Blockbuster Reports First Quarter 2010 Financial Results

Blockbuster Reports First Quarter 2010 Financial Results

DALLAS, May 13 /PRNewswire-FirstCall/ -- Blockbuster Inc. (NYSE:BBI)(NYSE: BBI.B) today announced financial results for the first quarter ending April 4, 2010.

"During the first quarter we continued progress to recapitalize our business. We have had encouraging discussions with both financial and strategic partners and expect to have additional details to report by our annual stockholders' meeting in late June," stated Jim Keyes, Chairman and Chief Executive Officer of Blockbuster Inc. "In spite of competitive challenges, we experienced better domestic rental same-store comparables trends and achieved a number of goals to establish a significant competitive advantage going forward. Most important was our success in securing agreements with key studio partners to ensure our customers receive day-and-date, cross-channel access to hot new releases. We now have a 28 day rental advantage on nearly 50 percent of major new releases."

Consolidated First Quarter Financial Results

Total revenues for the first quarter of 2010 were $939.4 million, compared to total revenues of $1.09 billion for the same period one year ago. Results of the first quarter were primarily attributable to a 7.1 percent decrease in worldwide same-store comparables, a further reduction in company-operated stores and competitive pressures. Consolidated first quarter total revenues reflect the positive impact of foreign currency exchange rates of $31.5 million.

Gross profit for the first quarter of 2010 was $502.2 million, compared to $573.3 million in the same period one year ago. The gross profit results were primarily attributable to a decline in the company-operated store base worldwide and lower same-store comparables, which were partially offset by the positive impact of foreign currency exchange rates of $15.2 million. Gross margin for the first quarter of 2010 was 53.5 percent as compared to gross margin of 52.8 percent in the same period one year ago.

Operating expenses for the quarter were $531.6 million, compared to $523.1 million in the same period one year ago. General and administrative ("G&A") expenses during the first quarter of 2010 were $484.4 million as compared to $477.9 million in the first quarter of 2009, representing an increase of $6.5 million, or 1.4 percent. The Company's G&A results for the first quarter of 2010 included $20.3 million in expenses related to store closures, $9.9 million related to severance and $4.1 million professional fees associated with the Company's recapitalization initiatives. The Company also incurred unfavorable foreign currency exchange of $13.4 million. During the first quarter, Blockbuster invested approximately $10 million in advertising related to online, direct mail and radio campaigns in an effort to drive domestic store traffic. Total selling, general and administrative expenses ("SG&A") increased $16.0 million, or 3.3 percent, compared to the same period one year ago.

Operating loss for the first quarter of 2010 was $29.4 million, compared to operating income of $50.2 million in the first quarter one year ago. Adjusted operating income, which excludes costs associated with store closures, including lease terminations, severance, and professional fees associated with our recapitalization initiatives, was $8.6 million for the first quarter of 2010, compared to adjusted operating income of $63.8 million in the first quarter of 2009, which excluded costs associated with store closures including lease terminations, severance, an adjustment for game inventory obsolescence and the favorable settlement of a future liability.

Net loss for the first quarter of 2010 was $65.4 million, or $0.33 per share, compared to net income of $27.7 million, or $0.12 per diluted share, in the first quarter of 2009. Adjusted net loss for the first quarter of 2010, which excludes costs associated with store closures, including lease termination costs, severance, and professional fees associated with our recapitalization initiatives, totaled $27.3 million, or $0.14 per share. This compares to adjusted net income of $40.2 million, or $0.19 per diluted share, in the first quarter of 2009. Adjusted net income for the first quarter of 2009 excluded costs associated with store closures including lease termination costs, severance, an adjustment for game inventory obsolescence and the favorable settlement of a future liability.

First quarter 2010 adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), which excludes stock-based compensation expenses, costs associated with lease terminations, severance, and professional fees related to the Company's recapitalization initiatives, was $31.1 million, compared to adjusted EBITDA of $97.2 million in the same period one year ago. Adjusted EBITDA for the first quarter of 2009 excluded stock-based compensation expenses, costs associated with lease terminations, severance, an adjustment for game inventory obsolescence and the favorable settlement of a future liability.

