##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
    Washington, D.C. 20549
    FORM 10-K
   (MARK ONE)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    January 30,
    2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission File Number 1-13740
    BORDERS GROUP, INC.
 (Exact name of registrant as
    specified in its charter)
  Michigan(State or other jurisdiction of
    incorporation or organization)

38-3294588(I.R.S. Employer
    Identification No.)100 Phoenix Drive, Ann Arbor, Michigan(Address of principal executive
    offices)

48108(Zip code)   (734) 477-1100(Registrants telephone
    number, including area code)
    Title of Class

Name of Exchange on which registeredCommon Stock

New York Stock Exchange   Securities
    registered pursuant to Section 12(g) of the act:
    None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 





BORDERS
    GROUP, INC. INDEX
  
  PagePART IItem 1.

Business


1Item 1A.

Risk Factors


8Item 1B.

Unresolved Staff Comments


14Item 2.

Properties


14Item 3.

Legal Proceedings


15PART IIItem 5.

Market for the Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


16Item 6.

Selected Financial Data


20Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


21Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


47Item 8.

Financial Statements and Supplementary Data


48Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


82Item 9A.

Controls and Procedures


82Item 9B.

Other Information


84PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


84Item 11.

Executive Compensation


84Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


84Item 13.

Certain Relationships and Related Transactions
    and Director Independence


84Item 14.

Principal Accountant Fees and Services


84PART IVItem 15.

Exhibits, Financial Statement Schedules


85Signatures


88EX-10.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I  Item 1.
    Business  Forward-Looking
    Statements
        General
    e-commerce
    Business
    Strategy
   1




---



##### Table of Contents



Restore the
    financial health and profitability of the
    Company. We
    believe that fiscal 2010 will continue to be challenging for
    retailers due to continued uncertainty in the economic
    environment, and as a consequence we will maintain our focus on
    maximizing cash flow, reducing debt, conserving capital, tightly
    managing expenses and improving profitability. In addition, we
    will continue to reduce working capital needs by further driving
    inventory productivity, thus improving cash flow and lowering
    supply chain costs.
  Acquire, engage
    and retain
    customers. We are
    focused on the following key objectives:
  Improve the
    in-store
    experience. During
    the fourth quarter of 2009, we invested in inventory within our
    key book categories and plan to continue to maintain these new
    in-stock percentages. Our goal is to have the right titles in
    the right stores at the right time to meet our customers
    needs. We are also reallocating our payroll dollars from back
    office tasks to the sales floor in order to improve the shopping
    experience for our customers. We expect to continue to enhance
    our in-store boutique shops, including our shops for kids, teens
    and teachers. These shops have a distinct look and feel,
    including unique signage, fixtures and other elements which we
    expect to increase sales growth and profitability. In addition,
    we will continue with our in-stock guarantee, which was launched
    in the fourth quarter of 2009 and which is helping to retain
    sales that would have been lost to competitors. This program
    allows any customer who cannot find a title that is available at
    Borders.com in their local store to have it shipped to their
    home with no shipping charges.
 2




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##### Table of Contents



Leverage Borders
    Rewards. We
    continue to develop our loyalty program, Borders Rewards. To
    date, a total of approximately 37 million members have
    signed up for the program. We will continue to focus on growing
    membership and increasing the profitability of the program, on
    driving revenue through partnerships with other organizations,
    and increasing sales by employing customer data to tailor
    promotions that meet specific customer needs and interests. To
    achieve these results we are redesigning the Borders Rewards
    program to facilitate a higher level of participation and value
    for our customers. Although we will continue to use Borders
    Rewards to drive traffic into our stores, we will also invest in
    additional marketing programs to acquire new customers.
  Become a
    community gathering
    place. The
    commoditization of our primary product categories will continue,
    and as a result we must be more than a bookstore. We plan to
    strengthen our position as a community gathering place, hosting
    customer events including author and celebrity signings, local
    events, educator appreciation weekends, and other community
    driven events that are of interest to our customers and which
    are expected to drive sales.
  Leverage
    Borders.com and the digital
    revolution. We
    expect to use emerging technologies across all channels to
    attract customers and deliver a valued experience which we
    anticipate will drive sales. For instance, we are working to
    strengthen Borders.com as a way to engage customers who share
    our passion for our products. In addition, we will become a
    device-neutral, content-focused digital book provider, as we
    believe there is opportunity to occupy the niche of
    neutral expert for our customers, and we plan to
    offer a wide variety of eReaders for sale in our stores. This
    will be done through the introduction of a new shop in our
    stores called Area-e, where multiple eReaders will
    be available for sale. We will enhance the Area-e experience
    through our partnership with Kobo, through which we plan to
    launch our digital bookstore on Borders.com during the second
    quarter of 2010. Kobo, Inc. is a global eReading service that is
    the newly named spin-off of Toronto-based Indigo
    Books & Music Inc.s Shortcovers.
  Create a winning,
    high-performance company
    culture. We are
    focused on customer satisfaction and we will leverage our
    knowledgeable associates in order to drive improved sales,
    profitability and shareholder value.
  Segment
    Information
    Borders
    Superstores
  hard-to-find
   3




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##### Table of Contents



lowest-performing
        Number ofState

StoresAlaska


1Arizona


11Arkansas


1California


80Colorado


13Connecticut


11Delaware


2District of Columbia


3Florida


25Georgia


15Hawaii


8Idaho


2Illinois


36Indiana


13Iowa


4Kansas


6Kentucky


5Louisiana


3Maine


3Maryland


11Massachusetts


16Michigan


18Minnesota


7Mississippi


1Missouri


11Montana


3Nebraska


3Nevada


7New Hampshire


4New Jersey


15New Mexico


5New York


28North Carolina


10Ohio


19Oklahoma


4Oregon


7Pennsylvania


24Rhode Island


2South Dakota


1Tennessee


7Texas


23Utah


3Vermont


1Virginia


15Washington


13West Virginia


2Wisconsin


6Total


508   4




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##### Table of Contents



Waldenbooks
    Specialty Retail Stores
     Number ofState

StoresAlaska


1Arizona


2California


7Colorado


2Connecticut


4Delaware


1District of Columbia


1Florida


8Georgia


2Hawaii


4Idaho


1Illinois


7Indiana


5Kansas


3Kentucky


5Maine


1Maryland


7Massachusetts


6Michigan


14Montana


1Nevada


3New Hampshire


2New Jersey


4New Mexico


1New York


8North Carolina


6Ohio


10Oklahoma


4Oregon


4Pennsylvania


19Rhode Island


2South Carolina


2South Dakota


1Tennessee


1Texas


8Vermont


1Virginia


5Washington


3West Virginia


4Wisconsin


4Wyoming


1Total


175   International
    Stores
   5




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##### Table of Contents



Internet
  e-commerce e-commerce
  Distribution
  store-by-store
      Approx SquareLocality, Country

Number


FootageNorthamptonshire, United Kingdom (services Paperchase)


1



150,000California, United States


1



414,000Pennsylvania, United States


1



600,000Puerto Rico


1



10,500Tennessee, United States


3



926,000Total


7



2,100,500     Employees
  point-of-sale
  Trademarks
  ® ® ® ® ® ® ® ® ® ® ®
 6




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##### Table of Contents



®
  Executive
    Officers of the Company
    Name

Age

PositionMichael J. Edwards


49


Interim President and Chief Executive OfficerMark R. Bierley


43


Executive Vice President, Chief Financial OfficerThomas D. Carney


63


Executive Vice President, General Counsel and SecretaryDavid Scott Laverty


50


Senior Vice President, Chief Information OfficerJames M. Frering


48


Senior Vice President, Store OperationsShereen Solaiman


37


Senior Vice President, Human Resources            7




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##### Table of Contents



Additional
    Information
  http://www.borders.com/about Form 10-K, Form 10-Q, Form 8-K Form 8-K.
  48108-2202.
  Form 10-K
  Item 1A.
    Risk
    Factors  Risk
    Factors
  Form 10-K
  Consumer
    Spending Patterns
   8




---



##### Table of Contents



Economic
    Conditions
    Competitive
    Environment
          Availability
    of Capital Resources
       9




---



##### Table of Contents



Potential
    Dilution Resulting from Equity Offerings
   10




---



##### Table of Contents



Business
    Strategy
    Seasonality
    Potential
    gift card liabilities
   11




---



##### Table of Contents



Foreign
    Exchange Risk
    Guarantees
    of Disposed Foreign Businesses
            New
    York Stock Exchange Listing
  30-day
 12




---



##### Table of Contents



30-day 30-day
        Potential
    for Uninsured Losses
    Litigation
    and Other Claims
    Information
    Technology Systems Risks
       13




---



##### Table of Contents



Disruption
    of Vendor Relationships and/or Supply Chain.
    Reliance
    on Key Personnel
    Other
    Risks
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Number ofLease Terms to
    Expire During 12 Months Ending on or About January 30

Stores2011


252012


132013


192014


202015


252016


372017 and later


369Total


508  14




---



##### Table of Contents



Number ofLease Terms to
    Expire During 12 Months Ending on or About January 30

Stores2011


1022012


462013


102014


92015


22016


42017 and later


2Total


175       Item 3.
    Legal
    Proceedings  Litigation: In
    February 2009, three former employees, individually and on
    behalf of a purported class consisting of all current and former
    employees who work or worked as General Managers in Borders
    stores in the State of California at any time from
    February 19, 2005, through February 19, 2009, have
    filed an action against us in the Superior Court of California
    for the County of Orange. The Complaint alleges, among other
    things, that the individual plaintiffs and the purported class
    members were improperly classified as exempt employees and that
    we violated the California Labor Code by failing to (i) pay
    required overtime and (ii) provide meal periods and rest
    periods, and (iii) that those practices also violate the
    California Business and Professions Code. The relief sought
    includes damages, restitution, penalties, injunctive relief,
    interest, costs, and attorneys fees and such other relief
    as the court deems proper. We have not included any liability in
    our consolidated financial statements in connection with this
    matter and have expensed as incurred all legal costs to date. We
    cannot reasonably estimate the amount or range of possible loss,
    if any, at this time.
  out-of-jurisdiction e-commerce.
   15




