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Article by DailyStocks_admin    (10-27-08 02:59 AM)

Filed with the SEC from Oct 9 to Oct 15:

Coinstar (CSTR)
Fine Capital Partners reported ownership of 1,569,206 shares (5.6%), after buying 531,200 from Aug. 14 to Oct. 10 at prices that ranged from $24.12 to $33.69. Coinstar operates machines that let consumers exchange coins for bills.

BUSINESS OVERVIEW

Summary

We are a multi-national company offering a range of solutions for retailers’ storefronts consisting of self-service coin counting; entertainment services such as skill-crane machines, bulk vending machines and kiddie rides; and e-payment services such as money transfer services, prepaid wireless products, stored value cards, payroll cards, and prepaid debit cards. In addition, we offer self-service DVD kiosks where consumers can rent or purchase movies.

We launched our business in North America with the installation of the first Coinstar ® coin-counting machine in the early 1990s and in 2001 we began offering our coin services in the United Kingdom. Since inception, our coin-counting machines have counted and processed more than 345 billion coins worth more than $18.6 billion in more than 505 million transactions. As of December 31, 2007, we own and operate more than 15,400 coin-counting machines in the United States, Canada, Puerto Rico and the United Kingdom, of which approximately 10,700 are e-payment enabled, and more than 280,000 entertainment services machines in the United States, Puerto Rico and Mexico. We also utilize more than 17,500 point-of-sale terminals for e-payment services in the United States and the United Kingdom and offer our money transfer services at over 30,000 locations.

We are headquartered in Bellevue, Washington, where we maintain most of our sales, marketing, research and development, quality control, customer service operations and administration. In addition, our main entertainment services office is located in Louisville, Colorado, our main e-payment office is located in Chicago, Illinois and our main money transfer office is located in the London, England. As of December 31, 2007, we had approximately 1,900 employees. We were incorporated in Delaware on October 12, 1993.

With our acquisitions and strategic investments over the last several years, we have significantly broadened our base of existing and potential retailers and the depth and reach of our sales and field service forces, providing greater opportunity to cross-sell our coin, entertainment and e-payment services. We have more than 900 field service employees throughout the United States and internationally, who have broadened our geographic reach to develop and maintain strong relationships with retailers. With the combination of coin, entertainment, e-payment services and DVD, we are positioned as a single-source supplier for retailers to capitalize on the 4th Wall tm , an area between the cash registers and front door of retail locations that in the past has generally not been managed to optimize revenue per square foot.

Coin services

We are the leader in the self-service coin-counting services market. We own and operate the only multi-national fully automated network of self-service coin-counting machines across the United States, Canada, Puerto Rico and in the United Kingdom. We estimate that at any one time, there is more than $10.5 billion worth of coin sitting idle in households in the United States. In 2007, consumers processed more than $2.9 billion worth of coin through our coin-counting machines.

We own and service all of our coin-counting machines, providing a “turn-key, headache-free” service to retailers. Our machines are easy to use, highly accurate, durable, easy to service and capable of processing up to 600 coins per minute. Consumers feed loose change into the machines, which count the change and then dispense vouchers or, in some cases, issue stored value cards or e-certificates, at the consumer’s election. Each voucher lists the dollar value of coins counted, less our transaction fee, which is typically 8.9% of the value of each transaction. There is no transaction fee to the consumer when a stored value card or e-certificate is issued. Our patented, proprietary technology helps us to maintain high up-time, remotely monitor performance and minimize the potential for losses associated with voucher fraud.

Since we pay a percentage of our transaction fees to our retailers, our coin services benefit our retailers by providing an additional source of revenue. In addition, studies show that our coin services increase foot traffic in our retailers’ stores and that approximately 46% of our customers spend all or a part of the proceeds of their vouchers in the store. Our leading coin services retailers include The Kroger Co. and Supervalu, Inc. supermarket chains, and our leading stored value cards or e-certificate offerings are Starbucks, Amazon.com and iTunes.

Entertainment services

We are the leading owner and operator of skill-crane and bulk vending machines in the United States. We estimate that the market for our entertainment services is approximately $1.1 billion annually in the United States.

As with our coin services, we own and service all of our entertainment services machines, providing a convenient and trouble-free service to retailers. Our entertainment services machines consist primarily of skill-crane machines, bulk vending and kiddie rides, which are installed in more than 27,000 retail locations, totaling more than 280,000 pieces of equipment as of December 31, 2007. The majority of our entertainment services revenue is derived from skill-crane machines that dispense plush toys, novelties and other items. For each play, customers maneuver the skill-crane into position and attempt to retrieve the desired item in the machine’s enclosed display area before play is ended. We utilize displays of quality merchandise, new product introductions and other merchandising techniques to attract new and repeat customers. Our leading entertainment services partners include Wal-Mart Stores, Inc. and Kmart, a subsidiary of Sears Holdings Corporation.

Since we pay our retailers a portion of the fee per play, our entertainment services machines, like our coin-counting machines, provide an additional revenue stream for our retailers. In addition, our entertainment services machines add an element of entertainment for consumers.

E-payment services

We offer e-payment services, including money transfer services, activating and reloading value on prepaid wireless accounts, selling stored value cards, loading and reloading prepaid debit cards and prepaid phone cards, prepaid phones and providing payroll card services such as balance inquiry and wage statement printing. As of December 31, 2007, our money transfer services are provided in over 140 countries. We offer various e-payment services through 17,500 point-of-sale terminals, 400 stand-alone e-payment kiosks and 10,700 e-payment-enabled coin-counting machines in supermarkets, drugstores, universities, shopping malls, convenience stores and other locations. As with our coin and entertainment services, our e-payment services provide an additional revenue stream for our retailers as we pay a fee through commissions earned on the sales of e-payment services. We have relationships with national wireless carriers, such as Sprint, Verizon, T-Mobile, Virgin Mobile and AT&T.

Recent Events

On January 1, 2008, we exercised our option to acquire a majority ownership interest in the voting equity of Redbox Automated Retail, LLC (“Redbox”) under the terms of the LLC Interest Purchase Agreement dated November 17, 2005. In conjunction with the option exercise and payment of $5.1 million, our ownership interest increased from 47.3% to 51.0%. Since our original investment in Redbox, we have been accounting for our 47.3% ownership interest under the equity method in our Consolidated Financial Statements. Effective with the close of this transaction, January 18, 2008, we will consolidate Redbox’s financial results into our Consolidated Financial Statements. Along with our acquisition of Video Vending New York, Inc. (d.b.a. “DVDXpress”) in October 2007 and the majority ownership in Redbox, we offer self-service DVD kiosks where consumers can rent or purchase movies. Our DVD kiosks supply all the functionality of a traditional video rental store, yet occupy an area of less than ten square feet. Consumers use a touch screen to select their DVD, swipe a valid credit or debit card, and go. The process is designed to be fast, efficient and fully automated with no upfront or membership fees. Typically, the DVD rental price is a flat fee plus tax for one night and if the consumer chooses to keep the DVD for additional nights, they are automatically charged the same flat fee price. Our DVD kiosks are available in all states in the continental United States and Puerto Rico and offer our consumers with a more convenient home entertainment solution. In addition, our DVD kiosks provide an additional revenue stream to our retail partners, who receive a percentage of our fee.

