UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: : Chapter 11 BLOCKBUSTER INC., et al. 1 : : Case No: 10-14997 : Debtors. : Jointly Administered Monthly Operating Report For the Period From November 1, 2010 to November 28, 2010 DEBTORS' ADDRESS: DEBTORS' ATTORNEYS: 1201 Elm Street Dallas, Texas 75270 Telephone: (214) 854-3000 Facsimile: (214) 854-4848 Stephen Karotkin WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York 10153 Telephone: (212) 310-8800 Facsimile: (212) 310-8007 -and- Martin A. Sosland (admitted pro hac vice ) WEIL, GOTSHAL & MANGES LLP 200 Crescent Court, Suite 300 Dallas, Texas 75201 Telephone: (214) 746-7700 Facsimile: (214) 746-7700 This Monthly Operating Report ("MOR") has been prepared solely for the purpose of complying with the monthly reporting requirements applicable in these chapter 11 cases and is in a format acceptable to the United States Trustee. The financial information contained herein is limited in scope and covers a limited time period. Moreover, such information is preliminary and unaudited, and is not prepared in accordance with generally accepted accounting principles ("GAAP") in teh United States. I declare under penalty of perjury (28 U.S.C. Section 1746) that this report and the attached documents are true and correct to the best of my knowledge and belief. /s/ Bruce Lewis 12/28/2010 Bruce Lewis Senior Vice President and Controller Blockbuster Inc. 1 The Debtors, together with the last four digits of each Debtor s federal tax identification number, are Blockbuster Inc. (5102); Blockbuster Canada Inc. (1269); Blockbuster Digital Technologies Inc. (9222); Blockbuster Distribution, Inc. (0610); Blockbuster Gift Card, Inc. (1855); Blockbuster Global Services Inc. (3019); Blockbuster International Spain Inc. (7615); Blockbuster Investments LLC (6313); Blockbuster Procurement LP (2546); Blockbuster Video Italy, Inc (5068); Movielink, LLC (5575); Trading Zone Inc. (8588); and B2 LLC (5219).
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Federal Tax I.D. # 52-1655102 CORPORATE MONTHLY OPERATING REPORT REQUIRED DOCUMENTS Form No. Document Attached Schedule of Cash Receipts and Disbursements MOR-1 x Bank Reconciliation (or copies of debtor's bank reconciliations) MOR-1 (CON'T) x Copies of bank statements Cash disbursements journals Statement of Operations MOR-2 x Balance Sheet MOR-3 x Status of Post-petition Taxes MOR-4 x Copies of IRS Form 6123 or payment receipt Copies of tax returns filed during reporting period Summary of Unpaid Post-petition Debts MOR-4 x Listing of Aged Accounts Payable Accounts Receivable Reconciliation and Aging MOR-5 x Taxes Reconciliation and Aging MOR-5 x Payments to Insiders and Professionals MOR-6 x Post Petition Status of Secured Notes, Leases Payable MOR-6 x Debtor Questionnaire MOR-7 x Explanation Attached x x x x x FORM MOR Page 2 of 10
SCHEDULE OF CASH RECEIPTS AND DISBURSEMENTS (in millions) 4 weeks ended For the Period 11/28/2010 9/23/2010-11/28/2010 Cash flows from operating activities: Net income (loss). $ (42.1) $ (78.6) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and intangible amortization 6.0 22.2 Rental library purchases (17.1) (51.3) Rental library amortization 20.6 41.3 Loss on sale of store operations 19.3 19.3 Non-cash share-based compensation - - Gain on sale of store operations - - Deferred taxes and other (5.9) (28.7) Reorganization items, net of cash payments 0.1 5.5 Changes in operating assets and liabilities: Change in receivables (1.4) 1.3 Change in merchandise inventories (14.4) (22.7) Change in prepaid and other assets (12.6) (5.9) Change in accounts payable 35.0 88.1 Change