---



##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    DividendsHigh


Low


DeclaredFiscal Quarter 2009First Quarter

$
2.97


$
0.45


$
Second Quarter

$
4.34


$
2.07


$
Third Quarter

$
3.99


$
1.94


$
Fourth Quarter

$
2.14


$
0.86


$
Fiscal Quarter 2008First Quarter

$
11.23


$
5.07


$
Second Quarter

$
7.30


$
4.12


$
Third Quarter

$
7.80


$
2.44


$
Fourth Quarter

$
3.39


$
0.35


$
     30-day
 16




---



##### Table of Contents



30-day 30-day
           17




---



##### Table of Contents



Stock
    Performance Graph
    COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN
  
 18




---



##### Table of Contents



Equity
    Securities Authorized for Issuance Under Equity Compensation
    Plans
    Number ofNumber of


Weighted-


SharesAwards


Average


AvailablePlan Category

Outstanding(2)


Exercise Price(3)


for IssuancePlans approved by stockholders:2004 Long-Term Incentive
    Plan(1)


1,335


$
8.10



4,619   (1)
    
    The 2004 Long-Term Incentive Plan (the 2004 Plan)
    was approved by shareholders in May 2004, and replaced all prior
    equity compensation plans (the Prior Plans). At
    January 30, 2010 there were approximately 0.2 million
    stock options outstanding under the Prior Plans with a
    weighted-average exercise price of $18.55 which, if forfeited or
    cancelled, become available for issuance under the 2004 Plan. At
    January 30, 2010, there were 1.8 million stock options
    outstanding related to the employment inducement award granted
    to Ron Marshall, our former President and Chief Executive
    Officer, with an exercise price of $0.57 per share, representing
    the fair market value on the date of grant. The unvested portion
    of this award was forfeited by Mr. Marshall upon his
    resignation from the Company in February of 2010, and as a
    result 1.2 million shares were forfeited. Mr. Marshall
    has three months from his last day of employment with the
    Company to exercise the option to acquire the vested portion of
    this award. If not exercised during such period of time, the
    remaining 0.6 million shares will also be forfeited.(2)
    
    Number of awards outstanding as of January 30, 2010
    includes approximately 10,000 restricted share units and
    approximately 1,325,278 stock options.(3)
    
    Reflects the weighted-average exercise price of stock options
    outstanding as of January 30, 2010.  Purchases
    of Equity Securities
   19




---



##### Table of Contents



Item 6.
    Selected
    Financial Data  SELECTED
    CONSOLIDATED FINANCIAL AND OPERATING DATA
    Fiscal Year EndedJan. 30,


Jan. 31,


Feb. 2,


Feb. 3,


Jan. 28,(dollars in millions except per share data)

2010


2009


2008


2007(1)


2006(1)Statement of Operations DataBorders Superstores sales

$
2,265.8


$
2,625.4


$
2,847.2


$
2,750.0


$
2,709.5Waldenbooks Specialty Retail sales


387.3



480.0



562.8



663.9



744.8International
    sales(2)


138.0



136.7



145.1



118.4



99.9Total
    sales(2)

$
2,791.1


$
3,242.1


$
3,555.1


$
3,532.3


$
3,554.2Operating income
    (loss)(2)

$
(94.9
)

$
(149.2
)

$
4.1


$
5.2


$
172.0Income (loss) from continuing
    operations(2)

$
(110.2
)

$
(184.7
)

$
(19.9
)

$
(21.9
)

$
96.7Income (loss) from operations of discontinued operations






(1.7
)


(8.7
)


(129.4
)


4.3Income (loss) from disposal of discontinued operations


0.8



(0.3
)


(128.8
)






Income (loss) from discontinued operations


0.8



(2.0
)


(137.5
)


(129.4
)


4.3Net income (loss)

$
(109.4
)

$
(186.7
)

$
(157.4
)

$
(151.3
)

$
101.0Per Share DataDiluted (basic) earnings (loss) from continuing operations per
    common
    share(2)

$
(1.83
)

$
(3.07
)

$
(0.34
)

$
(0.35
)

$
1.36Diluted (basic) earnings (loss) from discontinued operations per
    common share

$
0.01


$
(0.03
)

$
(2.34
)

$
(2.09
)

$
0.06Diluted (basic) earnings (loss) per common share

$
(1.82
)

$
(3.10
)

$
(2.68
)

$
(2.44
)

$
1.42Cash dividends declared per common share

$



$



$
0.44


$
0.41


$
0.37Balance Sheet DataWorking capital  continuing
    operations(2)

$
60.6


$
77.5


$
(6.3
)

$
69.0


$
254.9Working capital

$
60.6


$
77.5


$
38.2


$
127.7


$
326.7Total assets  continuing
    operations(2)

$
1,425.2


$
1,609.0


$
2,147.1


$
2,234.9


$
2,146.8Total assets

$
1,425.2


$
1,609.0


$
2,302.7


$
2,613.4


$
2,572.2Short-term borrowings  continuing
    operations(2)

$
274.0


$
329.0


$
548.4


$
501.4


$
183.0Short-term borrowings

$
274.0


$
329.0


$
548.4


$
542.0


$
206.4Long-term debt, including current portion

$
4.8


$
6.6


$
5.6


$
5.4


$
5.6Long-term capital lease obligations, including current portion

$
3.2


$
2.0


$



$
0.4


$
0.5Stockholders equity

$
158.3


$
263.1


$
479.1


$
644.0


$
929.1   (1)
    
    Our 2005 and 2006 fiscal years
    consisted of 53 weeks.(2)
    
    Excludes the results of
    discontinued operations (Borders Ireland Limited, Books etc.,
    U.K. Superstores, Australia, New Zealand, and Singapore). 20




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  General
    e-commerce
    Business
    Strategy
         21




---



##### Table of Contents



Restore the
    financial health and profitability of the
    Company. We
    believe that fiscal 2010 will continue to be challenging for
    retailers due to continued uncertainty in the economic
    environment, and as a consequence we will maintain our focus on
    maximizing cash flow, reducing debt, conserving capital, tightly
    managing expenses and improving profitability. In addition, we
    will continue to reduce working capital needs by further driving
    inventory productivity, thus improving cash flow and lowering
    supply chain costs.
  Acquire, engage
    and retain
    customers. We are
    focused on the following key objectives:
  Improve the
    in-store
    experience. During
    the fourth quarter of 2009, we invested in inventory within our
    key book categories and plan to continue to maintain these new
    in-stock percentages. Our goal is to have the right titles in
    the right stores at the right time to meet our customers
    needs. We are also reallocating our payroll dollars from back
    office tasks to the sales floor in order to improve the shopping
    experience for our customers. We expect to continue to enhance
    our in-store boutique shops, including our shops for kids, teens
    and teachers. These shops have a distinct look and feel,
    including unique signage, fixtures and other elements which we
    expect to increase sales growth and profitability. In addition,
    we will continue with our in-stock guarantee, which was launched
    in the fourth quarter of 2009 and which is helping to retain
    sales that would have been lost to competitors. This program
    allows any customer who cannot find a title that is available at
    Borders.com in their local store to have it shipped to their
    home with no shipping charges.
  Leverage Borders
    Rewards. We
    continue to develop our loyalty program, Borders Rewards. To
    date, a total of approximately 37 million customers have
    signed up for the program. We will continue to focus on growing
    membership and increasing the profitability of the program, on
    driving revenue through partnerships with other organizations,
    and increasing sales by employing customer data to tailor
    promotions that meet specific customer needs and interests. To
    achieve these results we are redesigning the Borders Rewards
    program to facilitate a higher level of participation and value
    for our customers. Although we will continue to use Borders
    Rewards to drive traffic into our stores, we will also invest in
    additional marketing programs to acquire new customers.
  Become a
    community gathering
    place. The
    commoditization of our primary product categories will continue,
    and as a result we must be more than a bookstore. We plan to
    strengthen our position as a community gathering place, hosting
    customer events including author and celebrity signings, local
    events, educator appreciation weekends, and other community
    driven events that are of interest to our customers and which
    are expected to drive sales.
  Leverage
    Borders.com and the digital
    revolution. We
    expect to use emerging technologies across all channels to
    attract customers and deliver a valued experience which we
    anticipate will drive sales. For instance, we are working to
    strengthen Borders.com as a way to engage customers who share
    our passion for our products. In addition, we will become a
    device-neutral, content-focused digital book provider, as we
    believe there is opportunity to occupy the niche of
    neutral expert for our customers, and we plan to
    offer a wide variety of eReaders for sale in our stores. This
    will be done through the introduction of a new shop in our
    stores called Area-e where multiple eReaders will be
    available for sale. We will enhance the Area-e experience
    through our partnership with Kobo, through which we plan to
    launch our digital bookstore on Borders.com during the second
    quarter of 2010. Kobo, Inc. is a global eReading service that is
    the newly named spin-off of Toronto-based Indigo
    Books & Music Inc.s Shortcovers.
 22




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##### Table of Contents



Create a winning,
    high-performance company
    culture. We are
    focused on customer satisfaction and we will leverage our
    knowledgeable associates in order to drive improved sales,
    profitability and shareholder value.
  Other
    Information
      e-commerce
    Discontinued
    Operations
      Subsequent
    Events
   23




---



##### Table of Contents



Results
    of Operations
    Jan. 30,


Jan. 31,


Feb. 2,2010


2009


2008Sales


100.0
%


100.0
%


100.0
%Other revenue


1.2



1.0



1.2Total revenue


101.2



101.0



101.2Cost of merchandise sold (includes occupancy)


78.6



76.7



75.1Gross margin


22.6



24.3



26.1Selling, general and administrative expenses


25.5



25.9



25.6Goodwill impairment






1.2



Asset impairments and other writedowns


0.6



1.8



0.4Operating income (loss)


(3.5
)


(4.6
)


0.1Interest expense


0.9



1.3



1.2Warrant/put expense (income)


0.7



(1.2
)


Total interest expense


1.6



0.1



1.2Loss before income tax


(5.1
)


(4.7
)


(1.1
)Income tax expense (benefit)


(1.1
)


0.9



(0.5
)Income (loss) from continuing operations


(4.0
)%


(5.6
)%


(0.6
)%   Consolidated
    Results  Comparison of 2009 to 2008
  Sales
    th
   24




---



##### Table of Contents



Other
    revenue
      Gross
    margin
      Selling,
    general and administrative expenses
     25




---



##### Table of Contents



Goodwill
    Impairment
    Asset
    Impairments and Other Writedowns
      Interest
    expense
    Warrant/put
    expense
      Taxes
   26




---



##### Table of Contents



Loss
    from continuing operations
    Consolidated
    Results  Comparison of 2008 to 2007
  Sales
          Other
    revenue
   27




