Borders Group Reports Q3 2009 Results

24 Nov, 2009, 08:24 ET from Borders Group, Inc.

ANN ARBOR, Mich., Nov. 24 /PRNewswire-FirstCall/ -- Borders Group, Inc. (NYSE: BGP) today reported results for the fiscal third quarter of 2009, ended Oct. 31, 2009.

(Logo: http://www.newscom.com/cgi-bin/prnh/20060208/BORDERSGRPLOGO )

Following are highlights of third quarter results, compared to the same period a year ago, unless specifically noted as year-to-date results:

  • On an operating basis, the company generated a loss from continuing operations of $39.0 million or $0.65 per share compared to a loss of $39.0 million or $0.64 per share a year ago. On a GAAP basis, the loss from continuing operations was $38.5 million or $0.64 per share compared to a loss of $172.2 million or $2.85 per share a year ago. The $0.64 per share loss includes income of $0.01 per share of non-operating adjustments that were primarily non-cash. Year to date, on an operating basis, the company generated a loss from continuing operations of $67.6 million or $1.12 per share compared to a loss of $80.0 million or $1.33 per share a year ago. On a GAAP basis, the year-to-date loss from continuing operations was $170.1 million or $2.83 per share compared to a loss of $213.6 million or $3.55 per share a year ago. The $2.83 per share loss includes $1.71 per share of non-operating charges that were primarily non-cash.
  • Adjusted EBITDA was a loss of $34.2 million compared to a loss of $25.5 million in the prior year quarter. On a year-to-date basis, the adjusted EBITDA loss was $24.3 million compared to a loss of $24.9 million in 2008.
  • Total consolidated sales were $595.5 million, down $86.6 million, or 12.7%.
  • Inventory was reduced by $99.1 million, led by the reduction in multimedia inventory of $70.4 million.
  • Comparable store sales declined by 12.1% and 7.2% at Borders superstores and Waldenbooks Specialty Retail stores, respectively. Excluding multimedia, comparable store sales at Borders declined by 8.5%.
  • SG&A expenses, on an operating basis, were reduced by $27.1 million.
  • Debt, net of cash, at the end of the third quarter was $375.0 million, a reduction from the prior year of $112.0 million, or 23.0%. Debt, net of cash, compared to year-end levels increased by $92.4 million, or 32.7% as inventory was added to core book categories throughout the third quarter.

"During the third quarter, we prepared for the upcoming holiday selling season," said Borders Group Chief Executive Officer Ron Marshall. "We increased core book inventories, experimented with a range of traffic-driving and in-store promotions and invested in store payroll to get books out on the shelves and our stores in top condition to receive customers. To ensure that our customers are confident in our holiday selection, we recently launched what we believe is book retailing's first-ever in-stock guarantee. If a customer comes to shop at Borders and finds us out of stock on an item -- and that item is among the more than one million titles on Borders.com -- we will order the item for the customer, ship it to her at home and the shipping charges will be on us. There will be no wasted shopping trips for our customers this season."

Consolidated Results

All sales and earnings/loss figures reported throughout this news release are on a continuing operations basis unless otherwise noted.

Third quarter consolidated sales were $595.5 million, a 12.7% decrease from the same period a year ago. On an operating basis, the company generated a third-quarter loss from continuing operations of $39.0 million or $0.65 per share compared to a loss of $39.0 million or $0.64 per share a year ago. On a GAAP basis, the loss from continuing operations was $38.5 million or $0.64 per share compared to a loss of $172.2 million or $2.85 per share a year ago. The $0.64 per share loss includes income of $0.01 per share of non-operating adjustments that were primarily non-cash.

Excluding non-operating charges, SG&A as a percent of sales improved over third quarter last year by 0.4% from 28.7% to 28.3% due to the company's aggressive expense reduction initiatives, which were partially offset by de-leveraging due to negative sales trends. Expense reduction initiatives helped reduce SG&A dollar expenses in the third quarter by $27.1 million compared to the prior year. On a GAAP basis, SG&A as a percent of sales was down compared to last year by 1.0% from 30.1% to 29.1%.

The company made an additional investment of $16.8 million in inventory within its core book category compared to the same period last year. At the same time, Borders Group reduced third-quarter inventory in the multimedia category by $70.4 million and by $45.5 million within its Waldenbooks Specialty Retail segment due to store closures over the past 12 months. In total, inventory was reduced by $99.1 million for the period.

Third quarter capital expenditures were $6.8 million compared to $17.9 million in 2008 as the company continued to manage capital prudently. For the full year, capital expenditures were $11.2 million compared to $72.0 million a year ago. Debt, net of cash, at the end of the third quarter was $375.0 million, a reduction from the prior year of $112.0 million, or 23.0%. Debt, net of cash, compared to year-end levels increased by $92.4 million, or 32.7%.

