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, 2001
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 (I.R.S. Employer
incorporation or organization) 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 May 4, 2001:
Class A common stock, par value $.01 per share: 31,046,452
Class B common stock, par value $.01 per share: 144,000,000
1
BLOCKBUSTER INC.
INDEX TO FORM 10-Q
PART I--FINANCIAL INFORMATION
Page
-----
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations (Unaudited)--for the Three Months Ended
March 31, 2000 and March 31, 2001................................................................... 3
Consolidated Balance Sheets--at December 31, 2000 and March 31, 2001 (Unaudited)...................... 4
Consolidated Statements of Cash Flows (Unaudited)--for the Three Months Ended March 31,
2000 and March 31, 2001............................................................................. 5
Notes to Consolidated Financial Statements (Unaudited)................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................... 16
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................. 18
Item 6. Exhibits and Reports on Form 8-K................................................................... 19
2
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 March 31,
---------------------------------------
2000 2001
-------- --------
Revenues:
Rental revenues................................................................... $1,024.4 $1,117.9
Merchandise sales................................................................. 170.5 169.5
Other revenues.................................................................... 16.2 20.5
-------- --------
$1,211.1 $1,307.9
-------- --------
Cost of sales:
Cost of rental revenues........................................................... 360.7 393.5
Cost of merchandise sold.......................................................... 135.7 135.2
-------- --------
496.4 528.7
-------- --------
Gross profit...................................................................... 714.7 779.2
-------- --------
Operating expenses:
General and administrative........................................................ 512.8 564.3
Advertising....................................................................... 51.6 54.4
Depreciation...................................................................... 61.1 62.5
Amortization of intangibles....................................................... 44.5 44.2
-------- --------
670.0 725.4
-------- --------
Operating income.................................................................... 44.7 53.8
Interest expense.................................................................. (29.4) (24.4)
Interest income................................................................... 1.7 1.8
Other items, net.................................................................. -- (1.6)
-------- --------
Income before income taxes.......................................................... 17.0 29.6
Provision for income taxes........................................................ (21.7) (25.3)
Equity in income of affiliated companies, net of tax.............................. 0.6 0.4
-------- --------
Net income (loss)................................................................... $ (4.1) $ 4.7
======== ========
Net income (loss) per share:
Basic and diluted................................................................. $ (0.02) $ 0.03
======== ========
Weighted-average shares outstanding:
Basic............................................................................. 175.0 175.0
======== ========
Diluted........................................................................... 175.0 175.4
======== ========
Cash dividends per common share..................................................... $ 0.02 $ 0.02
======== ========
See notes to unaudited consolidated financial statements.
3
BLOCKBUSTER INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
December 31, March 31,
2000 2001
-------- --------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents......................................................... $ 194.2 $ 137.9
Receivables, less allowances of $8.6 (2000 and 2001)............................. 185.8 142.9
Merchandise inventories........................................................... 242.2 207.3
Prepaid assets and other current assets........................................... 177.3 164.4
-------- --------
Total current assets........................................................... 799.5 652.5
Rental library...................................................................... 646.7 619.2
Receivable from Viacom.............................................................. 134.9 104.3
Property and equipment, net......................................................... 1,079.4 1,015.5
Intangibles, net.................................................................... 5,809.2 5,758.1
Other assets........................................................................ 79.2 80.2
-------- --------
$8,548.9 $8,229.8
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................................................................. $ 592.7 $ 399.0
Accrued expenses.................................................................. 473.7 398.3
Current portion of long-term debt................................................. 8.0 8.3
Current portion of capital lease obligations...................................... 24.8 26.3
Deferred taxes.................................................................... 24.0 16.1
-------- --------
Total current liabilities...................................................... 1,123.2 848.0
Long-term debt, less current portion................................................ 1,039.0 1,020.6
Capital lease obligations, less current portion..................................... 97.5 92.3
Deferred taxes...................................................................... 207.2 208.9
Other liabilities................................................................... 73.6 68.0
-------- --------
2,540.5 2,237.8
-------- --------
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, par value $.01 per share; 100.0 shares authorized; no shares
issued or outstanding........................................................... -- --
Class A common stock, par value $.01 per share; 400.0 shares authorized;
31.0 shares issued and outstanding.............................................. 0.3 0.3
Class B common stock, par value $.01 per share; 500.0 shares authorized;
144.0 shares issued and outstanding............................................. 1.4 1.4
Additional paid-in capital........................................................ 6,166.4 6,163.0
Retained deficit.................................................................. (86.8) (82.1)
Accumulated comprehensive loss.................................................... (72.9) (90.6)
-------- --------
Total stockholders' equity..................................................... 6,008.4 5,992.0
-------- --------
$8,548.9 $8,229.8
======== ========
See notes to unaudited consolidated financial statements.