---



##### Table of Contents



Gross
    margin
      Selling,
    general and administrative expenses
     28




---



##### Table of Contents



Goodwill
    Impairment
    Asset
    Impairments and Other Writedowns
        Interest
    expense
    Warrant/put
    expense
    Taxes
     29




---



##### Table of Contents



Loss
    from continuing operations
    Borders
    Superstores
  (dollar amounts in
    millions)

2009


2008


2007Sales

$
2,265.8


$
2,625.4


$
2,847.2Other revenue

$
26.0


$
26.5


$
35.3Operating income (loss)

$
(47.1
)

$
(100.9
)

$
30.6Operating income (loss) as % of sales


(2.1
)%


(3.8
)%


1.1
%Store openings






12



18Store closings


7



6



8Store count


508



515



509   Borders
    Superstores  Comparison of 2009 to 2008
  Sales
    Other
    revenue
    Gross
    margin
     30




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##### Table of Contents



Selling,
    general and administrative expenses
      Goodwill
    Impairment
    Asset
    Impairments and Other Writedowns
      Operating
    loss
    Borders
    Superstores  Comparison of 2008 to 2007
  Sales
    Other
    revenue
   31




---



##### Table of Contents



Gross
    margin
      Selling,
    general and administrative expenses
      Goodwill
    Impairment
    Asset
    Impairments and Other Writedowns
      Operating
    loss
   32




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##### Table of Contents



Waldenbooks
    Specialty Retail
  (dollar amounts in
    millions)

2009


2008


2007Sales

$
387.3


$
480.0


$
562.8Other revenue

$
2.5


$
1.7


$
3.8Operating loss

$
(33.3
)

$
(27.5
)

$
(21.4
)Operating loss as % of sales


(8.6
)%


(5.7
)%


(3.8
)%Store openings


1



8



1Store closings


212



112



75Store count


175



386



490   Waldenbooks
    Specialty Retail  Comparison of 2009 to
    2008
  Sales
    Other
    revenue
    Gross
    margin
      Selling,
    general and administrative expenses
      Asset
    Impairments and Other Writedowns
     33




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##### Table of Contents



Operating
    loss
    Waldenbooks
    Specialty Retail  Comparison of 2008 to
    2007
  Sales
    Other
    revenue
    Gross
    margin
      Selling,
    general and administrative expenses
      Asset
    Impairments and Other Writedowns
   34




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##### Table of Contents



Operating
    loss
    International
  (dollar amounts in
    millions)

2009


2008


2007Operating income

$
0.9


$
3.7


$
8.0   International 
    Comparison of 2009 to 2008
  Operating
    Income
    International 
    Comparison of 2008 to 2007
  Operating
    Income
    Corporate
  (dollar amounts in
    millions)

2008


2008


2007Operating loss

$
(15.4
)

$
(24.5
)

$
(13.1
)     Corporate 
    Comparison of 2009 to 2008
    Corporate 
    Comparison of 2008 to 2007
   35




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##### Table of Contents



Costs
    Associated with Turnaround Effort
      (dollar amounts in
    millions)

2009


2008Consulting and legal fees

$
6.0


$
11.2Severance costs


6.7



16.4Retention costs


1.3



2.3Multimedia inventory reduction costs, including accelerated
    depreciation costs


11.3



Music inventory markdowns






6.5Paperchase strategic alternative costs






0.1Total

$
25.3


$
36.5     Liquidity
    and Capital Resources
  Cash
    Flows
  Operating
    Activities
      Investing
    Activities
   36




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##### Table of Contents



e-commerce
  Financing
    Activities
    Capital
    Expenditures
    Dividends
    Sources
    of Liquidity
  Revolving
    Credit Agreement
     37




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##### Table of Contents



Term
    Loan Agreement
     38




---



##### Table of Contents



39




---



##### Table of Contents



Intercreditor
    Agreement
    day-to-day
           40




---



##### Table of Contents



Warrants
    Off-Balance
    Sheet Arrangements
       41




---



##### Table of Contents



Significant
    Contractual Obligations
    Fiscal Year2015 and(dollars in millions)

2010


2011-2012


2013-2014


Thereafter


TotalCredit Agreement borrowings

$
232.3


$



$



$



$
232.3Term Loan borrowings


42.5















42.5Operating lease obligations


291.2



543.1



491.8



1,015.0



2,341.1Capital lease obligations


1.3



1.6



0.3







3.2Debt of consolidated VIEs


0.2



0.5



0.6



3.5



4.8Letters of credit


37.4















37.4Total

$
604.9



545.2



492.7



1,018.5



2,661.3        42




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##### Table of Contents



Seasonality
    Fiscal 2009(dollars in millions)

Q1


Q2


Q3


Q4Sales

$
641.5


$
616.8


$
595.5


$
937.3Operating income (loss)


(29.1
)


(26.8
)


(60.5
)


21.5% of full year:Sales


23.0
%


22.1
%


21.3
%


33.6
%   Fiscal 2008(dollars in millions)

Q1


Q2


Q3


Q4Sales

$
729.5


$
749.2


$
682.1


$
1,081.3Operating income (loss)


(44.9
)


(23.1
)


(108.2
)


27.0% of full year:Sales


22.5
%


23.1
%


21.0
%


33.4
%   Critical
    Accounting Policies and Estimates
    Long-Lived
    Assets
     43




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##### Table of Contents



Inventory
    Reserves
    location-by-location
    Costs
    Associated With Exit Activities
    Self-Insured
    Liabilities
    Liabilities
    For Lease Guarantees of Disposed Foreign
    Businesses
   44




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##### Table of Contents



Gift
    Cards
    Income
    Taxes
            New
    Accounting Guidance
   45




---



##### Table of Contents



Form 10-K
  Related
    Party Transactions
   46




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest
    Rate Risk
    Foreign
    Currency Exchange Risk
  and/or
 47




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##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    FINANCIAL STATEMENTS
  PageConsolidated Statements of Operations for the
    fiscal years ended January 30, 2010, January 31, 2009,
    and February 2, 2008


49Consolidated Balance Sheets as of
    January 30, 2010 and January 31, 2009


50Consolidated Statements of Cash Flows for the
    fiscal years ended January 30, 2010, January 31, 2009,
    and February 2, 2008


51Consolidated Statements of Stockholders
    Equity for the fiscal years ended January 30, 2010,
    January 31, 2009, and February 2, 2008


52Notes to Consolidated Financial Statements


53Report of Independent Registered Public
    Accounting Firm


81   48




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##### Table of Contents



CONSOLIDATED
    STATEMENTS OF OPERATIONS
    (dollars in millions except per share data)  Jan. 30,


Jan. 31,


Feb. 2,2010


2009


2008Sales

$
2,791.1


$
3,242.1


$
3,555.1Other revenue


32.8



33.3



42.3Total revenue

$
2,823.9


$
3,275.4


$
3,597.4Cost of merchandise sold (includes occupancy)


2,191.3



2,484.8



2,668.3Gross margin


632.6



790.6



929.1Selling, general and administrative expenses


711.3



842.4



912.0Goodwill impairment






40.3



Asset impairments and other writedowns


16.2



57.1



13.0Operating income (loss)


(94.9
)


(149.2
)


4.1Interest expense


24.1



45.4



43.1Warrant/put expense (income)


20.7



(40.1
)


Total interest expense


44.8



5.3



43.1Loss before income tax


(139.7
)


(154.5
)


(39.0
)Income tax provision (benefit)


(29.5
)


30.2



(19.1
)Loss from continuing operations

$
(110.2
)

$
(184.7
)

$
(19.9
)Loss from operations of discontinued operations (net of income
    tax benefit of $, $0.9 and $2.9)






(1.7
)


(8.7
)Gain (loss) from disposal of discontinued operations (net of
    income tax benefit of $, $3.1 and $7.6)


0.8



(0.3
)


(128.8
)Gain (loss) from discontinued operations (net of tax)


0.8



(2.0
)


(137.5
)Net loss

$
(109.4
)

$
(186.7
)

$
(157.4
)Loss per common share data (Note 2)Basic:Loss from continuing operations per common share

$
(1.83
)

$
(3.07
)

$
(0.34
)Gain (loss) from discontinued operations per common share

$
0.01


$
(0.03
)

$
(2.34
)Net loss per common share

$
(1.82
)

$
(3.10
)

$
(2.68
)Weighted-average common shares outstanding (in millions)


60.1



60.2



58.7    49




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##### Table of Contents



CONSOLIDATED
    BALANCE SHEETS
    (dollars in millions except share amounts)  Fiscal Year EndedJan. 30,


Jan. 31,2010


2009AssetsCurrent assets:Cash and cash equivalents

$
37.0


$
53.6Merchandise inventories


873.8



915.2Accounts receivable and other current assets


76.5



102.4Deferred income taxes


1.0



Total current assets


988.3



1,071.2Property and equipment, net


392.8



494.2Other assets


39.9



39.4Deferred income taxes


3.9



4.0Goodwill


0.3



0.2Total assets

$
1,425.2


$
1,609.0Liabilities and Stockholders EquityCurrent liabilities:Short-term borrowings and current portion of long-term debt

$
275.4


$
329.8Trade accounts payable


350.8



350.0Accrued payroll and other liabilities


257.4



279.8Taxes, including income taxes


44.1



30.1Deferred income taxes






4.0Total current liabilities


927.7



993.7Long-term debt


6.6



6.4Other long-term liabilities


332.6



345.8Contingencies (Note 8)






Total liabilities


1,266.9



1,345.9Stockholders equity:Common stock, 300,000,000 shares authorized; 59,869,384 and
    59,903,232 shares issued and outstanding at
    January 30, 2010 and January 31, 2009, respectively


187.2



187.4Accumulated other comprehensive income


16.7



11.9Retained earnings (deficit)


(45.6
)


63.8Total stockholders equity


158.3



263.1Total liabilities and stockholders equity

$
1,425.2


$
1,609.0    50




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##### Table of Contents



CONSOLIDATED
    STATEMENTS OF CASH FLOWS
    (dollars in millions)  Fiscal Year EndedJan. 30,


Jan. 31,


Feb. 2,2010


2009


2008Cash provided by (used for):Net loss

$
(109.4
)

$
(186.7
)

$
(157.4
)Net income (loss) from discontinued operations


0.8



(2.0
)


(137.5
)Loss from continuing operations


(110.2
)


(184.7
)


(19.9
)OperationsAdjustments to reconcile loss from continuing operations to
    operating cash flows:Depreciation


