Borders 10-Q: No Hidden Surprises

Some interesting items from Borders (BGP) 10-Q

Inventory:

During the first quarter of 2008 the Company implemented an initiative to actively reduce inventory in its stores. As a result, the Company significantly reduced inventories in the music category, as well as space allocated to that category. In addition, the Company reduced inventories in book and DVD categories as well, in order to make its inventories more productive. These two factors significantly contributed to the reduction in inventories and generated $88.9 million in cash in the quarter. As a result of the decline in inventories, account payable decreased $56.5 million during the first quarter of 2008. The Company will continue to actively manage inventory levels throughout 2008 to drive inventory productivity and to maximize cash flows.

CapEx:

 

The Company expects capital expenditures to be between $80.0 and $85.0 million in 2008, compared to the $142.7 million of capital expenditures in 2007. The Company has critically reviewed all capital expenditures to focus on necessary maintenance spending and projects with very high return on capital. Capital expenditures in 2008 will result primarily from investment in management information systems, the Company’s new e-commerce Web site, as well as a reduced number of new superstore openings. In addition, capital expenditures will result from maintenance spending for existing stores, distribution centers and management information systems. The Company currently plans to open approximately 14 domestic Borders superstores in 2008. Average cash requirements for the opening of a prototype Borders Books and Music superstore are $2.8 million, representing capital expenditures of $1.6 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. The Company plans to lease new store locations predominantly under operating leases.

The real good news is the level of disclosure prior to the filing. There aren't any "what?" items in the filing. A good measure of this is probably because the book business is not overly complicated and more still is because Ackman is the largest shareholder. CEO George Jones does deserve some credit though, he has been totally upfront up until this point with shareholders.

Good.

Disclosure: Long BGP