##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM
10 - Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended August 1, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number 1-13740
 BORDERS GROUP, INC.
  MICHIGAN
    
    38-3294588(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 100 Phoenix Drive, Ann Arbor, Michigan 48108
 (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ




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##### 



BORDERS GROUP, INC.
 INDEX
 PagePart I - Financial InformationItem 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of
Financial Condition and Results of
Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about
Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28Part II - Other informationItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    N/AItem 4. Submission of Matters to a Vote of
Security holders
    
    
    30Item 4T. Controls and Procedures
    
    
    N/AItem 5. Other Information
    
    
    N/AItem 6. Exhibits
    
    
    31Signatures
    
    
    32EX-31.1EX-31.2EX-32.1EX-32.2
  ii




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BORDERS GROUP, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(dollars in millions except per share data)
(UNAUDITED)
 13 Weeks EndedAugust 1,
    
    August 2,2009
    
    2008Sales
    
    $
    616.8
    
    
    $
    749.2Other revenue
    
    
    7.9
    
    
    
    9.3Total revenue
    
    
    624.7
    
    
    
    758.5Cost of merchandise sold, including occupancy costs
    
    
    481.9
    
    
    
    576.5Gross margin
    
    
    142.8
    
    
    
    182.0Selling, general and administrative expenses
    
    
    168.9
    
    
    
    205.1Asset impairments and other writedowns
    
    
    0.7
    
    
    
    Operating loss
    
    
    (26.8
    )
    
    
    (23.1
    )Interest expense
    
    
    5.2
    
    
    
    11.1Warrant / put expense (income)
    
    
    14.7
    
    
    
    (10.9
    )Total interest expense
    
    
    19.9
    
    
    
    0.2Loss before income taxes
    
    
    (46.7
    )
    
    
    (23.3
    )Income tax benefit
    
    
    (1.1
    )
    
    
    (12.0
    )Loss from continuing operations
    
    $
    (45.6
    )
    
    $
    (11.3
    )Loss from operations of discontinued operations (net of income
tax benefit of $- and $0.2)
    
    
    
    
    
    
    (0.5
    )Gain from disposal of discontinued operations (net of income tax
benefit of $- and $2.8)
    
    
    
    
    
    
    2.6Income from discontinued operations (net of income tax benefit
of $- and $3.0)
    
    
    
    
    
    
    2.1Net loss
    
    $
    (45.6
    )
    
    $
    (9.2
    )Loss per common share dataDiluted:Loss from continuing operations per common share
    
    $
    (0.76
    )
    
    $
    (0.19
    )Income from discontinued operations per common share
    
    $
    
    
    
    $
    0.04Net loss per common share
    
    $
    (0.76
    )
    
    $
    (0.15
    )Weighted average common shares outstanding (in millions)
    
    
    60.2
    
    
    
    60.5Basic:Loss from continuing operations per common share
    
    $
    (0.76
    )
    
    $
    (0.19
    )Income from discontinued operations per common share
    
    $
    
    
    
    $
    0.04Net loss per common share
    
    $
    (0.76
    )
    
    $
    (0.15
    )Weighted average common shares outstanding (in millions)
    
    
    60.2
    
    
    
    60.5Dividends declared per common share
    
    $
    
    
    
    $
    
  1




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##### Table of Contents



BORDERS GROUP, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(dollars in millions except per share data)
(UNAUDITED)
 26 Weeks EndedAugust 1,
    
    August 2,2009
    
    2008Sales
    
    $
    1,258.3
    
    
    $
    1,478.7Other revenue
    
    
    16.6
    
    
    
    15.6Total revenue
    
    
    1,274.9
    
    
    
    1,494.3Cost of merchandise sold, including occupancy costs
    
    
    988.7
    
    
    
    1,144.1Gross margin
    
    
    286.2
    
    
    
    350.2Selling, general and administrative expenses
    
    
    341.3
    
    
    
