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Blockbuster Gave Raises Prior to Proxy Vote

16 May, 2005 By: Erik Gruenwedel



Despite last week's referendum led by dissident shareholder Carl Icahn aimed at making Blockbuster Inc.'s board of directors more financially accountable, the No.1 video rental chain granted fiscal 2005 pay raises of up to 18 percent to six executives — the day before the vote.

In a filing today with the Securities and Exchange Commission, Blockbuster said it granted Nicolas Shepherd, president of U.S. store operations, an 18 percent raise of $87,596, to $565,000; EVP Chris Wyatt, a 10.4 percent increase of $61,327, to $649,543; and CFO Larry Zine and general counsel Edward Stead 7.5 percent raises of $45,192 (to $640,000) and $39,327 (to $560,000), respectively.

Frank Paci, EVP finance and accounting, and Eileen Terry, EVP franchising, emerging brands, Canada, and global diversity officer, will earn $434,000 and $342,000, respectively, this year.

Reappointed board chairman and CEO John Antioco, whose $7 million compensation in 2004 helped fuel Icahn's run for a board seat, did not receive a raise.

The compensation increases, which do not factor in bonuses or stock options, come at a time when Icahn has vowed to decrease selling, general and administrative (SG&E) expenses (including payroll) upwards of $200 million annually, according to analysts.

In 2004, Blockbuster's SG&E was $3.13 billion, due in large part to growth initiatives, including online and in-store subscription programs.

Michael Pachter, media analyst with Wedbush Morgan Securities in Los Angeles, said in a research note he expects SG&E to “flatten” to $3.1 billion this year.

Indeed, advertising costs related to promoting subscription programs and the end of late fees increased from $150 million in 2003 to $119 million in the last quarter alone, according to Pachter.

That said, Pachter remains bullish on Blockbuster.

“We believe that the outcome of the proxy fight will serve to reinforce management's focus on enhancing shareholder value, and we think that the newly configured board [of directors] will allow management to retain its focus,” Pachter said.

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