Redbox 2006 Annual Report Download - page 19

• difficulties and expenses in assimilating the operations, products, technology, information systems or
personnel of an acquired company,
• managing relationships with other investors and the companies in which we have made investments,
• impairment of relationships with employees, retailers and affiliates of our business and the acquired
business,
• the assumption of known and unknown liabilities of an acquired company, including employee and
intellectual property claims,
• entrance into markets in which we have no direct prior experience, and
• impairment of goodwill arising from our acquisitions and investments.
Recall of any of the products dispensed by our entertainment services machines or by the entertainment
services industry generally could adversely affect our entertainment services business.
Our entertainment services machines, and the entertainment services industry generally, are subject to
regulation by the Consumer Product Safety Commission and similar state and international regulatory authorities.
The toys and other products dispensed from our entertainment services machines could be subject to involuntary
recalls and other actions by regulatory authorities. Concerns about product safety may lead us to voluntarily
recall or discontinue offering selected products. Defects in any of our products distributed through our
entertainment services machines could result in the rejection of our entertainment services products by
consumers, damage to our reputation, lost sales, potential inventory valuation write-downs, excess inventory,
diverted development resources and increased customer service and support costs, any of which could harm our
business. Any such errors, defects or recalls may not be covered by insurance or cause our insurance costs to
increase in future periods.
We may be subject to product liability claims if property or people are harmed by our products and services.
Some of the products we sell, especially through our entertainment services machines, may expose us to
product liability claims arising from personal injury, death or property damage. Any such product liability claim
may result in adverse publicity regarding us, our entertainment service machines and the products we sell. Even
if we successfully defend ourselves against this type of claim, we could be forced to spend a substantial amount
of money in litigation expenses and our management could be required to spend valuable time in defending
against these claims. Our vendors may not indemnify us against product liability. There is a risk that such claims
or liabilities may exceed, or fall outside the scope of, our insurance coverage and we cannot be certain that
insurance will continue to be available to us on economically reasonable terms, or at all. Any imposition of
product liability could harm our business, financial condition and operating results.
Litigation, regulatory actions or investigations could result in material rulings, settlements, fines, penalties or
publicity that could adversely affect our business, financial condition and results of operations.
Our business has in the past been, and may in the future continue to be, the subject of class actions,
regulatory actions, investigations and other litigation. The outcome of class action lawsuits, regulatory actions,
investigations or other litigation is often difficult to assess or quantify. Plaintiffs or regulatory bodies may seek
recovery of very large or indeterminate amounts of money or substantial restrictions on our business activities,
and the results, including the magnitude, of lawsuits, actions and investigations may remain unknown for
substantial periods of time. The cost to settle or defend lawsuits, regulatory actions, investigations or other
litigation may be significant. For example, we recorded a $1.6 million charge for the proposed settlement of a
recently filed lawsuit alleging wage and hour violations under the California labor code. We believe the lawsuit
originated primarily from employment practices of acquired entertainment companies prior to us buying them. In
addition, there may be adverse publicity associated with such legal developments that could decrease customer
acceptance of our products and services. As a result, litigation, regulatory actions or investigations involving us
or are affiliates may adversely affect our business, financial condition and results of operations.
17