-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AB3NiuglT9E9MDPtnfN4GEtuDILIKMIALDRimsaq1SN5x0QD3h5Bl1r6g8QGIwNT AlZ4bqYmu+tg+xGKWByuag== 0000950124-97-003176.txt : 19970602 0000950124-97-003176.hdr.sgml : 19970602 ACCESSION NUMBER: 0000950124-97-003176 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970126 FILED AS OF DATE: 19970530 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BORDERS GROUP INC CENTRAL INDEX KEY: 0000940510 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 383196915 STATE OF INCORPORATION: DE FISCAL YEAR END: 0126 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13740 FILM NUMBER: 97617175 BUSINESS ADDRESS: STREET 1: 500 E WASHINGTON ST CITY: ANN ARBOR STATE: MI ZIP: 48104 BUSINESS PHONE: 3139131100 10-K/A 1 FORM 10-K/A 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 26, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 1-13740 BORDERS GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 38-3196915 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 EAST WASHINGTON STREET, ANN ARBOR, MICHIGAN 48104 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (313) 913-1100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NAME OF EXCHANGE TITLE OF CLASS ON WHICH REGISTERED -------------- ------------------- COMMON STOCK ($.001 PAR VALUE) NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $1,495,460,897 BASED UPON THE CLOSING MARKET PRICE OF $20.625 PER SHARE OF COMMON STOCK ON THE NEW YORK STOCK EXCHANGE AS OF APRIL 4, 1997. NUMBER OF SHARES OF $.001 PAR VALUE COMMON STOCK OUTSTANDING AS OF APRIL 4, 1997: 75,897,031 DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE MAY 15, 1997 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III. THE EXHIBIT INDEX IS LOCATED ON PAGE 43 HEREOF. ================================================================================ 2 BORDERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 -- STOCK-BASED BENEFIT PLANS Stock Option Plan: In February 1995, the Company adopted the 1995 Stock Option Plan (the 1995 Plan) pursuant to which the Company may grant options to purchase its common stock. With the exception of certain option grants described below, the exercise price of options granted under the 1995 Plan will generally not be less than the fair value per share of the Company's common stock; such options will generally vest after three years and will generally be exercisable up to five years from grant date. All Company stock option grants participate in the 2-for-1 split of the Company's common stock. All information presented has been restated for the 2-for-1 split. The Company has established a compensation philosophy that is designed to foster a performance oriented, entrepreneurially-led ownership culture. The 1995 Plan is an integral part of the Company's employee ownership culture and compensation program. Options have been granted under the 1995 Plan to all full-time employees of the Company and its subsidiaries with six months or more of service, consisting of approximately 11,000 employees. The Company's executive compensation is heavily oriented toward equity incentives that includes a combination of stock and options which require at least some annual out-of-pocket investment in the business on the part of management. Restrictions on the equity incentives promote a long-term focus on the part of management and maximize retention of personnel. Management believes the equity incentives have been integral to its success in meeting operating objectives and reducing employee turnover since the Offering. In February 1995, the Company granted options to purchase 1,925,000 shares of common stock at an exercise price of $7.50 per share pursuant to the 1995 Plan (the 1995 Options). These options vest after three years and are exercisable for a period of five years from grant date. In February 1995, the Company granted to certain senior management personnel options to purchase 4,866,867 restricted shares of common stock under the 1995 Plan (the Management Options). The exercise price of these options was generally $6.00 per share, representing a discount from fair value at date of grant. Such options were exercisable only at the time of the Offering. Options were exercised to purchase 1,974,000 shares of restricted stock in 1995. Restricted shares of common stock purchased upon exercise of the Management Options are restricted from sale or transfer for three years from the date the options were exercised. The remaining options not exercised were forfeited. In February 1995, the Company also granted to certain senior management personnel 951,340 options to purchase an additional share of common stock (the Matching Options) for each restricted share of common stock purchased through exercise of Management Options at the time of the Offering. The exercise price of the Matching Options was generally $7.50 per share. Matching Options vest after three years and expire five years after the grant date. On November 8, 1995, the Company granted approximately 6.8 million stock options at an exercise price of $8.69 to approximately 2,400 employees pursuant to the 1995 Plan. Generally, this