Redbox 2004 Annual Report Download - page 15

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that any particular transaction, even if successfully completed, will ultimately benefit our business. Certain financial and
operational risks related to acquisitions that may have a material impact on our business are:
• use of cash resources and incurrence of debt and contingent liabilities in funding acquisitions,
• stockholder dilution if an acquisition is consummated through an issuance of our securities,
• amortization expenses related to acquired intangible assets and other adverse accounting consequences,
• costs incurred in identifying and performing due diligence on potential acquisition targets that may or may not be
successful,
• difficulties and expenses in assimilating the operations, products, technology, information systems or personnel of
the acquired company,
• impairment of relationships with employees, retailers and affiliates of our business and the acquired business,
• the assumption of known and unknown liabilities of the acquired company, including intellectual property claims,
and
• entrance into markets in which we have no direct prior experience.
In addition, acquisitions we make may have adverse accounting consequences or may result in highly restrictive debt
covenants. For example, in connection with our acquisition of our entertainment business, we recorded approximately $34.4
million of identifiable intangible assets, which will result in annual amortization expense of approximately $3.4 million over
the next 10 years. In addition, we also recorded approximately $ 134.2 million of goodwill in connection with the acquisition
that will not be amortized, but instead must be tested periodically for impairment. Any impairment of this goodwill in the
future could result in substantial charges to our operating results. Finally, to finance our acquisition of the entertainment
business, we entered into a senior secured credit facility that places substantial restrictions on our business operations. Any
further acquisitions we may make may involve additional accounting charges or operational restrictions that may impact our
future operating results.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results
or prevent fraud.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Any
inability to provide reliable financial reports or prevent fraud could harm our business. We have completed the process of
evaluating our internal control procedures to satisfy the requirements of the Sarbanes-Oxley Act of 2002, which require
management and our auditors to evaluate and assess the effectiveness of our internal controls. We continue to evaluate and,
where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal
controls, as such standards are modified, supplemented or amended from time to time, we could be subject to regulatory
scrutiny, civil or criminal penalties or shareholder litigation. In addition, failure to maintain adequate internal controls could
result in financial statements that do not accurately reflect our financial condition. We cannot assure you that we will be able
to complete the work necessary to fully comply with the requirements of the Sarbanes-Oxley Act, that our auditors will
complete their review and assessment of our internal controls in a timely manner or that management or our auditors will
conclude that our internal controls are effective.
Our anti-takeover mechanisms may affect the price of our common stock and make it harder for a third party to acquire
us without the consent of our board of directors.
We have implemented anti-takeover provisions that may discourage takeover attempts and depress the market price of
our stock. Provisions of our certificate of incorporation, bylaws and rights plan could make it more difficult for a third party
to acquire us, even if doing so would be beneficial to our stockholders. Delaware law also imposes some restrictions on
mergers and other business combinations between us and any acquirer of 15% or more of our outstanding common stock.
Furthermore, Washington law may impose additional restrictions on mergers and other business combinations between us
and any acquirer of 10% or more of our outstanding common stock. These provisions may make it harder for a third party to
acquire us without the consent of our board of directors, even if the offer from a third party may be considered beneficial by
some stockholders.