Non-Operating Adjustments

The table below details non-operating adjustments for the third quarter and year to date. Expense (income) amounts are as follows:


Non-Operating               Line Item
 Adjustments      Item      Impact           Q3 2009        YTD 2009
----------------- ----      --------         -------        --------
Consulting,
 professional and           Gross Margin
 other fees       Cash      and SG&A         $1.2 million   $10.1 million
----------------- ----      -----------      ------------   -------------
Store closure and           Gross Margin
 related items    Cash      and SG&A        ($1.0) million ($0.3) million
----------------- ----      -----------      -------------  -------------
Severance and
 other
 compensation               Gross Margin
 costs            Cash      and SG&A         $3.4 million    $5.4 million
----------------- ----      -----------      ------------    ------------
Asset impairments
 and other                  Asset
 writedowns       Non-cash  Impairments      $0.2 million    $1.0 million
----------------- --------  ----------       ------------    ------------
Accelerated
 depreciation-
 multimedia space
 reduction        Non-cash  SG&A             $0.0 million    $7.1 million
----------------- --------  ---              ------------    ------------
Term loan cost/
 discount                   Interest
 amortization     Non-cash  Expense          $1.1 million    $3.8 million
---------------   --------  -------          ------------    ------------
International               Warrant/Put
 "put" expiration Non-cash  Expense          $0.0 million   $16.2 million
----------------  --------  ----------       ------------   -------------
Warrant liability
 fair value                 Warrant/Put
 adjustment       Non-cash  Expense         ($28.7) million $18.9 million
----------------- -------- -----------       ------------   -------------
Total pre-tax
 non-operating                              ($23.8) million $62.2 million
 adjustments
-----------------                            -------------   -------------
Normalized income           Income Taxes
 taxes            Non-cash  (Benefit)        $23.3 million  $40.3 million
----------------- -------- ------------      -------------  -------------
Total after-tax
 non-operating
 adjustments                              ($0.5) million   $102.5 million
---------------                           --------------   --------------
                                         ($0.01) EPS            $1.71 EPS
                                         -----------            ---------

Borders Superstores

Total third quarter sales at Borders superstores, including Borders.com, in the third quarter were $492.4 million, down 12.1% from a year ago. Comparable store sales decreased by 12.1% at Borders superstores in the third quarter. Excluding the multimedia category, comparable store sales at Borders declined by 8.5%.

On an operating basis, the segment generated a third quarter operating loss of $44.5 million compared to an operating loss of $37.8 million for the same period a year ago. On a GAAP basis, the segment generated an operating loss in the third quarter of $46.2 million compared to an operating loss of $80.3 million the prior year.

No Borders superstores were closed during the third quarter and the period ended with 513 locations.

Waldenbooks Specialty Retail

Total sales in the third quarter within the Waldenbooks Specialty Retail segment were $72.9 million, a 20.3% decline compared to the same period in 2008 as the number of stores was decreased to 361 at the end of the third quarter this year compared to 467 stores that were open at the close of the same period a year ago. The company closed nine Waldenbooks locations in the third quarter of this year. Comparable store sales in the third quarter at Waldenbooks decreased by 7.2%.

On an operating basis, the segment generated an operating loss of $8.2 million in the third quarter compared to an operating loss of $13.2 million for the same period in 2008. On a GAAP basis, the segment generated a third quarter operating loss of $10.0 million compared to an operating loss of $17.7 million for the same period in 2008.

Borders Group announced Nov. 5 that the company plans to close approximately 200 stores within its Waldenbooks Specialty Retail segment in January 2010 to emerge with a smaller, more profitable mall business. Through this right-sizing, the company will reduce the number of stores with operating losses, reduce overall rent expense and lease-adjusted leverage and generate cash flow through sales and working capital reductions.

International

Total sales within the International segment (which consists primarily of Paperchase) were $30.2 million in the third quarter, which is flat with a year ago of $30.3 million. Excluding the impact of foreign currency translation, segment sales increased by 7.0% for the period.

On an operating basis, the segment generated an operating loss of $1.3 million in the third quarter compared to an operating loss of $1.6 million for the same period in 2008. On a GAAP basis, the segment generated a third quarter operating loss of $1.4 million compared to an operating loss of $1.8 million for the same period in 2008.

Conference Call Today

Management will review third quarter results on a conference call today at 10 a.m. Eastern. This call is being web cast by Thomson Financial and can be accessed at the Borders Group corporate Web site at www.bordersgroupinc.com. A replay will be accessible on the Web site through Dec. 24. In addition, a replay phone service will be available toll-free at 866-396-6282, or for international calls, at 203-369-0517. The phone service will be available through Dec. 8 until 11:59 p.m. Eastern.

Next Financial Release-Holiday Sales

Borders Group plans to issue information about holiday sales results in mid-January.

