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 September 30, 1996
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 0-21824
---------------
HOLLYWOOD ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in charter)
Oregon 93-0981138
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
25600 S.W. Parkway Center Drive, Wilsonville, Oregon 97070
(Address of principal executive office, including zip code)
(503) 570-1600
(Registrant's telephone number, including area code)
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
----- -----
As of November 14, 1996, there were 33,958,551 shares of the registrant's
Common Stock outstanding.
<PAGE>
HOLLYWOOD ENTERTAINMENT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Consolidated Financial Statements: 3
Consolidated Statements of Operations 3
Nine months ended September 30, 1996 and 1995
Consolidated Balance Sheets 4
September 30, 1996 and December 31, 1995
Consolidated Statements of Cash Flows 5
Nine months ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Signatures 15
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOLLYWOOD ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and other operating data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
--------- --------- ---------- -------
(Unaudited) (Unaudited)
Revenue:
<S> <C> <C> <C> <C>
Rental revenue $ 63,993 $ 33,411 $ 173,052 $ 80,234
Product sales 11,703 5,879 31,666 15,254
--------- --------- --------- ---------
75,696 39,290 204,718 95,488
Operating costs and expenses:
Cost of product sales 7,018 3,353 19,194 8,941
Operating and selling 51,824 27,051 144,558 65,319
General and administrative 4,367 1,997 12,856 4,947
Amortization of intangibles 1,530 1,129 4,537 2,345
--------- --------- --------- ---------
Operating income 10,957 5,760 23,573 13,936
Nonoperating income (expense):
Interest income 11 779 139 1,143
Interest expense (1,232) (59) (2,857) (369)
--------- --------- --------- ---------
Income before income taxes 9,736 6,480 20,855 14,710
Income taxes 3,894 2,387 8,281 5,419
--------- --------- --------- ---------
Net income $ 5,842 $ 4,093 $ 12,574 $ 9,291
========= ========= ========= =========
Net income per share $ 0.17 $ 0.11 $ 0.36 $ 0.29
========= ========= ========= =========
Weighted average shares 35,089 36,135 34,971 32,212
outstanding
Number of stores at end of period 453 239 453 239
The accompanying notes are an integral part of this financial statement.
</TABLE>
3
<PAGE>
HOLLYWOOD ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ -----------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,918 $ 29,980
Construction and other receivables 14,414 16,154
Merchandise inventories 34,397 26,701
Prepaid expenses and other current assets 1,049 845
------------- -------------
Total current assets 55,778 73,680
Videocassette rental inventory, net 114,519 86,889
Property and equipment, net 98,178 65,958
Excess of cost over net assets acquired, net 100,601 104,679
Deferred income taxes 1,050 1,345
Other assets 2,189 2,109
------------- ------------
Total assets $ 372,315 $ 334,660
============= ============
LIABILITIES, MANDATORILY REDEEMABLE
COMMON STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 484 $ 7,616
Accounts payable 36,044 42,778
Accrued liabilities 6,897 5,553
Income taxes payable 1,144 ---
------------- ------------
Total current liabilities 44,569 55,947
Long-term debt, less current portion 65 355
Line of credit 85,000 ---
Deferred rent and other liabilities 5,189 3,369
Deferred income taxes 6,344 2,956
------------- ------------
141,167 62,627
Commitments and contingencies --- ---
------------- ------------
Mandatorily redeemable common stock (Note 2) --- 54,250
------------- ------------
Shareholders' equity
Preferred stock, 25,000,000 shares authorized;
no shares issued and outstanding --- ---
Common stock, 100,000,000 shares authorized;
33,949,176 and 36,007,190 shares
issued and outstanding, respectively 202,585 202,005
Retained earnings 30,936 18,362
Intangible assets, net (2,373) (2,584)
------------- ------------
Total shareholders' equity 231,148 217,783
------------- ------------
Total liabilities and shareholders' equity $ 372,315 $ 334,660
============= ============
The accompanying notes are an integral part of this financial statement.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
HOLLYWOOD ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months
Ended September 30,
1996 1995
---- ----
(Unaudited)
Operating activities:
<S> <C> <C>
Net income $ 12,574 $ 9,291
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 61,818 29,401
Deferred rent and other liabilities 1,820 781
Deferred income taxes 3,683 2,929
Changes in operating assets and liabilities:
Merchandise inventories (7,696) (3,781)
