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 September 30, 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 November 2, 2004:
Class A common stock, par value $.01 per share: 109,122,848
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 | ||||
| Consolidated Balance Sheets—at December 31, 2003 and September 30, 2004 (Unaudited) |
4 | |||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 | ||
| Item 3. |
40 | |||
| Item 4. |
41 | |||
| PART II—OTHER INFORMATION | ||||
| Item 1. |
42 | |||
| Item 4. |
42 | |||
| Item 6. |
43 | |||
2
Item 1. Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2003 |
2004 |
2003 |
2004 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Rental revenues |
$ | 1,096.0 | $ | 1,054.6 | $ | 3,386.6 | $ | 3,281.6 | ||||||||
| Merchandise sales |
263.8 | 333.0 | 837.8 | 987.1 | ||||||||||||
| Other revenues |
24.7 | 22.4 | 70.1 | 65.6 | ||||||||||||
| 1,384.5 | 1,410.0 | 4,294.5 | 4,334.3 | |||||||||||||
| Cost of sales: |
||||||||||||||||
| Cost of rental revenues |
311.6 | 294.8 | 1,025.0 | 917.0 | ||||||||||||
| Cost of merchandise sold |
203.3 | 253.4 | 670.6 | 760.5 | ||||||||||||
| 514.9 | 548.2 | 1,695.6 | 1,677.5 | |||||||||||||
| Gross profit |
869.6 | 861.8 | 2,598.9 | 2,656.8 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| General and administrative |
653.9 | 713.2 | 1,943.8 | 2,092.5 | ||||||||||||
| Advertising |
50.1 | 70.3 | 112.2 | 164.7 | ||||||||||||
| Depreciation |
65.7 | 61.5 | 188.5 | 180.4 | ||||||||||||
| Impairment of goodwill and other long-lived assets |
— | 1,504.4 | — | 1,504.4 | ||||||||||||
| Amortization of intangibles |
0.3 | 0.7 | 0.8 | 1.9 | ||||||||||||
| 770.0 | 2,350.1 | 2,245.3 | 3,943.9 | |||||||||||||
| Operating income (loss) |
99.6 | (1,488.3 | ) | 353.6 | (1,287.1 | ) | ||||||||||
| Interest expense |
(7.7 | ) | (9.7 | ) | (27.4 | ) | (18.3 | ) | ||||||||
| Interest income |
0.7 | 1.2 | 2.3 | 2.6 | ||||||||||||
| Other items, net |
(1.0 | ) | 0.4 | 2.1 | (0.6 | ) | ||||||||||
| Income (loss) before income taxes |
91.6 | (1,496.4 | ) | 330.6 | (1,303.4 | ) | ||||||||||
| Benefit (provision) for income taxes |
(27.9 | ) | 80.0 | (120.1 | ) | 46.4 | ||||||||||
| Equity in loss of affiliated companies, net of tax |
— | — | (0.7 | ) | — | |||||||||||
| Income (loss) before cumulative effect of change in accounting principle |
63.7 | (1,416.4 | ) | 209.8 | (1,257.0 | ) | ||||||||||
| Cumulative effect of change in accounting principle, net of tax |
— | — | (4.4 | ) | — | |||||||||||
| Net income (loss) |
$ | 63.7 | $ | (1,416.4 | ) | $ | 205.4 | $ | (1,257.0 | ) | ||||||
| Income (loss) per share before cumulative effect of change in accounting principle: |
||||||||||||||||
| Basic |
$ | 0.35 | $ | (7.82 | ) | $ | 1.17 | $ | (6.94 | ) | ||||||
| Diluted |
$ | 0.35 | $ | (7.82 | ) | $ | 1.16 | $ | (6.94 | ) | ||||||
| Cumulative effect of change in accounting principle per share: |
||||||||||||||||
| Basic |
$ | — | $ | — | $ | (0.02 | ) | $ | — | |||||||
| Diluted |
$ | — | $ | — | $ | (0.02 | ) | $ | — | |||||||
| Net income (loss) per share: |
||||||||||||||||
| Basic |
$ | 0.35 | $ | (7.82 | ) | $ | 1.14 | $ | (6.94 | ) | ||||||
| Diluted |
$ | 0.35 | $ | (7.82 | ) | $ | 1.14 | $ | (6.94 | ) | ||||||
| Weighted-average shares outstanding: |
||||||||||||||||
| Basic |
180.1 | 181.1 | 179.8 | 181.1 | ||||||||||||
| Diluted |
181.8 | 181.1 | 180.9 | 181.1 | ||||||||||||
| Recurring cash dividends per common share |
$ | 0.02 | $ | 0.02 | $ | 0.06 | $ | 0.06 | ||||||||
| Special distribution per common share |
$ | — | $ | 5.00 | $ | — | $ | 5.00 | ||||||||
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 |
September 30, 2004 |
|||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 233.4 | $ | 190.9 | ||||
| Receivables, less allowances of $13.0 and $16.2 for 2003 and 2004, respectively |
183.7 | 143.4 | ||||||
| Merchandise inventories |
415.1 | 427.6 | ||||||
| Prepaid assets and other current assets |
128.1 | 183.9 | ||||||
| Total current assets |
960.3 | 945.8 | ||||||
| Rental library |
354.4 | 382.5 | ||||||
| Receivable from Viacom, net |
3.5 | 40.2 | ||||||
| Property and equipment, net |
815.8 | 812.1 | ||||||
| Intangibles, net |
34.4 | 34.8 | ||||||
| Goodwill |
2,627.7 | 1,135.5 | ||||||
| Other assets |
54.4 | 62.6 | ||||||
| $ | 4,850.5 | $ | 3,413.5 | |||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 565.1 | $ | 520.4 | ||||
| Accrued expenses |
610.2 | 549.5 | ||||||
| Current portion of long-term debt |
124.1 | 1.4 | ||||||
| Current portion of capital lease obligations |
20.7 | 20.7 | ||||||
| Deferred taxes |
3.3 | 3.0 | ||||||
| Total current liabilities |
1,323.4 | 1,095.0 | ||||||
| Long-term debt |
0.7 | 1,000.0 | ||||||
| Capital lease obligations |
74.4 | 71.7 | ||||||
| Deferred taxes |
48.0 | 13.8 | ||||||
| Other liabilities |
154.7 | 145.1 | ||||||
| 1,601.2 | 2,325.6 | |||||||
| Commitments and contingencies (Note 6) |
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