<PAGE> 1
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 June 30, 1994 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: 0-12700
BLOCKBUSTER ENTERTAINMENT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-1849418
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE BLOCKBUSTER PLAZA
FORT LAUDERDALE, FLORIDA 33301
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (305) 832-3000
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
--- ---
On August 3, 1994, the registrant had 253,522,612 outstanding shares
of common stock, $.10 par value.
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
Page(s)
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets -
June 30, 1994 and December 31, 1993 3
Unaudited Condensed Consolidated Statements of
Operations - Three Months and Six Months Ended
June 30, 1994 and 1993 4
Unaudited Condensed Consolidated Statement of
Changes in Shareholders' Equity - Six Months
Ended June 30, 1994 5
Unaudited Condensed Consolidated Statements of Cash
Flows - Six Months Ended June 30, 1994 and 1993 6
Notes to Unaudited Condensed Consolidated Financial
Statements 7-17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 18-26
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27
2
<PAGE> 3
PART I.
ITEM 1. Financial Statements
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---- ----
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 62,487 $ 95,254
Accounts and notes receivable,
less allowance 155,415 135,172
Merchandise inventories 375,554 350,763
Film costs and program rights, net 151,735 117,324
Other 51,461 50,210
---------- ----------
Total Current Assets 796,652 748,723
VIDEOCASSETTE RENTAL INVENTORY, NET 497,925 470,223
PROPERTY AND EQUIPMENT, NET 633,183 522,745
INTANGIBLE ASSETS, NET 903,928 856,318
INVESTMENTS IN VIACOM INC. 1,581,730 600,000
OTHER ASSETS 401,238 322,958
---------- ----------
$4,814,656 $3,520,967
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt and current portion
of long-term debt $1,000,000 $ 9,083
Accounts payable 198,248 369,815
Accrued liabilities 171,323 177,695
Accrued participation expenses 51,609 43,013
Income taxes payable 48,973 43,632
---------- ----------
Total Current Liabilities 1,470,153 643,238
LONG-TERM DEBT, LESS CURRENT PORTION 1,152,000 603,496
OTHER LIABILITIES 78,603 59,999
MINORITY INTERESTS IN SUBSIDIARIES 93,824 90,834
COMMITMENTS AND CONTINGENCIES --- ---
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value; authorized
500,000 shares; none issued --- ---
Common stock, $.10 par value; authorized
800,000,000 shares; issued and
outstanding 249,233,467 and 247,380,069
shares, respectively 24,923 24,738
Capital in excess of par value 1,608,472 1,564,685
Cumulative foreign currency translation
adjustment (32,455) (38,143)
Unrealized holding loss on
available-for-sale securities (276,123) ---
Retained earnings 695,259 572,120
---------- ----------
Total Shareholders' Equity 2,020,076 2,123,400
---------- ----------
$4,814,656 $3,520,967
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ---------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Rental revenue $372,307 $277,954 $ 764,925 $569,352
Product sales 199,300 128,788 404,630 259,141
Other revenue 104,653 85,716 203,235 97,363
-------- -------- ---------- --------
676,260 492,458 1,372,790 925,856
OPERATING COSTS AND EXPENSES:
Cost of product sales 127,367 81,471 260,754 167,485
Operating expenses 378,278 293,091 758,189 524,796
Selling, general and
administrative 51,736 36,167 115,369 74,918
-------- -------- ---------- --------
OPERATING INCOME 118,879 81,729 238,478 158,657
INTEREST EXPENSE (28,318) (9,353) (39,937) (15,912)
INTEREST INCOME 1,144 2,716 2,540 4,497
GAIN FROM EQUITY INVESTMENT --- 2,979 --- 2,979
OTHER INCOME (EXPENSE), NET 8,297 (2,534) 14,148 (4,312)
-------- -------- ---------- --------
INCOME BEFORE INCOME TAXES 100,002 75,537 215,229 145,909
PROVISION FOR INCOME TAXES 37,001 27,571 79,635 53,257
-------- -------- ---------- --------
NET INCOME $ 63,001 $ 47,966 $ 135,594 $ 92,652
======== ======== ========== ========
Net Income per Common Share - assuming full
dilution $ .25 $ .22 $ .53 $ .44
======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994
(In thousands)
<TABLE>
<CAPTION>
Capital in Cumulative Unrealized
Common Excess of Translation Holding Retained
Stock Par Value Adjustment Loss Earnings
--------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 24,738 $1,564,685 $(38,143) $ --- $572,120
Net income for the period --- --- --- --- 135,594
Stock issued in acquisitions
and investments 130 35,200 --- --- ---
Sales of common stock 55 8,587 --- --- ---
Cash dividends --- --- --- --- (12,455)
Foreign currency
translation adjustment --- --- 5,688 --- ---
Unrealized holding loss
on available-for-sale
securities --- --- --- (276,123) ---
-------- ---------- -------- --------- --------
Balance at June 30, 1994 $ 24,923 $1,608,472 $(32,455) $(276,123) $695,259
======== ========== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------------------
1994 1993
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 135,594 $ 92,652
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization 235,005 186,073
Amortization of film costs 82,307 26,830
Additions to film costs and program rights (96,671) (34,226)
Interest on subordinated convertible debt --- 4,741
Gain from equity investment --- (2,979)
Changes in operating assets and
liabilities, net of effects from
purchase transactions:
(Increase) decrease in accounts
receivable 2,483 (9,945)
Increase in merchandise inventories (25,252) (7,520)
Increase in other current assets (2,216) (9,284)
Decrease in accounts payable and
accrued items (199,814) (101,868)
Increase in income taxes payable
and related items 24,359 19,022
Other (13,322) 10,350
---------- ---------
142,473 173,846
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of videocassette
rental inventory (229,369) (188,505)
Disposals of videocassette
rental inventory 33,637 18,762
Purchases of property and equipment (157,463) (55,186)
Purchase of Viacom Inc. securities (1,250,000) ---
Net cash used in business combinations and
investments (101,510) (49,406)
Other (6,188) (1,537)
---------- ---------
(1,710,893) (275,872)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common
stock, net 8,642 65,379
Proceeds from debt 3,001,000 631,410
Repayments of debt (1,461,579) (564,726)
Cash dividends paid (12,410) (7,672)
Other --- (15,571)
---------- ---------
1,535,653 108,820
---------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (32,767) 6,794
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 95,254 43,358
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 62,487 $ 50,152
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(000's omitted in all tables except per share amounts)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Blockbuster Entertainment Corporation and subsidiaries (the "Company") have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those
rules and regulations. However, the Company believes that the disclosures
contained herein are adequate to make the information presented not misleading.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's most recent annual report to shareholders.