Effective January 1, 2008, we completed the acquisition of GroupEx Financial Corporation, JRJ Express Inc. and Kimeco, LLC (collectively, “GroupEx”), for an aggregate purchase price of up to $70.0 million. The purchase price included a $60.0 million cash payment (subject to a customary working capital adjustment) at closing. Of the $60.0 million paid at closing, $6.0 million is being held in escrow as partial security for the indemnification obligations of the sellers under the agreement until the earlier of (1) the date eighteen months following the closing and (2) the date thirty days after completion in calendar year 2009 of the 2008 calendar year audit. An additional $34.0 million of the $60.0 million paid at closing is being held in escrow as partial security for the indemnification obligations of the sellers under the agreement with respect to a lawsuit against GroupEx and one of the sellers, which will be held until a final court order or written settlement agreement resolving such lawsuit has been obtained. In addition, there is a contingent payment of up to $10.0 million should certain performance conditions be met in the fifteen months following the closing.

Financial Information About Segments, Geographic Areas and Seasonality

The segment and geographic information required herein is contained in Note 15 to our Consolidated Financial Statements. A discussion of seasonality is included in Item 8, along with other quarterly financial information.

Where You Can Get Information We File with the SEC

We file with, and furnish to, the Securities and Exchange Commission (“SEC”), reports including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as amendments thereto. We maintain a website, www.coinstar.com, where we make these reports and related materials available free of charge as soon as reasonably practicable after we electronically deliver such material to the SEC. These materials can be found on our website under: About Us — Investor Relations — SEC Filings.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a multi-national company offering a range of 4th Wall solutions for retailers’ storefronts consisting of self-service coin counting; entertainment services such as skill-crane machines, bulk vending machines and kiddie rides; and e-payment services such as money transfer services, prepaid wireless products, stored value cards, payroll cards and prepaid debit cards. In addition, we offer self-service DVD kiosks where consumers can rent or purchase movies. We also offer a range of point-of-sale terminals, stand-alone e-payment kiosks and e-payment enabled coin-counting machines in drugstores, universities, shopping malls, supermarkets and convenience stores in the United States, the United Kingdom and other countries.

Strategy

Our strategy, embodied in our 4th Wall concept, is based on cross-selling our full range of products and services to our retailers. In addition, we believe that we will continue to increase operating efficiencies by combining and concentrating
our products and services in our retailers’ storefront.

We expect to continue devoting significant resources to building our sales organization in connection with our 4th Wall cross-selling strategy, adding administrative personnel to support our growing organization and developing the information technology systems and technology infrastructure necessary to support our products and services. We expect to continue evaluating new marketing and promotional programs to increase use of our products and services.

Business

Coin services

We are the leader in the self-service coin-counting services market. We own and operate the only multi-national fully automated network of self-service coin-counting machines across the United States, Canada, Puerto Rico and in the United Kingdom. We estimate that at any one time, there is more than $10.5 billion worth of coin sitting idle in households in the United States. In 2007, consumers processed more than $2.9 billion worth of coin through our coin-counting machines.

We own and service all of our coin-counting machines. Consumers feed loose change into the machines, which count the change and then dispense vouchers or, in some cases, issue e-payment products, at the consumer’s election. Each voucher lists the dollar value of coins counted, less our transaction fee, which is typically 8.9% of the value of coins counted. In certain cases when our e-payment product is issued instead of a voucher, the consumer does not pay a fee. We generate revenue through transaction fees from our customers and business partners.

We launched our business in North America with the installation of the first Coinstar ® coin-counting machine in the early 1990s and in 2001; we began offering our coin services in the United Kingdom. Since inception, our coin-counting machines have counted and processed more than 345 billion coins worth more than $18.6 billion in more than 505 million self-service coin-counting transactions. We own and operate more than 15,400 coin-counting machines in the United States, Canada, Puerto Rico and the United Kingdom (approximately 10,700 of which are e-payment enabled).

In February 2008, we reached an agreement with Wal-Mart to significantly expand our coin-counting machines installed at Wal-Mart locations over the next 12 to 18 months.

Entertainment services

We are the leading owner and operator of skill-crane and bulk vending machines in the United States. We estimate that the market for our entertainment services is approximately $1.1 billion annually in the United States.

Our entertainment services machines consist primarily of skill-crane machines, bulk vending and kiddie rides, which are installed in more than 27,000 retail locations, totaling more than 280,000 pieces of equipment as of December 31, 2007. As with our coin services business, we own and service all of our entertainment services machines, providing a convenient and trouble free service to retailers. We generate revenue from money deposited in our machines that dispense plush toys, novelties and other items.

In February 2008, we reached an agreement with Wal-Mart to remove approximately 50% of our cranes, bulk heads, and kiddie rides from our existing Wal-Mart locations during the first two quarters of 2008. Accordingly, we anticipate making certain resource re-allocations and will continue to evaluate any appropriate restructuring in this area in an effort to modulate operating expenses. Ultimately, any resource allocations will depend on the interplay between the net number of entertainment machines coming out of, and coin-counting machines going in to, Wal-Mart locations.

E-payment services

We offer e-payment services, including money transfer services, activating and reloading value on prepaid wireless accounts, selling stored value cards, loading and reloading prepaid debit cards and prepaid phone cards, prepaid phones, and providing payroll card services. We offer various e-payment services in the United States and the United Kingdom through 17,500 point-of-sale terminals, 400 stand-alone e-payment kiosks and 10,700

e-payment-enabled coin-counting machines in supermarkets, drugstores, universities, shopping malls and convenience stores.

We have relationships with national wireless carriers, such as Sprint, Verizon, T-Mobile, Virgin Mobile and AT&T. We generate revenue primarily through commissions or fees charged per e-payment transaction and pay our retailers a fee based on commissions earned on the sales of e-payment services.

Recent Events

On January 1, 2008, we exercised our option to acquire a majority ownership interest in the voting equity of Redbox under the terms of the LLC Interest Purchase Agreement dated November 17, 2005. In conjunction with the option exercise and payment of $5.1 million, our ownership interest increased from 47.3% to 51.0%. Since our original investment in Redbox, we have been accounting for our 47.3% ownership interest under the equity method in our Consolidated Financial Statements. Along with our acquisition of DVDXpress in October 2007 and the majority ownership in Redbox, we offer self-service DVD kiosks where consumers can rent or purchase movies. Our DVD kiosks supply all the functionality of a traditional video rental store, yet occupy an area of less than ten square feet. Consumers use a touch screen to select their DVD, swipe a valid credit or debit card, and go. The process is designed to be fast, efficient and fully automated with no upfront or membership fees. Typically, the DVD rental price is a flat fee plus tax for one night and if the consumer chooses to keep the DVD for additional nights, they are automatically charged the same flat fee price. Our DVD kiosks are available in all states in the continental United States and Puerto Rico and offer our consumers with a more convenient home entertainment solution. We generate revenue primarily through fees charged to rent or purchase a DVD, which our retail partners receive a percentage of our fee.

