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This excerpt taken from the BGP 10-K filed Mar 30, 2007. Liquidity
and Capital Resources
The Company’s principal capital requirements are to fund
investment in its strategic plan, including the refurbishment of
existing stores, the opening of new stores, continued investment
in new corporate information technology systems such as its
e-commerce Web site, and maintenance spending on stores,
distribution centers and corporate information technology.
Additional capital requirements include shareholder returns in
the form of dividends.
Net cash provided by operations was $47.7 million,
$169.9 million, and $226.8 million in 2006, 2005, and
2004, respectively. The current year operating cash inflows
primarily reflect non-cash charges for depreciation, asset
impairments and other writedowns, a loss on disposal of assets
related to the remodel program and an increase in minority
interest, as well as an increase in other long-term liabilities,
accrued payroll and other liabilities, and a decrease in prepaid
expenses. Operating cash outflows for the period resulted from
operating results, increases in inventories, accounts receivable
and other long-term assets, and decreases in taxes payable and
accounts payable. Also affecting operating cash was an
adjustment to net income resulting from a gain on the sale of
investments, as well as a non-cash increase in deferred income
taxes.
Net cash used for investing in 2006 was $182.6 million,
which primarily funded capital expenditures for new stores, the
refurbishment of existing stores, new corporate information
technology systems, a new distribution center and maintenance of
existing stores, distribution centers and management information
systems. These expenditures were partially offset by proceeds
from the Company’s sale of investments of
$21.6 million. Net cash used for investing in 2005 was
$91.1 million, which primarily funded capital expenditures
for new stores, the refurbishment of existing stores, new
corporate information technology systems and maintenance of
existing stores, distribution centers and management information
systems. These expenditures were offset by proceeds from the
Company’s sale of investments of $105.2 million, which
primarily consisted of auction rate securities. Net cash used
for investing in 2004 was $91.8 million, which primarily
funded capital expenditures for new stores, new corporate
information technology systems, the acquisition of Paperchase
and the refurbishment maintenance of existing stores,
distribution centers and management information systems. In
addition, the Company invested $95.4 million, and sold
$118.0 million, of auction rate securities.
Capital expenditures in 2006 were $204.2 million, and
reflect the opening of 44 new superstores and 10 new Waldenbooks
Specialty Retail stores, including six new airport stores and
three new outlet stores, as well as the remodeling of 88
domestic superstores. Additional 2006 capital spending reflected
continued investment in new buying and merchandising systems,
spending on a new distribution center and maintenance spending
for new stores, distribution centers and management information
systems. Capital expenditures in 2005 were $196.3 million,
which reflected the opening of 28 new superstores and 23 new
Waldenbooks Specialty Retail stores, including 5 new airport
stores and 16 new outlet stores, as well as the remodeling of
100 domestic superstores and the conversion of 98 Waldenbooks
stores to Borders Express. Additional 2005 capital spending
reflected continued investment in new buying and merchandising
systems, partial spending on the new distribution center and
maintenance spending for new stores, distribution centers and
management information systems. Capital expenditures in 2004
were $115.5 million, which reflects the opening of 24 new
superstores and 15 new Waldenbooks Specialty Retail stores,
including two new airport stores and ten new outlet stores, as
well as the remodeling of 33 domestic superstores and the
conversion of 37 Waldenbooks stores to Borders Express.
Additional 2004 capital spending reflected continued investment
in new buying and merchandising systems and maintenance spending
for new stores, distribution centers and management information
systems.
Net cash used for investing in 2004 was partially offset by the
proceeds received from the sale-leaseback of a Company-owned
store and office building in the United Kingdom. The proceeds
from the sale totaled
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$32.3 million, and a deferred gain of $3.5 million was
recorded on the consolidated balance sheets in “Other
long-term liabilities.” The gain is being amortized over
the 20 year term of the operating lease.
Net cash provided by financing was $173.6 million in 2006,
resulting primarily from funding from the credit facility of
$317.3 million, as well as proceeds from the exercise of
employee stock options and the associated excess tax benefit of
$30.3 million. Partially offsetting these items were the
repurchase of common stock of $148.7 million, the payment
of cash dividends on shares of the Company’s common stock
of $25.2 million and the repayment of long-term capital
lease obligations of $0.1 million. Net cash used for
financing was $241.0 million in 2005, resulting primarily
from the Company’s repurchase of common stock of
$265.9 million and the payment of cash dividends on shares
of the Company’s common stock of $25.5 million,
partially offset by proceeds of $27.6 million from the
exercise of employee stock options and funding from the credit
facility of $23.3 million. Net cash used for financing was
$150.8 million in 2004, resulting primarily from the
Company’s repurchase of common stock of $177.3 million
and the payment of cash dividends on shares of the
Company’s common stock of $25.1 million, partially
offset by proceeds of $44.8 million from the exercise of
employee stock options.
