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, 2005
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 May 2, 2005:
Class A common stock, par value $.01 per share: 118,389,141
Class B common stock, par value $.01 per share: 72,000,000
BLOCKBUSTER INC.
| Page | ||||
| PART I—FINANCIAL INFORMATION | ||||
| Item 1. |
||||
| 3 | ||||
| Consolidated Balance Sheets—March 31, 2005 (Unaudited) and December 31, 2004 |
4 | |||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 | ||
| Item 3. |
34 | |||
| Item 4. |
35 | |||
| PART II—OTHER INFORMATION | ||||
| Item 1. |
36 | |||
| Item 6. |
36 | |||
2
Item 1. Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Restated | ||||||||
| Revenues: |
||||||||
| Base rental revenues |
$ | 1,075.5 | $ | 975.9 | ||||
| Extended viewing fee revenues |
29.8 | 175.1 | ||||||
| Total rental revenues |
1,105.3 | 1,151.0 | ||||||
| Merchandise sales |
425.9 | 330.9 | ||||||
| Other revenues |
17.7 | 21.2 | ||||||
| 1,548.9 | 1,503.1 | |||||||
| Cost of sales: |
||||||||
| Cost of rental revenues |
357.4 | 324.7 | ||||||
| Cost of merchandise sold |
327.7 | 254.8 | ||||||
| 685.1 | 579.5 | |||||||
| Gross profit |
863.8 | 923.6 | ||||||
| Operating expenses: |
||||||||
| General and administrative |
759.4 | 684.4 | ||||||
| Advertising |
119.0 | 50.0 | ||||||
| Depreciation and intangible amortization |
57.5 | 61.3 | ||||||
| 935.9 | 795.7 | |||||||
| Operating income (loss) |
(72.1 | ) | 127.9 | |||||
| Interest expense |
(20.8 | ) | (4.6 | ) | ||||
| Interest income |
1.0 | 0.7 | ||||||
| Other items, net |
(1.8 | ) | (0.6 | ) | ||||
| Income (loss) before income taxes |
(93.7 | ) | 123.4 | |||||
| Benefit (provision) for income taxes |
36.2 | (9.0 | ) | |||||
| Net income (loss) |
$ | (57.5 | ) | $ | 114.4 | |||
| Net income (loss) per share: |
||||||||
| Basic |
$ | (0.31 | ) | $ | 0.63 | |||
| Diluted |
$ | (0.31 | ) | $ | 0.63 | |||
| Weighted-average common shares outstanding: |
||||||||
| Basic |
183.7 | 181.0 | ||||||
| Diluted |
183.7 | 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)
| March 31, 2005 |
December 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 145.3 | $ | 330.3 | ||||
| Receivables, less allowances of $9.0 and $14.5 for 2005 and 2004, respectively |
129.0 | 177.8 | ||||||
| Merchandise inventories |
474.6 | 516.6 | ||||||
| Prepaid and other current assets |
234.2 | 193.0 | ||||||
| Total current assets |
983.1 | 1,217.7 | ||||||
| Rental library |
466.3 | 457.6 | ||||||
| Property and equipment, net |
832.7 | 854.0 | ||||||
| Deferred income taxes |
138.3 | 87.0 | ||||||
| Intangibles, net |
33.3 | 34.5 | ||||||
| Goodwill |
1,140.6 | 1,138.5 | ||||||
| Other assets |
62.6 | 74.1 | ||||||
| $ | 3,656.9 | $ | 3,863.4 | |||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 608.0 | $ | 721.8 | ||||
| Accrued expenses |
683.9 | 697.3 | ||||||
| Current portion of long-term debt |
10.2 | 5.8 | ||||||
| Current portion of capital lease obligations |
18.9 | 19.7 | ||||||
| Deferred income taxes |
7.5 | 4.8 | ||||||
| Total current liabilities |
1,328.5 | 1,449.4 | ||||||
| Long-term debt, less current portion |
1,014.8 | 1,044.9 | ||||||
| Capital lease obligations, less current portion |
73.0 | 74.8 | ||||||
| Other liabilities |
239.5 | 231.4 | ||||||
| 2,655.8 | 2,800.5 | |||||||
| Commitments and contingencies (Note 4) |
||||||||
| 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; 111.7 shares issued and outstanding for 2005 and 2004 |
1.1 | 1.1 | ||||||
| Class B common stock, par value $0.01 per share; 500.0 shares authorized; 72.0 shares issued and outstanding for 2005 and 2004 |
0.7 | 0.7 | ||||||
| Additional paid-in capital |
5,341.9 | 5,336.7 | ||||||
| Retained deficit |
