| COINSTAR INC Item 1A Risk Factors Factors That May Affect Our Business, Future Operating Results and Financial Condition You should carefully consider the risks described below before making an investment decision |
| The risks and uncertainties described below are not the only risks facing our company |
| Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations |
| If any of the following risks actually occur, our business could be harmed, the trading price of our common stock could decline and you could lose all or part of your investment |
| 5 ______________________________________________________________________ [32]Table of Contents Certain statements in the risks described below are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 |
| Forward-looking statements include any statement that may predict, forecast, indicate, or imply future results performance, or achievements |
| Forward-looking statements can be identified by the use of terminology such as “believe,” “anticipate,” “expect,” “estimate,” “future,” “may,” “will,” “seek,” “should,” “project,” “potential,” “continue,” “plans,” “intends,” “likely,” or other similar words or phrases |
| Except for historical matters, the matters discussed in this Annual Report on Form 10-K and other statements or filings made by Coinstar from time-to-time may be forward-looking statements |
| We caution you that forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the forward-looking statements |
| We are including this Cautionary Statement to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any such forward-looking statements |
| The termination, non-renewal or renegotiation on materially adverse terms of our contracts with any one or more of our significant retail partners could seriously harm our business, financial condition and results of operations |
| We derive substantially all of our revenue from two sources: coin-counting machines installed in high traffic supermarkets and entertainment services machines installed in supermarkets, mass merchandisers, restaurants, bowling centers, truckstops, warehouse clubs and similar locations |
| The success of our business depends in large part on our ability to maintain contractual relationships with our existing retail partners in locations where we can operate profitably |
| If we are unable to maintain or renew such contracts with our existing retail partners, our business, financial condition and results of operations could be significantly impaired |
| For example, our coin and entertainment services agreements with Wal-Mart, Inc |
| and the Kroger Company account for approximately 25dtta3prca and 10dtta5prca of our consolidated revenue, respectively |
| If we are unable to provide existing retail partners like Wal-Mart and Kroger with direct and indirect benefits that are superior to or competitive with other systems (including coin-counting systems which the retail partners could operate themselves or through a third party) or alternative potential uses of the floor space that our machines occupy, we may encounter difficulties maintaining existing retailer relationships |
| We typically operate pursuant to separate agreements with each of our retail partners |
| Our typical contract is for a set term, which typically ranges from one to three years and automatically renews until we or our partner gives notice of termination before a certain time prior to the end of the initial term or renewal period |
| Certain contract provisions with some of our retail partners vary, including product offerings, the service fee we pay each retail partner, frequency of service, and the ability to cancel the contract upon notice after a certain period of time |
| Our entertainment services relationship with Wal-Mart, Inc |
| is governed by a contract that Wal-Mart, Inc |
| may terminate at any time |
| Cancellation of this contract would seriously harm our business and reputation |
| We may be unable to continue to pay our retail partners a service fee that allows us to operate our coin-counting and entertainment services machines at historical levels of profitability |
| We have faced and continue to face ongoing pricing pressure from our current retail partners to increase the service fee we pay to them on coin and entertainment 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 retain certain of our retail partners |
| These fee arrangements are based on our evaluation of certain unique factors with the retailer, such as total revenue, e-payment capabilities, long-term non-cancelable contracts, installation of our machines in high traffic and/or urban or rural locations, new product commitments, or other criteria |
| Together with other factors, these arrangements could significantly increase our expenses relative to coin services in future periods |
| We may be unable to attract new retail partners and penetrate new markets and distribution channels |
| In order to continue our coin-counting and entertainment services machine installation growth, we will need to attract new retail partners and develop operational or unit production cost efficiencies that make it feasible for us to penetrate lower density markets and/or new distribution channels |
| We may be unable to attract new retail partners or drive down costs relating to the manufacture, installation or servicing of coin-counting or 6 ______________________________________________________________________ [33]Table of Contents entertainment services machines to levels that would enable us to operate profitably in lower density markets |
| If we are unable to do so, our future operating results could be adversely affected |
| We may be unable to identify and define product trends, as well as to anticipate, gauge and react to changing consumer demands in a timely manner |
| To be competitive, we need to develop new services that are accepted by the market and establish third-party relationships necessary to develop and commercialize such services |
