Borders Group Inc.’s Financial Analysis

Introduction

Borders Group Inc is an international Company registered in the United States with its headquarters based at Ann Arbor, Mic. It specializes in selling books, CDs, DVDs, and Magazines. The company was started in 1971 by two brothers Tom and Louis when they were still undertaking their undergraduate and graduate studies at the University of Michigan. Borders Group is the second largest international bookseller in the United States after Barnes & Noble. Over the recent period borders has been finding it very rough following the entrance of new players in the US markets. With the current economic and financial crisis clients are forced to squeeze their purchasing power in order to match into the current prevailing economic circumstances. (Answers.com,2007).

The profitability of Borders has been declining gradually since 2005. This has been attributed to over expansion programs witnessed during the years 2006 and 2007. The management has already made a decision to reduce some of its stores both international and domestic. This is viewed in the wider context as a strategy to concentrate core business activities in the United States. The declining profitability has also been attributed to underperformance of some stores i.e. the sale of bookstores in the United Kingdom and Ireland. Borders also sold its paper Chase business to Pershing Square Capital management at $ 65m and Ireland business of 42 bookstores and 28 books all sold to Equity Group Capital partners at 20m pounds. (Thomson Reuters,2009).

The discontinued operations shown on the income statement below represents losses incurred as a result of closing down stores in the United Kingdom as well as in Ireland. Other incomes include those earned through franchising business where Borders uses its brand name in other countries. A notable example is in Australia and Ireland. Borders group believe that their brand name has a lot of business potential that is too difficult to be ignored. Dan Smith who is the current chief Administrative Officer has been a good friend of mine since 2004 and this is why I had an access to this data. (Answers.com,2007)

Borders Group is a company that believes in customer focus and creativity. Over the past period the company has designed new systems featuring development of a concept store; this comprised the implementation of destination business which strategically distinguishes the company’s domestic superstores from competitors. This feature also included best coffee café and a paper chase shop which seeks to double profitability by increasing sales. This saw an increment in short-term investments from $80m to $108m. (Thomson Reuters,2009).

The figure for goodwill shown in the statement represents excess in value received from the franchising business. There has been no amortization for the periods from 2000 to 2008 since the goodwill is expected to increase as the world diverts its attention to franchising business. The figure for liabilities includes long term borrowings during the year 2006/2007. This was meant to ease the cash flow problems experienced as a result of overexpansion programs experienced during the two consecutive financial years. (Answers.com,2007).

The financial statements have been prepared using the Generally Accepted Accounting Principles of the United States of America. In accordance with the International Financial Reporting Standards. (Thomson Reuters,2009) For further Analysis and comparisons please see the financial statements that follow.

Borders Group Income Statement for financial years 2005, 2006, 2007, and 2008.

Income Statement: Annual	Financial Data in U.S. Dollars Values in Millions (Except for per share items)
	2009	2008	2007	2006	2005
Period End Date	01/31/2009	02/02/2008	02/03/2007	01/28/2006	01/23/2005
Period Length	52 Weeks	52 Weeks	52 Weeks	52 Weeks	52 Weeks
Stmt Source	10-K	10-K	10-K	10-K	10-K
Stmt Source Date	04/01/2009	04/01/2009	04/01/2009	04/14/2008	04/05/2006
Stmt Update Type	Updated	Restated	Restated	Restated	Reclassified
Revenue	3,242.1	3,555.1	3,532.3	3,675.7	3,879.5
Other Revenue, Total	33.3	42.3	37.1	41.4	51.9
Total Revenue	3,275.4	3,597.4	3,569.4	3,717.1	3,931.4
Cost of Revenue, Total	2,484.8	2,668.3	2,615.7	2,650.4	2,812.4
Gross Profit	757.3	886.8	916.6	1,025.3	1,067.1
Selling/General/Administrative Expenses, Total	826.0	912.0	887.9	891.4	895.1
Research & Development	0.0	0.0	0.0	0.0	0.0
Depreciation/Amortization	0.0	0.0	0.0	0.0	0.0
Interest Expense (Income), Net Operating	0.0	0.0	0.0	0.0	0.0
Unusual Expense (Income)	113.8	13.0	60.6	4.9	7.2
Other Operating Expenses, Total	0.0	0.0	0.0	0.0	0.0
Operating Income	-149.2	4.1	5.2	170.4	216.7
Interest Income (Expense), Net Non-Operating	0.0	0.0	0.0	0.0	0.0
Gain (Loss) on Sale of Assets	0.0	0.0	0.0	0.0	0.0
Other, Net	0.0	0.0	0.0	0.0	0.0
Income Before Tax	-154.5	-39.0	-24.7	156.8	207.6
Income Tax – Total	30.2	-19.1	-2.8	60.3	75.7
Income After Tax	-184.7	-19.9	-21.9	96.5	131.9
Minority Interest	0.0	0.0	0.0	0.0	0.0
Equity In Affiliates	0.0	0.0	0.0	0.0	0.0
U.S. GAAP Adjustment	0.0	0.0	0.0	0.0	0.0
Net Income Before Extra. Items	-184.7	-19.9	-21.9	96.5	131.9
Total Extraordinary Items	-2.0	-137.5	-129.4	4.5	0.0
Discontinued Operations	-2.0	-137.5	-129.4	4.5	0.0
Net Income	-186.7	-157.4	-151.3	101.0	131.9
Total Adjustments to Net Income	0.0	0.0	0.0	0.0	0.0
Preferred Dividends	0.0	0.0	0.0	0.0	0.0
General Partners’ Distributions	0.0	0.0	0.0	0.0	0.0
Basic Weighted Average Shares	60.2	58.7	61.9	69.79	76.6
Basic EPS Excluding Extraordinary Items	-3.07	-0.34	-0.35	1.38	1.72
Basic EPS Including Extraordinary Items	-3.1	-2.68	-2.44	1.45	1.72
Diluted Weighted Average Shares	60.2	58.7	61.9	71.09	77.9
Diluted EPS Excluding Extraordinary Items	-3.07	-0.34	-0.35	1.36	1.69
Diluted EPS Including Extraordinary Items	-3.1	-2.68	-2.44	1.42	1.69
Dividends per Share – Common Stock Primary Issue	0.0	0.41	0.41	0.37	0.33
Gross Dividends – Common Stock	0.0	25.9	25.2	25.5	25.1
Interest Expense, Supplemental	5.3	43.1	29.9	13.6	9.1
Depreciation, Supplemental	107.1	103.7	111.2	109.6	112.9
Normalized EBITDA	71.7	120.8	177.0	284.9	336.8
Normalized EBIT	-35.4	17.1	65.8	175.3	223.9
Normalized Income Before Tax	-40.7	-26.0	35.9	161.7	214.8
Normalized Income After Taxes	-110.73	-11.45	17.49	99.52	136.48
Normalized Income Available to Common	-110.73	-11.45	17.49	99.52	136.48
Basic Normalized EPS	-1.84	-0.2	0.28

