Redbox 2004 Annual Report Download - page 43

COINSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
NOTE 1: ORGANIZATION AND BUSINESS
Description of company: Incorporated in 1993, Coinstar is a multi-national company offering a range of services
consisting of coin counting, entertainment and electronic payment (“e-payment”) services. Our network of automated, self-
service coin-counting machines provides consumers with a convenient and innovative means to convert loose coins into cash.
Through our recent acquisition of ACMI Holdings, Inc. and its subsidiary, American Coin Merchandising, Inc., (collectively
referred to as “ACMI”), we offer various entertainment services to consumers in mass merchandisers, supermarkets,
warehouse clubs, restaurants, entertainment centers, truck stops and other distribution channels. These entertainment services
include skill-crane machines, bulk vending, kiddie rides and video games. In addition, we offer various e-payment services
through point-of-sale and non-coin-counting kiosks in drugstores, universities, shopping malls and convenience stores. As of
December 31, 2004, we had a total of over 12,000 coin-counting machines installed, over 171,000 entertainment services
machines installed and over 15,000 locations where our point-of-sale and non-coin-counting kiosks were installed.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The accompanying consolidated financial statements include the accounts of Coinstar,
Inc. and our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation.
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. These judgments are difficult as matters that are
inherently uncertain directly impact their valuation and accounting. Actual results may vary from management’s estimates
and assumptions.
In connection with our acquisitions of our e-payment subsidiaries and ACMI, we have allocated the respective
purchase prices plus transaction costs to the estimated fair values of assets acquired and liabilities assumed. These purchase
price allocation estimates were based on our estimates of fair values and estimates from third-party consultants.
We have estimated the value of our entertainment services coin-in-machine at December 31, 2004 which was
approximately $4.4 million. Coin-in-machine represents the cash deposited into our entertainment services machines at
period end which has not yet been collected. Based on our estimate of coin-in-machine, we have recognized the related
revenue, the corresponding reduction to inventory and increase to accrued liabilities which represents the direct operating
expenses associated with the coin-in-machine estimate.
Cash, cash equivalents and cash being processed: We consider all highly liquid securities purchased with a maturity
at purchase of three months or less to be cash equivalents.
Cash being processed represents coin residing in our coin-counting or entertainment machines or being processed by
third-party carriers, which we are mainly obligated to use to settle our accrued liabilities payable to retailers. We have the
contractual right and obligation to pick up and process all coins in our machines, although in certain circumstances, we may
not be able to immediately access the coins until they have been deposited into one of our regional bank accounts.
Securities available-for-sale: Our investments are classified as available-for-sale and are stated at fair value in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Our available-for-sale securities have maturities of one year or less and are reported at fair value
based on quoted market prices and are included in the balance sheet caption “prepaid expenses and other current assets.”
Changes in unrealized gains and losses are reported as a separate component of accumulated other comprehensive income.
Trade Accounts Receivable: Trade accounts receivable represents trade receivables, net of allowances for doubtful
accounts. The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts
receivable balance. We determine the allowance based on known troubled accounts, historical experience and other currently
available evidence. When a specific account is deemed uncollectible, the account is written off against the allowance. In
2004, the amount expensed for uncollectible accounts was approximately $65,000 and the amount charged against the
allowance was $120,000. Prior to our acquisitions in 2004, we did not have any trade accounts receivable.