The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report. Except for the consolidated historical information, the following discussion contains forward-looking statements. Actual results could differ from those projected in the forward-looking statements. Please refer to "Special Note Regarding Forward-Looking Statements" and "Risk Factors" elsewhere in this Annual Report.

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 Redbox segment where consumers can rent or purchase movies and video games and, in certain markets, purchase tickets from self-service kiosks; and our Coin segment where consumers can convert their coin to cash or stored value products at self-service coin-counting kiosks. Our New Ventures segment is focused on identifying, evaluating, building, and developing innovative self-service concepts in the marketplace.

Our strategy is based upon leveraging our core competencies in the automated retail space to provide the consumer with convenience and value and to help retailers drive incremental traffic and revenue. Our competencies include success in building strong consumer and retailer relationships, and in deploying, scaling and managing kiosk businesses. We build strong 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 are focusing on growing our core businesses and developing innovative new concepts in the automated retail space through organic growth and external investment. We will also continue to expand our use of social media to drive awareness of our offerings and continue to leverage new and innovative ideas to drive demand. In order to support growth, we also expect to continue devoting significant resources for the ongoing development of our infrastructure, including information technology systems and technology infrastructure necessary to support our products and services.

Results of Operations

Consolidated Results

The discussion and analysis that follows covers our results from continuing
operations.



Dollars in thousands, except                    Year Ended December 31,                    2012 vs. 2011              2011 vs. 2010
per share amounts                       2012             2011             2010              $           %              $           %
Revenue                              $ 2,202,043      $ 1,845,372      $ 1,436,421      $ 356,671       19.3 %     $ 408,951       28.5 %
Operating income                     $   262,758      $   209,885      $   143,207      $  52,873       25.2 %     $  66,678       46.6 %
Income from continuing operations    $   150,230      $   114,951      $    65,894      $  35,279       30.7 %     $  49,057       74.4 %
Diluted earnings per share from
continuing operations                $      4.67      $      3.61      $      2.03      $    1.06       29.4 %     $    1.58       77.8 %

2012 Events

• On December 12, 2012, Redbox Instant by Verizon ("RBi") announced its pricing plans and that a public beta launch would debut in the coming weeks. The two announced price plans were an $8 per month subscription plan that included four kiosk DVD rental nights and a $9 per month subscription plan that included four kiosk Blu-ray rental nights. On December 19, 2012 RBi launched its public beta and directed customers to redboxinstant.com to request an invitation.

• On June 5, 2012, we announced an exclusive five-year agreement to roll out our Rubi coffee kiosks in the grocery, drug and mass merchant retail channels featuring Seattle's Best Coffeeฎ beverages. We expect this rollout to accelerate in 2013. The results of Rubi are included in our New Ventures segment.

• In February 2012, Redbox and Verizon Ventures IV LLC ("Verizon"), a wholly owned subsidiary of Verizon Communications Inc., entered into a Limited Liability Company Agreement (the "LLC Agreement") and related arrangements. The LLC Agreement governs the relationship of the parties with respect to a joint venture, Redbox Instant by Verizon (the "Joint Venture") formed for the primary purpose of developing, launching, marketing and operating a nationwide "over-the-top" video distribution service to provide consumers with access to video programming content, including linear content, delivered via broadband networks to video enabled viewing devices and offering rental of physical DVDs and Blu-ray Discs from Redbox kiosks. Redbox initially acquired a 35.0% ownership interest in the Joint Venture and made an initial capital contribution of $14.0 million in cash in February 2012 subsequent to the formation of the Joint Venture. The Joint Venture board of managers may request each member to make additional capital contributions, on a pro rata basis relative to its respective ownership interest. If a member does not make any or all of its requested capital contributions, as the case may be, the other contributing member generally may make such capital contributions. So long as Redbox contributes its pro rata share of the first $450.0 million of capital contributions to the Joint Venture, Redbox's interest cannot be diluted below 10.0%. During the third quarter of 2012, at the request of the Joint Venture board of managers, Redbox made a cash payment of $10.5 million representing its pro-rata share of the requested capital contribution. In addition, Redbox has certain rights to cause Verizon to acquire Redbox's interest in the Joint Venture at fair value (generally following the fifth anniversary of the LLC Agreement or in limited circumstances, at an earlier period of time) and Verizon has certain rights to acquire Redbox's interest in the Joint Venture at fair value (generally following the seventh anniversary of the LLC Agreement, or, in limited circumstances, the fifth anniversary of the LLC Agreement). Redbox's ownership interest in the Joint Venture is accounted for using the equity method of accounting. See Note 5: Equity Method Investments and Related Party Transactions in our Notes to Consolidated Financial Statements for additional details.