98.8



107.1



103.7Loss on disposal of assets


3.8



1.9



0.5Stock-based compensation cost (income)


(0.3
)


3.0



5.1Increase in warrant liability


8.8



0.8



(Increase) decrease in deferred income taxes


(4.8
)


34.5



(3.7
)Decrease in other long-term assets


0.2



23.6



0.3(Decrease) increase in other long-term liabilities


(22.5
)


(15.7
)


4.9Goodwill impairment






40.3



Write-off intangible asset


16.2







Asset impairments and other writedowns


16.2



57.1



13.0Cash provided by (used for) current assets and current
    liabilities:Decrease in inventories


43.9



321.4



52.2Decrease in accounts receivable


10.4



10.2



13.3Decrease (increase) in prepaid expenses


3.9



9.8



(1.0
)Increase (decrease) in accounts payable


0.2



(160.2
)


(59.2
)Increase (decrease) in taxes payable


13.4



13.7



(36.4
)Increase (decrease) in accrued payroll and other liabilities


(21.9
)


(29.2
)


32.2Net cash provided by operating activities of continuing
    operations


56.1



233.6



105.0InvestingCapital expenditures


(17.9
)


(79.9
)


(131.3
)Investment in Paperchase






(3.6
)


(0.8
)Proceeds from the sale of discontinued operations






97.3



20.4Net cash provided by (used for) investing activities of
    continuing operations


(17.9
)


13.8



(111.7
)FinancingProceeds from the excess tax benefit of options exercised






0.5



0.9Net funding from (repayment of) credit facility


(54.5
)


(261.7
)


43.4Funding from short-term note financing






42.5



Issuance of long-term debt






1.2



0.4Repayment of long-term debt


(0.3
)


(1.4
)


Repayment of long-term capital lease obligations


(1.2
)


(0.4
)


(0.4
)Issuance of common stock


0.1



(0.4
)


3.1Repurchase of common stock






(0.2
)


(0.6
)Payment of cash dividends






(6.5
)


(19.4
)Net cash provided by (used for) financing activities of
    continuing operations


(55.9
)


(226.4
)


27.4Effect of exchange rates on cash and cash equivalents of
    continuing operations


0.3



(0.9
)


0.8Net cash provided by (used for) provided by operating activities
    of discontinued operations


0.8



(21.3
)


(0.7
)Net cash used for investing activities of discontinued operations






(6.5
)


(17.8
)Net cash used for by financing activities of discontinued
    operations










(41.9
)Effect of exchange rates on cash and cash equivalents of
    discontinued operations






2.8



(0.2
)Net cash provided by (used for) discontinued operations


0.8



(25.0
)


(60.6
)Net decrease in cash and cash equivalents


(16.6
)


(4.9
)


(39.1
)Cash and cash equivalents at beginning of year


53.6



58.5



97.6Cash and cash equivalents at end of year

$
37.0


$
53.6


$
58.5Supplemental cash flow disclosures:Interest paid

$
16.6


$
36.3


$
43.8Net income taxes (received) paid

$
(42.5
)

$
(34.6
)

$
12.4    51




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##### Table of Contents



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
    (dollars in millions except share amounts)  AccumulatedOtherCommon Stock


Comprehensive


RetainedShares


Amount


Income (Loss)


Earnings (Deficit)


TotalBalance at February 3, 2007


58,476,306


$
177.5


$
28.5


$
438.0


$
644.0Net loss














(157.4
)


(157.4
)Discontinued operations currency translation adjustment










8.7







8.7Foreign currency translation adjustments










5.2







5.2Comprehensive income


















(143.5
)Adoption of FIN 48














(4.2
)


(4.2
)Cash dividends declared ($0.41 per common share)














(25.9
)


(25.9
)Issuance of common stock


450,855



8.4











8.4Repurchase and retirement of common stock


(132,937
)


(0.6
)










(0.6
)Tax benefit of equity compensation






0.9











0.9Balance at February 2, 2008


58,794,224


$
186.2


$
42.4


$
250.5


$
479.1Net loss














(186.7
)


(186.7
)Discontinued operations currency translation adjustment










(17.1
)






(17.1
)Foreign currency translation adjustments










(13.4
)






(13.4
)Comprehensive income


















(217.2
)Issuance of common stock


1,787,776



0.9











0.9Repurchase and retirement of common stock


(678,768
)


(0.2
)










(0.2
)Tax benefit of equity compensation






0.5











0.5Balance at January 31, 2009


59,903,232


$
187.4


$
11.9


$
63.8


$
263.1Net loss














(109.4
)


(109.4
)Foreign currency translation adjustments










4.8







4.8Comprehensive income


















(104.6
)Issuance of common stock


908,210



3.1











3.1Repurchase and retirement of common stock


(942,058
)


(3.3
)










(3.3
)Balance at January 30, 2010


59,869,384


$
187.2


$
16.7


$
(45.6
)

$
158.3    52




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (dollars in millions except per share data)  NOTE 1 
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Nature of
    Business: Borders
    Group, Inc., through our subsidiaries including Borders, Inc.
    (Borders) (individually and collectively,
    we, our or the Company), is
    an operator of book, music and movie superstores and mall-based
    bookstores. At January 30, 2010, we operated 511
    superstores under the Borders name, including 508 in the United
    States and three in Puerto Rico. We also operated 175 mall-based
    and other small format bookstores, including stores operated
    under the Waldenbooks, Borders Express and Borders Outlet names,
    as well as 29 Borders-branded airport stores. In addition, we
    owned and operated United Kingdom-based Paperchase Products
    Limited (Paperchase), a designer and retailer of
    stationery, cards and gifts. As of January 30, 2010,
    Paperchase operated 85 stores, primarily in the United Kingdom,
    and Paperchase shops have been added to 333 Borders superstores.
  e-commerce
    Principles of
    Consolidation: The
    consolidated financial statements include the accounts of the
    Company and all majority-owned subsidiaries. All significant
    intercompany transactions and balances have been eliminated.
    Use of
    Estimates: The
    preparation of financial statements in conformity with
    accounting principles generally accepted in the United States
    requires management to make estimates and assumptions that
    affect the reported amounts of assets and liabilities and
    disclosure of contingent assets and liabilities at the date of
    the financial statements, as well as the reported amounts of
    revenues and expenses during the reporting period. Actual
    results could differ from those estimates.
  Fiscal
    Year: Our fiscal
    year ends on the Saturday closest to the last day of January.
    Fiscal 2009 consisted of 52 weeks and ended on
    January 30, 2010. Fiscal 2008 consisted of 52 weeks
    and ended on January 31, 2009. Fiscal 2007 consisted of
    52 weeks and ended February 2, 2008. References herein
    to years are to our fiscal years.
  Foreign Currency
    and Translation of Foreign
    Subsidiaries: The
    functional currencies of our foreign operations are the
    respective local currencies. All assets and liabilities of our
    foreign operations are translated into U.S. dollars at
    fiscal period-end exchange rates. Income and expense items are
    translated at average exchange rates prevailing during the year.
    The resulting translation adjustments are recorded as a
    component of stockholders equity and comprehensive income.
    Excluding discontinued operations, foreign currency transaction
    gains/(losses) were $1.1, $1.5, and $(1.9) in 2009, 2008, and
    2007, respectively.
  Cash and Cash
    Equivalents: Cash
    and cash equivalents include short-term investments with
    original maturities of 90 days or less. The recorded value
    of our cash and cash equivalents approximates their fair value.
  Inventories: Merchandise
    inventories are valued on a
    first-in,
    first-out (FIFO) basis at the lower of cost or
    market using the retail inventory method. The Company includes
    certain distribution and other expenses in its inventory costs,
    totaling $69.3 and $80.9 as of January 30, 2010, and
    January 31, 2009, respectively.
 53




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
    Property and
    Equipment: Property
    and equipment are recorded at cost, including capitalized
    interest, and depreciated over their estimated useful lives on a
    straight-line basis for financial statement purposes and on
    accelerated methods for income tax purposes.
      Goodwill: Pursuant
    to the provisions of Accounting Standards Codification 350,
    Intangibles  Goodwill and Other
    (ASC 350), our goodwill is tested for impairment
    annually (or more frequently if impairment indicators arise).
    Pursuant to ASC 350, a reporting unit is defined as an operating
    segment or one level below an operating segment (a component),
    for which discrete financial information is available and
    reviewed by management. Our reporting units were identified as
    the operating segments of the Borders Superstores reporting
    segment, the Waldenbooks Specialty Retail operating segment, and
    the components of the International operating segment. The
    carrying amounts of the net assets of the applicable reporting
    units (including goodwill) are compared to the estimated fair
    values of those reporting units. Fair value is principally
    estimated using a discounted cash flow model which depends on,
    among other factors, estimates of future sales and expense
    trends, liquidity and capitalization. The discount rate used
    approximates the weighted average cost of capital of a
    hypothetical third party buyer. Changes in any of the
    assumptions underlying these estimates may result in the future
    impairment of goodwill.
   54




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
  Leases: All
    leases are reviewed for capital or operating classification at
    their inception under the guidance of Accounting Standards
    Codification 840, Leases (ASC 840). We
    use our incremental borrowing rate in the assessment of lease
    classification, and define initial lease term to include the
    construction build-out period, but to exclude lease extension
    period(s). We conduct operations primarily under operating
    leases. For leases that contain rent escalations, we record the
    total rent payable during the lease term, as defined above, on a
    straight-line basis over the term of the lease and record the
    difference between the rents paid and the straight-line rent as
    a deferred rent liability, under Other long-term
    liabilities on our consolidated balance sheets, totaling
    $126.2 and $125.3 of January 30, 2010 and January 31,
    2009, respectively.
  Landlord
    Allowances: We
    classify landlord allowances as deferred rent liabilities, under
    Other long-term liabilities on our consolidated
    balance sheets, totaling $91.7 and $106.7 as of January 30,
    2010 and January 31, 2009, respectively, and as an
    operating activity on our consolidated statements of cash flows.
    Also, we amortize landlord allowances over the life of the
    initial lease term, and classify this amortization as a
    reduction of occupancy expense, included as a component of
    Cost of merchandise sold (includes occupancy) in our
    consolidated statements of operations.
  Financial
    Instruments: The
    recorded values of our financial instruments, which include
    accounts receivable, accounts payable and indebtedness,
    approximate their fair values.
    Accumulated Other
    Comprehensive Income
    (Loss): Accumulated
    other comprehensive income (loss) includes exchange rate
    fluctuations. Disclosure of comprehensive income (loss) is
    incorporated into the consolidated statements of
    stockholders equity for all years presented. Accumulated
    other comprehensive income (loss) represents $16.7 and $11.9 for
    exchange rate fluctuations as of January 30, 2010 and
    January 31, 2009, respectively.
  Revenue: Revenue
    is recognized, net of estimated returns, at the point of sale
    for all of our segments. Revenue excludes sales taxes and any
    value-added taxes.
    Pre-Opening
    Costs: We expense
    pre-opening costs as incurred and classify such costs as a
    component of Selling, general, and administrative
    expenses in our consolidated statements of operations.
  Closing
    Costs: Pursuant to
    the provisions of Statement of Accounting Standards Codification
    420, Exit or Disposal Cost Obligation (ASC
    420), the Company expenses when incurred all amounts
    related to the discontinuance of operations of stores identified
    for closure. For vacated locations that are under long-term
    leases, we record a liability for the difference between our
    future lease payments and related costs from the date of closure
    through the end of the remaining lease term, net of expected
    sublease rental income.
  Borders
    Rewards: Membership
    in our loyalty program, Borders Rewards, is free, with no
    enrollment costs or annual fees. Members can earn Borders Bucks
    in increments of $5 for each cumulative $150 they spend on
 55




