10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10 - Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 27, 2003

OR

[ ] 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.

(Exact name of registrant as specified in its charter)

Michigan	38-3294588
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Indentification No.)

100 Phoenix Drive, Ann Arbor, Michigan 48108
(Address of principal executive offices with zip code)

(734) 477-1100
(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X            No     

	Shares Outstanding As of
Title of Class	June 3, 2003
Common Stock	77,313,870

BORDERS GROUP, INC.

INDEX

Part I - Financial Information
		Page
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of
	Financial Condition and Results of
	Operations	11
Item 3.	Quantitative and Qualitative Disclosures about
	Market Risk	N/A
Item 4.	Controls and Procedures	22
Part II - Other information
Item 1.	Legal Proceedings	23
Item 2.	Changes in Securities and Use of Proceeds	N/A
Item 3.	Defaults Upon Senior Securities	N/A
Item 4.	Submission of Matters to a vote of	N/A
	Securityholders
Item 5.	Other Information	N/A
Item 6.	Exhibits and Reports on Form 8-K	23
Signatures		24
Certifications		25

ii

BORDERS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS EXCEPT COMMON SHARE DATA)
(UNAUDITED)

		13 WEEKS ENDED
		April 27,			April 28,
		2003			2002
Sales		$	751.4		$	751.7
Other revenue			6.8			6.5
Total revenue			758.2			758.2
Cost of merchandise sold, including occupancy costs			569.6			559.4
Gross margin			188.6			198.8
Selling, general and administrative expenses			192.6			189.3
Pre-opening expense			1.5			0.8
Operating income (loss)			(5.5	)		8.7
Interest expense			2.2			2.4
Income (loss) before income tax			(7.7	)		6.3
Income tax provision (benefit)			(2.9	)		2.4
Net income (loss)		$	(4.8	)	$	3.9
EARNINGS (LOSS) PER COMMON SHARE DATA --
	Diluted income (loss) per common share	$	(0.06	)	$	0.05
	Diluted weighted average common shares outstanding (in thousands)		78,443			84,091
	Basic income (loss) per common share	$	(0.06	)	$	0.05
	Basic weighted average common shares outstanding (in thousands)		78,443			81,478

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

1

BORDERS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
(UNAUDITED)

			April 27,			April 28,			January 26,
			2003			2002			2003
ASSETS
Current Assets:
	Cash and cash equivalents		$	136.4		$	60.1		$	269.1
	Merchandise inventories			1,189.5			1,194.0			1,183.3
	Accounts receivable and other current assets			99.0			55.9			88.9
		Total Current Assets		1,424.9			1,310.0			1,541.3
	Property and equipment, net of accumulated depreciation
		of $677.3, $591.5 and $667.4 at April 27, 2003,
		April 28, 2002, and January 26, 2003, respectively		543.7			526.7			553.8
	Other assets and deferred charges			92.3			116.4			76.6
	Goodwill			95.1			90.4			96.5
		Total Assets	$	2,156.0		$	2,043.5		$	2,268.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
	Short-term debt and capital lease obligations due within one year		$	116.7		$	86.9		$	112.7
	Trade accounts payable			574.3			611.7			565.4
	Accrued payroll and other liabilities			237.6			199.8			280.1
	Taxes, including income taxes			54.0			48.8			120.7
	Deferred income taxes			8.7			3.3			8.7
		Total Current Liabilities		991.3			950.5			1,087.6
	Long-term debt			50.0			-			50.0
	Long-term capital lease and financing obligations			19.0			51.0			19.0
	Other long-term liabilities			82.4			74.4			81.0
		Total Liabilities		1,142.7			1,075.9			1,237.6
	Stockholders' Equity:
	Common stock; 200,000,000 shares authorized;
		78,086,696, 81,802,893 and 78,731,922 issued and
		outstanding at April 27, 2003, April 28, 2002,
		and January 26, 2003, respectively		646.5			714.9			657.0
	Deferred compensation			(0.5	)		(0.3	)		(0.2	)
	Accumulated other comprehensive income (loss)			2.7			(8.6	)		4.4
	Retained earnings			364.6			261.6			369.4
		Total Stockholders' Equity		1,013.3			967.6			1,030.6
		Total Liabilities & Stockholders' Equity	$	2,156.0		$	2,043.5		$	2,268.2

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

2

BORDERS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE 13 WEEKS ENDED APRIL 27, 2003
(DOLLARS IN MILLIONS)
(UNAUDITED)

							DEFERRED			ACCUMULATED
							COMPENSATION			OTHER
		COMMON STOCK					AND OFFICER			COMPREHENSIVE			RETAINED
		SHARES		AMOUNT			RECEIVABLES			INCOME (LOSS)			EARNINGS			TOTAL
BALANCE AT JANUARY 26, 2003		78,731,922		$	657.0		$	(0.2	)	$	4.4		$	369.4		$	1,030.6
Net loss		-			-			-			-			(4.8	)		(4.8	)
Currency translation adjustment		-			-			-			(1.9	)		-			(1.9	)
Change in fair value of
	derivatives, net of tax of $0.1	-			-			-			0.2			-			0.2
Comprehensive loss																	(6.5	)
Issuance of common stock		227,125			3.1			-			-			-			3.1
Repurchase and retirement of
	common stock	(872,351	)		(13.8	)		-			-			-			(13.8	)
Change in deferred
	compensation	-			-			(0.3	)		-			-			(0.3	)
Tax benefit of equity
	compensation	-			0.2			-			-			-			0.2
BALANCE AT APRIL 27, 2003		78,086,696		$	646.5		$	(0.5	)	$	2.7		$	364.6		$	1,013.3

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3

BORDERS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)

				13 WEEKS ENDED
				April 27,			April 28,
				2003			2002
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net income / (loss)				$	(4.8	)	$	3.9
Adjustments to reconcile net income (loss) to operating cash flows:
	Depreciation				24.2			23.2
	Increase in other long-term assets and liabilities				(14.3	)		(0.2	)
	Asset impairments and other writedowns				-			10.9
	Cash provided by (used for) current assets and current liabilities:
		Increase in inventories			(7.3	)		(12.9	)
		Decrease in accounts receivable			23.2			20.3
		Increase in prepaid expenses			(33.8	)		(2.6	)
		Increase (decrease) in accounts payable			9.5			(27.3	)
		Decrease in taxes payable			(66.5	)		(46.5	)
		Decrease in expenses payable and accrued liabilities			(42.1	)		(89.0	)
			Net cash used for operations		(111.9	)		(120.2	)
INVESTING
Capital expenditures					(16.4	)		(14.6	)
			Net cash used for investing		(16.4	)		(14.6	)
FINANCING
Net funding from (repayment of) long-term capital lease obligations					(0.2	)		1.2
Net funding from credit facility					6.9			0.9
Issuance of common stock					3.1			13.6
Repurchase of common stock					(13.8	)		(10.7	)
Other					-			(2.6	)
			Net cash provided by (used for) financing		(4.0	)		2.4
Effect of exchange rates on cash and equivalents					(0.4	)		2.3
NET DECREASE IN CASH AND EQUIVALENTS					(132.7	)		(130.1	)
Cash and equivalents at beginning of year					269.1			190.2
Cash and equivalents at end of period				$	136.4		$	60.1

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4

BORDERS GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per common share data)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Borders Group, Inc. (the Company) have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and notes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments, consisting only of normal recurring adjustments, have been made which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended January 26, 2003.

