Deferred tax assets and liabilities resulted from the following:

The Company has tax net operating loss carryforwards in foreign jurisdictions totaling $28.4 as of January 28, 2001, $16.3 as of January 23, 2000, and $5.7 as of January 24, 1999. These losses have an indefinite carryforward period.

Note 7 – Commitments and Contingencies

During 1994, the Company entered into agreements in which leases with respect to four Borders’ locations serve as collateral for certain mortgage pass-through certificates. These mortgage pass-through certificates include a provision requiring the Company to repurchase the underlying mortgage notes in certain events, including the failure by the Company to make payments of rent under the related leases, the failure by Kmart Corporation to maintain required investment grade ratings or the termination of the guarantee by Kmart Corporation of the Company’s obligations under the related leases (which would require the mutual consent of Kmart Corporation and Borders). In the event the Company is required to repurchase all of the underlying mortgage notes, the Company would be obligated to pay approximately $36.6.

In March 1998, the American Booksellers Association (‘‘ABA’’) and 26 independent bookstores filed a lawsuit in the United States District Court for the Northern District of California against the Company and Barnes & Noble, Inc. alleging violations of the Robinson-Patman Act, the California Unfair Trade Practice Act and the California Unfair Competition Act. The Complaint seeks injunctive and declaratory relief; treble damages on behalf of each of the bookstore plaintiffs, and, with respect to the California bookstore plaintiffs, any other damages permitted by California law; disgorgement of money, property and gains wrongfully obtained in connection with the purchase of books for resale, or offered for resale, in California from March 18, 1994, until the action is completed and prejudgment interest on any amounts awarded in the action, as well as attorney fees and costs. The plaintiffs have provided a report estimating damages against the Company, exclusive of interest, as follows: (i) between an aggregate of approximately $2.8 and approximately $3.3 (before trebling) with respect to the Robinson-Patman Act claims of the 26 independent book- seller plaintiffs, and (ii) between an aggregate of approximately $5.5 and approximately $6.4 with respect to the disgorgement claims under California law for the geographic areas of the California plaintiffs. The Company’s pleadings in the action deny any liability to plaintiffs, and the Company disputes plaintiffs’ claims of damages. On November 16, 2000, the court granted the motion of the Company and Barnes & Noble to dismiss the disgorgement claims brought by the ABA under California law on behalf of independent booksellers in the state of California who are not named in the litigation. On March 19, 2001, the court dismissed all of the damage claims of the plaintiffs. The trial of the remaining claims is scheduled for April 9, 2001. The Company intends to vigorously defend the action.

The Intimate Bookshop, Inc. (‘‘Intimate’’) and Lucky, Inc. have instituted actions against the Company and Waldenbooks, respectfully, containing allegations and claims similar to those contained in the ABA litigation described above. The Intimate Amended Complaint alleges that Intimate has suffered $11.3 or more in damages and requests treble damages, injunctive and declaratory relief, interest, costs, attorneys’ fees and other unspecified relief. The Lucky, Inc. Amended Complaint alleges that the plaintiffs have suffered more than $75,000 in damages and requests treble damages, injunctive and declaratory relief, interest, costs, attorneys’ fees and other unspecified relief. The Company intends to vigorously defend these actions.

Two former employees, individually and on behalf of a purported class, consisting of all current and former employees who worked as assistant managers in Borders stores at any time between April 10, 1996, and the present, have filed an action against Borders in the Superior Court of California for the County of San Francisco. The action alleges that the individual plaintiffs and the purported class members worked hours for which they were entitled to receive, but did not receive, overtime compensation under California law, and that they were classified as ‘‘exempt’’ store management employees but were forced to work more than 50% of their time in non-exempt tasks. The Amended Complaint alleges violations of the California Labor Code and the California Business and Professions Code. The relief sought includes compensatory and punitive damages, penalties, preliminary and permanent injunctions requiring Borders to pay overtime compensation as required under California and Federal law, prejudgment interest, costs and attorneys fees and such other relief as the court deems proper. The Company intends to vigorously defend the action, including contesting the certification of the action as a class action.

The Company has not included any liability in its financial statements in connection with the lawsuits described above and has expensed as incurred all costs to date.

In addition to the matters described above, the Company is from time to time involved in or affected by other litigation incidental to the conduct of its businesses. The Company does not believe that any such other litigation will have a material adverse effect on its liquidity, financial position or results of operations.