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
      Gift
    Cards: We sell
    gift cards to our customers and record a liability for the face
    value of all certificates issued and unredeemed within the last
    12 months. For unredeemed certificates older than
    12 months, we adjust the related liability to represent
    only that amount expected to be redeemed. We recognize the
    income related to this adjustment as a component of Other
    revenue in our consolidated statements of operations,
    totaling $10.6 in 2009, $9.6 in 2008, and $23.2 in 2007. We have
    included the liability for gift cards as a component of
    Accrued payroll and other liabilities on our
    consolidated balance sheets, totaling $115.5 and $122.9 as of
    January 30, 2010 and January 31, 2009, respectively.
        Advertising
    Costs: We expense
    advertising costs as incurred, and recorded approximately $19.4,
    $24.8, and $32.5 of gross advertising expenses in 2009, 2008,
    and 2007, respectively.
       56




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
    Income
    Taxes: We must
    make certain estimates and judgments in determining income tax
    expense for financial statement purposes. These estimates and
    judgments occur in the calculation of certain tax assets and
    liabilities, which arise from differences in the timing of
    recognition of revenue and expense for tax and financial
    statement purposes.
        Equity-Based
    Compensation: We
    account for equity-based compensation in accordance with the
    provisions of Statement of Accounting Standards Codification
    718, Compensation  Stock Compensation
    (ASC 718)). We record compensation cost for
    equity-based compensation in the Selling, general and
    administrative expense of our consolidated statements of
    operations.
  New Accounting
    Guidance: In
    December 2007, the Financial Accounting Standards Board
    (FASB) issued new accounting and disclosure guidance
    on business combinations. This guidance significantly changes
    the accounting for business combinations in a number of areas,
    including the treatment of contingent consideration,
    contingencies, acquisition costs, in-process research and
    development and restructuring costs. This guidance is effective
    for fiscal years beginning after December 15, 2008. The
    adoption of this guidance did not have a material impact on our
    consolidated financial position or results of operations.
     57




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
      Form 10-K
  Reclassifications: Certain
    prior year amounts have been reclassified to conform to current
    year presentation, including reclassifying pre-opening costs
    into Selling, general and administrative expenses.
  NOTE 2 
    WEIGHTED-AVERAGE
    SHARES OUTSTANDING    2009


2008


2007Weighted-average common shares outstanding  basic


60,058



60,212



58,742Dilutive effect of employee stock options










Weighted-average common shares outstanding  diluted


60,058



60,212



58,742      58




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
   NOTE 3 
    GOODWILL
    IMPAIRMENT        NOTE 4 
    ASSET
    IMPAIRMENTS AND OTHER WRITEDOWNS  Asset
    Impairments: In
    accordance with the provisions of Accounting Standards
    Codification 360, Property, Plant, and Equipment,
    (ASC 360) we evaluate the carrying values of
    long-lived assets whenever changes in circumstances indicate the
    carrying amounts of such assets may not be recoverable. When an
    indicator of impairment is present, we evaluate the
    recoverability of the affected assets.
              Store
    Closings: In
    accordance with the provisions of Accounting Standards
    Codification 420, Exit or Disposal Cost Obligations
    (ASC 420), we expense when incurred all amounts
    related to the discontinuance of operations of facilities
    identified for closure. These expenses typically pertain to
    occupancy costs, inventory markdowns, asset impairments, and
    store payroll and other costs. When we close any of our
    facilities, the inventory of the closed store is either returned
    to vendors or marked down and sold.
 59




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
                2009


2008Beginning reserve balance

$
25.6


$
13.2Current period charge


3.9



16.7Current period reserve adjustment


(3.5
)


(0.2
)Current period cash payments


(8.3
)


(4.1
)Ending reserve balance

$
17.7


$
25.6    60




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
    2009

2008

2007Sales

$
19.2


$
21.9


$
28.0Operating loss


(2.0
)


(2.6
)


(3.8
)     2009

2008

2007Sales

$
149.7


$
64.4


$
37.1Operating loss


(9.2
)


(5.7
)


(3.2
)   NOTE 5 
    COSTS
    ASSOCIATED WITH TURNAROUND EFFORT      2009


2008Consulting and legal fees

$
6.0


$
11.2Severance costs


6.7



16.4Retention costs


1.3



2.3Multimedia inventory reduction costs, including accelerated
    depreciation costs


11.3



Music inventory markdowns






6.5Paperchase strategic alternative costs






0.1Total

$
25.3


$
36.5    61




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
   NOTE 6 
    PROPERTY
    AND EQUIPMENT    2009


2008Property and equipmentBuildings

$
6.3


$
6.3Leasehold improvements


540.8



580.3Furniture and fixtures


852.8



912.0Construction in progress


5.4



3.21,405.3



1,501.8Less  accumulated depreciation and amortization


(1,012.5
)


(1,007.6
)Property and equipment, net

$
392.8


$
494.2   NOTE 7 
    INCOME
    TAXES    2009


2008


2007CurrentFederal

$
(28.0
)

$
(12.4
)

$
(24.5
)State and local


(3.3
)


0.3



(3.5
)Foreign


4.0



2.3



5.8DeferredFederal






31.4



4.5State and local






8.7



0.9Foreign


(2.2
)


(0.1
)


(2.3
)Total income tax provision (benefit)

$
(29.5
)

$
30.2


$
(19.1
)  62




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
    2009


2008


2007Federal statutory rate

$
(48.9
)

$
(54.1
)

$
(13.7
)State and local taxes, net of federal tax benefit


0.4



0.2



(2.6
)Foreign income taxes


1.6



(1.1
)


(0.1
)Increase (decrease) in valuation allowance


14.3



85.4



(2.7
)Non-deductible goodwill impairment






14.1



Non-deductible expiration of put option


4.1







Non-deductible expense from stock warrant remeasure


1.6



(14.0
)


Other


(2.6
)


(0.3
)


Total income tax provision (benefit)

$
(29.5
)

$
30.2


$
(19.1
)     2009


2008Deferred tax assetsAccruals and other current liabilities

$
16.2


$
18.3Deferred revenue


9.3



11.1Other long-term liabilities


15.5



12.0Deferred compensation


3.2



5.1Deferred rent


53.2



57.2State deferred tax assets, net of federal effect


2.9



5.6Foreign deferred tax assets


3.4



2.6Asset impairments and other writedowns


28.8



32.1Capital loss carryforward


19.6



23.1Net operating loss carryforward


69.3



43.8Tax credit carryforwards


3.2



0.7Total deferred tax assets


224.6



211.6Less: valuation allowance


(140.7
)


(125.2
)Net deferred tax assets


83.9



86.4Deferred tax liabilitiesInventory


9.0



16.6Property and equipment


69.6



68.0Foreign deferred tax liabilities


0.4



1.8Total deferred tax liabilities


79.0



86.4Net deferred tax assets (liabilities)

$
4.9


$
  63




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
               64




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
  740-10),
      2009


2008


2007Beginning balance

$
23.5


$
21.2


$
11.2Additions to tax positions related to current year


1.6



5.0



15.3Additions to tax positions related to prior years


2.2



2.0



0.3Reductions to tax positions related to prior years


(3.3
)


(3.7
)


(3.2
)Reductions to tax positions related to settlements with tax
    authorities


(0.2
)


(0.2
)


(0.2
)Reductions to tax positions related to lapse of statutory
    limitations


(0.5
)


(0.8
)


(2.2
)Ending balance

$
23.3


$
23.5


$
21.2         NOTE 8 
    CONTINGENCIES  Litigation: In
    February 2009, three former employees, individually and on
    behalf of a purported class consisting of all current and former
    employees who work or worked as General Managers in Borders
    stores in the State of California at any time from
    February 19, 2005, through February 19, 2009, have
    filed an action against us in the Superior Court of California
    for the County of Orange. The Complaint alleges, among other
    things, that the individual plaintiffs and the purported class
    members were improperly classified as exempt employees and that
    we violated the California Labor Code by failing to (i) pay
    required overtime and (ii) provide meal periods and rest
    periods, and (iii) that those practices also violate the
    California Business and Professions Code. The relief sought
    includes damages, restitution, penalties,
 65




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
    out-of-jurisdiction e-commerce.
      NOTE 9 
    DEBT  Credit
    Facility: We had a
    Multicurrency Revolving Credit Agreement, as amended (the
    Prior Credit Agreement), which was scheduled to
    expire in July 2011. The Prior Credit Agreement provided for
    borrowings of up to $1,125.0 secured by eligible inventory and
    accounts receivable and related assets. Borrowings under the
    Credit Agreement were limited to a specified percentage of
    eligible inventories and accounts receivable and bore interest
    at a variable base rate plus the applicable increment or LIBOR
    plus the applicable increment at our option. Eligible inventory
    was based upon the approximate liquidation value, as determined
    from time to time by an independent third party. The Credit
    Agreement (i) included a fixed charge coverage ratio
    requirement of 1.1 to 1 that was applicable only if outstanding
    borrowings under the facility exceed 90% of permitted borrowings
    thereunder, (ii) contained covenants that limited, among
    other things, our ability to incur indebtedness, grant liens,
    make investments, consolidate or merge or dispose of assets,
    (iii) prohibited dividend payments and share repurchases
    that would result in borrowings under the facility exceeding 90%
    of permitted borrowings thereunder, and (iv) contained
    default provisions that are typical for this type of financing,
    including a cross default provision relating to
 66




