Borders Group Inc. Company Profile
Strategic and Operational Planning
Assignment 2
May 31, 2011
By: Ayesha Mujtaba

Abstract The # 2 bookstore operator in the US (after Barnes & Noble), Borders Group runs about 400 Borders superstores in about 45 states and Puerto Rico, as well as roughly 175 small-format shops under the Waldenbooks, Borders Express, and Borders Outlet banners. Borders superstores offer up to 170,000 book, music, and movie titles, and most feature Seattle's Best Coffee shops (thanks to a licensing agreement with owner Starbucks). The company also peddles products via its website. Faced with declining sales and mounting debts, Borders filed for Chapter 11 bankruptcy protection in 2011, is closing many stores, and looking for a buyer.

About the Organization

Borders is a place to discover fascinating new releases and reconnect with old favorites, a place to share a family story time or savor a hot cup of coffee. Borders engages the customers with a rich shopping experience where they can explore knowledge, entertainment and more. Borders employees allow customers to connect with the books, music and movies that help shape and define the economy and day-to-day people that come in the store. A career with Borders Group begins with sharing the vision to create richer, more satisfying lives through knowledge and entertainment. Those people with a passion for Borders’ product and a deep commitment to providing engaging customer service will flourish in the diverse, energetic community. Headquartered in the lively, cosmopolitan town of Ann Arbor, Michigan, Borders Group is a publicly held company with annual sales of over $3.9 billion. More than 19,500 dedicated employees support the operations of just under 800 Borders and Waldenbooks stores across the country and throughout the world. This includes Borders Superstores in the U.S., smaller-format Borders Express and Waldenbooks stores, Borders Airport Stores, Borders Outlets, a variety of seasonal businesses, and the domestic distribution centers, with its international presence.

Financial Performance

On February 16, 2011, Borders Group, Inc., Borders, Inc. and certain of it’s subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Debtors continue to operate their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 and orders of the Bankruptcy Court. Borders international franchised operations are not included in the Chapter 11 Cases. The Chapter 11 Cases were filed in response to an environment of curtailed customer spending, increasing industry competition and an anticipated lack of sufficient liquidity, including trade credit provided by the vendors, to permit Borders to pursue it’s business strategy to position the Borders brand successfully for the long term. As part of the Chapter 11 Cases and as discussed further below, the goal is to develop and implement a Chapter 11 plan that meets the standards for confirmation under the Bankruptcy Code.
Financial Highlights
Fiscal Year
Fiscal Year Ends: Jan 29
Most Recent Quarter (mrq): Jan 29, 2011

Profitability
Profit Margin (ttm): -13.14%
Operating Margin (ttm): -8.64%

Management Effectiveness
Return on Assets (ttm): -10.32%
Return on Equity (ttm): -13,056.52%

Income Statement
Revenue (ttm): 2.27B
Revenue Per Share (ttm): 33.27
Qtrly Revenue Growth (yoy): -17.60%
Gross Profit (ttm): 374.00M
EBITDA (ttm): -118.70M
Net Income Avl to Common (ttm): -300.30M
Diluted EPS (ttm): -4.37
Qtrly Earnings Growth (yoy): N/A

Balance Sheet
Total Cash (mrq): 24.70M
Total Cash Per Share (mrq): 0.34
Total Debt (mrq): 217.90M
Total Debt/Equity (mrq): N/A
Current Ratio (mrq): 0.86
Book Value Per Share (mrq): -2.13

Cash Flow Statement
Operating Cash Flow (ttm): 56.10M
Levered Free Cash Flow (ttm): 161.81M