in accrued expenses and other liabilities (4.1) 14.1 Net cash provided by (used in) operating activities (16.6) 4.6 Cash flows from investing activities: Capital expenditures (1.6) (4.0) Change in restricted cash 0.7 0.8 Proceeds from sale of store operations 3.3 3.3 Other investing activities 0.1 0.1 Net cash provided by (used in) investing activities 2.5 0.2 Cash flows from financing activities: Proceeds from DIP Financing 53.8 73.8 Repayments on DIP Financing (30.5) (50.5) Debt financing costs - (4.6) Capital lease payments (0.3) (0.7) Net cash provided by (used in) financing activities 23.0 18.0 Effect of exchange rate changes on cash - - Net decrease in cash and cash equivalents 8.9 22.8 Cash and cash equivalents at beginning of period 52.2 38.3 Cash and cash equivalents at end of period $ 61.1 $ 61.1 FORM MOR-1 Page 3 of 10
Continuation Sheet for MOR-1 BANK RECONCILIATIONS GL# Bank Name Bank Balance Deposits & Transfers in Transit O/S, Bank Service Charges, Adjustments to GL Other Reconciling Items GL Balance 575.1017.0003 Wachovia ProCo $ 257,250 $ - $ - $ - $ 257,250 80017.1017.0005 JPM Chase Lockbox 35,899 (345) - (4,993) 30,561 25.1017.0006 Wells Fargo Avista Funding 280,047 - - - 280,047 03101.1017.0006 Wachovia Funding 2,186,080 - - - 2,186,080 03501.1017.0006 JPM Chase Met Life Funding 52,268 - - - 52,268 03101.1019 Wachovia Cash Concentration - 2,137,812 - - 2,137,812 25.1024 Right of Setoff - - - - 123,460 25.1025 Wells Fargo Avista Disbursements - - (277,679) - (277,679) 575.1025 Wachovia ProCo AP Disbursements - - (1,098) - (1,098) 03101.1025 Wachovia AP Disbursements - - (1,729,705) - (1,729,705) 03501.1025 BofA Sedgwick Ins Disbursements 83,007 - (205,434) (703) (123,131) 80017.1025 BofA AP Disbursements - - (506) - (506) 03101.1026 Wachovia EFT - - - 0 0 03101.1032 Wachovia Payroll Disbursements - - (674,522) 49,507 (625,014) xxxxx.10370000 Single Store depository only accounts* - - - - 1,506,489 xxxxx.10380000 Store concentration accounts 4,601,501 4,627,278 (35,578) (78,861) 9,114,340 03101.10390000 Bank of New York Returned Checks 1,358 (55) - 1,303 xxxxx.10480000 Cash - Store Drawer - - - - 2,284,350 1049.0001 OL NRP Sale-Corp E-Comm - (4,303) - - (4,303) 1049.0002 OL NRP Return - Corp Ecomm - 1,819 - - 1,819 1049.0005 Ecomm Tender Clearing - 13,771 - - 13,771 1049.0006 Ecomm Refund Clearing 335 - - 335 1049.0008 Ecomm Digital Rental - (288) - - (288) 1049.0009 Ecomm Digital Rental Refund 123 123 1049.0010 Host Payment Tender Clearing - - - - 16,808 xxxxx.1060.0001 Mastercard/Visa Draft Capture - 11,991,929 (5,439) 11,986,491 xxxxx.1060.0002 American Express Draft Capture - 1,116,705 - (2,927) 1,113,779 xxxxx.1060.0004 Discover Draft Capture - 748,701 - (870) 747,832 xxxxx.1060.0006 Debit Card Draft Capture - 4,240,413 - (3,940) 4,236,473 xxxxx.1060.0007 E-check Draft Capture - 66,368-0 66,368 xxxxx.1060.0011 Paypal Draft Capture - 41,961-0 41,962 03101.1078.0004 Wachovia Overnight Investment 36,332,000 (8,871,783) - - 27,460,217 25.1078.0005 Citigroup Investments 193,843 - - - 193,843 Total Cash & Cash Equivalents $ 44,023,253 $ 16,110,498 $ (2,924,577) $ (48,224) $ 61,092,056 * Single store depository accounts are reconciled one month in arrears. Note: Due to the voluminous nature of the request for the Debtors' bank statements and disbursement journals, summaries of these requests have been provided. FORM MOR-1 (CONT.) Page 4 of 10
