Redbox 2008 Annual Report Download - page 11

Litigation, arbitration, mediation, regulatory actions, investigations or other legal proceedings could result
in material rulings, decisions, settlements, fines, penalties or publicity that could adversely affect our busi-
ness, financial condition and results of operations.
Our business has in the past been, and may in the future continue to be, party to class actions, regulatory
actions, investigations, arbitration, mediation and other legal proceedings. The outcome of such proceedings is
often difficult to assess or quantify. Plaintiffs, regulatory bodies or other parties may seek very large or indeter-
minate amounts of money from us or substantial restrictions on our business activities, and the results, including the
magnitude, of lawsuits, actions, settlements, decisions and investigations may remain unknown for substantial
periods of time. The cost to defend, settle or otherwise finalize lawsuits, regulatory actions, investigations,
arbitrations, mediations or other legal proceedings may be significant and such proceedings may divert manage-
ment’s time. For example, we have been in dispute with a former supplier, ScanCoin AB (“ScanCoin”), regarding
certain contract rights and obligations as well as ownership of certain of our patents and patent applications related
to our coin-counting business. In connection with an arbitration set for December 2009, ScanCoin is seeking a
declaration of ownership of substantially all of our United States and international patents related to certain aspects
of self-service coin-counting, including machine networking, fraud avoidance and voucher authentication, and
monetary damages of approximately 56 million Swedish kronor, plus interest. Coinstar has filed a claim in United
States District Court against ScanCoin North America alleging infringement on one of our patents relating to self-
service coin machines. In addition, our majority owned subsidiary Redbox has filed an action in federal court
against Universal Studios Home Entertainment, LLC relating to new distribution terms proposed by Universal
Studios that would restrict certain rental and sales practices associated with Universal Studios’ DVD releases. We
have incurred and expect to incur significant costs relating to these disputes, and cannot be sure of when they will be
resolved, and if resolved, the magnitude of the effects the ultimate resolutions will have on our business, which
could be significant. In addition, there may be adverse publicity associated with such developments that could
decrease customer acceptance of our products and services. As a result, litigation, arbitration, mediation, regulatory
actions or investigations involving us or are affiliates may adversely affect our business, financial condition and
results of operations.
Our most extensive business relationship is with Wal-Mart, and changes to this relationship have had and
are expected to continue to have material effects on our operations and results.
A significant amount of our resources are committed to our relationship with Wal-Mart, including investments
in machines and other equipment and management’s time. In late 2007 and early 2008, we and Wal-Mart worked
extensively to revise our business arrangements in connection with Wal-Mart’s efforts to reset and optimize its store
entrances. As part of these arrangements and in light of the successful completion of our coin and DVD tests in
hundreds of Wal-Mart locations, we amended written agreements covering, among other things, the installation and
service of coin-counting machines and DVD kiosks. At December 31, 2008, we had over 2,700 coin-counting units
installed and over 3,200 DVD kiosks installed in Wal-Mart locations. We expect to complete the roll-out of
approximately 500 additional coin-counting units and 600 additional DVD kiosks in the first half of 2009. As a
result, we have made and are continuing to make significant investments, such as machine and kiosk manufacturing,
in line with these expected installations. In addition, as part of this arrangement, we have removed or relocated a
substantial number of our entertainment machines in Wal-Mart stores.
Although we have had and expect to continue to have a successful relationship with Wal-Mart, changes to this
relationship will continue to occur both in the long and short-term, some of which could adversely affect our
business. Further, because our formal arrangements with Wal-Mart are generally for relatively short periods and do
not provide for minimum installation obligations by Wal-Mart, much of our benefit in this relationship will depend
on the execution of Wal-Mart’s plan and the continued installation of significant numbers of our coin-counting
machines and DVD kiosks.
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 December 31, 2008, $270.0 million was outstanding under this
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