    418.2Asset impairments and other writedowns
    
    
    0.8
    
    
    
    Operating loss
    
    
    (55.9
    )
    
    
    (68.0
    )Interest expense
    
    
    11.7
    
    
    
    20.6Warrant / put expense (income)
    
    
    63.8
    
    
    
    (14.5
    )Total interest expense
    
    
    75.5
    
    
    
    6.1Loss before income taxes
    
    
    (131.4
    )
    
    
    (74.1
    )Income tax provision (benefit)
    
    
    0.2
    
    
    
    (32.7
    )Loss from continuing operations
    
    $
    (131.6
    )
    
    $
    (41.4
    )Loss from operations of discontinued operations (net of income
tax benefit of $- and $0.9)
    
    
    
    
    
    
    (1.7
    )Gain from disposal of discontinued operations (net of income tax
benefit of $- and $3.1)
    
    
    
    
    
    
    2.2Income from discontinued operations (net of income tax benefit
of $- and $4.0)
    
    
    
    
    
    
    0.5Net loss
    
    $
    (131.6
    )
    
    $
    (40.9
    )Loss per common share dataDiluted:Loss from continuing operations per common share
    
    $
    (2.19
    )
    
    $
    (0.69
    )Income from discontinued operations per common share
    
    $
    
    
    
    $
    0.01Net loss per common share
    
    $
    (2.19
    )
    
    $
    (0.68
    )Weighted average common shares outstanding (in millions)
    
    
    60.1
    
    
    
    60.0Basic:Loss from continuing operations per common share
    
    $
    (2.19
    )
    
    $
    (0.69
    )Income from discontinued operations per common share
    
    $
    
    
    
    $
    0.01Net loss per common share
    
    $
    (2.19
    )
    
    $
    (0.68
    )Weighted average common shares outstanding (in millions)
    
    
    60.1
    
    
    
    60.0Dividends declared per common share
    
    $
    
    
    
    $
    
  2




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##### Table of Contents



BORDERS GROUP, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS


(dollars in millions except share data)
 (UNAUDITED)
 August 1,
    
    August 2,
    
    January 31,2009
    
    2008
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    45.1
    
    
    $
    43.9
    
    
    $
    53.6Merchandise inventories
    
    
    889.0
    
    
    
    1,090.3
    
    
    
    915.2Accounts receivable and other current assets
    
    
    76.3
    
    
    
    118.1
    
    
    
    102.4Total current assets
    
    
    1,010.4
    
    
    
    1,252.3
    
    
    
    1,071.2Property and
equipment, net of accumulated depreciation of $1,091.0, $1,052.7 and $1,108.3 at August 1, 2009, August 2,
2008 and January 31, 2009, respectively
    
    
    444.6
    
    
    
    584.5
    
    
    
    494.2Other assets
    
    
    36.6
    
    
    
    65.7
    
    
    
    39.4Deferred income taxes
    
    
    11.0
    
    
    
    48.9
    
    
    
    4.0Goodwill
    
    
    0.3
    
    
    
    40.5
    
    
    
    0.2Total assets
    
    $
    1,502.9
    
    
    $
    1,991.9
    
    
    $
    1,609.0Liabilities and Stockholders EquityCurrent liabilities:Short-term borrowings and current portion of long-term debt
    
    $
    281.3
    
    
    $
    459.4
    
    
    $
    329.8Trade accounts payable
    
    
    410.0
    
    
    
    469.2
    
    
    
    350.0Accrued payroll and other liabilities
    
    
    229.7
    
    
    
    245.9
    
    
    
    279.8Taxes, including income taxes
    
    
    43.0
    
    
    
    9.1
    
    
    
    30.1Deferred income taxes
    
    
    7.1
    
    
    
    13.4
    
    
    
    4.0Total current liabilities
    
    
    971.1
    
    
    
    1,197.0
    
    
    
