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 IA of Part II of this Quarterly Report on Form 10-Q and in Item IA of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the "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 core offerings in automated retail include our Coin and DVD businesses. Our Coin services consist of self-service coin counting kiosks where consumers can convert their coin to cash, a gift card or an e-certificate, among other options. Our DVD services consist of self-service DVD kiosks where consumers can rent or purchase movies. Our products and services also include money transfer services; and electronic payment ("E-payment") services such as stored value cards, prepaid debit cards and prepaid wireless products. Our products and services can currently be found at more than 90,000 points of presence including supermarkets, drug stores, mass merchants, financial institutions, convenience stores, restaurants, and money transfer agent locations.
Recent events
Sale of Entertainment Business
On September 8, 2009, we sold our subsidiaries comprising our entertainment services business ("Entertainment Business") to National Entertainment Network, Inc ("National") for nominal consideration. See discussion below in "Results of Operations."
DVD license agreements
Sony agreement
On July 17, 2009, Redbox entered into a copy depth license agreement (the "Sony Agreement") with SPHE Scan Based Trading Corporation ("Sony"), a subsidiary of Sony Pictures Home Entertainment Inc. Redbox estimates that it will pay Sony approximately $460.0 million during the term of the Sony Agreement, which is expected to last from July 1, 2009 until September 30, 2014. However, at Sony's discretion, the Sony Agreement may expire earlier on September 30, 2011. Coinstar has guaranteed up to $25.0 million of Redbox's liability under the Sony Agreement. In addition, Coinstar has granted Sony 193,348 shares of restricted stock that will vest over the term of the Sony Agreement. In the third quarter of 2009, we recorded share-based payment expense of $1.1 million related to the Sony Agreement.
Under the Sony Agreement, Redbox agrees to license minimum quantities of theatrical and direct-to-video DVDs for rental in its DVD kiosks in the United States. The DVDs licensed and purchased from Sony are expected to represent approximately 19.9% percent of the total DVDs licensed and purchased by Redbox for 2009. Under the Sony Agreement, Redbox should receive delivery of the DVDs by the "street date," defined in the Sony Agreement as the initial date on which the pictures are distributed on a rental basis to the general public for the purpose of non-commercial home entertainment viewing. Lionsgate agreement
On August 10, 2009, Redbox entered into a Home Video Lease Output Agreement (the "Lionsgate Agreement") with Lions Gate Films, Inc. ("Lionsgate"). Redbox estimates that it will pay Lionsgate approximately $158 million during the term of the Lionsgate Agreement, which is expected to last from September 1, 2009 until August 31, 2014. However, at Lionsgate's discretion, the Lionsgate Agreement may expire earlier on August 31, 2011.