The Company’s fiscal year ends on the Sunday immediately preceding the last Wednesday in January. At April 27, 2003, the Company operated 445 superstores primarily under the Borders name, including 20 in the United Kingdom, nine in Australia, two in Puerto Rico, and one each in Singapore and New Zealand. The Company also operated 774 mall-based and other bookstores primarily under the Waldenbooks name, and 36 bookstores under the Books etc. name in the United Kingdom.

NOTE 2 - COMMITMENTS AND CONTINGENCIES

Litigation. In August 1998, The Intimate Bookshop, Inc. (Intimate) and its owner, Wallace Kuralt, filed a lawsuit in the United States District Court for the Southern District of New York against the Company, Barnes & Noble, Inc., and others alleging violation of the Robinson-Patman Act and other federal laws, New York statutes governing trade practices and common law. In response to Defendants' Motion to Dismiss the Complaint, plaintiff Kuralt withdrew his claims and plaintiff Intimate voluntarily dismissed all but its Robinson-Patman claims. Intimate has filed a Second Amended Complaint limited to allegations of violations of the Robinson-Patman Act. The Second 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 Company intends to vigorously defend the action.

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 in the state of California at any time between April 10, 1996, and the present, have filed an action against the Company 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, which names two additional plaintiffs, 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. On July 29, 2002, the Superior Court of California granted the plaintiffs’ motion for class certification in the action. The class certified consists of all individuals who worked as Assistant Managers in a Borders superstore in California at any time between April 10, 1996 and March 18, 2001. The class was further certified by the Court into the following subclasses: Assistant Manager-Merchandising; Assistant Manager-Inventory; Assistant Manager-Human Resources; Assistant Manager-Music; Assistant Manager-Training; Assistant Manager-Cafe. The Company’s request for an immediate appeal of the class certification ruling has been denied. Mediation did not result in a resolution of the matter, and the Company will continue to vigorously defend the action. Given current factual and legal uncertainties, the Company is not in a position to reasonably estimate the amount of the loss, if any. The trial is scheduled for March 15, 2004.

On October 29, 2002, Gary Gerlinger, individually and on behalf of all other similarly situated consumers in the United States who, during the period from August 1, 2001 to the present, purchased books online from either Amazon or the Company, instituted an action against the Company and Amazon in the United States District Court for the Northern District of California. The Complaint alleges that the agreement pursuant to which an affiliate of Amazon operates Borders.com as a co-branded site violates federal anti-trust laws, California statutory law and the common law of unjust enrichment. The Complaint seeks injunctive relief, damages, including treble damages or statutory damages where applicable, attorneys fees, costs and disbursements, disgorgement of all sums

5

BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per common share data)

obtained by allegedly wrongful acts, interest and declaratory relief. The Company has filed an answer denying any liability and intends to vigorously defend the action.

The Company has not included any liability in its consolidated financial statements in connection with the lawsuits described above and has expensed as incurred all legal costs to date. Although an adverse resolution of these lawsuits could have a material adverse effect on the result of the operations of the Company for the applicable period or periods, the Company does not believe that any such litigation will have a material effect on its liquidity or financial position.

Certain states and private litigants have sought to impose sales or other tax collection efforts on out-of-jurisdiction companies that engage in e-commerce. The Company currently is disputing a claim by the state of California relating to sales taxes that the state alleges should have been collected on certain Borders.com sales in California prior to implementation of the Company’s Mirror Site Agreement with Amazon. Also, the Company and Amazon have been named as defendants in an action filed by a private litigant on behalf of the State of Tennessee under the Tennessee False Claims Act relating to the failure to collect use taxes on Internet sales in Tennessee for periods both before and after the implementation of the Mirror Site Agreement. The Complaint seeks a judgment, jointly and severally, against the defendants for, among other things, injunctive relief, treble the amount of damages suffered by the State of Tennessee as a result of the alleged violations of the defendants, penalties, costs and expenses, including legal fees. Contrary to the claims in the Complaint, the Company did collect taxes on Internet sales in Tennessee (as well as Michigan) prior to the implementation of the Mirror Site Agreement.

The Company does not believe that it should be liable under existing laws and regulations for any failure by it or Amazon to collect sales or other taxes relating to Internet sales. Although an adverse resolution of claims relating to the failure to collect sales or other taxes on online sales could have a material effect on the results of the operations of the Company for the applicable period or periods, the Company does not believe that any such claims will have a material adverse effect on its liquidity or financial position.

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.

Relationship with Kmart - -- General. Prior to its initial public offering in May 1995, the Company was a subsidiary of Kmart Corporation (Kmart); Kmart currently owns no shares of common stock of the Company. In January 2002, Kmart filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Such filing has not affected the operations of the Company.

Kmart and the Company continue to have the following contractual relationships.

Tax Allocation and Indemnification Agreement. Prior to the completion of its initial public offering (IPO), the Company was included in the consolidated federal income tax returns of Kmart and filed on a combined basis with Kmart in certain states. Pursuant to a tax allocation and indemnification agreement between the Company and Kmart (Tax Allocation Agreement) the Company will remain obligated to pay to Kmart any income taxes the Company would have had to pay if it had filed separate tax returns for the tax period beginning on January 26, 1995, and ending on June 1, 1995, the date of the consummation of the IPO (to the extent that it has not previously paid such amounts to Kmart). In addition, if the tax liability attributable to the Company for any previous tax period during which the Company was included in a consolidated federal income tax return filed by Kmart or a combined state return is adjusted as a result of an action of a taxing authority or a court, then the Company will pay to Kmart the amount of any increase in such liability and Kmart has agreed to pay to the Company the amount of any decrease in such liability (in either case together with interest and penalties). The Company’s tax liability for previous years will not be affected by any increase or decrease in Kmart’s tax liability if such increase or decrease is not directly attributable to the Company. After completion of the IPO, the Company continued to be subject under existing federal regulations to several liability for the consolidated federal income taxes for any tax year in which it was a member of any consolidated group of which Kmart was the common parent. Pursuant to the Tax Allocation Agreement, however, Kmart agreed to indemnify the Company for any federal income tax liability of Kmart or any of its subsidiaries (other than that which is attributable to the Company) that the Company could be required to pay and the Company agreed to indemnify Kmart for any of the Company’s separate company taxes.

6

BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per common share data)

Lease Guaranty Agreement. Borders’ leases for 13 of its retail stores and its distribution center in Harrisburg, Pennsylvania have been guaranteed by Kmart. Under the terms of a lease guaranty, indemnification and reimbursement agreement entered into upon completion of the IPO, as amended, (Lease Guaranty Agreement), the underlying leases will be transferable by Borders, subject to a right of first refusal in favor of Kmart with respect to sites within a three-mile radius of a Kmart store and, with respect to all other sites, a right of first offer in favor of Kmart. The Company and Borders are required to indemnify Kmart with respect to (i) any liabilities Kmart may incur under the lease guarantees, except those liabilities arising from the gross negligence or willful misconduct of Kmart, and (ii) any losses incurred by Kmart after taking possession of any particular premises, except to the extent such losses arise solely from the acts or omissions of Kmart. Under the terms of the Lease Guaranty Agreement, in the event of (i) the Company’s or Borders’ failure to provide any required indemnity, (ii) a knowing and material violation of the limitations on transfers of guaranteed leases set forth in the agreement, or (iii) certain events of bankruptcy, Kmart will have the right to assume any or all of the guaranteed leases and to take possession of all of the premises underlying such guaranteed leases; provided, that in the event of a failure or failures to provide required indemnities, the remedy of taking possession of all of the premises underlying the guaranteed leases may be exercised only if such failures relate to an aggregate liability of $10.0 or more and only if Kmart has provided 100 days’ prior written notice. In the event of a failure to provide required indemnities resulting in losses of more than the equivalent of two months rent under a particular lease but less than $10.0, Kmart may exercise such remedy of possession as to the premises underlying the guaranteed lease or leases to which the failure to provide the indemnity relates and one additional premise for each such premises to which the failure relates, up to a maximum, in any event, of five additional premises, and thereafter, with respect to such additional premises, Kmart remedies and indemnification rights shall terminate. In the event of a failure to provide required indemnities resulting in liabilities of less than the equivalent of two months rent under a particular lease, Kmart may exercise such remedy of possession only as to the premises underlying the guaranteed lease or leases to which the failure to provide the indemnity relates. The Lease Guaranty Agreement will remain in effect until the expiration of all lease guarantees, which the Company believes will be in January 2020.

