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 March 31, 2004
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Number of shares of common stock outstanding at April 30, 2004:
Class A common stock, par value $.01 per share: 37,086,324
Class B common stock, par value $.01 per share: 144,000,000
INDEX TO FORM 10-Q
2
Item 1. Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Revenues: |
||||||||
| Rental revenues |
$ | 1,195.5 | $ | 1,151.0 | ||||
| Merchandise sales |
298.9 | 330.9 | ||||||
| Other revenues |
23.4 | 21.2 | ||||||
| 1,517.8 | 1,503.1 | |||||||
| Cost of sales: |
||||||||
| Cost of rental revenues |
383.8 | 324.7 | ||||||
| Cost of merchandise sold |
247.9 | 254.8 | ||||||
| 631.7 | 579.5 | |||||||
| Gross profit |
886.1 | 923.6 | ||||||
| Operating expenses: |
||||||||
| General and administrative |
644.5 | 689.1 | ||||||
| Advertising |
31.2 | 50.0 | ||||||
| Depreciation |
61.4 | 59.1 | ||||||
| Amortization of intangibles |
0.3 | 0.5 | ||||||
| 737.4 | 798.7 | |||||||
| Operating income |
148.7 | 124.9 | ||||||
| Interest expense |
(10.7 | ) | (4.6 | ) | ||||
| Interest income |
0.8 | 0.7 | ||||||
| Other items, net |
(0.4 | ) | (0.6 | ) | ||||
| Income before income taxes |
138.4 | 120.4 | ||||||
| Provision for income taxes |
(52.8 | ) | (7.8 | ) | ||||
| Equity in loss of affiliated companies, net of tax |
(0.7 | ) | — | |||||
| Income before cumulative effect of change in accounting principle |
84.9 | 112.6 | ||||||
| Cumulative effect of change in accounting principle, net of tax |
(4.4 | ) | — | |||||
| Net income |
$ | 80.5 | $ | 112.6 | ||||
| Income per share before cumulative effect of change in accounting principle: |
||||||||
| Basic |
$ | 0.47 | $ | 0.62 | ||||
| Diluted |
$ | 0.47 | $ | 0.62 | ||||
| Cumulative effect of change in accounting principle per share: |
||||||||
| Basic |
$ | (0.02 | ) | $ | — | |||
| Diluted |
$ | (0.02 | ) | $ | — | |||
| Net income per share: |
||||||||
| Basic |
$ | 0.45 | $ | 0.62 | ||||
| Diluted |
$ | 0.45 | $ | 0.62 | ||||
| Weighted-average common shares outstanding: |
||||||||
| Basic |
179.6 | 181.0 | ||||||
| Diluted |
180.1 | 182.0 | ||||||
| Cash dividends per common share |
$ | 0.02 | $ | 0.02 | ||||
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
| December 31, 2003 |
March 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 233.4 | $ | 137.0 | ||||
| Receivables, less allowances of $13.0 and $14.0 for 2003 and 2004, respectively |
183.7 | 162.2 | ||||||
| Merchandise inventories |
415.1 | 417.5 | ||||||
| Prepaid assets and other current assets |
128.1 | 161.2 | ||||||
| Total current assets |
960.3 | 877.9 | ||||||
| Rental library |
354.4 | 347.1 | ||||||
| Receivable from Viacom, net |
7.9 | — | ||||||
| Property and equipment, net |
815.8 | 808.9 | ||||||
| Intangibles, net |
34.4 | 34.5 | ||||||
| Goodwill |
2,627.7 | 2,627.7 | ||||||
| Other assets |
54.4 | 51.6 | ||||||
| $ | 4,854.9 | $ | 4,747.7 | |||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 565.1 | $ | 464.2 | ||||
| Accrued expenses |
614.6 | 563.3 | ||||||
| Payable to Viacom |
— | 29.0 | ||||||
| Current portion of long-term debt |
124.1 | 64.7 | ||||||