4
BLOCKBUSTER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three Months Ended March 31,
---------------------------------------
2000 2001
------- -------
Cash flows from operating activities:
Net income (loss)................................................................. $ (4.1) $ 4.7
Adjustments to reconcile net income (loss) to net cash flow provided
by operating activities:
Depreciation and amortization.................................................. 282.2 336.7
Deferred taxes................................................................. 22.1 (5.5)
Equity in income of affiliated companies, net of tax........................... (0.6) (0.4)
Common stock issued to non-employee directors.................................. -- 0.1
Gain on sales of store operations.............................................. (0.9) (0.2)
Change in operating assets and liabilities:
(Increase) decrease in receivables............................................. (20.8) 42.1
(Increase) decrease in receivable from Viacom.................................. (2.2) 30.6
Decrease in merchandise inventories............................................ 40.6 32.7
(Increase) decrease in prepaid and other assets................................ (11.2) 14.1
Decrease in accounts payable................................................... (48.9) (188.9)
Decrease in accrued expenses and other liabilities............................. (54.7) (78.5)
------- -------
Net cash flow provided by operating activities...................................... 201.5 187.5
------- -------
Cash flows from investing activities:
Rental library purchases.......................................................... (162.1) (201.1)
Capital expenditures.............................................................. (41.6) (11.5)
Cash used for acquisitions........................................................ (3.5) --
Proceeds from sales of store operations........................................... 1.9 0.5
Investments in affiliated companies............................................... (2.0) (2.5)
------- -------
Net cash flow used in investing activities.......................................... (207.3) (214.6)
------- -------
Cash flows from financing activities:
Proceeds from credit agreement.................................................... 53.0 55.0
Repayments on credit agreement.................................................... (13.0) (70.0)
Repayments on other notes......................................................... -- (3.1)
Cash dividends.................................................................... (3.5) (3.5)
Capital lease payments............................................................ (11.0) (6.0)
------- -------
Net cash flow provided by (used in) financing activities............................ 25.5 (27.6)
------- -------
Effect of exchange rate changes on cash............................................. (0.6) (1.6)
------- -------
Net increase (decrease) in cash and cash equivalents................................ 19.1 (56.3)
Cash and cash equivalents at beginning of period.................................... 119.6 194.2
------- -------
Cash and cash equivalents at end of period.......................................... $ 138.7 $ 137.9
======= =======
Supplemental cash flow information:
Cash payments for interest........................................................ $ 25.2 $ 25.1
Non-cash investing and financing activities
Property and equipment acquired under capitalized leases.......................... $ 5.2 $ 2.3
See notes to unaudited consolidated financial statements.
5
BLOCKBUSTER INC.
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") operate
and franchise entertainment-related stores in the United States and a number of
other countries. The Company offers pre-recorded videocassettes and DVDs
primarily for rental and also offers titles for purchase on a "sell-through"
(retail) basis. In addition, the Company offers video games for rental and sale
and sells other entertainment-related merchandise.
In the opinion of management, the accompanying consolidated financial
statements include all recurring adjustments and normal accruals necessary to
present fairly 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
conjunction with the more detailed audited consolidated financial statements for
the year ended December 31, 2000, included in the Company's Annual Report on
Form 10-K as filed with the Securities and Exchange Commission (the "SEC") on
March 29, 2001. Accounting policies used in the preparation of these unaudited
consolidated financial statements are consistent in all material respects with
the accounting policies described in the Notes to Consolidated Financial
Statements included in the Company's Form 10-K.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Net Income (Loss) Per Share
Basic earnings per share ("EPS") is computed by dividing the net income (loss)
applicable to common shares by the weighted-average of common shares outstanding
during the period. Diluted EPS adjusts the basic weighted-average of common
shares outstanding by the assumed exercise of stock options only in periods in
which such effect would have been dilutive. Options to purchase approximately
10.3 million and 13.7 million shares of class A common stock were outstanding as
of March 31, 2000 and 2001, respectively, of which 10.3 million and 9.2 million
options were excluded from the computation of the weighted-average shares for
diluted EPS for the three months ended March 31, 2000 and 2001, respectively,
because their inclusion would be anti-dilutive. The table below presents a
reconciliation of weighted-average shares used in the calculation of basic and
diluted EPS:
Three Months Ended March 31,
----------------------------
2000 2001
----- -----
Weighted-average shares for basic EPS................ 175.0 175.0
Incremental shares for stock options................. -- 0.4
----- -----
Weighted-average shares for diluted EPS.............. 175.0 175.4
===== =====
Comprehensive Loss
Comprehensive loss is defined as the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It consists of net income (loss) and other
gains and losses affecting stockholders' equity that, under generally accepted
accounting principles, are excluded from net income (loss), such as unrealized
gains and losses on
6
BLOCKBUSTER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in millions, except per share amounts)
investments available for sale, foreign currency translation gains and losses,
the change in the fair values of interest rate swaps and minimum pension
liability. Currency translation and the change in the fair values of interest
rate swaps are the only items of comprehensive loss impacting the Company. The
balances in accumulated comprehensive loss consist of the following:
At December 31, At March 31,
2000 2001
----- -----
Change in fair value of interest rate swaps, net of deferred taxes.... $ -- $ (1.1)
Foreign currency translation adjustment............................... (72.9) (89.5)
------ ------
Accumulated comprehensive loss........................................ $(72.9) $(90.6)
====== ======
Comprehensive loss for the three months ended March 31 was as follows:
2000 2001
------ ------
Net income (loss).................................................... $(4.1) $ 4.7
Change in fair value of interest rate swaps, net of deferred taxes... -- (1.1)
Foreign currency translation adjustment.............................. (0.4) (16.6)
----- ------
Comprehensive loss................................................... $(4.5) $(13.0)
===== ======
Recent Pronouncements
On January 1, 2001, the Company adopted SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by Statements 137
and 138. These statements require companies to recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair value. The statements also established new accounting rules for hedging
instruments which, depending on the nature of the hedge, require that changes in
the fair value of the derivatives either be offset against the change in fair
value of assets, liabilities or firm commitments through earnings, or be
recognized in other comprehensive income (loss) until the hedged item is
recognized in earnings. The impact of adoption was immaterial on the Company's
consolidated results of operations and financial position.
The Company is exposed to fluctuations in interest rates. The Company uses
derivative instruments, including swaps, to manage certain of these exposures.
Derivative instruments used by the Company in its hedging activities are viewed
as risk management tools, involve little complexity and are not used for trading
or speculative purposes. In the first quarter of 2001, the Company entered into
two interest rate swaps that qualified as cash flow hedges. Included as a
component of accumulated other comprehensive loss for the three months ended
March 31, 2001 was a $1.1 million after-tax loss associated with cash flow
hedges.
Note 2--Related Party Transactions
The Company, through the normal course of business, is involved in
transactions with companies owned by or affiliated with Viacom Inc. ("Viacom").
The Company purchases certain videocassettes and DVDs for rental and sale
directly from Paramount Pictures Corporation ("Paramount"). Total purchases from
Paramount were $36.5 million and $19.8 million for the three months ended March
31, 2000 and 2001, respectively.
All other transactions with companies owned by or affiliated with Viacom did
not have a material impact on the financial position or results of operations
presented herein.