Operational State of the Organization

In light of the ongoing impact of the difficult economy of the past few years, and the rapidly changing retailing environment for books and related products, it is essential that Borders restructure itself to reposition its business to be viable and successful over the long term. To that end, Borders has determined the best route to undertake the necessary reorganization of its business is through the filing of a petition for reorganizational relief under Chapter 11 of the Bankruptcy Code.
During this reorganization period:
• Borders stores are open for business. It will continue to provide customers with a vast assortment of books in a warm and relaxing environment – and intends to build on this. Stores will continue to be places where families can gather to enjoy enriching events including author readings and signings, book clubs as well as kids' story time and parties.
• Borders.com is operating as usual. It’s fulfilling online orders as customers choose from among millions of books, music, movies as well as other entertainment items.
• Borders Rewards programs, including Borders Rewards Plus, remain in effect. Customers can continue to earn and redeem their Rewards in stores and on Borders.com.
• Borders is honoring gift cards and coupons as usual. Gift cards and coupons can be redeemed in stores and online at Borders.com.
• Borders will continue to maintain its strong national presence. The nationwide network of stores is foundational to the Borders brand. Borders, however, will be closing underperforming stores within its network over the next several weeks. Through this process, Borders intends to put in place a sound financial structure, enhance Borders' technology to better benefit customers and introduce new and exciting products related to its book offerings - all while providing consumers with great customer service.

Organizational Culture

Borders Group offers funding and promotional opportunities to nationally recognized non-profit organizations whose missions support literacy, education, and the fine and performing arts. Borders embraces its role as a vital, contributing member of the community that reaches out to connect with people. Offering knowledge and entertainment, but also a commitment to act as a responsible neighbor and partner in the towns where Borders live, work and do business. The stores happily lend a helping hand to local charities through fundraising Benefit Days, volunteer gift-wrapping opportunities, and special events. Additionally, the Borders Group Foundation is a 501 (c)(3) nonprofit charitable organization that coordinates various programs to strengthen and support Borders Group employees and their families. The Borders Group Foundation was established as an independent 501(c)(3) organization in 1996. To date the Foundation has distributed more than $4 million in assistance through various programs, including financial assistance, scholarship, bereavement outreach and military outreach.
Financial Assistance
The main focus of the Borders Group Foundation is to provide charitable financial assistance to the employees of Borders Group, Inc. and their immediate families living in the same household. Eligible Borders Group employees include those from all US subsidiaries of Borders, Specialty Retail/Waldenbooks, Distribution Centers and the Corporate Headquarters, who have a demonstrated, short-term financial need, arising from a specific, unforeseen life event. This assistance is made in the form of a tax-free grant.
Scholarships
The Borders Group Foundation sponsors a Scholarship Program to assist employees and eligible family members with the cost of higher education, including undergraduate, graduate, vocational and technical studies. The awards are determined based on a combination of merit, need and leadership/community involvement. Since its inception in 2002, over $850,000 in scholarships has been awarded.
Bereavement Outreach
The Foundation makes a caring response when any regular full or part-time employee experiences the death of an immediate family member. At the request of an employee's manager, this response is made in the form of a special food basket and condolence card delivered to the employee's home or other appropriate address. Annually the Foundation sends approximately 300 bereavement baskets. The Memorial Contribution Program was established in 2007 to provide a memorial to honor the memory of any Borders employees who pass away. A contribution is made in that employee's name, to a charity chosen by the family or store.
Military Outreach
The Foundation sends special care-packages to family members of Borders Group employees, who are actively serving overseas in the Armed Forces. Those eligible receive a care-package, which includes phone cards, books, periodicals, CDs and DVDs, snacks and toiletries.
Foundation Funding
Support for the Foundation's programs and services comes primarily from Borders Group employees, who show their compassion for fellow employees in need by electing Foundation payroll deductions, and supporting Foundation-sponsored events such as bake sales, prize raffles, merchandise sales, and the organization's golf outing. In 2009, employees contributed just over $341,000 to the Foundation.

