 |
| | 1,202 |
| | (1,177 | ) | | — |
| | 2,920 |
|
Accrued payable to retailers | (10,800 | ) | | (5,730 | ) | | (1,911 | ) | | — |
| | (18,441 | ) |
Other accrued liabilities | 9,718 |
| | 3,994 |
| | (592 | ) | |
|
| | 13,120 |
|
Net cash flows from (used in) operating activities(1) | (2,155 | ) | | 77,080 |
| | 31,147 |
| | — |
| | 106,072 |
|
Investing Activities: | | | | | | | | | |
Purchases of property and equipment | (5,607 | ) | | (14,721 | ) | | (381 | ) | | — |
| | (20,709 | ) |
Proceeds from sale of property and equipment | — |
| | 123 |
| | — |
| | — |
| | 123 |
|
Investments in and advances to affiliates | 106,713 |
| | (65,229 | ) | | (41,484 | ) | | — |
| | — |
|
Net cash flows from (used in) investing activities(1) | 101,106 |
| | (79,827 | ) | | (41,865 | ) | | — |
| | (20,586 | ) |
Financing Activities: | | | | | | | | | |
Proceeds from new borrowing of Credit Facility | 35,000 |
| | — |
| | — |
| | — |
| | 35,000 |
|
Principal payments on Credit Facility | (116,875 | ) | | — |
| | — |
| | — |
| | (116,875 | ) |
Dividends paid (Note 19) | (5,602 | ) | | — |
| | — |
| | — |
| | (5,602 | ) |
Repurchases of common stock | (40,708 | ) | | — |
| | — |
| | — |
| | (40,708 | ) |
Principal payments on capital lease obligations and other debt | (3,143 | ) | | — |
| | (102 | ) | | — |
| | (3,245 | ) |
Windfall excess tax benefits related to share-based payments | 526 |
| | — |
| | — |
| | — |
| | 526 |
|
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options | (3,088 | ) | | — |
| | — |
| | — |
| | (3,088 | ) |
Net cash flows from (used in) financing activities(1) | (133,890 | ) | | — |
| | (102 | ) | | — |
| | (133,992 | ) |
Effect of exchange rate changes on cash | (36 | ) | | — |
| | 3,780 |
| | — |
| | 3,744 |
|
Increase (decrease) in cash and cash equivalents | (34,975 | ) | | (2,747 | ) | | (7,040 | ) | | — |
| | (44,762 | ) |
Cash and cash equivalents: | | | | | | | | | |
Beginning of period | 180,889 |
| | 17,939 |
| | 43,868 |
| | — |
| | 242,696 |
|
End of period | $ | 145,914 |
| | $ | 15,192 |
| | $ | 36,828 |
| | $ | — |
| | $ | 197,934 |
|
| |
(1) | During the first quarter of 2015 we discontinued our Redbox operations in Canada. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented. See Note 12: Discontinued Operations for cash flow disclosures related to our discontinued Redbox operations in Canada. |
|
| | | | | | | | | | | | | | | | | | | |
CONSOLIDATING STATEMENTS OF CASH FLOWS |
(unaudited) |
| Three Months Ended March 31, 2014 |
(in thousands) | Outerwall Inc. | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Eliminations and Consolidation Reclassifications | | Total |
Operating Activities: | | | | | | | | | |
Net income (loss) | $ | 23,175 |
| | $ | 26,631 |
| | $ | (2,432 | ) | | $ | (24,199 | ) | | $ | 23,175 |
|
Adjustments to reconcile net income to net cash flows from operating activities: | | | | | | | | | |
Depreciation and other | 9,111 |
| | 38,180 |
| | 1,813 |
| | — |
| | 49,104 |
|
Amortization of intangible assets | 536 |
| | 3,312 |
| | — |
| | — |
| | 3,848 |
|
Share-based payments expense | 2,575 |
| | 1,190 |
| | — |
| | — |
| | 3,765 |
|
Windfall excess tax benefits related to share-based payments | (1,710 | ) | | — |
| | — |
| | — |
| | (1,710 | ) |
Deferred income taxes | 2,927 |
| | (11,261 | ) | | (1,230 | ) | | — |
| | (9,564 | ) |
Loss (income) from equity method investments, net | 224 |
| | 9,144 |
| | — |
| | — |
| | 9,368 |
|
Amortization of deferred financing fees and debt discount | 1,306 |
| | — |
| | — |
| | — |
| | 1,306 |
|
Other | (130 | ) | | (11 | ) | | 17 |
| | — |
| | (124 | ) |
Equity in (income) losses of subsidiaries | (26,631 | ) | | 2,432 |
| | — |
| | 24,199 |
| | — |
|
Cash flows from changes in operating assets and liabilities: | | | | | | | | | |
Accounts receivable, net | 609 |
| | (6,532 | ) | | (29 | ) | | — |
| | (5,952 | ) |
Content library | 36 |
| | 19,373 |
| | 572 |
| | — |
| | 19,981 |
|
Prepaid expenses and other current assets | 47,126 |
| | (439 | ) | | 281 |
| | (13 | ) | | 46,955 |
|
Other assets | 14 |
| | 431 |
| | (8 | ) | | — |
| | 437 |
|
Accounts payable | (1,276 | ) | | (25,159 | ) | | (955 | ) | | — |
| | (27,390 | ) |
Accrued payable to retailers | (7,642 | ) | | (8,213 | ) | | 370 |
| | — |
| | (15,485 | ) |
Other accrued liabilities | (13,179 | ) | | 9,612 |
| | 427 |
| | 13 |
| | (3,127 | ) |
Net cash flows from (used in) operating activities(1) | 37,071 |
| | 58,690 |
| | (1,174 | ) | | — |
| | 94,587 |
|
Investing Activities: | | | | | | | | | |
Purchases of property and equipment | (9,239 | ) | | (15,316 | ) | | (2,385 | ) | | — |
| | (26,940 | ) |
Proceeds from sale of property and equipment | — |
| | 831 |
| | — |
| | — |
| | 831 |
|
Cash paid for equity investments | — |
| | (10,500 | ) | | — |
| | — |
| | (10,500 | ) |
Investments in and advances to affiliates | 31,807 |
| | (31,385 | ) | | (422 | ) | | — |
| | — |
|
Net cash flows from (used in) investing activities(1) | 22,568 |
| | (56,370 | ) | | (2,807 | ) | | — |
| | (36,609 | ) |
Financing Activities: | | | | | | | | | |
Proceeds from new borrowing on Credit Facility | 275,000 |
| | — |
| | — |
| | — |
| | 275,000 |
|
Principal payments on Credit Facility | (29,375 | ) | | — |
| | — |
| | — |
| | (29,375 | ) |
Conversion of convertible debt | (4 | ) | | — |
| | — |
| | — |
| | (4 | ) |
Repurchases of common stock | (421,067 | ) | | — |
| | — |
| | — |
| | (421,067 | ) |
Principal payments on capital lease obligations and other debt | (3,602 | ) | | (3 | ) | | (92 | ) | | — |
| | (3,697 | ) |
Windfall excess tax benefits related to share-based payments | 1,710 |
| | — |
| | — |
| | — |
| | 1,710 |
|
Withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options | (1,588 | ) | | — |
| | — |
| | — |
| | (1,588 | ) |
Net cash flows from (used in) financing activities(1) | (178,926 | ) | | (3 | ) | | (92 | ) | | — |
| | (179,021 | ) |
Effect of exchange rate changes on cash | (267 | ) | | — |
| | 1,419 |
| | — |
| | 1,152 |
|
Increase (decrease) in cash and cash equivalents | (119,554 | ) | | 2,317 |
| | (2,654 | ) | | — |
| | (119,891 | ) |
Cash and cash equivalents: | | | | | | | | | |
Beginning of period | 315,250 |
| | 9,639 |
| | 46,548 |
| | — |
| | 371,437 |
|
End of period | $ | 195,696 |
| | $ | 11,956 |
| | $ | 43,894 |
| | $ | — |
| | $ | 251,546 |
|
| |
(1) | During the first quarter of 2015 we discontinued our Redbox operations in Canada. The first quarter of 2014 also includes the wind-down process of certain new ventures that were discontinued during 2013. Cash flows from these discontinued operations are not segregated from cash flows from continuing operations in all periods presented. See Note 12: Discontinued Operations for cash flow disclosures related to our discontinued Redbox operations in Canada. |
Note 18: Income Taxes From Continuing Operations
Our effective tax rate from continuing operations was 38.0% and 35.9% for the three months ended March 31, 2015 and 2014, respectively. Our effective tax rate for the three months ended March 31, 2015 was higher than the U.S. Federal statutory rate of 35.0% due primarily to state income taxes and the recording of valuation allowances related to capital loss carryforwards in Canada, offset partially by the Domestic Production Activities Deduction. Our effective tax rate for the three months ended March 31, 2014 was higher than the U.S. Federal statutory rate of 35.0% primarily due to state income taxes partially offset by discrete benefits.
Note 19: Dividends
On February 3, 2015, the Board declared a quarterly cash dividend of $0.30 per share of common stock to shareholders of record at the close of business on March 3, 2015. The dividend was paid on March 18, 2015 and totaled $5.6 million including $0.2 million paid to recipients of unvested restricted stock awards, which participate in earnings on a basis equivalent to the dividends paid to holders of common stock. See Note 13: Earnings Per Share for additional information.
Note 20: Subsequent Event
On May 5, 2015, our board of directors declared a quarterly cash dividend of $0.30 per share expected to be paid on June 23, 2015, to all stockholders of record as of the close of business on June 9, 2015.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Except for the consolidated historical information, the following discussion contains forward-looking statements that involve risks and uncertainties, such as our objectives, expectations and intentions. Our actual results could differ materially from results that may be anticipated by such forward-looking statements and discussed elsewhere herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and those discussed under “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q and in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (our “2014 Form 10-K”). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
Overview
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. Our automated retail business model leverages technology advancements that allow delivery of new and innovative consumer products in a compact, automated format. We believe this model positions us to address retailers’ increasing need to provide more in less space driven by increased urbanization and consumers’ increasing expectation of instant gratification. Our products and services can be found at approximately 65,410 kiosks in leading supermarkets, drug stores, mass merchants, financial institutions, convenience stores, malls and restaurants. While we are focused on four consumer sectors: Entertainment, Money, Electronics, and Beauty & Consumer Packaged Goods, we also have an investment within the Health sector.
Core Offerings
We have three core businesses:
| |
• | Our Redbox business segment (“Redbox”), where consumers can rent or purchase movies and video games from self-service kiosks, is focused on the entertainment consumer sector. |
| |
• | Our Coinstar business segment (“Coinstar”) is focused on the money consumer sector and provides self-service kiosks where consumers can convert their coins to cash and convert coins and paper bills to stored value products. We also offer self-service kiosks that exchange gift cards for cash under our Coinstar™ Exchange brand. |
| |
• | Our ecoATM business segment ("ecoATM") is focused on the electronics consumer sector and provides self-service kiosks where consumers can recycle certain electronic devices for cash and generates revenue through the sale of devices collected at our kiosks to third parties. |
Other Self-Service Concepts
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 concepts in the automated retail space. Currently, we are exploring in the marketplace our consumer product sampling kiosk concept SAMPLEit, in the Beauty and Consumer Packaged Goods sector. We regularly assess the performance of our concepts to determine whether continued funding or other alternatives are appropriate. The combined results of these concepts are included in the All Other reporting category as they do not meet quantitative thresholds to be reported as a separate segment.
Strategic Investments and Joint Venture
On occasion, we make strategic investments in external companies that provide automated self-service kiosk solutions. For example, in the Health sector we have invested in Pursuant Health, Inc., formerly known as SoloHealth, Inc.
See Note 7: Equity Method Investments in our Notes to Consolidated Financial Statements for more information.
Strategy
Our strategy is based upon leveraging our core competencies in the automated retail space to provide the consumer with convenience and value and to help retailers drive incremental traffic and revenue. Our competencies include success in building strong consumer and retailer relationships, and in deploying, scaling and managing kiosk businesses. We build strong retailer relationships by providing retailers with turnkey solutions that complement their businesses without significant outlays of time and financial resources. We believe we have significant opportunities to continue to grow our revenues, profitability and cash flow by capitalizing on our strengths and favorable industry trends through the execution of the following strategies:
| |
• | Continue growing our Redbox business profitably. We are focused on profitably growing Redbox through increased revenue generation and improved kiosk-operations efficiency. |
We expect to grow revenue through attracting new customers, testing pricing strategies, improving the Blu-ray rental mix, and utilizing our customer management tools. Blu-ray drives revenue growth by shifting rentals to its higher revenue price point, $2.00 per night, and higher margin dollars per rental. Further, our customer management tools enable us to provide personalized recommendations and promotions to our customers, which helps us generate incremental revenue.
While we have substantially completed the build out of our Redbox network in the U.S., we believe we can improve financial performance by redeploying underperforming kiosks to lower kiosk density or higher consumer-traffic areas. We also have retrofitted a significant percentage of our existing kiosks to provide increased capacity, which enables Redbox to retain discs in the kiosks longer without a material increase in product cost thereby allowing us to provide greater title selection and copy depth to generate incremental rentals. We also continuously improve our proprietary algorithms allowing Redbox to more accurately predict daily title availability and demand at individual kiosk locations. From a financial perspective, we expect these strategies to help offset the expected secular decline in the physical rental market.
| |
• | Optimize and grow revenues from our Coinstar business. As with Redbox, we believe we can improve financial performance in our Coinstar business through kiosk optimization. We continue to focus on finding attractive locations for our kiosks, including through redeployment of underperforming kiosks to lower-kiosk-density or higher-consumer-traffic areas. Further, the Coinstar business continues to develop consumer-oriented products and services, such as Coinstar Exchange, and to expand into other channels, such as financial institutions, where we can leverage our Coinstar platform. |
| |
• | Scale and grow our ecoATM business to profitability. We are focused on strategically scaling our ecoATM business while also enhancing existing kiosk performance in order to drive the business to profitability. We expect to increase revenue through continued focus on placing new kiosks in attractive locations `and driving increased productivity at existing kiosks while also leveraging expenses as a percentage of revenue as the business scales. We plan to increase collections of devices and accelerate the ramp time of new kiosk installations in our mass merchant channel through targeted promotions and continuous marketing to customers in our key demographic segments. |
| |
• | Use our expertise to continue to develop our existing businesses and new innovative automated retail solutions. Through Redbox and Coinstar, we have demonstrated our ability to profitably scale automated retail solutions. We also leverage those core competencies to identify, evaluate, build or acquire, and develop new automated retail concepts through both organic and inorganic opportunities. For example, in the third quarter of 2013, we acquired ecoATM, one of our previous strategic investments. Further, we continue to make modest investments to test our product sampling kiosk concept, SAMPLEit. We are committed to addressing the changing needs and preferences of our consumers, including through strategic investments. |
Comparability of Results
We have recast prior period results to reflect the following:
| |
• | Discontinued operations, consisting of our Redbox operations in Canada ("Redbox Canada"), which we shut down during the first quarter of 2015. See Note 12: Discontinued Operations in our Notes to Consolidated Financial Statements for additional information; |
| |
• | 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 now 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 in our Notes to Consolidated Financial Statements for additional information; and |
| |
• | Calculated basic and diluted earnings per share under the two-class method (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 as a percentage of total common shares outstanding. See Note 13: Earnings Per Share in our Notes to Consolidated Financial Statements for additional information. |
Recent Events
Subsequent Events
On May 5, 2015, our board of directors declared a quarterly cash dividend of $0.30 per share expected to be paid on June 23, 2015, to all stockholders of record as of the close of business on June 9, 2015.