Comparing 2012 to 2011

Revenue increased $356.7 million, or 19.3%, primarily due to same store sales growth and new kiosk installations in our Redbox segment as well as new kiosk installations and an increased number of transactions and average transaction size in our Coin segment.

Operating income increased $52.9 million, or 25.2%, primarily due to our Redbox segment, where revenue growth was partially offset by increased content costs, revenue share and processing fees, general and administrative expenses, and depreciation and amortization. The increase in operating income in our Redbox segment was partially offset by a decline in operating income in our Coin segment and an increased operating loss in our New Ventures segment. The operating income as a percentage of revenue for our Redbox segment was 12.5% in 2012 as compared with 10.9% in 2011; the increase was primarily driven by the increase in revenue per rental effective during the fourth quarter of 2011 and all of 2012.

Income from continuing operations increased $35.3 million, or 30.7%, primarily due to the following:

• Higher operating income in our Redbox segment; and

• Lower interest expense due to a lower interest rate on our credit facility; partially offset by

• Increased income tax expense primarily due to higher pretax income;

• Lower operating income in our Coin segment and higher operating loss in our New Ventures segment; and

• Increased loss from equity method investments.

Comparing 2011 to 2010

Revenue increased $409.0 million, or 28.5%, primarily due to new kiosk installations and same store sales growth in our Redbox segment.

Operating income increased $66.7 million, or 46.6% primarily due to our Redbox segment, where revenue growth was partially offset by increased content costs, revenue share and processing fees and general and administrative expenses as a result of overall business growth and implementation of a company-wide Enterprise Resource Planning ("ERP") system.

Income from continuing operations increased $49.1 million, or 74.4%, primarily due to the following:

• Higher operating income in our Redbox segment; and

• Decreased interest expense related to principal payments made on our revolving credit facility and the expiration of our interest rate swap agreement; partially offset by

• Increased income tax expense primarily due to higher pretax income, partially offset by a lower effective tax rate.

For additional information about our consolidated results refer to our Segment Results in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

Share-Based Payments

Our share-based payments consist of share-based compensation granted to executives, non-employee directors and employees and share-based payments granted to movie studios as part of content agreements. We grant stock options, restricted stock and performance-based restricted stock to executives and non-employee directors and grant restricted stock to our employees. We also granted restricted stock to certain movie studios as part of content agreements with our Redbox segment. The expense associated with the grants to movie studios is allocated to our Redbox segment and included within direct operating expenses. The expense associated with share-based compensation to our executives, non-employee directors and employees is part of our shared service support function and is not allocated to our segments. The components of our unallocated share-based compensation expense are presented in the following table.

Unallocated Share-Based Compensation



Dollars in thousands                     Year Ended December 31,            2012 vs. 2011            2011 vs. 2010
                                       2012        2011        2010          $          %            $            %
Direct operating                     $    863     $   473     $   689     $   390       82.5 %    $  (216 )      (31.3 )%
Marketing                                  66          50          18          16       32.0 %         32        177.8 %
Research and development                  334         318         241          16        5.0 %         77         32.0 %
General and administrative             11,984       9,139       7,797       2,845       31.1 %      1,342         17.2 %

Total                                $ 13,247     $ 9,980     $ 8,745     $ 3,267       32.7 %    $ 1,235         14.1 %

Share-based compensation expense increased $3.3 million, or 32.7% during 2012 and $1.2 million, or 14.1% during 2011 due to an increase in the number, and fair value, of restricted stock awards granted.

Segment Results

Our discussion and analysis that follows covers results from continuing operations for our Redbox, Coin and New Ventures segments.

We manage our business by evaluating the financial results of our segments, focusing primarily on segment revenue and segment operating income from continuing operations before depreciation, amortization and other and share-based compensation granted to executives, non-employee directors and employees ("segment operating income"). Segment operating income contains internally allocated costs of our shared service support functions, including corporate executive management, business development, sales, finance, legal, human resources, information technology, and risk management. We also review depreciation and amortization allocated to each segment.

We utilize segment revenue and segment operating income 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, and assesses the performance of each business segment based on these measures, as well as, among other things, the prospects of each of the segments and how they fit into our overall strategy. Our CEO then decides how resources should be allocated among our business segments. For example, if a segment's revenue increases more than expected, our CEO may consider allocating more financial or other resources to that segment in the future. We continually evaluate our shared service support function's allocation methods used for segment reporting purposes, which may result in changes to segment allocations in future periods.

