Redbox 2003 Annual Report Download - page 46

COINSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
Product research and development: Costs incurred for product research and development activities are
expensed as incurred. Software development costs are required to be capitalized when a product’s technological
feasibility has been established through the date the product is available for release.
Impairment of intangible assets: We assess the impairment of intangibles and long-lived assets whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. Intangible assets are
also reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Factors considered important that could trigger an impairment review include
significant underperformance relative to expected historical or projected future operating results, changes in the
manner of our use of the acquired assets and the strategy for our overall business and negative industry or
economic trends.
Loss from early retirement of debt: We accounted for the loss from early retirement of debt as an
extraordinary item in fiscal year 2002. As of January 1, 2003, we have included losses from early retirement of
debt within the other income and expense section of our consolidated statements of operations. The new method
of accounting for loss on early retirement of debt is the result of adopting SFAS No. 145, Rescission of FASB
Statements No. 4, 44, 64, Amendment of FASB Statement No. 13, and Technical Corrections. Prior year financial
statements have been restated to apply the new method retroactively in accordance with the standard.
Recent accounting pronouncements: In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring
activities and employee termination costs. We adopted SFAS No. 146 on January 1, 2003, the date this statement
became effective. On September 3, 2003, we announced a change in our workforce that included eliminating
approximately 50 positions across our organization. This resulted in a charge to operations of approximately
$600,000 for severance costs and termination benefits.
NOTE 3: ACQUISITION
On February 6, 2003, we acquired substantially all of the assets and assumed certain liabilities of Prizm
Technologies, Inc., a privately held corporation. Prizm’s proprietary technology allows consumers to conduct
a range of automated prepaid wireless transactions at its TOP-UP™terminals, such as adding minutes to a
prepaid wireless handset. The purchase was accounted for as a business combination under the provisions of
SFAS No. 141, Business Combinations. The fair value of the assets acquired and liabilities assumed were
included in our financial statements as of February 6, 2003, the acquisition date. The purchase price of this
acquisition does not have a material impact on our consolidated financial position. In June 2003, we entered
into an agreement with the shareholders of Prizm pursuant to which they agreed to relinquish any claims for
additional consideration in connection with the “earn-out” provisions in the asset purchase agreement in
exchange for a maximum payment of $400,000 contingent on meeting certain terms and conditions through
the end of the year. These terms and conditions were met as of December 31, 2003 and we subsequently paid
$400,000 to the shareholders of Prizm. In accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, we have tested the intangible balance for impairment and determined the asset balance is not impaired.
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