Q1 2015 Events
| |
• | On March 31, 2015, we completed the shutdown of the Redbox Canada operations as the business was not meeting performance expectations. The value of the content library and certain capitalized property and equipment consisting primarily of installation costs were amortized over the wind-down period ending on the disposal date of March 31, 2015. See Note 12: Discontinued Operations in our Notes to Consolidated Financial Statements for additional information; |
| |
• | On March 31, 2015, we reduced the size of our Redbox headquarters facility in Oakbrook Terrace, Illinois through early termination of operating leases for certain floors. See Redbox results discussion and Note 11: Restructuring in our Notes to Consolidated Financial Statements for additional information; |
| |
• | On March 26, 2015, Redbox entered into a revenue sharing license agreement with Warner Home Video, a division of Warner Bros. Home Entertainment Inc. to license content through March 31, 2017; |
| |
• | On February 5, 2015, we paid a cash dividend of $0.30 per outstanding share of our common stock totaling approximately $5.6 million; and |
| |
• | During the three months ended March 31, 2015, we repurchased 617,195 shares of our common stock at an average price of $65.96 per share for $40.7 million. See Note 9: Repurchases of Common Stock in our Notes to Consolidated Financial Statements for additional information. |
Consolidated Results
The discussion and analysis that follows covers our results from continuing operations:
|
| | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| March 31, | | Change |
Dollars in thousands, except per share amounts | 2015 | | 2014 | | $ | | % |
Revenue | $ | 608,636 |
| | $ | 597,762 |
| | $ | 10,874 |
| | 1.8 | % |
Operating income | $ | 82,546 |
| | $ | 62,704 |
| | $ | 19,842 |
| | 31.6 | % |
Income from continuing operations | $ | 42,155 |
| | $ | 27,606 |
| | $ | 14,549 |
| | 52.7 | % |
Diluted earnings from continuing operations per common share | $ | 2.23 |
| | $ | 1.09 |
| | $ | 1.14 |
| | 104.6 | % |
Comparing three months ended March 31, 2015 to three months ended March 31, 2014
Revenue increased $10.9 million, or 1.8%, primarily due to:
| |
• | $6.5 million increase from our Redbox segment primarily due to a 0.7% increase in same store sales driven by the price increases for movie content implemented in December 2014, partially offset by lower box office of content released and fewer titles released during the first quarter of 2015; |
| |
• | $3.8 million increase from our ecoATM segment from the installation of 1,230 kiosks primarily in grocery locations during the second half of 2014 partially offset by a decrease in collections due to lower traffic experienced by our retail partners; and |
| |
• | $0.6 million increase from our Coinstar segment, primarily due to growth in our Coinstar Exchange installed kiosk base partially offset by lower volume in U.S. Coinstar kiosks. |
Operating income increased $19.8 million, or 31.6%, primarily due to:
| |
• | $24.9 million increase in operating income within our Redbox segment primarily due to: |
| |
◦ | $20.7 million decrease in direct operating expenses driven primarily by lower product costs and rental volume; |
| |
◦ | $7.8 million decrease in depreciation and amortization primarily from lower kiosk related depreciation; |
| |
◦ | $6.5 million in revenue growth; and a |
| |
◦ | $5.0 million decrease in general and administrative expenses driven by ongoing cost reduction initiatives; partially offset by |
| |
◦ | $14.6 million increase in restructuring and lease termination costs related mainly to early lease termination of certain floors at our Redbox headquarters and severance costs. |
| |
• | $0.6 million increase in operating income within our Coinstar segment primarily due to $0.6 million increase in revenue and lower operating expenses including depreciation and amortization, direct operating and research and development offset by general administrative, restructuring and marketing expenses; and |
| |
• | $1.9 million decrease in share based expense not allocated to our segments primarily as a result of rights to receive cash we issued as replacement awards for unvested restricted stock as part of our acquisition of ecoATM in the third quarter of 2013; partially offset by |
| |
• | $5.2 million increase in operating loss within our ecoATM segment, primarily from $6.9 million increase in direct operating expenses related to the acquisition, transportation and processing of electronic devices and kiosk servicing costs and $2.2 million increase in depreciation and amortization from growth in our installed kiosk base as well as higher marketing costs from increased promotions, partially offset by a $3.8 million increase in revenue. |
Income from continuing operations increased $14.5 million, or 52.7%, primarily due to:
| |
• | $19.8 million increase in operating income as described above; |
| |
• | $9.2 million lower losses from equity method investments due to our withdrawal from Redbox Instant by Verizon during the fourth quarter of 2014; partially offset by |
| |
• | $10.4 million increase in income tax expense; |
| |
• | $2.4 million increase in interest expense primarily due to a shift in the composition of our debt to higher fixed rate debt, partially offset by lower borrowings; and |
| |
• | $1.7 million increase in other expenses primarily related to foreign exchange. |
Share-Based Payments and Rights to Receive Cash
Our share-based payments consist of share-based compensation granted to executives, non-employee directors and employees and share-based payments granted to movie studios as part of content agreements. We grant stock options, restricted stock and performance-based restricted stock to executives and non-employee directors and restricted stock to our employees. In connection with our acquisition of ecoATM, we also granted certain rights to receive cash. The expense associated with the grants to movie studios is allocated to our Redbox segment and included within direct operating expenses. The expenses associated with share-based compensation to our executives, non-employee directors, employees and related to the rights to receive cash issued in connection with our acquisition of ecoATM are part of our shared services support function and are not allocated to our segments. The components of our unallocated share-based compensation expense are presented in the following table.
Unallocated Share-Based Compensation and Rights to Receive Cash Expense
|
| | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| March 31, | | Change |
Dollars in thousands | 2015 | | 2014 | | $ | | % |
Direct operating | $ | 989 |
| | $ | 1,979 |
| | $ | (990 | ) | | (50.0 | )% |
Marketing | 367 |
| | 698 |
| | (331 | ) | | (47.4 | )% |
Research and development | 713 |
| | 781 |
| | (68 | ) | | (8.7 | )% |
General and administrative | 2,551 |
| | 3,110 |
| | (559 | ) | | (18.0 | )% |
Total | $ | 4,620 |
| | $ | 6,568 |
| | $ | (1,948 | ) | | (29.7 | )% |
Unallocated share-based compensation expense decreased $1.9 million, or 29.7% during the three months ended March 31, 2015, due to rights to receive cash we issued as replacement awards for unvested restricted stock as part of our acquisition of ecoATM in the third quarter of 2013 and changes in the fair value of restricted stock awards granted. See Note 10: Share-Based Payments in our Notes to Consolidated Financial Statements for more information.
Segment Results
Our discussion and analysis that follows covers results of operations for our Redbox, Coinstar and ecoATM segments.
We manage our business by evaluating the financial results of our segments, focusing primarily on segment revenue and segment operating income before depreciation, amortization and other and share-based compensation granted to executives, non-employee directors and employees (“segment operating income”). Segment operating income contains internally allocated costs of our shared services support functions, including but not limited to, corporate executive management, business development, sales, customer service, finance, legal, human resources, information technology, and risk management. We also review depreciation and amortization allocated to each segment.
Management utilizes segment revenue and segment operating income to evaluate the health of our business segments and in consideration of allocating resources among our business segments. Specifically, our CEO evaluates segment revenue and segment operating income, and assesses the performance of each business segment based on these measures, as well as, among other things, the prospects of each of the segments and how they fit into our overall strategy. Our CEO then decides how resources should be allocated among our business segments. For example, if a segment’s revenue increases more than expected, our CEO may consider allocating more financial or other resources to that segment in the future. We periodically evaluate our shared services support function’s allocation methods used for segment reporting purposes, which may result in changes to segment allocations in future periods.
We also review same store sales for our Redbox and Coinstar segments, which we calculate on a location basis. Most of our locations have a single kiosk, but in locations with a high-performing kiosk, we may add additional kiosks to drive incremental revenue and provide a broader product offering. Same store sales reflects the change in revenue from locations that have been operating for more than 13 months by the end of the reporting period compared with the same locations in the same period of the prior year. We use the average selling price of value devices (non-scrap) sold, number of value devices sold and number of overall devices sold rather than same store sales for our ecoATM business because transactions at the kiosk are for product acquisition, not revenue.
Detailed financial information about our business segments, including our change in reportable segments in the first quarter of 2015 and significant customer relationships is provided in Note 14: Business Segments and Enterprise-Wide Information in our Notes to Consolidated Financial Statements.
Redbox
|
| | | | | | | | | | | | | | |
| Three Months Ended | | | | |
Dollars in thousands, except net revenue per rental amounts | March 31, | | Change |
2015 | | 2014 | | $ | | % |
Revenue | $ | 519,533 |
| | $ | 513,049 |
| | $ | 6,484 |
| | 1.3 | % |
Expenses: |
|
| |
|
| | | | |
Direct operating | 342,935 |
| | 363,601 |
| | (20,666 | ) | | (5.7 | )% |
Marketing | 4,825 |
| | 4,460 |
| | 365 |
| | 8.2 | % |
Research and development | — |
| | 8 |
| | (8 | ) | | (100.0 | )% |
General and administrative | 33,735 |
| | 38,701 |
| | (4,966 | ) | | (12.8 | )% |
Restructuring and lease termination costs | 15,174 |
| | 534 |
| | 14,640 |
| | NM* |
|
Segment operating income | 122,864 |
| | 105,745 |
| | 17,119 |
| | 16.2 | % |
Less: depreciation and amortization | (31,607 | ) | | (39,404 | ) | | 7,797 |
| | (19.8 | )% |
Operating income | $ | 91,257 |
| | $ | 66,341 |
| | $ | 24,916 |
| | 37.6 | % |
Operating income as a percentage of revenue | 17.6 | % | | 12.9 | % | | | | |
Same store sales growth | 0.7 | % | | 0.9 | % | | | | |
Effect on change in revenue from same store sales growth (decline) | $ | 3,362 |
| | $ | 4,715 |
| | $ | (1,353 | ) | | (28.7 | )% |
Ending number of kiosks | 41,960 |
| | 42,800 |
| | (840 | ) | | (2.0 | )% |
Total rentals (in thousands) | 173,047 |
| | 198,770 |
| | (25,723 | ) | | (12.9 | )% |
Net revenue per rental | $ | 3.00 |
| | $ | 2.58 |
| | $ | 0.42 |
| | 16.3 | % |
The comparable performance of our content library is continually affected by seasonality, the timing of the release slate and the relative attractiveness of titles available for rent in a particular quarter or year which may have lingering effects in subsequent periods. Compared with prior periods when kiosk installations were increasing and helping drive growth, Redbox revenue and other operating results may be more affected by these factors.
Q1 2015 Events
| |
• | During the first quarter of 2015, we made the decision to shut down our Redbox Canada operations as the business was not meeting the company's performance expectations. The results of Redbox Canada have been presented as discontinued operations on our Consolidated Statements of Comprehensive Income and are no longer included in segment operating results presented above. See Note 12: Discontinued Operations in our Notes to Consolidated Financial Statements for additional information; |
| |
• | On March 31, as part of restructuring efforts, we reduced the size of our Redbox headquarters facility in Oakbrook Terrace, Illinois through early termination of operating leases for certain floors. In accordance with accounting for exit and disposal activities, we recorded pre-tax charges totaling $11.0 million at the cease use date, March 31, 2015. These charges include $4.4 million for the estimated fair value of our remaining lease obligations including an early termination penalty and $6.6 million in impairments of lease related assets. We have included these costs in restructuring and lease termination costs in our Consolidated Statements of Comprehensive Income; and |
| |
• | On March 26, 2015, we entered into a revenue sharing agreement (the "Warner Agreement") with Warner Home Video, a division of Warner Bros. Home Entertainment Inc., under which Redbox agrees to license minimum quantities of theatrical and direct-to-video titles for rental through March 31, 2017. The Warner Agreement maintains a 28-day window on such titles. |
Comparing three months ended March 31, 2015 to three months ended March 31, 2014
Revenue increased $6.5 million, or 1.3%, primarily due to the following:
| |
• | $3.4 million increase from a 0.7% increase in same store sales primarily due to: |
| |
◦ | Price increases - Implemented a 30 cent increase in the rental price for DVDs to $1.50 per day, effective December 2, 2014, a 50 cent increase in the rental price for Blu-ray Discs to $2.00 per day, effective December 2, 2014, and a $1.00 increase in the rental price for video games to $3.00 per day, effective January 6, 2015. |
| |
◦ | The benefit from the price increases was partially offset by the negative impact on demand from fewer releases and lower box office of content released, lower demand from price-sensitive customers following the price increases and the impact from the expected secular decline in the market. Continued investment through the early stages of the price changes in customer-specific promotional offerings drove incremental revenue and lessened the impact of the demand decline. The total box office (representing titles with North American box office receipts of at least $5.0 million) of titles released during the first three months of 2015 decreased 29.3% and included 18% less or 8 fewer titles compared with the first three months of 2014. The net result of these factors contributed to a 12.9% decrease in rentals in the first three months of 2015. |
| |
• | $3.1 million in revenue from newly installed or relocated kiosks. |
Net revenue per rental increased $0.42 to $3.00 primarily due to:
| |
• | The impact of the increase in daily rental prices discussed above partially offset by an expected increase in single night rental activity as a result of the price increases; and |
| |
• | An increase in Blu-ray revenue which represented 18.2% of total revenue and 14.5% of total disc rentals during the first three months of 2015 as compared with 17.7% and 15.2% during the prior year. The increase in revenue due to the price increase was partially offset by decreases in rental volume due to fewer releases and a resulting lower availability of recent Blu-ray content in the first three months of 2015 compared with the prior year. Blu-ray rentals were also impacted by lower box office of content released, lower demand from price-sensitive customers and an expected increase in single night rental activity as discussed above; partially offset by |
| |
• | A decrease in video game revenue which represented 2.9% of total revenue and 1.1% of total disc rentals during the first three months of 2015 as compared with 3.4% and 1.4% during the prior year primarily due to continued under performance of titles released in the last three months of 2014 and consumer transition to new generation platforms. Video games also were impacted by lower demand from price-sensitive customers and an increase in single night rental activity driven by the price change. |
Operating income increased $24.9 million, or 37.6%, primarily due to the following:
| |
• | $20.7 million decrease in direct operating expenses, which were 66.0% of revenue during the first three months of 2015 as compared with 70.9% during the prior year primarily as a result of: |
| |
◦ | $13.8 million decrease in product costs to $210.4 million primarily due to lower spending on content in the first three months of 2015 due to fewer releases primarily in January and a lower average cost per disc due to the mix of content that combined with the revenue impact discussed above increased gross margin 320 basis points to 59.5% during the first three months of 2015; |
| |
◦ | Direct operating expenses were also impacted by lower credit card fees driven by the lower volume of rentals, lower supply chain costs due to cost containment and field optimization initiatives and lower wireless network charges tied to data usage under new contracts starting in January 2015, partially offset by higher retailer revenue sharing expenses due to higher revenue; |
| |
• | 7.8 million decrease in depreciation and amortization expenses primarily due to the benefit from kiosk assets that are depreciated over three to five years becoming fully depreciated partially offset by higher depreciation expense as a result of continued investment in our corporate technology infrastructure and additional depreciation for newly installed or replaced kiosks; |
| |
• | $6.5 million increase in revenue as described above; and |
| |
• | $5.0 million decrease in general and administrative expenses primarily as a result of ongoing cost reduction initiatives and lower variable expenses associated with IT infrastructure costs, temporary staffing, legal and professional fees; partially offset by |
| |
• | $15.2 million of restructuring and lease termination charges incurred in the first three months of 2015, which included restructuring efforts surrounding our Redbox facility as discussed above and severance related expenses. |
Coinstar
|
| | | | | | | | | | | | | | |
| Three Months Ended | | | | |
Dollars in thousands, except average transaction size | March 31, | | Change |
2015 | | 2014 | | $ | | % |
Revenue | $ | 69,330 |
| | $ | 68,753 |
| | $ | 577 |
| | 0.8 | % |
Expenses: |
| |
| | | | |
Direct operating | 37,263 |
| | 37,723 |
| | (460 | ) | | (1.2 | )% |
Marketing | 1,178 |
| | 1,006 |
| | 172 |
| | 17.1 | % |
Research and development | — |
| | 269 |
| | (269 | ) | | (100.0 | )% |
General and administrative | 7,795 |
| | 6,997 |
| | 798 |
| | 11.4 | % |
Restructuring and lease termination costs (Note 11) | 550 |
| | 23 |
| | 527 |
| | NM* |
|
Segment operating income | 22,544 |
| | 22,735 |
| | (191 | ) | | (0.8 | )% |
Less: Depreciation and amortization | (7,818 | ) | | (8,563 | ) | | 745 |
| | (8.7 | )% |
Operating income | $ | 14,726 |
| | $ | 14,172 |
| | $ | 554 |
| | 3.9 | % |
Operating income as a percentage of revenue | 21.2 | % | | 20.6 | % | | | | |
Same store sales growth | 0.8 | % | | 3.1 | % | | | | |
Ending number of kiosks | 21,220 |
| | 21,000 |
| | 220 |
| | 1.0 | % |
Total transactions (in thousands) | 15,916 |
| | 16,588 |
| | (672 | ) | | (4.1 | )% |
Average transaction size | $ | 42.49 |
| | $ | 40.76 |
| | $ | 1.73 |
| | 4.2 | % |
Comparing three months ended March 31, 2015 to three months ended March 31, 2014
Revenue increased $0.6 million, or 0.8%, primarily due to growth in the number of Coinstar Exchange kiosks and transactions partially offset by a decrease in Coinstar revenue in the U.S. due to a reduction in volume. The impact of the increased coin voucher product transaction fee from 8.9% to 9.9% implemented in the U.K. in August 2014 was primarily offset by the unfavorable exchange rate impact on U.K. revenue due to the recent strengthening of the U.S. dollar versus the British pound. Same store sales growth was primarily flat as a result of these factors.