Under the Lionsgate Agreement, Redbox agrees to license minimum quantities of theatrical and direct-to-video DVDs for rental in each location that has a Redbox DVD kiosk in the United States. The DVDs licensed and purchased from Lionsgate are expected to represent approximately 7.4% percent of the total DVDs licensed and purchased by Redbox for 2009. Under the Lionsgate Agreement, Redbox should receive delivery of the DVDs by the "street date," defined in the Lionsgate Agreement as the initial date on which the pictures are distributed on a rental basis to the general public for the purpose of non-commercial home entertainment viewing.
Paramount agreement
On August 25, 2009, Redbox entered into a revenue sharing license agreement
(the "Paramount Agreement") with Paramount Home Entertainment Inc. ("Paramount")
that runs from August 25, 2009, through December 31, 2009 (the "Initial Term"). Prior to December 15, 2009, Paramount has the unilateral right to extend the term of the Paramount Agreement to December 31, 2014 (the "Extended Term"). However, if Paramount does agree to the Extended Term, at Paramount's discretion, the Paramount Agreement may be terminated earlier on December 31, 2011. Redbox estimates that it would pay Paramount approximately $561.0 million during the Initial Term and the Extended Term. During the Initial Term, Coinstar will provide a $28.0 million letter of credit to Paramount. The letter of credit took effect October 1, 2009. During the Extended Term, the letter of credit would be replaced with a Coinstar guarantee to Paramount of up to $25 million.
Under the Paramount Agreement, Redbox agrees to license minimum quantities of theatrical and direct-to-video DVDs for rental in each location that has a Redbox DVD kiosk in the United States. The DVDs licensed and purchased from Paramount are expected to represent approximately 18.5% percent of the total DVDs licensed and purchased by Redbox for 2009. Under the Paramount Agreement, Redbox should receive delivery of the DVDs by the "street date," defined in the Paramount Agreement as the first date on which the titles are available to the general public for home entertainment purposes, whether on a rental or sell-through basis.
Convertible debt
In September 2009, we issued $200 million aggregate principal amount of 4% Convertible Senior Notes (the "Notes") for proceeds, net of expenses, of approximately $193.3 million. The Notes bear interest at a fixed rate of 4% per annum, payable semi-annually in arrears on each March 1 and September 1, beginning March 1, 2010. The Notes mature on September 1, 2014. See further discussion below in "Liquidity and Capital Resources." Management of Business Segments
In early 2008, we assessed our business segments due to changes in our business and product lines as well as our organizational structure. We redefined our business segments from North America and International to Coin and Entertainment services, DVD services, Money Transfer services and E-payment services. With the sale of the Entertainment Business during the third quarter of 2009 we now report Coin services as its own segment. Our business segments now include:
• Coin services - We offer self-service coin-counting services. We own and service all of our coin-counting kiosks, providing a convenient and trouble-free service to retailers. We own and operate the only multi-national fully-automated network of self-service coin-counting kiosks across the United States, Canada, Puerto Rico, Ireland, and in the United Kingdom. We generate revenue from coin-counting transaction fees from our customers and business partners.

• DVD services - Through Redbox and DVDXpress, we offer DVDs through our self-service kiosks where consumers can rent or purchase movies. Our DVD kiosks supply the functionality of a traditional video rental store, yet usually 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. We generate revenue primarily through fees charged to rent or purchase a DVD.

• Money Transfer services - Through Coinstar Money Transfer ("CMT") and GroupEx Financial Corporation, JRJ Express Inc. and Kimeco, LLC (collectively, "GroupEx"), we offer money transfer services primarily in the United Kingdom, European countries, North America, and Central America. Our money transfer services provide an easy to use, reliable and cost-effective way to send money around the world. We generate revenue primarily through commissions earned on money transfer transactions.

• E-payment services - We offer E-payment services, including activating and reloading value on prepaid wireless accounts, selling stored value cards, loading and reloading prepaid debit cards and prepaid phone cards, selling prepaid phones and providing payroll card services. 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.