grant was intended to represent a one-time grant in lieu of annual grants for the next three years. The options vest at the rate of 25% per year, beginning on November 8, 1998. In January and August 1996 and January 1997, the Company granted to more than 10,000 individual store employees approximately 2,020,000 stock options in aggregate at prevailing market prices at the time of grant. The options generally vest 12 months from the grant date and expire 10 years from grant. In addition, during 1996, the Company granted 1,150,000 stock options to 1,250 home-office employees. Generally, these grants were a one-time grant in lieu of grants for the next three years for newly hired or promoted employees. The options generally vest 20%-40% per year with final vesting in 2001 and expire 10 years from the grant date. The purpose of the option program is to promote stock ownership and corresponding ownership behavior, for all full-time employees with at least six months of service. 29 3 BORDERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In addition, in January 1997, the Company granted 693,000 stock options with an exercise price of $17.32 to certain senior management personnel. These grants were in lieu of cash compensation for the following year and vest one year from the date of grant with an expiration two and one-quarter years from the grant date. The Company will recognize compensation expense for the difference between the exercise price and the fair value per share at grant date of the Management Options. Such expense will be recognized over the three-year vesting period. In connection with the Offering, the Company adopted a management stock purchase plan (the Management Plan) and an employee stock purchase plan (the Employee Plan). Under the Management Plan, the Company's senior management personnel are required to use 20%, and may use up to 100%, of their annual incentive bonuses to purchase restricted shares of the Company's common stock, at a 20% discount from the fair value of the same number of unrestricted shares of common stock. Restricted shares of common stock purchased under the Management Plan will generally be restricted from sale or transfer for three years from date of purchase. The Employee Plan allows the Company's associates not covered under the Management Plan to purchase shares of the Company's common stock at a 15% discount from their fair-market value. The Company will recognize compensation expense for the discount on restricted shares of common stock purchased under the Management Plan. Such discount will be recognized as expense on a straight-line basis over the three-year period during which the shares are restricted from sale or transfer. Compensation expense under the Management Plan aggregated $0.4 in 1996 and $0.2 in 1995. The Company is not required to record compensation expense with respect to shares purchased under the Employee Plan. Stock Appreciation Rights: In connection with its acquisition by Kmart, Borders established a stock appreciation rights (SARs) plan covering all employees at that date; options outstanding at the acquisition date under Borders' existing stock option plans were converted to SARs in connection with the acquisition. Under the SARs plan, employees were entitled to receive a cash payment per share equal to the excess of the fair value of a Borders' share over the base price defined in the plan. In fiscal year 1994, the Company recorded compensation expense of $8.1 million for the increase in the value of shares subject to SARs over the related base price. In connection with the Offering, substantially all remaining SARs were converted to options on the Company's common stock. At January 26, 1997, the Company has 411,694 shares authorized for the grant of stock options under the 1995 Plan. A summary of the information relative to the Company's stock option plans follows:
WEIGHTED WEIGHTED NUMBER OF AVERAGE AVERAGE GRANT SHARES EXERCISE PRICE DATE FMV --------- -------------- ------------- STOCK OPTIONS Outstanding at January 22, 1995 Granted................................................. 20,087,188 $ 6.92 $2.87 Exercised............................................... 1,984,656 $ 5.91 $0.65 Forfeited............................................... 3,398,628 $ 6.09 $0.65 Outstanding at January 28, 1996........................... 14,703,904 $ 7.25 $3.68 Granted................................................. 3,360,826 $16.00 $7.33 Exercised............................................... 296,764 $ 5.44 $3.74 Forfeited............................................... 1,581,242 $ 9.19 $3.97 Outstanding at January 26, 1997........................... 16,186,724 $ 8.92 $4.42 Exercisable at January 26, 1997........................... 2,277,784 $ 2.70 $4.71
30 4 BORDERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Certain options granted by the Company upon conversions of existing SARs at the time of the IPO, were granted with exercise prices less than market value at the date of the grant. The weighted average exercise price and weighted average grant date fair value were $5.02 and $9.35, respectively for such grants.
