Growth momentum will be carried forward outside the U.S. through continued expansion of our International store program with five to six new store locations planned for 2001. International performed well in 2000, generating total sales for the year of $219 million, an increase of 30 percent. Borders Group will keep International on its path to profitability by leveraging the existing infrastructure and benefiting from store maturation.

The goal at Waldenbooks, which generated sales of $944 million in fiscal 2000, will be to preserve a steady base of earnings and cash flow, while containing costs. Waldenbooks generates significant earnings and cash each year which provide the flexibility to fund growth initiatives and stock repurchasing. In 2000, we bought a total of $6.2 million in stock at an average price of $12.75 per share. Our plan is to continue to buy back stock as long as we believe our share price is undervalued.

Our continued focus on profit at Waldenbooks began in the fourth quarter of 2000 with the cessation of the All Wound Up seasonal toy store operations. It continues with the planned closing of 35-40 underperforming Waldenbooks stores in 2001. A limited number of new Waldenbooks locations will be opened in the coming year.

Our online investment will be channeled to support our in-store platform, while Borders. com will continue to be utilized as a convenience retail channel. We have targeted loss reduction as a major goal in this area. The first step in this process took place in the fourth quarter of 2000 when we wrote off certain hardware and software assets of Borders. com. We took this step with the realization that the direct-to-consumer segment of our online business will not produce profits in the foreseeable future. Therefore, we plan to continue to mitigate losses throughout 2001 via partnerships that take advantage of excess capacity in our industry, specifically in the area of fulfillment.

At Borders Group, we strongly believe we have hit on the formula for driving the kind of performance that increases shareholder value. It is a calculated mix of confidence and investment in our best-in-class Borders stores, a commitment to profitability in our International segment, continued cash generation at Waldenbooks and improvement in the economics of the direct-to-consumer portion of our online business.

Fundamentally, we must do what it takes to create the conditions and the motivation to sell more in an environment that delivers more to our customers.

Gregory P. Josefowicz
President
Chief Executive Officer