The financial statements reflect, in the opinion of management, all material
adjustments (which include only normal recurring adjustments) necessary to
present fairly the Company's financial position and results of operations.
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform with the financial statement presentation of the
current period.
The accompanying financial statements also include the financial position and
results of operations of WJB Video Limited Partnership and certain of its
affiliates ("WJB"), with which the Company merged in August 1993. This
transaction has been accounted for under the pooling of interests method of
accounting and, accordingly, these financial statements and notes thereto have
been restated as if the companies had operated as one entity since inception.
See Note 16, Business Combinations and Investments, for a further discussion of
this transaction.
2. MERCHANDISE INVENTORIES
Merchandise inventories, consisting primarily of prerecorded music and
videocassettes, are stated at the lower of cost or market. Cost is determined
using the moving weighted average or the retail inventory method, the uses of
which approximate the first-in, first-out basis.
3. FILM COSTS AND PROGRAM RIGHTS
Film costs and program rights relate to the operations of the Company's filmed
entertainment business. See Note 16, Business Combinations and Investments.
Film costs and program rights include production or acquisition costs
(including advance payments to producers), capitalized overhead and interest,
prints, and advertising expected to benefit future periods. These costs are
amortized, and third party participations and residuals are accrued, in the
ratio that the current year's gross revenue bears to estimated future gross
revenue, calculated on an individual product basis.
7
<PAGE> 8
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Film costs and program rights are stated at the lower of cost, net of
amortization, or estimated net realizable value on an individual film basis.
Estimates of total gross revenue, costs and participation expenses are reviewed
quarterly and write-downs to net realizable value are recorded and future
amortization expense is revised as necessary.
The components of film costs and program rights, net of amortization, are as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
<S> <C> <C>
Film costs:
Released $ 82,476 $ 77,204
In process and other 26,717 22,009
Program rights 146,780 89,690
--------- ---------
255,973 188,903
Less: non-current portion (104,238) (71,579)
--------- ---------
Current portion of film costs
and program rights $ 151,735 $ 117,324
========= =========
</TABLE>
The non-current portion of film costs and program rights is included in other
assets.
4. VIDEOCASSETTE RENTAL INVENTORY
Videocassettes are recorded at cost and amortized over their estimated economic
lives with no provision for salvage value. Videocassettes which are considered
base stock are amortized over thirty-six months on a straight-line basis.
Videocassettes which are considered new release feature films frequently
ordered in large quantities to satisfy initial demand ("hits") are, except as
discussed below, amortized over thirty-six months on an accelerated basis.
"Hit" titles for which ten or more copies per store are purchased are, for the
tenth and any succeeding copies, amortized over nine months on an accelerated
basis.
Videocassette rental inventory and related amortization are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
<S> <C> <C>
Videocassette rental inventory $ 894,416 $ 841,488
Less: accumulated amortization (396,491) (371,265)
--------- ---------
$ 497,925 $ 470,223
========= =========
</TABLE>
8
<PAGE> 9
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization
expense is provided over the estimated lives of related assets using the
straight-line method. The components of property and equipment are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
Life 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Land and buildings 15-32 Years $ 92,912 $ 77,715
Leasehold improvements 2-10 Years 345,194 281,992
Furniture and fixtures 2-10 Years 205,393 178,578
Equipment 2-10 Years 242,524 194,125
--------- ---------
886,023 732,410
Less: accumulated depreciation
and amortization (252,840) (209,665)
--------- ---------
$ 633,183 $ 522,745
========= =========
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets primarily consist of the cost of acquired businesses in
excess of the market value of net tangible assets acquired. The cost in excess
of the market value of net tangible assets is amortized on a straight-line
basis over periods ranging from 15 to 40 years.
Accumulated amortization of intangible assets at June 30, 1994 and December 31,
1993 was $59,460,000 and $45,286,000, respectively.
7. INVESTMENTS IN VIACOM INC.
In January 1994, the Company entered into a merger agreement pursuant to which
the Company agreed to merge with and into Viacom Inc. ("Viacom"), with Viacom
being the surviving corporation. The closing of the merger is subject to
customary conditions including, but not limited to, approval of the merger by
the Company's shareholders.
