Published:
Blockbuster Reports Full-Year 2007 and Improved Fourth Quarter Results
DALLAS, March 6 /PRNewswire-FirstCall/ -- Blockbuster Inc. (NYSE: BBI,
BBI.B) today reported financial results for the fourth quarter and full-year
ended January 6, 2008.
Total revenues increased 3.6% to $1.57 billion for the fourth quarter of
2007 from $1.51 billion for the fourth quarter of 2006. For the fourth
quarter of 2007, net income was $38.1 million, or $0.18 per diluted share, an
improvement of $29.8 million as compared with net income of $8.3 million, or
$0.04 per diluted share, for the fourth quarter of 2006. Adjusted net income
for the fourth quarter of 2007, which excludes severance costs and certain
other items, totaled $54.9 million, or $0.26 per share, as compared with
adjusted net income of $21.1 million, or $0.11 per share, for the fourth
quarter of 2006. The calculations of adjusted results are shown on pages
6 and 7 of the tables accompanying this release.
"The year 2007 was one of transition for Blockbuster. During the last
half of the year, we established financial stability and took decisive steps
to grow our rental business, diversify revenue streams and broaden channels of
distribution," said Jim Keyes, Blockbuster Chairman and CEO. "Most notably,
through aggressive cost reductions, the repositioning of our subscription
programs, and a renewed focus on store merchandising, we gained momentum in
both sales and earnings. Building on our fourth quarter growth in
year-over-year revenues and improvement in operating income, we are well
positioned to return the Company to profitability in 2008."
Consolidated Fourth Quarter Financial Results
Total revenues for the fourth quarter of 2007 increased $55.1 million as
compared to the same period last year, even with a significant reduction in
the number of company-operated stores worldwide. The fourth quarter results
were principally driven by growth in domestic rental and retail revenues and
an increase in rental revenues internationally.
Worldwide same-store and by-mail revenues increased 7.4% from the same
period last year.
Domestic same-store and by-mail revenues increased 6.1% reflecting an
11.7% increase in same-store merchandise sales and 5.3% growth in same-store
and by-mail rental revenues. Domestic same-store revenues, excluding by-mail
subscription revenues, decreased only 0.9% reflecting a 490 basis point
improvement, as compared to the fourth quarter of 2006.
International same-store revenues increased 10.0% from the same period
last year, largely driven by a 20.3% growth in same-store merchandise sales.
International same-store rental revenues increased 0.5% reflecting an 880
basis points improvement over the same period last year.
Gross profit for the fourth quarter of 2007 increased $16.4 million,
primarily driven by the increase in total revenues discussed above. Gross
margin for the fourth quarter of 2007 totaled 50.9%. Total selling, general
and administrative ("SG&A") expenses for the fourth quarter of 2007 were
essentially flat as compared to the same period last year. Additionally,
management has completed its review of the Company's cost structure and
identified further reductions bringing the total annualized overhead cost
savings to approximately $100 million in 2008. Accordingly, during the fourth
quarter the Company recorded an additional $13.3 million of severance
expenses. Operating income for the fourth quarter of 2007 totaled
$73.2 million, representing a $29.3 million increase as compared to operating
income of $43.9 million for the same period last year.
Cash flow provided by operating activities decreased by $14.7 million from
$159.9 million for the fourth quarter of 2006 to $145.2 million for the fourth
quarter of 2007. The decrease was driven primarily by changes in working
capital. Free cash flow (net cash flow used for operating activities less
capital expenditures) for the fourth quarter of 2007 was essentially flat at
$122.8 million as compared to the same period last year. During the fourth
quarter of 2007, the Company paid down approximately $79.2 million in debt,
including the entire balance outstanding under its revolving credit facility
at September 30, 2007.
Full-Year 2007 Financial Results
Revenues for 2007 increased 0.3% to $5.54 billion from $5.52 billion for
2006. Operating income for the full-year 2007 totaled $39.1 million, as
compared to operating income of $73.6 million for 2006. For the full-year
2007, net loss totaled $85.1 million, or $0.45 per share, as compared with net
income of $39.2 million, or $0.21 per diluted share, for 2006. Excluding gain
on the sale of GAMESTATION(R), severance and lease termination costs and
certain other items, as shown on pages 6 and 7 of the financial tables,
adjusted net loss for the full-year 2007 totaled $135.6 million, or $0.71 per
share, compared with adjusted net loss of $1.6 million, or $0.01 per share, in
2006.