Prepaid expenses and other current assets (204) (1,043)
Accounts payable (6,734) 2,579
Accrued liabilities 1,344 (2,705)
Income taxes payable 1,144 (779)
---------- ----------
Cash provided by operating activities 67,749 36,673
---------- ----------
Investing activities:
Construction and other receivables 1,740 (7,674)
Purchases of videocassette rental inventory, net (74,993) (50,791)
Purchase of property and equipment, net (42,230) (30,185)
Investment in businesses acquired --- (11,781)
Other (236) (1,936)
---------- ----------
Cash used in investing activities (115,719) (102,367)
Financing activities:
Proceeds from the issuance of common stock, net --- 95,531
Proceeds from long-term debt --- 23,500
Repayments of long-term debt (7,422) (29,723)
Tax benefit from exercise of stock options (207) 1,333
Proceeds from exercise of stock options 787 1,320
Repurchase of mandatorily redeemable stock (54,250) ---
Borrowings under line of credit 85,000 ---
---------- ----------
Cash (used) provided by financing activities 23,908 91,961
---------- ----------
Decrease in cash and cash equivalents (24,062) 26,267
Cash and cash equivalents:
Beginning of period 29,980 39,017
---------- ----------
End of period $ 5,918 $ 65,284
========== ==========
The accompanying notes are an integral part of this financial statement.
</TABLE>
5
<PAGE>
HOLLYWOOD ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statement Presentation:
The consolidated financial statements as of September 30, 1996 and for
the periods ended September 30, 1996 and September 30, 1995 are unaudited
and have been prepared by Hollywood Entertainment Corporation ("the
Company") pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is
recommended that these financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
The accompanying interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to present
fairly the financial position as of September 30, 1996 and the results of
operations and cash flows for the three and nine months ended September 30,
1996 and September 30, 1995. All such adjustments are of a normal and
recurring nature. Certain amounts as of September 30, 1995 have been
adjusted to reflect the accounting methods used as of September 30, 1996.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
2. Acquisition of Video Watch
In August 1995, the Company acquired, in two separate transactions,
the assets of 42 video retail superstores operating under the name of Video
Watch. The aggregate purchase price was approximately $60.3 million,
including 2,127,452 shares of the Company's common stock. The Company
granted the sellers an option to sell any of the shares issued in
connection with the Video Watch acquisition to the Company on January 27,
1996 at the original issuance price of $25.50 per share, for a maximum
repurchase obligation of $54.3 million. Consequently, the common shares
issued in connection with the Video Watch acquisitions are classified as
"Mandatorily Redeemable Common Stock" at December 31, 1995.
Pursuant to the option described above, in January 1996 the Company
repurchased all of the shares issued in connection with the Video Watch
acquisition. Of the aggregate purchase price of $54.3 million, $50.0
million was provided by borrowings under the Company's revolving credit
line, and the remainder was provided by then-existing cash balances.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, (i) selected
income statement data expressed as a percentage of total revenue and (ii)
the number of stores open at the end of each period.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
Revenue:
Rental revenue 84.5% 85.0% 84.5% 84.0%
Product sales 15.5 15.0 15.5 16.0
---- ---- ---- ----
100.0 100.0 100.0 100.0
Operating costs and expenses:
Cost of product sales 9.3 8.5 9.4 9.4
Operating and selling 68.5 68.8 70.6 68.3
General and administrative 5.8 5.1 6.3 5.2
Amortization of intangibles 2.0 2.9 2.2 2.5
---- ---- ---- ---
85.6 85.3 88.5 85.4
Operating income 14.4 14.7 11.5 14.6
Nonoperating income (expense), net (1.6) 1.8 (1.3) 0.8
----- ---- ---- ---
Income before income taxes 12.8 16.5 10.2 15.4
Income taxes 5.1 6.1 4.0 5.7
---- ---- ---- ----
Net income 7.7% 10.4% 6.2% 9.7%
==== ==== ==== =====
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
Revenue
Revenue increased $36.4 million, or 93%, to $75.7 million for the three
months ended September 30, 1996, compared to $39.3 million in the third
quarter of the prior year. The increase in revenue was primarily the result
of new store expansion. During the three months ended September 30, 1996,
the Company increased the number of superstores operated by 71, ending the
period with 453 superstores, compared to 239 superstores at the end of the
corresponding period in 1995. Comparable store revenue increased 6%.