Concurrent with the merger agreement, the Company entered into a subscription
agreement pursuant to which, in March 1994, the Company purchased from Viacom
22,727,273 shares of non-voting Viacom Class B common stock for an aggregate
purchase price of approximately $1,250,000,000, or $55 per share.
Under the terms of the subscription agreement, the Company was granted certain
rights to a make-whole amount in the event that the merger agreement is
terminated and the highest average trading price of the non-voting Viacom Class
B common stock during any consecutive 30 trading day period prior to the first
anniversary of such termination is below
9
<PAGE> 10
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
$55 per share. Such make-whole amount would be based on the difference between
$55 per share and such highest average trading price per share. However, the
aggregate make-whole amount may not exceed $275,000,000.
Viacom is entitled to satisfy its obligation with respect to any such
make-whole amount, at Viacom's option, either through the payment to the
Company of cash or marketable equity or debt securities of Viacom, or a
combination thereof, with an aggregate value equal to the make-whole amount or
through the sale to the Company of the theme parks currently owned and operated
by Paramount Communications Inc., a subsidiary of Viacom. In the event that
Viacom were to elect to sell the theme parks to the Company, the purchase price
would be $750,000,000, payable through delivery to Viacom of shares of
non-voting Viacom Class B common stock valued at $55 per share.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities, which requires the Company to carry its investment
in non-voting Viacom Class B common stock at fair value. Pursuant to the
provisions of SFAS No. 115, the Company has classified its investment in
non-voting Viacom Class B common stock as an "available-for-sale security".
Accordingly, based upon the quoted market price of such common stock and
assuming that Viacom would have elected to satisfy its make-whole obligation
using the method that results in the maximum unrealized holding loss to the
Company, at June 30, 1994 the carrying value of the Company's investment has
been reduced to $981,730,000. The corresponding unrealized holding loss
resulting from such reduction has been excluded from net income and reported in
a separate component of shareholders' equity.
In October 1993, the Company purchased 24,000,000 shares of newly-issued Series
A cumulative convertible preferred stock of Viacom for an aggregate purchase
price of $600,000,000, representing a purchase price of $25 per share. The
preferred stock provides for the payment of quarterly dividends at an annual
rate of 5% and is convertible into non-voting Viacom Class B common stock at a
conversion price of $70 per share. The preferred stock is redeemable at the
option of Viacom beginning in October 1998. Since the preferred stock is an
unlisted equity security, the provisions of SFAS No. 115 described above are not
applicable to this investment. However, based upon a valuation which
considered the terms and conditions of the preferred stock as well as
comparisons to other similar securities, the Company estimates the fair value
of such investment to be approximately $440,000,000 at June 30, 1994.
8. OTHER ASSETS
Other assets consist primarily of equity investments in less than
majority-owned businesses, the non-current portion of film costs and program
rights related to the Company's filmed entertainment business and the
non-current portion of accounts and notes receivable.
10
<PAGE> 11
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. ACCRUED PARTICIPATION EXPENSES
Accrued participation expenses relate to the Company's filmed entertainment
business and include amounts due to producers and other participants for their
share of programming and distribution revenue.
10. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
------------ ------------
<S> <C> <C>
Bank term loan, interest at eurodollar
rate plus .75% (5.56% at June 30, 1994) $1,000,000 $ ---
Payable to banks under an unsecured
revolving credit agreement, interest
at 5.09% at June 30, 1994 1,000,000 411,000
Unsecured senior notes, interest fixed
at 6.625% 150,000 150,000
Bank term loan, interest at eurodollar
rate plus 2% (5.62% at December 31, 1993) --- 49,579
Payable to others, interest at 10.00% 2,000 2,000
---------- ---------
Total debt 2,152,000 612,579
Less: current portion (1,000,000) (9,083)
---------- ---------
Long-term debt, less current portion $1,152,000 $ 603,496
========== =========
</TABLE>
In February 1994, the Company entered into a credit agreement with certain
banks pursuant to which such banks advanced the Company on an unsecured basis
$1,000,000,000 for a term of twelve months. This credit agreement requires,
among other items, that the Company maintain certain financial ratios and
comply with certain financial covenants. In March 1994, the Company used the
proceeds from such borrowing along with $250,000,000 of proceeds from
borrowings under its existing revolving credit agreement for the purchase of
shares of non-voting Viacom Class B common stock. See Note 7, Investments in
Viacom Inc., for a further discussion of such investment.
11
<PAGE> 12
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. SHAREHOLDERS' EQUITY
As of June 30, 1994, approximately 48,879,000 shares of the Company's common
stock, $.10 par value ("Common Stock") were reserved for issuance under
employee benefit and dividend reinvestment plans, upon exercise of certain
warrants and options, and in connection with potential acquisitions of other
businesses, properties or securities.
During the six months ended June 30, 1994, the Company's shareholders approved
an increase in the number of authorized shares of Common Stock from 300,000,000
to 800,000,000 shares.
Cash dividends of five cents per common share were declared during the six
months ended June 30, 1994.
During the six months ended June 30, 1994, an unrealized holding loss of
$276,123,000 resulting from a fair value adjustment to the Company's investment
in non-voting Viacom Class B common stock was reported in a separate component
of shareholders' equity. See Note 7, Investments in Viacom Inc., for a further
discussion of this fair value adjustment.
