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Movie Gallery Calculates Hollywood Combo

25 Apr, 2005 By: Erik Gruenwedel

The combined annual revenue of Movie Gallery and its nascent acquisition Hollywood Entertainment Corp. should top $2.5 billion and produce $82.9 million in profit.

That's according to consolidated pro forma statements released by Gallery last week in a filing with the Securities and Exchange Commission.

Hollywood shareholders were expected to ratify Gallery's $1.2 billion cash bid during a shareholders meeting April 22.

Pro forma data usually excludes assorted write-down and related expenses and are intended to give a cursory view of a company's financial operations.

The acquisition price included $856.6 million of Hollywood equity, $382 million in debt, and $66.1 million in fees and related expenses. Gallery paid $184.7 million in cash, $795 million in two fixed-rate loans and $325 million in floating rate bonds.

Rental revenue between the two companies comprises $729.1 million from Gallery and $1.38 billion from Hollywood, less $1.7 million when conforming Hollywood's accounting methods for late fees to Gallery's method.

Product sales total $456 million, including $394 million from Hollywood and $62 million from Gallery.

According to the consolidated balance sheet, Gallery, with $27.4 million in inventory, acquired $148.1 million in Hollywood inventory, minus a $31.8 million accounting deduction when reclassifying Hollywood's previously viewed titles from merchandise to rental inventory.

Gallery used $184.7 million of Hollywood's $193.7 million in available cash and cash equivalents to help fund the acquisition, leaving combined cash and equivalents between the companies at about $34.5 million.

Long-term debt and deferred income taxes as a result of the deal helped push combined liabilities up 83.4 percent, or $756.9 million, to $1.66 billion.

In other news, Gallery said sales of previously viewed video helped spike same-store revenue 1.5 percent for the first quarter of 2005 (ended April 3), compared to a 6 percent decline in the previous quarter.

Gallery, which added 61 stores during that quarter, said it expects up to a 15 percent increase in quarterly revenue, to $228 million, when it reports full quarterly results during the week of May 9. Last quarter's 15.6 percent increase in the average number of stores operating helped Gallery increase revenue 6.6 percent, to $208.4 million.

Finally, Movie Gallery said it would extend the deadline for its offer to purchase all of the outstanding common shares of Toronto-based VHQ Entertainment for $1.15 Canadian to May 16.As of the previous deadline, April 18, VHQ shareholders tendered about 73.6 percent of the outstanding common stock, or more than 11 million shares.

VHQ owns and operates 61 video rental stores. Gallery has more than 200 stores in Canada.

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