2008 Outlook
"Considerable improvement in our business in the fourth quarter, as well
as our performance year-to-date, gives us confidence in our ability to execute
on our plan and deliver increased value to our shareholders in 2008," said Tom
Casey, Blockbuster Chief Financial Officer. "As a result of the positive
impact of the initiatives we have put in place, coupled with our cost
containment actions, for the full-year we expect to generate meaningful cash
flow and deliver adjusted EBITDA in the range of $290 - $310 million, which
corresponds to GAAP financial measures of operating income in the range of
$113-$133 million and net income in the range of $5 - $25 million.
Additionally, our capital expenditures in 2008 will total approximately
$130 million."
Disclosure Enhancements
Beginning in this year's fourth quarter, the Company will present its
financial results in two reportable segments: Domestic and International. The
Company has also made several other presentation changes to its financial
statements and tables accompanying this release. These changes were designed
to enhance the disclosure of the Company's gross margin and expense structure
and provide more clarity as to the impact of its strategic initiatives.
Restatement
The Company will restate, in its Form 10-K for the fiscal year ended
January 6, 2008, its previously reported consolidated financial statements for
each of the fiscal years ended December 31, 2006 and 2005 and its condensed
consolidated financial information for each of the interim periods of fiscal
years 2007 and 2006 to correct identified errors. The Company is not
withdrawing reliance on its financial statements for the fiscal years ended
December 31, 2006 and 2005, or for any of the interim periods of fiscal years
2007 and 2006, because the Company has determined that these financial
statements can still be relied upon.
The effects of the restatement on income from continuing operations are as
follows:
-- Thirty-nine weeks ended September 30, 2007 - increase of $1.9 million
from previously reported loss from continuing operations of
$(118.0) million to a restated amount of $(116.1) million.
-- Fiscal year ended December 31, 2006 - decrease of $4.2 million from
previously reported income from continuing operations of $67.9 million
to a restated amount of $63.7 million.
-- Fiscal year ended December 31, 2005 - increase of $4.2 million from
previously reported loss from continuing operations of
$(548.3) million to a restated amount of $(544.1) million.
In consideration of the errors that led to this restatement, the Company
will report in its Form 10-K for the year ended January 6, 2008 two material
weaknesses in its internal controls over financial reporting. The material
weaknesses are related to accounting for general and administrative expense
accruals and accounting for foreign currency translation adjustments.
Additional financial and operational information for the fourth quarter
and full-year 2007 can be found in the tables accompanying this release.
Earnings call
The Blockbuster earnings call will be webcast today at 9 a.m. Central
time. Following the conclusion of the webcast, a replay of the call will be
available via the Company's website. Additionally, further detail on the
Company's quarterly and full-year 2007 results can be found in the Company's
Forms 10-Q for the quarters ended April 1, July 1 and September 30, 2007 and
in the Company's upcoming Form 10-K for the year ended January 6, 2008. The
filings and the webcast can be accessed at http://investor.blockbuster.com.
About Blockbuster
Blockbuster Inc. (NYSE: BBI, BBI.B) is a leading global provider of
in-home movie and game entertainment, with over 7,800 stores throughout the
Americas,Europe, Asia andAustralia. The Company may be accessed worldwide
at www.blockbuster.com.
Forward-Looking Statements
This release and our related earnings conference call include
forward-looking statements related to our operations and business outlook and
financial and operational strategies and goals, including our expectations
about our financial performance in 2008 and the statements appearing under the
heading "2008 Outlook." Specific forward-looking statements can be identified
by the fact that they do not relate strictly to historical or current facts.
These forward-looking statements are based on management's current intent,
belief, expectations, estimates and projections regarding our company and our
industry. These statements are not guarantees of future performance and
involve risks, uncertainties, assumptions and other factors that are difficult
to predict. Therefore, actual results may vary materially from what is
expressed in or indicated by the forward-looking statements. Factors that may
cause actual results to vary materially include, among others: (1) consumer
appeal of our existing and planned product and service offerings, and the
related impact of competitor pricing and product and service offerings;
(2) overall industry performance and the accuracy of our estimates and
judgments regarding trends impacting the home video industry; (3) our ability
to obtain favorable terms from suppliers, including on such matters as copy
depth and uses of product; (4) the studios' dependence on revenues generated
from retail home video and their related determinations with respect to
pricing and the timing of distribution of their product; (5) the variability
in consumer appeal of the movie titles and games software released for rental
and sale; (6) our ability to comply with operating and financial restrictions
and covenants in our debt agreements and any adverse publicity relating
thereto; (7) our ability to respond to changing consumer preferences,
including with respect to new technologies and alternative methods of content
delivery, and to effectively adjust our offerings if and as necessary; (8) the
extent and timing of our continued investment of incremental operating
expenses and capital expenditures to continue to develop and implement our
initiatives and our corresponding ability to effectively control overall
operating expenses and capital expenditures; (9) our ability to effectively
and timely prioritize and implement our initiatives and to timely implement
and maintain the necessary information technology systems and infrastructure
to support our initiatives; (10) our ability to capitalize on anticipated
industry consolidation; (11) the application and impact of future accounting
policies or interpretations of existing accounting policies; (12) the impact
of developments affecting our outstanding and any future litigation and claims
against us; (13) shifts in strategy in connection with recent changes in the
composition of our key management; and (14) other factors, as described in our
filings with the Securities and Exchange Commission, including the factors
discussed under the heading "Risk Factors" in our annual report on Form 10-K
for the year ended December 31, 2006 and under the heading "Disclosure
Regarding Forward-Looking Information" in our quarterly report on Form 10-Q
for the quarter ended September 30, 2007. This cautionary statement is
provided pursuant to Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The forward-looking statements in
this release and in our related earnings conference call are made only as of
the date hereof and we undertake no obligation to update publicly any
forward-looking statement for any reason, even if new information becomes
available or other events occur in the future.