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
      day-to-day
  Pershing Square
    Term Loan: On
    April 9, 2008, we completed a financing agreement with
    Pershing Square Capital Management, L.P. (Pershing
    Square) on behalf of certain of its affiliated investment
    funds. Under the terms of the agreement, Pershing Square loaned
    $42.5 to us with an original maturity of January 15, 2009.
    This agreement contains covenants, restrictions, and default
    provisions similar to those contained in the Prior Credit
    Agreement described above. The agreement was subsequently
    amended three times, most recently on March 30, 2009,
    extending the expiration date of the term loan to April 1,
    2010.
      Debt of
    Consolidated
    VIEs: We include
    the debt of two variable interest entities (VIEs),
    in our consolidated balance sheets. Scheduled principal payments
    of this debt as of January 30, 2010 total $0.2 in 2010,
    $0.2 in 2011, $0.3 in 2012, $0.3 in 2013, $0.3 in 2014, $3.5 in
    all later years, and in the aggregate, total $4.8. See
    Note 10  Leases for further
    discussion of our consolidation of these VIEs.
      NOTE 10 
    LEASES  Operating
    Leases: We conduct
    operations primarily in leased facilities. Store leases are
    generally for initial terms of 15 to 20 years.
    Borders leases generally contain multiple three- to
    five-year renewal options which
 67




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
    Lease
    Commitments: Future
    minimum lease payments under operating leases at
    January 30, 2010 total $291.2 in 2010, $276.7 in 2011,
    $266.4 in 2012, $254.3 in 2013, $237.5 in 2014, and $1,015.0 in
    all later years, and in the aggregate, total $2,341.1. Future
    minimum lease payments to be received under subleasing
    arrangements at January 30, 2010 total $4.2 in 2010, $4.1
    in 2011, $3.8 in 2012, $3.4 in 2013, $2.5 in 2014, and $4.8 in
    all later years, and in the aggregate, total $22.8.
  Rental
    Expenses: A
    summary of operating lease minimum and percentage rental
    expense, excluding discontinued operations, follows:
  2009


2008


2007Minimum rentals

$
331.5


$
353.9


$
338.8Percentage rentals


1.5



1.7



30.3Total

$
333.0


$
355.6


$
369.1   Capitalized
    Leases: We, at
    times, account for certain items under capital leases. Scheduled
    principal payments of capitalized leases as of January 30,
    2010 total $1.3 in 2010, $1.0 in 2011, $0.6 in 2012, $0.3 in
    2013, and in the aggregate, total $3.2.
  Consolidated
    VIEs: At
    January 30, 2010, we are the primary beneficiary of two
    variable interest entities (VIEs), due to our
    guarantee of the debt of these entities. These entities were
    established by third-party developers to own, construct, and
    lease two of our store locations. To refinance the debt
    associated with the construction of these stores, we were
    required to guarantee the debt of these two entities. As a
    result, we consolidate these VIEs and have recorded property and
    equipment, net of accumulated depreciation, of $4.5, and
    long-term debt (including current portion) of $4.8 at
    January 30, 2010, and have recorded property and equipment,
    net of accumulated depreciation, of $4.7, and long-term debt
    (including current portion) of $5.0 at January 31, 2009.
  NOTE 11 
    EMPLOYEE
    BENEFIT PLANS  Employee Savings
    Plan: Employees
    who meet certain requirements as to age and service are eligible
    to participate in our 401(K) Savings Plan. Our expense related
    to this plan was $, $1.6, and $4.0 for 2009, 2008, and
    2007, respectively, and consisted primarily of a match of
    certain employee contributions. We suspended this match payment
    as of July 1, 2008.
  NOTE 12 
    STOCK-BASED
    COMPENSATION PLANS  2004 Long-Term
    Incentive Plan: We
    maintain the 2004 Long-Term Incentive Plan (the 2004
    Plan), under which we may grant stock-based awards to our
    employees and non-employee directors, including restricted
    shares and share units of our common stock and options to
    purchase our common stock. The 2004 Plan was approved by
    shareholders in May 2004, and replaced all prior stock-based
    benefit plans on a go-forward basis. Three million shares were
    authorized for the grant of stock-based awards under the 2004
    Plan (plus any shares forfeited or cancelled under the 2004 Plan
    or any prior plan). At January 30, 2010, 4.6 million
    shares remained available for grant.
   68




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
          Weighted-


Aggregate


Weighted-Number


Average


Intrinsic


AverageAll Plans

of Shares


Exercise Price


Value


Contract LifeOutstanding at February 3, 2007


4,841


$
24.22Granted


1,781


$
18.24Exercised


173


$
16.43


$
0.9Forfeited


2,813


$
26.79Outstanding at February 2, 2008


3,636


$
19.69


$
71.6



4.3Granted


2,700


$
0.96Exercised





$



$
Forfeited


1,827


$
20.36Outstanding at January 31, 2009


4,509


$
8.20


$




5.5Granted


415


$
2.64Exercised





$



$
Forfeited


1,565Outstanding at January 30, 2010


3,359


$
4.82


$
0.6



5.6Balance exercisable atFebruary 2, 2008


1,666


$
21.71


$
36.2



2.1January 31, 2009


1,187


$
18.44


$




2.2January 30, 2010


1,245


$
8.42


$
0.2



4.9    69




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
    2009


2008


2007Risk-free interest rate


2.4-3.4
%


1.9-3.2
%


3.9-5.1
%Expected life


4 years



3-5 years



3-5 yearsHistorical volatility


108.3-114.7
%


45.0-90.8
%


25.3-29.7
%Expected dividends










1.8-4.1
%       Number of


Weighted-Average


Weighted-AverageShares


Purchase Price


at Grant Date FMVStock purchased:2004 Plan (or prior plan)2007


30


$
16.82


$
21.372008


30


$
4.54


$
6.152009





$



$
Stock and stock units issued:Time-vested shares issued:2004 Plan2007


250


$



$
18.062008


1,726


$



$
5.862009


698


$



$
1.17     Number of


Weighted-AverageAll Plans

Shares


at Grant Date FMVOutstanding at January 31, 2009


1,150


$
8.21Granted


698


$
1.17Vested


51


$
24.31Forfeited


935


$
5.69Outstanding at January 30, 2010


862


$
4.31   NOTE 13 
    ACQUISITION
    OF REMAINING INTEREST IN PAPERCHASE PRODUCTS, LTD.   70




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
    NOTE 14 
    SEGMENT
    INFORMATION    2009


2008


2007SalesBorders Superstores

$
2,265.8


$
2,625.4


$
2,847.2Waldenbooks Specialty Retail


387.3



480.0



562.8International


138.0



136.7



145.1Total sales

$
2,791.1


$
3,242.1


$
3,555.1Depreciation expenseBorders Superstores

$
85.0


$
90.7


$
90.2Waldenbooks Specialty Retail


8.3



10.6



7.7International


5.5



5.8



5.8Total depreciation expense

$
98.8


$
107.1


$
103.7Operating income (loss)Borders Superstores

$
(47.1
)

$
(100.9
)

$
30.6Waldenbooks Specialty Retail


(33.3
)


(27.5
)


(21.4
)International


0.9



3.7



8.0Corporate


(15.4
)


(24.5
)


(13.1
)Total operating income (loss)

$
(94.9
)

$
(149.2
)

$
4.1   71




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
  2009


2008


2007Total assetsBorders Superstores

$
1,208.5


$
1,312.7


$
1,719.5Waldenbooks Specialty Retail


106.6



185.9



264.9International


79.1



74.2



86.2Corporate


31.0



36.2



76.5Total assets of continuing operations

$
1,425.2


$
1,609.0


$
2,147.1Discontinued operations










155.6Total assets

$
1,425.2


$
1,609.0


$
2,302.7Capital expendituresBorders Superstores

$
8.2


$
55.2


$
101.1Waldenbooks Specialty Retail


1.4



6.5



8.9International


6.4



14.5



10.0Corporate


1.9



3.7



11.3Total capital expenditures

$
17.9


$
79.9


$
131.3     2009


2008


2007Borders Superstores

$
7.3


$
7.2


$
10.4Waldenbooks Specialty Retail


1.2



1.9



0.1International










0.2Total

$
8.5


$
9.1


$
10.7     2009


2008


2007Long-lived assets:Domestic

$
405.3


$
508.9


$
714.5International


31.6



28.9



28.6Total long-lived assets of continuing operations

$
436.9


$
537.8


$
743.1Discontinued operations










53.6Total long-lived assets

$
436.9


$
537.8


$
796.7  72




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
    2009


2008


2007SalesBooks

$
1,890.6


$
2,184.2


$
2,330.7Music


123.4



182.5



264.8Video


125.8



188.0



248.6Gifts & stationery


275.1



283.8



287.0Newsstand


139.0



163.9



177.4Other


237.2



239.7



246.6Total sales

$
2,791.1


$
3,242.1


$
3,555.1   NOTE 15 
    DISCONTINUED
    OPERATIONS         73




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
    2009


2008


2007Total revenue

$



$
80.8


$
455.6Loss from operations of discontinued operations before income tax






(2.6
)


(11.6
)Loss from operations of discontinued operations (net of income
    tax benefit of $, $0.9 and $2.9, respectively)






(1.7
)


(8.7
)Gain (loss) on disposal of discontinued operations (net of
    income tax benefit of $, $3.1 and $7.6, respectively)


0.8



(0.3
)


(128.8
)Gain (loss) from discontinued operations (net of income tax
    benefit of $, $4.0 and $10.5, respectively)


0.8



(2.0
)


(137.5
)         NOTE 16 
    PERSHING
    SQUARE FINANCING ARRANGEMENT     74




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
        Before re-pricing

After re-pricingWarrant fair value:

$1.8 million

$6.1 millionWarrant exercise price:

$7.00 per
    warrant(1)

$0.65 per
    warrant(1)Stock price:

$0.65 per share

$0.65 per shareStock volatility:

74.26%(2)

74.26%(2)Risk-free interest rate:

1.82%(3)

1.82%(3)Annual dividend yield:

0%

0%Expected life:

5.5 years(4)

5.5 years(4)     (1)

    
    Represents contractual value. 75




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
   (2)