NOTE 3 - FINANCING

Credit Agreement. The Company has a Multicurrency Revolving Credit Agreement (the “Credit Agreement”), which was amended in May 2003 and will expire in June 2005. The Credit Agreement provides for borrowings of up to $450.0. Borrowings under the Credit Agreement bear interest at a variable base rate plus an increment or LIBOR plus an increment at the Company’s option. The Credit Agreement contains covenants which limit, among other things, the Company’s ability to incur indebtedness, grant liens, make investments, consolidate or merge, declare dividends, dispose of assets, repurchase its common stock in excess of $225.0 over the term of the Agreement (plus any proceeds and tax benefits resulting from stock option exercises and tax benefits resulting from restricted shares purchased by employees from the Company), and requires the Company to meet certain financial measures regarding fixed coverage, leverage, tangible net worth and capital expenditures. The Company had borrowings outstanding under the Credit Agreement (or a prior agreement) of $116.3 at April 27, 2003, $85.3 at April 28, 2002 and $112.1 at January 26, 2003.

Term Loan. On July 30, 2002, the Company issued $50.0 of senior guaranteed notes (the “Notes”) due July 30, 2006 and bearing interest at 6.31% (payable semi-annually). The proceeds of the sale of the Notes are being used to refinance existing indebtedness of the Company and its subsidiaries and for general corporate purposes. The note purchase agreement relating to the Notes contains covenants which limit, among other things, the Company’s ability to incur indebtedness, grant liens, make investments, engage in any merger or consolidation, dispose of assets or change the nature of its business, and requires the Company to meet certain financial measures regarding net worth, total debt coverage and fixed charge coverage.

Lease Financing Facilities. The Company has two lease financing facilities (collectively, the “Lease Financing Facilities”), which were amended in May 2003, to finance new stores and other property owned by unaffiliated entities and leased to the Company or its subsidiaries. The original facility (the “Original Lease Facility”) will expire in June 2004 (2005 if certain conditions are satisfied). In June of 2002, the Company established a new facility (the “New Lease Facility”), which will expire in 2007. The aggregate amount of borrowing permitted under the Lease Financing Facilities is $25.0. Properties to be financed after the effective date of the New Lease Facility will be financed under that Facility, and no additional properties will be financed under the Original Lease Facility. The Lease Financing Facilities provide financing to lessors of properties leased to the Company or its subsidiaries through loans from lenders for up to 95% of a project’s cost. Additionally, under the New Lease Facility, the unaffiliated lessor will make equity contributions approximating 5% of the cost of each project. The lessors under the Original Lease Facility have made similar contributions.

7

BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per common share data)

Independent of the Company’s obligations relating to the leases, the Company and certain of its subsidiaries guarantee payment when due of all amounts required to be paid to the third-party lenders. The principal amount guaranteed is limited to approximately 89% of the original cost of a project so long as the Company is not in default under the lease relating to such project. The agreements relating to both of the Lease Financing Facilities contain covenants and events of default that are similar to those contained in the Credit Agreement described above. Security interests in the properties underlying the leases and in the Company’s interests in the leases have been given to the lenders. The Lease Financing Facilities contain cross default provisions with respect to the obligations of the Company under the Credit Agreement and certain other agreements to which the Company is a party. There also are cross default provisions with respect to the obligations relating to the Lease Financing Facilities of Wilmington Trust Company, as owner trustee of a grantor trust formed for the Lease Financing Facilities, and the unaffiliated beneficial owner of the grantor trust.

There were 4, 33 and 7 properties financed through the Original Lease Facility at April 27, 2003, April 28, 2002 and January 26, 2003, respectively, with financed values of $22.6, $119.0 and $36.3. The Company has recorded $19.0, $51.0 and $19.0 of the amounts under the Original Lease Facility as capitalized leases under “Other assets” (for the capital lease assets) and “Long-term capital lease and financing obligations” (for the capital lease liabilities) on the consolidated balance sheets at April 27, 2003, April 28, 2002 and January 26, 2003, respectively. These amounts have been treated as non-cash items on the consolidated statements of cash flows. There were no borrowings under the New Lease Facility as of April 27, 2003. In the first quarter of 2003, the Company permanently financed, through long-term leases, three properties that had been financed through the Original Lease Facility with a total value of approximately $13.7, none of which had been capitalized.

As of April 27, 2003 the Company was in compliance with all debt covenants contained within the Credit Agreement, Notes and Lease Financing Facilities described above.

NOTE 4 – STOCK-BASED BENEFIT PLANS

The Company accounts for equity-based compensation under the guidance of APB No. 25. As permitted, the Company has adopted the disclosure-only option of Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation” (FAS 123). The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 to stock-based employee compensation:

		13 WEEKS ENDED
		April 27,			April 28,
		2003			2002
Net income (loss), as reported		$	(4.8	)	$	3.9
Add: Stock-based employee expense
	included in reported net income,
	net of related tax effects		--			--
Deduct: Total stock-based employee
	compensation expense determined under
	fair value method for all awards,
	net of tax		2.0			2.3
Pro-forma net income (loss)		$	(6.8	)	$	1.6
Earnings (loss) per share:
	Basic -- as reported	$	(0.06	)	$	0.05
	Basic -- pro-forma	$	(0.09	)	$	0.02
	Diluted -- as reported	$	(0.06	)	$	0.05
	Diluted -- pro-forma	$	(0.09	)	$	0.02

NOTE 5- SEGMENT INFORMATION

The Company is organized based upon the following operating segments: Borders stores, Waldenbooks stores, International stores, and Corporate (consisting of interest expense, certain corporate governance costs, and corporate incentive costs). Intercompany interest charges (net of related taxes) relating to the former Company-owned and -operated Borders.com web site have been included in the Corporate segment.

8

BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per common share data)

Segment data includes charges allocating all corporate support costs to each segment. Transactions between segments, consisting principally of inventory transfers, are recorded primarily at cost. Interest income and expense are allocated to segments based upon the funding required to meet the operational needs of those segments. The Company utilizes fixed interest rates, approximating the Company’s medium-term borrowing and investing rates, in calculating segment interest income and expense. The Company evaluates the performance of its segments and allocates resources to them based on anticipated future contribution.

Total assets for the Corporate segment include certain corporate headquarters property and equipment, net of accumulated depreciation, of $73.3 and $66.2 at April 27, 2003 and April 28, 2002, respectively, whose related depreciation expense has been allocated to the Borders and Waldenbooks segments. Depreciation expense allocated to the Borders segment totaled $2.8 and $2.3 for the 13 weeks ended April 27, 2003 and April 28, 2002, respectively. Depreciation expense allocated to the Waldenbooks segment totaled $1.5 and $1.3 for the 13 weeks ended April 27, 2003 and April 28, 2002, respectively.

