Redbox 2005 Annual Report Download - page 15

• the level of product and price competition,
• our success in maintaining and expanding our network and managing our growth,
• the successful operation of our coin-counting network,
• activities of and acquisitions or announcements by competitors,
• the impact from any impairment of goodwill related to our acquisitions,
• fluctuations in consumer spending patterns, and
• relationships with manufacturers and suppliers.
In addition, we have historically experienced seasonality in our coin services business, with highest
revenues experienced in the third calendar quarter, followed by the fourth calendar quarter, and relatively lower
revenues in the first half of the year. Our entertainment business has also experienced seasonality, with peak
revenues in the fourth quarter and periods surrounding the Easter holiday season. While our entertainment
services business may offset the historical seasonality of the coin-counting business to some degree, we expect
our results of operations will continue to fluctuate both as a result of seasonal fluctuations and our revenue mix
between relatively higher margin coin and e-payment services and relatively lower margin entertainment
services.
Higher petroleum prices may adversely affect our operating results and reduce our profitability.
We source a substantial amount of goods, particularly plush toys and other products dispensed from our
entertainment services machines, internationally resulting in significant transportation-related costs. Petroleum-
based resins are used in the manufacture of these products. In addition, we operate a large number of vehicles
used by our field service personnel for the purpose of servicing and maintaining our coin-counting and
entertainment services machines. Significant increases in petroleum prices during 2005 have negatively impacted
our results of operations. The cost of petroleum may continue to increase as a result of natural disasters, political
and geopolitical issues and otherwise. Further increases could harm our financial condition and increases and
decreases in fuel costs may have a significant affect on our operating margins.
We depend upon third-party manufacturers, suppliers and service providers.
We currently conduct limited manufacturing operations and depend, and will continue to depend, on outside
parties to manufacture key components of our coin-counting and entertainment services machines. We intend to
continue to expand our installed base for coin-counting machines in North America and in the United Kingdom
and for entertainment services machines in the United States and Mexico. Such expansion may be limited by the
manufacturing capacity of our third-party manufacturers and suppliers. Third-party manufacturers may not be
able to meet our manufacturing needs in a satisfactory and timely manner. If there is an unanticipated increase in
demand for coin-counting machine or entertainment services equipment installations, we may be unable to meet
such demand due to manufacturing constraints.
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
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