    993.7Long-term debt
    
    
    6.3
    
    
    
    6.3
    
    
    
    6.4Other long-term liabilities
    
    
    388.6
    
    
    
    363.9
    
    
    
    345.8Total liabilities
    
    
    1,366.0
    
    
    
    1,567.2
    
    
    
    1,345.9Stockholders equity:Common stock; 300,000,000 shares authorized; 60,218,427, 60,538,934 and 59,903,232 shares issued and outstanding at August 1, 2009, August 2, 2008 and January 31, 2009, respectively
    
    
    187.1
    
    
    
    189.8
    
    
    
    187.4Accumulated other comprehensive income
    
    
    17.6
    
    
    
    25.3
    
    
    
    11.9Retained earnings (deficit)
    
    
    (67.8
    )
    
    
    209.6
    
    
    
    63.8Total stockholders equity
    
    
    136.9
    
    
    
    424.7
    
    
    
    263.1Total liabilities and stockholders equity
    
    $
    1,502.9
    
    
    $
    1,991.9
    
    
    $
    1,609.0
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BORDERS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE 26 WEEKS ENDED AUGUST 1, 2009
(dollars in millions except share amounts)
(UNAUDITED)
 AccumulatedOther
    
    RetainedCommon Stock
    
    Comprehensive
    
    EarningsShares
    
    Amount
    
    Income
    
    (Deficit)
    
    TotalBalance at January 31, 2009
    
    
    59,903,232
    
    
    $
    187.4
    
    
    $
    11.9
    
    
    $
    63.8
    
    
    $
    263.1Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (131.6
    )
    
    
    (131.6
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    5.7
    
    
    
    
    
    
    
    5.7Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125.9
    )Issuance of common stock
    
    
    798,000
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9Repurchase and retirement
of common stock
    
    
    (482,805
    )
    
    
    (2.2
    )
    
    
    
    
    
    
    
    
    
    
    (2.2
    )Balance at August 1, 2009
    
    
    60,218,427
    
    
    $
    187.1
    
    
    $
    17.6
    
    
    $
    (67.8
    )
    
    $
    136.9
  4




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##### Table of Contents



BORDERS GROUP, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(dollars in millions)
(UNAUDITED)
 26 weeks EndedAugust 1,
    
    August 2,2009
    
    2008Cash provided by (used for):Net loss
    
    $
    (131.6
    )
    
    $
    (40.9
    )Income from discontinued operations
    
    
    
    
    
    
    0.5Net loss from continuing operations
    
    
    (131.6
    )
    
    
    (41.4
    )OperationsAdjustments to reconcile loss from continuing operations to
operating cash flows:Depreciation
    
    
    53.4
    
    
    
    54.7Loss on disposal of assets
    
    
    0.5
    
    
    
    1.0Stock based compensation cost
    
    
    
    
    
    
    3.3Increase in deferred income taxes
    
    
    (3.8
    )
    
    
    (0.5
    )Decrease (increase) in other long-term assets
    
    
    3.6
    
    
    
    (0.9
    )Increase in warrant liability
    
    
    51.9
    
    
    
    26.3Increase in other long-term liabilities
    
    
    (12.0
    )
    
    
    (26.0
    )Write-off of intangible asset
    
    
    16.2
    
    
    
    Asset impairments and other writedowns
    
    
    0.8
    
    
    
    Cash provided by (used for) current assets and current liabilities:Decrease in merchandise inventories
    
    
    29.1
    
    
    
    151.6Decrease in accounts receivable
    
    
    18.3
    
    
    
    9.4Increase in prepaid expenses
    
    
    (4.8
    )
    
    
    (5.8
    )Increase (decrease) in trade accounts payable
    
    
    58.9
    
    
    
    (42.7
    )Increase (decrease) in taxes payable
    
    
    12.2
    
    
    
    (9.2
    )Decrease in accrued payroll and other liabilities
    
    
    (49.7
    )
    