BLOCKBUSTER INC.
COMPARATIVE FINANCIAL HIGHLIGHTS
(In millions, except per share amounts)
Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Year Year
Ended Ended Ended Ended
January 6, December 31, January 6, December 31,
2008 2006 2008 2006
(As restated) (As restated)
Revenues:
Base rental revenues $931.8 $848.4 $3,426.2 $3,413.1
Previously rented product
("PRP") revenues 171.4 146.7 656.3 616.0
Total rental revenues 1,103.2 995.1 4,082.5 4,029.1
Merchandise sales 455.1 501.4 1,400.1 1,431.9
Other revenues 8.8 15.5 59.8 61.2
1,567.1 1,512.0 5,542.4 5,522.2
Cost of sales:
Cost of rental revenues 410.0 348.8 1,604.0 1,403.9
Cost of merchandise sold 360.0 382.5 1,073.8 1,075.8
770.0 731.3 2,677.8 2,479.7
Gross profit 797.1 780.7 2,864.6 3,042.5
Operating expenses:
General and administrative 642.9 630.6 2,525.1 2,598.6
Advertising 35.1 47.6 194.0 154.3
Depreciation and amortization
of intangibles 43.7 53.5 185.7 210.9
Impairment of long-lived
assets 2.2 5.1 2.2 5.1
Gain on sale of Gamestation - - (81.5) -
723.9 736.8 2,825.5 2,968.9
Operating income 73.2 43.9 39.1 73.6
Interest expense (23.3) (24.5) (88.7) (101.6)
Interest income 1.4 2.6 6.5 9.9
Other items, net - 1.9 (1.5) 5.4
Income (loss) before income
taxes 51.3 23.9 (44.6) (12.7)
Benefit (provision) for
income taxes (9.4) (10.3) (29.6) 76.4
Income (loss) from continuing
operations 41.9 13.6 (74.2) 63.7
Income (loss) from
discontinued operations,
net of tax (0.9) (2.4) 0.4 (13.2)
Net income (loss) 41.0 11.2 (73.8) 50.5
Preferred stock dividends (2.9) (2.9) (11.3) (11.3)
Net income (loss) applicable
to common stockholders $38.1 $8.3 $(85.1) $39.2
Net income (loss) per common
share:
Basic
Continuing operations $0.20 $0.05 $(0.45) $0.28
Discontinued operations - (0.01) - (0.07)
Net income (loss) $0.20 $0.04 $(0.45) $0.21
Weighted average common
shares outstanding:
Basic 191.1 187.6 190.3 187.1
Net income (loss) per common
share:
Diluted
Continuing operations $0.19 $0.05 $(0.45) $0.28
Discontinued operations (0.01) (0.01) - (0.07)
Net income (loss) $0.18 $0.04 $(0.45) $0.21
Weighted average common
shares outstanding:
Diluted 221.7 190.1 190.3 189.0
Notes:
Q4 Fiscal 2007 is 14 Weeks
Q4 Fiscal 2006 is 13 Weeks
BLOCKBUSTER INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in millions)
Revenues by Product Line:
Fiscal Quarter Ended Fiscal Quarter Ended
January 6, 2008 December 31, 2006
Percent Percent
Revenues of Total Revenues of Total
(As restated)
Domestic
Rental revenues
Movies $503.9 50.6% $506.1 55.9%
Games 59.6 6.0% 65.5 7.2%
Subscription rental 141.0 14.1% 74.0 8.2%
PRP 135.0 13.5% 117.4 13.0%
Total rental revenues 839.5 84.2% 763.0 84.3%
Merchandise sales
Movies 81.5 8.2% 74.1 8.2%
Games 19.3 1.9% 18.9 2.1%
Other 50.7 5.1% 38.7 4.3%