(4,305.8 | ) | (4,248.3 | ) | ||||
| Accumulated other comprehensive loss |
(36.8 | ) | (27.3 | ) | ||||
| Total stockholders’ equity |
1,001.1 | 1,062.9 | ||||||
| $ | 3,656.9 | $ | 3,863.4 | |||||
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, |
||||||||
| 2005 |
2004 |
|||||||
| Restated | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (57.5 | ) | $ | 114.4 | |||
| Adjustments to reconcile net income (loss) to net cash flow provided by operating activities: |
||||||||
| Depreciation and intangible amortization |
57.5 | 61.3 | ||||||
| Rental library amortization |
224.9 | 192.9 | ||||||
| Non-cash share-based compensation |
10.1 | — | ||||||
| Deferred taxes and other |
(48.5 | ) | 0.8 | |||||
| Changes in operating assets and liabilities: |
||||||||
| Decrease in receivables |
48.0 | 21.4 | ||||||
| (Increase) decrease in merchandise inventories |
37.1 | (2.5 | ) | |||||
| Increase (decrease) in prepaid and other assets |
(42.9 | ) | 3.0 | |||||
| Decrease in accounts payable |
(111.2 | ) | (103.2 | ) | ||||
| Decrease in accrued expenses and other liabilities |
(6.6 | ) | (94.6 | ) | ||||
| Net cash flow provided by operating activities |
110.9 | 193.5 | ||||||
| Cash flows from investing activities: |
||||||||
| Rental library purchases |
(220.6 | ) | (173.3 | ) | ||||
| Capital expenditures |
(38.4 | ) | (52.8 | ) | ||||
| Cash used for acquisitions, net |
(0.5 | ) | (0.4 | ) | ||||
| Proceeds from notes receivable and other |
0.2 | 0.1 | ||||||
| Net cash flow used for investing activities |
(259.3 | ) | (226.4 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from credit agreement |
50.0 | 20.0 | ||||||
| Repayments on credit agreement |
(75.0 | ) | (70.0 | ) | ||||
| Net repayments on other notes |
(0.8 | ) | (9.6 | ) | ||||
| Net proceeds from the exercise of stock options |
0.4 | 1.9 | ||||||
| Cash dividends |
(3.9 | ) | (3.6 | ) | ||||
| Capital lease payments |
(5.3 | ) | (4.9 | ) | ||||
| Net cash flow used for financing activities |
(34.6 | ) | (66.2 | ) | ||||
| Effect of exchange rate changes on cash |
(2.0 | ) | 2.7 | |||||
| Net decrease in cash and cash equivalents |
(185.0 | ) | (96.4 | ) | ||||
| Cash and cash equivalents at beginning of period |
330.3 | 233.4 | ||||||
| Cash and cash equivalents at end of period |
$ | 145.3 | $ | 137.0 | ||||
| Supplemental cash flow information: |
||||||||
| Cash payments for interest |
$ | 26.2 | $ | 3.9 | ||||
| Cash payments for taxes |
$ | 5.5 | $ | 1.2 | ||||
| Non-cash investing and financing activities: |
||||||||
| Retail stores acquired under capitalized leases |
$ | 2.8 | $ | 3.8 | ||||
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in millions, except per share amounts)
Note 1—Basis of Presentation
Blockbuster Inc. and its subsidiaries (the “Company” or “Blockbuster”) primarily operate and franchise entertainment-related stores in the United States and a number of other countries. The Company offers pre-recorded movies, as well as video games, for in-store rental, sale and trade and also sells other entertainment-related merchandise, such as confections. During 2004, Blockbuster launched BLOCKBUSTER Online™, an online service offering rental of movies delivered by mail.
In the opinion of management, the accompanying unaudited consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair presentation of the Company’s financial position and its results of operations and cash flows for the dates and periods presented. Results for interim periods are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period. All significant intercompany accounts and transactions have been eliminated in consolidation.
These unaudited consolidated financial statements should be read in conj