| For example, toy and other products dispensed in our entertainment services machines must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to change |
| If we misjudge the market for our toy products, we may be faced with significant excess inventories for some products and missed opportunities for other products |
| In addition, because we place orders for toy products well in advance of purchases by consumers, we could experience excess inventory if our consumers purchase fewer products than anticipated |
| In order to develop and commercialize new non-entertainment vending products or services, we will need to enhance the capabilities of our coin-counting and entertainment services machines and our network and establish market acceptance of such products or services |
| We cannot assure you that new or additional products or services that we may attempt to commercialize will be successful |
| We may be unable to achieve the strategic and financial objectives for our entry into the entertainment services business, and our failure to do so could materially and adversely affect our business, operating results and financial condition |
| We first entered the entertainment services business as a result of our acquisition of ACMI on July 7, 2004 |
| Since that time, we have further expanded this line of business through acquisitions, such as Amusement Factory |
| Our entertainment services business now represents our largest source of revenue |
| There are a number of financial and operational risks associated with our entry into this line of business |
| • We may be unable to leverage the historically lower growth and lower margin entertainment services business with our coin counting business |
| • We may be unable to duplicate the operating results for the entertainment services business in line with pre-acquisition historical results or our expectations |
| • We may be unable to successfully integrate the acquired business’ disparate operational, technical and administrative functions |
| Acquisition integration will take time and will divert significant management attention and other assets |
| • We may be unable to adequately anticipate and address the operational risks that are peculiar to this line of business and the entertainment services industry generally |
| For example, as compared to our coin-counting business, our entertainment services business incurs higher operating expenses, due in part to such factors as maintaining inventory of consumer products to support our skill-crane and bulk vending machine businesses |
| Our experience in evaluating inventory of this kind is limited |
| • We may have assumed unknown liabilities when we acquired various entities and assets that now comprise our entertainment services business |
| • We may incur adverse accounting charges |
| For example, in connection with our acquisition of ACMI, we recorded approximately dlra136dtta1 million of goodwill in connection with the acquisition that will not be amortized, but instead must be tested periodically for impairment |
| Any impairment of this goodwill in the future could result in substantial charges to our operating results |
| • We are subject to certain operational restrictions in view of our senior secured credit facility used to finance our acquisition of ACMI For these and other reasons, we may be unable to achieve the strategic and financial objectives for our entry into the entertainment services business |
| Our failure to do so could materially and adversely affect our businesses, operating results and financial condition |
| 7 ______________________________________________________________________ [34]Table of Contents We have substantial indebtedness |
| On July 7, 2004, we entered into a senior secured credit facility |
| The credit agreement provides for advances totaling up to dlra310dtta0 million, consisting of a dlra60dtta0 million revolving credit facility and a dlra250dtta0 million term loan facility |
| Since the debt inception, we have repaid dlra44dtta2 million of the debt outstanding |
| The credit facility bears interest at variable rates pegged to prevailing interest rates |
| As a result, our operating results are exposed to risks of fluctuations in interest rates |
| Loans made pursuant to the credit agreement are secured by a first security interest in substantially all of our assets and the assets of our subsidiaries, as well as a pledge of our subsidiaries’ capital stock |
| The credit facility matures on July 7, 2011 |
| This debt financing may limit our ability to effect future financings or may negatively impact our business, financial condition, results of operations and growth |
| Substantial financial leverage poses the risk that we may not be able to generate sufficient cash flow to service the indebtedness, or to adequately fund our operations |
| Moreover, the credit agreement governing our indebtedness contains financial and other covenants that could impair our flexibility to pursue growth opportunities |
| The credit agreement contains negative covenants and restrictions relating to such things as certain common stock repurchases, liens, investments, capital expenditures, indebtedness, cash payments of dividends, and fundamental changes or dispositions of our assets |
| In addition, the credit agreement requires that we meet certain financial covenants, ratios and tests, including maintaining a maximum consolidated leverage ratio and a minimum interest coverage ratio, all as defined in the credit agreement |
| If the covenants are not met, our lenders would be entitled, under certain circumstances, to declare our indebtedness immediately due and payable |
| Competitive pressures could seriously harm our business, financial condition and results of operations |