    
    (65.8
    )Net cash provided by operating activities of
continuing operations
    
    
    43.0
    
    
    
    54.0InvestingCapital expenditures
    
    
    (4.4
    )
    
    
    (54.1
    )Proceeds from the sale of discontinued operations
    
    
    
    
    
    
    87.9Net cash used for (provided by) investing activities of continuing
operations
    
    
    (4.4
    )
    
    
    33.8FinancingNet repayment of credit facility
    
    
    (46.4
    )
    
    
    (126.1
    )Funding from (repayment of) term note financing
    
    
    (0.3
    )
    
    
    42.5Issuance of long-term debt
    
    
    
    
    
    
    1.1Repayment of long-term capital lease obligations
    
    
    (0.6
    )
    
    
    (0.4
    )Issuance of common stock
    
    
    (0.3
    )
    
    
    0.3Payment of cash dividends
    
    
    
    
    
    
    (6.5
    )Net cash used for financing activities of continuing
operations
    
    
    (47.6
    )
    
    
    (89.1
    )Effect of exchange rates on cash and cash equivalents of continuing
operations
    
    
    0.5
    
    
    
    0.1Net cash used for operating activities of discontinued operations
    
    
    
    
    
    
    (9.7
    )Net cash used for investing activities of discontinued operations
    
    
    
    
    
    
    (6.5
    )Effect of
exchange rates on cash and cash equivalents of discontinued operations
    
    
    
    
    
    
    2.8Net cash used for discontinued operations
    
    
    
    
    
    
    (13.4
    )Net decrease in cash and cash equivalents
    
    
    (8.5
    )
    
    
    (14.6
    )Cash and cash equivalents at beginning of period
    
    
    53.6
    
    
    
    58.5Cash and cash equivalents at end of period
    
    $
    45.1
    
    
    $
    43.9
  5




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##### Table of Contents



BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions except per share data)
 NOTE 1
 BASIS OF PRESENTATION
       NOTE 2
 CONTINGENCIES
 Litigation:
  6




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BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions except per share data)
    NOTE 3
 FINANCING
 Credit Facility:
   Term Loan:
  Debt of Consolidated VIEs:
 7




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##### Table of Contents



BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions except per share data)
   NOTE 4
 INCOME TAXES
       NOTE 5
 FACILITY CLOSURE RESERVES
  8




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BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions except per share data)
  13 Weeks Ended
    
    
    26 Weeks EndedAugust 1,
    
    
    August 2,
    
    
    August 1,
    
    
    August 2,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning reserve balance
    
    $
    21.1
    
    
    $
    12.9
    
    
    $
    25.6
    
    
    $
    13.2Current period charge
    
    
    0.2
    
    
    
    1.7
    
    
    
    0.4
    
    
    
    2.0Current period reserve adjustment
    
    
    
    
    
    
    
    
    
    
    (2.4
    )
    
    
    Current period cash payments
    
    
    (3.3
    )
    
    
    (0.7
    )
    
    
    (5.6
    )
    
    
    (1.3
    )Ending reserve balance
    
    $
    18.0
    
    
    $
    13.9
    
    
    $
    18.0
    
    
    $
    13.9
  NOTE 6
 SEGMENT INFORMATION
  13 Weeks Ended
    
    
    26 Weeks EndedAugust 1,
    
    
    August 2,
    
    
    August 1,
    
    
    August 2,2009
    
    
    2008
    
    
    2009
    
    
    2008SalesBorders Superstores
    
    $
    513.6
    
    
    $
    621.9
    
    
    $
    1,050.3
    
    
    $
    1,222.6Waldenbooks Specialty Retail
    
    
    74.5
    
    
    
    96.9
    
    
    
    151.4
    
    
    
    192.9International
    
    
    28.7
    
    
    
    30.4
    
    
    
    56.6
    
    
    