In February 2008, we reached an agreement with Wal-Mart to significantly expand our Redbox DVD kiosks installed at Wal-Mart locations over the next 12 to 18 months.

As of January 18, 2008, the financial results of Redbox will be consolidated into our financial statements. Further, we will recognize a reduction of minority interests on the Consolidated Statement of Operations relating to the 49% equity interest to which we do not own. We expect our 2008 consolidated revenues to significantly increase due to the consolidation of Redbox and we further expect our consolidated operating expenses will increase accordingly.

Effective January 1, 2008, we completed the acquisition of GroupEx Financial Corporation, JRJ Express Inc. and Kimeco, LLC (collectively, “GroupEx”), for an aggregate purchase price of up to $70.0 million. The purchase price includes a $60.0 million cash payment (subject to a customary working capital adjustment) at closing. Of the $60.0 million paid at closing, $6.0 million is being held in escrow as partial security for the indemnification obligations of the sellers under the agreement until the earlier of (1) the date eighteen months following the closing and (2) the date thirty days after completion in calendar year 2009 of the 2008 calendar year audit. An additional $34.0 million of the $60.0 million paid at closing is being held in escrow as partial security for the indemnification obligations of the sellers under the agreement with respect to a lawsuit against GroupEx and one of the sellers, which will be held until a final court order or written settlement agreement resolving such lawsuit has been obtained. In addition, there is a contingent payment of up to $10.0 million should certain performance conditions be met in the fifteen months following the closing.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue recognition: We recognize revenue as follows:


• Coin-counting revenue is recognized at the time the consumers’ coins are counted by our coin-counting machines;

• Entertainment services revenue is recognized at the time cash is deposited in our machines. Cash deposited in the machines that has not yet been collected is referred to as cash in machine and is estimated at period end and reported on the balance sheet as cash in machine or in transit. This estimate is based on the average daily revenue per machine multiplied by the number of days since the coin in the machine has been collected. The estimated value of our entertainment services cash in machine was approximately $8.4 million and $7.1 million as of December 31, 2007 and 2006, respectively;

• E-payment services revenue is recognized at the point of sale based on our commissions earned, net of retailer fees. Money transfer revenue is recognized at the time the customer completes the transaction.

Purchase price allocations: In connection with our acquisitions, we have allocated the respective purchase prices plus transaction costs to the estimated fair values of assets acquired and liabilities assumed. These purchase price allocations were based on our estimates of fair values. Adjustments to our purchase price allocation estimates are made based on our final analysis of the fair value during the allocation period, which is within one year of the purchase date.

Goodwill and intangible assets: Goodwill represents the excess of cost over the estimated fair value of net assets acquired, which is not being amortized. We test goodwill for impairment at the reporting unit level on an annual or more frequent basis as determined necessary. FASB Statement No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) requires a two-step goodwill impairment test whereby the first step, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second test is not performed. The second step of the impairment test is performed when required and compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

As of December 31, 2007, we have two reporting units; North American and International. Based on the annual goodwill test for impairment we performed for the years ended December 31, 2007 and 2006, we determined there was no impairment of our goodwill. There was no goodwill impairment associated with the asset group that had the impairment charge described below as that asset group is not a reporting unit as defined by SFAS 142.

Our intangible assets are comprised primarily of retailer relationships acquired in connection with our acquisitions through the end of 2007. We used expectations of future cash flows to estimate the fair value of the acquired retailer relationships. We amortize our intangible assets on a straight-line basis over their expected useful lives which range from 1 to 40 years.

Impairment of long-lived assets: Long-lived assets, such as property and equipment and purchased intangibles subject to amortization, are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors that would indicate potential impairment include, but are not limited to, significant decreases in the market value of the long-lived asset(s), a significant change in the long-lived asset’s physical condition and operating or cash flow losses associated with the use of the long-lived asset. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. While we continue to review and analyze many factors that can impact our business in the future, our analyses are subjective and are based on conditions existing at, and trends leading up to, the time the estimates and assumptions are made. Actual results could differ materially from these estimates and assumptions.

Results of Operations — Years Ended December 31, 2007, 2006 and 2005

Revenue

Our coin and e-payment revenues consist primarily of the revenue generated from our coin-counting services and our e-payments services such as money transfer services, prepaid wireless products, stored value cards and payroll cards.

Our coin and e-payment revenues increased in 2007 from 2006 and in 2006 from 2005 as a result of an increase in the number of transactions, an increase in the number of installed coin-counting machines, the volume of coins processed by our coin-counting machines, and as a result of our acquisition of CMT in the second quarter of 2006.

The total dollar value of coins processed through our network increased to approximately $2.9 billion in 2007 from $2.6 billion in 2006 and $2.3 billion in 2005. Additionally, the total coin-counting machines installed as of December 31, 2007, 2006 and 2005 were approximately 15,400, 13,500 and 12,800, respectively. Revenues for CMT were $24.2 million and $9.0 million for 2007 and 2006, respectively. We expect to continue installing additional coin-counting, e-payment, and DVD machines and therefore, expect to continue to experience revenue growth in these areas in the foreseeable future.

We believe that the decrease in our entertainment services revenues in 2007 from 2006 is due to several factors, including the decrease in foot traffic among the United States’ retailers, the China lead paint scare and the status of the United States’ economy. We expect that these factors will continue to negatively affect our entertainment services business in 2008. Additionally, we expect our entertainment services revenue to further decrease in 2008 as a result of our agreement reached with Wal-Mart to remove of approximately 50% of our cranes, bulk heads, and kiddie rides from our existing Wal-Mart locations during the first two quarters of 2008. Our entertainment services revenues increased in 2006 from 2005 as a result of the acquisition of Amusement Factory in the fourth quarter of 2005 and an increase in machines installed.

Direct Operating Expenses

Our direct operating expenses consist primarily of the cost of (1) the percentage of transaction fees and commissions we pay to our retailers and agents, (2) coin pick-up, transportation and processing expenses, (3) the cost of plush toys and other products dispensed from the skill-crane and bulk-vending machines and (4) field operations support and related expenses. Variations in the percentage of transaction fees we pay to our retailers and agents may result in increased expenses. Such variations are based on our negotiations and evaluation of certain factors, such as total revenue, e-payment capabilities, long-term non-cancelable contracts, installation of our machines in high traffic or urban or rural locations, new product commitments, co-op marketing incentive, or other criteria.

Direct operating expenses increased in 2007 and in 2006 primarily as result of an increase in the number of revenue transactions and the acquisition of CMT in the second quarter of 2006 and Amusement Factory in the fourth quarter of 2005, offset by operating synergies achieved in integration of our acquired companies. In addition, direct operating expenses increased in 2006 from 2005 as a result of $1.1 million incremental expense due to the adoption of SFAS 123R. Direct operating expenses for CMT were $22.8 million and $8.5 million for 2007 and 2006, respectively. We are continuing to integrate our various business operations and have realized operating expense efficiencies.

Operating taxes, net

Taxes related to operating our business are recorded in operating taxes, net on the consolidated statement of operations. Such taxes include the 2007 telecommunication fee refund, property taxes, sales and use taxes, and franchise taxes and do not include income taxes.