    
    Represents volatility over the period matching the
    warrants expected life.(3)

    
    Represents the five-year treasury note rate.(4)

    
    Assumes that the warrants will be held the duration of their
    contractual lives.    January 30, 2010

January 31, 2009Warrant fair value:

$9.5 million

$0.7 millionWarrant exercise price:

$0.65 per
    warrant(1)

$7.00 per
    warrant(1)Stock price at balance sheet date:

$0.86 per share

$0.44 per shareStock volatility:

94.94%(2)

70.44% (2)Risk-free interest rate:

2.48%(3)

1.60% (3)Annual dividend yield:

0%

0%Expected life:

4.63 years(4)

5.68 years(4)     (1)

    
    Represents contractual value.(2)

    
    Represents volatility over the period matching the
    warrants expected life.(3)

    
    Represents the five-year treasury note rate.(4)

    
    Assumes that the warrants will be held the duration of their
    contractual lives.     76




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
   NOTE 17 
    UNAUDITED
    QUARTERLY FINANCIAL DATA  Fiscal 2009Q1


Q2


Q3


Q4Total revenue

$
650.2


$
624.7


$
602.5


$
946.5Gross margin


143.4



142.8



113.3



233.1Income (loss) from continuing operations


(86.0
)


(45.6
)


(38.5
)


59.9Gain from discontinued operations










0.8



Net income (loss)


(86.0
)


(45.6
)


(37.7
)


59.9Diluted:Income (loss) from continuing operations per common share


(1.44
)


(0.76
)


(0.64
)


0.91Gain from discontinued operations per common share










0.01



Net income (loss) per common share


(1.44
)


(0.76
)


(0.63
)


0.91Basic:Income (loss) from continuing operations per common share


(1.44
)


(0.76
)


(0.64
)


1.00Gain from discontinued operations per common share










0.01



Net income (loss) per common share


(1.44
)


(0.76
)


(0.63
)


1.00   Fiscal 2008Q1


Q2


Q3


Q4Total revenue

$
735.8


$
758.5


$
693.4


$
1,087.7Gross margin


168.2



182.0



147.0



293.4Income (loss) from continuing operations


(30.1
)


(11.3
)


(172.2
)


28.9Gain (loss) from discontinued operations


(1.6
)


2.1



(3.2
)


0.7Net income (loss)


(31.7
)


(9.2
)


(175.4
)


29.6Diluted:Income (loss) from continuing operations per common share


(0.50
)


(0.19
)


(2.85
)


0.48Gain (loss) from discontinued operations per common share


(0.03
)


0.04



(0.05
)


0.01Net income (loss) per common share


(0.53
)


(0.15
)


(2.90
)


0.49Basic:Income (loss) from continuing operations per common share


(0.50
)


(0.19
)


(2.85
)


0.48Gain (oss) from discontinued operations per common share


(0.03
)


0.04



(0.05
)


0.01Net income (loss) per common share


(0.53
)


(0.15
)


(2.90
)


0.49    77




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
   NOTE 18 
    SUBSEQUENT
    EVENTS                 78




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
               79




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (dollars in millions except per share data)
              Intercreditor
    Agreement
   80




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    ON CONSOLIDATED FINANCIAL STATEMENTS           Accounting for
    Uncertainty in Income Taxes Income Taxes
    ERNST &
    YOUNG LLP
    81




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Controls and
    Procedures: Our
    Chief Executive Officer and Chief Financial Officer have
    evaluated the effectiveness of our disclosure controls and
    procedures, as such term is defined in
    Rules 13a-15(e)
    and
    15d-15(e)
    under the Securities Exchange Act of 1934, as amended (the
    Exchange Act), as of January 30, 2010 (the
    Evaluation Date). Based on such evaluation, such
    officers have concluded that our controls and procedures were
    effective to ensure that information required to be disclosed in
    this annual report is recorded, processed, summarized and
    reported within the time periods specified in the SECs
    rules and forms, and that such information is accumulated and
    communicated to management, including our Chief Executive
    Officer (principal executive officer) and Chief Financial
    Officer (principal financial officer), to allow timely decisions
    regarding required disclosure.
  Changes in
    Internal
    Control: There
    have been no changes in our internal control over financial
    reporting that occurred in the last fiscal quarter that have
    materially affected, or are reasonably likely to materially
    affect, our internal control over financial reporting.
  Managements
    Annual Report on Internal Control over Financial Reporting: Management is
    responsible for establishing and maintaining adequate internal
    control over financial reporting (as defined in
    Rule 13a-15(f)
    under the Securities Exchange Act of 1934, as amended).
    Management assessed the effectiveness of our internal control
    over financial reporting as of January 30, 2010. In making
    this assessment, management used the criteria set forth by the
    Committee of Sponsoring Organizations of the Treadway Commission
    (COSO) in Internal Control  Integrated
    Framework. Based on this assessment, management has
    concluded that, as of January 30, 2010, our internal
    control over financial reporting was effective to provide
    reasonable assurance regarding the reliability of financial
    reporting and the preparation of financial statements for
    external purposes in accordance with generally accepted
    accounting principles. Our independent registered public
    accounting firm, Ernst & Young LLP, has issued an
    audit report on our effectiveness of internal control over
    financial reporting as of January 30, 2010, which is
    included herein.
 82




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    ON INTERNAL CONTROL OVER FINANCIAL REPORTING
                 ERNST &
    YOUNG LLP
    83




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance      Section 16(a)
    Beneficial Ownership Reporting Compliance
    Code
    of Ethics and Other Corporate Governance
    Information
    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14:
    Principal
    Accounting Fees and Services   84




---



##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules    PageConsolidated Statements of Operations for the fiscal years ended
    January 30, 2010, January 31, 2009 and
    February 2, 2008


49Consolidated Balance Sheets as of January 30, 2010 and
    January 31, 2009


50Consolidated Statements of Cash Flows for the fiscal years ended
    January 30, 2010, January 31, 2009 and
    February 2, 2008


51Consolidated Statements of Stockholders Equity for the
    fiscal years ended January 30, 2010, January 31, 2009
    and February 2, 2008


52Notes to Consolidated Financial Statements


53Report of Independent Registered Public Accounting Firm


81      Schedule II
  Valuation
    and Qualifying Accounts  Deferred Tax Asset
 Fiscal
    Year Ended January 30, 2010, January 31, 2009 and
    February 2, 2008
  Balance at


Charged to
    Costs


Balance at EndBeginning of
    Year


and
    Expenses


of YearBalance at January 30, 2010

$
125.2


$
15.5


$
140.7Balance at January 31, 2009

$
32.3


$
92.9


$
125.2Balance at February 2, 2008

$
14.6


$
17.7


$
32.3     ExhibitNumber

Description2
.1(1)

Agreement and plan of Merger dated as of April 8, 1997
    between Michigan Borders Group, Inc. and Borders Group, Inc.3
.1(3)

Restated Articles of Incorporation of Borders Group, Inc.3
.2(10)

Amendment to the Restated Articles of Incorporation of Borders
    Group, Inc.3
.3(5)

Restated bylaws of Borders Group, Inc.3
.4(9)

First Amendment to the Restated By laws of Borders Group, Inc.3
.5(10)

Second Amendment to the Restated By laws of Borders Group, Inc.3
.6(11)

Third Amendment to the Restated By laws of Borders Group, Inc.3
.7(12)

Fourth Amendment to the Restated By laws of Borders Group, Inc.4
.1(13)

Warrant and Registration Rights Agreement, dated as of
    April 9, 2008, among Borders Group, Inc. and Computershare
    Inc. and Computershare Trust Company, N.A., as Warrant
    Agent.4
.2(13)

Side Letter, dated as of April 9, 2008, between Pershing
    Square Capital Management, L.P. and Borders Group, Inc.4
.3(17)

Side Letter to the Warrant and Registration Rights Agreement,
    dated as of March 30, 2009 from Borders Group, Inc. to
    Pershing Square Capital Management, L.P.10
.1

Restated Borders Group, Inc. Annual Incentive Bonus Plan10
.2(1)

Borders Group, Inc. Stock Option Plan 85




---



##### Table of Contents



ExhibitNumber

Description10
.3(5)

Amendment to the Borders Group, Inc. Stock Option Plan10
.4(2)

Borders Group, Inc. Stock Option Plan for International Employees10
.5(3)

1998 Borders Group, Inc. Stock Option Plan10
.6(4)

Amendment No. 1 to 1998 Borders Group, Inc. Stock Option
    Plan10
.7(8)

Non-Qualified Deferred Compensation Plan10
.8(3)

Participation Agreement dated as of December 1, 1998 by and
    among Borders Group, Inc., Borders, Inc. and Parties thereto10
.9(5)

Participation Agreement dated as of January 22, 2001 by and
    among Borders Group, Inc., Borders, Inc. and Parties thereto10
.10(6)

Participation Agreement dated as of November 15, 2002 by
    and among Borders Group, Inc., Borders, Inc. and Parties thereto10
.11(7)

Security Agreement dated as of July 30, 2004 among Borders
    Group, Inc., its subsidiaries and Parties thereto10
.12(14)

Sale and Purchase Agreement between Borders Group, Inc.,
    A&R Whitcoulls Group Holdings Pty Limited, Spine Newco (NZ)
    Limited and Spine Newco Pty Limited.10
.13(14)

Brand License Deed between Borders Properties, Inc. and Spine
    Newco Pty Limited10
.14(14)

Purchasing Agreement between Borders Group, Inc., Borders
    Australia Pty Limited, Borders New Zealand Limited, Borders Pte.
    Limited, Spine Newco Pty Limited, Spine Newco (NZ) Limited and
    A&R Witcoulls Group Holdings Pty Limited.10
.15(14)

Transition Services Agreement between Borders International
    Services, Inc., Borders Australia Pty Limited, Borders New
    Zealand Limited, Borders Pte. Limited, Spine Newco Pty Limited,
    and Spine Newco (NZ) Limited.10
.16(15)

Form of Executive Officer Severance Agreement.10
.17(16)

Borders Group, Inc. Indemnification Letter Agreement with
    Directors and Officers10
.18(17)

Subscription and Purchase Agreement, dated as of March 30,
    2009 by and between Pershing Square, L.P. and Borders Group, Inc.10
.19(18)

First Amendment to the Amended and Restated Borders Group, Inc.
    2004 Long-Term Incentive Plan10
.20(19)

Amended and Restated Borders Group, Inc. 2004 Long-Term
    Incentive Plan10
.21(20)

