Redbox 2005 Annual Report Download - page 22

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 coin to cash transaction.
Entertainment services
We estimate that the market for our entertainment services is approximately $1.1 billion in the United
States. We are the leading owner and operator of skill-crane and bulk vending machines 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 33,000 retail locations, totaling more than 320,000 pieces of equipment.
The majority of our entertainment services revenue is derived from skill-crane machines that dispense plush toys,
novelties and other items. 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.
E-payment services
We estimate that the e-payment services market is approximately $5.0 billion in the United States. We offer
e-payment services, including loading prepaid wireless accounts, loading and reloading stored value cards,
reloading prepaid MasterCard®cards and prepaid phone cards and providing payroll card services. We believe
these and other e-payment services represent a significant growth opportunity for us. We offer various e-payment
services through point-of-sale terminals, stand-alone e-payment kiosks and e-payment-enabled coin-counting
machines in supermarkets, drugstores, universities, shopping malls and convenience stores.
We generate revenue for ourselves and pay our retail partners a fee through our 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 Cingular Wireless.
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 judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including
those related to coin-in-machine and accrued expenses, property and equipment, stock-based compensation,
income taxes and contingencies. We base our estimates 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 coin-in-machine and is
estimated at period end and reported on the balance sheet as cash in machine or in transit and cash being
processed. 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;
• E-payment services revenue is recognized at the point of sale based on our commissions earned, net of
retailer fees.
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