Blockbuster ended the first quarter of 2010 with $109.9 million in cash and cash equivalents. Cash used in operating activities during the quarter was $50.8 million, compared with $87.2 million of cash used in operating activities in the first quarter of 2009. First quarter free cash flow ("FCF") (net cash used for operating activities less capital expenditures) was negative $54.8 million in the first quarter of 2010, compared with negative FCF of $95.7 million in the same period in 2009.

Reconciliations of adjusted results and other non-GAAP financial measures are shown in the tables following the text of this press release.

Same-Store Sales

First quarter 2010 domestic same-store sales decreased 7.8 percent, reflecting rental and retail comparable decreases of 6.4 percent and 13.9 percent, respectively. The domestic rental and retail comparable results were primarily driven by competitive pressures. International same-store sales for the first quarter of 2010 decreased 5.8 percent, reflecting rental and retail comparable decreases of 6.2 percent and 5.1 percent, respectively. Worldwide same-store sales for the first quarter of 2010 declined 7.1 percent.

Strategic Alliances

"Through our alliance with NCR we now have over 4,000 kiosks deployed with the BLOCKBUSTER Express® brand. In addition, we expanded our digital presence by becoming the premier movie download experience embedded in T-Mobile's HTC HD2 smart-phone in the U.S., and further optimized our domestic company-owned store portfolio," said Mr. Keyes. "We continue to work with other studios to achieve a 28 day cross-channel window and continue to have discussions with potential strategic partners to strengthen our virtual exclusivity."

Outlook

Tom Casey, Executive Vice President and Chief Financial Officer of Blockbuster Inc, stated, "We expect the next 12 to 18 months will remain challenging. For the full year of 2010, we remain focused on the following financial initiatives: lowering our debt service costs; aggressively reducing operating expenses; preserving liquidity through operational efficiencies; and focusing on improving top line performance. Also, following their liquidation and store closures, we believe Movie Gallery store closings could favorably affect hundreds of Blockbuster locations."

The Company will provide additional business updates and a more detailed review of its financial and operational results for the first quarter ended April 4, 2010 in conjunction with the upcoming conference call as previously announced and referenced below.

First Quarter 2010 Financial Results Web Cast and Conference Call

Blockbuster will host a conference call today, Thursday, May 13, 2010, at 4:30 p.m. Eastern Time ("ET"). Investors and analysts may join the conference call by dialing 1.866.271.6130 with the pass code of 52525796. International callers may join the teleconference by dialing 1.617.213.8894, with the same pass code. A telephonic replay will be available beginning two hours after the conclusion of the call and will be available until midnight ET on Thursday, May 27, 2010. The replay number is 1.888.286.8010, with the pass code of 93851186. International callers interested in listening to the replay should dial 1.617.801.6888 with the same pass code. A live web cast (voice only) of the conference call will be accessible from the Investor Relations section of the Company's website at http://investor.blockbuster.com/. Following the live voice only web cast, an archived version will be available on Blockbuster's website. Finally, a Podcast of the conference call will also be available on the Company's website. Additional details regarding the Company's financial and operational results may be found in its upcoming Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 2010, which will be filed with the Securities and Exchange Commission ("SEC") on May 14, 2010, in the Company's Annual Report on Form 10-K for the year ended January 3, 2010, and in other filings from time-to-time with the Securities and Exchange Commission.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may also be included from time to time in our other public filings, press releases, our website and oral and written presentations by management. Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "predicts," "targets," "seeks," "could," "intends," "foresees" or the negative of such terms or other variations on such terms or comparable terminology. Similarly, statements that describe our strategies, initiatives, objectives, plans or goals are forward-looking. These forward-looking statements are based on management's current intent, belief, expectations, estimates and projections. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict. Currently, the risks and uncertainties that may most directly affect our future results include (i) whether our operating results continue to decline and whether we are able to generate sufficient cash flows to meet our liquidity needs; (ii) whether we will have sufficient cash flows from operating activities and cash on hand to service our indebtedness and finance the ongoing obligations of our business; and (iii) whether we are able to execute our transformational strategies, (iv) whether we are able to execute the strategies to retain our NYSE listing and obtain requisite approvals to recapitalize or restructure our balance sheet and capital structure and (v) other factors described in our filings with the Securities and Exchange Commission, including the factors discussed under the heading "Risk Factors" in our annual report on Form 10-K for the year ended January 3, 2010 and under the heading "Disclosure Regarding Forward-Looking Information" in our quarterly reports on Form 10-Q. This cautionary statement is provided pursuant to Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.