Third Amended and Restated Revolving Credit Agreement dated as
    of March 31, 2010 between and among Borders Group, Inc.,
    Borders, Inc. and the lenders and agents named therein.10
.22(20)

Term Loan Agreement dated as of March 31, 2010 between and among
    Borders Group, Inc., Borders, Inc. and the lenders and agents
    named therein10
.23(20)

Intercreditor Agreement dated as of March 31, 2010 between and
    among Borders Group, Inc., Borders, Inc. and the lenders and
    agents named therein.21
.1

Subsidiaries of Registrant23
.1

Consent of Independent Registered Public Accounting Firm31
.1

Statement of Michael J. Edwards, Interim President and Chief
    Executive Officer of Borders Group, Inc. pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200231
.2

Statement of Mark R. Bierley, Executive Vice President and Chief
    Financial Officer of Borders Group, Inc. pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200232
.1

Statement of Michael J. Edwards, Interim President and Chief
    Executive Officer of Borders Group, Inc. pursuant to
    Section 906 of the Sarbanes-Oxley Act of 200232
.2

Statement of Mark R. Bierley, Executive Vice President and Chief
    Financial Officer of Borders Group, Inc. pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002   (1)
    
    Incorporated by reference from the Companys Proxy
    Statement dated April 9, 1997 of Borders Group, Inc. (File
    No. 1-13740). 86




---



##### Table of Contents



(2)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended July 26, 1998 (File
    No. 1-13740).(3)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended January 24, 1999 (File
    No. 1-13740).(4)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended October 24, 1999 (File
    No. 1-13740).(5)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended January 28, 2001 (File
    No. 1-13740).(6)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended January 25, 2004 (Filed
    No. 1-13740).(7)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended July 25, 2004 (File
    No. 1-13740).(8)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated November 5, 2004 (File
    No. 1-13740).(9)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated July 13, 2006 (File
    No. 1-13740).(10)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated May 25, 2007 (File
    No. 1-13740).(11)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated October 2, 2007 (File
    No. 1-13740).(12)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated January 17, 2008 (File
    No. 1-13740).(13)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated April 9, 2008 (File
    No. 1-13740).(14)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated June 4, 2008 (File
    No. 1-13740).(15)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended May 3, 2008 (File
    No. 1-13740).(16)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated November 25, 2008 (File
    No. 1-13740).(17)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated March 30, 2009 (File
    No. 1-13740).(18)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended May 2, 2009 (File
    No. 1-13740).(19)
    
    Incorporated by reference from the Companys Proxy
    Statement dated April 24, 2009 (File
    No. 1-13740).(20)
    
    Incorporated by reference from the Companys Current Report
    on Form 8-K dated March 31, 2010 (File
    No. 1-13740). 87




---



##### Table of Contents



SIGNATURES    
  By:
    /s/  MICHAEL
    J. EDWARDS   Chief Executive Officer and President
    Signature

Title

Date/s/  Michael
    J. EdwardsMichael
    J. Edwards

Interim President and Chief Executive Officer

April 1, 2010/s/  Mark
    R. BierleyMark
    R. Bierley

Executive Vice President and Chief Financial Officer (Principal
    Financial and Accounting Officer)

April 1, 2010/s/  Michael
    G. ArchboldMichael
    G. Archbold

Director

April 1, 2010/s/  Paul
    J. BrownPaul
    J. Brown

Director

April 1, 2010/s/  Ronald
    J. FlotoRonald
    J. Floto

Director

April 1, 2010/s/  Michael
    GrossmanMichael
    Grossman

Director

April 1, 2010/s/  Dan
    RoseDan
    Rose

Director

April 1, 2010/s/  David
    SheltonDavid
    Shelton

Director

April 1, 2010/s/  Richard
    McGuireRichard
    McGuire

Director, Non-Executive Chairman

April 1, 2010/s/  Timothy
    V. WolfTimothy
    V. Wolf

Director

April 1, 2010  88




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description2
.1(1)

Agreement and plan of Merger dated as of April 8, 1997
    between Michigan Borders Group, Inc. and Borders Group, Inc.3
.1(3)

Restated Articles of Incorporation of Borders Group, Inc.3
.2(10)

Amendment to the Restated Articles of Incorporation of Borders
    Group, Inc.3
.3(5)

Restated bylaws of Borders Group, Inc.3
.4(9)

First Amendment to the Restated By laws of Borders Group, Inc.3
.5(10)

Second Amendment to the Restated By laws of Borders Group, Inc.3
.6(11)

Third Amendment to the Restated By laws of Borders Group, Inc.3
.7(12)

Fourth Amendment to the Restated By laws of Borders Group, Inc.4
.1(13)

Warrant and Registration Rights Agreement, dated as of
    April 9, 2008, among Borders Group, Inc. and Computershare
    Inc. and Computershare Trust Company, N.A., as Warrant
    Agent.4
.2(13)

Side Letter, dated as of April 9, 2008, between Pershing
    Square Capital Management, L.P. and Borders Group, Inc.4
.3(17)

Side Letter to the Warrant and Registration Rights Agreement,
    dated as of March 30, 2009 from Borders Group, Inc. to
    Pershing Square Capital Management, L.P.10
.1

Restated Borders Group, Inc. Annual Incentive Bonus Plan10
.2(1)

Borders Group, Inc. Stock Option Plan10
.3(5)

Amendment to the Borders Group, Inc. Stock Option Plan10
.4(2)

Borders Group, Inc. Stock Option Plan for International Employees10
.5(3)

1998 Borders Group, Inc. Stock Option Plan10
.6(4)

Amendment No. 1 to 1998 Borders Group, Inc. Stock Option
    Plan10
.7(8)

Non-Qualified Deferred Compensation Plan10
.8(3)

Participation Agreement dated as of December 1, 1998 by and
    among Borders Group, Inc., Borders, Inc. and Parties thereto10
.9(5)

Participation Agreement dated as of January 22, 2001 by and
    among Borders Group, Inc., Borders, Inc. and Parties thereto10
.10(6)

Participation Agreement dated as of November 15, 2002 by
    and among Borders Group, Inc., Borders, Inc. and Parties thereto10
.11(7)

Security Agreement dated as of July 30, 2004 among Borders
    Group, Inc., its subsidiaries and Parties thereto10
.12(14)

Sale and Purchase Agreement between Borders Group, Inc.,
    A&R Whitcoulls Group Holdings Pty Limited, Spine Newco (NZ)
    Limited and Spine Newco Pty Limited.10
.13(14)

Brand License Deed between Borders Properties, Inc. and Spine
    Newco Pty Limited10
.14(14)

Purchasing Agreement between Borders Group, Inc., Borders
    Australia Pty Limited, Borders New Zealand Limited, Borders Pte.
    Limited, Spine Newco Pty Limited, Spine Newco (NZ) Limited and
    A&R Witcoulls Group Holdings Pty Limited.10
.15(14)

Transition Services Agreement between Borders International
    Services, Inc., Borders Australia Pty Limited, Borders New
    Zealand Limited, Borders Pte. Limited, Spine Newco Pty Limited,
    and Spine Newco (NZ) Limited.10
.16(15)

Form of Executive Officer Severance Agreement.10
.17(16)

Borders Group, Inc. Indemnification Letter Agreement with
    Directors and Officers10
.18(17)

Subscription and Purchase Agreement, dated as of March 30,
    2009 by and between Pershing Square, L.P. and Borders Group,
    Inc.




---



##### Table of Contents



ExhibitNumber

Description10
.19(18)

First Amendment to the Amended and Restated Borders Group, Inc.
    2004 Long-Term Incentive Plan10
.20(19)

Amended and Restated Borders Group, Inc. 2004 Long-Term
    Incentive Plan10
.21(20)

Third Amended and Restated Revolving Credit Agreement dated as
    of March 31, 2010 between and among Borders Group, Inc.,
    Borders, Inc. and the lenders and agents named therein.10
.22(20)

Term Loan Agreement dated as of March 31, 2010 between and among
    Borders Group, Inc., Borders, Inc. and the lenders and agents
    named therein10
.23(20)

Intercreditor Agreement dated as of March 31, 2010 between and
    among Borders Group, Inc., Borders, Inc. and the lenders and
    agents named therein.21
.1

Subsidiaries of Registrant23
.1

Consent of Independent Registered Public Accounting Firm31
.1

Statement of Michael J. Edwards, Interim President and Chief
    Executive Officer of Borders Group, Inc. pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200231
.2

Statement of Mark R. Bierley, Executive Vice President and Chief
    Financial Officer of Borders Group, Inc. pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200232
.1

Statement of Michael J. Edwards, Interim President and Chief
    Executive Officer of Borders Group, Inc. pursuant to
    Section 906 of the Sarbanes-Oxley Act of 200232
.2

Statement of Mark R. Bierley, Executive Vice President and Chief
    Financial Officer of Borders Group, Inc. pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002   (1)
    
    Incorporated by reference from the Companys Proxy
    Statement dated April 9, 1997 of Borders Group, Inc. (File
    No. 1-13740).(2)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended July 26, 1998 (File
    No. 1-13740).(3)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended January 24, 1999 (File
    No. 1-13740).(4)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended October 24, 1999 (File
    No. 1-13740).(5)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended January 28, 2001 (File
    No. 1-13740).(6)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended January 25, 2004 (Filed
    No. 1-13740).(7)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended July 25, 2004 (File
    No. 1-13740).(8)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated November 5, 2004 (File
    No. 1-13740).(9)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated July 13, 2006 (File
    No. 1-13740).(10)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated May 25, 2007 (File
    No. 1-13740).(11)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated October 2, 2007 (File
    No. 1-13740).(12)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated January 17, 2008 (File
    No. 1-13740).(13)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated April 9, 2008 (File
    No. 1-13740).




---



##### Table of Contents



(14)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated June 4, 2008 (File
    No. 1-13740).(15)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended May 3, 2008 (File
    No. 1-13740).(16)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated November 25, 2008 (File
    No. 1-13740).(17)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    dated March 30, 2009 (File
    No. 1-13740).(18)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended May 2, 2009 (File
    No. 1-13740).(19)
    
    Incorporated by reference from the Companys Proxy
    Statement dated April 24, 2009 (File
    No. 1-13740).(20)
    
    Incorporated by reference from the Companys Current Report
    on Form 8-K dated March 31, 2010 (File
    No. 1-13740).