About Borders Group

Headquartered in Ann Arbor, Mich., Borders Group, Inc. (NYSE: BGP) is a leading retailer of books, music and movies with more than 25,000 employees. Through its subsidiaries, the company operates approximately 1,000 stores worldwide primarily under the Borders(®) and Waldenbooks(®) brand names. For online shopping, visit Borders.com. For more information about the company, visit www.borders.com/investors.

Safe Harbor Statement

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. One can identify these forward-looking statements by the use of words such as "expect," "planning," "possibility," "opportunity," "goal," "will," "may," "intend," "anticipates" and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address matters such as the company's future financial condition and performance (including earnings per share, the profitability of Waldenbooks, liquidity, sales, inventory levels and capital expenditures), its cost reduction initiatives and plans for store closings and the expansion of product categories. These statements are subject to risks and uncertainties that could cause actual results and plans to differ materially from those included in the company's forward-looking statements.

These risks and uncertainties include, but are not limited to, consumer demand for the company's products, particularly during the holiday season, which is believed to be related to general economic and geopolitical conditions, competition and other factors; the availability of adequate capital--including vendor credit--to fund the company's operations and to carry out its strategic plans; adverse litigation results or other claims and the performance of the company's information technology systems.

The company's periodic reports filed from time to time with the Securities and Exchange Commission contain more detailed discussions of these and other risk factors that could cause actual results and plans to differ materially from those included in the forward-looking statements, and those discussions are incorporated herein by reference. The company does not undertake any obligation to update forward-looking statements.



                    Borders Group, Inc. Financial Statements
                 (amounts in millions, except per share amounts)
                                  Unaudited

                           Sales and Earnings Summary

                                   Quarter Ended October 31, 2009 (1)
                                   ----------------------------------
                                   Operating       Adjustments    GAAP
                                   Basis (2)               (2)   Basis
                                   ---------             ----    -----
Borders Superstores                   $492.4               $-   $492.4
Waldenbooks Specialty Retail            72.9                -     72.9
International                           30.2                -     30.2
                                       -----             ----    -----
Total sales                            595.5                -    595.5
Other revenue                            7.0                -      7.0
                                       -----             ----    -----
Total revenue                          602.5                -    602.5
Cost of goods sold, including
 occupancy costs                       490.6             (1.4)   489.2
                                       -----             ----    -----
Gross margin                           111.9              1.4    113.3
Selling, general and
 administrative expenses               168.6              5.0    173.6
Asset impairments and other
 writedowns                                -              0.2      0.2
                                       -----            -----    -----

Operating loss                         (56.7)            (3.8)   (60.5)
Interest expense                         5.2              1.1      6.3

Warrant/put expense (income)               -            (28.7)   (28.7)
                                       -----            -----    -----

Total interest expense (income)          5.2            (27.6)   (22.4)
                                       -----            -----    -----

Loss before income taxes               (61.9)            23.8    (38.1)
Income taxes (benefit)                 (22.9)            23.3      0.4
                                       -----            -----    -----

Loss from continuing operations       $(39.0)            $0.5    (38.5)
                                       =====            =====    =====
Loss from operations of
 discontinued operations (net of tax)      -                -        -
Gain (loss) from disposal of
 discontinued operations (net of tax)      -              0.8      0.8
                                       -----             ----    -----


    Gain (loss) from discontinued
     operations (net of tax)               -              0.8      0.8
                                       -----             ----    -----



Net loss                              $(39.0)            $1.3    (37.7)
                                      ======             ====    =====

Basic EPS from continuing
 operations                           $(0.65)           $0.01   $(0.64)
Basic EPS from discontinued
 operations                               $-            $0.01    $0.01
Basic EPS including discontinued
 operations                           $(0.65)           $0.02   $(0.63)
Basic weighted avg. common
 shares                                 60.1             60.1     60.1

Comparable Store Sales
Borders Superstores                   (12.1%)
Waldenbooks Specialty Retail           (7.2%)



                                  Quarter Ended November 1, 2008 (1)
                                  ----------------------------------
                               Operating       Adjustments           GAAP
                               Basis (3)                (3)         Basis
                               ---------       -----------          -----
Borders Superstores               $560.3                $-         $560.3
Waldenbooks Specialty
 Retail                             91.5                 -           91.5
International                       30.3                 -           30.3
                                   -----             -----         ------
Total sales                        682.1                 -          682.1
Other revenue                       11.3                 -           11.3
                                   -----             -----         ------
Total revenue                      693.4                 -          693.4
Cost of goods sold,
 including occupancy
 costs                             550.9              (4.5)         546.4
                                   -----            ------         ------
Gross margin                       142.5               4.5          147.0
Selling, general and
 administrative
 expenses                          195.7               9.4          205.1
Asset impairments and
 other writedowns                      -              50.1           50.1
                                   -----            ------         ------
Operating loss                     (53.2)            (55.0)        (108.2)
Interest expense                     8.8               5.0           13.8
Warrant/put expense
 (income)                              -             (12.7)         (12.7)
                                   -----            ------         ------
Total interest expense
 (income)                            8.8              (7.7)           1.1
                                   -----            ------         ------
Loss before income
 taxes                             (62.0)            (47.3)        (109.3)
Income taxes (benefit)             (23.0)             85.9           62.9
                                   -----            ------         ------
Loss from continuing
 operations                       $(39.0)          $(133.2)       $(172.2)
                                   =====            ======         ======
Loss from operations
 of discontinued
 operations (net of tax)               -                 -              -
Gain (loss) from
 disposal of
 discontinued
 operations (net of tax)               -             (3.2)           (3.2)
                                   -----            -----          ------
    Gain (loss) from
     discontinued
     operations (net of tax)           -             (3.2)           (3.2)
                                  ------           ------          ------