12. GAIN FROM EQUITY INVESTMENT
It is the Company's policy to record gains or losses from the sale or issuance
of previously unissued stock by its subsidiaries or by companies in which the
Company is an equity investor and accounts for its investment using the equity
method. The Company's consolidated results of operations for the three months
ended June 30, 1993 include a gain before income taxes of $2,979,000 resulting
from the Company's investment in Discovery Zone, Inc. ("Discovery Zone") and a
subsequent initial public offering of 5,000,000 common shares by Discovery Zone
in June 1993. Discovery Zone owns, operates and franchises indoor recreational
facilities for children.
13. INCOME TAXES
Income taxes have been provided for based on the Company's anticipated annual
effective income tax rate.
14. NET INCOME PER SHARE
Net income per common share is based on the combined weighted average number of
common shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise or conversion of warrants and options. In
computing net income per common share, the Company utilizes the treasury stock
method. For the three and six months ended June 30, 1993, computation of net
income per common share on a fully diluted basis assumes conversion of the
Liquid Yield Option Notes ("LYONs") which were outstanding during this period,
resulting in an adjustment to net income for the hypothetical elimination of
interest expense, net of tax, related to the LYONs.
12
<PAGE> 13
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The information required to compute net income per common share on a primary
and fully diluted basis is presented below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -----------------------
Primary: 1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average number of
common and common
equivalent shares 253,990 214,547 253,901 208,928
======== ======== ======== ========
Fully diluted:
Net income $ 63,001 $ 47,966 $135,594 $ 92,652
Interest expense related to
LYONs, net of tax --- 1,561 --- 3,081
-------- -------- -------- --------
Adjusted net income $ 63,001 $ 49,527 $135,594 $ 95,733
======== ======== ======== ========
Weighted average number of
common and common
equivalent shares 253,993 215,308 253,902 209,642
Shares issued upon assumed
conversion of LYONs --- 8,300 --- 8,300
-------- -------- -------- --------
Shares used in computing
net income per common
share - assuming full
dilution 253,993 223,608 253,902 217,942
======== ======== ======== ========
</TABLE>
13
<PAGE> 14
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCK OPTIONS AND WARRANTS
A summary of stock option and warrant transactions for the six months ended
June 30, 1994 is as follows:
<TABLE>
<S> <C>
Options and warrants outstanding at
beginning of period 18,314
Granted 5,426
Exercised (373)
Cancelled (475)
------
Options and warrants outstanding at
end of period 22,892
======
Average price of options and warrants
exercised $11.78
Prices of options and warrants
outstanding at end of period $1.08 to $33.50
Average price of options and warrants
outstanding at end of period $18.21
Vested options and warrants at end
of period 12,475
Options available for future grants at
end of period 11,849
</TABLE>
16. BUSINESS COMBINATIONS AND INVESTMENTS
All business combinations discussed below, except for the merger with WJB, were
accounted for under the purchase method of accounting and, accordingly, are
included in the Company's financial statements from the date of acquisition.
During the six months ended June 30, 1994, the Company acquired businesses that
own and operate video stores and indoor recreational facilities for children,
invested in a business which develops, publishes and distributes interactive
software and acquired a distributor of filmed entertainment. The aggregate
purchase price paid by the Company was approximately $141,195,000 and consisted
of cash and 1,304,864 shares of the Company's Common Stock.
In November 1993, the Company acquired all of the outstanding capital stock of
Super Club Retail Entertainment Corporation and subsidiaries ("Super Club"),
which owns and operates video and music stores. The purchase price paid by the
Company was approximately $150,000,000 and consisted of 5,245,211 shares of
Common Stock and warrants to acquire shares of Common Stock. The warrants give
the holders the right to acquire 1,000,000 and 650,000 shares of Common Stock
at exercise prices of $31.00 and $32.42 per share, respectively.
In August 1993, the Company merged with WJB, its then largest franchise owner.
Under the terms of the agreement and plan of reorganization, the Company issued
7,214,192 shares of its Common Stock in exchange for the
14
<PAGE> 15
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
equity interests of WJB. This transaction has been accounted for under the
pooling of interests method of accounting and, accordingly, the Company's
financial statements have been restated for all periods as if the companies had
operated as one entity since inception.
During the second quarter of 1993, the Company acquired a majority of the
common stock of Spelling Entertainment Group Inc. and subsidiaries
("Spelling"), a producer and distributor of filmed entertainment. The
aggregate consideration paid by the Company totaled approximately $163,369,000
and consisted of cash and 9,278,034 shares of Common Stock. The Company also
issued to certain sellers of Spelling's common stock, warrants to acquire an
aggregate of 2,000,000 shares of its Common Stock at an exercise price of $25
per share. Additionally, in October 1993, the Company exchanged 3,652,542
shares of Common Stock for 13,362,215 newly-issued shares of Spelling's common
stock. As a result of the transactions described above, the Company owned
approximately 70.5% of the outstanding common stock of Spelling at June 30,
1994.
The Company's consolidated results of operations for the six months ended June
30, 1993, on an unaudited pro forma basis assuming the acquisitions of Super
Club and Spelling had occurred as of January 1, 1993 are as follows:
<TABLE>
<S> <C>
Revenue $1,153,271
==========
Net income $ 96,046
==========
Net income per common share -
assuming full dilution $ .41
==========
</TABLE>
15
<PAGE> 16
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The purchase price allocations for business combinations and investments during
the six months ended June 30, 1994 and 1993, as described above, were as
follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
<S> <C> <C>
1994 1993
-------- --------
Videocassette rental inventory $ 4,619 $ 6,436
Property and equipment 1,859 6,391
Intangible assets 58,638 279,372
Other assets 74,168 127,884
Working capital (deficiency), excluding
cash acquired 13,901 (8,083)
Debt assumed --- (91,988)
Other liabilities (16,345) (20,128)
Minority interests in subsidiaries --- (76,137)
Common stock issued (35,330) (174,341)
-------- --------
Net cash used in business combinations
and investments $101,510 $ 49,406
======== ========
</TABLE>
The amounts presented above for the six months ended June 30, 1994 reflect the
preliminary purchase price allocations for business combinations.