7
BLOCKBUSTER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in millions, except per share amounts)
Note 3--Credit Agreement and Other Debt
On June 21, 1999, Blockbuster entered into a $1.9 billion unsecured credit
agreement (the "Blockbuster Credit Agreement") with a syndicate of banks. The
Blockbuster Credit Agreement was comprised of a $700 million long-term revolver
due July 1, 2004; a $600 million term loan due in quarterly installments
beginning April 1, 2002 and ending July 1, 2004; and a $600 million short-term
revolver, which was paid down during 2000. The repayment of the short-term
revolver permanently reduced the borrowing capacity under the Blockbuster Credit
Agreement from $1.9 billion to $1.3 billion. The Company had $293.0 million of
available borrowing capacity under the long-term revolver at March 31, 2001.
Interest rates under the Blockbuster Credit Agreement are based on the prime
rate in the United States or LIBOR (plus a margin based on leverage ratios,
which is currently 1.25%), at Blockbuster's option at the time of borrowing. The
weighted-average interest rate at March 31, 2001 for borrowings under the
Blockbuster Credit Agreement was 6.9%. A variable commitment fee based on the
total leverage ratio is charged on the unused amount of the revolver (0.25% at
March 31, 2001).
The Blockbuster Credit Agreement contains certain restrictive covenants,
which, among other things, relate to the payment of dividends, repurchase of
Blockbuster's common stock or other distributions and also require compliance
with certain financial covenants with respect to a maximum leverage ratio and a
minimum fixed charge coverage ratio. At March 31, 2001, the Company was in
compliance with all financial covenants under the Blockbuster Credit Agreement.
In March 2001, the Company entered into two interest rate swaps with Viacom in
order to obtain a fixed interest rate with respect to $400 million of the
Company's outstanding floating rate debt under the Blockbuster Credit Agreement,
and thereby reduce the Company's exposure to interest rate volatility. The swaps
fixed $200 million of the Company's outstanding debt at an interest rate of
5.01% for two years and the other $200 million at an interest rate of 5.12% for
two and one-half years. The Company's effective interest rates include a LIBOR
spread payable to the lenders under its credit facility, which spread is subject
to change under the terms of the Blockbuster Credit Agreement and is currently
1.25%. Including the effect of the LIBOR spread, the effective interest rates of
the swaps are currently 6.26% and 6.37%, respectively. The swaps are subject to
termination in the event that (i) Viacom ceases to own greater than 80% of the
Company's outstanding common stock or (ii) the Company no longer has any
obligations under the term loan portion of the Blockbuster Credit Agreement. The
interest rate swaps qualify as fully effective, cash-flow hedging instruments
under SFAS 133. Therefore, the gain or loss of the qualifying cash flow hedge is
reported in other comprehensive income (loss) and reclassified into earnings in
the same period in which the hedged transaction affects earnings.
Note 4--Commitments and Contingencies
In October 1998, BLOCKBUSTER MUSIC stores ("Music") were sold to Wherehouse
Entertainment Inc. ("Wherehouse"). Certain leases transferred in connection with
the sale of Music to Wherehouse had previously been guaranteed either by Viacom
or its affiliates. The remaining lease terms expire on various dates through
2007. Blockbuster has agreed to indemnify Viacom with respect to any amount paid
under these guarantees. At the time of the sale, the contingent liability for
base rent approximated $84 million, on an undiscounted basis, with respect to
these guarantees. The Company has not recognized any reserves related to this
contingent liability in the accompanying consolidated financial statements. If
Wherehouse defaults, related losses could materially affect future operating
income.
As discussed in Blockbuster's Annual Report on Form 10-K filed with the SEC on
March 29, 2001, a lawsuit is pending against Blockbuster in the United States
District Court for the Western District of Texas that includes federal antitrust
and California state law claims regarding its revenue sharing arrangements, and
a similar lawsuit is also pending in California state court. On March 16, 2001,
the federal judge in the United States District Court for the Western District
of Texas denied the plaintiffs' request for class certification of both the
federal antitrust and California state law claims. The California state court
plaintiffs are now seeking restitution and injunctive relief in addition to
treble damages. In addition to any damage award to which Blockbuster might be
directly subject, if Viacom is required to pay any damage award as a result of
the federal or state
8
BLOCKBUSTER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in millions, except per share amounts)
court action, Viacom may seek indemnification for its losses from Blockbuster
under the release and indemnification agreement entered into between Viacom and
Blockbuster. Blockbuster believes the plaintiffs' positions in both actions are
without merit and intends to vigorously defend itself in the litigation.
On May 7, 1999, Lynn Adams, Khristine Schoggins, and Debbie Lenke, purporting
to act as class representatives on behalf of themselves and for a class
comprised of certain Blockbuster store managers who worked in California, filed
a complaint in District Court in Orange County, California against Blockbuster.
The plaintiffs claim that they should be classified as non-exempt and are thus
owed overtime payments under California law. The dollar amount that plaintiffs
seek as damages to themselves and those similarly situated is not set forth in
the complaint. In January 2001, the trial court judge certified a class. In
February 2001, the California Court of Appeals denied Blockbuster's petition for
a writ of mandate. In April 2001, the Supreme Court of California denied
Blockbuster's petition for review. Blockbuster believes the plaintiffs'
position is without merit and intends to vigorously defend itself in the
litigation.
Blockbuster is a defendant in 19 putative class action lawsuits filed by
customers in state courts in Illinois, California, Ohio, Maryland, Texas, New
York, Tennessee, Delaware, Massachusetts, Washington, D.C., and Pennsylvania
between February 1999 and April 2001. These cases allege common law and
statutory claims for fraud and/or deceptive practices and/or unlawful business
practices regarding Blockbuster's policies for customers who choose to keep
rental product beyond the initial rental term. Some of the cases also allege
that these policies impose unlawful penalties and/or result in unjust
enrichment. The dollar amounts that plaintiffs seek as damages to themselves and
those similarly situated are not set forth in the complaints. Blockbuster
reached a preliminary settlement in two of the Texas cases and on April 11,
2001, a Texas state court preliminarily approved the parties' proposed
settlement agreement, which provides for a national settlement class and does
not admit liability. Under the proposed settlement, Blockbuster would make
certificates available to class members for rentals and discounts and would pay
up to a specified amount in attorneys' fees in connection with the settlement.