Total merchandise sales 151.5 15.2% 131.7 14.6%
Other revenues 6.1 0.6% 10.3 1.1%
Total domestic revenues $997.1 100.0% $905.0 100.0%
International
Rental revenues
Movies $209.1 36.6% $185.7 30.6%
Games 18.2 3.2% 17.1 2.8%
PRP 36.4 6.4% 29.3 4.8%
Total rental revenues 263.7 46.2% 232.1 38.2%
Merchandise sales
Movies 80.3 14.1% 67.3 11.1%
Games 169.2 29.7% 250.6 41.3%
Other 54.1 9.5% 51.8 8.5%
Total merchandise sales 303.6 53.3% 369.7 60.9%
Other revenues 2.7 0.5% 5.2 0.9%
Total international revenues $570.0 100.0% $607.0 100.0%
Total consolidated revenues $1,567.1 $1,512.0
Fiscal Year Ended Fiscal Year Ended
January 6, 2008 December 31, 2006
Percent Percent
Revenues of Total Revenues of Total
(As restated)
Domestic
Rental revenues
Movies $1,862.9 51.7% $2,111.5 58.3%
Games 220.6 6.1% 246.4 6.8%
Subscription rental 526.4 14.6% 248.3 6.9%
PRP 527.3 14.6% 494.8 13.7%
Total rental revenues 3,137.2 87.0% 3,101.0 85.7%
Merchandise sales
Movies 221.2 6.1% 234.7 6.5%
Games 47.4 1.3% 77.5 2.1%
Other 177.9 4.9% 161.6 4.5%
Total merchandise sales 446.5 12.3% 473.8 13.1%
Other revenues 24.2 0.7% 42.4 1.2%
Total domestic revenues $3,607.9 100.0% $3,617.2 100.0%
International
Rental revenues
Movies $756.9 39.1% $745.1 39.1%
Games 59.4 3.1% 61.8 3.2%
PRP 129.0 6.7% 121.2 6.4%
Total rental revenues 945.3 48.9% 928.1 48.7%
Merchandise sales
Movies 222.9 11.5% 205.9 10.8%
Games 549.1 28.4% 587.9 30.9%
Other 181.6 9.4% 164.3 8.6%
Total merchandise sales 953.6 49.3% 958.1 50.3%
Other revenues 35.6 1.8% 18.8 1.0%
Total international revenues $1,934.5 100.0% $1,905.0 100.0%
Total consolidated revenues $5,542.4 $5,522.2
Gross Profit by Product Line:
Fiscal Quarter Ended Fiscal Quarter Ended
January 6, 2008 December 31, 2006
Percent Percent
Gross Profit of Revenue Gross Profit of Revenue
(As restated)
Domestic
Rental $508.3 60.5% $480.4 63.0%
Merchandise 35.2 23.2% 38.6 29.3%
Other 6.1 100.0% 10.3 100.0%
Total domestic 549.6 55.1% 529.3 58.5%
International
Rental 184.9 70.1% 165.9 71.5%
Merchandise 59.9 19.7% 80.3 21.7%
Other 2.7 100.0% 5.2 100.0%
Total international 247.5 43.4% 251.4 41.4%
Total consolidated $797.1 50.9% $780.7 51.6%
Fiscal Year Ended Fiscal Year Ended
January 6, 2008 December 31, 2006
Percent Percent
Gross Profit of Revenue Gross Profit of Revenue
(As restated)
Domestic
Rental $1,822.9 58.1% $1,989.5 64.2%
Merchandise 121.9 27.3% 132.8 28.0%
Other 24.2 100.0% 42.4 100.0%
Total domestic 1,969.0 54.6% 2,164.7 59.8%
International
Rental 655.6 69.4% 635.7 68.5%
Merchandise 204.4 21.4% 223.3 23.3%
Other 35.6 100.0% 18.8 100.0%
Total international 895.6 46.3% 877.8 46.1%
Total consolidated $2,864.6 51.7% $3,042.5 55.1%
Notes:
Q4 Fiscal 2007 is 14 Weeks
Q4 Fiscal 2006 is 13 Weeks
BLOCKBUSTER INC.