		13 WEEKS ENDED
		April 27,			April 28,
		2003			2002
Sales
	Borders	$	521.5		$	518.5
	Walden		150.3			170.0
	International		79.6			63.2
Total sales		$	751.4		$	751.7
Net income (loss)
	Borders	$	4.8		$	11.2
	Walden		0.5			1.4
	International		(4.2	)		(4.7	)
	Corporate		(5.9	)		(4.0	)
Total net income (loss)		$	(4.8	)	$	3.9
Total assets
	Borders	$	1,337.2		$	1,342.5
	Walden		318.5			352.8
	International		314.5			258.9
	Corporate		185.8			89.3
Total assets		$	2,156.0		$	2,043.5

NOTE 6 - NEW ACCOUNTING GUIDANCE

In November 2002, the Emerging Issues Task Force issued Consensus No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor” (EITF 02-16), which is effective prospectively for all vendor arrangements entered into after December 31, 2002. The Consensus requires that consideration received from a vendor be considered a reduction of the prices of vendor’s products and shown as a reduction of cost of sales in the income statement of the customer. If the consideration represents a reimbursement of specific incremental identifiable costs incurred, these amounts should be offset against the related costs with any excess consideration recorded in cost of sales. In fiscal 2003, the Company has reclassified the prior year’s vendor consideration to conform to current year presentation and EITF 02-16. Additionally, the Company recorded $0.3 million of excess vendor consideration as a reduction to its inventory balance at April 27, 2003.

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity.

9

BORDERS GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per common share data)

The Company leases four properties from unconsolidated variable interest entities (VIEs) that had borrowings outstanding under the Original Lease Facility at January 26, 2003 and April 27, 2003. Third parties have invested capital at risk equal to or in excess of 5% of the assets of the VIEs, with the remainder being financed through borrowings under the Original Lease Facility. This, and certain other criteria, allow the Company not to consolidate the VIEs in the Company’s financial statements at April 27, 2003. Rather, the Company accounts for these arrangements as capital leases. Accordingly, the capitalizable portion of the leased facilities and the related borrowings are reported in the Company’s accompanying balance sheets. Independent of the Company’s obligations relating to these leases, the Company and certain of its subsidiaries guarantee payment when due of all amounts required to be paid to the third-party lenders. At April 27, 2003, the maximum loss that the Company could incur under these guarantees approximated $22.6.

The Company also leases two properties from unconsolidated VIEs that had borrowings outstanding under the Original Lease Facility at January 26, 2003, but whose borrowings had been permanently financed through long-term leases during the first quarter of 2003. Third parties have invested capital at risk equal to 5% of the assets of the VIEs, with the remainder being financed through borrowings unrelated to the Lease Financing Facilities. This, and certain other criteria, allow the Company not to consolidate the VIEs in the Company’s financial statements at April 27, 2003. Rather, the Company accounts for these arrangements as operating leases. Accordingly, neither the leased facilities nor the related debt is reported in the Company’s accompanying balance sheets. Independent of the Company’s obligations relating to these leases, the Company and certain of its subsidiaries guarantee payment when due of all amounts required to be paid to the third-party lenders. At April 27, 2003, the maximum loss that the Company could incur under these guarantees approximated $6.0.

The Company anticipates permanently refinancing two of the properties with borrowings outstanding under the Original Lease Facility at January 26, 2003 and April 27, 2003 through long-term leases. The Company expects to begin consolidating the remaining four VIEs in the quarter ending October 26, 2003, because it believes it is the VIEs’ primary beneficiary under FIN 46‘s requirements. At October 26, 2003, consolidation of these VIEs would have the effect of increasing property and equipment by $7.1, net of accumulated depreciation of $1.5, and increasing long-term capital lease and financing obligations by $6.9. Minority interests of $1.7 would also be reported, and the Company would record a charge of $1.0, net of tax, as a cumulative effect of change in accounting principle.

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (FAS 149). In general, this statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”. This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of FAS 149 is not expected to have an impact on the Company’s consolidated financial position or disclosures.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (FAS 150). This statement affects the classification, measurement and disclosure requirements of the following three types of freestanding financial instruments: 1) manditorily redeemable shares, which the issuing company is obligated to buy back with cash or other assets; 2) instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets, which includes put options and forward purchase contracts; and 3) obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuers’ shares. In general, FAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of FAS 150 is not expected to have an impact on the Company’s consolidated financial position or disclosures.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Borders Group, Inc., through its subsidiaries, Borders, Inc. (Borders), Walden Book Company, Inc. (Waldenbooks), Borders U.K. Limited, Borders Australia Pty Limited and others (individually and collectively, “the Company”), is the second largest operator of book, music and movie superstores and the largest operator of mall-based bookstores in the world based upon both sales and number of stores. At April 27, 2003, the Company operated 445 superstores under the Borders name, including 20 in the United Kingdom, nine in Australia, two in Puerto Rico, and one each in Singapore and New Zealand. The Company also operated 774 mall-based and other bookstores primarily under the Waldenbooks name in the United States and 36 bookstores under the Books etc. name in the United Kingdom.

The Company’s business strategy is to continue its growth and increase its profitability through (i) expanding and refining its core domestic superstore business, (ii) driving international growth by expanding established markets and leveraging infrastructure investments, (iii) leveraging strategic alliances and in-store web-based commerce technologies which enhance the customer experience, and (iv) maximizing cash flow at Waldenbooks by containing costs. Specifically, the Company expects to open 35 to 40 domestic Borders stores in 2003 and a reduced number in 2004. International store growth over the next several years will focus on existing markets, primarily in the United Kingdom and Australia, with approximately six to eight international store openings annually. Full year profitability is expected to be achieved by the International segment in 2004. The Waldenbooks segment has experienced decreased comparable sales percentages for the past several years primarily due to the overall decrease in mall traffic and the impact of superstore openings. As a result, the Company is continuing to implement its plan for the optimization of the Waldenbooks’ store base in order to improve sales, net income and free cash flow. This plan could result in further store closing costs or asset impairments over the next few years. The Company’s objectives with respect to these initiatives are to continue to grow consolidated sales and earnings in 2003. In addition, the Company plans to continue with its share repurchase program by utilizing free cash flow generation by the business. In May 2003, the Board of Directors authorized an increase in the amount of share repurchases to $150 million (plus any proceeds and tax benefits resulting from stock option exercises and tax benefits resulting from restricted shares purchased by employees from the Company).

From May 1998 to August 2001, the Company operated an Internet commerce site, Borders.com. In 2001, the Company entered into an agreement with an affiliate of Amazon.com, Inc. (“Amazon”) for Amazon to develop and operate a web site utilizing the Borders.com URL (the “Mirror Site”). Operation of the Mirror Site began August 1, 2001. As of that date, the Company stopped selling merchandise via its Company-owned and -operated Borders.com web site (and the Internet). In 2002, the Company entered into an additional agreement with Amazon for Amazon to develop and operate a web site utilizing the Waldenbooks.com URL (the “Second Mirror Site”). Operation of the Second Mirror Site began November 11, 2002.

Under these agreements, Amazon is the merchant of record for all sales made through the Mirror Sites, and determines all prices and other terms and conditions applicable to such sales. Amazon is responsible for the fulfillment of all products sold through the Mirror Sites and retains all payments from customers. The Company receives referral fees for products purchased through the Mirror Sites. The agreements contain mutual indemnification provisions, including provisions that essentially allocate between the parties responsibilities with respect to any liabilities for sales, use and similar taxes, including penalties and interest, associated with products sold on the Mirror Sites. Currently, taxes are not collected with respect to products sold on the Mirror Sites except in certain states.

Amounts relating to the Company-owned and -operated Borders.com web site prior to August 2001, other than intercompany interest expense (net of related taxes), have been classified in the Borders segment for all periods presented. Intercompany interest charges (net of related taxes) relating to Borders.com have been included in the Corporate segment.