STATEMENT OF OPERATIONS (Income Statement) (in millions) 4 weeks ended For the Period 11/28/2010 9/23/2010-11/28/2010 Revenues: Base rental revenues.. $ 98.0 $ 224.4 Previously rented product ("PRP") revenues.. 18.8 43.9 Total rental revenues 116.8 268.3 Merchandise sales 22.4 45.4 Other revenues 3.4 6.7 142.6 320.4 Cost of sales: Cost of rental revenues.. 41.8 89.9 Cost of merchandise sold.. 17.3 34.9 Total cost of sales... 59.1 124.8 Gross profit.. 83.5 195.6 Operating expenses: General and administrative. 83.8 198.9 Advertising... 9.0 11.2 Depreciation and intangible amortization.. 6.0 22.2 Impairment of goodwill and other long-lived assets - - 98.8 232.3 Operating income (loss)... (15.3) (36.7) Interest expense... 0.3 0.7 Interest income.. - - Other items, net... 0.4 0.3 Income (loss) from continuing operations before reorganization items and income taxes (16.0) (37.7) Reorganization items, net..... 4.0 15.8 Benefit (provision) for income taxes... 0.2 0.5 Equity in income of non-debtor subsidiaries... 2.6 5.3 Income (loss) from continuing operations.. (22.8) (59.3) Income (loss) from discontinued operations, net of tax (19.3) (19.3) Net income (loss)... (42.1) (78.6) Preferred stock dividends... - - Net income (loss) applicable to common stockholders $ (42.1) $ (78.6) FORM MOR-2 Page 5 of 10
BALANCE SHEET (in millions) As of 11/28/2010 Assets Current assets: Cash and cash equivalents.. $ 61.1 Receivables, less allowances 30.1 Receivables from non-debtor subsidiaries 14.7 Merchandise inventories... 111.8 Rental library, net.. 199.5 Prepaid and other current assets 83.5 Total current assets.. 500.7 Property and equipment, net.. 138.6 Deferred income taxes. 70.6 Investment in non-debtor subsidiaries 277.4 Intangibles, net.. 5.9 Restricted cash 34.3 Other assets.. 38.1 $ 1,065.6 Liabilities and Stockholders' Equity (Deficit) Current liabilities: Accounts payable.. $ 133.1 Accrued expenses... 195.1 Debtor-in-possession loan 23.3 Deferred income taxes.. 70.7 Total current liabilities.. 422.2 Other liabilities 12.2 434.4 Liabilities subject to compromise 1,165.0 1,599.4 Total stockholders' equity (deficit) (533.8) $ 1,065.6 FORM MOR-3 Page 6 of 10
STATUS OF POST-PETITION TAES Federal Beginning Tax Amount Withheld and/or Accrued Amount Paid Ending Tax Withholding $ 1,142,352 $ 2,510,767 $ (2,352,197) $ 1,300,922 FICA-Employee 1,072,697 2,374,870 (2,276,912) 1,170,656 FICA-Employer 1,072,697 2,374,870 (2,276,912) 1,170,656 Unemployment 71,656 52,974-124,630 Income - Other: Total Federal Taxes 3,359,402 7,313,481 (6,906,020) 3,766,864 State and Local Withholding 356,236 788,531 (383,587) 404,944 Sales 8,707,884 10,904,835 (11,910,052) 7,702,666 Excise - - - Unemployment 344,836 222,017-566,853 1,2 Real Property 10,255 50,143-60,398 2 Personal Property 3,822,859 522,660 (891,496) 3,454,023 3 Other: Income/Franchise 1,671,083 208,852 (31,067) 1,848,868 Total State and Local 14,913,152 12,697,038 (13,216,201) 14,037,753 Total Taxes $ 18,272,554 $ 20,010,520 $ (20,122,222) $ 17,804,617 Attach aged listing of accounts payable. SUMMARY OF UNPAID POST-PETITION DEBTS Number of Days Past Due DESCRIPTION Current 0-30 31-60 61-90 Over 91 Total AP - Product $ 54,220,577 $ 3,958,389 $ (8,286,322) $ (6,575,248) $ (429,151) $ 42,888,245 AP - Legal & Professional Fees 1,218,457 (205,640) 353,412 - - 1,366,229 AP - Other 7,082,270 1,006,679 (550,940) (111,701) (538,379) 6,887,930 TOTAL POST-PETITION DEBTS 4 $ 62,521,305 $ 4,759,428 $ (8,483,850) $ (6,686,949) $ (967,530) $ 51,142,404 Explain how and when the Debtor intends to pay any past due post-petition debts. Past due product amouts pending accomodation agreements. Past due legal amounts pending other requirements. Other past due amounts reflect normal processing lag time, vendors not submitting invoices in a timely manner and certain contracts under negotiation. Items delayed by processing lag are normally paid within 60 days. Balances related to contracts under negotiation will be paid upon resolution. Past due credits reflect payments in advance and product return credits. 