Redbox 2007 Annual Report Download - page 12

We may be unable to attract new retailers and penetrate new markets and distribution channels.
In order to increase our coin-counting, entertainment and e-payment services machine and equipment
installations, we need to attract new retailers and develop operational or unit production cost efficiencies that
make it feasible for us to penetrate lower density markets or new distribution channels such as banks and credit
unions. We may be unable to attract new retailers or drive down costs relating to the manufacture, installation or
servicing of coin-counting, entertainment and e-payment services machines to levels that would enable us to
operate profitably in lower density markets or penetrate new distribution channels. If we are unable to do so, our
future operating results could be adversely affected.
Payment of increased service fees to retailers could negatively affect our business results.
We face ongoing pricing pressure from our retailers to increase the service fees we pay to them on coin and
entertainment and e-payment products and services or to make other financial concessions to win or retain business.
If we are unable to respond effectively to ongoing pricing pressures, we may fail to win or retain certain accounts.
Our fee arrangements are based on our evaluation of unique factors with each retailer, such as total revenue,
e-payment capabilities, long-term non-cancelable contracts, installation of our machines and equipment in high-
traffic, urban or rural locations and new product and service commitments. Together with other factors, an increase
in service fees paid or other financial concessions made to our retailers could significantly increase our direct
operating expenses in future periods and harm our business.
We have substantial indebtedness.
On November 20, 2007, we entered into a senior secured revolving credit facility, which replaced a prior credit
facility. The new credit facility provides for a $400.0 million revolving line of credit, which under specified
conditions may increase to $450.0 million. As of February 8, 2008, $296.0 million was outstanding under this credit
facility. The credit facility bears interest at variable rates determined by prevailing interest rates and our leverage
ratio. As a result, our costs of borrowing are exposed to risks of fluctuations in interest rates, as well as our financial
condition and operating results, which affect our leverage ratio. Loans made pursuant to the credit facility are
secured by a first priority security interest in substantially all of our assets and the assets of our domestic
subsidiaries, as well as a pledge of a substantial portion of our subsidiaries’ capital stock. The credit facility matures
on November 20, 2012.
This credit facility may limit our ability to obtain future financings or may negatively impact our business,
financial condition, results of operations and growth. Due to substantial financial leverage, we may not be able to
generate sufficient cash flow to service the indebtedness, or to adequately fund our operations. Moreover, the credit
facility contains negative covenants and restrictions relating to such things as certain stock repurchases, liens,
investments, capital expenditures, other indebtedness, payments of dividends, and fundamental changes or
dispositions of our assets that could impair our flexibility to pursue growth opportunities. In addition, the credit
facility requires that we meet certain financial covenants, including a maximum consolidated leverage ratio and a
minimum consolidated interest coverage ratio, all as defined in the credit facility. If the financial covenants are not
met or any other event of default occurs under the credit facility, our lenders would be entitled to declare our
indebtedness immediately due and payable and exercise other remedies.
Defects, failures or security breaches in and inadequate upgrade of our operating systems could harm our
business.
The operation of our coin-counting machines, e-payment equipment, and DVD kiosks depends on sophis-
ticated software, computer networking and communication services that may contain undetected errors or may be
subject to failures. These errors or failures may arise particularly when new or enhanced products or services 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 seriously harm our operations.
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