Net loss                          $(39.0)          $(136.4)       $(175.4)
                                  ======           =======         ======

Basic EPS from
 continuing operations            $(0.64)           $(2.21)        $(2.85)
Basic EPS from
 discontinued
 operations                           $-            $(0.05)        $(0.05)
Basic EPS including
 discontinued
 operations                       $(0.64)           $(2.26)        $(2.90)
Basic weighted avg.
 common shares                      60.5              60.5           60.5

Comparable Store Sales
Borders Superstores               (12.8%)
Waldenbooks Specialty
 Retail                            (7.7%)


               Sales and Earnings Summary (As Percentage of Total Sales)

                Quarter Ended October 31,    Quarter Ended November 1,
                        2009 (1)                     2008 (1)
               -------------------------   ------------------------------
             Operating  Adjust-   GAAP    Operating    Adjust-     GAAP
              Basis (2) ments (2) Basis    Basis (3)   ments (3)   Basis
             ---------  -------   -----   ---------    --------    -----

Borders
 Superstores      82.7%     -%    82.7%       82.1%      -%         82.1%
Waldenbooks
 Specialty
 Retail           12.2      -     12.2        13.4       -          13.4
International      5.1      -      5.1         4.5       -           4.5
                  ----   ----    -----       -----    ----          ----
Total sales      100.0      -    100.0       100.0       -         100.0
Other revenue      1.2      -      1.2         1.7       -           1.7
                 -----   ----    -----       -----    ----          ----
Total revenue    101.2      -    101.2       101.7       -         101.7
Cost of goods
 sold,
 including
 occupancy
 costs            82.4   (0.2)    82.2        80.8    (0.7)         80.1
                  ----   ----     ----        ----    ----          ----
Gross margin      18.8    0.2     19.0        20.9     0.7          21.6
Selling, general
 and
 administrative
 expenses         28.3    0.8     29.1        28.7     1.4          30.1
Asset impairments
 and other
 writedowns          -    0.1      0.1           -     7.3           7.3
                  ----   ----     ----        ----    ----           ---

Operating loss    (9.5)  (0.7)   (10.2)       (7.8)   (8.0)        (15.8)
Interest expense   0.9    0.1      1.0         1.3     0.7           2.0
Warrant/put
 expense (income)    -   (4.8)    (4.8)          -    (1.8)         (1.8)
                  ----   ----     ----        ----    ----          ----
Total interest
 expense (income)  0.9   (4.7)    (3.8)        1.3    (1.1)          0.2
                  ----   ----     ----        ----    ----          ----
Loss before income
 taxes           (10.4)   4.0     (6.4)       (9.1)   (6.9)        (16.0)
Income taxes
 (benefit)        (3.9)   4.0      0.1        (3.4)    12.6          9.2
                  ----   ----     ----        ----     ----         ----
Loss from
 continuing
 operations       (6.5)%    -%   (6.5)%       (5.7)%  (19.5)%      (25.2)%

(1) The results of Borders Australia, Borders New Zealand and Borders
    Singapore are reported as discontinued operations.
(2) Results from 2009 were impacted by a number of non-operating items,
    including asset impairments, severance costs, store closure costs,
    professional fees related to our turnaround efforts and amortization
    of the term loan discount and debt issuance costs, partially offset by
    non-cash income related to the fair market value adjustment of the
    warrant liability. Therefore, solely for analytical purposes and as an
    aid to better understand underlying trends, operating basis data are
    presented excluding these items. To aid in the comparability to last
    year, operating basis data is presented using a normalized tax rate.
(3) Results from 2008 were impacted by a number of non-operating items,
    including deferred tax asset impairments, store asset impairments,
    store closure costs, severance costs, professional fees related to
    strategic alternatives and amortization of the term loan discount and
    debt issuance costs, offset by non-cash income related to the fair
    market value adjustment of the warrant liability as well as income
    received from a landlord lease termination. Therefore, solely for
    analytical purposes and as an aid to better understand underlying
    trends, operating basis data are presented excluding these items. To
    aid in the comparability to last year, operating basis data is
    presented using a normalized tax rate.