7
<PAGE>
Product sales as a percentage of total revenue increased to 15.5% for the
third quarter of 1996 compared to 15.0% for the third quarter of 1995.
The Company's pricing of videocassette rentals and merchandise for sale has
not changed significantly compared to the third quarter of 1995.
Operating Costs and Expenses:
Cost of Product Sales
The cost of product sales increased slightly to 9.3% of total revenue for
the third quarter of 1996 compared to 8.5% for the third quarter of 1995.
The cost of product sales as a percentage of product sales increased from
57.0% to 60.0% for the three months ended September 30, 1995 and 1996,
respectively. The gross margin on product sales has decreased as the
Company has de-emphasized the sale of certain high gross margin movie
accessories. The Company believes the operating costs associated with
maintaining those products offset the higher gross margins they generated.
Operating and Selling
Operating expenses, which principally consist of all store expenses,
including payroll, occupancy, advertising, depreciation and rental revenue
sharing, decreased slightly as a percentage of total revenue to 68.5% for
the third quarter of 1996, compared to 68.8% for the same period last year.
Depreciation expense combined with rental revenue sharing costs was 27.7%
of total revenue for the third quarter of 1996 compared to 27.5% for the
same period in 1995.
General and Administrative
General and administrative expenses increased from $2.0 million, or 5.1% of
total revenue, for the three months ended September 30, 1995 to $4.4
million, or 5.8% of total revenue, for the three months ended September 30,
1996. The percentage increase is primarily attributable to the initial
investment associated with establishing and staffing new regional zone
offices.
Amortization of Intangibles
Amortization of intangibles increased from $1.1 million, or 2.9% of total
revenue, for the three months ended September 30, 1995 to $1.5 million, or
2.0% of total revenue, for the three months ended September 30, 1996. The
dollar increase was primarily attributable to the inclusion of the
amortization of intangible assets arising from the Video Watch acquisition
for a full quarter in 1996, while only partially included in the third
quarter of 1995.
8
<PAGE>
Nonoperating Income (Expense), Net
Net nonoperating income (expense) decreased from $700,000 for the three
months ended September 30, 1995 to ($1.2 million) for the three months
ended September 30, 1996. This change was primarily attributable to the
Company's higher level of borrowing under its revolving line of credit for
the third quarter of 1996 compared to the third quarter of 1995.
Income Taxes
The Company's effective tax rate increased from 36.8% of income before
income taxes for the three months ended September 30, 1995 to 40.0% for the
three months ended September 30, 1996 due to higher federal and state tax
rates in 1996.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Revenue
Revenue for the nine months ended September 30, 1996 increased $109.2
million, or 114.4%, to $204.7 million compared to $95.5 million for the
nine months ended September 30, 1995. The increase in revenue was primarily
the result of new store expansion. During the nine months ended September
30, 1996, the Company increased the number of superstores operated by 148,
ending the period with 453 superstores, compared to 239 superstores at the
end of the corresponding period in 1995. Comparable store revenue increased
6%.
Product sales as a percentage of total revenue were 15.5% for the nine
months ended September 30, 1996 compared to 16.0% for the nine months ended
September 30, 1995.
