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Table of Contents
 
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 June 30, 2002
 
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
Dallas, Texas 75270
Telephone (214) 854-3000
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
 
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  ¨
 
Number of shares of common stock outstanding at August 1, 2002:
 
Class A common stock, par value $.01 per share: 35,005,820
Class B common stock, par value $.01 per share: 144,000,000
 

Table of Contents
BLOCKBUSTER INC.
INDEX TO FORM 10-Q
 
PART I—FINANCIAL INFORMATION
 
    
Page
Item 1.     Consolidated Financial Statements
     
  
3
  
4
  
5
  
6
  
13
  
22
PART II—OTHER INFORMATION
Item 1.     Legal Proceedings
   
24
  
25
  
25

2

Table of Contents
PART I—FINANCIAL INFORMATION
 
Item 1.    Consolidated Financial Statements
 
BLOCKBUSTER INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)
 
    
Three Months Ended June 30,
     
Six Months Ended June 30,
  
    
2001
     
2002
     
2001
     
2002
  
Revenues:
                                    
Rental revenues
   
$
1,034.7
 
   
$
1,064.7
 
   
$
2,152.6
 
   
$
2,174.8
 
Merchandise sales
   
 
157.1
 
   
 
190.3
 
   
 
326.6
 
   
 
384.0
 
Other revenues
   
 
34.2
 
   
 
16.0
 
   
 
54.7
 
   
 
38.2
 
    
  
  
  
    
 
1,226.0
 
   
 
1,271.0
 
   
 
2,533.9
 
   
 
2,597.0
 
    
  
  
  
Cost of sales:
                                    
Cost of rental revenues
   
 
365.9
 
   
 
368.6
 
   
 
759.4
 
   
 
742.9
 
Cost of merchandise sold
   
 
120.7
 
   
 
148.8
 
   
 
255.9
 
   
 
302.0
 
    
  
  
  
    
 
486.6
 
   
 
517.4
 
   
 
1,015.3
 
   
 
1,044.9
 
    
  
  
  
Gross profit
   
 
739.4
 
   
 
753.6
 
   
 
1,518.6
 
   
 
1,552.1
 
    
  
  
  
Operating expenses:
                                    
Selling, general and administrative
   
 
621.0
 
   
 
624.7
 
   
 
1,239.7
 
   
 
1,247.9
 
Depreciation
   
 
58.7
 
   
 
56.4
 
   
 
121.2
 
   
 
111.9
 
Amortization of intangibles
   
 
43.5
 
   
 
0.5
 
   
 
87.7
 
   
 
0.9
 
    
  
  
  
    
 
723.2
 
   
 
681.6
 
   
 
1,448.6
 
   
 
1,360.7
 
    
  
  
  
Operating income
   
 
16.2
 
   
 
72.0
 
   
 
70.0
 
   
 
191.4
 
Interest expense
   
 
(20.1
)
   
 
(11.9
)
   
 
(44.5
)
   
 
(24.5
)
Interest income
   
 
1.6
 
   
 
1.2
 
   
 
3.4
 
   
 
2.3
 
Other items, net
   
 
(0.2
)
   
 
2.7
 
   
 
(1.8
)
   
 
1.0
 
    
  
  
  
Income (loss) before income taxes
   
 
(2.5
)
   
 
64.0
 
   
 
27.1
 
   
 
170.2
 
Provision for income taxes
   
 
(13.2
)
   
 
(22.2
)
   
 
(38.5
)
   
 
(62.6
)
Equity in income (loss) of affiliated companies, net of tax
   
 
0.1
 
   
 
(0.1
)
   
 
0.5
 
   
 
0.1
 
    
  
  
  
Income (loss) before cumulative effect of change in accounting principle
   
 
(15.6
)
   
 
41.7
 
   
 
(10.9
)
   
 
107.7
 
Cumulative effect of change in accounting principle, net of tax
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
(1,817.0
)
    
  
  
  
Net income (loss)
   
$
(15.6
)
   
$
41.7
 
   
$
(10.9
)
   
$
(1,709.3
)
    
  
  
  
Income (loss) per share before cumulative effect of change in accounting principle:
                                    
Basic
   
$
(0.09
)
   
$
0.23
 
   
$
(0.06
)
   
$
0.61
 
    
  
  
  
Diluted
   
$
(0.09
)
   
$
0.23
 
   
$
(0.06
)
   
$
0.59
 
    
  
  
  
Cumulative effect of change in accounting principle per share:
                                    
Basic
   
$
—  
 
   
$
—  
 
   
$
—  
 
   
$
(10.21
)
    
  
  
  
Diluted
   
$
—  
 
   
$
—  
 
   
$
—  
 
   
$
(10.03
)
    
  
  
  
Net income (loss) per share:
                                    
Basic
   
$
(0.09
)
   
$
0.23
 
   
$
(0.06
)
   
$
(9.61
)
    
  
  
  
Diluted
   
$
(0.09
)
   
$
0.23
 
   
$
(0.06
)
   
$
(9.43
)
    
  
  
  
Weighted-average common shares outstanding:
                                    
Basic
   
 
175.3
 
   
 
178.6
 
   
 
175.1
 
   
 
177.9
 
Diluted
   
 
175.3
 
   
 
182.2
 
   
 
175.1
 
   
 
181.2
 
Cash dividends per common share
   
$
0.02
 
   
$
0.02
 
   
$
0.04
 
   
$
0.04
 
    
  
  
  
 
See notes to unaudited consolidated financial statements.

3

Table of Contents
BLOCKBUSTER INC.
 
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
 
    
December 31,
2001
     
June 30,
2002
  
           
(Unaudited)
  
Assets
                  
Current assets:
                  
Cash and cash equivalents
   
$
200.2
 
   
$
230.5
 
Receivables, less allowances of $8.2 and $9.3 for 2001 and 2002, respectively
   
 
150.0
 
   
 
150.4
 
Merchandise inventories
   
 
202.9
 
   
 
311.7
 
Prepaid assets and other current assets
   
 
163.3
 
   
 
158.7
 
    
  
Total current assets
   
 
716.4
 
   
 
851.3
 
Rental library
   
 
343.3
 
   
 
332.6
 
Receivable from Viacom
   
 
94.5
 
   
 
48.6
 
Property and equipment, net
   
 
909.0
 
   
 
832.9
 
Intangibles
   
 
10.1
 
   
 
12.8
 
Goodwill
   
 
5,614.1
 
   
 
3,806.2
 
Other assets
   
 
65.0
 
   
 
65.2
 
    
  
    
$
7,752.4
 
   
$
5,949.6
 
    
  
Liabilities and Stockholders’ Equity
                  
Current liabilities:
                  
Accounts payable
   
$
530.5
 
   
$
522.2
 
Accrued expenses
   
 
550.4
 
   
 
491.2
 
Current portion of long-term debt
   
 
157.8
 
   
 
232.0
 
Current portion of capital lease obligations
   
 
23.6
 
   
 
23.7
 
Deferred taxes
   
 
6.5
 
   
 
6.5
 
    
  
Total current liabilities
   
 
1,268.8
 
   
 
1,275.6
 
Long-term debt, less current portion
   
 
458.4