General

Borders Group, Inc. (the Company), through its subsidiaries, is the second largest operator of book and musicsuperstores and the largest operator of mall-based book-Cost stores in the world based upon both sales and number of stores. At January 28, 2001, the Company operated 349 superstores primarily under the Borders name, including nine in the United Kingdom, two in Australia, and one each in Singapore, New Zealand, and Puerto Rico. The Company also operated 869 mall-based and other book stores primarily under the Waldenbooks name, and 31 bookstores under the Books etc. name in the United Kingdom. The Company, through its subsidiary Borders Online, Inc., is also an online retailer of books, music, and video through the operation of its Internet commerce site, Borders.com.

The Company’s business strategy is to continue its growth and increase its profitability through (i) the continued expansion and refinement of its Borders superstore operation in the United States and internationally, (ii) the continued focus on opportunistic store openings in its mall-based bookstore operations and expansion of its kiosk operations, (iii) the development of web-based commerce technologies which enhance the customer experience both in-store and online, and (iv) realization of synergies and economies of scale through a combination of certain of its books and music operations.

The Company’s fiscal year ends on the Sunday immediately preceding the last Wednesday in January. Fiscal 2000 consisted of 53 weeks and ended on January 28, 2001. Fiscal 1999 and 1998 consisted of 52 weeks and ended on January 23, 2000, and January 24, 1999, respectively. References herein to years are to the Company’s fiscal years.

Results of Operations

The following table presents the Company’s consolidated statement of operations data, as a percentage of sales, for the three most recent fiscal years.