- The Washington Times - Thursday, March 19, 2009

Blockbuster Inc. suffered a fourth-quarter loss of $360 million to conclude another difficult year, but the struggling video rental chain has lined up critical financing to buy it more time to adapt to ever-fiercer competition from the Internet and cable services.

Despite the tentative agreements with JP Morgan Chase Bank and two other lenders, Blockbuster warned Thursday its auditor is likely to raise doubts about the Dallas-based company’s ability to remain afloat.

The questions about Blockbuster’s survival aren’t new. Earlier this month, rumors swirled that it that was poised to file for bankruptcy protection to extricate itself from a financial bind created by the August expiration of a $350 million revolving credit line.

The bankruptcy fears have hammered Blockbuster’s already battered stock, which plunged to a new low of 13 cents earlier this month. The shares added 6 cents to close at 89 cents Thursday.

Blockbuster executives say they believe the company is better shape now that it has arranged to extend the credit line through September 2010 with a lower borrowing limit of $250 million.

To help ensure Blockbuster has enough cash to pay its bills, management also plans to lower its expenses by least $200 million this year by renegotiating store leases and taking a variety of other austerity measures.

“We are still in the process of transforming this business and these capital markets made it just a bit more challenging but we are pleased with the progress that we have made,” James Keyes, Blockbuster’s chief executive, told analysts in a Thursday conference call.

Refinancing Blockbuster’s debt won’t be cheap, Keyes said, and the final terms aren’t likely to be completed for at least several more days. In an interview, he declined to identify the other lenders besides J.P. Morgan involved in the refinancing talks.

With some uncertainty still lingering, Blockbuster won’t file its annual report this month as dictated under rules set by the Securities and Exchange Commission. The company plans to file the report by April 6 with more details about its refinancing.

Blockbuster’s fourth-quarter loss, which translated into $1.89 per share, stemmed mostly from non-cash charges to account for the crumbling value of Blockbuster’s 7,400-store franchise. The setback compared with a profit of $41 million, or 18 cents per share, in the prior year.

Revenue fell 12 percent to $1.38 billion. Blockbuster blamed the decline on fewer stores, a stronger dollar and one week less in the quarter compared with the previous year.

If not for various accounting charges, Blockbuster said it would have earned 40 cents per share. That figure topped the average estimate of 25 cents per share among analysts polled by Thomson Reuters.

In another bright spot, Blockbuster’s sales at U.S. stores open for at least a year rose 4 percent from the same time in the previous year. The performance enabled Blockbuster to post its first annual gain in U.S. same-store sales in eight years.

Blockbuster is ringing up sales largely by peddling more video games and consumer electronics merchandise, such as DVD players. The company’s U.S. same-store revenue from video rentals dropped 2.6 percent in the fourth quarter.

Fewer consumers are coming to Blockbuster to rent video with the rising popularity of DVD-by-mail services like Netflix Inc. and electronic distribution systems that use high-speed Internet connections and television set-top boxes to pipe movies into homes within a matter of seconds.

Despite those challenges, Blockbuster estimates it still attracts about 20 million customers each month _ more than doubling the roughly 10 million people subscribing to Netflix’s service.

But Netflix’s momentum has been accelerating, with the addition of more than 1.3 million new customers in just the past six months while Blockbuster has been dealing with its financial headaches.

Blockbuster has countered with its own version of Netflix as well as a service that delivers movies over Internet connections. It’s also trying to lure more customers into its stores by offering prices as low as 99 cents for one-day video rentals.

For all of 2008, Blockbuster lost $374 million on revenue of $5.3 billion. The company lost $74 million on $5.5 billion in revenue in 2007.

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