Confirmation of a settlement is subject to a fairness hearing, currently
scheduled for December 10, 2001, and a final court order. Blockbuster has the
right to rescind the settlement agreement if more than 3,000 class members
exclude themselves from the settlement. Either party will have the right to
terminate the settlement agreement if (i) the court does not approve a
settlement after the fairness hearing or (ii) the court does approve a
settlement, but enters a final order that is not substantially in the form
submitted to it, including changes to the order relating to the payment of
attorneys' fees. On April 25, 2001, an Illinois state court entered a
provisional order, subject to further review and final determination, certifying
plaintiff and defendant classes in order that putative class counsel in Illinois
would have an opportunity to be heard regarding the national class settlement.
Blockbuster believes the plaintiffs' positions in these suits are without merit
and, if the settlement reached in Texas is not confirmed, it intends to
vigorously defend itself in the litigation.
The Company is a defendant from time to time in other lawsuits incidental to
its business. Based on currently available information, the Company believes
that resolution of these known contingencies would not have a material adverse
impact on the Company's consolidated financial statements or liquidity. However,
there can be no assurances that future costs would not be material to results of
operations or liquidity of the Company for a particular period. In addition, the
Company's estimates of future costs are subject to change as circumstances
change and additional information becomes available during the course of
litigation.
Note 5--Operating Segments and Geographic Area
Beginning in the fourth quarter of 1999, the Company began reporting in two
segments, (i) its video segment, which included its home videocassette, DVD and
video game rental and retail operations; and (ii) its new media segment, which
included its operations relating to its Internet site and to the exploration of
various forms of electronic entertainment delivery, including video-on-demand.
The Company's reportable operating segments are determined in accordance with
the Company's internal management of its operations. At the end of the fourth
quarter of 2000, the Company shifted the focus of its new media
9
BLOCKBUSTER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in millions, except per share amounts)
operations from e-commerce offerings to other features designed to support its
stores and increase store revenues. As a result, effective January 1, 2001, the
Company began consolidating its new media operating results with its video
operating results, and will no longer report a separate segment for its new
media operations.
10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements and the related Notes.
Results of Operations
The following table sets forth consolidated results of operations and other
financial data.
Three Months Ended March 31,
-----------------------------------------
2000 2001
-------- --------
(In millions, except margin and worldwide store data)
Statement of Operations Data:
Revenues....................................................................... $1,211.1 $1,307.9
Cost of sales.................................................................. 496.4 528.7
-------- --------
Gross profit................................................................... 714.7 779.2
Operating expenses............................................................. 670.0 725.4
-------- --------
Operating income............................................................... 44.7 53.8
Interest expense............................................................... (29.4) (24.4)
Interest income................................................................ 1.7 1.8
Other items, net............................................................... -- (1.6)
-------- --------
Income before income taxes..................................................... 17.0 29.6
Provision for income taxes..................................................... (21.7) (25.3)
Equity in income of affiliated companies, net of tax........................... 0.6 0.4
-------- --------
Net income (loss).............................................................. $ (4.1) $ 4.7
======== ========
Cash Flow Data:
Cash flows from operating activities........................................... $ 201.5 $ 187.5
Cash flows used in investing activities........................................ (207.3) (214.6)
Cash flows from (used in) financing activities................................. 25.5 (27.6)
Other Data:
Depreciation................................................................... $ 61.1 $ 62.5
Amortization of intangibles.................................................... 44.5 44.2
EBITDA(1)...................................................................... 150.3 160.5
Net income (loss) plus intangible amortization, net of tax(1)(2)............... 38.1 46.5
Margins:
Rental margin(3)............................................................... 64.8% 64.8%
Merchandise margin(4).......................................................... 20.4% 20.2%
Gross margin(5)................................................................ 59.0% 59.6%
Worldwide Store Data:
Same store revenues increase(6)................................................ 3.1% 5.3%
Total system-wide stores at end of period...................................... 7,248 7,723
--------------------
(1) "EBITDA" and "Net income (loss) plus intangible amortization, net of tax"
are presented here to provide additional information about Blockbuster's
operations. These items should be considered in addition to, but not as a
substitute for, or superior to, operating income, net income (loss), cash
flow and other measures of financial performance prepared in accordance with
generally accepted accounting principles. EBITDA may differ in the method of
calculation from similarly titled measures used by other companies.
(2) Intangible amortization, net of tax, included in this item is primarily
related to goodwill.
(3) Rental gross profit as a percentage of rental revenues.
(4) Merchandise gross profit as a percentage of merchandise revenues.
(5) Gross profit as a percentage of total revenues.
(6) A store is included in the same store revenues calculation after it has been
opened and operated by us for more than 52 weeks. An acquired store becomes
part of the same store base in the 53rd week after its acquisition and
conversion. The percentage change is computed by comparing total net
revenues for same stores at the end of the applicable reporting period with
total net revenues from these same stores for the comparable period in the
prior year.
11
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Revenues. Revenues of $1,307.9 million in the first quarter of 2001 increased
$96.8 million, or 8.0%, from $1,211.1 million in the first quarter of 2000. The
increase in revenues was primarily due to increases in worldwide same store
revenues of 5.3% and a net increase in the number of company-operated stores of
329 to 6,283 at March 31, 2001 from 5,954 at March 31, 2000. The increase in
worldwide same store revenues was due to a 3.4% increase in same store revenues
from our domestic operations and a 15.0% increase in same store revenues from
our international operations. The increase in domestic same store revenues,
which constitutes 80.8% of our consolidated revenues, was primarily driven by an
increase in video rental revenues, which include both VHS and DVD rental
revenues, as well as previously viewed product sales. The increase in same store
revenues from our international operations was primarily due to the impact of
the introduction of revenue-sharing in key international markets.