1 - Blockbuster leases the substantial majority of its stores. Accordingly, real property taxes paid pursuant to such lease obligations are not reported herein as such payments are captured within leases payable. 2 - The Real Property and Personal Property taxes are considered "postpetition" based off of when the payment is due to the taxing authority. 3 - Although Franchise/Income taxes are "incurred" on an accrual basis, we have included prepetition accruals since the payments for these taxes will be based on the entire year. 4 - Variance to total accounts payable on Balance Sheet is due to pre-petition balances that are not subject to compromise and have been approved for payment by order of the Bankruptcy Court or relate to various accounts payable accrual amounts that are not aged. 5 - Due to the voluminous nature of the request for the Debtors' listing of aged accounts, a summary has been provided. 6- Due to the voluminous nature of this request, the Debtors have not included copies of Form 6123 and tax returns filed during this period. FORM MOR-4 Page 7 of 10
ACCOUNTS RECEIVABLE RECONCILIATION AND AGING Accounts Receivable Reconciliation Total Accounts Receivable at the beginning of the reporting period $ Amount 28,571,477 Plus: Amounts billed during the period Less: Amounts collected during the period 6,695,714 (4,368,778) Less: Amounts written off during the period - Less: Amounts reserved during the period (268,781) Change in store accounts receivable, net Total Accounts Receivable at the end of the reporting period $ (570,444) 30,059,188 Accounts Receivable Aging 11/28/2010 0-30 days old $ 14,832,963 31-60 days old 839,775 61-90 days old 1,256,626 91-120 days old 1,784,484 121+ days old 880,895 Total Aged Accounts Receivable 19,594,743 Store Accounts Receivable 1 16,612,460 Total Accounts Receivable 36,207,203 Less: Bad Debts (Amount considered uncollectible) (6,148,015) Net Accounts Receivable $ 30,059,188 1 - All store accounts receivable are less than 90 days. TAES RECONCILIATION AND AGING Taxes Payable Current 1-30 Days 31-60 Days 61-90 Days 91+ Days Total Federal $ 3,766,864 $ 3,766,864 State and Local 14,037,753 14,037,753 Other Total Taxes Payable $ 17,804,617 $ 17,804,617 FORM MOR-5 Page 8 of 10
n re BLOCKBUSTER INC., et al. Case No. 10-14997 PAYMENTS TO INSIDERS AND PROFESSIONALS INSIDERS (1) NAME TYPE OF PAYMENT AMOUNT PAID TOTAL PAID TO DATE TOTAL PAYMENTS TO INSIDERS (1) No payments other than ordinary wages and benefits occurred during the reporting period. PROFESSIONALS DATE OF COURT NAME ORDER AUTHORIZING PAYMENT AMOUNT APPROVED AMOUNT PAID TOTAL PAID TO DATE TOTAL INCURRED & UNPAID* Sidley Austin LLP** 09/27/2010 $ 737,041 $ 321,766 $ 737,041 $ - Jefferies & Company Inc** 09/27/2010 343,473 118,473 343,473 - Skadden, Arps, Slate, Meagher & Flom LLP** 09/27/2010 28,343 28,343 28,343 - TOTAL PAYMENTS TO PROFESSIONALS * INCLUDE ALL FEES INCURRED, BOTH APPROVED AND UNAPPROVED **Fees paid pursuant to the DIP Financing Order for professionals of the DIP lenders and DIP Agent. $ 1,108,856 $ 468,582 $ 1,108,856 $ - POST-PETITION STATUS OF SECURED NOTES, LEASES PAYABLE AND ADEQUATE PROTECTION PAYMENTS NAME OF CREDITOR SCHEDULED MONTHLY PAYMENT DUE AMOUNT PAID DURING MONTH TOTAL UNPAID POST- PETITION DIP Financing*** $ - $ 1,646,980 $ 23,253,020 DIP Interest*** - 176,637 Leases Payable 28,223,188 27,844,728 378,460 Adequate Assurance Payments - Utilities 134,270 134,270 - Adequate Assurance Payments - Insurance 2,000,000 2,000,000 - TOTAL PAYMENTS $ 31,625,978 $ 23,808,117 *** During the period, Debtor borrowed $53.8 million and repaid $30.5 million. In accordance with the Final Order (I) Authorizing Postpetition Superpriority Secured Financing Pursuant to 11 U.S.C. 105(a), 361, 362, 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1) and 364(e), (II) Authorizing Postpetition Use of Cash Collateral Pursuant to 11 U.S.C. 363, and (III) Granting Adequate Protection Pursuant to 11 U.S.C. 361, 362, 363 and 364 [Docket No. 432] (the "DIP Financing Order"), payments are not scheduled on a monthly basis, but are due based on certain covenants in the DIP Financing Order or at the discretion of the Debtors. FORM MOR-6 Page 9 of 10
DEBTOR QUESTIONNAIRE Must be completed each month. If the answer to any of the questions is Yes, provide a detailed explanation of each item. Attach additional sheets if necessary. Have any assets been sold or transferred outside the normal course of business this 1 reporting period? Have any funds been disbursed from any account other than a debtor in possession 2 account this reporting period? 3 Is the Debtor delinquent in the timely filing of any post-petition tax returns? Are workers compensation, general liability or other necessary insurance coverages 4 expired or cancelled, or has the debtor received notice of expiration or cancellation of such policies? 5 Is the Debtor delinquent in paying any insurance premium payment? 6 Have any payments been made on pre-petition liabilities this reporting period? 7 Are any post petition receivables (accounts, notes or loans) due from related parties? 8 Are any post petition payroll taxes past due? 9 Are any post petition State or Federal income taxes past due? 10 Are any post petition real estate taxes past due? 11 Are any other post petition taxes past due? 12 Have any pre-petition taxes been paid during this reporting period? 13 Are any amounts owed to post petition creditors delinquent? 14 Are any wage payments past due? 15 Have any post petition loans been received by the Debtor from any party? 16 Is the Debtor delinquent in paying any U.S. Trustee fees? Is the Debtor delinquent with any court ordered payments to attorneys or other 17 professionals? Have the owners or shareholders received any compensation outside of the normal course 18 of business? Yes No 6 Pre-petition amounts have been paid under respective Court orders. 7 Subject to the provisions of the DIP Financing Order and agreement with the lenders thereunder, the Debtors are authorized to enter into certain limited ordinary course intercompany transactions with their foreign non-debtor affiliates. During this period, the Debtors have entered into such ordinary course transactions that have resulted in receivables from these foreign non-debtor affiliates. 12 Pre-petition taxes have been paid under the Final Order Pursuant to 11 U.S.C. 105(a), 363(b), 507(a)(8), and 541 and Fed R. Bank. P.6003 and 6004 Authorizing Debtors to Pay Prepetition Taxes and Assessments [Docket No. 355]. 13 Other past due amounts reflect normal processing lag time, vendors not submitting invoices in a timely manner and certain contracts under negotiation. Items delayed by processing lag are normally paid within 60 days. Balances related to contracts under negotiation will be paid upon resolution. 15 In accordance with the DIP Financing Order, borrowings of $53.8 million and payments of $30.5 million were made during the period. As of November 28, 2010, there was a $23.3 million outstanding balance under the revolving loans. FORM MOR-7 Page 10 of 10