17. LEGAL MATTERS
The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting its business, including its business as a
franchisor. The Company believes that such lawsuits, claims and other legal
matters should not have a material adverse effect on the Company's consolidated
results of operations or financial condition.
Spelling is involved in a number of legal actions including threatened claims,
pending lawsuits, contract disputes, environmental clean-up assessments,
damages from alleged dioxin contamination and other matters. While the outcome
of these suits and claims cannot be predicted with certainty, the Company
believes based upon its knowledge of the facts and circumstances and
applicable law that the ultimate resolution of such suits and claims will not
have a material adverse effect on the Company's consolidated results of
operations or financial condition. This belief is also based upon the adequacy
of approximately $30,000,000 of accruals that have been established for
probable losses on disposal of former operations and remaining Chapter 11
disputed claims and an insurance-type indemnity agreement which covers up to
$35,000,000 of certain possible liabilities in excess of a threshold amount of
$25,000,000, subject to certain adjustments.
16
<PAGE> 17
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. OTHER MATTERS
In July 1994, the Company reached an agreement in principle to exercise its
option from DKB Investments L.P. pursuant to which the Company would increase
its ownership of Discovery Zone common stock to approximately 50.1%. In
addition, the Company reached an agreement in principle whereby Discovery Zone
will acquire all of the franchised Discovery Zone facilities and territories
currently owned by the Company in exchange for 4,500,000 newly-issued shares of
Discovery Zone common stock. Donald F. Flynn, Chairman of the Board and Chief
Executive Officer of Discovery Zone and a partner of DKB Investments L.P., is a
member of the Company's Board of Directors. Consummation of the transactions
is subject, among other things, to approvals by a special committee of the
Company's Board of Directors as such committee shall deem to be necessary,
receipt by such committee of a financial fairness opinion, negotiation and
execution of definitive agreements and other customary conditions.
17
<PAGE> 18
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
VIACOM INC. AGREEMENTS
In January 1994, the Company entered into a merger agreement pursuant to which
the Company agreed to merge with and into Viacom Inc. ("Viacom"), with Viacom
being the surviving corporation. The closing of the merger is subject to
customary conditions including, but not limited to, approval of the merger by
the Company's shareholders.
Concurrent with the merger agreement, the Company entered into a subscription
agreement pursuant to which, in March 1994, the Company purchased from Viacom
22,727,273 shares of non-voting Viacom Class B common stock for an aggregate
purchase price of approximately $1,250,000,000, or $55 per share.
Under the terms of the subscription agreement, the Company was granted certain
rights to a make-whole amount in the event that the merger agreement is
terminated and the highest average trading price of the non-voting Viacom Class
B common stock during any consecutive 30 trading day period prior to the first
anniversary of such termination is below $55 per share. Such make-whole amount
would be based on the difference between $55 per share and such highest average
trading price per share. However, the aggregate make-whole amount may not
exceed $275,000,000.
Viacom is entitled to satisfy its obligation with respect to any such
make-whole amount, at Viacom's option, either through the payment to the
Company of cash or marketable equity or debt securities of Viacom, or a
combination thereof, with an aggregate value equal to the make-whole amount or
through the sale to the Company of the theme parks currently owned and operated
by Paramount Communications Inc., a subsidiary of Viacom.
In the event that Viacom were to elect to sell the theme parks to the Company,
the purchase price would be $750,000,000, payable through delivery to Viacom of
shares of non-voting Viacom Class B common stock valued at $55 per share. If
the theme parks were so purchased by the Company, the subscription agreement
further provides that the Company would grant an option to Viacom, exercisable
for a period of two years after the date of grant, to purchase a 50% equity
interest in the theme parks at a purchase price of $375,000,000.
See "Financial Condition" and "Cash Flows" of Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note 7,
Investments in Viacom Inc., of Notes to Unaudited Condensed Consolidated
Financial Statements for a further discussion related to these transactions.
BUSINESS COMBINATIONS AND INVESTMENTS
The Company makes its decisions to acquire or invest in businesses based on
financial and strategic considerations.
All business combinations discussed below, except for the merger with WJB Video
Limited Partnership and certain of its affiliates ("WJB"),
18
<PAGE> 19
were accounted for under the purchase method of accounting and, accordingly,
are included in the Company's financial statements from the date of
acquisition.
During the six months ended June 30, 1994 the Company acquired businesses that
own and operate video stores and indoor recreational facilities for children,
invested in a business which develops, publishes and distributes interactive
software and acquired a distributor of filmed entertainment. The aggregate
purchase price paid by the Company was approximately $141,195,000 and consisted
of cash and 1,304,864 shares of the Company's common stock, $.10 par value
("Common Stock").
