Redbox 2006 Annual Report Download - page 51

COINSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
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 2006, the amount expensed for uncollectible accounts was approximately
$433,000 and the amount charged against the allowance was $500,000. In 2005, the amount expensed for
uncollectible accounts was approximately $230,000 and the amount charged against the allowance was $220,000.
Inventory: Inventory, which consists primarily of plush toys and other products dispensed from our
entertainment services machines, is stated at the lower of cost or market. The cost of inventory includes mainly
the cost of materials, and to a lesser extent, labor, overhead and freight. 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. Also included in inventory are prepaid airtime, prepaid phones and prepaid phone cards; cost
is determined using first-in-first-out method.
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 ....................... 5years
Entertainment services machines ............................ 10years
Vending machines ........................................ 3to5years
Computers .............................................. 3years
Office furniture and equipment .............................. 5years
Leased vehicles .......................................... lease term
Leasehold improvements ................................... shorter of lease term
or useful life of
improvement
Equity investments: We are accounting for our minority ownership of our investments under the equity
method in our consolidated financial statements, of which we received dividends from one of our investments
during 2006 and 2005. During 2005, we invested $20.0 million to obtain a 47.3% interest in Redbox, a company
in which consumers can rent DVD movies through self-service kiosks for about $1 per day. Our 47.3%
investment included a conditional consideration agreement requiring us to contribute an additional $12.0 million
if Redbox achieved certain targets within a one-year period from the date of the original agreement. In December
2006, those targets were met and the conditional consideration of $12.0 million was invested. The additional
$12.0 million investment did not change our percentage ownership in Redbox. Under certain conditions, based
on the terms of the agreement, we may be able to obtain a majority interest in Redbox.
Purchase price allocations: In connection with our acquisitions of our entertainment and e-payment
subsidiaries, we have allocated the respective purchase prices plus transaction costs to the estimated fair values
of assets acquired and liabilities assumed. These purchase price allocations were based on our estimates of fair
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