SUPPLEMENTAL FINANCIAL INFORMATION
Selling General and Administrative (G&A) Comparison
(Dollars in millions)
Selling General and Administrative Expenses:
Fiscal Quarter Ended Fiscal Quarter Ended
January 6, 2008 December 31, 2006
Percent Percent
SG&A Expense of Revenue SG&A Expense of Revenue
(As restated)
Advertising $35.1 2.3% $47.6 3.2%
G&A Expense - Store 565.9 36.1% 534.8 35.4%
G&A Expense - Corporate 77.0 4.9% 95.8 6.3%
Total SG&A $678.0 43.3% $678.2 44.9%
Fiscal Year Ended Fiscal Year Ended
January 6, 2008 December 31, 2006
Percent Percent
SG&A Expense of Revenue SG&A Expense of Revenue
(As restated)
Advertising $194.0 3.6% $154.3 2.8%
G&A Expense - Store $2,163.9 39.0% $2,168.5 39.3%
G&A Expense - Corporate 361.2 6.5% 430.1 7.8%
Total SG&A $2,719.1 49.1% $2,752.9 49.9%
Notes:
Q4 Fiscal 2007 is 14 Weeks
Q4 Fiscal 2006 is 13 Weeks
Facilities Statistics
As of January 6, 2008
Domestic
Avg Selling Sq
Total Number Footage Total Sq Footage
(in thousands) (in thousands)
Stores 4,005 5.6 22,158
Distribution Centers 40 N/A 1,133
Corporate/Regional Offices 12 N/A 420
International
Avg Selling Sq
Total Number Footage Total Sq Footage
(in thousands) (in thousands)
Stores 2,068 3.0 6,158
Distribution Centers 8 N/A 249
Corporate/Regional Offices 8 N/A 127
BLOCKBUSTER INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in millions)
Other Information: Revenue
Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Year Year
Ended Ended Ended Ended
January 6, December 31, January 6, December 31,
2008 2006 2008 2006
Total revenues increase
(decrease) 3.6 % 0.4 %
Domestic same-store revenues
increase (decrease)
Rental revenues (3.1)% (3.9)% (7.2)% (2.7)%
Merchandise sales 11.7 % (14.0)% (3.7)% (24.2)%
Total revenues (0.9)% (5.8)% (6.9)% (6.6)%
International same-store
revenues increase (decrease)
Rental revenues 0.5 % (8.3)% (2.8)% (7.4)%
Merchandise sales 20.3 % 21.8 % 23.3 % 9.7 %
Total revenues 10.0 % 7.9 % 7.5 % 0.4 %
World-wide same-store
revenues increase
(decrease)
Rental revenues (2.2)% (5.0)% (6.1)% (3.9)%
Merchandise sales 17.0 % 9.3 % 11.6 % (4.7)%
Total revenues 2.9 % (0.6)% (2.3)% (4.2)%
World-wide same-store and
other revenues increase
(decrease)
Rental revenues 4.2 % (1.8)% 1.4 % (1.0)%
Merchandise sales 17.0 % 9.3 % 11.6 % (4.7)%
Total revenues 7.4 % 1.5 % 3.4 % (2.1)%
Cash Flow Data:
Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Year Year
Ended Ended Ended Ended
January 6, December 31, January 6, December 31,
2008 2006 2008 2006
Net cash flow provided by
(used for) operating
activities $145.2 $159.9 $(56.2) $329.4
Net cash flow provided by
(used for) investing
activities $(9.3) $(12.7) $76.7 $(41.0)
Net cash flow provided by
(used for) financing
activities $(85.0) $(12.0) $(241.0) $(183.2)
Capital Expenditures $22.4 $38.8 $74.4 $78.5
Balance Sheet Information:
January 6, December 31,
2008 2006
Cash and cash equivalents $184.6 $394.9
Merchandise inventories $343.9 $343.9
Rental library $441.1 $453.9
Accounts payable $472.8 $527.8
Total debt (including
capital lease
obligations) $757.8 $984.2
Notes:
Q4 Fiscal 2007 is 14 Weeks
Q4 Fiscal 2006 is 13 Weeks
BLOCKBUSTER INC.
SUPPLEMENTAL FINANCIAL INFORMATION
Worldwide Store Count Information:
Fiscal Year Fiscal Year
Ended Ended
January 6, 2008 December 31, 2006
Domestic Company-Owned Stores:
Beginning 4,255 4,617
Additions/Purchases 39 59
Closures/Sales (289) (421)
Ending 4,005 4,255
International Company-Owned Stores:
Beginning 2,296 2,541
Additions/Purchases 101 28
Closures/Sales (329) (273)
Ending 2,068 2,296
Franchised Stores:
Beginning 1,809 1,884
Additions/Purchases 80 141
Closures/Sales (132) (216)
Ending 1,757 1,809
Total Stores Worldwide:
Beginning 8,360 9,042
Additions/Purchases 220 228
Closures/Sales (750) (910)
Ending 7,830 8,360
BLOCKBUSTER INC.