Rental Revenues. Rental revenues, which include previously viewed product
sales, of $1,117.9 million in the first quarter of 2001 increased $93.5
million, or 9.1%, from $1,024.4 million in the first quarter of 2000. The
increase in rental revenues was primarily due to an increase in domestic same
store rental revenues of 4.7%, the net increase in the number of company-
operated stores of 329 and an increase in international same store rental
revenues of 17.8%, driven by the impact of the introduction of revenue-sharing
in key international markets. The increase in domestic same store rental
revenues was primarily driven by increases in DVD rental revenues, which
increased from 5.3% of rental revenues in the first quarter of 2000 to 14.4%
of rental revenues in the first quarter of 2001. Also contributing to the
increase were (i) an increase in the average domestic rental spend per
customer and (ii) a box office advantage between titles that became available
in the first quarter of 2001 as compared to the titles that became available
in the first quarter of 2000. Worldwide previously viewed product sales, which
includes sales of previously viewed videotapes, video games and DVDs,
increased 40.4% for the quarter ended March 31, 2001 as compared to the
quarter ended March 31, 2000, driven by an increase in previously viewed DVD
sales.
Merchandise Sales. Merchandise sales of $169.5 million in the first quarter
of 2001 decreased $1.0 million, or 0.6%, from $170.5 million in the first
quarter of 2000. The primary reason for the decrease in merchandise sales was
a 6.5% decrease in domestic same store merchandise sales, offset by a net
increase in company-operated stores of 329. The decrease in domestic same
store merchandise sales was driven by (i) a decrease in retail VHS sales, (ii)
a decrease in licensed merchandise sales, and (iii) the discontinuation of
music sales in our stores. These decreases were partially offset by an
increase in retail DVD sales.
Cost of Sales. Cost of sales of $528.7 million in the first quarter of 2001
increased $32.3 million, or 6.5%, from $496.4 million in the first quarter of
2000. Cost of sales as a percentage of total revenues decreased to 40.4% in the
first quarter of 2001 from 41.0% in the first quarter of 2000. The increase in
cost of sales was primarily due to the net increase in the number of company-
operated stores of 329. The decrease in cost of sales as a percentage of
revenues was primarily due to (i) the decrease in domestic revenues generated
through revenue-sharing arrangements as a percentage of our total domestic
revenues, as revenue-sharing arrangements on average have lower gross margins
than do traditional buying arrangements and DVD rentals, both of which increased
as a percentage of domestic revenues, (ii) an increase in margins on domestic
game rentals, and (iii) an increase in margins on previously viewed product
sales generated by higher average unit selling prices as a result of increased
previously viewed DVD sales. These items were partially offset by a decrease in
international rental margins in the first quarter of 2001 as compared to the
first quarter of 2000, driven by an increase in revenues generated through
revenue-sharing arrangements in key international markets.
We are continually evaluating our product mix and product offerings, as well
as related strategic alliances, to try to optimize our stores' revenues and
gross profit. In 2000, we began marketing and soliciting DIRECTV system
equipment and DIRECTV(R) programming packages in our stores. In February 2001,
we entered into a strategic alliance with RadioShack under which RadioShack will
operate store-within-a-store areas inside selected Blockbuster locations. After
the initial rollout of the RadioShack store-
12
within-a-store in 2001, we will determine whether we will proceed with a
nationwide rollout. Additionally, we intend to continue to increase our stores'
depth of DVDs in response to accelerated consumer acceptance of the DVD format.
Our initiatives to optimize our stores' revenues and gross profit may cause us
to alter the product mix in our stores. This may cause us to rationalize our
stores' existing product mix which could result in a non-cash charge.
Gross Profit. Gross profit of $779.2 million in the first quarter of 2001
increased $64.5 million, or 9.0%, from $714.7 million in the first quarter of
2000. For 2001, gross profit as a percentage of total revenues increased to
59.6% from 59.0% in the first quarter of 2000. The increase in gross margin
percentage was due to the decrease in cost of sales as a percentage of revenues
described above.
Operating Expenses. Total operating expenses of $725.4 million in the first
quarter of 2001 increased $55.4 million, or 8.3%, from $670.0 million in the
first quarter of 2000. This increase was primarily due to a net increase of 329
company-operated stores and strategic investments in initiatives to improve
customer service. Total operating expenses as a percentage of total revenues
remained consistent at 55.5% in the first quarter of 2001 compared to 55.3% in
the first quarter of 2000. The increase in total operating expenses also
resulted from the following:
General and Administrative Expense. General and administrative expense,
which includes expenses incurred at the store, regional, and corporate levels,
as a percentage of total revenues increased to 43.1% for the first quarter of
2001 from 42.3% in the first quarter of 2000. General and administrative
expense of $564.3 million in the first quarter of 2001 increased $51.5
million, or 10.0%, from $512.8 million in the first quarter of 2000. The
dollar increase in the first quarter of 2001 resulted from compensation
increases of $26.1 million related to additional personnel needed to support
our store growth, increased customer service initiatives and DIRECTV
initiatives. Occupancy costs increased $15.2 million primarily as a result of
an increase in the number of company-operated stores and leases that expired
and were renewed at increased rates. Other corporate and store expenses
increased $10.2 million due primarily to the growth of our business, including
the increase in the number of company-operated stores, and an increase in
litigation expenses. These increases were partially offset by a decrease in
expenses associated with blockbuster.com, primarily related to a reduction in
consulting costs.
Advertising Expense. Advertising expense of $54.4 million in the first
quarter of 2001 increased $2.8 million, or 5.4%, from $51.6 million in the
first quarter of 2000. As a percentage of total revenues, advertising expense
remained consistent at 4.2% in the first quarter of 2001 compared to 4.3% in
the first quarter of 2000.
Depreciation Expense. Depreciation expense of $62.5 million in the first
quarter of 2001 increased $1.4 million, or 2.3%, as compared to $61.1 million
in the first quarter of 2000. The increase in depreciation expense was
primarily attributable to the net increase of 329 company-operated stores,
partially offset by the reduction of depreciation expense on certain hardware
and software associated with the e-commerce portion of blockbuster.com that
was written down in the fourth quarter of 2000.
