Tuesday, April 7, 2009

Blockbuster: Uncertainty Looms Large As Auditors Issue Going Concern

. Tuesday, April 7, 2009

By stockOzone team

Movie rental company Blockbuster Inc. (NYSE: BBI) said late Monday that auditors believe that the Dallas-based could not be generating enough cash to fund its operations, again raising the possibility Blockbuster might have to file for bankruptcy reorganization.

The company operates 7,400 stores globally and had total debt of $780.9 million under its credit facilities and senior subordinated notes as of January 4, the filing showed.

In the PricewaterhouseCoopers LLP assessment released as part of a financial filing, the auditors wrote that Blockbuster's financial situation raises "substantial doubt about the Company's ability to continue as a going concern" or viable business. The company had warned investors in February that auditors were likely to raise those concerns.

In addition, the company has a $350 million credit facility that matures in August. Last month, it said it had refinanced that facility and reduced it to $250 million. It expects to close on the amended credit facility next month.

In its filing, the company acknowledged the financial pressure it is under and said it was taking steps to preserve cash such as reducing capital spending and advertising expenses.

Last week, Chief Executive Jim Keyes told investors the chain would slow deployment of its new "Rock the Block" store format, which highlights videogames and consumer electronics.

Blockbuster has been hit hard by declining subscriber base and increased competition from rivals like Netflix Inc. (NASDAQ: NFLX).

The company has been experimenting with new products and has recently started selling a set-top box that plays digital downloads from Blockbuster.com to play on TVs. On the high-technology end, the company is coming to grips with the small but growing percentage of consumers who prefer to rent movies over the Internet. Blockbuster has its own movie download service, purchased in 2007, and announced a deal last month with TiVo Inc. to deliver those movies over Internet-enabled TiVo boxes. Still, it faces stiff competition from players such as Apple Inc. and its dominant iTunes store.

Disclosure: Author does not own any of the stocks discussed here.

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