Redbox 2005 Annual Report Download - page 16

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 could 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 from vendors who obtain a significant percentage of such
products from foreign manufacturers. 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 and timely delivery 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, such as petroleum, 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, operating results and financial condition can be adversely affected by severe weather, natural
disasters and other events beyond our control, such fires, power failures, telecommunications loss and
terrorist attacks.
Our operational and financial performance is a direct reflection of customer use of and our ability to operate
and service our coin-counting and entertainment services machines installed in retail and similar locations.
Severe weather, natural disasters and other events beyond our control can, for extended periods of time,
significantly reduce customer use of our machines as well as interrupt our own ability to manufacture, operate
and service our machines. In some cases, severe weather, natural disasters and other events beyond our control
may result in the total loss of our machines, which losses may not be fully covered by our insurance. For
example, the hurricanes occurring in the gulf coast region of the United States in 2005 caused damage or
operational interruptions to some of the retail and other locations where our machines are installed.
We are subject to federal, state, local and foreign laws and government regulation specific to our business.
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
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