WEIGHTED WEIGHTED AVERAGE FAIR NUMBER OF AVERAGE MARKET VALUE SHARES PURCHASE PRICE AT GRANT --------- -------------- ------------ STOCK ISSUED UNDER STOCK PURCHASE PLANS Management Plan 1995.................................................... 93,266 $ 7.13 $ 8.91 1996.................................................... 48,166 $ 9.33 $11.67 Employee Plan 1995.................................................... 494,458 $ 6.43 $ 7.56 1996.................................................... 196,064 $14.00 $16.48
Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123) requires recognition of compensation expense for stock options and other stock-based compensation for the fair value of the instruments at date of grant. The Company has adopted the disclosure-only option of FAS 123, for the 1996 fiscal year. The pro forma net income (loss) and pro forma earnings (loss) per share had the Company adopted the fair-value accounting provisions of FAS No. 123 would have been $50.8, $(220.6) and $20.9, and $0.62, $(2.65) and $0.24 in 1996, 1995 and 1994, respectively. The Black-Scholes option valuation model was used to calculate the fair market value of the options at the grant date for the purpose of disclosures required by FAS 123. The following assumptions were used in the calculation:
1996 1995 ---- ---- Risk-Free Interest Rate..................................... 5.5-6.5% 5.0-7.4% Expected Life............................................... 2-10 years 2-10 years Expected Volatility......................................... 33.3-40.0% 33.3-40.0% Expected Dividends.......................................... 0% 0%
The following table summarizes the information regarding stock options outstanding at January 26, 1997.
EXERCISABLE ---------------------------- RANGE OF NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE EXERCISE PRICES SHARES REMAINING LIFE EXERCISE PRICE SHARES EXERCISE PRICE --------------- --------- ---------------- ---------------- --------- ---------------- $ 0.17-$ 4.64............. 2,095,580 3.0 $ 2.19 2,095,580 $2.19 $ 6.86-$11.57............. 11,236,224 6.1 $ 8.24 182,204 $8.63 $14.25-$17.32............. 2,854,920 5.8 $16.59 -- --
31 5 BORDERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15 -- UNAUDITED QUARTERLY FINANCIAL DATA
FISCAL 1996 QUARTER ENDED ----------------------------------- APRIL JULY OCTOBER JANUARY ----- ---- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Sales....................................................... $404.0 $414.3 $413.5 $727.0 Cost of Merchandise Sold (Includes Occupancy)............... 310.8 316.4 314.3 496.3 Operating Income (Loss)..................................... (3.7) (2.0) (2.9) 111.7 Net Income (Loss)........................................... (3.4) (2.2) (2.7) 66.2 Earnings (Loss) Per Common Share............................ (0.04) (0.03) (0.03) 0.82
FISCAL 1995 QUARTER ENDED ------------------------------------ APRIL JULY OCTOBER JANUARY ----- ---- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Sales...................................................... $353.6 $ 363.8 $362.1 $669.5 Cost of Merchandise Sold (Includes Occupancy).............. 274.4 282.8 279.4 465.7 Operating Income (Loss) (Excluding Restructuring Provision)............................................... (8.8) (7.7) (8.0) 89.0 Net Income (Loss).......................................... (5.6) (186.9) (6.0) (12.6) Pro Forma Earnings (Loss) Per Common Share................. (0.07) (2.14) (0.08) (0.16)
Earnings per share amounts for each quarter are required to be computed independently and may not equal the amount computed for the total year. 32 6 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BORDERS GROUP, INC. (Registrant) By: /s/ GEORGE R. MRKONIC ------------------------------------ George R. Mrkonic Vice Chairman and Director (Principal Financial and Accounting Officer) May 30, 1997 40 -----END PRIVACY-ENHANCED MESSAGE-----