                Borders Group, Inc. Financial Statements
             (amounts in millions, except per share amounts)
                               Unaudited

                         Sales and Earnings Summary

                Nine Months Ended              Nine Months Ended
                 October 31, 2009 (1)         November 1, 2008 (1)
             --------------------------   ------------------------------
             Operating  Adjust-   GAAP    Operating    Adjust-     GAAP
              Basis (2) ments (2) Basis    Basis (3)   ments (3)   Basis
             ---------  -------   -----   ---------    --------    -----
Borders
 Superstores  $1,542.7       $-  $1,542.7  $1,782.9      $-     $1,782.9
 Waldenbooks
 Specialty
 Retail          224.3        -     224.3     284.4       -        284.4
International     86.8        -      86.8      93.5       -         93.5
                 -----     ----     -----     -----    ----        -----
Total
 sales         1,853.8        -   1,853.8   2,160.8       -      2,160.8
Other
 revenue          23.6        -      23.6      26.9       -         26.9
               -------     ----   -------   -------    ----      -------
Total
 revenue       1,877.4        -   1,877.4   2,187.7       -      2,187.7
Cost of
 goods
 sold,
 including
 occupancy
 costs         1,480.0     (2.1)  1,477.9   1,693.5     (3.0)    1,690.5
               -------     ----   -------   -------     ----     -------
Gross
 margin          397.4      2.1     399.5     494.2      3.0       497.2
 Selling,
 general
 and
 administrative
 expenses        490.5     24.4     514.9     601.5     21.8       623.3
Asset
 impairments
 and
 other
 writedowns          -      1.0       1.0         -     50.1        50.1
                ------     ----   -------   -------     ----     -------
 Operating
 loss            (93.1)   (23.3)   (116.4)   (107.3)   (68.9)     (176.2)
 Interest
 expense          14.2      3.8      18.0      23.7     10.7        34.4
 Warrant/
 put
 expense
 (income)            -     35.1      35.1         -    (27.2)      (27.2)
                ------     ----    ------   -------    -----       -----
Total
 interest
 expense
 (income)         14.2     38.9      53.1      23.7    (16.5)        7.2
                ------     ----    ------   -------    -----       -----
Loss
 before
 income
 taxes          (107.3)   (62.2)   (169.5)   (131.0)   (52.4)     (183.4)
Income
 taxes
 (benefit)       (39.7)    40.3       0.6     (51.0)    81.2        30.2
                ------     ----     -----     -----    -----       -----
Loss
 from
 continuing
 operations     $(67.6) $(102.5)  $(170.1)   $(80.0) $(133.6)    $(213.6)
                 =====   ======    ======     =====   ======      ======
Loss
 from operations
 of discontinued
 operations (net
 of tax)             -        -         -      (1.7)       -        (1.7)
Gain (loss)
 on disposal
 of discontinued
 operations (net
 of tax)             -      0.8       0.8         -     (1.0)       (1.0)
                 -----    -----     -----     -----    -----       -----
    Gain (loss)
     from
     discontinued
     operations
     (net of tax)    -      0.8       0.8      (1.7)    (1.0)       (2.7)
                 -----    -----     -----     -----    -----       -----
Net loss        $(67.6) $(101.7)  $(169.3)   $(81.7) $(134.6)    $(216.3)
                 =====    =====     =====     =====    =====       =====

Basic EPS
 from
 continuing
 operations     $(1.12)  $(1.71)   $(2.83)   $(1.33)  $(2.22)     $(3.55)
Basic EPS
 from
 discontinued
 operations         $-    $0.01     $0.01    $(0.02)  $(0.02)     $(0.04)
Basic EPS
 including
 discontinued
 operations     $(1.12)  $(1.70)   $(2.82)   $(1.35)  $(2.24)     $(3.59)
Basic
 weighted
 avg. common
 shares           60.1     60.1      60.1      60.2     60.2        60.2

Comparable Store
 Sales
Borders
 Superstores     (14.6%)                      (8.6%)
 Waldenbooks
 Specialty
 Retail           (7.9%)                      (5.2%)

           Sales and Earnings Summary (As Percentage of Total Sales)

