Redbox 2005 Annual Report Download - page 12

We have substantial indebtedness.
On July 7, 2004, we entered into a senior secured credit facility. The credit agreement provides for advances
totaling up to $310.0 million, consisting of a $60.0 million revolving credit facility and a $250.0 million term
loan facility. Since the debt inception, we have repaid $44.2 million of the debt outstanding. The credit facility
bears interest at variable rates pegged to prevailing interest rates. As a result, our operating results are exposed to
risks of fluctuations in interest rates. Loans made pursuant to the credit agreement are secured by a first security
interest in substantially all of our assets and the assets of our subsidiaries, as well as a pledge of our subsidiaries’
capital stock. The credit facility matures on July 7, 2011.
This debt financing may limit our ability to effect future financings or may negatively impact our business,
financial condition, results of operations and growth. Substantial financial leverage poses the risk that we may
not be able to generate sufficient cash flow to service the indebtedness, or to adequately fund our operations.
Moreover, the credit agreement governing our indebtedness contains financial and other covenants that could
impair our flexibility to pursue growth opportunities. The credit agreement contains negative covenants and
restrictions relating to such things as certain common stock repurchases, liens, investments, capital expenditures,
indebtedness, cash payments of dividends, and fundamental changes or dispositions of our assets. In addition, the
credit agreement requires that we meet certain financial covenants, ratios and tests, including maintaining a
maximum consolidated leverage ratio and a minimum interest coverage ratio, all as defined in the credit
agreement. If the covenants are not met, our lenders would be entitled, under certain circumstances, to declare
our indebtedness immediately due and payable.
Competitive pressures could seriously harm our business, financial condition and results of operations.
Our coin-counting business faces competition from supermarket retailers, banks and other companies that
purchase and operate coin-counting equipment from companies such as ScanCoin AB, Cummins-Allison
Corporation and others. Our current retail partners may choose to replace our coin-counting machines with
competitor machines and operate such machines themselves or through a third party. In addition, retailers, some
of which have significantly more resources than us, may decide to enter the self-service coin-counting business.
Some banks and other competitors already provide coin-counting free of charge or for an amount that yields very
low margins or that may not generate a profit at all. An expansion of the coin-counting services provided by any
of these competitors could materially and adversely affect our business and results of operations.
Our entertainment services business faces competition from a number of regional and local operators of
entertainment services equipment. Many of these competitors are engaged in expansion programs, and we have
experienced and we expect to continue to experience intense competition for new locations and acquisition
candidates. Our entertainment services equipment also competes with other vending machines, coin-operated
entertainment devices, and seasonal and bulk merchandise for sites within retail locations. We cannot assure you
that we will be able to maintain current sites in the retail locations or that we will be able to obtain sites in the
future on attractive terms or at all. It is possible that a well-financed vending machine manufacturer or other
vending machine operator with existing relationships with retail accounts could compete with us in certain
markets or capture additional market share at our expense.
Defects, failures or security breaches in our coin-counting machines’ operating system could harm our
business.
The operation of our coin-counting machines depends on sophisticated software, computing systems and
communication services that may contain undetected errors or may be subject to failures. These errors may arise
particularly when new services or service enhancements are added. We have in the past experienced limited
delays and disruptions resulting from upgrading or improving our operating systems. Future upgrades or
improvements that may be necessary to expand and maintain our business could result in delays or disruptions
that could have the effect of seriously harming our operations. We also rely on a long distance
telecommunication network that is not owned by us and is subject to service disruptions. Further, while we have
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