The Balance sheet

Financial data in U.S. Dollars Values in Millions (Except for per share items).

	2009	2008	2007	2006	2005
Period End Date	01/31/2009	02/02/2008	02/03/2007	01/28/2006	01/23/2005
Stmt Source	10-K	10-K	10-K	10-K	10-K
Stmt Source Date	04/01/2009	04/01/2009	04/14/2008	04/05/2006	04/08/2005
Stmt Update Type	Updated	Reclassified	Reclassified	Updated	Updated
Assets
Cash and Short Term Investments	53.6	58.5	108.6	81.6	340.2
Total Receivables, Net	102.4	103.5	128.7	150.3	118.3
Total Inventory	915.2	1,242.0	1,347.3	1,405.9	1,306.9
Prepaid Expenses	0.0	0.0	0.0	0.0	0.0
Other Current Assets, Total	0.0	102.0	139.0	0.0	0.0
Total Current Assets	1,071.2	1,506.0	1,723.6	1,637.8	1,765.4
Property/Plant/Equipment, Total – Net	494.2	592.8	604.2	703.9	635.6
Goodwill, Net	0.2	40.5	40.3	124.5	128.6
Intangibles, Net	0.0	0.0	0.0	0.0	0.0
Long Term Investments	0.0	0.0	0.0	0.0	0.0
Note Receivable – Long Term	0.0	0.0	0.0	0.0	0.0
Other Long Term Assets, Total	43.4	163.4	245.3	106.0	99.2
Other Assets, Total	0.0	0.0	0.0	0.0	0.0
Total Assets	1,609.0	2,302.7	2,613.4	2,572.2	2,628.8
Liabilities and Shareholders’ Equity
Accounts Payable	350.0	511.9	562.0	660.3	615.1
Payable/Accrued	0.0	0.0	0.0	0.0	0.0
Accrued Expenses	279.8	321.6	336.9	293.4	306.4
Notes Payable/Short Term Debt	0.0	0.0	0.0	0.0	0.0
Current Port. of LT Debt/Capital Leases	329.8	548.6	502.0	207.1	141.2
Other Current Liabilities, Total	34.1	85.7	195.0	150.3	133.3
Total Current Liabilities	993.7	1,467.8	1,595.9	1,311.1	1,196.0
Total Long Term Debt	6.4	5.4	5.2	5.4	55.8
Deferred Income Tax	0.0	0.0	0.0	0.0	0.0
Minority Interest	0.5	2.2	2.0	1.3	1.4
Other Liabilities, Total	345.8	350.4	368.3	326.6	286.7
Total Liabilities	1,346.4	1,825.8	1,971.4	1,644.4	1,539.9
Redeemable Preferred Stock	0.0	0.0	0.0	0.0	0.0
Preferred Stock – Non Redeemable, Net	0.0	0.0	0.0	0.0	0.0
Common Stock	186.9	184.0	175.5	294.3	525.1
Retained Earnings (Accumulated Deficit)	63.8	250.5	438.0	614.5	539.0
Other Equity, Total	11.9	42.4	28.5	19.0	24.8
Total Equity	262.6	476.9	642.0	927.8	1,088.9
Total Liabilities & Shareholders’ Equity	1,609.0	2,302.7	2,613.4	2,572.2	2,628.8
Total Common Shares Outstanding	59.9	58.79	58.48	64.15	73.88
Total Preferred Shares Outstanding	0.0	0.0	0.0	0.0	0.0

List of References

Answers. (2007). Borders Group. Web.

Thomson Reuters. (2009). Borders Group Inc (MI): Financial Statement.