Redbox 2012 Annual Report Download - page 31

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• On June 22, 2012, Redbox and NCR Corporation (“NCR”) completed the transactions contemplated by
the Asset Purchase Agreement, dated as of February 3, 2012, as amended, by and between Redbox and
NCR (the “NCR Agreement”). Redbox acquired certain assets related to NCR’s self-service
entertainment DVD kiosk business (the “NCR Asset Acquisition”). The purchased assets include,
among others, self-service DVD kiosks, content inventory, intellectual property, and certain related
contracts, including with certain retailers. In consideration, Redbox paid NCR $100.0 million in cash
and assumed certain liabilities of NCR related to the purchased assets. In connection with the NCR
Asset Acquisition, Coinstar and NCR entered into a manufacturing and services agreement, pursuant to
which Coinstar, Redbox or an affiliate will purchase goods and services from NCR for a period of five
years from June 22, 2012. At the end of the five-year period, if the aggregate amount paid in margin to
NCR for goods and services delivered equals less than $25.0 million, Coinstar will pay NCR the
difference between such aggregate amount and $25.0 million. In addition, Redbox and NCR entered
into a transition services agreement, pursuant to which Redbox and NCR are providing certain
transition services to one another relating to the operation of the purchased DVD kiosks for a period of
one year from the agreement date. We accounted for the NCR Asset Acquisition as a business
combination. Costs related to the NCR Asset Acquisition and operating results of NCR’s self-service
entertainment DVD kiosk business are included in our Redbox segment results.
• 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 Coffee®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.
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