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As Of Filer Filing As/For/On Docs:Pgs Issuer Agent 8/10/07 Blockbuster Inc 10-Q 7/01/07 5:129 RR Donnelley/FA
Document/Exhibit Description Pages Size 1: 10-Q Quarterly Report HTML 815K 2: EX-31.1 Certification Pursuant to Section 302 HTML 11K 3: EX-31.2 Certification Pursuant to Section 302 HTML 11K 4: EX-32.1 Certification Pursuant to Section 906 HTML 6K 5: EX-32.2 Certification Pursuant to Section 906 HTML 6K
| Form 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2007
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-15153
BLOCKBUSTER INC.
(Exact name of registrant as specified in its charter)
| Delaware | 52-1655102 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1201 Elm Street
Telephone 214-854-3000
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Number of shares of common stock outstanding at August 7, 2007:
Class A common stock, par value $.01 per share: 122,030,189
Class B common stock, par value $.01 per share: 72,000,000
INDEX TO FORM 10-Q
| Page | ||||
| PART I—FINANCIAL INFORMATION | ||||
| Item 1. |
3 | |||
3 | ||||
| Consolidated Balance Sheets (Unaudited)—July 1, 2007 and December 31, 2006 |
4 | |||
5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
30 | ||
| Item 3. |
46 | |||
| Item 4. |
47 | |||
| PART II—OTHER INFORMATION | ||||
| Item 1. |
Legal Proceedings | 48 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 48 | ||
| Item 6. |
Exhibits | 49 | ||
2
| Item 1. | Financial Statements |
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)
| Thirteen Weeks Ended |
Three Months Ended |
Twenty-Six Weeks Ended |
Six Months Ended |
|||||||||||||
| Revenues: |
||||||||||||||||
| Base rental revenues |
$ | 779.7 | $ | 817.4 | $ | 1,643.0 | $ | 1,701.3 | ||||||||
| Previously rented product (“PRP”) revenues |
166.0 | 150.4 | 334.3 | 302.0 | ||||||||||||
| Extended viewing fee (“EVF”) revenues |
18.8 | 18.4 | 38.4 | 37.2 | ||||||||||||
| Total rental revenues |
964.5 | 986.2 | 2,015.7 | 2,040.5 | ||||||||||||
| Merchandise sales |
285.2 | 299.8 | 677.4 | 626.5 | ||||||||||||
| Other revenues |
13.5 | 13.9 | 43.1 | 29.8 | ||||||||||||
| 1,263.2 | 1,299.9 | 2,736.2 | 2,696.8 | |||||||||||||
| Cost of sales: |
||||||||||||||||
| Cost of rental revenues |
414.5 | 347.6 | 828.6 | 706.2 | ||||||||||||
| Cost of merchandise sold |
213.2 | 222.0 | 510.1 | 470.6 | ||||||||||||
| Total cost of sales |
627.7 | 569.6 | 1,338.7 | 1,176.8 | ||||||||||||
| Gross profit |
635.5 | 730.3 | 1,397.5 | 1,520.0 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| General and administrative |
624.3 | 643.9 | 1,278.8 | 1,311.5 | ||||||||||||
| Advertising |
54.8 | 34.5 | 131.4 | 73.7 | ||||||||||||
| Depreciation and intangible amortization |
47.8 | 54.0 | 97.1 | 104.8 | ||||||||||||
| Gain on sale of Gamestation |
(77.7 | ) | — | (77.7 | ) | — | ||||||||||
| 649.2 | 732.4 | 1,429.6 | 1,490.0 | |||||||||||||
| Operating income (loss) |
(13.7 | ) | (2.1 | ) | (32.1 | ) | 30.0 | |||||||||
| Interest expense |
(21.1 | ) | (26.2 | ) | (44.7 | ) | (52.9 | ) | ||||||||
| Interest income |
1.9 | 4.4 | 3.8 | 5.7 | ||||||||||||
| Other items, net |
1.7 | 0.6 | 1.3 | 1.8 | ||||||||||||
| Loss before income taxes |
(31.2 | ) | (23.3 | ) | (71.7 | ) | (15.4 | ) | ||||||||
| Benefit (provision) for income taxes |
(3.0 | ) | 88.4 | (11.5 | ) | 91.0 | ||||||||||
| Income (loss) from continuing operations |
(34.2 | ) | 65.1 | (83.2 | ) | 75.6 | ||||||||||
| Income (loss) from discontinued operations (Note 5) |
(1.1 | ) | 3.3 | 1.5 | (9.1 | ) | ||||||||||
| Net income (loss) |
(35.3 | ) | 68.4 | (81.7 | ) | 66.5 | ||||||||||
| Preferred stock dividends |
(2.8 | ) | (2.8 | ) | (5.6 | ) | (5.6 | ) | ||||||||
| Net income (loss) applicable to common stockholders |
$ | (38.1 | ) | $ | 65.6 | $ | (87.3 | ) | $ | 60.9 | ||||||
| Net income (loss) per common share: |
||||||||||||||||
| Basic |
||||||||||||||||
| Continuing operations |
$ | (0.19 | ) | $ | 0.33 | $ | (0.47 | ) | $ | 0.37 | ||||||
| Discontinued operations |
(0.01 | ) | 0.02 | 0.01 | (0.04 | ) | ||||||||||
| Net income (loss) |
$ | (0.20 | ) | $ | 0.35 | $ | (0.46 | ) | $ | 0.33 | ||||||