Operating taxes, net decreased in 2007 from 2006 primarily due to the recognition of a telecommunication fee refund of $11.8 million as a result of an Internal Revenue Service ruling that telecommunication fees paid during the period of March 1, 2003 through July 31, 2006 were improperly collected by the United States government. The $11.8 million represents the refund amount as filed on our fiscal year 2006 federal income tax return. In February 2008, we received the refund in the amount that we estimated.

Marketing

Marketing expenses represent our cost of advertising, marketing and public relation efforts in national and regional advertising and the major international markets in which we operate our money transfer services. For

example, we have been using advertising to introduce e-payment features on our coin-counting machines and other e-payment product channels such as our stored value card offerings. This directed marketing and advertising approach, which we expect to continue through 2008, continues driving increased trial and repeat use of both our coin services offerings and e-payment products.

Marketing expenses decreased in 2007 from 2006 primarily due to advertising mix in our different markets offset by an increase in spending resulting from the acquisition of CMT in the second quarter of 2006. Marketing expenses increased in 2006 from 2005 primarily as a result of our acquisition of CMT in the second quarter of 2006.

Research and Development

Our research and development expenses consist primarily of development costs of our coin-counting machine software, network applications, machine improvements and new product development.

General and administrative expenses increased in 2007 from 2006 due to the acquisition of CMT in the second quarter of 2006, an increase in stock-based compensation expense, an increase in rent expense due to additional administrative office space, offset by administrative synergies achieved in the integration of our administrative processes. General and administrative expenses for CMT were $6.5 million and $3.7 million for 2007 and 2006, respectively.

General and administrative expenses increased in 2006 from 2005 as a result of the incremental expense due to the adoption of SFAS 123R of $4.0 million, acquisitions of our entertainment subsidiaries and the incremental cost of supporting subsidiary companies with regional offices throughout the United States and in the United Kingdom.



MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview

We are a multi-national company offering a range of 4th Wall solutions for retailers’ storefronts consisting of self-service coin counting; entertainment services such as skill-crane machines, bulk vending machines and kiddie rides; and e-payment services such as money transfer services, prepaid wireless products, stored value cards, payroll cards and prepaid debit cards. In addition, we offer self-service DVD kiosks where consumers can rent or purchase movies. We also offer a range of point-of-sale terminals, stand-alone e-payment kiosks and e-payment enabled coin-counting machines in drugstores, universities, shopping malls, supermarkets and convenience stores in the United States, the United Kingdom and other countries.

Strategy

Our strategy, embodied in our 4th Wall concept, is based on cross-selling our full range of products and services to our retailers. In addition, we believe that we will continue to increase operating efficiencies by combining and concentrating
our products and services in our retailers’ storefront.

We expect to continue devoting significant resources to building our sales organization in connection with our 4th Wall cross-selling strategy, adding administrative personnel to support our growing organization and developing the information technology systems and technology infrastructure necessary to support our products and services. We expect to continue evaluating new marketing and promotional programs to increase use of our products and services.

Business

Coin services

We are the leader in the self-service coin-counting services market. We own and operate the only multi-national fully automated network of self-service coin-counting machines across the United States, Canada, Puerto Rico and in the United Kingdom. We estimate that at any one time, there is more than $10.5 billion worth of coin sitting idle in households in the United States. In 2007, consumers processed more than $2.9 billion worth of coin through our coin-counting machines.

We own and service all of our coin-counting machines. Consumers feed loose change into the machines, which count the change and then dispense vouchers or, in some cases, issue e-payment products, at the consumer’s election. Each voucher lists the dollar value of coins counted, less our transaction fee, which is typically 8.9% of the value of coins counted. In certain cases when our e-payment product is issued instead of a voucher, the consumer does not pay a fee. We generate revenue through transaction fees from our customers and business partners.

We launched our business in North America with the installation of the first Coinstar ® coin-counting machine in the early 1990s and in 2001; we began offering our coin services in the United Kingdom. Since inception, our coin-counting machines have counted and processed more than 345 billion coins worth more than $18.6 billion in more than 505 million self-service coin-counting transactions. We own and operate more than 15,400 coin-counting machines in the United States, Canada, Puerto Rico and the United Kingdom (approximately 10,700 of which are e-payment enabled).

In February 2008, we reached an agreement with Wal-Mart to significantly expand our coin-counting machines installed at Wal-Mart locations over the next 12 to 18 months.

Entertainment services

We are the leading owner and operator of skill-crane and bulk vending machines in the United States. We estimate that the market for our entertainment services is approximately $1.1 billion annually in the United States.

Our entertainment services machines consist primarily of skill-crane machines, bulk vending and kiddie rides, which are installed in more than 27,000 retail locations, totaling more than 280,000 pieces of equipment as of December 31, 2007. As with our coin services business, we own and service all of our entertainment services machines, providing a convenient and trouble free service to retailers. We generate revenue from money deposited in our machines that dispense plush toys, novelties and other items.

In February 2008, we reached an agreement with Wal-Mart to remove approximately 50% of our cranes, bulk heads, and kiddie rides from our existing Wal-Mart locations during the first two quarters of 2008. Accordingly, we anticipate making certain resource re-allocations and will continue to evaluate any appropriate restructuring in this area in an effort to modulate operating expenses. Ultimately, any resource allocations will depend on the interplay between the net number of entertainment machines coming out of, and coin-counting machines going in to, Wal-Mart locations.

E-payment services

We offer e-payment services, including money transfer services, activating and reloading value on prepaid wireless accounts, selling stored value cards, loading and reloading prepaid debit cards and prepaid phone cards, prepaid phones, and providing payroll card services. We offer various e-payment services in the United States and the United Kingdom through 17,500 point-of-sale terminals, 400 stand-alone e-payment kiosks and 10,700

e-payment-enabled coin-counting machines in supermarkets, drugstores, universities, shopping malls and convenience stores.

We have relationships with national wireless carriers, such as Sprint, Verizon, T-Mobile, Virgin Mobile and AT&T. We generate revenue primarily through commissions or fees charged per e-payment transaction and pay our retailers a fee based on commissions earned on the sales of e-payment services.

Recent Events

On January 1, 2008, we exercised our option to acquire a majority ownership interest in the voting equity of Redbox under the terms of the LLC Interest Purchase Agreement dated November 17, 2005. In conjunction with the option exercise and payment of $5.1 million, our ownership interest increased from 47.3% to 51.0%. Since our original investment in Redbox, we have been accounting for our 47.3% ownership interest under the equity method in our Consolidated Financial Statements. Along with our acquisition of DVDXpress in October 2007 and the majority ownership in Redbox, we offer self-service DVD kiosks where consumers can rent or purchase movies. Our DVD kiosks supply all the functionality of a traditional video rental store, yet occupy an area of less than ten square feet. Consumers use a touch screen to select their DVD, swipe a valid credit or debit card, and go. The process is designed to be fast, efficient and fully automated with no upfront or membership fees. Typically, the DVD rental price is a flat fee plus tax for one night and if the consumer chooses to keep the DVD for additional nights, they are automatically charged the same flat fee price. Our DVD kiosks are available in all states in the continental United States and Puerto Rico and offer our consumers with a more convenient home entertainment solution. We generate revenue primarily through fees charged to rent or purchase a DVD, which our retail partners receive a percentage of our fee.