The average Coinstar transaction size continued to increase while the number of transactions have declined. The decline in transactions is the result of larger pours and less frequent visits and a slight decrease in the U.S. kiosk base year over year as a result of continued optimization efforts.
Operating income increased $0.6 million, or 3.9%, primarily due to the following:
| |
• | $0.7 million decrease in depreciation and amortization expense primarily due to intangible assets related to customer contracts being fully amortized in August 2014; |
| |
• | $0.6 million increase in revenue as described above; and |
| |
• | $0.5 million decrease in direct operating expenses due to lower wireless charges tied to data usage under new contracts in 2015, improved transportation and processing efficiencies in our Coinstar business, partially offset by increased revenue sharing, selling and customer service costs to support higher revenues; partially offset by |
| |
• | $0.8 million increase in general and administrative expenses primarily due to an increase in technology costs, partially offset by a lower shared services costs related to professional fees, business taxes, temporary staffing and facilities expenses as a result of an overall reduction in organization costs; and |
| |
• | $0.5 million increase in allocated restructuring expenses related to the subleasing of certain corporate facilities and severance expense from our ongoing cost saving initiatives. |
ecoATM
|
| | | | | | | | | | | | | | |
| Three Months Ended | | | | |
Dollars in thousands, except average selling price of value devices sold | March 31, | | Change |
2015 | | 2014 | | $ | | % |
Revenue | $ | 19,749 |
| | $ | 15,946 |
| | $ | 3,803 |
| | 23.8 | % |
Expenses: | | | | | | | |
Direct operating | 22,806 |
| | 15,931 |
| | 6,875 |
| | 43.2 | % |
Marketing | 1,730 |
| | 668 |
| | 1,062 |
| | 159.0 | % |
Research and development | 1,456 |
| | 1,784 |
| | (328 | ) | | (18.4 | )% |
General and administrative | 1,968 |
| | 2,879 |
| | (911 | ) | | (31.6 | )% |
Restructuring and lease termination costs (Note 11) | 127 |
| | — |
| | 127 |
| | NM* |
|
Segment operating loss | (8,338 | ) | | (5,316 | ) | | (3,022 | ) | | 56.8 | % |
Less: depreciation and amortization | (5,902 | ) | | (3,712 | ) | | (2,190 | ) | | 59.0 | % |
Operating loss | $ | (14,240 | ) | | $ | (9,028 | ) | | $ | (5,212 | ) | | 57.7 | % |
Ending number of kiosks | 2,140 |
| | 910 |
| | 1,230 |
| | 135.2 | % |
Average selling price of value devices sold | $ | 60.28 |
| | $ | 94.31 |
| | $ | (34.03 | ) | | (36.1 | )% |
Number of value devices sold | 317,134 |
| | 166,940 |
| | 150,194 |
| | 90.0 | % |
Number of overall devices sold | 518,633 |
| | 240,999 |
| | 277,634 |
| | 115.2 | % |
Q1 2015 Events
During the first quarter of 2015, 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, previously included in our New Ventures segment, are included in All Other as they do not meet quantitative thresholds to be reported as a separate segment. All goodwill previously allocated to the New Ventures segment has been allocated to the ecoATM segment.
Comparing three months ended March 31, 2015 to three months ended March 31, 2014
Revenue increased $3.8 million primarily due to the increase in the number of ecoATM installed kiosks. A majority of the growth in installs occurred during the second half of 2014 in the grocery channel. Relative to the mall and mass merchant channels, locations in the grocery channel typically are smaller in overall square footage and have less foot traffic. As a result, we expect ecoATM kiosks in the grocery channel to ramp at a slower rate and have lower collections relative to the mall and mass merchant kiosks.
Our key revenue drivers are devices collected per kiosk per day, and the percentage of those devices that are value devices, as well as the average selling price that we receive when reselling the devices. Our collections of value devices on a per kiosk basis were below those in the first quarter of last year as a result of lower transactions at our kiosks due to declines in consumer traffic at ecoATM locations and expanded alternative recycling options such as carrier promotions. This also impacted the mix of value devices collected and was the primary reason for the decline in our average selling price of value devices compared to the prior year.
While the decrease in retail foot traffic impacted our collection rates during the first quarter, we have seen increased traffic and collections following the quarter and expect those to return to historical levels over time. As we continue to expand our ecoATM installed kiosk base, we expect our revenue to grow from newly installed kiosks and the continued ramping of previously installed kiosks. Additionally, we expect our total expenses to increase due to operating these additional kiosks, but expect expenses as a percentage of revenue to decrease as the business scales. We continually review performance and the impact of device recycling trends such as value devices collected and the ASP on those devices, as well as kiosk installations on long term projections for purposes of assessing whether the reporting unit goodwill may be at risk of impairment.
Operating loss increased $5.2 million primarily due to the following;
| |
• | $6.9 million increase in direct operating expenses mainly due to costs associated with the acquisition, transportation and processing of electronic devices, as well as costs for servicing kiosks and payments to retailers. As we install additional kiosks and existing kiosks continue to ramp, we expect to leverage the fixed cost portions of our direct operating expenses; |
| |
• | $2.2 million increase in depreciation and amortization expense from depreciation on our increased installed ecoATM kiosk base; and |
| |
• | $1.1 million increase in marketing costs primarily due to costs to promote the ecoATM brand and additional headcount to support our installed ecoATM kiosk base; partially offset by |
| |
• | $3.8 million increase in revenue described above; and |
| |
• | $0.9 million decrease in general and administrative expense primarily from a reduction in headcount, lower data facilities costs, and lower temp staffing; and |
| |
• | $0.3 million decrease in research and development expense due to lower development costs on ecoATM kiosk hardware and software platforms. |
Loss from Equity Method Investments
Comparing three months ended March 31, 2015 to three months ended March 31, 2014
For the three months ended March 31, 2015, our loss from our equity method investments was $0.1 million compared to $9.4 million during the same period of 2014. The decrease in equity method losses is a result of our withdrawal from Redbox Instant by Verizon on October 20, 2014. See Note 7: Equity Method Investments in our Notes to Consolidated Financial Statements for more information.
Interest Expense, Net
|
| | | | | | | | | | | | | | |
Dollars in thousands | Three Months Ended | | | | |
March 31, | | Change |
2015 | | 2014 | | $ | | % |
Cash interest expense | $ | 11,395 |
| | $ | 8,362 |
| | $ | 3,033 |
| | 36.3 | % |
Non-cash interest expense: | | | | | | | |
Amortization of debt discount | 435 |
| | 802 |
| | (367 | ) | | (45.8 | )% |
Amortization of deferred financing fees | 258 |
| | 504 |
| | (246 | ) | | (48.8 | )% |
Total non-cash interest expense | 693 |
| | 1,306 |
| | (613 | ) | | (46.9 | )% |
Total interest expense | 12,088 |
| | 9,668 |
| | 2,420 |
| | 25.0 | % |
Interest income | (17 | ) | | (20 | ) | | 3 |
| | (15.0 | )% |
Interest expense, net | $ | 12,071 |
| | $ | 9,648 |
| | $ | 2,423 |
| | 25.1 | % |
Comparing three months ended March 31, 2015 to three months ended March 31, 2014
Interest expense, net increased $2.4 million, or 25.1%, primarily due to a shift in the composition of our debt to higher fixed rate debt, partially offset by lower borrowings. See Note 8: Debt and Other Long-Term Liabilities in our Notes to Consolidated Financial Statements for more information.
Other, Net
|
| | | | | | | | | | | | | | |
Dollars in thousands | Three Months Ended | | | | |
March 31, | | Change |
2015 | | 2014 | | $ | | % |
Other, net | $ | (2,346 | ) | | $ | (648 | ) | | $ | (1,698 | ) | | 262.0 | % |
Comparing three months ended March 31, 2015 to three months ended March 31, 2014
Other, net increased by $1.7 million or 262.0%, primarily due to the impact of the Canadian dollar exchange rates on our Coinstar operations.
Income Tax Expense
Comparing three months ended March 31, 2015 to three months ended March 31, 2014
Our effective tax rate from continuing operations was 38.0% and 35.9% for the three months ended March 31, 2015 and 2014, respectively. Our effective tax rate for the three months ended March 31, 2015 was higher than the U.S. Federal statutory rate of 35.0% due primarily to state income taxes and the recording of valuation allowances related to capital loss carryforwards in Canada, offset partially by the Domestic Production Activities Deduction. Our effective tax rate for the three months ended March 31, 2014 was higher than the U.S. Federal statutory rate of 35.0% primarily due to state income taxes partially offset by discrete benefits.
Non-GAAP Financial Measures
Non-GAAP measures may be provided as a complement to results provided in accordance with United States generally accepted accounting principles (“GAAP”).
We use the following non-GAAP financial measures to evaluate our financial results:
| |
• | Core adjusted EBITDA from continuing operations; |
| |
• | Core diluted earnings per share (“EPS”) from continuing operations; |
| |
• | Net debt and net leverage ratio. |
These measures, the definitions of which are presented below, are non-GAAP because they exclude certain amounts which are included in the most directly comparable measure calculated and presented in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for our GAAP financial measures and may not be comparable with similarly titled measures of other companies.
Core and Non-Core Results
We distinguish our core activities, those associated with our primary operations which we directly control, from non-core activities. Non-core activities are primarily nonrecurring events or events we do not directly control. Our non-core adjustments for the periods presented include i) restructuring costs (including severance and early lease termination costs and related impairment of assets) associated with actions to reduce costs in our continuing operations across the Company, ii) compensation expense for rights to receive cash issued in conjunction with our acquisition of ecoATM and attributable to post-combination services as they are fixed amount acquisition related awards and not indicative of the directly controllable future business results, iii) income or loss from equity method investments, which represents our share of income or loss from entities we do not consolidate or control and iv) tax benefits related to a net operating loss adjustment ("Non-Core Adjustments").
We believe investors should consider our core results because they are more indicative of our ongoing performance and trends, are more consistent with how management evaluates our operational results and trends, provide meaningful supplemental information to investors through the exclusion of certain expenses which are either nonrecurring or may not be indicative of our directly controllable business operating results, allow for greater transparency in assessing our performance, help investors better analyze the results of our business and assist in forecasting future periods.
Core Adjusted EBITDA from continuing operations
Our non-GAAP financial measure core adjusted EBITDA from continuing operations is defined as earnings from continuing operations before depreciation, amortization and other; interest expense, net; income taxes; share-based payments expense; and Non-Core Adjustments.
A reconciliation of core adjusted EBITDA from continuing operations to net income from continuing operations, the most comparable GAAP financial measure, is presented in the following table: |
| | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| March 31, | | Change |
Dollars in thousands | 2015 | | 2014 | | $ | | % |
Net income from continuing operations | $ | 42,155 |
| | $ | 27,606 |
| | $ | 14,549 |
| | 52.7 | % |
Depreciation, amortization and other | 45,995 |
| | 51,784 |
| | (5,789 | ) | | (11.2 | )% |
Interest expense, net | 12,071 |
| | 9,648 |
| | 2,423 |
| | 25.1 | % |
Income taxes | 25,842 |
| | 15,434 |
| | 10,408 |
| | 67.4 | % |
Share-based payments expense(1) | 3,941 |
| | 3,765 |
| | 176 |
| | 4.7 | % |
Adjusted EBITDA from continuing operations | 130,004 |
| | 108,237 |
| | 21,767 |
| | 20.1 | % |
Non-Core Adjustments: | | | | |
| |
|
Restructuring costs | 15,851 |
| | 469 |
| | 15,382 |
| | NM* |
|
Rights to receive cash issued in connection with the acquisition of ecoATM | 1,920 |
| | 3,421 |
| | (1,501 | ) | | (43.9 | )% |
Loss from equity method investments | 132 |
| | 9,368 |
| | (9,236 | ) | | (98.6 | )% |
Core adjusted EBITDA from continuing operations | $ | 147,907 |
| | $ | 121,495 |
| | $ | 26,412 |
| | 21.7 | % |
(1) Includes both non-cash share-based compensation for executives, non-employee directors and employees as well as share-based payments for content arrangements.
Comparing three months ended March 31, 2015 to three months ended March 31, 2014
The increase in our core adjusted EBITDA from continuing operations was primarily due to increased segment operating income in our Redbox segment and lower losses from equity method investments as a result of our withdrawal from Redbox Instant by Verizon during the fourth quarter of 2015. The other significant components of core adjusted EBITDA from continuing operations have been discussed previously in the Results of Operations section above.
Core Diluted EPS from continuing operations
Our non-GAAP financial measure core diluted EPS from continuing operations is defined as diluted earnings per share from continuing operations utilizing the treasury stock method excluding non-core adjustments, net of applicable taxes.
A reconciliation of core diluted EPS from continuing operations to diluted EPS from continuing operations, the most comparable GAAP financial measure, is presented in the following table: |
| | | | | | | | | | | | | | |
| Three Months Ended | | | | |
March 31, | | Change |
| 2015 | | 2014 | | $ | | % |
Diluted EPS from continuing operations per common share (two-class method) | $ | 2.23 |
| | $ | 1.09 |
| | $ | 1.14 |
| | 104.6 | % |
Adjustment from participating securities allocation and share differential to treasury stock method(1) | 0.05 |
| | 0.02 |
| | 0.03 |
| | 150.0 | % |
Diluted EPS from continuing operations (treasury stock method) | 2.28 |
| | 1.11 |
| | 1.17 |
| | 105.4 | % |
Non-Core Adjustments, net of tax:(1) | | | | | | | |
Restructuring costs | 0.52 |
| | 0.01 |
| | 0.51 |
| | NM* |
|
Rights to receive cash issued in connection with the acquisition of ecoATM | 0.07 |
| | 0.11 |
| | (0.04 | ) | | (36.4 | )% |
Loss from equity method investments | — |
| | 0.23 |
| | (0.23 | ) | | (100.0 | )% |
Tax benefit from net operating loss adjustment | — |
| | (0.04 | ) | | 0.04 |
| | (100.0 | )% |
Core diluted EPS from continuing operations | $ | 2.87 |
| | $ | 1.42 |
| | $ | 1.45 |
| | 102.1 | % |
(1) Non-Core Adjustments are presented after-tax using the applicable effective tax rate for the respective periods.