In November 1993, the Company acquired all of the outstanding capital stock of
Super Club Retail Entertainment Corporation and subsidiaries ("Super Club")
from certain subsidiaries of Philips Electronics N.V. ("Philips"). The
purchase price paid by the Company was approximately $150,000,000 and consisted
of 5,245,211 shares of Common Stock and warrants to acquire additional shares
of Common Stock. The warrants give Philips the right to acquire 1,000,000 and
650,000 shares of Common Stock at exercise prices of $31.00 and $32.42 per
share, respectively. As a result of the acquisition, the Company added 270
music stores and 120 video stores to its system operating primarily in the
southeastern United States.
In August 1993, the Company merged with WJB, its then largest franchise owner
with 209 stores operating in the southeastern United States. In connection
with the merger, the Company issued 7,214,192 shares of its Common Stock in
exchange for the equity interests of WJB. This transaction has been accounted
for under the pooling of interests method of accounting and, accordingly, the
Company's financial statements have been restated for all periods as if the
companies had operated as one entity since inception.
During the second quarter of 1993, the Company acquired a majority of the
common stock of Spelling Entertainment Group Inc. and subsidiaries
("Spelling"), a producer and distributor of filmed entertainment. The
aggregate consideration paid by the Company totaled approximately $163,369,000
and consisted of cash and 9,278,034 shares of Common Stock. The Company also
issued to certain sellers of Spelling's common stock, warrants to acquire an
aggregate of 2,000,000 shares of its Common Stock at an exercise price of $25
per share. Additionally, in October 1993, the Company exchanged 3,652,542
shares of Common Stock for 13,362,215
19
<PAGE> 20
newly-issued shares of Spelling's common stock. As a result of the
transactions described above, the Company owned approximately 70.5% of the
outstanding common stock of Spelling at June 30, 1994.
The Company may from time to time invest in or acquire other businesses,
properties or securities.
RESULTS OF OPERATIONS
The Company continued its record of profitable growth during the three and six
month periods ended June 30, 1994. Revenue for the three and six month
periods ended June 30, 1994 was $676,260,000 and $1,372,790,000, respectively,
increases of 37% and 48% over the same periods of the prior year. Net income
for the three and six month periods ended June 30, 1994 was $63,001,000 and
$135,594,000, respectively, increases of 31% and 46% over the same periods of
the prior year. Net income per share for the three and six month periods ended
June 30, 1994 was $.25 and $.53, respectively, increases of 14% and 20% over
the same periods of the prior year. The strong performance of a greater number
of stores in operation, including newly acquired video and music stores, the
addition of the Company's filmed entertainment business and 13.1% and 12.0%
increases in same store revenue for video stores in operation for more than one
year for the three and six month periods ended June 30, 1994, respectively,
contributed to the significant increases in revenue, net income and net income
per share.
The following table sets forth the number of stores in operation as of June 30:
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Video stores:
Company-owned 2,829 2,340
Franchise-owned 926 918
----- -----
3,755 3,258
===== =====
Music stores:
Company-owned 521 237
Joint venture 20 15
----- -----
541 252
===== =====
</TABLE>
RENTAL REVENUE
Rental revenue was $372,307,000 and $764,925,000 for the three and six month
periods ended June 30, 1994, respectively, representing increases of 34% over
the same periods of the prior year. The significant increase in rental revenue
is primarily the result of the increased number of video stores in operation
and increased same store rental revenue for video stores in operation for more
than one year.
PRODUCT SALES
Product sales revenue consists primarily of revenue generated from product
sales at music and video stores. Product sales at music stores consist
principally of sales of compact discs, audiocassettes and other music related
items.
20
<PAGE> 21
Product sales at video stores consist principally of sales of prerecorded
videocassettes, confectionery items and video accessories.
The following table sets forth the components of product sales revenue (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
1994 1993 1994 1993
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Product Sales:
Music stores $117,520 $ 75,912 $239,540 $149,627
Video stores 73,396 46,225 147,003 94,502
Other 8,384 6,651 18,087 15,012
-------- -------- -------- --------
$199,300 $128,788 $404,630 $259,141
======== ======== ======== ========
</TABLE>
The significant increase in product sales at music stores for the three and six
month periods ended June 30, 1994 is due primarily to product sales generated
at Super Club music stores, which were acquired by the Company in November
1993.
The significant increase in product sales at video stores for the three and six
month periods ended June 30, 1994 is primarily due to a greater number of
stores in operation and an increase in product sales on a per store basis.
This increase reflects the Company's continued emphasis on sales of products in
its video stores, including increases in the number of prerecorded
videocassettes, confectionery items and video accessories available for sale.
Revenue from product sales at video stores represented approximately 16% of
total video store revenue for the three and six month periods ended June 30,
1994, respectively, as compared to 14% for each of the same periods of the
prior year.
OTHER REVENUE
The following table sets forth the components of other revenue
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1994 1993 1994 1993
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Programming and distribution
revenue $ 84,232 $ 71,969 $164,645 $ 71,969
Royalties and other 20,421 13,747 38,590 25,394
-------- -------- -------- --------
$104,653 $ 85,716 $203,235 $ 97,363
======== ======== ======== ========
</TABLE>
The increase in programming and distribution revenue for the three months ended
June 30, 1994 is primarily a result of an acquisition of a distributor of
filmed entertainment which occurred during such period.
21
<PAGE> 22
The increase in programming and distribution revenue for the six months ended
June 30, 1994 is primarily a result of the timing of the acquisition of the
Company's filmed entertainment business which occurred in April 1993.