                   Nine Months Ended              Nine Months Ended
                  October 31, 2009 (1)          November 1, 2008 (1)
             ---------------------------  ------------------------------
             Operating   Adjust-   GAAP   Operating    Adjust-     GAAP
              Basis (2)  ments (2) Basis   Basis (3)   ments (3)   Basis
             ---------   -------   -----  ---------    --------    -----
Borders
 Superstores     83.2%       -%     83.2%      82.5%        -%      82.5%
Waldenbooks
 Specialty
 Retail          12.1        -      12.1       13.2         -       13.2
International     4.7        -       4.7        4.3         -        4.3
                -----     ----     -----       ----      ----      -----
Total sales     100.0        -     100.0      100.0         -      100.0
Other revenue     1.3        -       1.3        1.2         -        1.2
                -----     ----     -----      -----      ----      -----
Total revenue   101.3        -     101.3      101.2         -      101.2
Cost of goods
 sold, including
 occupancy
 costs           79.8     (0.1)     79.7       78.3      (0.1)      78.2
                -----     ----     -----      -----      ----      -----
Gross margin     21.5      0.1      21.6       22.9       0.1       23.0
Selling, general
 and
 administrative
 expenses        26.5      1.3      27.8       27.9       1.0       28.9
Asset impairments
 and other
 writedowns         -      0.1       0.1          -       2.3        2.3
                -----    -----     -----      -----     -----      -----
Operating loss   (5.0)    (1.3)     (6.3)      (5.0)     (3.2)      (8.2)
Interest expense  0.8      0.2       1.0        1.1       0.5        1.6
Warrant/put
 expense (income)   -      1.9       1.9          -      (1.3)      (1.3)
                  ---      ---       ---        ---      ----       ----
Total interest
 expense (income) 0.8      2.1       2.9        1.1      (0.8)       0.3
                  ---      ---       ---        ---      ----        ---
Loss before
 income taxes    (5.8)    (3.4)     (9.2)      (6.1)     (2.4)      (8.5)
Income taxes
 (benefit)       (2.2)     2.2         -       (2.4)      3.8        1.4
                 ----      ---       ---       ----       ---        ---
Loss from
 continuing
 operations      (3.6)%   (5.6)%    (9.2)      (3.7)%    (6.2)%     (9.9)%

(1) The results of Borders Australia, Borders New Zealand and Borders
    Singapore are reported as discontinued operations.
(2) Results from 2009 were impacted by a number of non-operating items,
    including accelerated depreciation related to our multimedia reduction
    initiative, asset impairments, severance costs, store closure costs,
    professional fees related to our turnaround efforts, amortization of
    the term loan discount and debt issuance costs, and non-cash charges
    related to the fair market value adjustment of the warrant liability
    and international put expiration. Therefore, solely for analytical
    purposes and as an aid to better understand underlying trends,
    operating basis data are presented excluding these items. To aid in
    the comparability to last year, operating basis data is presented
    using a normalized tax rate.
(3) Results from 2008 were impacted by a number of non-operating items,
    including deferred tax asset impairments, store asset impairments,
    store closure costs, severance costs, professional fees related to
    strategic alternatives and amortization of the term loan discount and
    debt issuance costs, offset by income related to the fair market value
    adjustment of the warrant liability as well as income received from a
    landlord lease termination. Therefore, solely for analytical purposes
    and as an aid to better understand underlying trends, operating basis
    data are presented excluding these items. To aid in the comparability
    to last year, operating basis data is presented using a normalized tax
    rate.

                  Borders Group, Inc. Financial Statements
                          (dollars in millions)
                               Unaudited

                  Condensed Consolidated Balance Sheets

                                      October 31,  November 1, January 31,
                                          2009        2008        2009
                                          ----        ----        ----
Assets
Cash and cash equivalents                 $32.8       $38.4       $53.6
Merchandise inventories                 1,157.4     1,256.5       915.2
Other current assets                       78.4        99.6       102.4
Property and equipment, net               426.5       521.3       494.2
Other assets and deferred charges          46.5        90.7        43.4

Goodwill                                    0.3        40.5         0.2
                                            ---        ----         ---
Total assets                           $1,741.9    $2,047.0    $1,609.0
                                       ========    ========    ========
Liabilities and Stockholders' Equity
Short-term borrowings and current
 portion of long-term debt               $401.8      $518.0      $329.8
Trade accounts payable                    605.3       613.2       350.0
Other current liabilities                 274.9       311.5       313.9
Long-term debt                              6.0         7.4         6.4
Other long-term liabilities               354.7       353.9       345.8
                                          -----       -----       -----
Total liabilities                       1,642.7     1,804.0     1,345.9
    Total stockholders' equity             99.2       243.0       263.1
                                           ----       -----       -----
  Total liabilities and stockholders'
   equity                              $1,741.9    $2,047.0    $1,609.0
                                       ========    ========    ========

Certain reclassifications have been made to conform to current year
presentation.

                             Store Activity Summary
                                                                Year
                         Quarter Ended     Nine Months Ended    Ended
                       ------------------  ------------------  --------
                       Oct. 31,   Nov. 1,  Oct. 31,   Nov. 1,  Jan. 31,
                         2009      2008      2009      2008      2009
                       --------   -------  --------   -------  --------
Borders Superstores
Beginning number of
 stores                   513       518       515       509       509
Openings                    -         2         -        11        12
Closings                    -        (1)       (2)       (1)       (6)
                       --------   -------  --------   -------  --------
Ending number of stores   513       519       513       519       515
                       ========   =======  ========   =======  ========
Ending square footage
 (in millions)           12.7      12.8      12.7      12.8      12.8

Waldenbooks Specialty
 Retail Stores (1)
Beginning number of
 stores                   370       468       386       490       490
Openings-Airport stores     -         5         1         5         8
Closings                   (9)       (6)      (26)      (28)     (112)
                       --------   -------  --------   -------  --------
Ending number of stores   361       467       361       467       386
                       ========   =======  ========   =======  ========
Ending square footage
 (in millions)            1.3       1.8       1.3       1.8       1.4
                       ========   =======  ========   =======  ========

(1) Includes all small format stores in malls, airports and outlet malls.