About Blockbuster Inc.

Blockbuster Inc. is a leading global provider of rental and retail movie and game entertainment. The company provides customers with convenient access to media entertainment anywhere, any way they want it - whether in-store, by-mail, through vending kiosks or digitally to their homes and mobile devices. With a highly recognized brand and a library of more than 125,000 movie and game titles, Blockbuster leverages its multichannel presence to serve nearly 47 million global customers annually. The company may be accessed worldwide at www.blockbuster.com.

Financial Tables to Follow

BLOCKBUSTER INC.
COMPARATIVE FINANCIAL HIGHLIGHTS
(In millions, except per share amounts)

Fiscal Quarter Ended
--------------------
April 4, April 5,
2010 2009
--------- ---------

Revenues:
Base rental revenues $598.7 $704.9
Previously rented product ("PRP") revenues 120.9 138.3
----- -----
Total rental revenues 719.6 843.2
Merchandise sales 215.1 236.7
Other revenues 4.7 6.0
939.4 1,085.9
----- -------

Cost of sales:
Cost of rental revenues 270.1 309.9
Cost of merchandise sold 167.1 202.7
----- -----
Total cost of sales 437.2 512.6
----- -----

Gross profit 502.2 573.3
----- -----

Operating expenses:
General and administrative 484.4 477.9
Advertising 21.0 11.5
Depreciation and intangible amortization 26.2 33.7
531.6 523.1
----- -----

Operating income (loss) (29.4) 50.2

Interest expense (33.2) (17.5)
Interest income - 0.2
Other items, net (1.6) (0.8)
---- ----

Income (loss) from continuing operations
before income taxes (64.2) 32.1
Provision for income taxes (1.1) (5.5)
---- ----
Income (loss) from continuing operations (65.3) 26.6

Income (loss) from discontinued operations,
net of tax (0.1) 1.1
---- ---

Net income (loss) (65.4) 27.7

Preferred stock dividends (1.7) (2.8)
---- ----

Net income (loss) applicable to common
stockholders $(67.1) $24.9
====== =====

Net income (loss) per common share:
Basic
Continuing operations $(0.33) $0.12
Discontinued operations - 0.01
Net income (loss) $(0.33) $0.13
====== =====

Weighted average common shares outstanding:
Basic 202.9 192.7
===== =====

Net income (loss) per common share:
Diluted
Continuing operations $(0.33) $0.11
Discontinued operations - 0.01
Net income (loss) $(0.33) $0.12
====== =====

Weighted average common shares outstanding:
Diluted 202.9 222.8
===== =====

BLOCKBUSTER INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in millions)

Revenues by Product Line:
Fiscal Quarter Ended Fiscal Quarter Ended
April 4, 2010 April 5, 2009
------------- -------------
Percent Percent
Revenues of Total Revenues of Total
-------- -------- -------- --------

Domestic
--------

Rental revenues:
Movies $409.9 63.3% $516.2 64.1%
Games 47.2 7.3% 54.3 6.7%
PRP 94.1 14.5% 112.2 13.9%
---- ---- ----- ----
Total rental
revenues 551.2 85.1% 682.7 84.7%
----- ---- ----- ----