We also review same store sales which we calculate for our segments on a location basis. Most of our locations have a single kiosk, but in locations with high-performing kiosks, we may add additional kiosks to drive

incremental revenue and provide a broader product offering. Same store sales reflects the change in revenue from locations that have been operating for more than 13 months by the end of the reporting period compared with the same locations in the same period of the prior year.

Revenue

Our Redbox segment generates revenue primarily through fees charged to rent or purchase a movie or video game, and we pay retailers a percentage of our revenue. Our Coin segment generates revenue primarily through transaction fees from our consumers and product partners and we pay retailers a percentage of our revenue. Our New Ventures segment generates revenue primarily through fees charged for products or services offered to consumers in select test markets where we are validating the business concepts.

Our segment operating expenses include the following categories:

Direct Operating

Direct operating expenses consist primarily of (1) amortization of our content library, (2) transaction fees and commissions we pay to our retailers,
(3) credit card fees and coin processing expenses, and (4) field operations support. Variations in the percentage of transaction fees and commissions we pay to our retailers may result in increased expenses. Such variations are based on certain factors, such as total revenue, long-term non-cancelable contracts, installation of our kiosks in high traffic and/or urban or rural locations, new product commitments, or other criteria.

Marketing

Our marketing expenses represent our cost of advertising, traditional marketing, on-line marketing, and public relations efforts in national and regional advertising and major international markets.

Research and Development

Our research and development expenses consist primarily of the development costs of our kiosk software, network applications, machine improvements, and new product development. Research and development expenses represent expenditures to support development and design of our complementary new product ideas and to continue our ongoing efforts to enhance our existing products and services.

General and Administrative

Our general and administrative expenses consist primarily of executive management, business development, supply chain management, finance, management information system, human resources, legal, facilities, risk management, and administrative support for field operations.

Depreciation and Amortization

Our depreciation and other expenses consist primarily of depreciation charges on our installed kiosks as well as on computer equipment and leased automobiles.

Detailed financial information about our business segments, including geographic financial information and significant customer relationships is provided in Note 15: Business Segments and Enterprise-Wide Information in our Notes to Consolidated Financial Statements.

Redbox



Dollars in thousands, except net                    Year Ended December 31,                         2012 vs. 2011                  2011 vs. 2010
revenue per rental amounts                2012               2011               2010                $             %                $             %
Revenue                                $ 1,908,773        $ 1,561,598        $ 1,159,709        $ 347,175         22.2 %       $ 401,889         34.7 %
Expenses:
Direct operating                         1,340,899          1,134,167            859,774          206,732         18.2 %         274,393         31.9 %
Marketing                                   20,497             22,041             14,231           (1,544 )       (7.0 )%          7,810         54.9 %
Research and development                       739                 74                 -               665           NM *              74           -
General and administrative                 159,885            120,384             94,854           39,501         32.8 %          25,530         26.9 %

Segment operating income                   386,753            284,932            190,850          101,821         35.7 %          94,082         49.3 %
Depreciation and amortization             (148,068 )         (115,430 )          (93,445 )        (32,638 )       28.3 %         (21,985 )       23.5 %

Operating income                       $   238,685        $   169,502        $    97,405        $  69,183         40.8 %       $  72,097         74.0 %

Operating income as a percentage
of revenue                                    12.5 %             10.9 %              8.4 %
Same store sales growth                       10.2 %             18.3 %             13.0 %
Effect on change in revenue from
same store sales growth                $   157,711        $   206,512        $    98,219        $ (48,801 )      (23.6 )%      $ 108,293        110.3 %
Ending number of kiosks**                   43,700             35,400             30,200            8,300         23.4 %           5,200         17.2 %
Total kiosk rentals (in
thousands)**                               739,761            686,006            534,518           53,775          7.8 %         151,488         28.3 %
Net kiosk revenue per rental**         $      2.55        $      2.28        $      2.16        $    0.27         11.8 %       $    0.12          5.6 %

(*) Not meaningful

(**) Excludes kiosks and the impact of kiosks acquired as part of the NCR Asset Acquisition. As part of the NCR Asset Acquisition, we acquired approximately 6,200 active kiosks. We have replaced 2,700 of these kiosks with Redbox kiosks and removed but have not replaced 1,600 more. As a result there were approximately 1,900 of these kiosks still in service at December 31, 2012. Kiosks acquired as part of the NCR Asset Acquisition generated revenue of approximately $22.0 million from 7.4 million rentals since the June 22, 2012 acquisition date.

