UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q/A
Amendment No. 1
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXHANGE 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 (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
9275 S.W. Peyton Lane, 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 short 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 August 11, 1998, there were 37,040,846 shares of the registrant's Common
Stock outstanding.
- --------------------------------------------------------------------------------
<PAGE>
HOLLYWOOD ENTERTAINMENT CORPORATION
June 30, 1998
In accordance with the rules and regulations of the Securities and Exchange
Commission, Hollywood Entertainment Corporation is refiling its financial
statements for the quarter ended June 30, 1998, to correct the Consolidated
Statements of Cash Flows by revising the amount previously reported for "Change
in deferred income taxes" to $2,590 from $2,250 for the six months ended June
30, 1998.
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
HOLLYWOOD ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rental revenue $ 141,572 $ 93,035 $ 282,936 $ 184,715
Product sales 25,159 16,967 53,746 35,762
------------- ------------ ------------ ------------
166,731 110,002 336,682 220,477
------------- ------------ ------------ ------------
Operating cost and expenses:
Cost of product sales 16,227 10,828 34,675 22,429
Operating and selling 124,048 80,204 245,904 157,253
General and administrative 7,585 6,197 15,966 12,166
Amortization of intangibles 1,834 1,596 3,668 3,123
------------- ------------ ------------ ------------
149,694 98,825 300,213 194,971
------------- ------------ ------------ ------------
Income from operations 17,037 11,177 36,469 25,506
Nonoperating income (expense):
Interest income 5 26 88 108
Interest expense (7,431) (2,068) (14,175) (3,617)
Litigation settlement - - - (18,874)
------------- ------------ ------------ ------------
Income before income taxes 9,611 9,135 22,382 3,123
Provision for income taxes (3,957) (3,654) (9,065) (1,249)
------------- ------------ ------------ ------------
Net income $ 5,654 $ 5,481 $ 13,317 $ 1,874
============= ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------
Net income per share:
Basic $ 0.15 $ 0.15 $ 0.36 $ 0.05
Diluted $ 0.15 $ 0.15 $ 0.36 $ 0.05
- ---------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 36,928 36,695 36,885 36,643
Diluted 37,678 37,577 37,513 37,465
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
HOLLYWOOD ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
June 30, Dec. 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,968 $ 3,909
Accounts receivable 41,861 39,566
Merchandise inventories 58,965 61,482
Prepaid expenses and other current assets 8,403 6,488
------------- -------------
Total current assets 113,197 111,445
Videocassette rental inventory, net 267,712 226,051
Property and equipment, net 276,196 234,497
Goodwill, net 91,048 93,760
Deferred income tax 10,219 11,334
Other assets, net 11,376 12,036
------------- -------------
$ 769,748 $ 689,123
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 2,341 $ 2,341
Accounts payable 92,878 103,823
Accrued expenses 22,785 29,423
Accrued interest 8,519 8,256
Income taxes payable 8,279 -
------------- -------------
Total current liabilities 134,802 143,843
Long-term obligations, less current portion 302,476 231,155
Other liabilities 27,984 24,229
------------- -------------
465,262 399,227
Shareholders' equity:
Preferred stock, 25,000,000 shares authorized; no shares
issued and outstanding
Common stock, 100,000,000 shares authorized; and 36,974,196
and 36,786,396 shares issued and outstanding, respectively 249,140 247,950
Retained earnings 57,305 43,988
Intangible assets, net (1,959) (2,042)
------------- -------------
Total shareholders' equity 304,486 289,896
------------- -------------
$ 769,748 $ 689,123
============= =============
The accompanying notes are an integral part of this financial statement.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
HOLLYWOOD ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30,
------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Operating activities:
Net income $ 13,317 $ 1,874
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 96,083 61,811
Litigation settlement warrants - 9,000
Change in deferred rent 2,280 1,469
Change in deferred income taxes 2,590 (4,121)
Net change in operating assets and liabilities:
Accounts receivable (2,295) 1,993
Merchandise inventories 2,517 558
Accounts payable (10,945) (6,178)
Accrued interest 263 217
Other current assets and liabilities (274) (3,896)
------------- -------------
Cash provided by operating activities 103,536 62,727
------------- -------------
Investing activities:
Purchases of videocassette rental inventory, net (115,444) (87,501)
Purchases of property and equipment, net (60,332) (48,557)
Increase in intangibles and other assets (212) (1,343)
------------- -------------
Cash used in investing activities (175,988) (137,401)
------------- -------------
Financing activities:
Proceeds from the issuance of common stock, net - 4,695
Issuance of long-term obligations - 10,000
Repayments of long-term obligations (1,180) (754)
Tax benefit from exercise of stock options 43 2,252
Proceeds from exercise of stock options 1,147 3,414
Increase in revolving loan, net 72,501 48,000
------------- -------------
Cash provided by financing activities 72,511 67,607
------------- -------------
Increase (decrease) in cash and cash equivalents 59 (7,067)
Cash and cash equivalents at beginning of year 3,909 12,849
------------- -------------
Cash and cash equivalents at end of the second quarter $ 3,968 $ 5,782
============= =============
The accompanying notes are an integral part of this financial statement.
