Redbox 2004 Annual Report Download - page 44

COINSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –(Continued)
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
40
Inventory: Inventory, which consists primarily of plush toys and other products dispensed from our entertainment
services machines, are stated at the lower of cost or market. The cost of inventory includes mainly the cost of materials, and
to a lesser extent, labor and overhead. Cost is determined using the average cost method. Inventory, which is considered
finished goods, consists of purchased items ready for resale or use in vending operations.
Property and Equipment: Property and equipment are stated at cost, net of accumulated depreciation. Expenditures
that extend the life, increase the capacity, or improve the efficiency of property and equipment are capitalized, while
expenditures for repairs and maintenance are expensed as incurred. Depreciation is recognized using the straight-line method
over the following approximate useful lives.
Useful Life
Coin-counting and e-payment machines................................................................
.
5 years
Entertainment services machines................................................................
............
10 years
Vending machines ................................................................................................
..
3 to 5 years
Computers................................................................................................
...............
3 years
Office furniture and equipment................................................................
...............
5 years
Leased vehicles................................................................................................
.......
3 years
Leasehold improvements ................................................................
........................
5 to 7 years
Goodwill and Intangible Assets: Goodwill represents the excess of cost over the estimated fair value of net assets
acquired, primarily from our recent acquisition of ACMI in July 2004, which in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets, is not being amortized. Also in accordance with SFAS No. 142, we test goodwill for impairment
at the reporting unit level on an annual basis or as determined necessary. SFAS No. 142 requires a two-step goodwill
impairment test whereby the first step, used to identify potential impairment, compares the fair value of a reporting unit with
its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired and the second test is not performed. The second step of the impairment test is
performed when required and compares the implied fair value of the reporting unit goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment
loss shall be recognized in an amount equal to that excess. Based on the annual goodwill test for impairment we performed
during the quarter ended December 31, 2004, we determined there is no impairment of our goodwill. At December 31, 2004,
goodwill consisted of approximately $134.2 million related to the acquisition of ACMI and approximately $6.1 million
resulting from other acquisitions.
Our intangible assets are comprised primarily of retailer relationships acquired in connection with our recent
acquisition of ACMI in July 2004 and two other smaller acquisitions during 2004. A third-party consultant used expectations
of future cash flows to estimate the fair value of the acquired retailer relationships. We amortize our intangible assets over
their expected useful lives, which range from 3 to 10 years.
The gross carrying amounts and related accumulated amortization as well as the range of estimated useful lives of
identifiable intangible assets at the reported balance sheet dates were as follows:
December 31,
(in thousands)
2004 2003
Range of
Estimated
Useful Lives
(in years)
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
Intangible assets:
Retailer relationships.......................................... 5 - 10 $ 36,229 $ 1,831 $ — $ —
Other identifiable intangible assets .................... 3 - 5 956 321 756 138
Total............................................................................. $ 37,185 $ 2,152 $ 756 $ 138