2012 Events

• On October 3, 2012, we launched Redbox TicketsTM in the Philadelphia market which will operate in connection with our kiosks, mobile and consumer electronic devices, applications and websites to provide customers with access to purchase tickets to various live events and attractions. We expect Redbox Tickets to increase our revenue as we continue to expand into new markets;

• On July 31, 2012, we amended our copy depth license agreement with SPHE Scan Based Trading Corporation ("Sony") to extend the agreement until September 30, 2014. Sony received, at its sole discretion, the option for two one-year extensions following the September 30, 2014 expiration. The amended agreement also gave us the option to license Blu-ray product. We view Blu-ray as an important growth opportunity because of the high video quality relative to other formats and the higher daily rental fee it provides;

• On June 22, 2012, we completed the NCR Asset Acquisition. The impact of the NCR Asset Acquisition on our Redbox segment operating results is discussed below;

• On January 31, 2012, our content license arrangement with Warner Home Video ("Warner") expired. Subsequent to the expiration date, we procured Warner content made available for rental in our Redbox kiosks through alternative sources. Content procured through alternatives to licensing arrangements typically have a higher acquisition cost per DVD, but generates a higher margin because of a higher rental per unit ratio. The higher rental per unit ratio is primarily the result of optimal buying as we are not required to purchase certain quantities of a title. On October 19, 2012, Redbox entered into a rental revenue sharing agreement (the "Warner Agreement") with Warner Home Video through December 31, 2014. Under the Warner Agreement, Redbox agrees to license minimum quantities of theatrical and direct-to-video Blu-ray Disc and DVD titles for rental. A 28-day delay from "street date" began with January 2013 titles.

As part of the NCR Asset Acquisition, we acquired approximately 6,200 active kiosks during the final week of the second quarter and approximately 1,900 of these kiosks remained in service at December 31, 2012. The impact of the kiosks acquired in the NCR Asset Acquisition is included in the following discussion.

Comparing 2012 to 2011

Revenue increased $347.2 million, or 22.2% primarily due to the following:

• $167.5 million from new kiosk installations including the replacement of NCR kiosks;

• $157.7 million from same store sales growth of 10.2% due primarily to the increase in the standard definition daily rental fee in late October 2011, offset in part by fewer rentals in the third quarter due to a less favorable movie release schedule as the studios released fewer new titles during the 2012 Olympics; and

• $22.0 million from kiosks acquired from NCR.

The $0.27 increase in net kiosk revenue per rental was driven primarily by the increase in the standard definition daily rental fee, as well as increases in Blu-ray and video game rentals, which have higher daily rental fees, as a percentage of our total rentals. In 2012, Blu-ray and video game rentals in aggregate exceeded 10% of our total rentals as we continued to strategically grow these opportunities.

Operating income increased $69.2 million, or 40.8%, primarily due to the following:

• $347.2 million increase in revenue as described above partially offset by:

• $206.7 million increase in direct operating expenses primarily due to a $115.1 million increase in product costs related to higher DVD content purchases resulting from growth in the installed kiosk base and slightly higher video games purchases. Product costs totaled $796.9 million, an increase from $681.8 million in the prior period. In addition, we had increases in revenue share expense and payment card processing fees directly attributable to the revenue growth, higher kiosk field operating costs, allocated sales and customer service expenses due to the growth in the installed kiosk base, and certain costs incurred to service the kiosks under the transition services agreement with NCR. Due to the price increase mentioned above and ongoing investments in process improvements, direct operating expenses as a percent of revenue for 2012 was 70.2%, down 240 basis points from 72.6% in 2011;

• $39.5 million increase in general and administrative expenses primarily due to higher allocated expenses from our shared services support group related to facilities expansion, human resource programs, the continued implementation and maintenance of our ERP, and overall higher costs to support the continued growth in our installed kiosks base. Additionally, contributing to this increase was $3.2 million in costs incurred during 2012 in connection with the NCR Asset Acquisition; and

Comparing 2011 to 2010

Revenue increased $401.9 million, or 34.7% primarily due to the following:

• $206.5 million from same store sales growth of 18.3%; and

• $195.4 million from new kiosk installations.

Both amounts reflect the benefit of the increase in the daily rental fee from $1.00 to $1.20 in late October 2011 on standard definition rentals, as well as a $0.12 increase in net revenue per rental primarily due to continued growth in video game rentals, which were rolled out nationally in June 2011, and Blu-ray rentals, both of which have higher daily rental fees.

Operating income increased $72.1 million, or 74.0%, primarily due to the following:

• $401.9 million increase in revenue as described above; partially offset by a

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