Also in 2002, Borders entered into an agreement with Amazon to allow customers ordering certain book, music and movie products through certain of Amazon’s web sites to purchase and pick up their merchandise at Borders stores in the United States (“Express In-Store Pick Up”). Under this agreement, the Company is the merchant of record for all sales made through this service, and determines all prices and other terms and conditions applicable to such sales. The Company fulfills all products sold through Express In-Store Pick Up. In addition, the Company assumes all risk, cost and responsibility related to the sale and fulfillment of all products sold. The Company recognizes revenue upon customers’ pick up of the merchandise at the store, and classifies this revenue as a component of “Sales” in the Company’s consolidated statements of operations. The Company also pays referral fees to Amazon pursuant to this agreement. This service was offered to customers beginning November 27, 2002.

11

The Company’s first quarters of 2003 and 2002 consisted of the 13 weeks ended April 27, 2003 and April 28, 2002, respectively.

Results of Operations

The following table presents the Company's consolidated statements of operations data, as a percentage of sales, for the periods indicated.

	13 WEEKS ENDED
	April 27,		April 28,
	2003		2002
Sales	100.0	%	100.0	%
Other revenue	0.9		0.9
Total revenue	100.9		100.9
Cost of merchandise sold (including occupancy)	75.8		74.4
Gross margin	25.1		26.5
Selling, general and administrative expenses	25.6		25.2
Pre-opening expense	0.2		0.1
Operating income (loss)	(0.7	)	1.2
Interest expense	0.3		0.4
Income (loss) before income tax	(1.0	)	0.8
Income tax provision (benefit)	(0.4	)	0.3
Net income (loss)	(0.6	)%	0.5	%

Consolidated Results -- Comparison of the 13 weeks ended April 27, 2003 to the 13 weeks ended April 28, 2002

Sales

Consolidated sales decreased $0.3 million, or 0.0%, to $751.4 million in 2003 from $751.7 million in 2002. This resulted primarily from decreased sales in the Waldenbooks segment. Partially offsetting this decrease were increased sales in the Borders and International segments. See “Segment Results” for a detailed discussion of the change in sales.

Other revenue

Other revenue consists primarily of membership income from Waldenbooks’ Preferred Reader Program.

Waldenbooks sells memberships in its Preferred Reader Program, which offers members discounts on purchases and other benefits. The Company recognizes membership income on a straight-line basis over the 12-month term of the membership, and categorizes the income as “Other revenue” in the Company’s consolidated statements of operations. Discounts on purchases are netted against “Sales” in the Company’s consolidated statements of operations.

The Company had previously categorized membership income as an offset to “Cost of merchandise sold” in the Company’s consolidated statements of operations, but has determined that categorization as “Other revenue” is more appropriate. Accordingly, membership income has been reclassified for all periods presented.

Gross margin

Consolidated gross margin decreased $10.2 million, or 5.1%, to $188.6 million in 2003 from $198.8 million in 2002. As a percentage of sales, consolidated gross margin decreased to 25.1% in 2003 from 26.5% in 2002. This was primarily due to Borders’ and Waldenbooks’ gross margin as a percentage of sales decreasing, while International remained flat. In the Borders and Waldenbooks segments, the reductions were primarily due to occupancy costs for stores open more than one year remaining essentially flat while comparable store sales declined.

The Company classifies the following items as “Cost of merchandise sold” on its consolidated statements of operations: product costs and related discounts, markdowns, freight, shrinkage, capitalized inventory costs, distribution center costs (including payroll, rent, supplies, depreciation, and other operating expenses), and store occupancy costs (including rent, common area maintenance, depreciation, repairs and maintenance, taxes, insurance, and others). The Company’s gross margin may not be comparable to that of other retailers, since some retailers exclude items such as their distribution and occupancy costs from cost of sales and include them in other financial statement lines.

12

Selling, general and administrative expenses

Consolidated selling, general and administrative expenses (SG&A) increased $3.3 million, or 1.7%, to $192.6 million in 2003 from $189.3 million in 2002. As a percentage of sales, SG&A increased to 25.6% in 2003 from 25.2% in 2002. This increase primarily resulted from an increase in SG&A expenses as a percentage of sales for the Borders and Waldenbooks segments, while the International percentage decreased. The increase in the Waldenbooks and Borders segments was primarily due to store payroll costs representing a higher percentage of sales, while the improvement in the International segment was primarily the result of store and administrative payroll costs, along with the store operating expenses, increasing at rates less than the sales growth.

The Company classifies the following items as “Selling, general and administrative expenses” on its consolidated statements of operations: store and administrative payroll, utilities, supplies and equipment costs, credit card and bank processing fees, bad debt, legal and consulting fees, advertising, referral fee income and other.

Interest expense

Consolidated interest expense decreased $0.2 million, or 8.3%, to $2.2 million in 2003 from $2.4 million in 2002. This was primarily due to lower average debt levels in 2003 as compared to 2002, which primarily resulted from increased cash flow generated by the Borders segment.

Taxes

The effective tax rate for the years presented differed from the federal statutory rate primarily as a result of state income taxes. The Company’s effective tax rate used was 38.0% in 2003 compared to 38.1% in 2002.

Net income (loss)

Due to the factors mentioned above, net income (loss) as a percentage of sales decreased to (0.6)% in 2003 from 0.5% in 2002, and net income (loss) dollars decreased to $(4.8) million in 2003 from $3.9 million in 2002.

Segment Results -- Comparison of the 13 weeks ended April 27, 2003 to the 13 weeks ended April 28, 2002

The Company is organized based upon the following operating segments: Borders stores, Waldenbooks stores, International stores, and Corporate (consisting of interest expense, certain corporate governance costs, and corporate incentive costs). Intercompany interest charges (net of related taxes) relating to the former Company-owned and -operated Borders.com web site have been included in the Corporate segment. See “Note 5 -- Segment Information” in the notes to consolidated financial statements for further information relating to these segments.

Segment data includes charges allocating all corporate support costs to each segment. Interest income and expense are allocated to segments based upon the funding required to meet the operational needs of those segments. The Company utilizes fixed interest rates, approximating the Company’s medium-term borrowing and investing rates, in calculating segment interest income and expense.

	13 WEEKS ENDED
Borders		April 27,			April 28,
(dollar amounts in millions)		2003			2002
Sales	$	521.5		$	518.5
Net income	$	4.8		$	11.2
Net income as % of sales		0.9	%		2.2	%
Depreciation expense	$	17.3		$	16.4
Interest income	$	0.9		$	--
Store openings		8			6
Store count		412			369

Sales

Borders’ sales increased $3.0 million, or 0.6%, to $521.5 million in 2003 from $518.5 million in 2002. This increase was comprised of non-comparable sales primarily associated with 2003 and 2002 store openings of $32.8 million and comparable store sales decreases of $29.8 million.

13

Comparable store sales decreased 5.0% in 2003. Borders’ comparable store sales measures, which are based upon a 52-week year, include all stores open more than one year except those not offering music (of which there are 14, representing approximately 3% of total sales). New stores are included in the calculation of comparable store sales measures upon the 13th month of operation. The comparable store sales decrease for 2003 was due primarily to the war in Iraq impacting an already slow economy and difficult retail sales environment. The resulting reduction in customer traffic led to decreased comparable sales across most categories including the two largest, books and music. Partially offsetting the weakness in the music and book categories, however, were increased comparable store sales in the movie and gifts and stationery categories. Sales of the movie category improved on a comparable store basis primarily as the result of increased sales of DVDs. This increase resulted from the increasing popularity of the DVD format. Sales of the gifts and stationery category also increased, principally the result of category management initiatives resulting in product enhancements, improved placements, and a slight increase in space allocation. However, the overall mix of book, music, movie, café, and gifts and stationery merchandise sold by Borders stores did not change significantly in 2003 as compared to 2002. The impact of price changes on comparable store sales was not significant.