In February 2008, we reached an agreement with Wal-Mart to significantly expand our Redbox DVD kiosks installed at Wal-Mart locations over the next 12 to 18 months.

As of January 18, 2008, the financial results of Redbox will be consolidated into our financial statements. Further, we will recognize a reduction of minority interests on the Consolidated Statement of Operations relating to the 49% equity interest to which we do not own. We expect our 2008 consolidated revenues to significantly increase due to the consolidation of Redbox and we further expect our consolidated operating expenses will increase accordingly.

Effective January 1, 2008, we completed the acquisition of GroupEx Financial Corporation, JRJ Express Inc. and Kimeco, LLC (collectively, “GroupEx”), for an aggregate purchase price of up to $70.0 million. The purchase price includes a $60.0 million cash payment (subject to a customary working capital adjustment) at closing. Of the $60.0 million paid at closing, $6.0 million is being held in escrow as partial security for the indemnification obligations of the sellers under the agreement until the earlier of (1) the date eighteen months following the closing and (2) the date thirty days after completion in calendar year 2009 of the 2008 calendar year audit. An additional $34.0 million of the $60.0 million paid at closing is being held in escrow as partial security for the indemnification obligations of the sellers under the agreement with respect to a lawsuit against GroupEx and one of the sellers, which will be held until a final court order or written settlement agreement resolving such lawsuit has been obtained. In addition, there is a contingent payment of up to $10.0 million should certain performance conditions be met in the fifteen months following the closing.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue recognition: We recognize revenue as follows:


• Coin-counting revenue is recognized at the time the consumers’ coins are counted by our coin-counting machines;

• Entertainment services revenue is recognized at the time cash is deposited in our machines. Cash deposited in the machines that has not yet been collected is referred to as cash in machine and is estimated at period end and reported on the balance sheet as cash in machine or in transit. This estimate is based on the average daily revenue per machine multiplied by the number of days since the coin in the machine has been collected. The estimated value of our entertainment services cash in machine was approximately $8.4 million and $7.1 million as of December 31, 2007 and 2006, respectively;

• E-payment services revenue is recognized at the point of sale based on our commissions earned, net of retailer fees. Money transfer revenue is recognized at the time the customer completes the transaction.

Purchase price allocations: In connection with our acquisitions, we have allocated the respective purchase prices plus transaction costs to the estimated fair values of assets acquired and liabilities assumed. These purchase price allocations were based on our estimates of fair values. Adjustments to our purchase price allocation estimates are made based on our final analysis of the fair value during the allocation period, which is within one year of the purchase date.

Goodwill and intangible assets: Goodwill represents the excess of cost over the estimated fair value of net assets acquired, which is not being amortized. We test goodwill for impairment at the reporting unit level on an annual or more frequent basis as determined necessary. FASB Statement No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) requires a two-step goodwill impairment test whereby the first step, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second test is not performed. The second step of the impairment test is performed when required and compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

As of December 31, 2007, we have two reporting units; North American and International. Based on the annual goodwill test for impairment we performed for the years ended December 31, 2007 and 2006, we determined there was no impairment of our goodwill. There was no goodwill impairment associated with the asset group that had the impairment charge described below as that asset group is not a reporting unit as defined by SFAS 142.

Our intangible assets are comprised primarily of retailer relationships acquired in connection with our acquisitions through the end of 2007. We used expectations of future cash flows to estimate the fair value of the acquired retailer relationships. We amortize our intangible assets on a straight-line basis over their expected useful lives which range from 1 to 40 years.

Impairment of long-lived assets: Long-lived assets, such as property and equipment and purchased intangibles subject to amortization, are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors that would indicate potential impairment include, but are not limited to, significant decreases in the market value of the long-lived asset(s), a significant change in the long-lived asset’s physical condition and operating or cash flow losses associated with the use of the long-lived asset. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. While we continue to review and analyze many factors that can impact our business in the future, our analyses are subjective and are based on conditions existing at, and trends leading up to, the time the estimates and assumptions are made. Actual results could differ materially from these estimates and assumptions.

Results of Operations — Years Ended December 31, 2007, 2006 and 2005

Revenue

Our coin and e-payment revenues consist primarily of the revenue generated from our coin-counting services and our e-payments services such as money transfer services, prepaid wireless products, stored value cards and payroll cards.

Our coin and e-payment revenues increased in 2007 from 2006 and in 2006 from 2005 as a result of an increase in the number of transactions, an increase in the number of installed coin-counting machines, the volume of coins processed by our coin-counting machines, and as a result of our acquisition of CMT in the second quarter of 2006.

The total dollar value of coins processed through our network increased to approximately $2.9 billion in 2007 from $2.6 billion in 2006 and $2.3 billion in 2005. Additionally, the total coin-counting machines installed as of December 31, 2007, 2006 and 2005 were approximately 15,400, 13,500 and 12,800, respectively. Revenues for CMT were $24.2 million and $9.0 million for 2007 and 2006, respectively. We expect to continue installing additional coin-counting, e-payment, and DVD machines and therefore, expect to continue to experience revenue growth in these areas in the foreseeable future.

We believe that the decrease in our entertainment services revenues in 2007 from 2006 is due to several factors, including the decrease in foot traffic among the United States’ retailers, the China lead paint scare and the status of the United States’ economy. We expect that these factors will continue to negatively affect our entertainment services business in 2008. Additionally, we expect our entertainment services revenue to further decrease in 2008 as a result of our agreement reached with Wal-Mart to remove of approximately 50% of our cranes, bulk heads, and kiddie rides from our existing Wal-Mart locations during the first two quarters of 2008. Our entertainment services revenues increased in 2006 from 2005 as a result of the acquisition of Amusement Factory in the fourth quarter of 2005 and an increase in machines installed.

Direct Operating Expenses

Our direct operating expenses consist primarily of the cost of (1) the percentage of transaction fees and commissions we pay to our retailers and agents, (2) coin pick-up, transportation and processing expenses, (3) the cost of plush toys and other products dispensed from the skill-crane and bulk-vending machines and (4) field operations support and related expenses. Variations in the percentage of transaction fees we pay to our retailers and agents may result in increased expenses. Such variations are based on our negotiations and evaluation of certain factors, such as total revenue, e-payment capabilities, long-term non-cancelable contracts, installation of our machines in high traffic or urban or rural locations, new product commitments, co-op marketing incentive, or other criteria.

Direct operating expenses increased in 2007 and in 2006 primarily as result of an increase in the number of revenue transactions and the acquisition of CMT in the second quarter of 2006 and Amusement Factory in the fourth quarter of 2005, offset by operating synergies achieved in integration of our acquired companies. In addition, direct operating expenses increased in 2006 from 2005 as a result of $1.1 million incremental expense due to the adoption of SFAS 123R. Direct operating expenses for CMT were $22.8 million and $8.5 million for 2007 and 2006, respectively. We are continuing to integrate our various business operations and have realized operating expense efficiencies.

