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Blockbuster Reports Profit Drop

And the company warns of a battle wth its CEO over his bonus.


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posted a drop in fourth-quarter profits Tuesday and warned of a potential battle with its CEO.

The Dallas-based company reported net income of $12.9 million, or 5 cents a share, compared with $18 million, or 9 cents a share, a year ago. Adjusted net income totaled $20.4 million, or 9 cents a share, compared with $25 million, or 12 cents a share, a year ago.

Revenue increased 1.4% to $1.5 billion primarily due to an increase in worldwide same-store merchandise sales and favorable foreign exchange rates.

Revenue for the quarter also included the favorable impact of a roughly $30 million increase in revenue from Blockbuster's online rental service, which added roughly 700,000 online rental subscribers during the fourth quarter, including about 500,000 paying subscribers.

Analysts polled by Thomson Financial were expecting earnings of 5 cents a share on revenue of $1.47 billion. The company said selling, general and administrative expenses, or SG&A, increased $17.9 million from a year ago largely due to higher level of promotional activities and costs incurred to launch Blockbuster Total Access, its online business.

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"2006 was an exciting year for Blockbuster," said CEO John Antioco. "We delivered four consecutive quarters of positive same-store domestic movie rental revenues. We also significantly reduced operating costs, sizably increased our online subscriber base and substantially improved our profitability and cash flow."

For the full year, the company posted net income of $54.7 million, or 23 cents a share, compared with a net loss of $588.1 million, or $3.20 a share, for 2005. Excluding items, net income totaled $6.3 million, or 3 cents a share, compared with an adjusted net loss of $73.6 million, or 40 cents a share, in 2005.

Revenue for 2006 decreased 3.5% to $5.52 billion mostly due to the closure of stores and a 2.1% decrease in worldwide same-store sales, or sales at stores open at least a year.

Bonus Brouhaha

Blockbuster said its involved in a dispute with Antioco over his 2006 bonus award. On Jan. 25, the board awarded the chief executive a $2.28 million bonus, which was in addition to his 2006 salary and deferred compensation of about $2.5 million.

The bonus is subject to the condition that the board would not give Antioco a bonus if he contested the award. Antioco maintains he should be entitled to $7.7 million based upon the company's bonus plan. Blockbuster said it is reserving $4.5 million as a contingency.

In 2005, billionaire Carl Icahn nominated himself and two other people to Blockbuster's board. Icahn said he opposed an ''unconscionable'' $51.6 million pay package for Antioco. Icahn and his allies were elected to the board, but he did not attempt to oust Antioco.

Shares closed the session lower by 27 cents, or 3.9%, at $6.67.