| Our coin-counting business faces competition from supermarket retailers, banks and other companies that purchase and operate coin-counting equipment from companies such as ScanCoin AB, Cummins-Allison Corporation and others |
| Our current retail partners may choose to replace our coin-counting machines with competitor machines and operate such machines themselves or through a third party |
| In addition, retailers, some of which have significantly more resources than us, may decide to enter the self-service coin-counting business |
| An expansion of the coin-counting services provided by any of these competitors could materially and adversely affect our business and results of operations |
| Our entertainment services business faces competition from a number of regional and local operators of entertainment services equipment |
| Many of these competitors are engaged in expansion programs, and we have experienced and we expect to continue to experience intense competition for new locations and acquisition candidates |
| Our entertainment services equipment also competes with other vending machines, coin-operated entertainment devices, and seasonal and bulk merchandise for sites within retail locations |
| We cannot assure you that we will be able to maintain current sites in the retail locations or that we will be able to obtain sites in the future on attractive terms or at all |
| It is possible that a well-financed vending machine manufacturer or other vending machine operator with existing relationships with retail accounts could compete with us in certain markets or capture additional market share at our expense |
| Defects, failures or security breaches in our coin-counting machines’ operating system could harm our business |
| The operation of our coin-counting machines depends on sophisticated software, computing systems and communication services that may contain undetected errors or may be subject to failures |
| These errors may arise particularly when new services or service enhancements 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 have the effect of seriously harming our operations |
| We also rely on a long distance telecommunication network that is not owned by us and is subject to service disruptions |
| Further, while we have 8 ______________________________________________________________________ [35]Table of Contents taken significant steps to protect the security of our network, security breaches may result from intentional acts of third parties or from computer viruses |
| Any service disruptions, whether due to errors or delays in our software or computing systems, interruptions or breaches in the communications network, or security breaches of the system, could seriously harm our business, financial condition and results of operations |
| The accuracy of the coin-counting functionality of our machines is important to consumers and our retail partners |
| The failure to maintain consumer confidence in our technology and systems could harm our business |
| Our inability to collect the data from our coin-counting machines could lead to a delay in processing coins and crediting the accounts of our retail partners for vouchers that have already been redeemed |
| Any loss or delay in collecting coin data could seriously harm our operations |
| We may be unable to adequately protect or enforce our patents and other proprietary rights |
| Our success depends, in part, on our ability to protect our intellectual property and maintain the proprietary nature of our technology through a combination of patents, licenses and other intellectual property arrangements, without infringing the proprietary rights of third parties |
| We have over 60 United States and international patents relevant to aspects of self-service coin-counting, including: machine networking, fraud avoidance and voucher authentication, among others |
| We also have additional patent applications pending in the United States and several foreign jurisdictions directed to this technology |
| Our patents may not be held valid if challenged, pending patent applications may not be issued, and other parties may claim rights in or ownership of our patents and other proprietary rights |
| Since many patent applications in the United States are not publicly disclosed until the patent is issued, others may have filed applications, which, if issued as patents, could cover our products or technology |
| Patents issued to us may be circumvented or fail to provide adequate protection of our technologies |
| Our competitors might independently develop or patent technologies that are substantially equivalent or superior to our technologies |
| We also rely on trademarks, copyrights, trade secrets and other proprietary intellectual property to develop and maintain our competitive position |
| Although we protect our intellectual property in part by confidentiality agreements with our employees, consultants, vendors and corporate partners, these parties may breach these agreements |
| We may have inadequate remedies for any such breach and our trade secrets may otherwise become known or be discovered independently by our competitors |
| The failure to protect our intellectual property rights effectively or to avoid infringing the intellectual property rights of others could seriously harm our business, financial condition and results of operations |
| Certain parties may assert claims of patent infringement or misappropriation against us based on current or pending United States and/or foreign patents, copyrights or trade secrets, or contracts |
| Defending our company and our retail partners against these types of claims, regardless of their merits, could require us to incur substantial costs and divert the attention of key personnel |
| Parties making these types of claims may be able to obtain injunctive or other equitable relief, which could effectively block our ability to provide our coin-counting service and operate our coin-counting equipment in the United States and abroad |