Operating taxes, net

Taxes related to operating our business are recorded in operating taxes, net on the consolidated statement of operations. Such taxes include the 2007 telecommunication fee refund, property taxes, sales and use taxes, and franchise taxes and do not include income taxes.

Operating taxes, net decreased in 2007 from 2006 primarily due to the recognition of a telecommunication fee refund of $11.8 million as a result of an Internal Revenue Service ruling that telecommunication fees paid during the period of March 1, 2003 through July 31, 2006 were improperly collected by the United States government. The $11.8 million represents the refund amount as filed on our fiscal year 2006 federal income tax return. In February 2008, we received the refund in the amount that we estimated.

Marketing

Marketing expenses represent our cost of advertising, marketing and public relation efforts in national and regional advertising and the major international markets in which we operate our money transfer services. For

example, we have been using advertising to introduce e-payment features on our coin-counting machines and other e-payment product channels such as our stored value card offerings. This directed marketing and advertising approach, which we expect to continue through 2008, continues driving increased trial and repeat use of both our coin services offerings and e-payment products.

Marketing expenses decreased in 2007 from 2006 primarily due to advertising mix in our different markets offset by an increase in spending resulting from the acquisition of CMT in the second quarter of 2006. Marketing expenses increased in 2006 from 2005 primarily as a result of our acquisition of CMT in the second quarter of 2006.

Research and Development

Our research and development expenses consist primarily of development costs of our coin-counting machine software, network applications, machine improvements and new product development.

General and administrative expenses increased in 2007 from 2006 due to the acquisition of CMT in the second quarter of 2006, an increase in stock-based compensation expense, an increase in rent expense due to additional administrative office space, offset by administrative synergies achieved in the integration of our administrative processes. General and administrative expenses for CMT were $6.5 million and $3.7 million for 2007 and 2006, respectively.

General and administrative expenses increased in 2006 from 2005 as a result of the incremental expense due to the adoption of SFAS 123R of $4.0 million, acquisitions of our entertainment subsidiaries and the incremental cost of supporting subsidiary companies with regional offices throughout the United States and in the United Kingdom.

Depreciation and Other

Our depreciation and other expenses consist primarily of depreciation charges on our installed coin-counting and entertainment services machines as well as on computer equipment and leased automobiles.

Interest income and other, net increased in 2007 from 2006 primarily due to the recognition of interest income on our telecommunication fee refund offset by lower than average investment balances. Interest income and other, net was unchanged in 2006 from 2005.

Interest expense increased in 2007 and in 2006 primarily due to higher outstanding debt balances, higher interest rates and increased capital leases.

Income (loss) from equity investments and other increased in 2007 from 2006 primarily as a result of recording our portion of the telecommunication fee refund expected to be collected by us on behalf of a related third party.

Early retirement of debt expense was $1.8 million in 2007 and $0.2 million in 2006. On November 20, 2007, in connection with entering into our new debt facility, we retired the outstanding balance of our previous debt facility dated July 7, 2004 resulting in a charge of $1.8 million for the write-off of deferred financing fees. The early retirement of debt expense in 2006 relates to accelerated deferred financing fees related to our mandatory pay down of $16.9 million under our previous debt facility in the first quarter of 2006.

Income Taxes

The effective income tax rate was 22.1% in 2007 compared with 39.3% in 2006 and 39.0% in 2005. As illustrated in Note 11 to the Consolidated Financial Statements, the effective income tax rate for 2007 varies from the federal statutory tax rate of 35% primarily due to a change in valuation allowance on foreign net operating losses, the impact of changes in foreign tax rates, state income taxes, non-deductible stock-based compensation expense recorded for incentive stock option (“ISO”) awards offset by the benefit arising for ISO disqualifying dispositions and changes in deferred tax assets due to adjustments to state operating loss carryforwards.

The effective income tax rate for 2006 varies from the federal statutory tax rate of 35% primarily due to state income taxes, non-deductible stock-based compensation expense recorded for ISO awards offset by the benefit arising for ISO disqualifying dispositions, the impact of our election during the third quarter of 2006 of the indefinite reversal criteria for unremitted foreign earnings under APB No. 23, Accounting for Income Taxes — Special Areas (“APB 23”), the impact of adjusting our deferred tax asset associated with state operating loss carryforwards, the impact of recognizing an increase to our available research and development credit, as well as the impact of recognition of a valuation allowance to offsetting foreign deferred tax assets relating to our acquisition of CMT. The effective income tax rate for 2005 varied from the federal statutory tax rate of 35% primarily due to state income taxes.

As of December 31, 2007 and 2006, our net deferred income tax assets totaled $19.9 million and $10.3 million, respectively. In the years ended December 31, 2007, 2006 and 2005 we recorded tax (benefit) expense of $(6.3) million, $12.1 million and $14.2 million, respectively, which, as a result of our United States net operating loss carryforwards, will not result in cash payments for United States federal income taxes other than federal alternative minimum taxes. Current tax payments have been made to state and foreign jurisdictions.

CONF CALL

Brian Turner

Thank you for joining us today to discuss our results for the second quarter ended June 30, 2008. With me on the call today is Dave Cole, our CEO, and Paul Davis, our COO.

Before we get started I have to remind you that during the course of this call various remarks we make about future expectations, plans and prospects for the company constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Additionally, all financial information provided for Redbox is un-audited. Actual results may differ materially from expectations, plans, and prospects contemplated in these forward-looking statements as a result of various factors including those discussed in our previous 10-Qs and 10-Ks filed with the SEC.

I would also like to point out that we will be discussing certain non-GAAP financial measures including, but not limited to, EBITDA, pro forma revenues and EBITDA, and adjusted earnings per share on a historical and forward-looking basis during this conference call. These are non-GAAP financial measures under Regulation G. Definitions of these non-GAAP financial measures, the importance of these measures to investors, and reconciliation’s of these measures to the most directly comparable GAAP measures can be found in today’s earnings release and related slides which are posted in the About Us/Investor Relations section of Coinstar’s website at www.coinstar.com.

A replay of this web cast will also be available on the About Us/Investor Relations section of our website. Let me also note that we have posted a copy of today’s prepared remarks and a series of charts mentioned in today’s call to the About Us/Investor Relations section of our website. We encourage you to go to our website and bring up the accompanied PowerPoint slides so that you may follow along with us.

Let me now turn the call over to our CEO, Dave Cole.

Dave W. Cole

As I look at the second quarter three factors rise to the top: oil prices and the affect on consumer confidence; the conclusion of our proxy contests and other unique events; and the continued transition of our business at Walmart to include a broader representation of our 4th Wall products and services.

As shown in Chart 1, excluding proxy and other unique events, our 4th Wall bundle performed well in a tough economy. And combined with our first quarter, the first half of 2008 has been very gratifying. Coin performed well over the first six months, although we did see some softness in the second quarter. Money Transfer continued to show progress. And the DVD investments performed exceptionally well, capping six months of better than expected results. Entertainment, however, continues to face challenges and broadly speaking, we are in a tough retail environment with changing consumer behavior and traffic patterns.