OPERATING COSTS AND EXPENSES
The following table sets forth the cost of product sales as a percentage of
product sales revenue and programming and distribution expenses as a percentage
of programming and distribution revenue. All other operating expenses and
selling, general and administrative expenses are shown as a percentage of total
revenue for the periods presented below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cost of product sales 64% 63% 64% 65%
Operating expenses:
Programming and distribution
expenses 63% 67% 66% 67%
Compensation 16% 16% 16% 17%
Occupancy 14% 14% 14% 15%
Depreciation and amortization 17% 20% 17% 20%
Selling, general and administrative 8% 7% 8% 8%
</TABLE>
COST OF PRODUCT SALES
Cost of product sales was $127,367,000 and $260,754,000 for the three and six
month periods ended June 30, 1994, respectively, as compared to $81,471,000 and
$167,485,000 for the same periods of the prior year. The increase is generally
consistent with the increase in product sales revenue during such period.
OPERATING EXPENSES
Programming and distribution expenses relate to the Company's filmed
entertainment business which was acquired in April 1993. Such expenses were
$52,945,000 and $108,083,000 for the three and six month periods ended June 30,
1994, respectively, as compared to $47,960,000 for the three and six month
periods ended June 30, 1993. Programming and distribution expenses include
amortization of film costs and program rights, amounts paid or due to
producers, and other residual and profit participation expenses. The decrease
in programming and distribution expenses, as a percentage of revenue, for the
three month period ended June 30, 1994 relates principally to the recognition
of revenue on certain high margin license agreements during such period. See
Note 3, Film Costs and Program Rights, of Notes to Unaudited Condensed
22
<PAGE> 23
Consolidated Financial Statements for a further discussion of programming and
distribution expenses.
Compensation expenses were $111,174,000 and $224,471,000 for the three and six
month periods ended June 30, 1994, respectively, as compared to $81,117,000 and
$155,400,000 for the same periods of the prior year. This increase is
primarily a result of the continued expansion of the Company's business through
the development and acquisition of video and music stores.
Occupancy expenses were $96,682,000 and $190,630,000 for the three and six
month periods ended June 30, 1994, respectively, as compared to $67,437,000 and
$135,363,000 for the same periods of the prior year. The increase is primarily
the result of the continued expansion of the Company's business through the
development and acquisition of video and music stores.
Depreciation and amortization expenses were $117,477,000 and $235,005,000
for the three and six month periods ended June 30, 1994, respectively,
as compared to $96,577,000 and $186,073,000 for the same periods of the
prior year. This increase is primarily the result of the Company's continued
investment in capital additions, particularly videocassette rental inventory.
Depreciation and amortization expenses, as percentages of revenue, declined
in the three and six month periods ended June 30, 1994 compared to the
same periods of 1993. These decreases relate principally to a significant
increase in the number of music stores in operation for the 1994 periods and
the inclusion of the Company's filmed entertainment business for the full six
month period ended June 30, 1994 but only from April 1993 for the same period
of the prior year. The ratio of depreciation and amortization expenses to the
revenue of such acquired businesses is lower than the ratio historically
achieved at the Company's video stores.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $51,735,000 and $115,369,000
for the three and six month periods ended June 30, 1994, respectively, as
compared to $36,167,000 and $74,918,000 for the same periods of the prior year.
This increase primarily reflects expenditures associated with the expansion of
the Company's business through the development and acquisition of video and
music stores.
INTEREST EXPENSE
Interest expense was $28,318,000 and $39,937,000 for the three and six month
periods ended June 30, 1994, respectively, as compared to $9,353,000 and
$15,912,000 for the same periods of the prior year. This
23
<PAGE> 24
increase relates primarily to an increase in the Company's indebtedness
resulting from the financing of its investments in Viacom and, to a lesser
extent, higher borrowing costs in the current periods. As a result, the
Company expects interest expense for the foreseeable future to remain higher as
compared to the prior year.
PROVISION FOR INCOME TAXES
The effective rates of income tax expense for the periods presented are based
upon the Company's anticipated annual effective income tax rate.
FINANCIAL CONDITION
The Company believes that its financial condition remains strong and that it
has sufficient operating cash flow and other financial resources necessary to
meet its anticipated capital requirements and obligations as they come due.
WORKING CAPITAL
Working capital at June 30, 1994 was a deficit of $673,501,000 as compared to
$105,485,000 at December 31, 1993. The decrease of $778,986,000 from the end
of last year was due primarily to increased short-term indebtedness related to
the Company's financing of its investment in non-voting Viacom Class B common
stock which is a non-current asset. The Company currently intends to refinance
all amounts outstanding under its existing credit agreements pursuant to a new
$2,500,000,000 credit facility to be established in accordance with the terms
of a commitment letter dated June 30, 1994 with certain banks. The commitment
letter provides that $1,000,000,000 of the revolving credit facility will
expire 364 days after the closing date of the facility, with the option to
convert any outstanding amount to a two-year term loan. The remaining
$1,500,000,000 of the revolving credit facility will expire four years after
the closing date of the facility. The interest rate for amounts outstanding
will vary at certain margins above the average London interbank offered rate
for one to six month Eurodollar deposits. The establishment of the credit
facility pursuant to the commitment letter is subject to customary conditions
and will require the Company to maintain certain financial ratios and comply
with certain financial covenants.
