Redbox 2013 Annual Report Download - page 74

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65
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%. At the request of the
Joint Venture board of managers, in addition to the initial capital contribution, Redbox made cash payments of $10.5 million
during the third quarter of 2012 and $14.0 million during each of the first and third quarters of 2013 representing its pro-rata
share of the requested capital contribution.
In addition to the initial cash capital contribution, Redbox granted the Joint Venture a limited, non-exclusive, non-transferable,
royalty-free right and license to use certain Redbox trademarks, of which the estimated fair value was approximately $30.0
million based on an evaluation of information available as of the date of the grant. As a result, during the first quarter of 2012,
we recognized a gain of $19.5 million related to the pro-rata amount of fair value given up in exchange for our 35.0% interest
in the Joint Venture. See Note 18: Fair Value for additional information about how we estimated the fair value of the Redbox
trademarks. The initial excess of our cost of the investment in the Joint Venture over our share of the Joint Venture’s equity will
be used to adjust future amortization expense.
We account for Redbox’s ownership interest in the Joint Venture using the equity method of accounting. During the first quarter
of 2012, the transaction related costs of $4.4 million were recorded as a part of the equity investment in the Joint Venture. We
recognized a loss of approximately $45.1 million and $22.5 million from our equity method investment, representing our share
of the Joint Venture’s operating results as well as the amortization of differences in carrying amount and underlying equity for
the years ended December 31, 2013, and 2012, respectively. Separate from equity method accounting for our ownership interest
in the Joint Venture, we record revenue attributable with the rental of DVDs and Blu-ray discs from our Redbox kiosks arising
from Joint Venture subscribers within our Redbox segment.
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).
Other Equity Method Investments
We make strategic equity investments in external companies that provide automated self-service kiosk solutions. Our equity
method investments and ownership percentages as of December 31, 2013, were as follows:
Dollars in thousands
Equity
Investment
Ownership
Percentage
Redbox Instant by Verizon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,709 35%
SoloHealth, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,998 10%
Equity method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,707
Our equity method investments are included within other long-term assets on our Consolidated Balance Sheets.
During the third quarter of 2013, we acquired ecoATM, previously one of our equity method investments. See Note 3:
Business Combinations for more information.