We manage our business by evaluating the financial results of these segments, focusing primarily on segment revenue and segment operating income (loss) before depreciation and amortization, stock compensation expense and share-based payments ("segment operating income (loss)"). Segment operating income
(loss) contains the internally allocated costs including the shared service functions, which consist primarily of sales, finance, legal, human resources, and information technology. We utilize segment revenue and segment operating income/loss because we believe they provide useful information for effectively allocating resources among business segments, evaluating the health of our business segments based on metrics that management can actively influence, and gauging our investments and our ability to service, incur or pay down debt. Specifically, our CEO evaluates segment revenue and segment operating income/loss, 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 decreases more than expected, our CEO may consider allocating less financial or other resources to that segment in the future. See Note 7 of the Consolidated Financial Statements for additional information regarding business segments. 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 scaling and managing kiosk businesses. We build strong consumer relationships by providing valuable self-service products and services in convenient locations. We build strong retailer relationships by providing retailers with turnkey solutions that complement their businesses without significant outlays of time and financial resources.
We expect to continue devoting significant resources to our automated retail strategy, developing the information technology systems and technology infrastructure necessary to support our products and services, and adding administrative personnel to support our growing organization. We expect to continue evaluating new marketing and promotional programs to increase use of our products and services. As the Money Transfer services and E-payment services do not leverage our core competencies in automated retail, we are currently considering strategic alternatives for these businesses. Purchase of the remaining non-controlling interests in Redbox Effective on January 18, 2008, when we exercised our option to acquire a majority ownership interest in the voting equity of Redbox and our ownership interest increased from 47.3% to 51.0%, we began consolidating Redbox's financial results into our Consolidated Financial Statements.
On February 26, 2009, we purchased the remaining outstanding interests of Redbox from GetAMovie, Inc. ("GAM") and other minority interest holders, and GAM's right, title and interest in a Term Promissory Note dated May 3, 2007 made by Redbox in favor of GAM in the principal amount of $10.0 million, paid initial consideration in the form of cash in the amount of $10.1 million and 1.75 million shares of our common stock valued at $27.7433 per share and recognized deferred consideration of $101.1 million, which was paid off along with the interest during the second and third quarter of 2009. The interest totaled $2.7 million. Redbox is now a wholly-owned subsidiary of Coinstar. The total consideration paid for the 2009 Redbox transaction was $162.4 million including cash of $113.9 million and Coinstar common stock of $48.5 million. Results of Operations
Sale of Entertainment Business
On September 8, 2009, we sold our subsidiaries comprising our Entertainment Business to National for nominal consideration. With the transaction, National assumed the operations of the Entertainment Business, including substantially

all of the Entertainment Business's related assets and liabilities. As a result of the sale, we recorded a pre-tax loss on disposal of $49.8 million and a one-time tax benefit of $82.2 million during the third quarter of 2009. We have presented the result of the disposition of our Entertainment Business as well as the operating loss from our Entertainment Business under the discontinued operations in our Consolidated Statement of Operations, for all periods presented. The cash flows related to our Entertainment Business discontinued operations have been separately disclosed in our Consolidated Statement of Cash Flows.
Revenue from discontinued operations was $90.6 million and $26.3 million for the nine month and three month periods ended September 30, 2009 and $117.1 million and $37.0 million for the nine month and three month periods ended September 30, 2008. The pretax loss from discontinued operations was $6.9 million and $1.0 million for the nine month and three month periods ended September 30, 2009, before the loss on disposal and related tax benefit, and the pretax loss from discontinued operations was $4.3 million for the nine month period ended September 30, 2008. During the three month period ended September 30, 2008 the pretax income from discontinued operations was $0.3 million.
Our tax basis in the Entertainment Business was determined to be approximately $256.8 million which has been written off as worthless stock. However, the net tax benefit resulting from the worthless stock deduction was reduced by writing off the net deferred tax assets recorded on Entertainment Business's books at the time of sale, resulting in a net one-time tax benefit of $82.2 million.
The following table sets forth the computation of income (loss) from discontinued operations, net of tax for the periods indicated:

                                                  Nine Month Periods                 Three Month Periods
                                                  Ended September 30,                Ended September 30,
                                                 2009              2008              2009              2008
                                                    (in thousands)                     (in thousands)
(Loss) Income from discontinued
operations (including loss on disposal
of $49.8 million in the third quarter of
2009)                                         $   (56,784 )      $ (4,390 )      $    (50,887 )       $  307
Income tax benefit (expense) on
discontinued operations                             2,559           1,498                 377           (319 )
One-time income tax benefit on loss on
disposal in 2009                                   82,232               -              82,232              -

Income (loss) from discontinued
operations, net of tax                        $    28,007        $ (2,892 )      $     31,722         $  (12 )

We redefined our business segments from North America and International to Coin and Entertainment services, DVD services, Money Transfer services and E-payment services in early 2008. With the sale of the Entertainment Business during the third quarter of 2009 we now report Coin services as its own segment. The amounts shown below exclude the Entertainment Business for all periods presented.