A reconciliation of amounts used in core diluted EPS from continuing operations table above is presented in the following table: |
| | | | | | | |
| Three Months Ended |
March 31, |
In thousands | 2015 | | 2014 |
Income from continuing operations attributable to common shares | $ | 40,776 |
| | $ | 26,879 |
|
Add: income from continuing operations allocated to participating securities | 1,379 |
| | 727 |
|
Income from continuing operations | $ | 42,155 |
| | $ | 27,606 |
|
| | | |
Weighted average diluted common shares | 18,286 |
| | 24,575 |
|
Add: diluted common equivalent shares of participating securities | 184 |
| | 200 |
|
Weighted average diluted shares | 18,470 |
| | 24,775 |
|
Free Cash Flow
Our non-GAAP financial measure free cash flow is defined as net cash provided by operating activities after capital expenditures. We believe free cash flow is an important non-GAAP measure as it provides additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our securities. A reconciliation of free cash flow to net cash provided by operating activities, the most comparable GAAP financial measure, is presented in the following table: |
| | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| March 31, | | Change |
Dollars in thousands | 2015 | | 2014 | | $ | | % |
Net cash provided by operating activities | $ | 106,072 |
| | $ | 94,587 |
| | $ | 11,485 |
| | 12.1 | % |
Purchase of property and equipment | (20,709 | ) | | (26,940 | ) | | 6,231 |
| | (23.1 | )% |
Free cash flow | $ | 85,363 |
| | $ | 67,647 |
| | $ | 17,716 |
| | 26.2 | % |
An analysis of our net cash from operating activities and used in investing and financing activities is provided below.
Net Debt and Net Leverage Ratio
Our non-GAAP financial measure net debt is defined as the total face value of outstanding debt, including capital leases, less cash and cash equivalents held in financial institutions domestically. Our non-GAAP financial measure net leverage ratio is defined as net debt divided by core adjusted EBITDA from continuing operations for the last twelve months (LTM). We believe net debt and net leverage ratio are important non-GAAP measures because they:
| |
• | are used to assess the degree of leverage by management; |
| |
• | provide additional information to users of the financial statements regarding our ability to service, incur or pay down indebtedness and repurchase our securities as well as additional information about our capital structure; and |
| |
• | are reported quarterly to support covenant compliance under our credit agreement. |
A reconciliation of net debt to total outstanding debt including capital leases, the most comparable GAAP financial measure, is presented in the following table: |
| | | | | | | | | | | | | | |
| March 31, 2015 | | December 31, 2014 | | Change |
Dollars in thousands | | | $ | | % |
Senior unsecured notes(1) | $ | 650,000 |
| | $ | 650,000 |
| | $ | — |
| | — | % |
Term loans(1) | 144,375 |
| | 146,250 |
| | (1,875 | ) | | (1.3 | )% |
Revolving line of credit | 80,000 |
| | 160,000 |
| | (80,000 | ) | | (50.0 | )% |
Capital leases | 12,652 |
| | 15,391 |
| | (2,739 | ) | | (17.8 | )% |
Total principal value of outstanding debt including capital leases | 887,027 |
| | 971,641 |
| | (84,614 | ) | | (8.7 | )% |
Less domestic cash and cash equivalents held in financial institutions | (37,772 | ) | | (66,546 | ) | | 28,774 |
| | (43.2 | )% |
Net debt | 849,255 |
| | 905,095 |
| | (55,840 | ) | | (6.2 | )% |
LTM Core adjusted EBITDA from continuing operations(2) | $ | 523,232 |
| | $ | 496,820 |
| | $ | 26,412 |
| | 5.3 | % |
Net leverage ratio | 1.62 |
| | 1.82 |
| |
|
| |
|
|
| |
(1) | See debt section of Liquidity and Capital Resources below and Note 8: Debt and Other Long-Term Liabilities in our Notes to Consolidated Financial Statements for detail of associated debt discount. |
(2) LTM Core Adjusted EBITDA from continuing operations for the twelve months ended March 31, 2015 and December 31, 2014 was determined as follows: |
| | | |
Dollars in thousands | |
Core adjusted EBITDA from continuing operations for the three months ended March 31, 2015 | $ | 147,907 |
|
Add: Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014: | |
Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014 as reported in our Annual Report on Form 10-K for the period ended December 31, 2014(1) | 480,497 |
|
Add: Core adjusted EBITDA loss from Redbox Canada operations for the twelve months ended December 31, 2014 | 16,323 |
|
Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014 as adjusted for discontinued operations | 496,820 |
|
Less: Core adjusted EBITDA from continuing operations for the three months ended March 31, 2014 | (121,495 | ) |
LTM Core adjusted EBITDA from continuing operations for the twelve months ended March 31, 2015 | $ | 523,232 |
|
(1) Core adjusted EBITDA from continuing operations for the twelve months ended December 31, 2014 is obtained from our Form 10-K for the period ended December 31, 2014, where it is reconciled to net income from continuing operations, the most comparable GAAP financial measure, and represents the LTM core adjusted EBITDA from continuing operations we use in our calculation of net leverage ratio as of December 31, 2014.
Liquidity and Capital Resources
We believe our existing cash, cash equivalents and amounts available to us under our Credit Facility will be sufficient to fund our cash requirements and capital expenditure needs for at least the next 12 months. After that time, the extent of additional financing needed, if any, will depend on the success of our business. If we significantly increase kiosk installations beyond planned levels or if our Redbox, Coinstar or ecoATM kiosks generate lower than anticipated revenue or operating results, then our cash needs may increase. Furthermore, our future capital requirements will depend on a number of factors, including consumer use of our services, the timing and number of machine installations, the number of available installable kiosks, the type and scope of service enhancements, the cost of developing potential new product service offerings, and enhancements, and cash required to fund potential future acquisitions, investment or capital returns to shareholders such as through share repurchases.
The following is an analysis of our year-to-date cash flows:
Net Cash from Operating Activities
Our net cash from operating activities increased by $11.5 million primarily due to the following:
| |
• | $12.4 million increase in net income to $35.6 million; and |
| |
• | $1.0 million decrease in net cash inflows from changes in working capital primarily due to changes in prepaid expenses and other current assets, content library, accounts payable, other accrued liabilities, accrued payable to retailers, and accounts receivable, partially offset by |
| |
• | $2.0 million change in net non-cash income and expense included in net income. |
Net Cash used in Investing Activities
We used $20.7 million of net cash in our investing activities primarily for the purchases of property and equipment for kiosks and corporate infrastructure.
Net Cash used in Financing Activities
We used $134.0 million of net cash from financing activities as follows:
| |
• | $81.9 million in net payments for borrowings from our Credit Facility |
| |
• | $40.7 million for repurchases of our common stock; |
| |
• | $5.6 million for dividends paid; |
| |
• | $3.2 million to pay capital lease obligations and other debt; and |
| |
• | $3.1 million for withholding tax paid on vesting of restricted stock net of proceeds from exercise of stock options. |
Cash and Cash Equivalents
A portion of our business involves collecting and processing large volumes of cash, most of it in the form of coins. As of March 31, 2015, our cash and cash equivalent balance was $197.9 million, of which $68.7 million was identified for settling our accrued payable to our retailer partners in relation to our Coinstar kiosks. The remaining balance of our cash and cash equivalents was available for use to support our liquidity needs.
Debt
Debt comprises the following:
|
| | | | | | | | | | | | | | | | | | | |
| Senior Notes | | Credit Facility | | Total Debt |
Dollars in thousands | Senior Unsecured Notes due 2019 | | Senior Unsecured Notes due 2021 | | Term Loans | | Revolving Line of Credit | |
As of March 31, 2015 | | | | | | | | | |
Principal | $ | 350,000 |
| | $ | 300,000 |
| | $ | 144,375 |
| | $ | 80,000 |
| | $ | 874,375 |
|
Discount | (4,041 | ) | | (3,991 | ) | | (317 | ) | | — |
| | (8,349 | ) |
Total | 345,959 |
| | 296,009 |
| | 144,058 |
| | 80,000 |
| | 866,026 |
|
Less: current portion | — |
| | — |
| | (10,313 | ) | | — |
| | (10,313 | ) |
Total long-term portion | $ | 345,959 |
| | $ | 296,009 |
| | $ | 133,745 |
| | $ | 80,000 |
| | $ | 855,713 |
|
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 March 31, 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. As of March 31, 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.
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 March 31, 2015, the interest rate on amounts outstanding under the Credit Facility was 2.11% 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 | $ | 7,500 |
|
2016 | 13,125 |
|
2017 | 15,000 |
|
2018 | 18,750 |
|
2019 | 90,000 |
|
Total | $ | 144,375 |
|
Letters of Credit
As of March 31, 2015, we had six irrevocable standby letters of credit that totaled $6.4 million. These standby letters of credit, which expire at various times through October 2015, are used to collateralize certain obligations to third parties. As of March 31, 2015, no amounts were outstanding under these standby letter of credit agreements.
Other Contingencies
Contractual Payment Obligations
During the first quarter the following significant changes occurred to our contractual obligations:
Operating Lease Obligations
| |
• | We early terminated of operating leases of certain floors of our Redbox headquarters and recognized the fair value of the ongoing lease payments and other related costs through the effective date of termination, July 31, 2016, as of the cease use date, March 31, 2015. See Note 11: Restructuring for additional information; and |
| |
• | We entered into a new operating lease of 16,085 square feet of office space in Woodland Hills, California which expires May 31, 2022. |
Content Agreement Obligations
| |
• | On March 26, 2015, Redbox entered into a Kiosk Rental Revenue Sharing Terms Agreement (the “Agreement”) with Warner Home Video, a division of Warner Bros. Home Entertainment Inc. (“Warner Home Video”). Under the Agreement, Redbox will license theatrical and direct-to-video titles released by Warner Home Video and WB Animation through March 31, 2017. The Agreement maintains a 28-day window on such titles. |
As of March 31, 2015, our contractual payment obligations are as follows:
|
| | | | | | | | | | | | | | | | | | | |
Dollars in thousands | Total | | Remaining in 2015 | | 2016 & 2017 | | 2018 & 2019 | | 2020 & Beyond |
Long-term debt and other(1) | $ | 874,375 |
| | $ | 87,500 |
| | $ | 28,125 |
| | $ | 18,750 |
| | $ | 740,000 |
|
Contractual interest on long-term debt | 194,156 |
| | 28,969 |
| | 77,250 |
| | 38,625 |
| | 49,312 |
|
Capital lease obligations | 13,146 |
| | 8,516 |
| | 3,938 |
| | 556 |
| | 136 |
|
Operating lease obligations, net(2) | 62,443 |
| | 13,245 |
| | 26,314 |
| | 12,011 |
| | 10,873 |
|
Purchase obligations(3)(4) | 22,150 |
| | 17,938 |
| | 4,212 |
| | — |
| | — |
|
Asset retirement obligations | 12,663 |
| | — |
| | — |
| | — |
| | 12,663 |
|
Content agreement obligations(3) | 674,310 |
| | 493,069 |
| | 181,241 |
| | — |
| | — |
|
Retailer revenue share obligations | 5,299 |
| | 1,993 |
| | 3,143 |
| | 163 |
| | — |
|
Total | $ | 1,858,542 |
| | $ | 651,230 |
| | $ | 324,223 |
| | $ | 70,105 |
| | $ | 812,984 |
|
| |
(1) | See Note 8: Debt and Other Long-Term Liabilities in our Notes to Consolidated Financial Statements. |
| |
(2) | Net of sublease income of $1.4 million. See Note 16: Commitments and Contingencies in our Notes to Consolidated Financial Statements. |
| |
(3) | See Note 16: Commitments and Contingencies in our Notes to Consolidated Financial Statements. |
| |
(4) | Excludes any amounts associated with the manufacturing and services agreement entered into as part of the NCR Asset Acquisition, pursuant to which Outerwall, Redbox or an affiliate will purchase goods and services from NCR for a period of five years from June 22, 2012. At the end of the five-year period, if the aggregate amount paid in margin to NCR for goods and services delivered equals less than $25.0 million, Outerwall will pay NCR the difference between such aggregate amount and $25.0 million. As of March 31, 2015, the remaining commitment is $15.8 million under this agreement. |
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements have been prepared in accordance with US GAAP. Preparation of these statements requires management to make judgments and estimates. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the present circumstances. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our 2014 Form 10-K at Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
There have been no material changes to the critical accounting policies previously disclosed in our 2014 Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our reported market risks and risk management policies since the filing of our 2014 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report and has determined that such disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
We also maintain a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). No changes in our internal control over financial reporting occurred during the year-to-date period ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 2009, an Illinois resident, Laurie Piechur, individually and on behalf of all others similarly situated, filed a putative class action complaint against our Redbox subsidiary in the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois. The plaintiff alleged that, among other things, Redbox charges consumers illegal and excessive late fees in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and that Redbox's rental terms violate the Illinois Rental Purchase Agreement Act or the Illinois Automatic Contract Renewal Act and the plaintiff is seeking monetary damages and other relief. In November 2009, Redbox removed the case to the U.S. District Court for the Southern District of Illinois. In February 2010, the District Court remanded the case to the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois. In May 2010, the court denied Redbox's motion to dismiss the plaintiff's complaint. In November 2011, the plaintiff moved for class certification, and Redbox moved for summary judgment. The court denied Redbox's motion for summary judgment in February 2012. The plaintiff filed an amended complaint on April 19, 2012, and an amended motion for class certification on June 5, 2012. The court denied Redbox's motion to dismiss the amended complaint. The amended class certification motion was briefed and argued. At the hearing on plaintiff's amended motion for class certification, the plaintiff dismissed all claims but two and is pursuing only her claims under the Illinois Rental Purchase Agreement Act and the Illinois Automatic Contract Renewal Act. On May 21, 2013, the court denied plaintiff's amended class action motion. On January 29, 2014, the Illinois Supreme Court denied plaintiff’s petition for leave to appeal the trial court’s denial of class certification. Redbox has moved to dismiss all remaining claims on mootness grounds, and the Court granted Redbox’s motion on December 11, 2014. The plaintiffs appealed on January 7, 2015. We believe that the claims against us are without merit and intend to defend ourselves vigorously in this matter. Currently, no accrual has been established as it was not possible to estimate the possible loss or range of loss because this matter had not advanced to a stage where we could make any such estimate.
ITEM 1A. RISK FACTORS
There have been no material changes from risk factors previously disclosed in our 2014 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY, SECURITIES, AND USE OF PROCEEDS
The following table summarizes information regarding shares repurchased during the quarter ended March 31, 2015:
|
| | | | | | | | | | | | | |
| Total Number of Shares Repurchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans or Programs | | Maximum Approximate Dollar Value (in thousands) of Shares that May Yet be Purchased Under the Plans or Programs(2) |
1/1/15 - 1/31/15 | 1,487 |
| | $ | 64.50 |
| | — |
| | $ | 163,655 |
|
2/1/15 - 2/28/15 | 276,264 |
| | $ | 66.44 |
| | 226,090 |
| | $ | 398,656 |
|
3/1/15 - 3/31/15 | 392,244 |
| | $ | 65.73 |
| | 391,105 |
| | $ | 373,286 |
|
| 669,995 |
| | | | 617,195 |
| | |
| |
(1) | Includes 52,800 shares tendered for tax withholding on vesting of restricted stock awards, none of which are included against the dollar value of shares that may be purchased under programs approved by our Board of Directors. |
| |
(2) | On February 3, 2015, our Board of Directors approved an additional repurchase program of up to $250.0 million of our common stock plus the cash proceeds received from the exercise of stock options by our executives, non-employee directors and employees. |
On January 1, 2015, we issued 50,000 shares of unregistered restricted common stock to Paramount Home Entertainment Inc. (“Paramount”) as partial consideration for the extension of our existing revenue sharing license agreement with Paramount discussed in Note 10: Share-Based Payments and Note 16: Commitments and Contingencies in our Notes to Consolidated Financial Statements. The issuance of the common stock was exempt from registration pursuant to the Securities Act of 1933, as amended (the “Securities Act”) by virtue of Section 4(a)(2) as a transaction not involving a public offering. We believe that the issuance is exempt from the registration requirements of the Securities Act on the basis, among other things, that: (1) Paramount represented it was an accredited investor as defined under the Securities Act; (2) there was no general solicitation; and (3) Paramount represented that it was purchasing such shares for its own account and not with a view towards distribution. The shares of common stock carry a legend stating that the shares are not registered under the Securities Act and therefore cannot be resold unless they are registered under the Securities Act or unless an exemption to registration is available.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed herewith and this list is intended to constitute the exhibit index.
|
| | |
Exhibit Number | | Description of Document |
| | |
10.1* | | 2015 Incentive Compensation Plan for Executive Leaders. |
| | |
10.2* | | Outerwall Inc. 2011 Incentive Plan, as amended and restated on February 12, 2015. |
| | |
10.3* | | Form of Notice of Restricted Stock Award and Form of Restricted Stock Award Agreement under the 2011 Incentive Plan for Performance-Based Awards made to Executives on or after February 12, 2015. |
| | |
10.4* | | Letter Agreement between Outerwall Inc. and Donald Rench, dated February 12, 2015. |
| | |
10.5* | | Interim CEO Agreement between Outerwall Inc. and Nora M. Denzel, dated January 18, 2015.(1) |
| | |
10.6* | | Release of Claims Agreement between Outerwall Inc. and James Pinckney, dated March 6, 2015.(2) |
| | |
31.1 | | Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
| | |
31.2 | | Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
| | |
32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
101.INS | | XBRL Instance Document. |
| | |
101.SCH | | XBRL Taxonomy Extension Schema. |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase. |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase. |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase. |
| | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase. |
| |
* | Indicates a management contract or compensatory plan or arrangement. |
| |
(1) | Incorporated by reference to the Registrant’s Form 8-K filed on January 20, 2015 (File Number 000-22555). |
| |
(2) | Incorporated by reference to the Registrant’s Form 8-K/A filed on March 12, 2015 (File Number 000-22555). |
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 thereunto duly authorized.
|
| | | |
| | | |
| OUTERWALL INC. |
| | |
| By: | | /s/ Galen C. Smith |
| | | Galen C. Smith |
| | | Chief Financial Officer |
| | | May 7, 2015 |
Exhibit 10.1
OUTERWALL INC.