Gross margin

Gross margin as a percentage of sales decreased to 26.4% in 2003 from 28.1% in 2002, primarily due to higher store occupancy costs as a percentage of sales. Store occupancy costs as a percentage of sales increased 1.2% as a result of the stores’ rent expense representing a higher percentage of sales. This was primarily due to rent expense for stores open more than one year remaining essentially flat while comparable store sales declined. In addition, stores’ rent costs represented a higher percentage of sales due to the permanent refinancing in 2002 of certain stores previously financed through the Original Lease Facility, as discussed below. Also affecting the decrease in gross margin as a percentage of sales were an increase in markdowns, freight and product costs of 0.5%.

Gross margin dollars decreased $8.0 million, or 5.5%, to $138.0 million in 2003 from $146.0 million in 2002, which was primarily due to increased store occupancy costs as a result of new store openings, the decrease in comparable store sales and the decrease in the gross margin percentage.

Selling, general and administrative

SG&A as a percentage of sales increased to 24.9% in 2003 from 24.4% in 2002. This was primarily due to an increase of 0.5% in store payroll as a percentage of sales and an increase in corporate payroll of 0.1% as a percentage of sales, partially offset by a 0.1% decrease in advertising expenses as a percentage of sales.

SG&A dollars increased $3.4 million, or 2.6%, to $129.9 million in 2003 from $126.5 million in 2002 primarily due to increased store payroll expenses resulting from new store openings, the decrease in comparable store sales and the increase in the SG&A percentage.

Depreciation expense

Depreciation expense increased $0.9 million, or 5.5%, to $17.3 million in 2003 from $16.4 million in 2002. This was primarily the result of increased depreciation expense recognized on new stores’ capital expenditures.

Interest income

Borders generated interest income of $0.9 million in 2003 due to the generation of positive cash flow.

Net income

Due to the factors mentioned above, net income as a percentage of sales decreased to 0.9% in 2003 from 2.2% in 2002, and net income dollars decreased to $4.8 million in 2003 from $11.2 million in 2002.

14

	13 WEEKS ENDED
Waldenbooks		April 27,			April 28,
(dollar amounts in millions)		2003			2002
Sales	$	150.3		$	170.0
Other revenue	$	6.0		$	6.3
Net income	$	0.5		$	1.4
Net income as % of sales		0.3	%		0.8	%
Depreciation expense	$	4.1		$	4.5
Interest income	$	9.3		$	8.3
Store openings		2			--
Store closings		6			7
Store count		774			820

Sales

Waldenbooks’ sales decreased $19.7 million, or 11.6%, to $150.3 million in 2003 from $170.0 million in 2002. This decrease was comprised of decreased comparable store sales of $14.5 million and decreased non-comparable sales associated with 2003 and 2002 store closings of $5.2 million.

Comparable store sales decreased 8.8% in 2003. Waldenbooks’ comparable store sales measures, which are based upon a 52-week year, include all stores open more than one year. New stores are included in the calculation of comparable store sales measures upon the 13th month of operation. The Company’s seasonal mall-based kiosks are also included in Waldenbooks’ comparable store sales measures. The comparable store sales decrease for 2003 was due primarily to decreased mall traffic and the impact of superstore openings. Overall, the merchandise mix did not change significantly in 2003 as compared to 2002, nor was the impact of price changes on comparable store sales significant.

Other revenue

Waldenbooks’ other revenue, which consists of membership income from the Preferred Reader Program, was largely consistent in 2003 with 2002.

Other revenue dollars were $6.0 million in 2003 and $6.3 million in 2002.

Gross margin

Gross margin as a percentage of sales decreased to 23.1% in 2003 from 23.6% in 2002. This was primarily due to a 1.5% increase in store occupancy expenses as a percentage of sales, as a result of rent expense for stores remaining open more than one year remaining essentially flat while comparable stores sales declined. This was partially offset by lower product costs of 0.5% as a percentage of sales. In addition, distribution and other costs as a percentage of sales improved 0.5% as a percentage of sales.

Gross margin dollars decreased $5.5 million, or 13.7%, to $34.7 million in 2003 from $40.2 million in 2002, primarily due to store closings, the decrease in comparable store sales, and the decrease in gross margin percentage.

Selling, general and administrative expenses

SG&A as a percentage of sales increased to 28.8% in 2003 from 27.3% in 2002. This was primarily due to increased store payroll costs of 0.9%, increased corporate payroll costs of 0.4%, increased store operating expenses of 0.3% and decreased vendor advertising income of 0.2% as a percentage of sales, partially offset by decreased corporate non-payroll costs of 0.3% as a percentage of sales.

SG&A dollars decreased $3.1 million, or 6.7%, to $43.3 million in 2003 from $46.4 million in 2002 primarily due to store closings.

Depreciation

Depreciation expense decreased $0.4 million, or 8.9%, to $4.1 million in 2003 from $4.5 million in 2002. This was primarily due to a lower fixed asset base resulting from prior year asset impairments and store closings.

Interest income

Interest income increased $1.0 million, or 12.0%, to $9.3 million in 2003 from $8.3 million in 2002. This was the result of Waldenbooks’ continued positive cash flow at fixed internal interest rates.

15

Net income

Due to the factors mentioned above, net income as a percentage of sales decreased to 0.3% in 2003 from 0.8% in 2002, while net income dollars decreased $0.9 million, or 64.3%, to $0.5 million in 2003 from $1.4 million in 2002.

	13 WEEKS ENDED
International		April 27,			April 28,
(dollar amounts in millions)		2003			2002
Sales	$	79.6		$	63.2
Net loss	$	4.2		$	4.7
Net loss as % of sales		5.3	%		7.4	%
Depreciation expense	$	2.8		$	2.3
Interest expense	$	4.6		$	3.8
Superstore store openings		3			--
Superstore store count		33			22
Books etc. store closings		1			--
Books etc. store count		36			36

Sales

International sales increased $16.4 million, or 25.9%, to $79.6 million in 2003 from $63.2 million in 2002. This was primarily the result of new superstore openings. In 2003, the Company opened three international stores in the United Kingdom. Also contributing to the increase in sales was a positive impact from the translation of foreign currencies to U.S. dollars. The overall mix of book, music, movie, cafe, and sideline merchandise sold by international superstores, and the mix of books and sidelines offered by Books etc. stores, did not change significantly in 2003 as compared to 2002. The impact of price changes on comparable store sales was also not significant.

Gross margin

Gross margin as a percentage of sales remained essentially flat at 20.0% in 2003 as compared to 2002. The International segment experienced a 0.8% increase in third party vendor income from café operations as a percentage of sales, due to the agreement with Starbucks Coffee Company (U.K.) Limited which began in June of 2002. In addition, gross margin as a percentage of sales was impacted by decreases of 0.4% in shrink and 0.1% in distribution costs as a percentage of sales. Offsetting these factors was a 1.3% increase in occupancy costs as a percentage of sales.

Gross margin dollars increased $3.3 million, or 26.2%, to $15.9 million in 2003 from $12.6 million in 2002, primarily due to new superstore openings.

Selling, general and administrative expenses

SG&A as a percentage of sales decreased to 22.5% in 2003 from 24.1% in 2002. This improvement was primarily the result of decreases in store payroll costs of 0.8%, corporate payroll costs of 0.5%, store operating expenses of 0.2% and advertising costs of 0.1% as a percentage of sales. Although these expenses increased in dollars, they increased at rates less than sales growth.