Merchandise sales:
Movies 42.5 6.6% 51.1 6.4%
Games 5.5 0.8% 22.0 2.7%
General
merchandise 45.1 7.0% 45.2 5.6%
---- --- ---- ---
Total merchandise
sales 93.1 14.4% 118.3 14.7%
---- ---- ----- ----

Royalties and
other 3.5 0.5% 5.2 0.6%
------ ----- ------ -----
Total domestic
stores
revenues $647.8 100.0% $806.2 100.0%
====== ===== ====== =====




International
-------------

Rental revenues:
Movies $128.8 44.2% $122.4 43.8%
Games 12.8 4.4% 12.0 4.3%
PRP 26.8 9.2% 26.1 9.3%
---- --- ---- ---
Total rental
revenues 168.4 57.8% 160.5 57.4%
----- ---- ----- ----

Merchandise sales:
Movies 36.3 12.4% 33.1 11.8%
Games 59.0 20.2% 59.2 21.2%
General
merchandise 26.7 9.2% 26.1 9.3%
---- --- ---- ---
Total merchandise
sales 122.0 41.8% 118.4 42.3%
----- ---- ----- ----

Royalties and
other 1.2 0.4% 0.8 0.3%

------ ----- ------ -----
Total international
revenues $291.6 100.0% $279.7 100.0%
====== ===== ====== =====

Total consolidated
revenues $939.4 $1,085.9
====== ========



Gross Profit by Product Line:

Fiscal Quarter Ended Fiscal Quarter Ended
April 4, 2010 April 5, 2009
------------- -------------
Percent Percent
Gross Profit of Revenue Gross Profit of Revenue
------------ ---------- ------------ ----------

Domestic
--------

Rental $341.8 62.0% $425.1 62.3%
Merchandise 17.6 18.9% 3.8 3.2%
Other 3.5 100.0% 5.2 100.0%
--- ---
Total domestic
stores 362.9 56.0% 434.1 53.8%
----- -----



International
-------------

Rental 107.7 64.0% 108.2 67.4%
Merchandise 30.4 24.9% 30.2 25.5%
Other 1.2 100.0% 0.8 100.0%
--- ---
Total
international 139.3 47.8% 139.2 49.8%
----- -----

Total
consolidated $502.2 53.5% $573.3 52.8%
====== ======

BLOCKBUSTER INC.
SUPPLEMENTAL FINANCIAL INFORMATION
Selling, General and Administrative (SG&A) Comparison
(Dollars in millions)

Selling, General and Administrative Expenses:

Fiscal Quarter Ended Fiscal Quarter Ended
April 4, 2010 April 5, 2009
------------- -------------
Percent Percent
of of
SG&A Expense Revenue SG&A Expense Revenue
------------ -------- ------------ --------

Advertising
Domestic
stores $15.2 1.6% $6.7 0.7%
International 5.8 0.6% 4.8 0.4%
General &
Administrative
Domestic
stores -
(4 wall) 289.3 30.8% 304.8 28.1%
Domestic
stores -
other 31.7 3.4% 36.2 3.3%
International 126.7 13.5% 116.9 10.8%
Unallocated
corporate 36.7 3.9% 20.0 1.8%

Total SG&A $505.4 53.8% $489.4 45.1%
====== ==== ====== ====

Facilities Statistics:

As of April 4, 2010
-------------------

Domestic
--------

Total Avg Sq
Number Footage Total Sq
------ ------- Footage
-------
(in (in
thousands) thousands)

Stores 3,240 5.6 18,054
Distribution centers 39 N/A 1,119
Corporate/regional
offices 8 N/A 400

As of April 4, 2010
-------------------

International
-------------

Total Avg Sq Total Sq
Number Footage Footage
------ ------- ---------
(in (in
thousands) thousands)

Stores 1,674 3.2 5,374
Distribution centers 6 N/A 170
Corporate/regional
offices 6 N/A 88

BLOCKBUSTER INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in millions)



Other Information:
Revenue
Fiscal Quarter Ended
--------------------
April 4, 2010 April 5, 2009
------------- -------------