Contemporary Issues

Sales of books, music and movies have historically been dependent upon discretionary consumer spending, which may be affected by general economic conditions, consumer confidence and other factors beyond control. Borders believe that 2011 will be a challenging year due to continued uncertainty in the economic environment. Also that the increase in consumer spending via Internet retailers and on eBooks may significantly affect the ability to generate sales in stores. In addition, sales are dependent in part on the strength of new release products, which are controlled by vendors. A decline in consumer spending on books, music and movies, or a significant shift to the purchase of eBooks from physical books, could have a material adverse effect on Borders financial condition and results of operations and ability to fund its business strategy. The financial condition and results of operations are dependent upon discretionary spending by consumers, which may be affected by general economic conditions. Worldwide economic conditions and consumer spending have deteriorated significantly and may remain depressed for some time. Some of the factors that are having an impact on discretionary consumer spending include unemployment, reductions in disposable income as a result of financial market declines over the past several years and declines in residential real estate values, credit availability and consumer confidence. Borders has experienced operating losses over the last several years and such losses may continue. It is believed the losses are attributable to a number of factors, including increased competition from Internet retailers and a greater concentration on the sale of books and music by mass merchants and other non-bookstore retailers. In addition, with respect to music and movies, the downloading of titles has significantly impacted our sale of CDs and DVDs. The increasing popularity of eBooks has the potential to significantly impact sales of physical books. Also, the overall consumer demand for products that Borders sell, particularly music and movies, has either declined or not experienced significant growth in recent years. The retail book business is highly competitive. Competition within the retail book industry is fragmented, with Borders facing competition from the Internet and other superstore operators. In addition, Borders and Waldenbooks compete with other specialty retail stores that offer books in a particular area of specialty, independent single store operators, discount stores, drug stores, warehouse clubs, mail order clubs, mass merchandisers and other non-bookstore retailers. In the future, Borders and Waldenbooks may face additional competition from other categories of Internet and brick and mortar retailers entering the retail book market. Borders business is seasonal, with sales generally highest in the fourth quarter. In 2010, 32.6% of its sales dollars were generated in the fourth quarter. The results of operations depend significantly upon the holiday selling season in the fourth quarter. Less than satisfactory net sales for this period could have a material adverse effect on the financial condition or results of operations for the year and may not be sufficient to cover any losses, which may be incurred in the first three quarters of the year. Other factors that could affect the holiday selling season include general economic and geopolitical conditions, overall consumer spending patterns, weather conditions and, with respect to Borders mall business, overall mall traffic. Because of the seasonal nature of the business, its operations typically use cash during the first three quarters of the year and generate cash from operations in the fourth quarter. The store issues gift cards that may be used to purchase products in stores. Borders recognizes income from unredeemed cards when it is determined that the likelihood of the cards being redeemed is remote. Certain states include gift cards under their abandoned property laws, and require companies to remit to the state cash in an amount equal to all or a designated portion of the unredeemed balance on the gift cards after a specified period of time. Borders does not remit any amounts relating to unredeemed gift cards to states based upon own assessment of applicable laws. In addition to the foregoing risks and uncertainties, Borders is also subject to numerous other risks and uncertainties which could adversely affect business, financial condition, operating results and cash flows. These risks include, but are not limited to, higher than anticipated interest, occupancy, labor, merchandise, distribution and inventory shrinkage costs, unanticipated work stoppages, energy disruptions or shortages or higher than anticipated energy costs, asset impairments relating to underperforming stores or other unusual items, including any charges that may result from the implementation of its strategic plan, higher than anticipated costs associated with the closing of underperforming stores, and changes in accounting rules.

Predicted Issues

Borders future results will depend, among other things, on the success in implementing its business strategy. There can be no assurance that Borders will be successful in implementing its business strategy, or that the strategy will be successful in achieving acceptable levels of sales and profitability. Customer acquisition and retention strategy may not be successful, and there can be no assurance that Borders will successfully leverage the Borders Rewards program or that such efforts will increase traffic into the stores or will increase sales, revenue or profitability. There can also be no assurance that the store will be able to successfully implement the digital strategy, including the ability to obtain and sell eReaders that would be acceptable to Border customers and to profitably sell these eReaders in the stores. There also can be no assurance that Borders will be able to profitably sell eBooks though its partnership with Kobo. Any failure to implement the business strategy could have a material impact on the financial condition and results of operations.

References:
Industry Center - Catalog & Mail Order Houses (2011). Borders Group, Inc. Company Profile. Retrieved 31 May 2011 from Industry Center - Catalog & Mail Order Houses: http://biz.yahoo.com/ic/42/42887.html
Borders.com (2011). Borders Group Foundation. Retrieved 31 May 2011 from Borders.com: http://www.borders.com/online/store/BGIView_bgicommfoundation
Yahoo Finance (2011). Borders Group, Inc. (BGPIQ.PK). Retrieved 31 May 2011 from Yahoo Finance: http://finance.yahoo.com/q/ks?s=BGPIQ.PK+Key+Statistics