Redbox 2006 Annual Report Download - page 18

manner. In addition, we rely on third-party vendors in our business, including clearing banks which clear our
money orders and official checks and certain of our telecommunications providers. In the event of a breakdown,
catastrophic event, security breach, improper operation or any other event impacting our systems or network or
our vendors’ systems or processes, or improper action by our agents, employees, or third party vendors, we could
suffer financial loss, loss of customers, regulatory sanctions and damage to our reputation.
Higher petroleum prices may adversely affect our operating results and reduce our profitability.
We purchase a substantial amount of goods overseas, particularly plush toys and other products dispensed
from our entertainment services machines, 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, entertainment and
e-payment services machines. Significant increases in petroleum prices during prior periods have negatively
impacted our results of operations. The cost of petroleum is volatile and may increase as a result of natural
disasters, political and geopolitical issues or other reasons beyond our control. Further increases in petroleum
prices may have an adverse affect on our operating results.
Our customers’ ability to access our products and services can be adversely affected by severe weather, natural
disasters and other events beyond our control, such as fires, power failures, telecommunications loss and
terrorist attacks.
Our operational and financial performance is a direct reflection of customer use of and the ability to operate
and service the coin-counting, entertainment and e-payment services machines and equipment used in our
business. Severe weather, natural disasters and other events beyond our control can, for extended periods of time,
significantly reduce customer use of our products and services 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 machines used to provide our products and services, which
losses may not be fully covered by insurance. For example, hurricanes in the gulf coast region of the United
States in 2005 caused damage and operational interruptions to some of the retail and other locations where our
machines are installed.
Acquisitions and investments involve risks that could harm our business and impair our ability to realize
potential benefits from such acquisitions and investments.
As part of our business strategy, we have in the past sought and may in the future seek to acquire or invest in
businesses, products or technologies that we feel could complement or expand our business. For example, in
December 2005, we made an investment to acquire a 47.3% interest in Redbox, a provider of self-service DVD
kiosks, with the ability under certain circumstances to obtain a majority interest, and in May 2006, we purchased
the money transfer services business as described above. However, we may be unable to adequately address the
financial, legal and operational risks raised by such acquisitions or investments, which could harm our business
and prevent us from realizing the projected benefits of the acquisitions and investments. Further, the evaluation
and negotiation of potential acquisitions and investments, as well as the integration of an acquired business, will
divert management time and other resources. In addition, we cannot assure you that any particular transaction,
even if successfully completed, will ultimately benefit our business. Certain financial and operational risks
related to acquisitions and investments that may have a material impact on our business are:
• use of cash resources and incurrence of debt and contingent liabilities in funding acquisitions and
investments,
• 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 targets that may or may not be
successful,
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