Domestic same-store revenues increase (decrease)

Rental revenues (6.4)% (12.3)%
Merchandise sales (13.9)% (3.1)%
Total revenues (7.8)% (10.9)%

International same-store revenues increase (decrease)

Rental revenues (6.2)% (8.4)%
Merchandise sales (5.1)% (4.2)%
Total revenues (5.8)% (6.7)%

Worldwide same-store revenues increase (decrease)

Rental revenues (6.3)% (11.4)%
Merchandise sales (9.0)% (3.7)%
Total revenues (7.1)% (9.6)%





Cash Flow Data:
Fiscal Quarter Ended
--------------------
April 4, 2010 April 5, 2009
------------- -------------

Net cash provided by
(used in) operating
activities $(50.8) $(87.2)
Net cash provided by
(used in) investing
activities $19.3 $(8.1)
Net cash provided by
(used in) financing
activities $(46.5) $48.7

Capital expenditures $4.0 $8.5




Balance Sheet Information:
April 4, 2010 January 3, 2010
------------- ---------------

Cash and cash
equivalents $109.9 $188.7
Restricted cash $35.8 $58.5
Merchandise
inventories $255.2 $298.5
Rental library, net $319.3 $340.7
Accounts payable $206.6 $300.8
Total debt (including
capital lease
obligations) $919.6 $963.6

BLOCKBUSTER INC.
SUPPLEMENTAL FINANCIAL INFORMATION

Worldwide Store Count Information:

Company-Operated Franchised
---------------- ----------
U.S. Int'l. Total U.S. Int'l. Total
---- ------ ----- ---- ------ -----
January 3, 2010 3,525 1,695 5,220 493 807 1,300

Opened 0 1 1 1 0 1
Closed (288) (22) (310) (54) (22) (76)
Purchased/(sold) 3 0 3 (3) 0 (3)
--- --- --- --- --- ---
Net additions/
(closures) (285) (21) (306) (56) (22) (78)
---- --- ---- --- --- ---

April 4, 2010 3,240 1,674 4,914 437 785 1,222
===== ===== ===== === === =====

Total
-----
U.S. Int'l. Total
---- ------ -----
January 3, 2010 4,018 2,502 6,520

Opened 1 1 2
Closed (342) (44) (386)
Purchased/(sold) - - -
--- --- ---
Net additions/
(closures) (341) (43) (384)
---- --- ----

April 4, 2010 3,677 2,459 6,136
===== ===== =====

BLOCKBUSTER INC.
DISCLOSURES REGARDING NON-GAAP FINANCIAL INFORMATION
(Dollars in millions)

For the fiscal quarter ended April 4, 2010, the Company reports
adjusted net income (loss), adjusted net income (loss) per common
share and adjusted operating income (loss) excluding costs incurred
for severance, store closures and professional fees related to
recapitalization costs. Additionally, for the fiscal quarter ended
April 5, 2009, the Company reports adjusted net income (loss),
adjusted net income (loss) per common share and adjusted operating
income (loss) excluding the net loss on a third party games sale and
the favorable settlement of a future liability.

Adjusted net income (loss), adjusted net income (loss) per common
share and adjusted operating income (loss) are non-GAAP financial
measures within the meaning of Regulation G of the Securities and
Exchange Commission and are not measures of operating performance
calculated in accordance with GAAP. As a result, adjusted net
income (loss), adjusted net income (loss) per common share and
adjusted operating income (loss) should not be considered in
isolation of, or as a substitute for, income (loss) from continuing
operations, net income (loss) per common share and operating income
(loss) as indicators of operating performance. Adjusted net income
(loss), adjusted net income (loss) per common share and adjusted
operating income (loss), as the Company calculates them, may not be
comparable to similarly titled measures employed by other companies.

Management believes excluding the recurring and non-recurring items
listed below from the Company's financial results provides investors
with a clearer perspective of the current underlying operating
performance of the Company, a clearer comparison to current period
results and greater transparency regarding supplemental information
used by management in its financial and operational decision making.