2015 INCENTIVE COMPENSATION PLAN
FOR EXECUTIVE LEADERS
SUMMARY
The 2015 Incentive Compensation Plan for Executive Leaders (the “Plan”) is a cash bonus plan in which executives of Outerwall Inc. (the “Company”) or any subsidiary or affiliate of the Company are eligible to participate. The Plan provides incentive cash bonuses based on the achievement of goals relating to the performance of the Company, the management team's performance and individual performance. The performance period for the Plan is January 1, 2015 to December 31, 2015 (the "Performance Period").
OVERVIEW
The Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) administers the Plan. The Compensation Committee, in its sole discretion, selects the individuals who will participate in the Plan and the actual bonus (if any) payable to each participant. The target bonus for each participant is determined as a percentage of such participant’s base salary, as determined by the Compensation Committee in its sole discretion (the "Target Bonus").
ELIGIBILITY REQUIREMENTS
Unless specifically provided otherwise in a written agreement between the Company and a participant, a participant must be continuously employed by the Company from January 1, 2015 through December 31, 2015 to be eligible for payment under the Plan. A participant hired after January 1, 2015 and employed through December 31, 2015 may receive a pro-rated bonus payment. A participant who meets these eligibility requirements will be eligible to receive a bonus, even if the participant is not employed by the Company on the date the bonus payment is made.
BONUS PAYOUT
Payout under the Plan will be determined as follows:
1. Seventy percent (70%) will be based on the achievement of the following performance measures during the Performance Period:
|
| | |
Performance Measure | Weighting | Targets & Potential Payouts |
Corporate Direct Contribution Margin Percent (DCM %)* | 64.3% | See Appendix |
Corporate Revenue | 35.7% | See Appendix |
*Direct Contribution Margin Percent is defined as Direct Contribution Margin divided by Revenue. Direct Contribution Margin is defined as Profit from Core Operations before taxes and stock based compensation.
The targets and results will be adjusted for any acquisitions or divestitures completed during the Performance Period. Participants under the Plan may receive between 0% and 200% of the portion of the Target Bonus applicable to this component.
2. Thirty percent (30%) will be based on the Compensation Committee’s discretion after evaluating the management team's and/or individual performance during the Performance Period, based on any criteria that the Compensation Committee determines to be appropriate in its sole discretion. The Company's Chief Executive Officer will make recommendations to the Compensation Committee regarding individual bonuses under this component (with the exception of the Chief Executive Officer bonus). The Compensation Committee will then review and approve all individual bonuses. Participants under the Plan may receive between 0% and 200% of the portion of the Target Bonus applicable to this component.
The Compensation Committee may, in its sole discretion, make adjustments to the payouts under the Plan as a result of extraordinary events and/or conditions that either positively or negatively impact the Company's performance.
Payment of each bonus will be made as soon as practicable after the end of the Performance Period, but in any event will be made no later than March 15, 2016. Bonuses will be paid in cash in a single lump sum, subject to payroll taxes and tax withholding.
OTHER
Each bonus that may become payable under the Plan will be paid solely from the general assets of the Company. Nothing in the Plan should be construed to create a trust or to establish or evidence any participant’s claim of any right to payment of a bonus other than as an unsecured general creditor with respect to any payment to which a participant may be entitled.
No participant will have any claim to a bonus under the Plan, and the Compensation Committee will have no obligation for uniformity of treatment of participants under the Plan. Furthermore, nothing in the Plan will be deemed to limit in any way the Compensation Committee's full discretion to determine whether to grant any bonuses hereunder.
The Compensation Committee reserves the right to unilaterally amend, modify or terminate the Plan at any time, including amending the Plan as it deems necessary or desirable to avoid adverse tax consequences under Section 409A of the Internal Revenue Code of 1986, as amended.
The Plan is subject to the Company's Policy on Reimbursement of Incentive Payments.
Exhibit 10.2
OUTERWALL INC.
2011 INCENTIVE PLAN
(Revised to Reflect Name Change as of June 27, 2013)
(Amended and Restated by the Compensation Committee on February 12, 2015)
SECTION 1. PURPOSE
The purpose of the Outerwall Inc. 2011 Incentive Plan is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its Related Companies by providing them the opportunity to acquire a proprietary interest in the Company and to align their interests and efforts to the long-term interests of the Company's stockholders.
SECTION 2. DEFINITIONS
Certain capitalized terms used in the Plan have the meanings set forth in Appendix A.
SECTION 3. ADMINISTRATION
| |
3.1 | Administration of the Plan |
(a) The Plan shall be administered by the Board or the Compensation Committee, which shall be composed of two or more directors, each of whom is a "non‑employee director" within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission, and an "outside director" within the meaning of Section 162(m) of the Code, or any successor provision thereto.
(b) Notwithstanding the foregoing, the Board may delegate concurrent responsibility for administering the Plan, including with respect to designated classes of Eligible Persons, to different committees consisting of one or more members of the Board, subject to such limitations as the Board deems appropriate, except with respect to Awards to Participants who are subject to Section 16 of the Exchange Act or Awards granted pursuant to Section 16 of the Plan. Members of any committee shall serve for such term as the Board may determine, subject to removal by the Board at any time. To the extent consistent with applicable law, the Board or the Compensation Committee may authorize one or more officers of the Company to grant Awards to designated classes of Eligible Persons, within limits specifically prescribed by the Board or the Compensation Committee; provided, however, that no such officer shall have or obtain authority to grant Awards to himself or herself or to any person subject to Section 16 of the Exchange Act. All references in the Plan to the "Committee" shall be, as applicable, to the Board, the Compensation Committee or any other committee or any officer to whom authority has been delegated to administer the Plan.
| |
3.2 | Administration and Interpretation by Committee |
(a) Except for the terms and conditions explicitly set forth in the Plan and to the extent permitted by applicable law, the Committee shall have full power and exclusive authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board or a Committee composed of members of the Board, to (i) select the Eligible Persons to whom Awards may from time to time be granted under the Plan; (ii) determine the type or types of Award to be granted to each Participant under the Plan; (iii) determine the number of shares of Common Stock to be covered by each Award granted under the Plan; (iv) determine the terms and conditions of any Award granted under the Plan; (v) approve the forms of notice or agreement for use under the Plan; (vi) determine whether, to what extent and under what circumstances Awards may be settled in cash, shares of Common Stock or other property or canceled or suspended; (vii) interpret and administer the Plan and any instrument evidencing an Award, notice or agreement executed or entered into under the Plan; (viii) establish such rules and regulations as it shall deem appropriate for the proper administration of the Plan; (ix) delegate ministerial duties to such of the Company's employees as it so determines; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan.
(b) In no event, however, shall the Committee have the right, without stockholder approval, to (i) lower the price of an Option or SAR after it is granted, except in connection with adjustments provided in Section 15.1; (ii) take any other action that is treated as a repricing under generally accepted accounting principles; or (iii) cancel an Option or SAR at a time when its strike price exceeds the fair market value of the underlying stock, in exchange for cash, another option, stock appreciation right, restricted stock, or other equity, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction.
(c) Decisions of the Committee shall be final, conclusive and binding on all persons, including the Company, any Participant, any stockholder and any Eligible Person. A majority of the members of the Committee may determine its actions.
SECTION 4. SHARES SUBJECT TO THE PLAN
| |
4.1 | Authorized Number of Shares |
Subject to adjustment from time to time as provided in Section 15.1, the number of shares of Common Stock available for issuance under the Plan shall be:
(a) 600,000 shares; plus
(b) any authorized shares (i) not issued or subject to outstanding awards under the Company's 1997 Amended and Restated Equity Incentive Plan (the "Prior Plan") on the Effective Date and (ii) subject to outstanding awards under the Prior Plan on the Effective Date that cease to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in shares), up to an aggregate maximum of 2,985,055 shares, subject to adjustment from time to time as provided in Section 15.1, which shares shall cease, as of such date, to be available for grant and issuance under the Prior Plan, but shall be available for issuance under the Plan.
Shares issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company as treasury shares.
(a) If any Award lapses, expires, terminates or is canceled prior to the issuance of shares thereunder or if shares of Common Stock are issued under the Plan to a Participant and thereafter are forfeited to the Company, the shares subject to such Awards and the forfeited shares shall again be available for issuance under the Plan. The following shares shall not become available for issuance under the Plan: (i) shares of Common Stock tendered by Participants as full or partial payment to the Company upon exercise of Options, (ii) shares of Common Stock reserved for issuance upon grant of SARs, to the extent the number of reserved shares exceeds the number of shares actually issued upon exercise of the SARs, and (iii) shares of Common Stock withheld by, or otherwise tendered to, the Company to satisfy a Participant's tax withholding obligations with respect to the grant, vesting or exercise of an Award. The number of shares of Common Stock available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Common Stock or credited as additional shares of Common Stock subject or paid with respect to an Award.
(b) The Committee shall also, without limitation, have the authority to grant Awards as an alternative to or as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company.
(c) Notwithstanding any other provision of the Plan to the contrary, the Committee may grant Substitute Awards under the Plan. Substitute Awards shall not reduce the number of shares authorized for issuance under the Plan. In the event that an Acquired Entity has shares available for awards or grants under one or more preexisting plans not adopted in contemplation of such acquisition or combination, then, to the extent determined by the Board or the Compensation Committee, the shares available for grant pursuant to the terms of such preexisting plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to holders of common stock of the entities that are parties to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the number of shares of Common Stock authorized for issuance under the Plan; provided, however, that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of such preexisting plans, absent the acquisition or combination, and shall only be made to individuals who were not employees or directors of the Company or a Related Company prior to such acquisition or combination. In the event that a written agreement between the Company and an Acquired Entity pursuant to which a merger or consolidation is completed is approved by the Board and that agreement sets forth the terms and conditions of the substitution for or assumption of outstanding awards of the Acquired Entity, those terms and conditions shall be deemed to be the action of the Committee without any further action by the Committee, except as may be required for compliance with Rule 16b‑3 under the Exchange Act, and the persons holding such awards shall be deemed to be Participants.
(d) Notwithstanding the other provisions in this Section 4.2 to the contrary, the maximum number of shares that may be issued upon the exercise of Incentive Stock Options shall equal the aggregate share number stated in Section 4.1, subject to adjustment as provided in Section 15.1.
The aggregate number of shares that may be issued pursuant to Awards granted under the Plan (other than Awards of Options or Stock Appreciation Rights) that either (a) contain no restrictions or restrictions based solely on continuous employment or services over fewer than three years (except if accelerated pursuant to a Change of Control or a Termination of Service) or (b) vest over less than one year (except if accelerated pursuant to a Change of Control or a Termination of Service) based on factors other than solely continuous employment or services, shall not exceed 10% of the aggregate maximum number of shares specified in Section 4.1.
SECTION 5. ELIGIBILITY
An Award may be granted to any employee, officer or director of the Company or a Related Company whom the Committee from time to time selects. An Award may also be granted to any consultant, agent, advisor or independent contractor for bona fide services rendered to the Company or any Related Company that (a) are not in connection with the offer and sale of the Company's securities in a capital‑raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company's securities.
SECTION 6. AWARDS
| |
6.1 | Form, Grant and Settlement of Awards |
The Committee shall have the authority, in its sole discretion, to determine the type or types of Awards to be granted under the Plan. Such Awards may be granted either alone or in addition to or in tandem with any other type of Award. Any Award settlement may be subject to such conditions, restrictions and contingencies as the Committee shall determine.
Awards granted under the Plan shall be evidenced by a written, including an electronic, instrument that shall contain such terms, conditions, limitations and restrictions as the Committee shall deem advisable and that are not inconsistent with the Plan.
| |
6.3 | Dividends and Distributions |
Participants may, if the Committee so determines, be credited with dividends or dividend equivalents for dividends paid with respect to shares of Common Stock underlying an Award in a manner determined by the Committee in its sole discretion; provided, however, that with respect to Awards that are subject to achievement of performance goals, any such credited dividends or dividend equivalents may only be paid with respect to the portion of such Awards that is actually earned. The Committee may apply any restrictions to the dividends or dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, shares of Common Stock, Restricted Stock or Stock Units. Notwithstanding the foregoing, the right to any dividends or dividend equivalents declared and paid on the number of shares underlying an Option or a Stock Appreciation Right may not be contingent, directly or indirectly on the exercise of the Option or Stock Appreciation Right, and must comply with or qualify for an exemption under Section 409A. Also notwithstanding the foregoing, the right to any dividends or dividend equivalents declared and paid on Restricted Stock must comply with or qualify for an exemption under Section 409A.
SECTION 7. OPTIONS
The Committee may grant Options designated as Incentive Stock Options or Nonqualified Stock Options.
| |
7.2 | Option Exercise Price |
Options shall be granted with an exercise price per share not less than 100% of the Fair Market Value of the Common Stock on the Grant Date (and shall not be less than the minimum exercise price required by Section 422 of the Code with respect to Incentive Stock Options), except in the case of Substitute Awards.
Subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the Option, the maximum term of an Option shall be ten years from the Grant Date. For Incentive Stock Options, the maximum term shall comply with Section 422 of the Code, as specified in Section 8.4.
The Committee shall establish and set forth in each instrument that evidences an Option the time at which, or the installments in which, the Option shall vest and become exercisable, any of which provisions may be waived or modified by the Committee at any time.
If not so established in the instrument evidencing the Option, the Option shall vest and become exercisable according to the following schedule, which may be waived or modified by the Committee at any time:
|
| | |
Period of Participant's Continuous Employment or Service With the Company or Its Related Companies From the Vesting Commencement Date |
Portion of Total Option That Is Vested and Exercisable |
After 1 year | 25% |
Each additional year of continuous service completed thereafter | An additional 25% |
After 4 years | 100% |
To the extent an Option has vested and become exercisable, the Option may be exercised in whole or from time to time in part by delivery, as directed by the Company, to the Company or a brokerage firm designated or approved by the Company of a properly executed stock option exercise agreement or notice, in a form and in accordance with procedures established by the Company, setting forth the number of shares with respect to which the Option is being exercised, the restrictions imposed on the shares purchased under such exercise agreement or notice, if any, and such representations and agreements as may be required by the Committee, accompanied by payment in full as described in Sections 7.5. An Option may be exercised only for whole shares and may not be exercised for less than a reasonable number of shares at any one time, as determined by the Committee.
| |
7.5 | Payment of Exercise Price |
The exercise price for shares purchased under an Option shall be paid in full to the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased. Such consideration must be paid before the Company will issue the shares being purchased and must be in a form or a combination of forms acceptable to the Committee for that purchase, which forms may include:
(a) cash;
(b) check or wire transfer;
(c) having the Company withhold shares of Common Stock that would otherwise be issued on exercise of the Option that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option;
(d) tendering (either actually or, so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by attestation) shares of Common Stock owned by the Participant that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option;
(e) so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, and to the extent permitted by law, delivery of a properly executed exercise agreement or notice, together with irrevocable instructions to a brokerage firm designated or approved by the Company to deliver promptly to the Company the aggregate amount of proceeds to pay the Option exercise price and any withholding tax obligations that may arise in connection with the exercise, all in accordance with the regulations of the Federal Reserve Board; or
(f) such other consideration as the Committee may permit.
| |
7.6 | Effect of Termination of Service |
The Committee shall establish and set forth in each instrument that evidences an Option whether the Option shall continue to be exercisable, and the terms and conditions of such exercise, after a Termination of Service, any of which provisions may be waived or modified by the Committee at any time. If not so established in the instrument evidencing the Option, the Option shall be exercisable according to the following terms and conditions, which may be waived or modified by the Committee at any time:
(a) Any portion of an Option that is not vested and exercisable on the date of a Participant's Termination of Service shall expire on such date.