    63.2Total sales
    
    $
    616.8
    
    
    $
    749.2
    
    
    $
    1,258.3
    
    
    $
    1,478.7Depreciation expenseBorders Superstores
    
    $
    22.5
    
    
    $
    24.1
    
    
    $
    46.9
    
    
    $
    47.1Waldenbooks Specialty Retail
    
    
    1.9
    
    
    
    2.2
    
    
    
    3.8
    
    
    
    4.6International
    
    
    1.4
    
    
    
    1.5
    
    
    
    2.7
    
    
    
    3.0Total depreciation expense
    
    $
    25.8
    
    
    $
    27.8
    
    
    $
    53.4
    
    
    $
    54.7Operating lossBorders Superstores
    
    $
    (17.4
    )
    
    $
    (7.7
    )
    
    $
    (33.9
    )
    
    $
    (37.7
    )Waldenbooks Specialty Retail
    
    
    (3.1
    )
    
    
    (7.7
    )
    
    
    (9.9
    )
    
    
    (21.3
    )International
    
    
    (1.7
    )
    
    
    (1.4
    )
    
    
    (1.6
    )
    
    
    Corporate
    
    
    (4.6
    )
    
    
    (6.3
    )
    
    
    (10.5
    )
    
    
    (9.0
    )Total operating loss
    
    $
    (26.8
    )
    
    $
    (23.1
    )
    
    $
    (55.9
    )
    
    $
    (68.0
    )Total assetsBorders Superstores
    
    
    
    
    
    
    
    
    
    $
    1,207.8
    
    
    $
    1,563.8Waldenbooks Specialty Retail
    
    
    
    
    
    
    
    
    
    
    128.2
    
    
    
    258.4International
    
    
    
    
    
    
    
    
    
    
    81.3
    
    
    
    83.9Corporate
    
    
    
    
    
    
    
    
    
    
    31.6
    
    
    
    85.8Total assets
    
    
    
    
    
    
    
    
    
    $
    1,502.9
    
    
    $
    1,991.9
 9




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##### Table of Contents



BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions except per share data)
  13 Weeks Ended
    
    
    26 Weeks EndedAugust 1,
    
    
    August 2,
    
    
    August 1,
    
    
    August 2,2009
    
    
    2008
    
    
    2009
    
    
    2008Borders Superstores
    
    $
    1.9
    
    
    $
    1.9
    
    
    $
    3.8
    
    
    $
    3.7Waldenbooks Specialty Retail
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.6
    
    
    
    0.9Total
    
    $
    2.2
    
    
    $
    2.4
    
    
    $
    4.4
    
    
    $
    4.6
 NOTE 7
 DISCONTINUED OPERATIONS
      13 Weeks Ended

    
    26 Weeks EndedAugust 2, 2008

    
    August 2, 2008Total revenue
    
    $
    24.1
    
    
    $
    80.8Loss from operations of discontinued operations before income tax
    
    
    (0.7
    )
    
    
    (2.6
    )Loss from operations of discontinued operations (net of income tax benefit of $0.2 and $0.9,
respectively)
    
    
    (0.5
    )
    
    
    (1.7
    )Gain on disposal of discontinued operations (net of income tax benefit of $2.8 and $3.1,
respectively)
    
    
    2.6
    
    
    
    2.2Income from discontinued operations (net of income tax benefit of $3.0 and $4.0, respectively)
    
    
    2.1
    
    
    
    0.5
 10




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BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions except per share data)
    NOTE 8  PERSHING SQUARE FINANCING ARRANGEMENT
    11




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BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(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.(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.  August 1, 2009
    
    August 2, 2008Warrant fair value:
    
    $52.6 million
    
    $26.3 millionWarrant exercise price:
    
    $0.65 per warrant(1)
    
    $7.00 per warrant(1)Stock price at balance sheet date:
    
    $3.97 per share
    
    $4.98 per shareStock volatility:
    
