Redbox 2015 Annual Report Download - page 75

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 or a fixed fee and is recorded in our
Consolidated Statements of Comprehensive Income within 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
$15.2 million, $11.8 million and $11.7 million in 2015, 2014 and 2013, 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,
except for those associated with discontinued operations which are included in Loss from discontinued operations, net of tax 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 Accumulated other
comprehensive loss in our Consolidated Balance Sheets.
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. Expense for performance based shares is recognized
over the vesting period if and when we conclude that it is probable that the performance condition will be achieved. We
reassess the probability of vesting at each reporting period for awards with performance conditions and adjust compensation
cost based on our probability assessment.
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.
Share-based payment expense is only recognized on awards that ultimately vest. Therefore, we have reduced the share-based
payment expense to be recognized over the vesting period for anticipated future forfeitures. Forfeiture estimates are based on
historical forfeiture patterns. We review and assess our forfeiture estimates quarterly and update them if necessary. Any changes
to accumulated share-based payment expense are recognized in the period of change. If actual forfeitures differ significantly
from our estimates, our results of operations could be materially impacted. For additional information see Note 10: Share-
Based Payments.
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