Summary of operating results
Total revenue/Total operating income

                                                      Nine Month Periods Ended September 30,                                    Three Month Periods Ended September 30,
(In millions, except percentages)          2009                2008              $ Chng            % Chng             2009                2008              $ Chng           % Chng

Total consolidated revenue              $   816.8           $   533.8           $ 283.0             53.0 %         $   296.0           $   203.5           $ 92.5             45.5 %
Total consolidated income from
operations                              $    67.9           $    55.0           $  12.9             23.5 %         $    27.1           $    20.2           $  6.9             34.2 %
Income from operations as a % of
Total Revenue                                 8.3 %              10.3 %                                                  9.2 %               9.9 %

The increases in our consolidated revenue for the nine and three month periods ended September 30, 2009 compared to the nine and three months ended September 30, 2008 were driven primarily by our DVD services segment as a result of the increased number of DVD installed kiosks in our retailers' locations as well as the revenue growth of our existing installed kiosks. The increase in our DVD services revenue was $287.1 million and $94.0 million for nine month and three month periods ended September 30, 2009 compared to the prior year. The increase was partially offset by the decrease in revenue from the foreign operations of Coin and Money Transfer services due to unfavorable changes in currency exchange rates.

Our consolidated income from operations was $67.9 million and $55.0 million for the nine months ended September 30, 2009 and September 30, 2008, respectively. Our consolidated income from operations, before depreciation, amortization and other of $72.8 million, stock compensation expense and share-based payments of $7.3 million totaled $148.0 million for the nine month periods ended September 30, 2009, compared to $109.5 million for the prior-year period. The increase of $38.5 million from our consolidated segment operating income was offset by the increase in depreciation and amortization of $24.6 million primarily due to the increase in installations of DVD kiosks. The decrease in consolidated income from operations as a percentage of total revenue was mostly driven by higher product costs primarily resulting from the decrease in DVD salvage values.
Our consolidated income from operations was $27.1 million and $20.2 million for the three months ended September 30, 2009 and September 30, 2008, respectively. Our consolidated operating income, before depreciation, amortization and other of $25.5 million, stock compensation expense and share-based payments of $2.6 million totaled $55.1 million for the third quarter of 2009, compared to $39.9 million from the prior-year third quarter. The increase of $15.2 million from our consolidated segment operating income was offset by higher depreciation and amortization expense of $8.0 million due to the increase in installations of DVD kiosks. The decrease in consolidated income from operations as a percentage of total revenue was primarily due to lower Coin services operating income as a percentage of revenue partially offset by increased DVD services operating income as a percentage of revenue. Segment Revenue/Operating income (loss)

Coin services

                                                     Nine Month Periods Ended September 30,                                    Three Month Periods Ended September 30,
(In millions, except percentages)          2009                2008              $ Chng           % Chng             2009               2008              $ Chng            % Chng

Coin services revenue                   $   192.4           $   194.8           $ (2.4 )           -1.2 %         $   69.5           $   71.0           $   (1.5 )           -2.1 %
Coin services operating income          $    66.7           $    68.7           $ (2.0 )           -2.9 %         $   23.4           $   25.4           $   (2.0 )           -7.9 %
Operating income as a % of
segment revenue                              34.7 %              35.3 %                                               33.7 %             35.8 %