    86.1%(2)
    
    41.55%(2)Risk-free interest rate:
    
    2.46%(3)
    
    3.60%(3)Annual dividend yield:
    
    0%
    
    0%Expected life:
    
    5.1 years(4)
    
    6.2 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.   12




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##### Table of Contents



BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions except per share data)
 NOTE 9
 NEW ACCOUNTING GUIDANCE
      
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
  13




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##### Table of Contents



Business Strategy
      Get our financial house in order.
 Reengage with our customers and reclaim our status as a bookseller for serious readers.
   Improve execution.
 14




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##### Table of Contents



Address disintermediation in the music and movie categories.
    Other Information
     Discontinued Operations
  15




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##### Table of Contents



Results of Operations
  13 Weeks Ended
    
    26 Weeks EndedAugust 1, 2009
    
    August 2, 2008
    
    August 1, 2009
    
    August 2, 2009Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Other revenue
    
    
    1.3
    
    
    
    1.2
    
    
    
    1.3
    
    
    
    1.1Total revenue
    
    
    101.3
    
    
    
    101.2
    
    
    
    101.3
    
    
    
    101.1Cost of
merchandise sold (including occupancy costs)
    
    
    78.1
    
    
    
    76.9
    
    
    
    78.6
    
    
    
    77.4Gross margin
    
    
    23.2
    
    
    
    24.3
    
    
    
    22.7
    
    
    
    23.7Selling, general and administrative expenses
    
    
    27.4
    
    
    
    27.4
    
    
    
    27.1
    
    
    
    28.3Asset impairments and other writedowns
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Operating loss
    
    
    (4.3
    )
    
    
    (3.1
    )
    
    
    (4.5
    )
    
    
    (4.6
    )Interest expense
    
    
    0.9
    
    
    
    1.5
    
    
    
    0.9
    
    
    
    1.4Warrant/put expense (income)
    
    
    2.4
    
    
    
    (1.5
    )
    
    
    5.1
    
    
    
    (1.0
    )Total interest expense
    
    
    3.3
    
    
    
    
    
    
    
    6.0
    
    
    
    0.4Loss before income tax
    
    
    (7.6
    )
    
    
    (3.1
    )
    
    
    (10.5
    )
    
    
    (5.0
    )Income tax benefit
    
    
    (0.2
    )
    
    
    (1.6
    )
    
    
    
    
    
    
    (2.2
    )Loss from continuing operations
    
    
    (7.4
    )%
    
    
    (1.5
    )%
    
    
    (10.5
    )%
    
    
    (2.8
    )%
 Consolidated
Results - Comparison of the 13 weeks ended August 1, 2009 to the 13 weeks ended August
2, 2008
 Sales
    16




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Other revenue
   Gross margin
   Selling, general and administrative expenses
   17




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##### Table of Contents



Interest expense
  Warrant/put expense
  Taxes
  Loss from continuing operations
  Consolidated
Results - Comparison of the 26 weeks ended August 1, 2009 to the 26 weeks ended August
2, 2008
 Sales
     Other revenue
   18




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##### Table of Contents



Gross margin
   Selling, general and administrative expenses
   Interest expense
  Warrant/put expense
   19




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##### Table of Contents



Taxes
  Loss from continuing operations
  Segment Results
  Borders Superstores
 13 Weeks Ended
    
    26 Weeks Ended(dollar amounts in millions)
    
    August 1, 2009
    
    August 2, 2008
    
    August 1, 2009
    
    August 2, 2008Sales
    
    $
    513.6
    
    
    $
    621.9
    
    
    $
    1,050.3
    
    
    $
    1,222.6Other revenue
    
    $
    6.6
    
    
    $
    7.7
    
    
    $
    13.7
    
    
    $
    12.7Operating loss
    
    $
    (17.4
    )
    
    $
    (7.7
    )
    
    $
    (33.9
    )
    