DISCLOSURES REGARDING NON-GAAP FINANCIAL INFORMATION
(Dollars in millions)
For the fiscal quarter and fiscal year ended January 6, 2008, the Company
reports adjusted net loss, adjusted net loss per common share, adjusted
operating income (loss), and adjusted earnings before interest taxes,
depreciation and amortization ("adjusted EBITDA") excluding the gain on
sale of Gamestation, costs incurred for store closures, impairment of
long-lived assets and severance costs. Additionally, for the fiscal year
ended January 6, 2008, the Company reports adjusted net loss, adjusted net
loss per common share, adjusted operating loss and adjusted EBITDA excluding
proceeds from the termination of our Brazilian franchise agreement. For the
fiscal quarter and fiscal year ended December 31, 2006, the Company reports
adjusted net income (loss), adjusted net income (loss) per common share,
adjusted operating income and adjusted EBITDA excluding charges related to
costs incurred for store closures, severance costs and the expected
performance under a 2001 guarantee of franchisee debt.
In addition, for the fiscal year ended December 31, 2006, the Company
reports adjusted net loss and adjusted net loss per common share excluding the
recognition of a tax benefit from the resolution of multi-year income tax
audits. For the fiscal quarter ended January 6, 2008, the Company reports
adjusted net income, adjusted net income per common share, adjusted operating
income and adjusted EBITDA excluding the costs incurred for store closures and
severance costs.
Adjusted net income (loss), adjusted net income (loss) per common share,
adjusted operating income (loss) and adjusted EBITDA are non-GAAP financial
measures within the meaning of Regulation G of the Securities and Exchange
Commission and not measures of operating performance calculated in accordance
with GAAP. As a result, adjusted net income (loss), adjusted net income
(loss) per common share, adjusted operating income (loss) and adjusted EBITDA
should not be considered in isolation of, or as a substitute for, income
(loss) from continuing operations, net income (loss) per common share,
operating income (loss) and net income (loss) as indicators of operating
performance. Adjusted net income (loss), adjusted net income (loss) per
common share, adjusted operating income (loss), and adjusted EBITDA, as the
Company calculates them, may not be comparable to similarly titled measures
employed by other companies.
Management believes that, because the items discussed above are
non-recurring in nature, adjusting the Company's financial results to exclude
these amounts provides investors with a clearer perspective of the current
underlying operating performance of the Company, a clearer comparison to
current period results and greater transparency regarding supplemental
information used by Management in its financial and operational
decision-making. In addition, Management believes that adjusting the Company's
financial results to exclude depreciation and amortization of intangibles also
provides investors with a clearer perspective of the current underlying
operating performance of the Company and a clearer comparison to current
period results.
Management uses these non-GAAP financial measures as an internal measure
of business operating performance, to establish operational goals, to allocate
resources and to analyze trends. Income (loss) from continuing operations is
the financial measure calculated and presented in accordance with GAAP that is
most comparable to adjusted net income (loss). Operating income (loss) is the
financial measure calculated and presented in accordance with GAAP that is
most comparable to adjusted operating income (loss). Net income (loss) is the
financial measure calculated and presented in accordance with GAAP that is
most comparable to adjusted EBITDA.
Fiscal Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Year Year Quarter
Ended Ended Ended Ended Ended
January December January December September
6, 31, 6, 31, 30,
2008 2006 2008 2006 2007
(As (As (As
restated) restated) restated)
Reconciliation of adjusted
net income (loss):
Income (loss) from
continuing operations $41.9 $13.6 $(74.2) $63.7 $(34.2)
Adjustments to reconcile
income (loss) from
continuing operations to
adjusted net income (loss):
Gain on sale of Gamestation - - (81.5) - (0.2)
Termination of Brazilian
franchise agreement,
net of tax - - (17.0) - -
Store closure costs
including lease
terminations 0.4 5.3 15.4 20.3 2.9
Severance costs 13.3 - 30.8 14.5 7.9
Impairment of long-lived
assets 2.2 5.1 2.2 5.1 -
Expected performance under
a 2001 guarantee of
franchisee debt - - - 4.0 -
Resolution of income tax
audits - - - (97.9) -
Adjusted net income (loss) 57.8 24.0 (124.3) 9.7 (23.6)
Preferred stock dividends (2.9) (2.9) (11.3) (11.3) (2.8)
Adjusted net income (loss)
applicable to common
stockholders $54.9 $21.1 $(135.6) $(1.6) $(26.4)
Adjusted net income (loss)
per common share $0.26 $0.11 $(0.71) $(0.01) $(0.14)
Weighted average common
shares outstanding -
diluted 221.7 190.1 190.3 189.0 190.6
Reconciliation of adjusted
operating income (loss):
Operating income (loss) $73.2 $43.9 $39.1 $73.6 $(4.8)
Adjustments to reconcile
operating income (loss) to
adjusted operating income
(loss):
Gain on sale of Gamestation - - (81.5) - (0.2)
Termination of Brazilian
franchise agreement - - (20.0) - -
Store closure costs
including lease
terminations 0.4 5.3 15.4 20.3 2.9
Severance costs 13.3 - 30.8 14.5 7.9
Impairment of long-lived
assets 2.2 5.1 2.2 5.1 -
Expected performance under
a 2001 guarantee of
franchisee debt - - - 4.0 -
Adjusted operating income
(loss) $89.1 $54.3 $(14.0) $117.5 $5.8
Notes:
Q4 Fiscal 2007 is 14 Weeks
Q4 Fiscal 2006 is 13 Weeks
BLOCKBUSTER INC.
