Redbox 2013 Annual Report Download - page 66

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57
our common stock increases. As of December 31, 2013, such early conversion event was met. As a result, the Convertible
Notes were classified as a current liability and the debt conversion feature was classified as temporary equity on our
Consolidated Balance Sheets. See Note 8: Debt and Other Long-Term Liabilities in our Notes to Consolidated Financial
Statements for more information on our debt instruments. As of December 31, 2013, we were in compliance with all debt
covenants.
Loss Contingencies
We accrue estimated liabilities for loss contingencies arising from claims, assessments, litigation and other sources when it is
probable that a liability has been incurred and the amount of the claim assessment or damages can be reasonably estimated. We
believe that we have sufficient accruals to cover any obligations resulting from claims, assessments or litigation that have met
these criteria.
Revenue Recognition
We recognize revenue when persuasive evidence of a sales arrangement exists, delivery has occurred or services are rendered,
the sales price or fee is fixed or determinable and collectibility is reasonably assured as follows:
• Redbox - Revenue from movie and video game rentals is recognized ratably over the term of a consumer’s rental
transaction. Revenue from a direct sale out of the kiosk of previously rented movies or video games is recognized at
the time of sale. On rental transactions for which the related movie or video game has not yet been returned to the
kiosk at month-end, revenue is recognized with a corresponding receivable recorded in the balance sheet, net of a
reserve for potentially uncollectible amounts. We record revenue net of refunds and applicable sales taxes collected
from consumers.
• Coinstar - Revenue from a coin-counting transaction, which is collected from either consumers or card issuers (in
stored value product transactions), is recognized at the time the consumers’ coins are counted by our coin-counting
kiosks. Our revenue represents the fee charged for coin-counting transactions.
• New Ventures - New Ventures revenue is recognized when the sale of product or when the service transaction is
complete. For our beauty concept this is at the time the transaction at kiosks is completed, for our ecoATM business
revenue is recognized upon the sale and shipment of devices collected at our kiosk to third parties. Our New Ventures
segment currently offers refurbished mobile devices and beauty samples 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 Comprehensive 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 $13.7
million, $13.5 million and $15.9 million in 2013, 2012 and 2011, 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 Redbox Canada GP, and the Euro for our Coinstar Ireland
Limited subsidiary. 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.
Transaction gains and losses including on foreign currency intercompany transactions not deemed to be of a long term
investment nature are included in Other income (expense), net on our Consolidated Statements of Comprehensive Income.
Translation gains and losses, including gains and losses on foreign currency intercompany transactions deemed to be of a long
term investment nature, are reported as a separate component of accumulated other comprehensive loss.