                   Borders Group, Inc. Financial Statements
                            (dollars in millions)
                                  Unaudited

              Condensed Consolidated Statements of Cash Flows

                                    Quarter Ended      Nine Months Ended
                                  ------------------  -------------------
                                  Oct. 31,   Nov. 1,  Oct. 31,    Nov. 1,
                                    2009      2008      2009       2008
                                  --------   -------  --------    -------
CASH PROVIDED BY (USED FOR):
 OPERATIONS
Loss from continuing operations    $(38.5)  $(172.2)  $(170.1)  $(213.6)
Adjustments to reconcile loss
 from continuing operations to
 operating cash flows:
    Depreciation                     22.5      27.7      75.9      82.4
    Loss on disposal of assets        0.8       0.3       1.3       1.3
    Stock based compensation cost     0.2       1.7       0.2       5.0
    Increase (decrease) in
     warrant liability              (28.7)    (12.7)     23.2      13.6
    Change in other long-term
     assets, liabilities and
     deferred charges                (3.5)     43.6     (15.7)     16.2
    Write-off of intangible asset       -         -      16.2         -
    Asset impairments and
     other writedowns                 0.2      50.1       1.0      50.1
    Increase in inventories        (267.9)   (171.0)   (238.8)    (19.4)
    Increase in accounts payable    195.1     146.2     254.0     103.5
Cash provided by (used for)
 other current assets and other
 current liabilities                 (5.5)     46.7     (29.5)    (24.7)
                                  --------   -------  --------    -------
    Net cash provided by
     (used for) operating
     activities of
     continuing operations         (125.3)    (39.6)    (82.3)     14.4
INVESTING
Capital expenditures                 (6.8)    (17.9)    (11.2)    (72.0)
Proceeds from the sale of
 discontinued operations                -       6.6         -      94.5
                                  --------   -------  --------    -------
   Net cash provided by (used
    for) investing activities of
    continuing operations            (6.8)    (11.3)    (11.2)     22.5
FINANCING
Net cash provided by (repayment
 of) financing obligations          119.7      55.0      73.3     (28.6)
Issuance and repurchase of common
 stock                               (0.5)        -      (0.8)      0.3
Net funding from (repayment of)
 long-term debt                         -       0.1      (0.3)      0.8
Net repayment of capital lease
 obligations                         (0.2)        -      (0.8)        -
Cash dividends paid                     -         -         -      (6.5)
                                  --------   -------  --------    -------
   Net cash provided by (used
    for) financing activities of
    continuing operations           119.0      55.1      71.4     (34.0)
Effect of exchange rates on cash
 and cash equivalents                   -      (0.1)      0.5         -
Net cash provided by (used for)
 discontinued operations              0.8      (9.6)      0.8     (23.0)
                                  --------   -------  --------    -------
NET DECREASE IN CASH AND CASH
 EQUIVALENTS                        (12.3)     (5.5)    (20.8)    (20.1)
                                  --------   -------  --------    -------
Cash and cash equivalents at
 beginning of period                 45.1      43.9      53.6      58.5
                                  --------   -------  --------    -------
Cash and cash equivalents at
 end of period                      $32.8     $38.4     $32.8     $38.4
                                  ========   =======  ========    =======

              Borders Group, Inc. Segment Financial Information
                (dollars in millions, except per share amounts)
                                    Unaudited