The Company expects capital expenditures to be approximately
$170.0 million in 2007, resulting primarily from investment
in management information systems of domestic Borders
superstores, in the Company’s new
e-commerce
strategy, as well as a reduced number of new superstore openings
and store refurbishments. In addition, capital expenditures will
result from maintenance spending for existing stores and
distribution centers. The Company currently plans to open
approximately 20 to 25 domestic Borders superstores and 6 to 8
international Borders superstores in 2007, as the majority of
these stores were committed to prior to the Company’s
finalizing its strategic plan. Average cash requirements for the
opening of a prototype Borders Books and Music superstore are
$2.4 million, representing capital expenditures of
$1.2 million, inventory requirements (net of related
accounts payable) of $1.0 million, and $0.2 million of
pre-opening costs. Average cash requirements to open a new
airport or outlet mall store range from $0.3 million to
$0.8 million, depending on the size and format of the
store. Average cash requirements for a major remodel of a
Borders superstore are between $0.1 million and
$0.5 million, and average cash requirements for a Borders
Express conversion are less than $0.1 million. The Company
plans to lease new store locations predominantly under operating
leases.
The Company plans to execute its expansion plans for Borders
superstores and other strategic initiatives principally with
funds generated from operations, financing through the Credit
Agreement and other sources of new financing as deemed
necessary. The Company believes funds generated from operations,
borrowings under the Credit Agreement and from other financing
sources, which the Company will explore as necessary, will be
sufficient to fund its anticipated capital requirements for the
next several years.
In January 2006, the Board of Directors authorized
$250.0 million of potential share repurchases. The Company
currently has remaining authorization to repurchase
approximately $92.8 million. During 2006, 2005, and 2004,
$148.7 million, $265.9 million, and
$177.3 million of common stock was repurchased,
respectively. Although the Company may in the future continue
the repurchase of its common stock, its priority for cash
utilization in 2007 will be to fund investment in its strategic
plan, support the dividend and to repay debt with the cash flow
generated by the Company’s operations.
During 2004, 2005 and 2006, the Company paid a regular quarterly
dividend, and intends to pay regular quarterly cash dividends,
subject to Board approval, going forward. In December 2006, the
Board of Directors increased the quarterly dividend by 10.0% to
$0.11 per share. The declaration and payment of dividends,
if any, is subject to the discretion of the Board and to certain
limitations under the Michigan Business Corporation Act. In
addition, the Company’s ability to pay dividends is
restricted by certain agreements to which the Company is a party.
The Company has a Multicurrency Revolving Credit Agreement (the
“Credit Agreement”), which was restated as of
July 31, 2006 and which will expire in July 2011. The
Credit Agreement provides for borrowings of up to
$1,125.0 million secured by eligible inventory and accounts
receivable and related assets. Borrowings under the Credit
Agreement are limited to a specified percentage of eligible
inventories
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and accounts receivable and bear interest at a variable base
rate plus the applicable increment or LIBOR plus the applicable
increment at the Company’s option. The Credit Agreement
(i) includes a fixed charge coverage ratio requirement of
1.1 to 1 that is applicable only if outstanding borrowings under
the facility exceed 90% of permitted borrowings thereunder,
(ii) contains covenants that limit, among other things, the
Company’s ability to incur indebtedness, grant liens, make
investments, consolidate or merge or dispose of assets,
(iii) prohibits dividend payments and share repurchases
that would result in borrowings under the facility exceeding 90%
of permitted borrowings thereunder, and (iv) contains
default provisions that are typical for this type of financing,
including a cross default provision relating to other
indebtedness of more than $25.0 million. As of
February 3, 2007 the Company was in compliance with all
covenants contained within this agreement. The Company had
borrowings outstanding under the Credit Agreement (or a prior
agreement) of $539.6 million at February 3, 2007,
$153.6 million at January 28, 2006 and
$131.7 million at January 23, 2005.
On July 30, 2002, the Company issued $50.0 million of
senior guaranteed notes (the “Notes”) due
July 30, 2006 and bearing interest at 6.31% (payable
semi-annually). The proceeds of the sale of the Notes were used
to refinance existing indebtedness of the Company and its
subsidiaries and for general corporate purposes. The Company
repaid the Notes with funds from the Credit Agreement on
July 31, 2006.
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