All of these issues affected our business, however, the largest factor is the importance and relevance of our balanced portfolio of products and services that deliver convenience and value for consumers, traffic and profit growth for our retailers, and value to our shareholders. That is the long-term, over-riding value we are creating.

Now let’s get to specifics. First, oil prices. As shown in Chart 2, oil prices have increased significantly over prior years and have seen dramatic increases over the past six months. Over all oil-related expenses are approximately 2% to 2.5% of total Coin and entertainment revenues. And we calculate that for every five dollar increase in the cost per barrel we have experienced an extra $250,000 in our quarterly cost structure.

For the second quarter this increase represented approximately $1.0 million in unanticipated expenses, or $0.02 per diluted share. In my opinion, however, the larger effect of increasing oil prices and other macro economic factors, such as the credit tightening and the housing slump is seen in consumer confidence as measured by the conference board, which as Chart 3 suggests, is hovering around a 16-year low.

Our research indicates that this has had a direct effect on the number of consumer visits to retailers, resulting in fewer impulse entertainment sales, less coin being generated in the economy, and less money being spent abroad. And fewer gift cards being sold.

Conversely, I believe current economic conditions benefit the counter-cyclical DVD business, which at $1.00 per night, is the best value in DVD rental without an additional stop. Therefore, we were not surprised that our DVD business did exceedingly well in the second quarter while other business lines experienced downward pressures.

Although oil prices have abated somewhat in recent weeks, we do anticipate that they will decline further in the fall. Prices will continue to remain higher than we anticipated therefore we expect continued downward EBITDA pressure throughout 2008.

The second issue affecting the quarter’s results was the proxy contest and other unique expenses. As reflected in Chart 4, in the second quarter we settled the proxy contest, which resulted in the addition of one Shamrock representative to our Board of Directors and one additional independent director to be added by March 1, 2009. After-tax expenses related to the proxy contest totaled $2.1 million, or $0.07 per diluted share.

We also settled two income law suits during the quarter. One stemmed from our Omega joint venture that focused on CVS’s ePay business. The second related to an old royalty arrangement in which we paid royalties on certain ePay transactions to Datawave, an InComm sub.

Both were settled extinguishing all past and future obligations. The net, after attorney’s fees was an after-tax settlement from InComm to Coinstar of approximately $1.0 million, or $0.03 per diluted share.

Next, we wrote off certain in-process due diligence legal and other fees in connection with acquisitions that were being considered in the first quarter where discussions have now been terminated. Acquisition fees written off after tax were about $500,000, or approximately $0.02 per diluted share.

Our guidance for the second quarter was earnings per share of $0.08 to $0.15 before proxy expenses. Netting out the proxy expenses and other unique items, our EPS is $0.15, which is at the top end of our second quarter earnings estimate range.

Third, the transition of the Walmart bundle. The first transition step was the de-installation of entertainment machines, which we completed on schedule. Walmart subsequently re-evaluated certain locations, which has resulted in Coinstar being re-installed in approximately 150 more stores with entertainment machines than we had anticipated at the beginning of the year.

Second, the installation of Redbox units is right on schedule with over 1,700 being installed in Walmarts to date. Coin installations are also on track and the good news there is Walmart has once again increased the total number of stores for Coin installations, adding 600 more. These extra stores will be added resulting in total penetration of 3,200, up from the 2,600 we had expected earlier this year. Walmart has approved all U.S. stores for Coin and Redbox installation.

So, despite these moving parts, we still expect total completion of the Walmart launch by mid-2009. Clearly, our relationship with Walmart is growing and we believe our future prospects are very encouraging as we create value for their customers and increase foot traffic, spending power, and profits for Walmart.

With that, I will turn the call over to Brian.

Brian Turner

For the second quarter, turning to Chart 5, Coinstar generated $218.9 million in revenue. We generated EBITDA of $37.9 million. Our GAAP fully-diluted, fully-taxed earnings per share was $0.09.

Revenue for the quarter totaled $219.9 million. As reflected in Chart 6, revenue was comprised of $64.5 million from Coin, $35.8 million from Entertainments, $23.8 million from Money Transfer, $5.8 million from ePay, and $90.0 million from our DVD Kiosk businesses.

EBITDA for the second quarter totaled $37.9 million, our highest ever for a second quarter. As we stated, due to the fact that a high percentage of direct and indirect costs are shared among business lines, exact EBITDA by product line is only an estimate. So in that spirit, as shown in Chart 7, Coin and Entertainment EBITDA was $17.4 million. ePay, including Money Transfer, at about $500,000 and DVD EBITDA was about $20.0 million.

Looking at each business, revenues in greater detail, Coin revenue was $64.5 million compared to $62.4 million a year ago. This reflects a trailing 12-month revenue growth rate of 7.5%, which was driven by two factors: net new installation and same store sales over the past 12 months. As reflected in Chart 9, installs for the quarter were strong with 1,000 net placements. This was primarily due to Walmart along with Roundy’s, Food Basics, and Tessco. This brings our total for the first six months to 1,100 net installs.

Same store sale comps were negative in the second quarter. As shown in Chart 10, this was partly due to the large number of installations over the past 12 months, which we believe caused a cannibalization effect of approximately (1)%. However, in analyzing the data, we find approximately 4x the negative effect from less coin generated in the overall economy.

To that point, we noted an increasing negative effect in May and June of 2008 as gas prices soared past $4.00. We believe high gas prices continue to impact consumer shopping patterns in such a way that they are making fewer trips to the retailers and spending less. This obviously results in less change generated to be turned into our Coinstar units.

Anecdotally, the Fed saw a 9% drop in retail coin orders in May, which independently seems to verify what we’re seeing on the ground. We would anticipate that this would continue throughout 2008 but as oil prices decline, or the consumer adapts to the new, higher prices, we believe this effect may abate.

Moving to Money Transfer revenues in Chart 11, with our acquisition of GroupEx in January 2008 we now have over 36,000 agents in over 140 countries. On a pro forma basis transactions were up 25% for the second quarter and the average transaction was roughly $590, up from $485 dollars last year at this time. As shown in the lower right-hand portion of Chart 11, as transactions and revenues have increased, the cost per transaction has declined. Based upon these trends, we continue to believe that by driving increased volume across our fixed costs we will achieve profitability.

Moving to ePay revenues, as reflected in Chart 12, of the $240.0 million in face value sold year-to-date, $120.0 million was sold in the second quarter, resulting in revenues of Coinstar of $5.8 million, an 11.5% year-over-year increase.

Shifting to DVD revenue, as reflected in Chart 13, second quarter revenues increased approximately 200% to $90.0 million. These results were driven by approximately 1,700 net installs in retailers like Walmart, Giant Eagle, Super Value, and 7-11. This comes on the heels of 900 net installations in the first quarter.

Our pre-tax income from the DVD business was $6.2 million for the period and we were certainly pleased with these results. Factors driving success in the second quarter, and thus far in 2008, are solid unit economics, strong movie titles, and the counter-cyclical nature of DVD rentals to the economy.