                            Quarter Ended            Quarter Ended
                           October 31, 2009         November 1, 2008
                       -----------------------  ------------------------
                                  Adjust-                  Adjust-
                       Operating  ments  GAAP   Operating  ments   GAAP
                         Basis(1)   (1)  Basis    Basis(2)   (2)   Basis
                       -----------------------  ------------------------
 Borders Superstores
 -------------------
  Sales                  $492.4     $-  $492.4    $560.3     $-   $560.3
  Depreciation expense     19.2      -    19.2      23.8      -     23.8
  Operating loss          (44.5)  (1.7)  (46.2)    (37.8) (42.5)   (80.3)
  Adjusted EBITDA (5)     (25.3)                   (14.0)
Waldenbooks Specialty
 Retail
  Sales                   $72.9     $-   $72.9     $91.5     $-    $91.5
  Depreciation expense      1.9      -     1.9       2.3      -      2.3
  Operating loss           (8.2)  (1.8)  (10.0)    (13.2)  (4.5)   (17.7)
  Adjusted EBITDA (5)      (6.3)                   (10.9)
 International (3)
 -----------------
  Sales                   $30.2     $-   $30.2     $30.3     $-    $30.3
  Depreciation expense      1.4      -     1.4       1.6      -      1.6
  Operating loss           (1.3)  (0.1)   (1.4)     (1.6)  (0.2)    (1.8)
  Adjusted EBITDA (5)       0.1                        -
 Corporate (4)
 -------------
  Operating loss          $(2.7) $(0.2)  $(2.9)    $(0.6) $(7.8)   $(8.4)
  Adjusted EBITDA (5)      (2.7)                    (0.6)
 Consolidated (3)
 ----------------
  Sales                  $595.5     $-  $595.5    $682.1     $-   $682.1
  Depreciation expense     22.5      -    22.5      27.7      -     27.7
  Operating loss          (56.7)  (3.8)  (60.5)    (53.2) (55.0)  (108.2)
  Adjusted EBITDA (5)     (34.2)                   (25.5)


                        Nine Months Ended           Nine Months Ended
                        October 31, 2009            November 1, 2008
                  -------------------------    --------------------------
                            Adjust-                       Adjust-
                  Operating  ments   GAAP      Operating   ments   GAAP
                   Basis(1)   (1)    Basis      Basis(2)    (2)    Basis
                  -------------------------    --------------------------
 Borders
  Superstores
 ------------
  Sales           $1,542.7     $-  $1,542.7    $1,782.9      $-  $1,782.9
   Depreciation
   expense            59.0    7.1      66.1        70.9       -      70.9
  Operating loss     (66.2) (13.9)    (80.1)      (68.8)  (49.2)   (118.0)
  Adjusted
   EBITDA (5)         (7.2)                         2.1
Waldenbooks
 Specialty Retail
  Sales             $224.3     $-    $224.3      $284.4      $-    $284.4
   Depreciation
   expense             5.7      -       5.7         6.9       -       6.9
  Operating loss     (16.7)  (3.2)    (19.9)      (32.7)   (6.3)    (39.0)
  Adjusted
   EBITDA (5)        (11.0)                       (25.8)
  International (3)
  -----------------
  Sales              $86.8     $-     $86.8       $93.5      $-     $93.5
   Depreciation
   expense             4.1      -       4.1         4.6       -       4.6
  Operating loss      (2.2)  (0.8)     (3.0)       (1.5)   (0.3)     (1.8)
  Adjusted
   EBITDA (5)          1.9                          3.1
 Corporate (4)
 -------------
  Operating loss     $(8.0) $(5.4)   $(13.4)      $(4.3) $(13.1)   $(17.4)
  Adjusted
   EBITDA (5)         (8.0)                        (4.3)
  Consolidated (3)
  ----------------
  Sales           $1,853.8     $-  $1,853.8    $2,160.8      $-  $2,160.8
   Depreciation
    expense           68.8    7.1      75.9        82.4       -      82.4
  Operating loss     (93.1) (23.3)   (116.4)     (107.3)  (68.9)   (176.2)
  Adjusted
   EBITDA (5)        (24.3)                       (24.9)

(1) Results from 2009 were impacted by a number of non-operating items,
    including accelerated depreciation related to our multimedia reduction
    initiative, asset impairments, severance costs, store closure costs
    and professional fees related to our turnaround efforts. Therefore,
    solely for analytical purposes and as an aid to better understand
    underlying trends, operating basis data are presented excluding these
    items.
(2) Results from 2008 were impacted by a number of non-operating items,
    including deferred tax asset impairments, store asset impairments,
    store closure costs, severance costs and professional fees related to
    strategic alternatives. Therefore, solely for analytical purposes and
    as an aid to better understand underlying trends, operating basis data
    are presented excluding these items.
(3) Excludes the results of 2008 discontinued operations (Borders
    Australia, Borders New Zealand and Borders Singapore).
(4) The Corporate segment includes various corporate governance costs and
    corporate incentive costs.
(5) Adjusted EBITDA is operating income (loss) before depreciation and
    amortization. Adjusted EBITDA is not a Generally Accepted Accounting
    Principles (GAAP) measurement. Adjusted EBITDA information is being
    included as we believe it is a commonly used measure of operating
    performance in the retail industry. Adjusted EBITDA is provided to
    enhance an investor's understanding of our operating results. It
    should not be construed as an alternative to income from operations as
    an indicator of operating performance or as an alternative to cash
    flows from operating activities as a measure of liquidity as
    determined in accordance with GAAP. All companies do not calculate
    Adjusted EBITDA in the same manner. As a result, Adjusted EBITDA as
    reported may not be comparable to Adjusted EBITDA as reported by other
    companies.

SOURCE Borders Group, Inc.



RELATED LINKS

http://www.bordersgroupinc.com