SG&A dollars increased $2.7 million, or 17.8%, to $17.9 million in 2003 from $15.2 million in 2002, primarily due to store openings and the increased store payroll and operating expenses required.

Depreciation expense

Depreciation expense increased $0.5 million, or 21.7%, to $2.8 million in 2003 from $2.3 million in 2002. This was primarily due to depreciation expense recognized on new stores’ capital expenditures.

Interest expense

Interest expense increased $0.8 million, or 21.1%, to $4.6 million in 2003 from $3.8 million in 2002. This was a result of higher average borrowing levels at fixed internal interest rates.

Net loss

Due to the factors mentioned above, net loss as a percentage of sales decreased to 5.3% in 2003 as compared to 7.4% in 2002, and net loss dollars decreased $0.5 million, or 10.6%, to $4.2 million in 2003 from $4.7 million in 2002.

16

	13 WEEKS ENDED
Corporate		April 27,		April 28,
(dollar amounts in millions)		2003		2002
Interest expense	$	7.8	$	6.9
Net loss	$	5.9	$	4.0

The Corporate segment includes unallocated interest expense, various corporate governance costs and corporate incentive costs.

Net loss dollars increased $1.9 million, or 47.5%, to $5.9 million in 2003 from $4.0 million in 2002. This was primarily due to increased interest expense for this segment primarily resulting from increased borrowings to fund corporate stock repurchases in 2003, partially offset by a reduction in various governance costs as compared to the prior year. Interest expense represents corporate-level interest costs not charged to the Company’s other segments.

Liquidity and Capital Resources

The Company’s principal capital requirements are to fund the opening of new stores, the refurbishment and expansion of existing stores, continued expansion of in-store web-based commerce technologies, and corporate information technology streamlining.

Net cash used for operations was $111.9 million and $120.2 million for the 13 weeks ended April 27, 2003 and April 28, 2002, respectively. Operating cash outflows for the period resulted from decreases in taxes payable and expenses payable and accrued liabilities, as well as increases in prepaid expenses and other long-term assets and liabilities. The most significant of these was the decrease in taxes payable, which resulted from payment of the Company’s estimated fiscal 2002 taxes. The current year operating cash inflows primarily reflect operating results net of non-cash charges for depreciation, as well as a decrease in accounts receivable and an increase in accounts payable.

Net cash used for investing was $16.4 million, which primarily funded capital expenditures for new stores and the refurbishment of existing stores. Capital expenditures in 2003 reflect the opening of 11 new superstores and two new airport stores, operated by the Waldenbooks segment. In fiscal 2002, capital expenditures were $14.6 million, which primarily funded new stores and the refurbishment of existing stores. Capital expenditures in 2002 reflected the opening of 6 new superstores. Additional capital spending in 2003 and 2002 reflected the development and installation of in-store web-based technology and spending on corporate information technology streamlining.

Net cash used for financing was $4.0 million, resulting primarily from the repurchase of common stock, offset by funding from the credit facility and the issuance of common stock. Net cash provided by financing in 2002 was $2.4 million, resulting primarily the issuance of common stock under the Company’s employee benefit plans, partially offset by repurchase of common stock.

The Company expects capital expenditures to be approximately $110.0 million to $120.0 million for the full year of 2003, resulting primarily from new domestic superstore openings. In addition, capital expenditures will result from international store openings, refurbishment of a number of existing stores, and investment in information technology streamlining. The Company currently plans to open approximately 35 to 40 domestic Borders superstores and six to eight international stores in 2003. Average cash requirements for the opening of a prototype Borders Books and Music superstore are $2.4 million, representing capital expenditures of $1.1 million, inventory requirements (net of related accounts payable) of $1.1 million, and $0.2 million of pre-opening costs. Average cash requirements to open a new or expanded Waldenbooks store range from $0.4 million to $0.7 million, depending on the size and format of the store. The Company plans to lease new store locations predominantly under operating leases.

The Company plans to execute its expansion plans for Borders superstores and other strategic initiatives principally with funds generated from operations and financing through the Credit Agreement. The Company believes funds generated from operations and borrowings under the Credit Agreement will be sufficient to fund its anticipated capital requirements for the next several years.

In May 2003, the Board of Directors authorized an increase in the Company’s share repurchase program to $150.0 million (plus any proceeds and tax benefits resulting from stock option exercises and tax benefits resulting from restricted shares purchased by employees from the Company). During the 13 weeks ended April 27, 2003 and April 28, 2002, $13.8 million and $10.7 million of common stock was repurchased, respectively. The Company currently has a share repurchase program in place with remaining authorization to repurchase approximately $141.4 million. The Company plans to continue the repurchase of its common stock throughout fiscal 2003, subject to the Company’s market conditions and trading.

17

The Company has a Multicurrency Revolving Credit Agreement (the “Credit Agreement”), which was amended in May 2003 and will expire in June 2005. The Credit Agreement provides for borrowings of up to $450.0 million. Borrowings under the Credit Agreement bear interest at a variable base rate plus an increment or LIBOR plus an increment at the Company’s option. The Credit Agreement contains covenants which limit, among other things, the Company’s ability to incur indebtedness, grant liens, make investments, consolidate or merge, declare dividends, dispose of assets, repurchase its common stock in excess of $225.0 million over the term of the Agreement (plus any proceeds and tax benefits resulting from stock option exercises and tax benefits resulting from restricted shares purchased by employees from the Company), and requires the Company to meet certain financial measures regarding fixed coverage, leverage, tangible net worth and capital expenditures. As of April 27, 2003 the Company was in compliance with all covenants contained within this agreement.

On July 30, 2002, the Company issued $50.0 million of senior guaranteed notes (the “Notes”) due July 30, 2006 and bearing interest at 6.31% (payable semi-annually). The proceeds of the sale of the Notes are being used to refinance existing indebtedness of the Company and its subsidiaries and for general corporate purposes. The note purchase agreement relating to the Notes contains covenants which limit, among other things, the Company’s ability to incur indebtedness, grant liens, make investments, engage in any merger or consolidation, dispose of assets or change the nature of its business, and requires the Company to meet certain financial measures regarding net worth, total debt coverage and fixed charge coverage. As of April 27, 2003 the Company was in compliance with all covenants contained within this agreement.

The Company has two lease financing facilities (collectively, the “Lease Financing Facilities”), which were amended in May 2003, to finance new stores and other property owned by unaffiliated entities and leased to the Company or its subsidiaries. The original facility (the “Original Lease Facility”) will expire in June 2004 (2005 if certain conditions are satisfied). In June 2002, the Company established a new facility (the “New Lease Facility”), which will expire in 2007. The aggregate amount of borrowings permitted under the Lease Financing Facilities is $25.0 million. Properties to be financed after the effective date of the New Lease Facility will be financed under that Facility, and no additional properties will be financed under the Original Lease Facility. The Lease Financing Facilities provide financing to lessors of properties leased to the Company or its subsidiaries through loans from lenders for up to 95% of a project’s cost. Additionally, under the New Lease Facility, the unaffiliated lessor will make equity contributions approximating 5% of the cost of each project. The lessors under the Original Lease Facility have made similar contributions. Independent of the Company’s obligations relating to the leases, the Company and certain of its subsidiaries guarantee payment when due of all amounts required to be paid to the third-party lenders. The principal amount guaranteed is limited to approximately 89% of the original cost of a project so long as the Company is not in default under the lease relating to such project. The agreements relating to both of the Lease Financing Facilities contain covenants and events of default that are similar to those contained in the Credit Agreement described above. The Company is in compliance with these covenants. Security interests in the properties underlying the leases and in the Company’s interests in the leases have been given to the lenders. The Lease Financing Facilities contain cross default provisions with respect to the obligations of the company under the Credit Agreement and certain other agreements to which the Company is a party. There also are cross default provisions with respect to the obligations relating to the Lease Financing Facilities of Wilmington Trust Company, as owner-trustee of a grantor trust formed for the Lease Financing Facilities, and the unaffiliated beneficial owner of the grantor trust.

