Blockbuster Admits Bankruptcy Risk

Published on March 17, 2010 | Comments: 0
In a revised fiscal year 2009 annual report, media entertainment retailer Blockbuster Inc. admits it is at risk for filing for bankruptcy protection. In the report, Blockbuster cites its fiscal 2009 net loss of $558.2 million, a 49.2% increase from its fiscal 2008 net loss of $348.3 million. Blockbuster previously said net loss was substantially increased by the impairment of goodwill and other assets, and also cited 374 store closures during the year and severance as boosting net loss totals. The retailer also incurred a stockholder’s deficit for the year. In addition, Blockbuster cites the “increasingly competitive” media entertainment industry as negatively impacting its cash flow. Blockbuster owes what it terms “significant amortization and other debt service payments,” and needs cash flow to cover its liquidity. Blockbuster cannot currently guarantee it will be able to adequately handle these costs on an ongoing basis. If Blockbuster finds itself unable to pay these costs, the negative implications could include difficulty obtaining future financing or selling assets, unfavorable credit ratings and terms, and a need for further debt restructuring. Ultimately, Blockbuster admits it could be forced to file for bankruptcy depending on how severe its debt and credit problems became.

Situation Similar to 2009

Blockbuster is repeating a situation it endured during the first half of 2009, when the retailer faced a grim financial picture. After reporting declines in revenues and gross profits for Q4 and fiscal 2008, Blockbuster stated in an April 2009 SEC filing there is “substantial doubt about our ability to continue as a going concern.” Blockbuster attributed most of the doubt to “certain conditions” it had to meet to oblige the funders of an amended $250 million credit facility that was approved April 3, 2009. Blockbuster later met the conditions of the credit facility, which will expire September 30, 2010. In addition, Blockbuster said even if the credit facility were funded, it still could not guarantee it would have the liquidity to remain in business, and investors in its securities could lose “part or all” of their investments.

Blockbuster Eliminates Corporate Jobs

In February 2010, Blockbuster eliminated corporate positions in a restructuring effort. The job cuts came as part of a restructuring of Blockbuster’s staff at its corporate headquarters in Dallas, TX and distribution center in McKinney, TX, according to The Dallas Morning News. A Blockbuster spokesperson was quoted as saying the layoffs represented a “small fraction” of the approximately 3,000 people the retailer employs in the Dallas-Fort Worth area. Although Blockbuster declined to specify an exact number of layoffs or identify which positions were eliminated, the retailer said several executive positions were among those cut. The layoffs were reportedly an attempt to optimize resources.

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