The Company's pricing of videocassette rentals and merchandise for sale has
not changed significantly compared to the first nine months of 1995.
Operating Costs and Expenses:
Cost of Product Sales
The cost of product sales was unchanged at 9.4% of total revenue for the
nine months ended September 30, 1996 compared to the same period of the
prior year due to decreased sales of product as a percentage of total
revenue offset by slightly lower gross margins. The cost of product sales
as a percentage of product sales increased from 58.6% to 60.6% for the nine
months ended September 30, 1995 and 1996, respectively. The gross margin on
product sales has decreased as the Company has de-emphasized the sales of
certain high gross margin movie accessories. The Company believes the
operating costs associated with maintaining those products offset the
higher gross margins that they generated.
9
<PAGE>
Operating and Selling
Operating expenses, which principally consist of all store expenses,
including payroll, occupancy, advertising, depreciation and rental revenue
sharing, increased as a percentage of total revenue to 70.6% for the nine
months ended September 30, 1996, compared to 68.4% for the nine months
ended September 30, 1995.
Depreciation expense combined with rental revenue sharing costs was 28.2%
of total revenue for the nine months ended September 30, 1996, compared to
29.0% for the nine months ended September 30, 1995. The decrease was due to
lower revenue sharing expense and the implementation of improved budgeting
procedures in the purchase of new releases for existing stores. Other
operating and selling expenses increased as a percentage of total revenue
primarily due to lower average revenue per store, resulting from the
addition during 1995 and the first nine months of 1996 of a large number of
new and acquired stores which have lower revenue per store than mature
Hollywood Video stores.
General and Administrative
General and administrative expenses increased from $4.9 million, or 5.2% of
total revenue, for the nine months ended September 30, 1995 to $12.9
million, or 6.3% of total revenue, for the nine months ended September 30,
1996. The percentage increase is primarily attributable to the initial
investment associated with establishing and staffing the Company's new
regional zone offices.
Amortization of Intangibles
Amortization of intangibles increased from $2.3 million, or 2.5% of total
revenue, for the nine months ended September 30, 1995 to $4.5 million, or
2.2% of total revenue, for the nine months ended September 30, 1996. The
dollar increase was attributable to the inclusion of the amortization of
intangible assets arising from the Title Wave and Video Watch acquisitions
for the entire nine month period ended September 30, 1996, while only
partially included in the nine months ended September 30, 1995.
Nonoperating Income (Expense), Net
Net nonoperating income (expense) decreased from $800,000 for the nine
months ended September 30, 1995 to ($2.7 million) for the nine months ended
September 30, 1996. This change was primarily attributable to the Company's
higher level of borrowing under its revolving line of credit for the third
quarter of 1996 compared to the third quarter of 1995.
Income Taxes
The Company's effective tax rate increased from 36.8% of income before
income taxes for the nine months ended September 30, 1995 to 39.7%
for the nine months ended September 30, 1996 due to higher federal and
state tax rates in 1996 compared to 1995.
10
<PAGE>
Liquidity and Capital Resources
The Company's principal capital requirements are for opening new stores,
the purchase of rental inventory and the possible acquisition of existing
stores. The Company has funded its operations primarily through cash
generated from operations, the proceeds of four public equity offerings,
loans under the Company's revolving bank line of credit, trade credit and
equipment leases.
The Company ended the period with $5.9 million in cash and cash
equivalents. Working capital as of September 30, 1996 totaled $11.2 million
compared to $17.7 million at December 31, 1995. Videocassette rental
inventories are accounted for as noncurrent assets under generally accepted
accounting principles because they are not assets which are reasonably
expected to be completely realized in cash or sold in the normal business
cycle. Although the rental of this inventory generates a substantial
portion of the Company's revenue, the classification of these assets as
noncurrent excludes them from the computation of working capital. The
acquisition cost of videocassette rental inventories, however, is reported
as a current liability until paid and, accordingly, included in the
computation of working capital. Consequently, the Company believes working
capital is not as significant a measure of financial condition for
companies in the video retail industry as it is for companies in other
industries. Because of the accounting treatment of videocassette rental
inventory as a noncurrent asset, the Company may, from time to time,
operate with a working capital deficit.
