Redbox 2004 Annual Report Download - page 13

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We obtain some key hardware components used in the coin-counting machines and entertainment services equipment
from a limited number of suppliers. We may be unable to continue to obtain an adequate supply of these components in a
timely manner or, if necessary, from alternative sources. If we are unable to obtain sufficient quantities of components or to
locate alternative sources of supply on a timely basis, we may experience delays in installing or maintaining coin-counting
machines or entertainment services equipment, either of which could seriously harm our business, financial condition and
results of operations.
We rely on third-party service providers for substantial support and service efforts that we currently do not provide
directly. In particular, we contract with third-party providers to arrange for pick-up, processing and deposit of coins as well as
limited servicing of our machines. We generally contract with a single transportation provider and coin processor to service a
particular region and either party generally can terminate the contracts with advance notice ranging from 30 to 90 days. We
do not currently have, nor do we expect to have in the foreseeable future, the internal capability to provide back-up coin
processing service in the event of a sudden disruption in service from a commercial coin processor. Any failure by us to
maintain our existing coin processing relationships or to establish new relationships on a timely basis or on acceptable terms
would harm our business, financial condition and results of operations.
There are risks associated with conducting our businesses and sourcing goods internationally.
We currently have coin operations in Canada and the United Kingdom. We also now have entertainment services
equipment operating in Mexico. We expect to continue increasing our deployment of both coin-counting machines and
entertainment services equipment internationally. Exposure to exchange rate fluctuations, restrictions on the repatriation of
funds, adverse changes in tax, tariff and trade regulations, difficulties with foreign distributors and difficulties in managing an
organization outside the United States are risks that could seriously harm the development of our business and ability to
operate our machines profitably.
In addition, substantially all of the plush toys and other products dispensed from our entertainment services machines
are produced by foreign manufacturers, including a majority purchased directly from manufacturers in China. We purchase
our other vending products indirectly from vendors who obtain a significant percentage of such products from foreign
manufacturers. In 2003, our entertainment business transitioned its product fulfillment operations to a third-party distribution
center in Shanghai, China. As a result, we are subject to changes in governmental policies, the imposition of tariffs, import
and export controls, transportation delays and interruptions, political and economic disruptions and labor strikes that could
disrupt the supply of products from such manufacturers. A reduction or interruption in supplies or a significant increase in the
price of one or more supplies necessary for our toy manufacture could have a material adverse effect on our business. We
also could be affected by labor strikes in the sea shipping, trucking and railroad industries. Such disruptions could interrupt
supplies or increase our transportation costs and thereby reduce profit margins in a particular period.
Our business is subject to federal, state, local and foreign laws and government regulation.
Our current businesses are subject to federal, state, local and foreign laws and government regulation, including
government regulation relating to coins, toy safety, child protection, vehicle safety, access to machines in public places,
charitable fundraising, the transfer of money or things of value, weights and measures, gaming, sweepstakes, contests and
consumer protection. The application of existing laws and regulations, changes in or enactment of new laws and regulations
that apply or may in the future apply to our current or future products or services, changes in governmental authorities’
interpretation of the application of various government regulations to our business, or the failure or inability to gain and
retain required permits and approvals could materially and adversely affect our business in the future.
In addition, certain jurisdictions may also require us to hold certain licenses, permits and approvals in connection with
the operation of our coin-counting and entertainment services machines. For example, in Washington state, skill-crane
machines are subject to the licensing requirements of the Washington State Gambling Commission. There can be no
assurance that we will be granted all necessary permits or approvals in the future or that current permits and approvals will be
renewed. Given the unique nature of our businesses and new products and services we may develop in the future, the
application of various laws and regulations to our business is or in the future may be uncertain.
Recall of any of the products dispensed by our entertainment services machines or by the entertainment services industry
generally could adversely affect our entertainment services business.
Our entertainment services machines, and the entertainment services industry generally, are subject to regulation by the
Consumer Product Safety Commission and similar state and international regulatory authorities. The toys and other products
dispensed from our entertainment services machines could be subject to involuntary recalls and other actions by such