</TABLE>
5
<PAGE>
HOLLYWOOD ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and note 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, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. The information furnished reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented, and which are of a
normal, recurring nature. It is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's Form 10-K, filed with the Securities and Exchange Commission on
March 31, 1998.
1. Accounting Policies
The consolidated financial statements included herein have been prepared in
accordance with the accounting policies described in Note 1 to the December 31,
1997 audited consolidated financial statements included in the Company's Form
10-K. Certain prior year amounts have been reclassified to conform to the
presentation used for the current year.
2. Statements of Changes in Shareholders' Equity
An analysis of the shareholders' equity amounts for the two quarters ended
June 30, 1998 is as follows:
<TABLE>
<CAPTION>
Common Stock
------------------------- Intangible Retained
(In thousands, except share amounts) Shares Amount Assets Earnings Total
------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 36,786,396 $ 247,950 $ (2,042) $ 43,988 $ 289,896
Issuance of common stock under option plan 187,800 1,147 1,147
Tax benefit from exercise of stock options 43 43
Amortization on intangible assets 83 83
Net income 13,317 13,317
============ =========== ========== ========== ============
Balance at June 30, 1998 36,974,196 $ 249,140 $ (1,959) $ 57,305 $ 304,486
============ =========== ========== ========== ============
</TABLE>
3. Earnings per Share
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share" requires current and retroactive presentation of basic and diluted
earnings per share. Basic earnings per share are calculated based on income
available to common shareholders and the weighted-average number of common
shares outstanding during the reported period. Diluted earnings per share
includes additional dilution from the effect of potential common stock, such as
stock issuable pursuant to the exercise of stock option, warrants outstanding
and the conversion of debt.
6
<PAGE>
The following table is a reconciliation of the basic and diluted earnings
per share computations:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
(In thousands, except per share amounts)
------------------------------------ ------------------------------------
1998 1997
------------------------------------ ------------------------------------
Per Per
Share Share
Income Shares Amounts Income Shares Amounts
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings per Share: $ 13,317 36,885 $ 0.36 $ 1,874 36,643 $ 0.05
Effect of Dilutive Securities:
Stock options - 628 - 822
---------- ---------- ---------- ----------
Dilutive Earnings per share: $ 13,317 37,513 $ 0.36 $ 1,874 37,465 $ 0.05
========== ========== ========== ========== ========== ==========
</TABLE>
4. Comprehensive Income
In June 1997, Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards, No. 130, "Reporting Comprehensive
Income." The Company has adopted the standard as of January 1, 1998. Total
comprehensive income was $5.7 million and $13.3 million for the second quarter
and current year two quarters, respectively, compared with $5.5 million and $1.9
million for the corresponding periods of the prior year.
5. Subsequent Event
On July 30, 1998, the Company announced that it had signed a definitive
agreement to acquire Reel.com, Inc., which operates the leading video-only store
on the Internet (www.reel.com). Reel.com offers access to over 85,000 movie
titles, proprietary movie information, and recommendations that help customers
discover movies they will enjoy. The value of the transaction is approximately
$100 million. Hollywood Entertainment will issue an aggregate of five million
shares of restricted Hollywood Entertainment common stock and redeemable
preferred stock, and $30.0 million in cash to stockholders of Reel.com.
Separate and concurrent with the acquisition, several of Reel.com's
stockholders will purchase an aggregate of five million additional shares of
restricted Hollywood Entertainment common stock at a price per share of $13.50.
The shares, together with the shares issued in the acquisition, will not be
transferable for one year after closing.
7
<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)
September 4, 1998 /s/ SANJAY SOOD
- ------------------- ---------------------------------------
(Date) Sanjay Sood
Vice President Corporate Controller
(Authorized officer and principal
financial and accounting officer of the
registrant)
8
