The clock ticks down for Blockbuster: 35 days and counting

Blockbuster's recent filing with the US Securities and Exchange commission clearly portrays the gravity of the company's current situation.

For the company to maintain day-to-day operations, Blockbuster is in the process of refinancing its revolving and term loans, which will earn it $250 million that will come due in September 2010. However, before the refinancing can finish on May 11, certain conditions must be met before its lenders to fund the credit facility, and even if those are met, Blockbuster still may not make it.

In the 10-K filing, the company wrote [emphasis ours]: "The risk that we may not successfully complete this refinancing and obtain the related amendment of certain financial covenants included therein, and/or the risk that we may not have adequate liquidity to fund our operations as a result of not meeting our projected financial results, even if the refinancing is completed within the time and upon the terms contemplated, raise substantial doubt about our ability to continue as a going concern."

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The Public's doubt was never as substantial as it was early last month, when Blockbuster hired Kirkland and Ellis LLP, notable bankruptcy lawyers who were also dealing with Charter Communications' Chapter 11 filing. When that news broke, it was a only a matter of hours before Blockbuster's stock tanked and investors began their proverbial deathwatch.

Contained within the SEC document, Blockbuster reveals that its 2008 cost control measures involved closing 6.8% of its corporate stores worldwide -- about 545 locations. Furthermore, the Blockbuster Total Access by-mail DVD rental business lost 26% of its subscribers, and the gross margin for merchandise sold in its stores dropped from 27.3% to 18.2%.

The margin on DVDs decreased "due to more competitive consumer pricing," and the company expects that to only continue shrinking. Likewise, the company decreased its overall inventory by $98.8 million.

"Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. This, to some extent, is subject to general economic, financial, competitive, industry and other factors that are beyond our control," reads Blockbuster's filing this morning. "We cannot assure you that our future cash flow will be sufficient to meet our obligations and commitments."

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