Interest Expense. Interest expense of $24.4 million in the first quarter of
2001 decreased $5.0 million, or 17.0%, as compared to $29.4 million in the first
quarter of 2000. The decrease in interest expense was primarily due to lower
average interest rates on our credit facility and lower average debt
outstanding.
Provision for Income Taxes. We recognized a provision for income taxes of
$25.3 million in the first quarter of 2001 as compared to $21.7 million in the
first quarter of 2000. The 2001 and 2000 provisions reflect the non-
deductibility of goodwill amortization associated with Viacom's acquisition of
us in 1994. Additionally, we did not recognize a benefit for losses recognized
in certain foreign jurisdictions in our 2000 and 2001 tax provisions as it is
currently more likely than not that the benefit will not be realized. The
provision for income taxes increased primarily due to higher earnings before
taxes. We review our net operating losses on a country-by-country basis and may
determine in the future that some or all of the net operating losses generated
in the past will be utilized in the future, which would result in a reduction of
the related valuation allowance and an increase in net income.
13
Equity in Income of Affiliated Companies, Net of Tax. Equity in income of
affiliated companies, net of tax, of $0.4 million in the first quarter of 2001
decreased $0.2 million from $0.6 million in the first quarter of 2000, primarily
due to a decrease in income from our joint venture operations in Italy.
Net Income (Loss). For the reasons described above, the consolidated net
income of $4.7 million in the first quarter of 2001 reflects an increase in net
income of $8.8 million from a net loss of $4.1 million in the first quarter of
2000.
Liquidity and Capital Resources
Liquidity
We generate cash from operations predominantly from the rental and retail sale
of videocassettes, video games and DVDs and we have substantial operating cash
flow because most of our revenue is received in cash and cash equivalents. We
expect to fund our future anticipated cash requirements, including the
anticipated cash requirements for capital expenditures, joint ventures,
commitments and payments of principal and interest on any borrowings, with
internally generated funds, as well as with funds available under our credit
facility. We believe that these two sources of funds will provide us with
adequate liquidity and capital necessary for the next twelve months. However, we
may seek to issue debt and/or equity securities in the future to the extent we
determine that the issuance of securities would serve to maximize our capital
structure or would otherwise be advantageous to our company.
In October 1998, BLOCKBUSTER MUSIC stores were sold to Wherehouse
Entertainment Inc. Some of the leases transferred in connection with this sale
had previously been guaranteed either by Viacom or its affiliates. The remaining
terms of these leases expire on various dates through 2007. We have agreed to
indemnify Viacom with respect to any amount paid under these guarantees. At the
time of the sale, the contingent liability for base rent was about $84 million
on an undiscounted basis, with respect to these guarantees. We have not
recognized any reserves related to this contingent liability. If Wherehouse
defaults, related payments are expected to be funded from operating cash flow.
Related losses due to default could materially affect future operating income.
Capital Structure
On June 21, 1999, we entered into a $1.9 billion unsecured credit agreement
with a syndicate of banks. The credit agreement was comprised of a $700 million
long-term revolver due July 1, 2004; a $600 million term loan due in quarterly
installments beginning April 1, 2002 and ending July 1, 2004; and a $600 million
short-term revolver, which was paid down during 2000. The repayment of the
short-term revolver permanently reduced the borrowing capacity under the credit
agreement from $1.9 billion to $1.3 billion. We had $293.0 million of available
borrowing capacity under the long-term revolver at March 31, 2001. Interest
rates under the credit agreement are based on the prime rate in the United
States or LIBOR (plus a margin based on leverage ratios, which is currently
1.25%), at our option at the time of borrowing. The weighted-average interest
rate at March 31, 2001 for borrowings under the credit agreement was 6.9%. A
variable commitment fee based on the total leverage ratio is charged on the
unused amount of the revolver (0.25% at March 31, 2001).
The credit agreement contains certain restrictive covenants, which, among
other things, relate to the payment of dividends, repurchase of our common stock
or other distributions and also require compliance with certain financial
covenants with respect to a maximum leverage ratio and a minimum fixed charge
coverage ratio. At March 31, 2001, we were in compliance with all financial
covenants under the credit agreement.
In March 2001, we entered into two interest rate swaps with Viacom in order to
obtain a fixed interest rate with respect to $400 million of our outstanding
floating rate debt under our credit agreement, and thereby reduce our exposure
to interest rate volatility. The swaps fixed $200 million of our outstanding
debt at an interest rate of 5.01% for two years and the other $200 million at an
interest rate of 5.12% for two and one-half years. The effective interest rates
of the swaps include a LIBOR spread payable to the lenders under our credit
facility, which spread is subject to change under the terms of the credit
agreement and is currently 1.25%. Including the effect of the LIBOR spread, the
effective interest rates of the swaps are
14
currently 6.26% and 6.37%, respectively. The swaps are subject to termination in
the event that (i) Viacom ceases to own greater than 80% of our outstanding
common stock or (ii) we no longer have any obligations under the term loan
portion of our credit agreement. The interest rate swaps qualify as fully
effective, cash-flow hedging instruments under SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by Statements 137 and
138. Therefore, the gain or loss of the qualifying cash flow hedge is reported
in other comprehensive income (loss) and reclassified into earnings in the same
period in which the hedged transaction affects earnings.