| Such types of claims could also result in an award of substantial damages |
| If third parties have or obtain proprietary rights that our products infringe, we may be unable to obtain necessary licenses from others at a reasonable cost or at all |
| For example, we have from time to time engaged in discussions with a former supplier, ScanCoin AB, in an effort to clarify certain contract rights and obligations as well as ownership of certain of our intellectual property |
| In addition, if we instigate litigation to enforce our patents or protect our other proprietary rights, or to determine the validity and scope of other parties’ proprietary rights, such litigation could cause us to spend significant financial and management resources |
| 9 ______________________________________________________________________ [36]Table of Contents Acquisitions involve risks that could harm our business and impair our ability to realize potential benefits from such acquisitions |
| 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 |
| We may be unable to adequately address the financial, legal and operational risks raised by acquisitions, which could harm our business and prevent us from realizing the projected benefits of the acquisitions |
| Further, the evaluation and negotiation of potential acquisitions, 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 that may have a material impact on our business are: • use of cash resources and incurrence of debt and contingent liabilities in funding acquisitions, • 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 acquisition targets that may or may not be successful, • difficulties and expenses in assimilating the operations, products, technology, information systems or personnel of the acquired company, • impairment of relationships with employees, retailers and affiliates of our business and the acquired business, • the assumption of known and unknown liabilities of the acquired company, including intellectual property claims, and • entrance into markets in which we have no direct prior experience, • impairment of goodwill arising from our acquisitions |
| Our future operating results may fluctuate |
| Our future operating results will depend significantly on our ability to continue to drive new and repeat consumer utilization of our coin-counting services and entertainment services equipment, our ability to develop and commercialize new products and services and the costs incurred to do so, and our ability to successfully integrate new lines of business into our operations |
| Our operating results have a history of fluctuating |
| Our future operating results also may fluctuate based upon several factors, including: • the transaction fee we charge consumers to use our services, • the amount of service fees that we pay to our retail partners, • our ability to establish or maintain relationships with significant retail partners, • the commercial success of our retail partners, which could be affected by such factors as severe weather, strikes or general economic conditions, • fluctuations in revenue generated by our coin-counting and entertainment services equipment, • fluctuations in product cost and of operations caused by various factors including rising petroleum costs, labor costs and transportation costs, • our ability to effectively manage the product mix of our entertainment services equipment to maximize consumer preferences, • fluctuations in interest rates, which affects our debt service obligations, • the timing of, and our ability to develop and successfully commercialize, product enhancements and new products, 10 ______________________________________________________________________ [37]Table of Contents • the level of product and price competition, • our success in maintaining and expanding our network and managing our growth, • the successful operation of our coin-counting network, • activities of and acquisitions or announcements by competitors, • the impact from any impairment of goodwill related to our acquisitions, • fluctuations in consumer spending patterns, and • relationships with manufacturers and suppliers |
| In addition, we have historically experienced seasonality in our coin services business, with highest revenues experienced in the third calendar quarter, followed by the fourth calendar quarter, and relatively lower revenues in the first half of the year |
| Our entertainment business has also experienced seasonality, with peak revenues in the fourth quarter and periods surrounding the Easter holiday season |
| While our entertainment services business may offset the historical seasonality of the coin-counting business to some degree, we expect our results of operations will continue to fluctuate both as a result of seasonal fluctuations and our revenue mix between relatively higher margin coin and e-payment services and relatively lower margin entertainment services |
| Higher petroleum prices may adversely affect our operating results and reduce our profitability |
| We source a substantial amount of goods, particularly plush toys and other products dispensed from our entertainment services machines, internationally 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 and entertainment services machines |
| Significant increases in petroleum prices during 2005 have negatively impacted our results of operations |
| The cost of petroleum may continue to increase as a result of natural disasters, political and geopolitical issues and otherwise |
| Further increases could harm our financial condition and increases and decreases in fuel costs may have a significant affect on our operating margins |
| We depend upon third-party manufacturers, suppliers and service providers |
