Acquisitions

6 Months Ended

Jun. 30, 2011

Acquisitions

Acquisitions

9.Acquisitions

When we acquire a business we recognize the assets acquired, liabilities assumed and any noncontrolling interests at fair value.  We expense all transaction costs related to the acquisition as incurred.

Blockbuster Acquisition

On April 26, 2011, we completed the Blockbuster Acquisition.  We acquired Blockbuster operations in the United States and in certain foreign countries.  Our winning bid in the bankruptcy court auction was valued at $321 million.  We paid $238 million to acquire Blockbuster, including $226 million in cash and $12 million in certain assumed liabilities.  Of the $226 million paid in cash, $20 million was placed in escrow.  Subsequent to this payment, we received a $4 million refund from escrow, resulting in a net purchase price of $234 million.  Blockbuster primarily offers movies and video games for sale and rental through multiple distribution channels such as retail stores, by-mail, digital devices, the blockbuster.com website and the BLOCKBUSTER On Demand service.  The Blockbuster Acquisition complements our core business of delivering high-quality video entertainment to consumers.

This transaction was accounted for as a business combination using the acquisition method of accounting.  The preliminary allocation of the purchase consideration is in the table below and is incomplete until our final evaluation of fair value is determined.

	Preliminary
	Purchase
	Price
	Allocation
	(In thousands)
Cash	$	112,804
Current assets	168,711
Property and equipment	21,622
Acquisition intangibles	9,879
Other noncurrent assets	7,838
Current liabilities	(78,503		)
Other long term liabilities	(8,767		)
Total purchase price	$	233,584

The pro forma revenue and earnings associated with the Blockbuster Acquisition is not included in this filing as management determined that due to the material ongoing modifications of the business insufficient information exists to accurately develop meaningful historical pro forma financial information.  Moreover, the historical operations of Blockbuster materially changed during the periods preceding the acquisition as a result of Blockbuster Inc.’s bankruptcy proceedings, and any historical pro forma information would not prove useful in assessing our post acquisition earnings and cash flows.  The cost of goods sold on a unit basis for Blockbuster in the current period was lower-than-historical results.  The carrying values in the current period of the rental library and merchandise inventories (“Blockbuster Inventory”) were reduced to their estimated fair value due to the application of purchase accounting.  This impact on cost of goods sold on a unit basis will diminish in the future as we purchase new Blockbuster Inventory.