Global Business

Blockbuster Feature: a Major Restatement

Movie-rental company finds errors in 2005-2007 reports, with weaknessness in accounting for general and administrative expense accruals and currenc...
Stephen TaubMarch 6, 2008

Blockbuster Inc. said it will restate its 2005 and 2006 consolidated financial statements, and its quarterly reports for 2006 and 2007, to correct certain errors.

As a result of the errors — leading to revisions that will impact income from continuing operations — the company said that it will report in its annual report for the year ended Jan. 6, 2008, that two material weaknesses exist in its internal controls over financial reporting.

The weaknesses are related to accounting for general and administrative expense accruals and accounting for foreign currency translation adjustments.

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The embattled movie rental company said, however, that it has determined that these financial statements can still be seen as reliable, so it is not adding a nonreliance clause in its filing. The restatements will increase income from continuing operations for the 39 weeks ended Sept. 30, 2007, by $1.9 million, from a previously reported loss from continuing operations of $118 million to a restated loss of $116.1 million.

Blockbuster also will decrease the income figure for the 2006 fiscal year by $4.2 million, from a previously reported $67.9 million to a restated amount of $63.7 million.

For 2005, the revision will increase income from continuing operations by $4.2 million, from a loss of $548.3 million to $544.1 million.

The restatement was announced at the same time the company reported that revenues increased 3.6 percent to $1.57 billion for the fourth quarter of 2007 from the fourth quarter of 2006. Net income for the quarter more than quadrupled, to $38.1 million from $8.3 million for the fourth quarter of 2006.

The company cited for the earnings improvement its aggressive cost reductions, the repositioning of its subscription programs, and a renewed focus on store merchandising.

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