DISCLOSURES REGARDING NON-GAAP FINANCIAL INFORMATION
(Dollars in millions)
For the fiscal quarter and fiscal year ended January 6, 2008, the Company
reports adjusted net loss, adjusted net loss per common share, adjusted
operating income (loss), and adjusted earnings before interest taxes,
depreciation and amortization ("adjusted EBITDA") excluding the gain on sale
of Gamestation, costs incurred for store closures, impairment of long-lived
assets and severance costs. Additionally, for the fiscal year ended January 6,
2008, the Company reports adjusted net loss, adjusted net loss per common
share, adjusted operating loss and adjusted EBITDA excluding proceeds from the
termination of our Brazilian franchise agreement. For the fiscal quarter and
fiscal year ended December 31, 2006, the Company reports adjusted net income
(loss), adjusted net income (loss) per common share, adjusted operating income
and adjusted EBITDA excluding charges related to costs incurred for store
closures, severance costs and the expected performance under a 2001 guarantee
of franchisee debt.
In addition, for the fiscal year ended December 31, 2006, the Company
reports adjusted net loss and adjusted net loss per common share excluding the
recognition of a tax benefit from the resolution of multi-year income tax
audits. For the fiscal quarter ended January 6, 2008, the Company reports
adjusted net income, adjusted net income per common share, adjusted operating
income and adjusted EBITDA excluding the costs incurred for store closures and
severance costs.
Adjusted net income (loss), adjusted net income (loss) per common share,
adjusted operating income (loss) and adjusted EBITDA are non-GAAP financial
measures within the meaning of Regulation G of the Securities and Exchange
Commission and not measures of operating performance calculated in accordance
with GAAP. As a result, adjusted net income (loss), adjusted net income
(loss) per common share, adjusted operating income (loss) and adjusted EBITDA
should not be considered in isolation of, or as a substitute for, income
(loss) from continuing operations, net income (loss) per common share,
operating income (loss) and net income (loss) as indicators of operating
performance. Adjusted net income (loss), adjusted net income (loss) per
common share, adjusted operating income (loss), and adjusted EBITDA, as the
Company calculates them, may not be comparable to similarly titled measures
employed by other companies.
Management believes that, because the items discussed above are
non-recurring in nature, adjusting the Company's financial results to exclude
these amounts provides investors with a clearer perspective of the current
underlying operating performance of the Company, a clearer comparison to
current period results and greater transparency regarding supplemental
information used by Management in its financial and operational
decision-making. In addition, Management believes that adjusting the Company's
financial results to exclude depreciation and amortization of intangibles also
provides investors with a clearer perspective of the current underlying
operating performance of the Company and a clearer comparison to current
period results.
Management uses these non-GAAP financial measures as an internal measure
of business operating performance, to establish operational goals, to allocate
resources and to analyze trends. Income (loss) from continuing operations is
the financial measure calculated and presented in accordance with GAAP that
is most comparable to adjusted net income (loss). Operating income (loss) is
the financial measure calculated and presented in accordance with GAAP that is
most comparable to adjusted operating income (loss). Net income (loss) is the
financial measure calculated and presented in accordance with GAAP that is
most comparable to adjusted EBITDA.