Beyond these statistics, we are going to reserve further comment on Redbox, which is a significant part of our DVD business. As you know, Redbox has publicly announced the pursuit of an IPO so we will respect the SEC rules concerning the dissemination of information to the market place.

Turning to Entertainment, revenues totaled $35.8 million for the second quarter, or 16.3% of our consolidated sales. This compares with $61.0 million, or approximately 44% in the prior year’s quarter.

Since December 31, you will notice that cranes, bulkheads, and other equipment installed decreased from 280,000 to 160,000 units at the end of June. The decrease reflects the de-installation of machines from Walmart and de-installations from lower performing accounts. As you recall, we mentioned we would be de-installing unprofitable machines along with our planned de-installation of Walmart machines. These two factors accounted for approximately 60% of the decrease in Entertainment revenues in the quarter.

Additionally, much like the overall trend in 2007, macro-economic trends affected performance, which accounted for the remainder of the decline.

Stepping back, excluding entertainment, on aggregate Coinstar installed 5,100 machines across all product lines in the first six months. This is a record installation period for the company.

Moving to expenses, as a percentage of revenue, direct operating expenses for the second quarter increased to 69.1%. This was primarily due to the inclusion of Redbox which runs at a higher direct operating cost percentage than our legacy businesses.

We also saw rising freight and handling costs from China, along with extra coin transportation and handling charges due to the dramatic increases in fuel prices. Together these expenses represented an unfavorable $1.0 million variance from our budget in the second quarter.

General and administrative expenses increased as a percentage of revenue to 10.4% from 9.8% in the prior year period. This increase was primarily due to Money Transfer, which runs at a higher G&A percentage than other lines of business due to anti-money laundering and regulatory compliance costs.

Depreciation and other for the second quarter totaled $18.9 million versus $14.5 million in the second quarter of 2007. The increase was primarily due to the installation of 1,900 Coin units and 4,800 DVD units in 2007.

Moving to interest expense, during the second quarter our average interest rate was 4.39%, or LIBOR plus 1.25%. This compares to our expected interest rate for the second quarter which was approximately 4% to 4.5%, right in line.

Moving to taxes, our effective tax rate in the second quarter was 49.1% which also was right in line with our expectations.

At the net income line for the second quarter we reported $2.7 million, or $0.09 GAAP earnings per fully-taxed, fully-diluted share. Excluding the non-cash and unique charges detailed in our earnings release, Coinstar reported adjusted, fully-taxed, fully-diluted earnings per share of $0.23, or $6.5 million, for the period. This is illustrated in Chart 14 along with all the unique items I mentioned earlier.

With respect to CapEx for Q2, which is reflected in Chart 15, the company spent $25.5 million of which the majority was for new Coin, DVD Express, and coffee units.

Before I turn the call back to Dave I would like to comment on full-year 2008 guidance. Starting with guidance for 2008 as shown in Charts 16-19, our revenue guidance of $850.0 million to $900.0 million is unchanged. Our consolidated EBITDA guidance of $135.0 million to $145.0 million remains unchanged. Our annual tax rate guidance of 50% to 52% remains unchanged. Our CapEx guidance of $70.0 million to $80.0 million remains unchanged.

Now let’s turn to specific guidance for the third quarter of 2008. Upon the assumption that the general economy will continue to see pressure from oil prices, the credit crisis, and the housing slump, management estimates that revenue for the third quarter ending September 30, 2008, will range from $240.0 million to $250.0 million with GAAP earnings for fully-taxed, fully-diluted share ranging from $0.11 to $0.17.

I will now turn the call back to Dave for closing remarks.

Dave W. Cole

To summarize, our fourth-wall-product bundle is even more important and relevant to busy cost-focused consumers and retailers struggling with soft comps, less foot traffic, and a squeeze on margins. Our ability to sell and execute our portfolio has made us a leader in the space. And in a tough economy we see even more demand for a bundled, managed approach to help maximize store traffic and profitability.

In that spirit, we have a great opportunity to increase our market share by adding new customers and upselling additional profit generating products to our entire customer base. And our results prove that is happening.

Since the beginning of 2008, as reflected in Chart 20, we have seen significant selling success. Coin, Tessco, a world-leading retailer rolled out Coin units in 31 stores in Ireland, which is on top of the 300 stores installed in the U.K. in 2007. And we were pleased that this launch extended our Coin processing technology to the Euro coin set.

Sweet Bay and two of their divisions added eCert to their coin units. All Stop ‘N Shop and Giant of Maryland Coin units were upgraded with coin-to-card products bringing 644 coin-to-card upgrades across all retailers. Premier West Bank was rolled out with Coin. Loblaw’s, a leading Canadian retailer, is launching Coin in Quebec under the Provigo and other Loblaw’s banners. Metro Food Basics, a part of A&P, is expanding Coin into 72 locations. Roundy’s signed a multi-year contract, including adding 70 more Coin locations.

In financial institutions we signed Coin agreements with nine banks, including RBC Centura, a division of the Royal Bank of Canada. Harrah’s, a leading casino operator, installed Coin units under a pilot agreement.

In DVD we installed over 2,600 DVD kiosks in the first half. We rolled out the first pilot kiosk in the UK with Tessco. We signed a contract to initially install over 2,000 kiosks in Walgreens, of which approximately 250 have already been installed. We signed pilots or roll-out agreements with 15 new convenience store chains that have over 10,000 potential locations in total, some of which may not be viable for DVD kiosks.

We have DVD kiosks installed in over 9,000 locations at June 30, with recent install activity with Raley’s, Price Chopper, Super Value, and Save Mart. Giant Eagle, High V, Food Lion, Roundy’s, D’Agistino’s , Harris Teeter’s, Lowe’s Foods, Love’s Travel Centers, Marks, Topps, Buehlers, and Shop Rite. Ingle’s, John’s Market, Constantino’s, Food Circus, Gurland’s, Penn Traffic, Winn Dixie, Royal Farms, Hugo’s, Fiesta Marts, Foodland, Pueblo, K-Mart, Hagan’s, Brookshire Brothers, Manyard’s, and King Cullen.

In Coffee, we continue running our pilot with 85 machines in eight markets. Based on earlier results, we are now expanding the pilot to include another 50 locations.

In ePay we will be installing in the majority of Travel Centers of America locations. In the second quarter we installed our ePay products in more than 850 S-Express stores in 11 states. Also in ePay we have added 11 new cards to our largest account, Walgreens, for their mid-year plan-o-gram changes.

And we continue to expand our product relationships in the U.K. Gift Card mall program with a wider variety of cards distributed in almost 3,400 stores, including Clinton Cards, W. H. Smith, and Somerfield’s. Locations have increased 30% in just the last six months.

In Entertainment, Meiers, with super centers throughout the Midwest, entered into a multi-year contract renewal covering approximately 180 locations.

All these success prove our product portfolio, sales force, marketing effort, and service have all really come together in the last 12 months. So in closing, we think we are ideally suited for the current environment because the retail community, more than ever, needs to monetize under-utilized space and create incremental consumer traffic. It’s that simple.

We will be able to capitalize due to our market leadership, our ability to manage an optimal product mix for our customers and our financial strength. So with that, we will open up the line for questions.

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