The decreases in Coin services revenue for the nine and three month periods ended September 30, 2009 compared to the nine and three months ended September 30, 2008 were primarily driven by the unfavorable foreign exchange rates which have negatively impacted our Coin revenue by approximately $6.1 million and $1.4 million for the nine and three month periods ended September 30, 2009 compared to the prior year periods. Excluding the impact of foreign currency fluctuations, Coin revenue increased by $3.7 million (or 1.9%) for the nine month periods ended September 30, 2009 compared to the prior year periods and stayed consistent for the third quarter comparing to the prior year.
The decrease in segment operating income for the nine month period ended September 30, 2009 compared to the nine months ended September 30, 2008 is primarily driven by the decline in segment revenue, partially offset by the decrease in the direct marketing expense resulting from the timing of marketing campaign activities. Coin service operating income as a percentage of revenue was fairly consistent period over period, 34.7% and 35.3% for the nine month periods ended September 30, 2009 and September 30, 2008. Coin services income from operations decreased as a percentage of revenue for the three months ended September 30, 2009 compared to the prior year period due to certain fixed costs remaining static while Coin services revenue decreased for the quarter.

DVD services

                                                      Nine Month Periods Ended September 30,                                     Three Month Periods Ended September 30,
(In millions, except percentages)          2009                2008              $ Chng            % Chng              2009                2008              $ Chng           % Chng

DVD services revenue                    $   541.7           $   254.6           $ 287.1             112.8 %         $   198.1           $   104.2           $ 93.9             90.1 %
DVD services operating income           $    91.5           $    49.5           $  42.0              84.8 %         $    34.5           $    17.7           $ 16.8             94.9 %
Operating income as a % of
segment revenue                              16.9 %              19.4 %                                                  17.4 %              17.0 %

DVD services revenue for the nine months of 2008 above does not include $11.0 million for the period January 1, 2008 through January 17, 2008 when we did not consolidate Redbox. The remaining increases in DVD services revenue for the nine and three month periods ended September 30, 2009 compared to the nine and three months ended September 30, 2008 were driven by the increase in the number of rentals as a result of new kiosk placements compared to the prior year as well as revenue growth from existing kiosks. At September 30, 2009, we installed more than 8,800 additional DVD kiosks since September 30, 2008.

The DVD services segment operating income increased year over year for both the nine and three month periods ended September 30, 2009 compared to prior year. The increases in segment operating income reflect the favorable revenue increase, offset in part by the DVD product costs to support the increased rental transactions, declines in DVD salvage values, and increased general and administration expenses to sustain the growth of the segment.
The decline in DVD services segment operating income as a percentage of revenue for the nine month period ended September 30, 2009 compared to the prior year period was mostly driven by higher product costs, primarily resulting from the decrease in DVD salvage values. For the three month period ended September 30, 2009, the DVD services segment operating income as a percentage of revenue improved 40 basis points compared to the prior year period, as the impact of higher product costs, primarily resulting from the decrease in DVD salvage values, was more than offset by lower marketing expense as a percentage of revenue and the favorable impact of leveraging general and administrative expenses. Throughout the first nine months of 2009, one movie studio has restricted the distribution of DVDs to our DVD services segment. During October 2009, two additional movie studios began restricting the distribution of DVDs to our DVD services segment. The increased restriction of DVDs is expected to have a negative impact on the operating income margins in our DVD services business, because in these situations we must obtain DVD titles from alternative sources, often at a higher cost and often not in advantageous quantities.

Money Transfer services

                                                     Nine Month Periods Ended September 30,                                   Three Month Periods Ended September 30,
(In millions, except percentages)          2009                2008              $ Chng           % Chng             2009               2008             $ Chng           % Chng

Money Transfer services revenue         $    64.6           $    66.3           $ (1.7 )           -2.6 %         $   22.5           $    22.0           $ 0.5               2.3 %
Money Transfer services operating
loss                                    $    (9.0 )         $    (9.4 )         $  0.4             -4.3 %         $   (2.2 )         $    (2.7 )         $ 0.5             -18.5 %
Operating loss as a % of segment
revenue                                     -13.9 %             -14.2 %                                               -9.8 %             -12.3 %

The decline in revenue for the nine month period ended September 30, 2009 compared to the nine month period ended September 30, 2008 was largely due to a decrease in the average amount per transaction from approximately $571 to . . .