The following table sets forth our current portion of long-term debt:
At December 31, At March 31,
2000 2001
--------------- ------------
Current maturities of equipment term loan, interest rate of 8.0%, payable
monthly through April 2005, secured by certain equipment.................... 6.7 6.8
Current maturities of all other obligations.................................. 1.3 1.5
----- -----
Total current portion of long-term debt...................................... $ 8.0 $ 8.3
===== =====
The following table sets forth our long-term debt, less current portion:
At December 31, At March 31,
2000 2001
--------------- ------------
Term loan, interest rate 7.9% and 6.9% at December 31, 2000 and
March 31, 2001, respectively, due in quarterly installments beginning
April 2002................................................................. $ 600.0 $ 600.0
Long-term revolving credit facility, interest rate 8.0% and 6.8% at December
31, 2000 and March 31, 2001, respectively, due July 2004.................... 422.0 407.0
Equipment term loan, interest rate of 8.0% payable monthly through April
2005, secured by certain equipment.......................................... 15.5 13.0
All other obligations........................................................ 1.5 0.6
-------- --------
Total long-term debt, less current portion................................... $1,039.0 $1,020.6
======== ========
Consolidated Cash Flows
Operating Activities. Net cash flows from operating activities decreased $14.0
million, or 6.9%, from $201.5 million for the first quarter of 2000 to $187.5
million for the first quarter of 2001. The most significant reason for the
decrease in cash flows from operating activities was the decrease in accounts
payable of $188.9 million in the first quarter of 2001 compared to a decrease of
$48.9 million in the first quarter of 2000. The larger decrease in accounts
payable in the first quarter of 2001 was mainly due to the timing of payments.
This decrease was partially offset by several increases in cash from changes in
operating asset accounts in the first quarter of 2001 compared to the first
quarter of 2000, primarily the decrease in receivables of $42.1 million in the
first quarter of 2001 as compared to an increase in receivables of $20.8 million
in the first quarter of 2000.
Investing Activities. Net cash used in investing activities increased $7.3
million from $207.3 million for the first quarter of 2000 to $214.6 million in
the first quarter of 2001. The increase was driven by an increase in rental
library purchases of $39.0 million from the first quarter of 2000 to the first
quarter of 2001, primarily due to the increase in the number of company-operated
stores of 329 from March 31, 2000 to March 31, 2001 and an increase in purchases
of non revenue-sharing titles, including DVDs, as a percentage of total rental
library purchases. This increase in rental library purchases was partially
offset by a $30.1 million decrease in capital expenditures, primarily due to
fewer new store openings and lower expenditures related to initiatives
associated with blockbuster.com in the first quarter of 2001 as compared to the
first quarter of 2000.
Financing Activities. Net cash used in financing activities of $27.6 million
for the first quarter of 2001 decreased $53.1 million from net cash provided by
financing activities of $25.5 million in the first quarter of 2000. This
decrease was primarily due to a net pay-down of long-term debt under our credit
facility of $15.0 million for the first quarter of 2001 as compared to a net
increase of $40.0 million in long-term debt under our credit facility in the
first quarter of 2000.
15
Other Financial Measurements: Working Capital
At March 31, 2001, we had cash and cash equivalents of $137.9 million. Working
capital, however, reflected a deficit of $195.5 million due to the accounting
treatment of our rental library. Our rental library is accounted for as a non-
current asset and is excluded from the computation of working capital.
Liabilities associated with the acquisition costs of rental product, however,
are reported as current liabilities and, accordingly, are included in the
computation of working capital. Consequently, we believe working capital is not
as significant a measure of financial condition for companies in the home video
industry as it is for companies in some other industries. Because of this
accounting treatment, we may, from time to time, operate with a working capital
deficit.
Disclosure Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts and include, without limitation, statements relating
to: our plans and expectations regarding product mix and product offerings and
related strategic and financial initiatives and results; our expectations
regarding liquidity, including our anticipated needs for, and sources of, funds;
our plans for managing exposure to interest and currency exchange rate
fluctuations; and our expectations and intentions relating to outstanding
litigation. Our forward-looking statements are based on management's current
intent, belief, expectations, estimates and projections regarding our company
and our industry. Forward-looking statements are not guarantees of future
performance and involve risks, uncertainties, assumptions and other factors that
could cause actual results to vary materially from what is expressed in or
indicated by such forward-looking statements. These factors include, among
others, consumer interest in, and demand for, newly released videos and other
Blockbuster product and service offerings; the impact of competitive product and
service offerings and pricing; the impact of technological shifts on our
business and our ability to respond to changing consumer preferences; the degree
of future currency and interest rate fluctuations; the impact of unknown or
unforeseen developments affecting our outstanding litigation; and other factors,
as set forth under the heading "Cautionary Statements" in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2000. 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to various market risks including interest rates on our debt
and foreign exchange rates. In the normal course of business we employ
established policies and procedures to manage these risks.
Interest Rate Risk
Total outstanding borrowings under our credit agreement at March 31, 2001 were
$1,007.0 million. Interest rates for the credit agreement are based on the prime
rate in the United States or LIBOR (plus a margin based on leverage ratios,
which is currently 1.25%) at our option at the time of borrowing. The weighted-
average interest rate at March 31, 2001 for these borrowings was 6.9%.
In March 2001, we entered into two interest rate swaps with Viacom in order to
obtain a fixed interest rate with respect to $400 million of our outstanding
floating rate debt under our credit agreement, and thereby reduce our exposure
to interest rate volatility. The swaps fixed $200 million of our outstanding
debt at an interest rate of 5.01% for two years and the other $200 million at an
interest rate of 5.12% for two and one-half years. The effective interest rates
of the swaps include a LIBOR spread payable to the lenders under our credit
facility, which spread is subject to change under the terms of the credit
agreement and is currently 1.25%. Including the effect of the LIBOR spread, the
effective interest rates of the swaps are currently 6.26% and 6.37%,
respectively. The swaps are subject to termination in the event that (i) Viacom
ceases to own greater than 80% of our outstanding common stock or (ii) we no
longer have any obligations under the term loan portion of our credit agreement.
16
Foreign Exchange Risk
Operating in international markets involves exposure to movements in currency
exchange rates. Currency exchange rate movements typically also reflect economic
growth, inflation, interest rates, government actions and other factors. As
currency exchange rates fluctuate, translation of the statements of operations
of our international businesses into U.S. dollars may affect year-over-year
comparability and could cause us to adjust our financing and operating
strategies.
On January 1, 1999, eleven member countries of the European Union established
fixed conversion rates between their existing, or local, currencies and one
common currency, the Euro. The transition period for the introduction of the
Euro began January 1, 1999 and will continue until June 30, 2002. The Euro
trades on currency exchanges and may be used in business transactions.