Management uses these non-GAAP financial measures as an internal
measure of business operating performance, to establish operational
goals, to allocate resources and to analyze trends. Income (loss)
from continuing operations is the financial measure calculated and
presented in accordance with GAAP that is most comparable to
adjusted net income (loss). Operating income (loss) is the
financial measure calculated and presented in accordance with GAAP
that is most comparable to adjusted operating income (loss).

Fiscal Quarter Ended
--------------------
April 4, April 5,
2010 2009
--------- ---------

Reconciliation of adjusted net income
(loss):
Income (loss) from continuing operations $(65.3) $26.6

Adjustments to reconcile income (loss)
from continuing operations to adjusted
net income (loss):
Store closure costs including lease
terminations (recurring) 24.0 3.4
Severance costs 9.9 1.1
Net loss on a third party games sale
(non-recurring) - 16.7
Settlement of future liability (non-
recurring) - (7.6)
Professional fees related to
recapitalization costs (non-recurring) 4.1 -
--- ---

Adjusted net income (loss) (27.3) 40.2

Preferred stock dividends (1.7) (2.8)
---- ----

Adjusted net income (loss) applicable to
common stockholders $(29.0) $37.4
====== =====

Adjusted net income (loss) per common
share -basic and diluted $(0.14) $0.19
====== =====

Reconciliation of adjusted operating
income (loss):
Operating income (loss) $(29.4) $50.2

Adjustments to reconcile operating income
(loss) to adjusted operating income
(loss):
Store closure costs including lease
terminations (recurring) 24.0 3.4
Severance costs 9.9 1.1
Net loss on a third party games sale
(non-recurring) - 16.7
Settlement of future liability (non-
recurring) - (7.6)
Professional fees related to
recapitalization costs (non-recurring) 4.1 -
Adjusted operating income (loss) $8.6 $63.8
==== =====

BLOCKBUSTER INC.
DISCLOSURES REGARDING NON-GAAP FINANCIAL INFORMATION
(Dollars in millions)

For the fiscal quarter ended April 4, 2010, the Company reports
adjusted earnings before interest, taxes, depreciation and
amortization ("adjusted EBITDA") excluding costs incurred for stock
compensation, severance, store closures, and professional fees
related restructuring costs. Additionally, for the fiscal quarter
ended April 5, 2009, the Company reports adjusted EBITDA excluding a
net loss on a third party games sale and the favorable settlement of
a future liability.

EBITDA and adjusted EBITDA are non-GAAP financial measures within
the meaning of Regulation G of the Securities and Exchange
Commission and are not a measure of operating performance calculated
in accordance with GAAP. As a result, EBITDA and adjusted EBITDA
should not be considered in isolation of, or as a substitute for,
net income (loss) as an indicator of operating performance. EBITDA
and adjusted EBITDA, as the Company calculates it, may not be
comparable to similarly titled measures employed by other companies.

Management believes excluding the recurring and non-recurring items
listed under EBITDA below from the Company's financial results
provides investors with a clearer perspective of the current
underlying operating performance of the Company, a clearer
comparison to current period results and greater transparency
regarding supplemental information used by management in its
financial and operational decision making.

In addition, management believes that adjusting the Company's
financial results to exclude income (loss) from discontinued
operations, net of tax, taxes, interest and other income, net and
depreciation and amortization of intangibles also provides investors
with a clearer perspective of the current underlying operating
performance of the Company and a clearer comparison to current
period results.

Management uses EBITDA and adjusted EBITDA as an internal measure of
business operating performance, to establish operational goals, to
allocate resources and to analyze trends. Net income (loss) is the
financial measure calculated and presented in accordance with GAAP
that is most comparable to EBITDA and adjusted EBITDA.

