Redbox 2008 Annual Report Download - page 61

discounted cash flows, or liquidation value for certain assets, which we considered an appropriate method in the
circumstance.
Settlement of liabilities: In accordance with FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”), we consider liabilities to be
extinguished when the debtor pays or is legally released from the obligation. During the first quarter of 2007, the
company reversed liabilities totaling $0.9 million in accordance with SFAS 140.
Revenue recognition: We recognize revenue as follows:
• Coin-counting revenue, which is collected from either consumers or card issuers (in stored value card or
e-certificate transactions), is recognized at the time the consumers’ coins are counted by our coin-counting
machines. Cash deposited in machines that has not yet been collected is referred to as cash in machine and is
reported in our consolidated balance sheet under the caption “Cash in machine or in transit”. Our revenue
represents the fee charged for coin-counting;
• DVD revenue is recognized during the term of a customer’s rental transaction or purchase and is recorded net
of applicable sales taxes;
• Money transfer revenue represents the commissions earned on a money transfer transaction and is
recognized at the time the customer completes the transaction;
• Entertainment 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 under the caption “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 coin-in-machine was approximately
$3.0 million and $8.4 million at December 31, 2008 and December 31, 2007, respectively;
• E-payment revenue is recognized at the point of sale based on our commissions earned, net of retailer fees.
Fees paid to retailers: Fees paid to retailers relate to the amount we pay our retailers for the benefit of placing
our machines in their stores and their agreement to provide certain services on our behalf to our customers. The fee
is generally calculated as a percentage of each coin-counting transaction or as a percentage of our entertainment and
DVD revenues and is recorded in our consolidated income statement under the caption “direct operating expenses.”
The fee arrangements are based on our negotiations and evaluation of certain factors with the retailers such as total
revenue, e-payment capabilities, long-term non-cancelable contracts, installation of our machines in high traffic
and/or urban or rural locations, new product commitments, co-op marketing incentive, or other criteria. We
recognize this expense at the time we recognize the associated revenue from each of our customer transactions. In
certain instances, we prepay amounts to our entertainment services retailers, which are expensed over the contract
term. The expense is included in depreciation and other in the accompanying consolidated statements of operations
and cash flows.
Fair value of financial instruments: The carrying amounts for cash and cash equivalents, our receivables and
our payables approximate fair value, which is the amount for which the instrument could be exchanged in a current
transaction between willing parties. The fair value of our revolving line of credit approximates its carrying amount.
Foreign currency translation: The functional currencies of our International subsidiaries are the British
Pound Sterling for Coinstar Limited in the United Kingdom and the Euro for Coinstar Money Transfer (“CMT”).
We translate assets and liabilities related to these operations to U.S. dollars at the exchange rate in effect at the date
of the consolidated balance sheet; we convert revenues and expenses into U.S. dollars using the average monthly
exchange rates. Translation gains and losses are reported as a separate component of accumulated other compre-
hensive income.
Interest rate swap: During the first quarter of 2008, we entered into an interest rate swap agreement with
Wells Fargo bank for a notional amount of $150.0 million to hedge against the potential impact on earnings from an
increase in market interest rates associated with the interest payments on our variable-rate revolving credit facility.
In the fourth quarter of 2008 we entered into another interest rate swap agreement with JP Morgan Chase for a
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