| We currently conduct limited manufacturing operations and depend, and will continue to depend, on outside parties to manufacture key components of our coin-counting and entertainment services machines |
| We intend to continue to expand our installed base for coin-counting machines in North America and in the United Kingdom and for entertainment services machines in the United States and Mexico |
| Such expansion may be limited by the manufacturing capacity of our third-party manufacturers and suppliers |
| Third-party manufacturers may not be able to meet our manufacturing needs in a satisfactory and timely manner |
| If there is an unanticipated increase in demand for coin-counting machine or entertainment services equipment installations, we may be unable to meet such demand due to manufacturing constraints |
| We obtain some key hardware components used in the coin-counting machines and entertainment services equipment from a limited number of suppliers |
| We may be unable to continue to obtain an adequate supply of these components in a timely manner or, if necessary, from alternative sources |
| If we are unable to obtain sufficient quantities of components or to locate alternative sources of supply on a timely basis, we may experience delays in installing or maintaining coin-counting machines or entertainment services equipment, either of which could seriously harm our business, financial condition and results of operations |
| We rely on third-party service providers for substantial support and service efforts that we currently do not provide directly |
| In particular, we contract with third-party providers to arrange for pick-up, processing and deposit of coins as well as limited servicing of our machines |
| We generally contract with a single transportation 11 ______________________________________________________________________ [38]Table of Contents 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 12 ______________________________________________________________________ [39]Table of Contents machines |
| For example, in Washington state, skill-crane machines are subject to the licensing requirements of the Washington State Gambling Commission |
| There can be no assurance that we will be granted all necessary permits or approvals in the future or that current permits and approvals will be renewed |
| Given the unique nature of our business and new products and services we may develop in the future, the application of various laws and regulations to our business is or in the future may be uncertain |
| 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 such 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 people or property 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 |
| Our stock price has been and may continue to be volatile |
| Our stock price has fluctuated substantially since our initial public offering in July 1997 |
| For example, during the last twelve months, the sale price of our common stock has ranged from dlra16dtta95 to dlra27dtta10 per share |
| The market price of our stock could decline from current levels or continue to fluctuate |
| The market price of our stock may be significantly affected by the following factors: • the termination, modification or non-renewal of one or more retail partner relationships, • operating results below market expectations and changes in, or our failure to meet, financial estimates of securities analysts or our own guidance, • trends and fluctuations in the use of our coin-counting and entertainment services machines, • period-to-period fluctuations in our financial results, • release of analyst reports, • announcements regarding the establishment, modification or termination of relationships regarding the development of new products and services, • announcements of technological innovations or new products or services by us or our competitors, • ineffective internal controls, • industry developments, and • economic or other external factors |
| 13 ______________________________________________________________________ [40]Table of Contents In addition, the securities markets have experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies |
| These market fluctuations may also seriously harm the market price of our common stock |
| If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud |
| Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent or detect fraud |
| Any inability to provide reliable financial reports or prevent or detect fraud could harm our business |
| We continue to evaluate our internal control procedures to satisfy the requirements of the Sarbanes-Oxley Act of 2002, which requires management and our auditors to evaluate and assess the effectiveness of our internal controls |
| If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we could be subject to regulatory scrutiny, civil or criminal penalties or shareholder litigation |
| In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect our financial condition |
| Our anti-takeover mechanisms may affect the price of our common stock and make it harder for a third party to acquire us without the consent of our board of directors |
| We have implemented anti-takeover provisions that may discourage takeover attempts and depress the market price of our stock |
| Provisions in our certificate of incorporation, bylaws and rights plan could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders |
| Delaware law also imposes some restrictions on mergers and other business combinations between us and any acquirer of 15prca or more of our outstanding common stock |
| Furthermore, Washington law may impose additional restrictions on mergers and other business combinations between us and any acquirer of 10prca or more of our outstanding common stock |
| These provisions may make it harder for a third party to acquire us without the consent of our board of directors, even if the offer from a third party may be considered beneficial by some stockholders |