    $
    (37.7
    )Operating loss as % of sales
    
    
    (3.4
    )%
    
    
    (1.2
    )%
    
    
    (3.2
    )%
    
    
    (3.1
    )%Store openings
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    9Store closings
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Store count
    
    
    513
    
    
    
    518
    
    
    
    513
    
    
    
    518
 Borders
Superstores - Comparison of the 13 weeks ended August 1, 2009 to the 13 weeks ended August
2, 2008
 Sales
  Other revenue
  Gross margin
   Selling, general and administrative expenses
  20




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##### Table of Contents



Operating loss
  Borders
Superstores - Comparison of the 26 weeks ended August 1, 2009 to the 26 weeks ended August
2, 2008
 Sales
  Other revenue
  Gross margin
   Selling, general and administrative expenses
   Operating loss
  Waldenbooks Specialty Retail
 13 Weeks Ended
    
    26 Weeks Ended(dollar amounts in millions)
    
    August 1, 2009
    
    August 2, 2008
    
    August 1, 2009
    
    August 2, 2008Sales
    
    $
    74.5
    
    
    $
    96.9
    
    
    $
    151.4
    
    
    $
    192.9Other revenue
    
    $
    0.5
    
    
    $
    0.6
    
    
    $
    0.9
    
    
    $
    1.0Operating loss
    
    $
    (3.1
    )
    
    $
    (7.7
    )
    
    $
    (9.9
    )
    
    $
    (21.3
    )Operating loss as % of sales
    
    
    (4.2
    )%
    
    
    (7.9
    )%
    
    
    (6.5
    )%
    
    
    (11.0
    )%Store openings
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Store closings
    
    
    6
    
    
    
    8
    
    
    
    17
    
    
    
    22Store count
    
    
    370
    
    
    
    468
    
    
    
    370
    
    
    
    468
 21




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##### Table of Contents



Waldenbooks
Specialty Retail - Comparison of the 13 weeks ended August 1, 2009 to the 13 weeks
ended August 2, 2008
 Sales
  Other revenue
  Gross margin
   Selling, general and administrative expenses
   Operating loss
  Waldenbooks
Specialty Retail - Comparison of the 26 weeks ended August 1, 2009 to the 26 weeks
ended August 1, 2008
 Sales
  Other revenue
  22




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##### Table of Contents



Gross margin
   Selling, general and administrative expenses
   Operating loss
  International
 13 Weeks Ended
    
    26 Weeks Ended(dollar amounts in millions)
    
    August 1, 2009
    
    August 2, 2008
    
    August 1, 2009
    
    August 2, 2008Operating loss
    
    $
    (1.7
    )
    
    $
    (1.4
    )
    
    $
    (1.6
    )
    
    $
    
 International
- Comparison of the 13 weeks ended August 1, 2009 to the 13 weeks ended August 2,
2008
  International
- Comparison of the 26 weeks ended August 1, 2009 to the 26 weeks ended August 2,
2008
  Corporate
 13 Weeks Ended
    
    26 Weeks Ended(dollar amounts in millions)
    
    August 1, 2009
    
    August 2, 2008
    
    August 1, 2009
    
    August 2, 2008Operating loss
    
    $
    (4.6
    )
    
    $
    (6.3
    )
    
    $
    (10.5
    )
    
    $
    (9.0
    )
  Corporate
- Comparison of the 13 weeks ended August 1, 2009 to the 13 weeks ended August 2, 2008
  23




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##### Table of Contents



Corporate
- Comparison of the 26 weeks ended August 1, 2009 to the 26 weeks ended August 2, 2008
  Liquidity and Capital Resources
 Operating Activities
   Investing Activities
  Financing Activities
  Capital Expenditures
  Dividends
  24




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##### Table of Contents



Sources of Liquidity
       Warrants
  25




---



##### Table of Contents



Off-Balance Sheet Arrangements
       New Accounting Guidance
   26




---



##### Table of Contents



Related Party Transactions
  Forward Looking Statements
    27




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 Controls and Procedures:
 Changes in Internal Control:
 
 Part
II  Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Guarantees of Disposed Foreign Businesses
     28




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  29




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  1.