| Current portion of capital lease obligations |
20.7 | 20.8 | ||||||
| Deferred taxes |
3.3 | 3.3 | ||||||
| Total current liabilities |
1,327.8 | 1,145.3 | ||||||
| Long-term debt |
0.7 | 0.2 | ||||||
| Capital lease obligations |
74.4 | 73.1 | ||||||
| Deferred taxes |
48.0 | 47.2 | ||||||
| Other liabilities |
154.7 | 119.5 | ||||||
| 1,605.6 | 1,385.3 | |||||||
| Commitments and contingencies (Note 5) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, par value $0.01 per share; 100.0 shares authorized; no shares issued or outstanding |
— | — | ||||||
| Class A common stock, par value $0.01 per share; 400.0 shares authorized; 36.9 and 37.1 shares issued and outstanding for 2003 and 2004, respectively |
0.4 | 0.4 | ||||||
| Class B common stock, par value $0.01 per share; 500.0 shares authorized; 144.0 shares issued and outstanding |
1.4 | 1.4 | ||||||
| Additional paid-in capital |
6,227.3 | 6,225.9 | ||||||
| Retained deficit |
(2,938.6 | ) | (2,826.0 | ) | ||||
| Accumulated other comprehensive loss |
(41.2 | ) | (39.3 | ) | ||||
| Total stockholders’ equity |
3,249.3 | 3,362.4 | ||||||
| $ | 4,854.9 | $ | 4,747.7 | |||||
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 80.5 | $ | 112.6 | ||||
| Adjustments to reconcile net income to net cash flow provided by operating activities: |
||||||||
| Depreciation and amortization |
61.7 | 59.6 | ||||||
| Rental amortization |
277.2 | 192.9 | ||||||
| Cumulative effect of change in accounting principle, net of tax |
4.4 | — | ||||||
| Deferred taxes and other |
9.3 | (0.4 | ) | |||||
| Change in operating assets and liabilities: |
||||||||
| Decrease in receivables |
25.0 | 21.4 | ||||||
| Decrease in receivable from/increase in payable to Viacom |
41.9 | 37.3 | ||||||
| (Increase) decrease in merchandise inventories |
86.8 | (2.5 | ) | |||||
| (Increase) decrease in prepaid and other assets |
0.6 | (41.1 | ) | |||||
| Decrease in accounts payable |
(338.1 | ) | (103.2 | ) | ||||
| Decrease in accrued expenses and other liabilities |
(64.0 | ) | (86.2 | ) | ||||
| Net cash flow provided by operating activities |
185.3 | 190.4 | ||||||
| Cash flows from investing activities: |
||||||||
| Rental library purchases |
(199.4 | ) | (173.3 | ) | ||||
| Capital expenditures |
(23.7 | ) | (49.7 | ) | ||||
| Proceeds from notes receivable |
1.7 | 0.1 | ||||||
| Cash used for acquisitions, net |
— | (0.4 | ) | |||||
| Net cash flow used for investing activities |
(221.4 | ) | (223.3 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from credit agreement |
110.0 | 20.0 | ||||||
| Repayments on credit agreement |
(80.0 | ) | (70.0 | ) | ||||
| Net repayments on other notes |
(4.5 | ) | (9.6 | ) | ||||
| Net proceeds from the exercise of stock options |
0.5 | 1.9 | ||||||
| Cash dividends |
(3.6 | ) | (3.6 | ) | ||||
| Capital lease payments |
(6.0 | ) | (4.9 | ) | ||||
| Net cash flow provided by (used for) financing activities |
16.4 | (66.2 | ) | |||||
| Effect of exchange rate changes on cash |
0.9 | 2.7 | ||||||
| Net decrease in cash and cash equivalents |
(18.8 | ) | (96.4 | ) | ||||
| Cash and cash equivalents at beginning of period |
152.5 | 233.4 | ||||||