Fiscal Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Year Year Quarter
Ended Ended Ended Ended Ended
January December January December September
6, 31, 6, 31, 30,
2008 2006 2008 2006 2007
(As (As (As
restated) restated) restated)
Reconciliation of
adjusted EBITDA:
Net Income (loss) $41.0 $11.2 $(73.8) $50.5 $(34.4)
Adjustments to reconcile
net income (loss) to
adjusted EBITDA:
Income (loss) from
discontinued operations,
net of tax 0.9 2.4 (0.4) 13.2 0.2
Taxes 9.4 10.3 29.6 (76.4) 8.7
Interest and other income,
net 21.9 20.0 83.7 86.3 20.7
Impairment of long-lived
assets 2.2 5.1 2.2 5.1 -
Depreciation and
Amortization of
intangibles 43.7 53.5 185.7 210.9 43.5
EBITDA $119.1 $102.5 $227.0 $289.6 $38.7
Gain on sale of
Gamestation - - (81.5) - (0.2)
Termination of Brazilian
franchise
agreement - - (20.0) - -
Lease termination costs
incurred for store
closures 0.4 2.0 9.1 11.3 1.6
Severance costs 13.3 - 30.8 14.5 7.9
Stock compensation 4.7 7.1 14.6 25.5 1.2
Expected performance
under a 2001 guarantee
of franchisee debt - - - 4.0 -
Adjusted EBITDA $137.5 $111.6 $180.0 $344.9 $49.2
Notes:
Q4 Fiscal 2007 is 14 Weeks
Q4 Fiscal 2006 is 13 Weeks
The following table presents consolidated financial information, including
a reconciliation of adjusted EBITDA, a non-GAAP financial measure, to net
income, the most comparable GAAP financial measure.
Guidance Range
Full Year 2008 Guidance Reconciliation:
Adjusted EBITDA $290.0 $310.0
Depreciation and amortization (163.0) (163.0)
Stock based compensation (14.0) (14.0)
Operating income 113.0 133.0
Interest and other income, net (77.0) (77.0)
Income (loss) before income taxes 36.0 56.0
Taxes (31.0) (31.0)
Net income $5.0 $25.0
BLOCKBUSTER INC.
DISCLOSURES REGARDING NON-GAAP FINANCIAL INFORMATION
(Dollars in millions)
Free cash flow reflects the Company's net cash flow provided by (used for)
operating activities less capital expenditures. The Company uses free cash
flow, among other things, to evaluate its operating performance and as a
measure of liquidity. Management believes free cash flow provides investors
with an important perspective on the cash available for debt service,
acquisitions and stockholders after making the capital investments required to
support ongoing business operations and long-term value creation. The Company
believes the presentation of free cash flow is relevant and useful for
investors because it allows investors to view performance in a manner similar
to the method used by management and helps improve their ability to understand
the Company's operating performance. In addition, free cash flow is also a
measure used by the Company's investors and analysts for purposes of valuation
and comparing the operating performance of the Company to other companies in
its industry.
Free cash flow is a non-GAAP financial measure within the meaning of
Regulation G of the Securities and Exchange Commission and not a measure of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"). As a result, free cash flow should not be considered in
isolation of, or as a substitute for, net income (loss) as an indicator of
operating performance or net cash flow provided by (used for) operating
activities as a measure of liquidity. Free cash flow, as the Company
calculates it, may not be comparable to similarly titled measures employed by
other companies. In addition, free cash flow does not necessarily represent
funds available for discretionary use and is not necessarily a measure of the
Company's ability to fund its cash needs. As the Company uses free cash flow
as a measure of performance and as a measure of liquidity, the tables below
reconcile free cash flow to both net income (loss) and net cash flow provided
by (used for) operating activities, the most directly comparable amounts
reported under GAAP.
The following table provides a reconciliation of net cash flow provided by
(used for) operating activities to free cash flow:
Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Year Year
Ended Ended Ended Ended
January 6, December 31, January 6, December 31,
2008 2006 2008 2006
Net cash flow provided by
(used for) operating
activities $145.2 $159.9 $(56.2) $329.4
Adjustments to reconcile
net cash flow provided by
(used for) operating
activities to free
cash flow:
Capital expenditures (22.4) (38.8) (74.4) (78.5)
Free cash flow $122.8 $121.1 $(130.6) $250.9
The following table provides a reconciliation of net income (loss) to free
cash flow:
Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Year Year
Ended Ended Ended Ended
January 6, December 31, January 6, December 31,
2008 2006 2008 2006
Net income (loss) $41.0 $11.2 $(73.8) $50.5
Adjustments to reconcile
net income (loss) to free
cash flow:
Depreciation and
amortization of
intangibles 43.7 53.6 185.7 212.9
Impairment of goodwill and
other long-lived assets 2.2 5.1 2.2 5.1
Non-cash share-based
compensation expense 4.7 7.1 14.6 25.5
Capital expenditures (22.4) (38.8) (74.4) (78.5)
Rental library purchases,
net of rental amortization (8.3) (40.9) 31.2 34.6
Changes in working capital 65.5 133.7 (131.0) 11.5
Changes in deferred taxes
and other (3.6) (9.9) (3.6) (10.7)
Gain on sale of Gamestation - - (81.5) -
Free cash flow $122.8 $121.1 $(130.6) $250.9
Notes:
Q4 Fiscal 2007 is 14 Weeks
Q4 Fiscal 2006 is 13 Weeks
SOURCE Blockbuster Inc.
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