    The following individuals were elected to serve as directors for one year terms expiring in
2010:
 Name
    
    For
    
    WithheldMichael G. Archbold
    
    
    51,252,149
    
    
    
    1,904,412Donald G. Campbell
    
    
    39,568,352
    
    
    
    13,588,209Joel J. Cohen
    
    
    37,579,670
    
    
    
    15,576,891Amy B. Lane
    
    
    39,612,176
    
    
    
    13,544,385Brian T. Light
    
    
    39,623,439
    
    
    
    13,533,122Ron Marshall
    
    
    51,266,659
    
    
    
    1,889,902Richard McGuire
    
    
    51,121,821
    
    
    
    2,034,740Lawrence I. Pollock
    
    
    48,196,640
    
    
    
    4,959,921
 2.

    A proposal to approve the amended and restated Borders Group, Inc. 2004 long-term incentive plan
for fiscal year 2009:
 For
    
    31,680,257 SharesAgainst
    
    1,487,666 SharesAbstain
    
    884,298 SharesBroker Non-Votes
    
    19,104,340 Shares
 3.

    A proposal to ratify the selection of Ernst & Young LLP as the Companys independent registered
public accounting firm for fiscal 2008:
 For
    
    52,027,557 SharesAgainst
    
    219,215 SharesAbstain
    
    909,789 SharesBroker Non-Votes
    
    0 Shares
 4.

    A shareholder proposal requesting that the board amend the bylaws to permit the holders of 10%
of the outstanding shares to call a special shareowner meetings.
 For
    
    23,504,116 SharesAgainst
    
    10,349,416 SharesAbstain
    
    198,689 SharesBroker Non-Votes
    
    19,104,340 Shares
 30




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##### Table of Contents



Item 6.
    
    Exhibits
  3.1
    (1)
    Restated Articles of Incorporation of Borders Group, Inc.3.2
    (2)
    Amendment to the Restated Articles of Incorporation of Borders Group, Inc.3.3
    (3)
    Restated bylaws of Borders Group, Inc.3.4
    (4)
    First Amendment to the Restated By laws of Borders Group, Inc.3.5
    (2)
    Second Amendment to the Restated By laws of Borders Group, Inc.3.6
    (5)
    Third Amendment to the Restated By laws of Borders Group, Inc.3.7
    (6)
    Fourth Amendment to the Restated By laws of Borders Group, Inc.10.67
    (7)
    Amended and Restated Borders Group, Inc. 2004 Long-Term Incentive Plan31.1
    
    Statement of Ron Marshall ,
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 Ron Marshall , 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 Annual Report on Form 10-K
dated January 24, 1999 (File No. 1-13740).(2)
    
    Incorporated by reference from the Companys Current Report on Form 8-K
dated May 25, 2007 (File No. 1-13740).(3)
    
    Incorporated by reference from the Companys Annual Report on Form 10-K
dated January 24, 2001 (File No. 1-13740).(4)
    
    Incorporated by reference from the Companys Current Report on Form 8-K
dated July 13, 2006 (File No. 1-13740).(5)
    
    Incorporated by reference from the Companys Current Report on Form 8-K
dated October 2, 2007 (File No. 1-13740).(6)
    
    Incorporated by reference from the Companys Current Report on Form 8-K
dated January 17, 2008 (File No. 1-13740).(7)
    
    Incorporated by reference from the Companys Proxy Statement dated April
24, 2009 (File No. 1-13740).
 31




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##### Table of Contents



SIGNATURES
  BORDERS GROUP, INC.
 Date: September 3, 2009
    By:
    /s/ Mark R. BierleyMark R. BierleyExecutive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer) 32