| Diluted |
||||||||||||||||
| Continuing operations |
$ | (0.19 | ) | $ | 0.30 | $ | (0.47 | ) | $ | 0.35 | ||||||
| Discontinued operations |
(0.01 | ) | 0.01 | 0.01 | (0.04 | ) | ||||||||||
| Net income (loss) |
$ | (0.20 | ) | $ | 0.31 | $ | (0.46 | ) | $ | 0.31 | ||||||
| Weighted-average common shares outstanding: |
||||||||||||||||
| Basic |
190.0 | 186.9 | 189.7 | 186.8 | ||||||||||||
| Diluted |
190.0 | 217.9 | 189.7 | 217.5 | ||||||||||||
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except per share amounts)
| July 1, 2007 |
December 31, 2006 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 147.9 | $ | 394.9 | ||||
| Receivables, less allowances of $8.6 and $6.5 for 2007 and 2006, respectively |
108.3 | 133.8 | ||||||
| Merchandise inventories |
303.1 | 343.9 | ||||||
| Rental library, net |
416.5 | 457.1 | ||||||
| Deferred income taxes |
14.1 | 14.1 | ||||||
| Prepaid and other current assets |
191.9 | 221.8 | ||||||
| Total current assets |
1,181.8 | 1,565.6 | ||||||
| Property and equipment, net |
499.9 | 580.1 | ||||||
| Deferred income taxes |
68.2 | 129.3 | ||||||
| Intangibles, net |
12.0 | 27.5 | ||||||
| Goodwill |
773.3 | 807.7 | ||||||
| Other assets |
22.9 | 27.0 | ||||||
| $ | 2,558.1 | $ | 3,137.2 | |||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 378.1 | $ | 517.7 | ||||
| Accrued expenses |
567.3 | 670.9 | ||||||
| Current portion of long-term debt |
17.7 | 73.4 | ||||||
| Current portion of capital lease obligations |
10.2 | 11.3 | ||||||
| Deferred income taxes |
59.9 | 122.0 | ||||||
| Total current liabilities |
1,033.2 | 1,395.3 | ||||||
| Long-term debt, less current portion |
745.8 | 851.0 | ||||||
| Capital lease obligations, less current portion |
43.6 | 48.5 | ||||||
| Other liabilities |
83.5 | 100.0 | ||||||
| 1,906.1 | 2,394.8 | |||||||
| Commitments and contingencies (Note 4) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, par value $0.01 per share; 100 shares authorized; 0.15 shares issued and outstanding for 2007 and 2006 with a liquidation preference of $1,000 per share |
150.0 | 150.0 | ||||||
| Class A common stock, par value $0.01 per share; 400 shares authorized; 118.5 and 117.3 shares issued and outstanding for 2007 and 2006, respectively |
1.2 | 1.2 | ||||||
| Class B common stock, par value $0.01 per share; 500 shares authorized; 72.0 shares issued and outstanding for 2007 and 2006 |
0.7 | 0.7 | ||||||
| Additional paid-in capital |
5,374.7 | 5,371.3 | ||||||
| Accumulated deficit |
(4,843.9 | ) | (4,763.3 | ) | ||||
| Accumulated other comprehensive loss |
(30.7 | ) | (17.5 | ) | ||||
| Total stockholders’ equity |
652.0 | 742.4 | ||||||
| $ | 2,558.1 | $ | 3,137.2 | |||||
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
| Twenty-Six Weeks Ended |
Six Months Ended |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (81.7 | ) | $ | 66.5 | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
||||||||
| Depreciation and intangible amortization |
97.1 | 106.4 | ||||||
| Rental library purchases |
(316.3 | ) | (306.1 | ) | ||||
| Rental library amortization |
366.1 | 355.7 | ||||||
| Non-cash share-based compensation |
8.7 | 13.7 | ||||||
| Gain on sale of real estate |
— | (6.4 | ) | |||||
| Gain on sale of Gamestation |
(77.7 | ) | — | |||||
| Deferred taxes and other |
(2.8 | ) | 1.7 | |||||
| Change in operating assets and liabilities: |
||||||||
| Decrease in receivables |
37.9 | 30.5 | ||||||
| (Increase) decrease in merchandise inventories |
(22.4 | ) | 20.9 | |||||
| (Increase) decrease in prepaid and other assets |
26.2 | (37.0 | ) | |||||
| Decrease in accounts payable |
(111.3 | ) | (66.8 | ) | ||||
| Decrease in accrued expenses and other liabilities |
(108.1 | ) | (161.4 | ) | ||||
| Net cash flow provided by (used for) operating activities |
(184.3 | ) | 17.7 | |||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(30.5 | ) | (23.8 | ) | ||||
| Proceeds from sale of Gamestation |
135.8 | — | ||||||
| Proceeds from sale of store operations |
8.5 | 1.7 | ||||||
| Proceeds from sale of real estate |
— | 7.8 | ||||||
| Acquisition of intangible asset |
(7.0 | ) | ||||||