Net cash provided by operating activities was $67.7 million for the nine
months ended September 30, 1996 compared to $36.7 million for the same
period last year. The increase in cash provided by operations was primarily
due to higher net income from operations and higher depreciation and
amortization expenses, partially offset by an increase in merchandise
inventories and a decrease in accounts payable.
Cash used in investing activities was $115.7 million for the nine months
ended September 30, 1996 compared to $102.4 million for the same period
last year. For the nine months ended September 30, 1996, cash used in
investing activities consisted primarily of purchases of videocassette
rental inventory for new and existing stores totaling $75.0 million and
capital expenditures totaling $42.2 million, offset by a reduction in
construction and other receivables totaling $1.7 million. Capital
expenditures included the costs to open new stores, remodel certain
existing stores and enhance information systems.
Cash provided by financing activities for the nine months ended September
30, 1996 totaled $23.9 million and included the repurchase of all of the
shares issued in connection with the Video Watch acquisition for aggregate
consideration of $54.3 million. In addition, the Company repaid $7.4
million of long-term debt. Borrowings under the Company's revolving credit
line were $85.0 million at September 30, 1996.
Future capital requirements consist primarily of financing the addition of
new retail stores and converting certain acquired stores to the Hollywood
Video name and store design,
11
<PAGE>
together with the possible acquisition of existing stores. The Company
anticipates opening approximately 100 new stores in the final three months
of 1996 and 300 new stores in 1997. Each video store opening requires
initial capital expenditures, including leasehold improvements, inventory,
equipment and costs related to site location, lease negotiations,
construction supervision and permits of approximately $500,000, excluding
leasehold improvements that are customarily paid for by the property
developer.
The Company has a revolving credit agreement for a working capital line of
$100 million. Funds borrowed bear interest, at the Company's option, at
either LIBOR or the bank's base rate plus approximately 1.25%, depending on
the amount of borrowings. The Company must also pay a fee of 0.3% per annum
on the available and unused portion of the credit facility. Amounts
outstanding under the credit line are collaterized by substantially all the
assets of the Company. The credit facility expires on December 28, 1998. As
of September 30, 1996, $85.0 million was outstanding under the line. Of
this amount, approximately $50 million was borrowed to fund the share
repurchase described above. The availability of borrowings under the
revolving credit agreement is based on the level of eligible inventory, the
Company's financial performance and compliance with certain covenants and
financial ratios.
The Company believes its borrowing capacity, projected cash flow from
operations, cash on hand and equipment leases and trade credit provide the
necessary capital to fund its announced plan of opening approximately 100
new video retail superstores in the final three months of 1996. If,
however, the Company's need for funds is greater than expected or if
certain of the sources identified above are unavailable to the extent
anticipated, the Company will need to seek additional or alternative
financing. This financing may not be available or available on terms
satisfactory to the Company. Furthermore, the Company will need to obtain
additional financing to achieve its planned expansion of 300 stores in
1997. Failure to obtain financing to fund the Company's expansion plans or
for other purposes would have a material adverse effect on the Company.
General Economic Trends, Quarterly Results and Seasonality
The Company anticipates that its business will be affected by general
economic conditions and other consumer trends. Future operating results may
be affected by various factors, including variations in the number and
timing of new store openings, the quality and number of new release titles
available for rental and sale, the expense associated with the acquisition
of new release titles, additional and existing competition, marketing
programs, weather, special or unusual events and other factors that may
affect retailers in general.
Any concentration of new store openings and the related new store
pre-opening costs near the end of a fiscal quarter could have an adverse
effect on the financial results for that quarter and could, in certain
circumstances, lead to fluctuations in quarterly financial results.