The current portion of film costs and program rights were $151,735,000 at June
30, 1994, an increase of $34,411,000 from December 31, 1993. This increase is
primarily a result of the Company's acquisition of a distributor of filmed
entertainment during the three months ended June 30, 1994. Accounts payable
were $198,248,000 at June 30, 1994, a decrease of $171,567,000 from December
31, 1993. This decrease reflects the completion of the holiday selling cycle,
including payments for a significant level of product purchases typically made
in the fourth quarter of each year and the returns of certain seasonal products
pursuant to prior agreements with vendors which are consistent with current
industry practices.
INVESTMENTS IN VIACOM INC.
Investments in Viacom increased by $981,730,000 over December 31, 1993.
24
<PAGE> 25
This increase is a result of the Company's purchase of non-voting Viacom Class
B common stock for approximately $1,250,000,000 and the subsequent reduction in
the carrying value of such investment to reflect fair value. See Note 7,
Investments in Viacom Inc., of Notes to Unaudited Condensed Consolidated
Financial Statements for a further discussion of the Viacom investments and
this fair value adjustment.
OTHER ASSETS
Other assets were $401,238,000 at June 30, 1994, an increase of $78,280,000
from December 31, 1993. This increase is primarily a result of the Company's
continued investment in less than majority-owned businesses.
CASH FLOWS
Cash and cash equivalents decreased by $32,767,000 during the six months ended
June 30, 1994 as compared to a $6,794,000 increase in the comparable 1993
period. The major components of these changes are discussed below.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows provided by operating activities decreased to $142,473,000 for the
first six months of 1994 from $173,846,000 for the comparable period of 1993.
This decrease is primarily a result of the reduction in accounts payable, which
include payments for a significant level of product purchases typically made in
the first quarter of each year. The seasonal reduction in accounts payable for
the six months ended June 30, 1994 exceeded the reduction for the comparable
period in 1993 due primarily to the increased number of video and music stores
in operation and the increased amount of product purchased per store. Cash
provided by operating activities combined with certain cash provided by
financing activities in each of the comparable periods of 1994 and 1993 were
used to fund capital additions and acquisitions as the Company's business
expanded during these periods.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital additions for new and existing stores and cash used in business
acquisitions and investments comprise most of the Company's investing
activities. Capital additions, which primarily consist of purchases of
videocassette rental inventory and property and equipment, were $386,832,000
for the six months ended June 30, 1994 and $243,691,000 for the comparable
period in 1993.
During the first six months of 1994, the Company purchased approximately
$1,250,000,000 of non-voting Viacom Class B common stock. See "Viacom Inc.
Agreements" of Management's Discussion and Analysis of Financial Condition and
Results of Operations for a further discussion of this investment.
During the first six months of 1994 and 1993, the Company opened or acquired a
net of 131 and 125 video stores, respectively.
During the remainder of 1994, the Company believes that it will continue
25
<PAGE> 26
to purchase videocassettes and property and equipment in a manner substantially
consistent with historical practices.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities during the six months ended June 30, 1994
and 1993 resulted from commercial bank borrowings, repayments of such bank
borrowings, a public debt offering, issuances of Common Stock and the payment
of cash dividends. The commercial bank borrowings in 1994 were primarily used
to fund the Company's investment in non-voting Viacom Class B common stock.
The other financing activities combined with cash provided by operating
activities were used to fund capital additions and acquisitions as the
Company's business expanded during these periods. The Company from time to
time may seek additional or alternate sources of financing.
26
<PAGE> 27
PART II.
Item 4. Submission of Matters to a Vote of Security-Holders
At the Company's Annual Meeting of Shareholders on May 24, 1994, the
shareholders voted upon and elected the following directors and approved the
following proposals:
<TABLE>
<CAPTION>
(a) Votes Cast Votes
For Withheld
----------- ----------
<S> <C> <C>
H. Wayne Huizenga 209,003,281 1,149,136
Steven R. Berrard 209,008,475 1,143,942
George D. Johnson, Jr. 209,010,082 1,142,335
A. Clinton Allen, III 209,011,461 1,140,956
John W. Croghan 209,010,826 1,141,591
Donald F. Flynn 209,011,287 1,141,130
John J. Melk 209,009,925 1,142,492
</TABLE>
(b) To adopt an amendment to the Company's Certificate of Incorporation,
as amended, which increased the authorized shares of Common Stock of
the Company from 300,000,000 shares to 800,000,000 shares (181,818,545
votes were cast for this matter, 27,753,939 were cast against and
there were 579,933 abstentions and broker non-votes).
(c) To adopt the Company's 1994 Stock Option Plan covering 15,000,000
shares of Common Stock (161,045,058 votes were cast for this matter,
10,950,390 were cast against and there were 38,156,969 abstentions and
broker non-votes).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
(1) Form 8-K dated May 5, 1994 relating to the
letter dated May 4, 1994 mailed to the
Company's shareholders, in connection with
the Company's annual meeting of shareholders
to be held May 24, 1994.
(2) Form 8-K dated July 18, 1994 relating to
agreements in principle with Discovery Zone
regarding a transaction in which Discovery
Zone would acquire all of the franchised
Discovery Zone facilities and territories
currently owned by the Company and with DKB
Investments, L.P. pursuant to which the
Company would exercise its option to increase
its ownership of Discovery Zone's common
stock to approximately 50.1%.
27
<PAGE> 28
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLOCKBUSTER ENTERTAINMENT
CORPORATION
DATE: August 12, 1994 /s/ Gregory K. Fairbanks
-----------------------------
Gregory K. Fairbanks
Senior Vice President,
Chief Financial Officer
and Treasurer
(Principal Financial Officer)
28
