Redbox 2006 Annual Report Download - page 50

COINSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
NOTE 1: ORGANIZATION AND BUSINESS
Description of company: Incorporated as a Delaware company in 1993, Coinstar is a multi-national
company offering a range of 4th Wall™ solutions for retailers’ storefronts consisting of self-service coin
counting, electronic payment (“e-payment”) services such as money transfer services, stored value cards, payroll
cards, prepaid debit cards and prepaid wireless products via point-of-sale terminals and non-coin-counting
kiosks, and entertainment services such as skill-crane machines, bulk vending machines and kiddie rides. We
have also made strategic investments in Redbox Automated Retail, LLC (“Redbox”) and Video Vending New
York, Inc. (d.b.a. “DVDXpress”), to offer self-service DVD kiosks where consumers can rent or purchase
movies. Our services, in one form or another, are currently offered in supermarkets, mass merchandisers,
warehouse clubs, drugstores, universities, shopping malls and convenience stores in the United States, Canada,
Mexico, Puerto Rico, the United Kingdom and other countries. As of December 31, 2006, we had a total of
approximately 13,500 coin-counting machines installed, over 300,000 entertainment services machines installed,
over 14,000 locations where our point-of-sale terminals were installed and over 400 non-coin-counting kiosks
installed.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The accompanying consolidated financial statements include the accounts of
Coinstar, Inc., our wholly-owned subsidiaries and other entities in accordance with Financial Accounting
Standards Board (“FASB”) Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities (“FIN 46R”). 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.
Cash and cash equivalents, cash in machine or in transit, 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 in machine or in transit represents coin residing in our coin-counting or entertainment services
machines, cash being processed by carriers, or cash deposits in transit. Cash being processed represents cash
which we are 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.
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. The estimated value of our entertainment services
coin-in-machine was approximately $7.1 million and $5.0 million at December 31, 2006 and 2005, respectively.
Securities available-for-sale: Our investments are classified as available-for-sale and are stated at fair
value. Our available-for-sale securities have maturities of one year or less and are reported at fair value based on
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