The video retail industry generally experiences relative revenue declines
in April and May, due in part to the change to Daylight Savings Time and to
improved weather, and in
12
<PAGE>
September and October, due in part to the start of school and introduction
of new television programs. The Company believes these seasonality trends
will continue.
Forward-Looking Statements
Certain of the information set forth above under the caption "Liquidity and
Capital Resources," including with respect to the Company's planned
expansion and the adequacy of its financial resources, and in Item 1 of
Part II of this Report under the caption "Legal Proceedings" includes
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and is subject to the safe harbor created by that
section. Certain factors that could cause results to differ materially from
those projected in the forward-looking statements are set forth under that
caption, in the immediately following paragraph, in the following section
under the caption "General Economic Trends, Quarterly Results and
Seasonality" and in Item 1 of Part II of this Report under the caption
"Legal Proceedings."
The level of planned new store expansion represents a substantial increase
over prior periods. The Company has not yet identified sites for many of
these planned stores and does not yet have signed leases for most of these
anticipated new stores. The Company's expansion is dependent on a number of
factors, including the continued contribution of key management personnel,
its ability to hire, train and assimilate management and store-level
employees, the adequacy of the Company's financial resources and the
Company's ability to identify new markets in which it can successfully
compete, to locate suitable store sites and negotiate acceptable lease
terms and to adapt its purchasing, management information and other systems
to accommodate expanded operations. The Company's financial resources
include cash from operations, which could be affected by industry
seasonality, additional and existing competition, weather, special or
unusual events and other circumstances that may effect video retailers or
other retailers in construction in general. The Company's financial
resources would be adversely affected by an unfavorable outcome or
settlement in the pending securities litigation. The Company's expansion is
also dependent on the timely fulfillment by landlords and others of their
contractual obligations to the Company, the maintenance of construction
schedules and the speed at which local zoning and constriction permits can
be obtained.
13
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In December 1995 three complaints were filed against the Company, certain
of the Company's directors and officers and certain other parties and
consolidated in a single action entitled Murphy v. Hollywood Entertainment
et al., case no. C95-1926-MA, United States District Court for the District
of Oregon. The consolidated case is a class action encompassing persons who
purchased common stock of the Company between June 20 and December 6, 1995.
Plaintiffs allege violation of certain federal securities laws with respect
to statements made to the public and losses allegedly sustained by
plaintiffs as a result of the decline in the trading price of the Company's
stock in December 1995. In May 1996 the court certified the class but
dismissed the claims of plaintiffs based on violations of sections 11,
12(2) and 15 of the Securities Act of 1933. The remaining claims deal with
alleged violations of the Securities Exchange Act of 1934. The trial has
been tentatively scheduled for March 1997. The Company believes this suit
is without merit and is vigorously defending the litigation. The Company
does not believe the ultimate outcome of the litigation will have a
material adverse effect on the Company.
14
<PAGE>
HOLLYWOOD ENTERTAINMENT CORPORATION
SIGNATURES
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.
HOLLYWOOD ENTERTAINMENT CORPORATION
-----------------------------------
(Registrant)
November 14, 1996 /S/ DOUGLAS A. GORDON
- ------------------------ ----------------------------------------
(Date) Douglas A. Gordon
Senior Vice President-Finance
(Principal financial and accounting officer
of the registrant)
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,918
<SECURITIES> 0
<RECEIVABLES> 14,414
<ALLOWANCES> 0
<INVENTORY> 34,397
<CURRENT-ASSETS> 55,778
<PP&E> 98,178
<DEPRECIATION> 22,407
<TOTAL-ASSETS> 372,315
<CURRENT-LIABILITIES> 44,569
<BONDS> 0
0
0
<COMMON> 202,585
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 372,315
<SALES> 31,666
<TOTAL-REVENUES> 204,718
<CGS> 19,194
<TOTAL-COSTS> 181,145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,857
<INCOME-PRETAX> 20,855
<INCOME-TAX> 8,281
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,574
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
