Redbox 2013 Annual Report Download - page 65

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strategies and financial performance. If, after completing such assessment, it is determined more likely than not that the fair
value of a reporting unit is less than its carrying value, we proceed to a two-step impairment test, whereby the first step is
comparing 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 step of the test is not
performed. The second step of the impairment test is performed when the carrying amount of the reporting unit exceeds the fair
value, then the implied fair value of the reporting unit goodwill is compared 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 the excess. For additional information see Note 5: Goodwill and Other Intangible Assets.
Lives and Recoverability of Equipment and Other Long-Lived Assets
We evaluate the estimated remaining life and recoverability of equipment and other assets, including intangible assets subject to
amortization, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable. Factors that would indicate potential impairment include, but are not limited to, significant decreases in the market
value of the long-lived asset(s), a significant change in the long-lived asset’s use or physical condition, and operating or cash
flow losses associated with the use of the long-lived asset. When there is an indication of impairment, we prepare an estimate
of future undiscounted cash flows expected to result from the use of the asset and its eventual disposition to test recoverability.
If the sum of the future undiscounted cash flow is less than the carrying value of the asset, it indicates that the long-lived asset
is not recoverable, in which case we will then compare the estimated fair value to its carrying value. If the estimated fair value
is less than the carrying value of the asset, we recognize the impairment loss and adjust the carrying amount of the asset to its
estimated fair value.
During the fourth quarter of 2013, we discontinued three new venture concepts, RubiTM, Crisp MarketTM and Star StudioTM.
During the second quarter of 2013 we discontinued our OrangoTM concept. As a result of the decision to discontinue the four
concepts, for each concept we estimated the fair value of assets held utilizing a cash flow approach. For each of the concepts
and for certain shared service assets used for the new ventures, as of December 31, 2013, we estimated the fair value of the
assets was zero and recorded impairment charges for each concept. See Note 13: Discontinued Operations and Sale of
Business.
Income Taxes
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our
assets and liabilities and operating loss and tax credit carryforwards. We record a valuation allowance to reduce deferred tax
assets to the amount expected to more likely than not be realized in our future tax returns. Deferred tax assets and liabilities and
operating loss and tax credit carryforwards are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences and operating loss and tax credit carryforwards are expected to be recovered or
settled.
We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s
evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more
likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50%
likelihood of being realized upon ultimate or effective settlement with a taxing authority that has full knowledge of all relevant
information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax
benefit has been recognized in the financial statements. When applicable, associated interest and penalties have been
recognized as a component of income tax expense. See Note 12: Income Taxes From Continuing Operations.
Taxes Collected from Customers and Remitted to Governmental Authorities
We account for tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction (i.e.,
sales, value added) on a net (excluded from revenue) basis.
Convertible Debt
In September 2009, we issued $200.0 million aggregate principal amount of 4% Convertible Senior Notes (the “Notes”). We
have separately accounted for the liability and the equity components of the Notes based on the estimated fair value of the debt
upon issuance. The Convertible Notes become convertible (the “Conversion Event”) when the closing price of our common
stock exceeds $52.38, 130% of the Convertible Notes’ conversion price, for at least 20 trading days during the 30 consecutive
trading days prior to each quarter-end date. If the Convertible Notes become convertible and should the holders elect to
convert, we will be required to pay them up to the full face value of the Convertible Notes in cash as well as deliver shares of
our common stock for any excess conversion value. The number of potentially issued shares increases as the market price of