(b) Any portion of an Option that is vested and exercisable on the date of a Participant's Termination of Service shall expire on the earliest to occur of:
(i) if the Participant's Termination of Service occurs for reasons other than Cause, Retirement, Disability or death, the date that is three months after such Termination of Service;
(ii) if the Participant's Termination of Service occurs by reason of Retirement, Disability or death, the one‑year anniversary of such Termination of Service; and
(iii) the Option Expiration Date.
Notwithstanding the foregoing, if a Participant dies after his or her Termination of Service but while an Option is otherwise exercisable, the portion of the Option that is vested and exercisable on the date of such Termination of Service shall expire upon the earlier to occur of (y) the Option Expiration Date and (z) the one‑year anniversary of the date of death, unless the Committee determines otherwise.
Also notwithstanding the foregoing, in case a Participant's Termination of Service occurs for Cause, all Options granted to the Participant shall automatically expire upon first notification to the Participant of such termination, unless the Committee determines otherwise. If a Participant's employment or service relationship with the Company is suspended pending an investigation of whether the Participant shall be terminated for Cause, all the Participant's rights under any Option shall likewise be suspended during the period of investigation. If any facts that would constitute termination for Cause are discovered after a Participant's Termination of Service, any Option then held by the Participant may be immediately terminated by the Committee, in its sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
Notwithstanding any other provision of the Plan to the contrary, the terms and conditions of any Incentive Stock Options shall in addition comply in all respects with Section 422 of the Code, or any successor provision, and any applicable regulations thereunder.
SECTION 9. STOCK APPRECIATION RIGHTS
| |
9.1 | Grant of Stock Appreciation Rights |
The Committee may grant Stock Appreciation Rights to Participants at any time on such terms and conditions as the Committee shall determine in its sole discretion. A SAR may be granted in tandem with an Option or alone ("freestanding"). The grant price of a tandem SAR shall be equal to the exercise price of the related Option. The grant price of a freestanding SAR shall be established in accordance with procedures for Options set forth in Section 7.2. A SAR may be exercised upon such terms and conditions and for the term as the Committee determines in its sole discretion; provided, however, that, subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the SAR, the maximum term of a freestanding SAR shall be ten years, and in the case of a tandem SAR, (a) the term shall not exceed the term of the related Option and (b) the tandem SAR may be exercised for all or part of the shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option, except that the tandem SAR may be exercised only with respect to the shares for which its related Option is then exercisable.
Upon the exercise of a SAR, a Participant shall be entitled to receive payment in an amount determined by multiplying: (a) the difference between the Fair Market Value of the Common Stock on the date of exercise over the grant price of the SAR by (b) the number of shares with respect to which the SAR is exercised. At the discretion of the Committee as set forth in the instrument evidencing the Award, the payment upon exercise of a SAR may be in cash, in shares, in some combination thereof or in any other manner approved by the Committee in its sole discretion.
| |
9.3 | Waiver of Restrictions |
The Committee, in its sole discretion, may waive any other terms, conditions or restrictions on any SAR under such circumstances and subject to such terms and conditions as the Committee shall deem appropriate.
SECTION 10. STOCK AWARDS, RESTRICTED STOCK AND STOCK UNITS
| |
10.1 | Grant of Stock Awards, Restricted Stock and Stock Units |
The Committee may grant Stock Awards, Restricted Stock and Stock Units on such terms and conditions and subject to such repurchase or forfeiture restrictions, if any, which may be based on continuous service with the Company or a Related Company or the achievement of any performance goals, as the Committee shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award.
| |
10.2 | Vesting of Restricted Stock and Stock Units |
Upon the satisfaction of any terms, conditions and restrictions prescribed with respect to Restricted Stock or Stock Units, or upon a Participant's release from any terms, conditions and restrictions of Restricted Stock or Stock Units, as determined by the Committee (a) the shares of Restricted Stock covered by each Award of Restricted Stock shall become freely transferable by the Participant, and (b) Stock Units shall be paid in shares of Common Stock or, if set forth in the instrument evidencing the Awards, in cash or a combination of cash and shares of Common Stock. Any fractional shares subject to such Awards shall be paid to the Participant in cash.
| |
10.3 | Waiver of Restrictions |
The Committee, in its sole discretion, may waive the repurchase or forfeiture period and any other terms, conditions or restrictions on any Restricted Stock or Stock Unit under such circumstances and subject to such terms and conditions as the Committee shall deem appropriate.
SECTION 11. PERFORMANCE AWARDS
The Committee may grant Awards of Performance Shares, designate the Participants to whom Performance Shares are to be awarded and determine the number of Performance Shares and the terms and conditions of each such Award. Performance Shares shall consist of a unit valued by reference to a designated number of shares of Common Stock, the value of which may be paid to the Participant by delivery of shares of Common Stock or, if set forth in the instrument evidencing the Award, of such property as the Committee shall determine, including, without limitation, cash, shares of Common Stock, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee. The amount to be paid under an Award of Performance Shares may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion.
The Committee may grant Awards of Performance Units, designate the Participants to whom Performance Units are to be awarded and determine the number of Performance Units and the terms and conditions of each such Award. Performance Units shall consist of a unit valued by reference to a designated amount of property other than shares of Common Stock, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, shares of Common Stock, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee. The amount to be paid under an Award of Performance Units may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion.
SECTION 12. OTHER STOCK OR CASH-BASED AWARDS
Subject to the terms of the Plan and such other terms and conditions as the Committee deems appropriate, the Committee may grant other incentives payable in cash or in shares of Common Stock under the Plan.
SECTION 13. WITHHOLDING
The Company may require the Participant to pay to the Company the amount of (a) any taxes that the Company is required by applicable federal, state, local or foreign law to withhold with respect to the grant, vesting or exercise of an Award ("tax withholding obligations") and (b) any amounts due from the Participant to the Company or to any Related Company ("other obligations"). Notwithstanding any other provision of the Plan to the contrary, the Company shall not be required to issue any shares of Common Stock or otherwise settle an Award under the Plan until such tax withholding obligations and other obligations are satisfied.
The Committee may permit or require a Participant to satisfy all or part of the Participant's tax withholding obligations and other obligations by (a) paying cash to the Company, (b) having the Company withhold an amount from any cash amounts otherwise due or to become due from the Company to the Participant, (c) having the Company withhold a number of shares of Common Stock that would otherwise be issued to the Participant (or become vested, in the case of Restricted Stock) having a Fair Market Value equal to the tax withholding obligations and other obligations, or (d) surrendering a number of shares of Common Stock the Participant already owns having a value equal to the tax withholding obligations and other obligations. The value of the shares so withheld or tendered may not exceed the employer's minimum required tax withholding rate.
SECTION 14. ASSIGNABILITY
No Award or interest in an Award may be sold, assigned, pledged (as collateral for a loan or as security for the performance of an obligation or for any other purpose) or transferred by a Participant or made subject to attachment or similar proceedings otherwise than by will or by the applicable laws of descent and distribution, except to the extent the Participant designates one or more beneficiaries on a Company-approved form who may exercise the Award or receive payment under the Award after the Participant's death. During a Participant's lifetime, an Award may be exercised only by the Participant. Notwithstanding the foregoing and to the extent permitted by Section 422 of the Code, the Committee, in its sole discretion, may permit a Participant to assign or transfer an Award subject to such terms and conditions as the Committee shall specify.
SECTION 15. ADJUSTMENTS
In the event that, at any time or from time to time, a stock dividend, stock split, spin‑off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to stockholders other than a normal cash dividend, or other change in the Company's corporate or capital structure results in (a) the outstanding shares of Common Stock, or any securities exchanged therefor or received in their place, being exchanged for a different number or kind of securities of the Company or (b) new, different or additional securities of the Company or any other company being received by the holders of shares of Common Stock, then the Committee shall make proportional adjustments in (i) the maximum number and kind of securities available for issuance under the Plan; (ii) the maximum number and kind of securities issuable as Incentive Stock Options as set forth in Section 4.2; (iii) the maximum numbers and kind of securities set forth in Section 16.3; and (iv) the number and kind of securities that are subject to any outstanding Award and the per share price of such securities, without any change in the aggregate price to be paid therefor. The determination by the Committee, as to the terms of any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services rendered, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding Awards. Also notwithstanding the foregoing, a dissolution or liquidation of the Company or a Company Transaction shall not be governed by this Section 15.1 but shall be governed by Sections 15.2 and 15.3, respectively.
| |
15.2 | Dissolution or Liquidation |
To the extent not previously exercised or settled, and unless otherwise determined by the Committee in its sole discretion, Awards shall terminate immediately prior to the dissolution or liquidation of the Company. To the extent a vesting condition, forfeiture provision or repurchase right applicable to an Award has not been waived by the Committee, the Award shall be forfeited immediately prior to the consummation of the dissolution or liquidation.
Notwithstanding any other provision of the Plan to the contrary, unless the Committee shall determine otherwise in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, in the event of a Change of Control:
(a) If the Change of Control is a Company Transaction in which Awards, other than Performance Shares and Performance Units, could be converted, assumed, substituted for or replaced by the Successor Company, then, if and to the extent that the Successor Company converts, assumes, substitutes or replaces an Award, the vesting restrictions and/or forfeiture provisions applicable to such Award shall not be accelerated or lapse, and all such vesting restrictions and/or forfeiture provisions shall continue with respect to any shares of the Successor Company or other consideration that may be received with respect to such Award. If and to the extent that such Awards are not converted, assumed, substituted for or replaced by the Successor Company, such Awards shall become fully vested and exercisable or payable, and all applicable restrictions or forfeiture provisions shall lapse, immediately prior to the Change of Control and such Awards shall terminate at the effective time of the Change of Control.
If the Change of Control is not a Company Transaction in which Awards, other than Performance Shares and Performance Units, could be converted, assumed, substituted for or replaced by the Successor Company, all outstanding Awards, other than Performance Shares and Performance Units, shall become fully vested and exercisable or payable, and all applicable restrictions or forfeiture provisions shall lapse, immediately prior to the Change of Control and shall terminate at the effective time of the Change of Control.
For the purposes of this Section 15.3(a), an Award shall be considered converted, assumed, substituted for or replaced by the Successor Company if following the Company Transaction the option or right confers the right to purchase or receive, for each share of Common Stock subject to the Award immediately prior to the Company Transaction, the consideration (whether stock, cash or other securities or property) received in the Company Transaction by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the Company Transaction is not solely common stock of the Successor Company, the Committee may, with the consent of the Successor Company, provide for the consideration to be received pursuant to the Award, for each share of Common Stock subject thereto, to be solely common stock of the Successor Company substantially equal in fair market value to the per share consideration received by holders of Common Stock in the Company Transaction. The determination of such substantial equality of value of consideration shall be made by the Committee, and its determination shall be conclusive and binding.
(b) All Performance Shares or Performance Units earned and outstanding as of the date the Change of Control is determined to have occurred and for which the payout level has been determined shall be payable in full in accordance with the payout schedule pursuant to the instrument evidencing the Award. Any remaining outstanding Performance Shares or Performance Units (including any applicable performance period) for which the payout level has not been determined shall be prorated at the target payout level up to and including the date of such Change of Control and shall be payable in accordance with the payout schedule pursuant to the instrument evidencing the Award. Any existing deferrals or other restrictions not waived by the Committee in its sole discretion shall remain in effect.
(c) Notwithstanding the foregoing, the Committee, in its sole discretion, may instead provide in the event of a Change of Control that is a Company Transaction that a Participant's outstanding Awards shall terminate upon or immediately prior to such Company Transaction and that such Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (x) the value of the per share consideration received by holders of Common Stock in the Company Transaction, or, in the event the Company Transaction is one of the transactions listed under subsection (c) in the definition of Company Transaction or otherwise does not result in direct receipt of consideration by holders of Common Stock, the value of the deemed per share consideration received, in each case as determined by the Committee in its sole discretion, multiplied by the number of shares of Common Stock subject to such outstanding Awards (to the extent then vested and exercisable or whether or not then vested and exercisable, as determined by the Committee in its sole discretion) exceeds (y) if applicable, the respective aggregate exercise price or grant price for such Awards.
(d) For the avoidance of doubt, nothing in this Section 15.3 requires all outstanding Awards to be treated similarly.
| |
15.4 | Further Adjustment of Awards |
Subject to Sections 15.2 and 15.3, the Committee shall have the discretion, exercisable at any time before a sale, merger, consolidation, reorganization, liquidation, dissolution or change of control of the Company, as defined by the Committee, to take such further action as it determines to be necessary or advisable with respect to Awards. Such authorized action may include (but shall not be limited to) establishing, amending or waiving the type, terms, conditions or duration of, or restrictions on, Awards so as to provide for earlier, later, extended or additional time for exercise, lifting restrictions and other modifications, and the Committee may take such actions with respect to all Participants, to certain categories of Participants or only to individual Participants. The Committee may take such action before or after granting Awards to which the action relates and before or after any public announcement with respect to such sale, merger, consolidation, reorganization, liquidation, dissolution or change of control that is the reason for such action.
The grant of Awards shall in no way affect the Company's right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
In the event of any adjustment in the number of shares covered by any Award, each such Award shall cover only the number of full shares resulting from such adjustment, and any fractional shares resulting from such adjustment shall be disregarded.
Notwithstanding any other provision of the Plan to the contrary, (a) any adjustments made pursuant to this Section 15 to Awards that are considered "deferred compensation" within the meaning of Section 409A shall be made in compliance with the requirements of Section 409A and (b) any adjustments made pursuant to this Section 15 to Awards that are not considered "deferred compensation" subject to Section 409A shall be made in such a manner as to ensure that after such adjustment the Awards either (i) continue not to be subject to Section 409A or (ii) comply with the requirements of Section 409A.
SECTION 16. CODE SECTION 162(m) PROVISIONS
Notwithstanding any other provision of the Plan to the contrary, if the Committee determines, at the time Awards are granted to a Participant who is, or is likely to be as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, a Covered Employee, then the Committee may provide that this Section 16 is applicable to such Award.
If an Award is subject to this Section 16, then the lapsing of restrictions thereon and the distribution of cash, shares of Common Stock or other property pursuant thereto, as applicable, shall be subject to the achievement of one or more objective performance goals established by the Committee, which shall be based on the attainment of specified levels of one of or any combination of the following "performance criteria" for the Company as a whole or any affiliate or business unit of the Company, as reported or calculated by the Company: cash flows (including, but not limited to, operating cash flow, free cash flow or cash flow return on capital); working capital; earnings per share; book value per share; operating income (including or excluding depreciation, amortization, extraordinary items, restructuring charges or other expenses); revenues; operating margins; return on assets; return on equity; debt; debt plus equity; market or economic value added; stock price appreciation; total stockholder return; cost control; strategic initiatives; market share; net income; return on invested capital; improvements in capital structure; or customer satisfaction, employee satisfaction, services performance, subscriber, cash management or asset management metrics (together, the "Performance Criteria").
Such performance goals also may be based on the achievement of specified levels of Company performance (or performance of an applicable affiliate or business unit of the Company) under one or more of the Performance Criteria described above relative to the performance of other corporations. Such performance goals shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code, or any successor provision thereto, and the regulations thereunder.
The Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occurs during a performance period: (i) asset write-downs, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (iv) any reorganization and restructuring programs, (v) extraordinary nonrecurring items as described in Accounting Standards Codification 225-20 and/or in Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the Company's annual report to stockholders for the applicable year, (vi) acquisitions or divestitures, (vii) foreign exchange gains and losses, (viii) gains and losses on asset sales, and (ix) impairments. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that satisfies the requirements for "performance-based compensation" within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.
Notwithstanding any provision of the Plan other than Section 15, with respect to any Award that is subject to this Section 16, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award, and the Committee may not waive the achievement of the applicable performance goals except in the case of the death or disability of the Covered Employee.
Subject to adjustment from time to time as provided in Section 15.1, no Covered Employee may be granted Awards other than Performance Units subject to this Section 16 in any calendar year period with respect to more than 500,000 shares of Common Stock for such Awards, except that the Company may make additional onetime grants of such Awards for up to 500,000 shares to newly hired or newly promoted individuals, and the maximum dollar value payable with respect to Performance Units or other awards payable in cash subject to this Section 16 granted to any Covered Employee in any one calendar year is $3,000,000.
The Committee shall have the power to impose such other restrictions on Awards subject to this Section 16 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for "performance-based compensation" within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.
SECTION 17. AMENDMENT AND TERMINATION
| |
17.1 | Amendment, Suspension or Termination |
The Board or the Compensation Committee may amend, suspend or terminate the Plan or any portion of the Plan at any time and in such respects as it shall deem advisable; provided, however, that, to the extent required by applicable law, regulation or stock exchange rule, stockholder approval shall be required for any amendment to the Plan; and provided, further, that any amendment that requires stockholder approval may be made only by the Board. Subject to Section 17.3, the Committee may amend the terms of any outstanding Award, prospectively or retroactively.
Unless sooner terminated as provided herein, the Plan shall terminate ten years from the Effective Date. After the Plan is terminated, no future Awards may be granted, but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and the Plan's terms and conditions. Notwithstanding the foregoing, no Incentive Stock Options may be granted more than ten years after the earlier of the approval by the Board or the stockholders of the Plan (or any amendment to the Plan that constitutes the adoption of a new plan for purposes of Section 422 of the Code).
| |
17.3 | Consent of Participant |
The amendment, suspension or termination of the Plan or a portion thereof or the amendment of an outstanding Award shall not, without the Participant's consent, materially adversely affect any rights under any Award theretofore granted to the Participant under the Plan. Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Participant, be made in a manner so as to constitute a "modification" that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option. Notwithstanding the foregoing, any adjustments made pursuant to Section 15 shall not be subject to these restrictions.
SECTION 18. GENERAL
No individual or Participant shall have any claim to be granted any Award under the Plan, and the Company has no obligation for uniformity of treatment of Participants under the Plan.
Furthermore, nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate a Participant's employment or other relationship at any time, with or without cause.
Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless, in the opinion of the Company's counsel, such issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act or the laws of any state or foreign jurisdiction) and the applicable requirements of any securities exchange or similar entity.
The Company shall be under no obligation to any Participant to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under the laws of any state or foreign jurisdiction, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made.
As a condition to the exercise of an Option or any other receipt of Common Stock pursuant to an Award under the Plan, the Company may require (a) the Participant to represent and warrant at the time of any such exercise or receipt that such shares are being purchased or received only for the Participant's own account and without any present intention to sell or distribute such shares and (b) such other action or agreement by the Participant as may from time to time be necessary to comply with the federal, state and foreign securities laws. At the option of the Company, a stop-transfer order against any such shares may be placed on the official stock books and records of the Company, and a legend indicating that such shares may not be pledged, sold or otherwise transferred, unless an opinion of counsel is provided (concurred in by counsel for the Company) stating that such transfer is not in violation of any applicable law or regulation, may be stamped on stock certificates to ensure exemption from registration. The Committee may also require the Participant to execute and deliver to the Company a purchase agreement or such other agreement as may be in use by the Company at such time that describes certain terms and conditions applicable to the shares.
To the extent the Plan or any instrument evidencing an Award provides for issuance of stock certificates to reflect the issuance of shares of Common Stock, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.
Each person who is or shall have been a member of the Board, or a committee appointed by the Board, or an officer of the Company to whom authority was delegated in accordance with Section 3, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof, with the Company's approval, or paid by such person in satisfaction of any judgment in any such claim, action, suit or proceeding against such person; provided, however, that such person shall give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's own behalf, unless such loss, cost, liability or expense is a result of such person's own willful misconduct or except as expressly provided by statute.
The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company's certificate of incorporation or bylaws, as a matter of law, or otherwise, or of any power that the Company may have to indemnify or hold harmless.
| |
18.4 | No Rights as a Stockholder |
Unless otherwise provided by the Committee or in the instrument evidencing the Award or in a written employment, services or other agreement, no Award, other than a Stock Award or Restricted Stock Award, shall entitle the Participant to any cash dividend, voting or other right of a stockholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award.
| |
18.5 | Compliance with Laws and Regulations |
In interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an "incentive stock option" within the meaning of Section 422 of the Code.
The Plan and Awards granted under the Plan are intended to be exempt from the requirements of Section 409A to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4), the exclusion applicable to stock options, stock appreciation rights and certain other equity-based compensation under Treasury Regulation Section 1.409A-1(b)(5), or otherwise. To the extent Section 409A is applicable to the Plan or any Award granted under the Plan, it is intended that the Plan and any Awards granted under the Plan comply with the deferral, payout and other limitations and restrictions imposed under Section 409A. Notwithstanding any other provision of the Plan or any Award granted under the Plan to the contrary, the Plan and any Award granted under the Plan shall be interpreted, operated and administered in a manner consistent with such intentions. Without limiting the generality of the foregoing, and notwithstanding any other provision of the Plan or any Award granted under the Plan to the contrary, with respect to any payments and benefits under the Plan or any Award granted under the Plan to which Section 409A applies, all references in the Plan or any Award granted under the Plan to the termination of the Participant's employment or service are intended to mean the Participant's "separation from service," within the meaning of Section 409A(a)(2)(A)(i). In addition, if the Participant is a "specified employee," within the meaning of Section 409, then to the extent necessary to avoid subjecting the Participant to the imposition of any additional tax under Section 409A, amounts that would otherwise be payable under the Plan or any Award granted under the Plan during the six-month period immediately following the Participant's "separation from service,"
within the meaning of Section 409A(a)(2)(A)(i), shall not be paid to the Participant during such period, but shall instead be accumulated and paid to the Participant (or, in the event of the Participant's death, the Participant's estate) in a lump sum on the first business day after the earlier of the date that is six months following the Participant's separation from service or the Participant's death. Notwithstanding any other provision of the Plan to the contrary, the Committee, to the extent it deems necessary or advisable in its sole discretion, reserves the right, but shall not be required, to unilaterally amend or modify the Plan and any Award granted under the Plan so that the Award qualifies for exemption from or complies with Section 409A; provided, however, that the Committee makes no representations that Awards granted under the Plan shall be exempt from or comply with Section 409A and makes no undertaking to preclude Section 409A from applying to Awards granted under the Plan.
| |
18.6 | Participants in Other Countries or Jurisdictions |
Without amending the Plan, the Committee may grant Awards to Eligible Persons who are foreign nationals on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan and shall have the authority to adopt such modifications, procedures, subplans and the like as may be necessary or desirable to comply with provisions of the laws or regulations of other countries or jurisdictions in which the Company or any Related Company may operate or have employees to ensure the viability of the benefits from Awards granted to Participants employed in such countries or jurisdictions, meet the requirements that permit the Plan to operate in a qualified or tax-efficient manner, comply with applicable foreign laws or regulations and meet the objectives of the Plan.
The Plan is intended to constitute an "unfunded" plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.
All obligations of the Company under the Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all the business and/or assets of the Company.
If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Committee's determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
| |
18.10 | Choice of Law and Venue |
The Plan, all Awards granted thereunder and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Washington without giving effect to principles of conflicts of law. Participants irrevocably consent to the nonexclusive jurisdiction and venue of the state and federal courts located in the State of Washington.
The granting of Awards and the issuance of shares of Common Stock under the Plan are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required.
SECTION 19. EFFECTIVE DATE
The effective date (the "Effective Date") is the date on which the Plan is approved by the stockholders of the Company. If the stockholders of the Company do not approve the Plan within 12 months after the Board's adoption of the Plan, any Incentive Stock Options granted under the Plan will be treated as Nonqualified Stock Options.
APPENDIX A
DEFINITIONS
As used in the Plan,
"Acquired Entity" means any entity acquired by the Company or a Related Company or with which the Company or a Related Company merges or combines.
"Award" means any Option, Stock Appreciation Right, Stock Award, Restricted Stock, Stock Unit, Performance Share, Performance Unit, cash-based award or other incentive payable in cash or in shares of Common Stock as may be designated by the Committee from time to time.
"Board" means the Board of Directors of the Company.
"Cause," unless otherwise defined in the instrument evidencing an Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means dishonesty, fraud, serious or willful misconduct, unauthorized use or disclosure of confidential information or trade secrets, violation of a state or federal criminal law involving the commission of a crime against the Company or a felony, current use of illegal substances, or any act or omission which substantially impairs the Company's business, good will or reputation, in each case as determined by the Company's chief human resources officer or other person performing that function or, in the case of directors and executive officers, the Compensation Committee, whose determination shall be conclusive and binding.
"Change of Control," unless the Committee determines otherwise with respect to an Award at the time the Award is granted or unless otherwise defined for purposes of an Award in a written employment, services or other agreement between the Participant and the Company or a Related Company, means the occurrence of any of the following events:
(a) an acquisition by any Entity of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) 20% or more of either (A) the number of then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"), in the case of either (A) or (B) of this clause (i), which acquisition is not approved in advance by a majority of the Incumbent Board, or (ii) 33% or more of either (A) the Outstanding Company Common Stock or (B) the Outstanding Company Voting Securities, in the case of either (A) or (B) of this clause (ii), which acquisition is approved in advance by a majority of the Incumbent Board; provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege where the security being so converted was not acquired directly from the Company by the party exercising the conversion privilege, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Related Company, or (iv) an acquisition by any Entity pursuant to a transaction that meets the conditions of clauses (i), (ii) and (iii) set forth in the definition of Company Transaction;
(b) a change in the composition of the Board such that the individuals who, as of the Effective Date, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that for purposes of this definition, any individual who becomes a member of the Board subsequent to the Effective Date, whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; and provided further, however, that any such individual whose initial assumption of office occurs as a result of or in connection with an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of an Entity other than the Board shall not be considered a member of the Incumbent Board; or
(c) consummation of a Company Transaction.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" has the meaning set forth in Section 3.1.
"Common Stock" means the common stock, par value $.001 per share, of the Company.
"Company" means Outerwall Inc. a Delaware corporation.
"Company Transaction," unless the Committee determines otherwise with respect to an Award at the time the Award is granted or unless otherwise defined for purposes of an Award in a written employment, services or other agreement between the Participant and the Company or a Related Company, means consummation of:
(a) a merger or consolidation of the Company with or into any other company;
(b) a sale in one transaction or a series of transactions undertaken with a common purpose of at least 60% of the Company's outstanding voting securities; or
(c) a sale, lease, exchange or other transfer in one transaction or a series of related transactions undertaken with a common purpose of all or substantially all of the Company's assets,
excluding, however, in each case, a transaction pursuant to which
(i) the Entities who are the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Company Transaction will beneficially own, directly or indirectly, at least 60% of the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, of the Successor Company in substantially the same proportions as their ownership, immediately prior to such Company Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities;
(ii) no Entity (other than the Company, any employee benefit plan (or related trust) of the Company, a Related Company or a Successor Company) will beneficially own, directly or indirectly, 33% or more of, respectively, the outstanding shares of common stock of the Successor Company or the combined voting power of the outstanding voting securities of the Successor Company entitled to vote generally in the election of directors unless such ownership resulted solely from ownership of securities of the Company prior to the Company Transaction; and
(iii) individuals who were members of the Incumbent Board will immediately after the consummation of the Company Transaction constitute at least a majority of the members of the board of directors of the Successor Company.
Where a series of transactions undertaken with a common purpose is deemed to be a Company Transaction, the date of such Company Transaction shall be the date on which the last of such transactions is consummated.
"Compensation Committee" means the Compensation Committee of the Board.
"Covered Employee" means a "covered employee" as that term is defined for purposes of Section 162(m)(3) of the Code or any successor provision.
"Disability," unless otherwise defined by the Committee for purposes of the Plan in the instrument evidencing an Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means a mental or physical impairment of the Participant that is expected to result in death or that has lasted or is expected to last for a continuous period of 12 months or more and that causes the Participant to be unable to perform his or her material duties for the Company or a Related Company and to be engaged in any substantial gainful activity, in each case as determined by the Company's chief human resources officer or other person performing that function or, in the case of directors and executive officers, the Compensation Committee, whose determination shall be conclusive and binding.
"Effective Date" has the meaning set forth in Section 19.
"Eligible Person" means any person eligible to receive an Award as set forth in Section 5.
"Entity" means any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act).
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time.
"Fair Market Value" means the closing price for the Common Stock on any given date during regular trading, or if not trading on that date, such price on the last preceding date on which the Common Stock was traded, unless determined otherwise by the Committee using such methods or procedures as it may establish.
"Grant Date" means the later of (a) the date on which the Committee completes the corporate action authorizing the grant of an Award or such later date specified by the Committee and (b) the date on which all conditions precedent to an Award have been satisfied, provided that conditions to the exercisability or vesting of Awards shall not defer the Grant Date.
"Incentive Stock Option" means an Option granted with the intention that it qualify as an "incentive stock option" as that term is defined for purposes of Section 422 of the Code or any successor provision.
"Incumbent Board" has the meaning set forth in the definition of "Change of Control."
"Nonqualified Stock Option" means an Option other than an Incentive Stock Option.
"Option" means a right to purchase Common Stock granted under Section 7.
"Option Expiration Date" means the last day of the maximum term of an Option.
"Outstanding Company Common Stock" has the meaning set forth in the definition of "Change of Control."
"Outstanding Company Voting Securities" has the meaning set forth in the definition of "Change of Control."
"Parent Company" means a company or other entity which as a result of a Company Transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries.
"Participant" means any Eligible Person to whom an Award is granted.
"Performance Award" means an Award of Performance Shares or Performance Units granted under Section 11.
"Performance Criteria" has the meaning set forth in Section 16.1.
"Performance Share" means an Award of units denominated in shares of Common Stock granted under Section 11.1.
"Performance Unit" means an Award of units denominated in cash or property other than shares of Common Stock granted under Section 11.2.
"Plan" means the Outerwall Inc. 2011 Incentive Plan.
"Prior Plan" has the meaning set forth in Section 4.1(b).
"Related Company" means any entity that is directly or indirectly controlled by, in control of or under common control with the Company.
"Restricted Stock" means an Award of shares of Common Stock granted under Section 10, the rights of ownership of which are subject to restrictions prescribed by the Committee.
"Retirement," unless otherwise defined in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means "Retirement" as defined for purposes of the Plan by the Committee or the Company's chief human resources officer or other person performing that function or, if not so defined, means Termination of Service on or after the date the Participant reaches "normal retirement age," as that term is defined in Section 411(a)(8) of the Code.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Section 409A" means Section 409A of the Code.
"Stock Appreciation Right" or "SAR" means a right granted under Section 9.1 to receive the excess of the Fair Market Value of a specified number of shares of Common Stock over the grant price.
"Stock Award" means an Award of shares of Common Stock granted under Section 10, the rights of ownership of which are not subject to restrictions prescribed by the Committee.
"Stock Unit" means an Award denominated in units of Common Stock granted under Section 10.
"Substitute Awards" means Awards granted or shares of Common Stock issued by the Company in substitution or exchange for awards previously granted by an Acquired Entity.
"Successor Company" means the surviving company, the successor company or Parent Company, as applicable, in connection with a Company Transaction.