Conversion to the Euro eliminates currency exchange risk between the
participating member countries.
Numerous issues are raised by the Euro currency conversion including the need
to adapt computer and financial systems and business processes and equipment.
Due to these uncertainties, we cannot reasonably estimate the long-term effects
one common currency may have on pricing, costs, and the resulting impact, if
any, on our financial condition or results of operations. However, we believe
that we have taken and will continue to take appropriate steps to assess and
address Euro conversion issues and currently do not expect that our business
will be adversely affected by such conversion in any material respect.
Our operations outside the United States constitute 19.2% of our total
revenues. Our operations in Europe constitute 9.6% of our total revenues. The
majority of these sales are from Great Britain, which has not adopted the Euro.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in Blockbuster's Annual Report on Form 10-K filed with the SEC on
March 29, 2001, a lawsuit is pending against Blockbuster in the United States
District Court for the Western District of Texas that includes federal antitrust
and California state law claims regarding its revenue sharing arrangements, and
a similar lawsuit is also pending in California state court. On March 16, 2001,
the federal judge in the United States District Court for the Western District
of Texas denied the plaintiffs' request for class certification of both the
federal antitrust and California state law claims. The California state court
plaintiffs are now seeking restitution and injunctive relief in addition to
treble damages. In addition to any damage award to which Blockbuster might be
directly subject, if Viacom is required to pay any damage award as a result of
the federal or state court action, Viacom may seek indemnification for its
losses from Blockbuster under the release and indemnification agreement entered
into between Viacom and Blockbuster. Blockbuster believes the plaintiffs'
positions in both actions are without merit and intends to vigorously defend
itself in the litigation.
On May 7, 1999, Lynn Adams, Khristine Schoggins, and Debbie Lenke, purporting
to act as class representatives on behalf of themselves and for a class
comprised of certain Blockbuster store managers who worked in California, filed
a complaint in District Court in Orange County, California against Blockbuster.
The plaintiffs claim that they should be classified as non-exempt and are thus
owed overtime payments under California law. The dollar amount that plaintiffs
seek as damages to themselves and those similarly situated is not set forth in
the complaint. In January 2001, the trial court judge certified a class. In
February 2001, the California Court of Appeals denied Blockbuster's petition for
a writ of mandate. In April 2001, the Supreme Court of California denied
Blockbuster's petition for review. Blockbuster believes the plaintiffs'
position is without merit and intends to vigorously defend itself in the
litigation.
Blockbuster is a defendant in 19 putative class action lawsuits filed by
customers in state courts in Illinois, California, Ohio, Maryland, Texas, New
York, Tennessee, Delaware, Massachusetts, Washington, D.C., and Pennsylvania
between February 1999 and April 2001. These cases allege common law and
statutory claims for fraud and/or deceptive practices and/or unlawful business
practices regarding Blockbuster's policies for customers who choose to keep
rental product beyond the initial rental term. Some of the cases also allege
that these policies impose unlawful penalties and/or result in unjust
enrichment. The dollar amounts that plaintiffs seek as damages to themselves and
those similarly situated are not set forth in the complaints. Blockbuster
reached a preliminary settlement in two of the Texas cases and on April 11,
2001, a Texas state court preliminarily approved the parties' proposed
settlement agreement, which provides for a national settlement class and does
not admit liability. Under the proposed settlement, Blockbuster would make
certificates available to class members for rentals and discounts and would pay
up to a specified amount in attorneys' fees in connection with the settlement.
Confirmation of a settlement is subject to a fairness hearing, currently
scheduled for December 10, 2001, and a final court order. Blockbuster has the
right to rescind the settlement agreement if more than 3,000 class members
exclude themselves from the settlement. Either party will have the right to
terminate the settlement agreement if (i) the court does not approve a
settlement after the fairness hearing or (ii) the court does approve a
settlement, but enters a final order that is not substantially in the form
submitted to it, including changes to the order relating to the payment of
attorneys' fees. On April 25, 2001, an Illinois state court entered a
provisional order, subject to further review and final determination, certifying
plaintiff and defendant classes in order that putative class counsel in Illinois
would have an opportunity to be heard regarding the national class settlement.
Blockbuster believes the plaintiffs' positions in these suits are without merit
and, if the settlement reached in Texas is not confirmed, it intends to
vigorously defend itself in the litigation.
Blockbuster is subject to various other legal proceedings in the course of
conducting its business, including its business as a franchisor. However,
Blockbuster believes that these proceedings are not likely to result in
judgments that will have a material adverse effect on its business.
18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of Blockbuster Inc. (1)
3.2 Bylaws of Blockbuster Inc. (2)
4.1 Specimen Class A Common Stock Certificate of Blockbuster Inc. (3)
________
(1) Previously filed as an exhibit to Blockbuster Inc.'s Registration Statement
on Form S-1 (File No. 333-77899) and incorporated herein by reference.
(2) Previously filed as an exhibit to Blockbuster Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1999, and incorporated herein
by reference.
(3) Previously filed as an exhibit to Blockbuster Inc.'s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1999, and
incorporated herein by reference.
(b) Reports on Form 8-K
None.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Blockbuster Inc.
By: /s/ Larry J. Zine
----------------------------
Larry J. Zine
Executive Vice President and Chief Financial
Officer (on behalf of the Registrant and in his
capacity as principal financial officer)
Date: May 14, 2001
INDEX TO EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of Blockbuster Inc. (1)
3.2 Bylaws of Blockbuster Inc. (2)
4.1 Specimen Class A Common Stock Certificate of Blockbuster Inc. (3)
________
(1) Previously filed as an exhibit to Blockbuster Inc.'s Registration Statement
on Form S-1 (File No. 333-77899) and incorporated herein by reference.
(2) Previously filed as an exhibit to Blockbuster Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1999, and incorporated herein
by reference.
(3) Previously filed as an exhibit to Blockbuster Inc.'s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1999, and
incorporated herein by reference.