Maintaining a Focused and Disciplined Approach to Growth Borders Group's performance in 2003 demonstrates the strength of our fundamental business model and the discipline of our management team. Rather than overreacting to early-year events that were out of our control, we stayed focused on advancing initiatives to consistently improve our business. This not only enabled us to deliver solid results in 2003, but also has put us in an excellent position to accelerate our growth in the year ahead. Key financial and operating goals for 2004 include:

• Increase consolidated sales by 6% to 7%.
• Increase consolidated earnings per share by 12% to 15%.
• Open 18 to 20 new domestic Borders stores and remodel approximately 40 to 50 existing stores.
• Open six to eight new international Borders stores.
• Continue to grow earnings at Waldenbooks and build on seasonal, outlet store and airport store businesses.

An analyst for a leading investment firm characterized this strategy as "chugging along." While this may sound unexciting on the surface, few comments have summarized our plan more succinctly and more positively. Borders Group aims to deliver steady and consistent value to our shareholders by delivering steady and consistent sales and earnings growth. In addition, we plan to continue to repurchase stock and pay quarterly cash dividends directly to shareholders subject to Board approval. In today's world, we think that formula remains a highly attractive investment proposition.

Thank you for your continued support. And thank you to the more than 32,000 Borders employees who continue to differentiate our stores and services across the world. Together, we're working hard to deliver the greatest value to our customers and shareholders alike.

Sincerely,

Gregory P. Josefowicz Chairman, President
and Chief Executive Officer