Redbox 2011 Annual Report Download - page 65

•New Ventures—New Ventures revenue is recognized when the sale of product or service transaction
through our new concept kiosks is completed. Consumers either pay cash or use credit or debit cards
when they purchase products or services from our New Venture segment. Our New Venture segment
currently offers coffee, refurbished electronics, and photo services to our consumers.
Fees Paid to Retailers
Fees paid to retailers relate to the amount we pay our retailers for the benefit of placing our kiosks in their stores
and their agreement to provide certain services on our behalf to our consumers. The fee is generally calculated as
a percentage of each coin-counting transaction or as a percentage of our net movie or video game rental revenue
and is recorded in our Consolidated Statements of Net Income within the direct operating expenses. The fee
arrangements are based on our negotiations and evaluation of certain factors with the retailers such as total
revenue, long-term non-cancelable contracts, installation of our kiosks in high traffic and/or urban or rural
locations, co-op marketing incentives, or other criteria.
Advertising
Advertising costs, which are included as a component of marketing expenses, are expensed as incurred and
totaled $15.9 million, $15.4 million and $10.8 million in 2011, 2010 and 2009, respectively.
Research and Development
Costs incurred for research and development activities are expensed as incurred.
Foreign Currency Translation
The functional currencies of our international subsidiaries are the British pound Sterling for our subsidiary
Coinstar Limited in the United Kingdom, Canadian dollar for Coinstar International, and the Euro for our
subsidiaries Coinstar Money Transfer and Coinstar Ireland Limited. 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 Sheets;we
convert revenues and expenses into U.S. dollars using average exchange rates. Translation gains and losses are
reported as a separate component of accumulated other comprehensive loss.
Share-Based Payments
We measure and recognize expense for all share-based payment awards granted, including employee stock
options and restricted stock awards, based on the estimated fair value of the award on the grant date. We utilize
the Black-Scholes-Merton (“BSM”) valuation model for valuing our stock option awards and the determination
of the expenses.
The use of the BSM valuation model to estimate the fair value of stock option awards requires us to make
judgments on assumptions regarding the risk-free interest rate, expected dividend yield, expected term and
expected volatility over the expected term of the award. The assumptions used in calculating the fair value of
share-based payment awards represent management’s best estimates at the time they are made, but these
estimates involve inherent uncertainties and the determination of expense could be materially different in the
future.
We amortize share-based payment expense on a straight-line basis over the vesting period of the individual
award with estimated forfeitures considered. Vesting periods are generally four years. Shares to be issued upon
the exercise of stock options will come from newly issued shares. The expense related to restricted stock granted
to movie studios as part of license agreements is adjusted based on the number of unvested shares and market
price of our common stock each reporting period.
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