"Termination of Service" means a termination of employment or service relationship with the Company or a Related Company for any reason, whether voluntary or involuntary, including by reason of death, Disability or Retirement. Any question as to whether and when there has been a Termination of Service for the purposes of an Award and the cause of such Termination of Service shall be determined by the Company's chief human resources officer or other person performing that function or, with respect to directors and executive officers, by the Compensation Committee, whose determination shall be conclusive and binding. Transfer of a Participant's employment or service relationship between the Company and any Related Company shall not be considered a Termination of Service for purposes of an Award. Unless the Compensation Committee determines otherwise, a Termination of Service shall be deemed to occur if the Participant's employment or service relationship is with an entity that has ceased to be a Related Company. A Participant's change in status from an employee of the Company or a Related Company to a nonemployee director, consultant, advisor, or independent contractor of the Company or a Related Company or a change in status from a nonemployee director, consultant, advisor or independent contractor of the Company or a Related Company to an employee of the Company or a Related Company, shall not be considered a Termination of Service.
"Vesting Commencement Date" means the Grant Date or such other date selected by the Committee as the date from which an Award begins to vest.
Exhibit 10.3
(Performance-Based)
OUTERWALL INC.
2011 INCENTIVE PLAN
RESTRICTED STOCK AWARD NOTICE
Outerwall Inc. (the "Company") hereby grants to you a Restricted Stock Award (the "Award") for shares of the Company's Common Stock under the Company's 2011 Incentive Plan (the "Plan"). The Award is subject to all the terms and conditions set forth in this Restricted Stock Award Notice (the "Award Notice") and in the Restricted Stock Award Agreement and the Plan, which are incorporated into the Award Notice in their entirety. |
| | |
Participant: | |
Grant Date: | |
Number of Shares Subject to the Award (the "Shares"): | |
Fair Market Value Per Share on Grant Date: | |
Vesting Schedule: | | |
Additional Terms/Acknowledgement: You acknowledge receipt of, and understand and agree to, the Award Notice, the Restricted Stock Award Agreement and the Plan. You further acknowledge that as of the Grant Date, the Award Notice, the Restricted Stock Award Agreement and the Plan set forth the entire understanding between you and the Company regarding the Award and supersede all prior oral and written agreements on the subject. |
| |
OUTERWALL INC.
By: _________________________________ Title: ________________________________ | PARTICIPANT
_____________________________________
|
| |
Attachments: 1. Restricted Stock Award Agreement | |
OUTERWALL INC.
2011 INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT
Pursuant to your Restricted Stock Award Notice (the "Award Notice") and this Restricted Stock Award Agreement (this "Agreement"), Outerwall Inc. (the "Company") has granted you a Restricted Stock Award (the "Award") under its 2011 Incentive Plan (the "Plan") for the number of shares of the Company's Common Stock indicated in your Award Notice. Capitalized terms not defined in this Agreement but defined in the Plan have the same definitions as in the Plan.
The details of the Award are as follows:
The Award will vest and no longer be subject to forfeiture according to the vesting schedule set forth in the Award Notice (the "Vesting Schedule"). Shares subject to the portion of the Award that has vested and is no longer subject to forfeiture according to the Vesting Schedule are referred to herein as "Vested Shares." Shares subject to the portion of the Award that has not vested and remains subject to forfeiture under the Vesting Schedule are referred to herein as "Unvested Shares." The Unvested Shares will vest (and to the extent so vested cease to be Unvested Shares remaining subject to forfeiture) in accordance with the Vesting Schedule (the Unvested and Vested Shares are collectively referred to herein as the "Shares").
| |
2. | Termination of Service; Change of Control |
2.1 Unless the Committee determines otherwise prior to your Termination of Service, all Unvested Shares will immediately be forfeited to the Company upon your Termination of Service without payment of any consideration to you.
2.2 [For Awards Granted at Target: In the event of a Change of Control, the earned portion of the Award, as determined by the Committee following its certification of the Company’s achievement of the performance goals set forth in the Award Notice, shall be treated as follows, and any unearned portion shall be forfeited; provided, that, in the event of a Change of Control prior to the Committee’s certification of the Company’s achievement of such performance goals, the Award shall be deemed earned at the target level of achievement:
(a) if the Change of Control is a Company Transaction in which the Award is converted, assumed for or replaced by the Successor Company, then the Award shall automatically become [vested and cease to be subject to forfeiture as to 100% of the unvested portion of the Award in the event your employment or service relationship with the Successor Company should terminate (i) in connection with the Company Transaction or (ii) subsequently within two (2) years following such Company Transaction][vested and cease to be subject to forfeiture as to 50% of the unvested portion of the Award in the event your employment or service relationship with the Successor Company should terminate (i) in connection with the Company Transaction or (ii) subsequently within one (1) year following such Company Transaction], unless such employment or service relationship is terminated by the Successor Company for Cause or by you voluntarily without Good Reason (as defined below), and
(b) if the Change of Control is not a Company Transaction or is a Company Transaction in which the Award is not converted, assumed, substituted for or replaced by the Successor Company, 100% of the unvested portion of the Award shall automatically become vested and cease to be subject to forfeiture immediately prior to the Change of Control.]
[For Awards Granted for Above-Target Performance: In the event of a Change of Control that is a Company Transaction in which the Award is converted, assumed for or replaced by the Successor Company, the Award shall automatically become [fully vested and cease to be subject to forfeiture in the event your employment or service relationship with the Successor Company should terminate (a) in connection with the Company Transaction or (b) subsequently within two (2) years following such Company Transaction][vested and cease to be subject to forfeiture as to 50% of the unvested portion of the Award in the event your employment or service relationship with the Successor Company should terminate (a) in connection with the Company Transaction or (b) subsequently within one (1) year following such Company Transaction], unless such employment or service relationship is terminated by the Successor Company for Cause or by you voluntarily without Good Reason (as defined below).]
"Good Reason" means the occurrence of any of the following events or conditions and the failure of the Successor Company to cure such event or condition within 30 days after receipt of written notice from you:
(a) a change in your status, position or responsibilities (including reporting responsibilities) that, in your reasonable judgment, represents a substantial reduction in your status, position or responsibilities as in effect immediately prior thereto; the assignment to you of any duties or responsibilities that, in your reasonable judgment, are materially inconsistent with such status, title, position or responsibilities; or any removal from or failure to reappoint or reelect you to any of such positions, except in connection with the termination of your employment or service relationship for Cause, as a result of your Disability or death, or by you other than for Good Reason;
(b) a reduction in your annual base salary;
(c) the Successor Company’s requiring you (without your consent) to be based at any place outside a 50-mile radius of your place of employment prior to the Company Transaction, except for reasonably required travel on the Successor Company’s business that is not materially greater than such travel requirements prior to the Company Transaction;
(d) the Successor Company’s failure to (i) continue in effect any material compensation or benefit plan (or the substantial equivalent thereof) in which you were participating at the time of the Company Transaction, including, but not limited to, the Plan, or (ii) provide you with compensation and benefits substantially equivalent (in terms of benefit levels and/or reward opportunities) to those provided for under each material employee benefit plan, program and practice as in effect immediately prior to the Company Transaction;
(e) any material breach by the Successor Company of its obligations to you under the Plan or any substantially equivalent plan of the Successor Company; or
(f) any purported termination of your employment or service relationship for Cause by the Successor Company that is not in accordance with the definition of Cause under the Plan.
| |
3. | Consideration for Award |
The Company acknowledges your payment of full consideration for the Award in the form of services previously rendered and/or services to be rendered hereafter to the Company (in either case, in an amount equal to no less than the aggregate par value of the Shares).
| |
4. | Securities Law Compliance |
4.1 You represent and warrant that you (a) have been furnished with a copy of the Plan and all information which you deem necessary to evaluate the merits and risks of receipt of the Shares, (b) have had the opportunity to ask questions and receive answers concerning the information received about the Shares and the Company, and (c) have been given the opportunity to obtain any additional information you deem necessary to verify the accuracy of any information obtained concerning the Shares and the Company.
4.2 You hereby agree that you will in no event sell or distribute all or any part of the Shares unless (a) there is an effective registration statement under the Securities Act and applicable state securities laws covering any such transaction involving the Shares or (b) the Company receives an opinion of your legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration.
4.3 You confirm that you have been advised, prior to your receipt of the Shares, that neither the offering of the Shares nor any offering materials have been reviewed by any administrator under the Securities Act or any other applicable securities act.
4.4 You hereby agree to indemnify the Company and hold it harmless from and against any loss, claim or liability, including attorneys' fees or legal expenses, incurred by the Company as a result of any breach by you of, or any inaccuracy in, any representation, warranty or statement made by you in this Agreement or the breach by you of any terms or conditions of this Agreement.
Any sale, transfer, assignment, pledge, encumbrance, hypothecation, conveyance in trust, gift, transfer by bequest, devise or descent, or other transfer or disposition of any kind, whether voluntary or by operation of law, directly or indirectly, of Unvested Shares will be strictly prohibited and void.
| |
6. | Book Entry Registration of Shares |
The Company may issue the Shares by registering the Shares in book entry form with the Company's transfer agent in your name in which case the applicable restrictions will be noted in the records of the Company's transfer agent in the book entry system.
You understand and agree that, in order to ensure compliance with the restrictions referred to in this Agreement, the Company may issue appropriate "stop‑transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. The Company will not be required to (a) transfer on its books any Shares that have been sold or transferred in violation of the provisions of this Agreement or (b) treat as the owner of the Shares, or otherwise accord voting, dividend or liquidation rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement.
You acknowledge that determining the actual tax consequences to you of receiving or disposing of the Shares may be complicated. These tax consequences will depend, in part, on your specific situation and may also depend on other variables not within the control of the Company. You are aware that you should consult a competent and independent tax advisor for a full understanding of the specific tax consequences to you of receiving or disposing of the Shares. Prior to executing the Award Notice, you either have consulted with a competent tax advisor independent of the Company to obtain tax advice concerning the receipt or disposition of the Shares in light of your specific situation or you have had the opportunity to consult with such a tax advisor but chose not to do so.
As a condition to the removal of forfeiture restrictions from your Vested Shares, you agree to make arrangements satisfactory to the Company for the payment of any federal, state, local or foreign withholding tax obligations that arise either upon receipt of the Shares or as the forfeiture restrictions on any Shares lapse. You may satisfy such withholding obligation by any of the following means or a combination thereof: (a) tendering a cash payment to the Company, (b) having the Company withhold an amount from any cash amount otherwise due or become due from the Company to you, (c) having the Company withhold a number of shares of the Company's Common Stock that would otherwise become vested under this Agreement (up to the employer's minimum tax withholding rate) or (d) surrendering to the Company already owned shares of the Company's Common Stock (up to the employer's minimum required tax withholding rate). Notwithstanding the previous sentence, you acknowledge and agree that the Company and any Related Company have the right to deduct from payments of any kind otherwise due to you any federal, state or local taxes of any kind required by law to be withheld with respect the Award. As a condition and term of the Award, no election under Section 83(b) of the Code may be made by you or any other person with respect to all or any portion of the Award.
10.1 Assignment. The Company may assign its forfeiture rights at any time, whether or not such rights are then exercisable, to any person or entity selected by the Company's Board of Directors, including, without limitation, one or more of the Company's shareholders.
10.2 No Waiver. No waiver of any provision of this Agreement will be valid unless in writing and signed by the person against whom such waiver is sought to be enforced, nor will failure to enforce any right hereunder constitute a continuing waiver of the same or a waiver of any other right hereunder.
10.3 Cancellation of Shares. If the Company or its assignees exercises the Company's forfeiture rights in accordance with the provisions of this Agreement, then, from and after such time, the person from whom such Shares are to be forfeited will no longer have any rights as a recipient of such Shares, such Shares will be deemed forfeited in accordance with the applicable provisions of this Agreement, and the Company or its assignees will be deemed the owner and recipient of such Shares, whether or not any certificates therefor have been delivered as required by this Agreement.
10.4 Undertaking. You hereby agree to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either you or the Shares pursuant to the express provisions of this Agreement.
10.5 Agreement Is Entire Contract. This Agreement and the Award Notice constitute the entire contract between the parties hereto with regard to the subject matter hereof and supersede all prior oral and written agreements on the subject. This Agreement and the Award Notice are made pursuant to the provisions of the Plan and will in all respects be construed in conformity with the express terms and provisions of the Plan.
10.6 Successors and Assigns. The provisions of this Agreement will inure to the benefit of, and be binding on, the Company and its successors and assigns and you and your legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such person will have become a party to this Agreement and agreed in writing to join herein and be bound by the terms and conditions hereof.
10.7 No Employment or Service Contract. Nothing in this Agreement will affect in any manner whatsoever the right or power of the Company, or a Related Company, to terminate your employment or services on behalf of the Company, for any reason, with or without Cause.
10.8 Shareholder of Record; Dividends. You will be recorded as a shareholder of the Company and will have, subject to the provisions of this Agreement and the Plan, all the rights of a shareholder with respect to the Shares. Notwithstanding the foregoing, any dividends payable in respect of any Share that has not yet vested shall be held by the Company until if and when such Share vests in accordance with the terms of this Agreement, at which time the Company shall distribute such dividends (without interest) to you; provided, however, that all such dividends will be forfeited if and when the associated Share is forfeited.
10.9 Counterparts. The Award Notice may be executed in two or more counterparts, each of which will be deemed an original, but which, upon execution, will constitute one and the same instrument.
10.10 Governing Law. To the extent not otherwise governed by the laws of the United States, this Agreement will be construed and administered in accordance with and governed by the laws of the State of Washington without giving effect to principles of conflicts of law.
The Award is intended to be exempt from the rules of Section 409A or to satisfy those rules, and shall be construed accordingly.
Exhibit 10.4
To: Donald R. Rench
Date: February 12, 2015
Dear Don,
Outerwall is pleased to offer you a cash award under the terms of the Company’s 2011 Incentive Plan (the “Plan”) in recognition of the key initiatives that you will be working on over the next year (the “Transition Award”).
The amount of the Transition Award is $200,000 and, except as provided below, is scheduled to be paid in a lump sum as soon as administratively feasible, and no more than 21 days, after April 1, 2016. Except as provided below, payment of the Transition Award is contingent upon maintaining employment in good standing through April 1, 2016. The Transition Award is in addition to any other compensation and benefits for which you are eligible, and is subject to applicable tax withholding.
If Outerwall terminates your employment for any reason other than Cause (as defined in the Plan) on or prior to April 1, 2016, you will be eligible for a pro-rated portion of the Transition Award. The pro-ration amount shall be based on the number of calendar days between February 12, 2015 and your termination date, and will be paid to you no more than 21 days after your termination date. In the event of a Change of Control (as defined in the Plan) on or prior to April 1, 2016, the Transition Award will be paid to you in full within 30 days following the Change of Control.
Your employment continues to be at will. You may terminate your employment at any time and for any reason whatsoever simply by notifying Outerwall. Likewise, Outerwall may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice.
If you accept the terms of this Transition Award, please sign and return one copy of this letter to our office via hardcopy or email.
|
|
Sincerely, |
/s/ Raquel Karls |
Raquel Karls, Chief HR Officer |
Date 2/13/15 |
|
|
Accepted by: |
/s/ Donald R. Rench |
Donald R. Rench |
Date 3/8/2015 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Nora M. Denzel, certify that:
| |
1. | I have reviewed this quarterly report on Form 10-Q of Outerwall Inc.; |
| |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report: |
| |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: May 7, 2015
|
|
By: /s/ Nora M. Denzel |
Nora M. Denzel |
Interim Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Galen C. Smith, certify that:
| |
1. | I have reviewed this quarterly report on Form 10-Q of Outerwall Inc.; |
| |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report: |
| |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: May 7, 2015
|
|
By: /s/ Galen C. Smith |
Galen C. Smith |
Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Outerwall Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Form 10-Q"), I, Nora M. Denzel, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 7, 2015
|
|
By: /s/ Nora M. Denzel |
Nora M. Denzel |
Interim Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Outerwall Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Form 10-Q"), I, Galen C. Smith, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 7, 2015
|
|
By: /s/ Galen C. Smith |
Galen C. Smith |
Chief Financial Officer |
Outerwall Inc. (NASDAQ:OUTR)
Historical Stock Chart
From Mar 2024 to Apr 2024
Outerwall Inc. (NASDAQ:OUTR)
Historical Stock Chart
From Apr 2023 to Apr 2024