Fiscal Quarter Ended
--------------------
April 4, April 5,
2010 2009
--------- ---------

Reconciliation of adjusted EBITDA:
Net income (loss) $(65.4) $27.7
Adjustments to reconcile net income (loss)
to adjusted EBITDA:
(Income) loss from discontinued operations,
net of tax 0.1 (1.1)
Provision for income taxes 1.1 5.5
Interest and other income, net 34.8 18.1
Depreciation and intangible amortization 26.2 33.7
EBITDA (3.2) 83.9
---- ----

Lease termination costs incurred for store
closures (recurring) 20.3 1.1
Severance costs 9.9 1.1
Stock compensation (recurring) - 2.0
Net loss on a third party games sale (non-
recurring) - 16.7
Settlement of future liability (non-
recurring) - (7.6)
Professional fees related to
recapitalization costs (non-recurring) 4.1 -

Adjusted EBITDA $31.1 $97.2
===== =====

BLOCKBUSTER INC.
DISCLOSURES REGARDING NON-GAAP FINANCIAL INFORMATION
(Dollars in millions)

Free cash flow reflects the Company's net cash flow provided by (used
in) operating activities less capital expenditures. The Company
uses free cash flow, among other things, to evaluate its operating
performance and as a measure of liquidity. Management believes free
cash flow provides investors with an important perspective on the
cash available for debt service, acquisitions and stockholders after
making the capital investments required to support ongoing business
operations and long-term value creation. The Company believes the
presentation of free cash flow is relevant and useful for investors
because it allows investors to view performance in a manner similar
to the method used by management and helps improve their ability to
understand the Company's operating performance. In addition, free
cash flow is also a measure used by the Company's investors and
analysts for purposes of valuation and comparing the operating
performance of the Company to other companies in its industry.

Free cash flow is a non-GAAP financial measure within the meaning of
Regulation G of the Securities and Exchange Commission and is not a
measure of performance calculated in accordance with GAAP. As a
result, free cash flow should not be considered in isolation of, or
as a substitute for, net income (loss) as an indicator of operating
performance or net cash flow provided by (used in) operating
activities as a measure of liquidity. Free cash flow, as the
Company calculates it, may not be comparable to similarly titled
measures employed by other companies. In addition, free cash flow
does not necessarily represent funds available for discretionary use
and is not necessarily a measure of the Company's ability to fund
its cash needs. As the Company uses free cash flow as a measure of
performance and as a measure of liquidity, the tables below
reconcile free cash flow to both net income (loss) and net cash flow
provided by (used in) operating activities, the most directly
comparable financial measures reported under GAAP.

The following table provides a reconciliation of net cash provided by
(used in) operating activities to free cash flow:

Fiscal Quarter Ended
--------------------
April 4, April 5,
2010 2009
--------- ---------

Net cash provided by (used in) operating
activities $(50.8) $(87.2)

Adjustments to reconcile net cash
provided by (used in) operating
activities to free cash flow:
Capital expenditures (4.0) (8.5)
---- ----

Free cash flow $(54.8) $(95.7)
====== ======

The following table provides a
reconciliation of net income (loss) to
free cash flow:

Fiscal Quarter Ended
--------------------
April 4, April 5,
2010 2009
--------- ---------

Net income (loss) $(65.4) $27.7

Adjustments to reconcile net income
(loss) to free cash flow:
Depreciation and intangible amortization 26.2 34.8
Non-cash share-based compensation
expense - 2.0
Capital expenditures (4.0) (8.5)
Rental library purchases, net of rental
amortization 22.8 3.1
Changes in operating assets and
liabilities (38.5) (155.6)
Changes in deferred taxes and other 4.1 0.8
Loss on extinguishment of debt - -
--- ---

Free cash flow $(54.8) $(95.7)
====== ======

Source: Blockbuster Inc.

CONTACT: Investor Relations, Kellie Nugent, Director, Investor Relations
of Blockbuster Inc., +1-214-854-4442, kellie.nugent@blockbuster.com; or Media,
Craig Bloom of Hill and Knowlton, +1-212-885-0585,
craig.bloom@hillandknowlton.com, for Blockbuster Inc.

Web Site: http://www.blockbuster.com/

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Profile: intent