Redbox 2005 Annual Report Download - page 10

Certain statements in the risks described below are “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may
predict, forecast, indicate, or imply future results performance, or achievements. Forward-looking statements
can be identified by the use of terminology such as “believe,” “anticipate,” “expect,” “estimate,” “future,”
“may,” “will,” “seek,” “should,” “project,” “potential,” “continue,” “plans,” “intends,” “likely,” or other
similar words or phrases. Except for historical matters, the matters discussed in this Annual Report on
Form 10-K and other statements or filings made by Coinstar from time-to-time may be forward-looking
statements. We caution you that forward-looking statements involve risks and uncertainties that may cause actual
results to differ materially from the forward-looking statements. We are including this Cautionary Statement to
make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995 for any such forward-looking statements.
The termination, non-renewal or renegotiation on materially adverse terms of our contracts with any one or
more of our significant retail partners could seriously harm our business, financial condition and results of
operations.
We derive substantially all of our revenue from two sources: coin-counting machines installed in high traffic
supermarkets and entertainment services machines installed in supermarkets, mass merchandisers, restaurants,
bowling centers, truckstops, warehouse clubs and similar locations. The success of our business depends in large
part on our ability to maintain contractual relationships with our existing retail partners in locations where we can
operate profitably. If we are unable to maintain or renew such contracts with our existing retail partners, our
business, financial condition and results of operations could be significantly impaired. For example, our coin and
entertainment services agreements with Wal-Mart, Inc. and the Kroger Company account for approximately
25.3% and 10.5% of our consolidated revenue, respectively. If we are unable to provide existing retail partners
like Wal-Mart and Kroger with direct and indirect benefits that are superior to or competitive with other systems
(including coin-counting systems which the retail partners could operate themselves or through a third party) or
alternative potential uses of the floor space that our machines occupy, we may encounter difficulties maintaining
existing retailer relationships.
We typically operate pursuant to separate agreements with each of our retail partners. Our typical contract is
for a set term, which typically ranges from one to three years and automatically renews until we or our partner
gives notice of termination before a certain time prior to the end of the initial term or renewal period. Certain
contract provisions with some of our retail partners vary, including product offerings, the service fee we pay each
retail partner, frequency of service, and the ability to cancel the contract upon notice after a certain period of
time. Our entertainment services relationship with Wal-Mart, Inc. is governed by a contract that Wal-Mart, Inc.
may terminate at any time. Cancellation of this contract would seriously harm our business and reputation.
We may be unable to continue to pay our retail partners a service fee that allows us to operate our coin-
counting and entertainment services machines at historical levels of profitability.
We have faced and continue to face ongoing pricing pressure from our current retail partners to increase the
service fee we pay to them on coin and entertainment services or to make other financial concessions to win or
retain business. If we are unable to respond effectively to ongoing pricing pressures, we may fail to retain certain of
our retail partners. These fee arrangements are based on our evaluation of certain unique factors with the retailer,
such as total revenue, e-payment capabilities, long-term non-cancelable contracts, installation of our machines in
high traffic and/or urban or rural locations, new product commitments, or other criteria. Together with other factors,
these arrangements could significantly increase our expenses relative to coin services in future periods.
We may be unable to attract new retail partners and penetrate new markets and distribution channels.
In order to continue our coin-counting and entertainment services machine installation growth, we will need
to attract new retail partners and develop operational or unit production cost efficiencies that make it feasible for
us to penetrate lower density markets and/or new distribution channels. We may be unable to attract new retail
partners or drive down costs relating to the manufacture, installation or servicing of coin-counting or
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