To date, the Company has not been required to perform under the guarantees described above. In the event that the Company should be required to perform, borrowings under the Credit Agreement would be sufficient to meet its obligations.

Substantially all of the Company’s capital lease assets are related to properties financed under the Original Lease Facility. The Company pays lessors who have financed properties under the Original Lease Facility regular rental amounts for use of the properties. These payments are equal to the carrying cost of the lessors’ borrowings for construction of the properties, and do not include amortization of the principal amounts of the lessors’ indebtedness relating to the properties. The rental payments are categorized as occupancy expense, and as such are included as a component of “Cost of merchandise sold” in the Company’s consolidated statements of operations. These rental payments are also included in the disclosure of future minimum lease payments of operating leases.

There were 4, 33 and 7 properties financed through the Original Lease Facility at April 27, 2003, April 28, 2002 and January 26, 2003, respectively, with financed values of $22.6 million, $119.0 million and $36.3 million. The Company has recorded approximately $19.0 million in 2003 and $50.0 million in 2002 of the amounts outstanding under the Original Lease Facility as capitalized leases under “Other assets” (for the capital lease assets) and “Long-term capital lease and financing obligations” (for the capital lease liabilities) on the consolidated balance sheets. These amounts have been treated as non-cash items on the consolidated statements of cash flows. There were no borrowings under the New Lease Facility as of April 27, 2003. In the first quarter of 2003, the Company permanently financed, through long-term leases, three properties that had been financed through the Original Lease Facility with a total value of approximately $13.7 million, none of which had been capitalized.

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Management believes that the rental payments for properties financed through the Lease Financing Facilities may be lower than those which the Company could obtain elsewhere due to, among other factors, (i) the lower borrowing rates available to the Company’s landlords under the facility and (ii) the fact that rental payments for properties financed through the facility do not include amortization of the principal amounts of the landlords’ indebtedness related to the properties. Rental payments relating to such properties will be adjusted when permanent financing is obtained to reflect the interest rates available at the time of the refinancing and the amortization of principal.

During 1994, the Company entered into agreements in which leases with respect to four Borders locations served as collateral for certain mortgage pass-through certificates. These mortgage pass-through certificates included a provision requiring the Company to repurchase the underlying mortgage notes in certain events. In the fourth quarter of fiscal 2001, the Company was obligated to purchase the notes for $33.5 million and cash payment to retain these notes was made in the first quarter of 2002. As a result, the Company has categorized this prepaid rent amount as part of “Other assets” in the consolidated balance sheets, and is amortizing the balance over each property’s remaining lease term.

The following table summarizes the Company's significant financing and lease obligations at April 27, 2003:

.

						Fiscal Year
							2008 and
(dollars in millions)		2003		2004-2005		2006-2007		thereafter		Total
Credit Agreement borrowings	$	116.3	$	--	$	--	$	--	$	116.3
Capital lease obligations		0.4		19.0		--		--		19.4
Operating lease obligations		233.1		574.4		533.6		2,225.2		3,566.3
Senior guaranteed notes		--		--		50.0		--		50.0
Total	$	349.8	$	593.4	$	583.6	$	2,225.2	$	3,752.0
Lease Facility guarantees (1)	$	22.6	$	--	$	--	$	--	$	22.6

(1) Includes $19.0 million treated as capital lease and financing obligations.

The Company is subject to risk resulting from interest rate fluctuations since interest on the Company's borrowings is principally based on variable rates. The Company's objective in managing its exposure to interest rate fluctuations is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. The Company primarily utilizes interest rate swaps to achieve this objective, effectively converting a portion of its variable rate exposures to fixed interest rates.

A portion of the Company’s operations takes place in foreign jurisdictions, primarily the United Kingdom, Australia, New Zealand and Singapore. As a result, the Company’s financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets where the Company operates. Most transactions in foreign jurisdictions are denominated in local currency, including local currency borrowings through the Company’s Credit Agreement. The Company has generally not used derivative instruments to manage foreign currency risks.

Critical Accounting Policies and Estimates

In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses the Company’s most critical accounting policies and estimates. There have been no significant changes in these during 2003 as compared to the prior year, other than the policy addressing advertising and vendor incentive programs, as noted below.

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Asset Impairments

The carrying value of long-lived assets is evaluated whenever changes in circumstances indicate the carrying amount of such assets may not be recoverable. In performing such reviews for recoverability, the Company compares the expected cash flows to the carrying value of long-lived assets for the applicable stores. If the expected future cash flows are less than the carrying amount of such assets, the Company recognizes an impairment loss for the difference between the carrying amount and the estimated fair value. Expected future cash flows, which are estimated over each store’s remaining lease term, contain estimates of sales and the impact those future sales will have upon cash flows. Future sales are estimated based upon a projection of each store’s sales trend of the past several years. Additionally, each store’s future cash contribution is based upon the most recent year’s actual cash contribution, but is adjusted based upon projected sales trends. Fair value is estimated using expected discounted future cash flows, with the discount rate approximating the Company’s borrowing rate. Significant deterioration in the performance of the Company’s stores compared to projections could result in significant additional asset impairments.

Goodwill Impairment

Upon adoption of FAS 142 on January 28, 2002, the Company’s goodwill was tested for impairment, and no impairment existed. The carrying amounts of the net assets of the applicable reporting units (including goodwill) were compared to the estimated fair values of those reporting units. Fair value was estimated using a discounted cash flow model which depended on, among other factors, estimates of future sales and expense trends, liquidity, and capitalization. The discount rate used approximated the weighted average cost of capital of a hypothetical third party buyer. Changes in any of the assumptions underlying these estimates may result in the future impairment of goodwill. The Company’s annual tests of goodwill impairment are based upon the methodology described above and are subject to the same risks and uncertainties.

Inventory

The carrying value of the Company’s inventory is affected by reserves for shrinkage and non-returnable inventory. Projections of shrinkage are based upon the results of regular, periodic physical counts of the Company’s inventory. The Company’s shrinkage reserve is adjusted as warranted based upon the trends yielded by the physical counts. Reserves for non-returnable inventory are based upon the Company’s history of liquidating non-returnable inventory. The markdown percentages utilized in developing the reserve are evaluated against actual, ongoing markdowns of non-returnable inventory to ensure that they remain consistent. Significant differences between future experience and that which was projected (for either the shrinkage or non-returnable inventory reserves) could affect the recorded amounts of inventory and cost of sales.

The Company includes certain distribution and other expenses in its inventory costs, particularly freight, distribution payroll, and certain occupancy expenses. In addition, certain selling, general and administrative expenses are included in inventory costs. These amounts totaled approximately $81.0 million and $84.6 million as of April 27, 2003 and April 28, 2002, respectively. The extent to which these costs are included in inventory is based on certain estimates of space and labor allocation.

Leases

All leases, including those for properties financed through the Lease Financing Facilities, are reviewed for capital or operating classification at their inception under the guidance of Statement of Financial Accounting Standards No. 13, “Accounting for Leases” (FAS 13), as amended. The leases of certain properties financed through the Original Lease Facility were capitalized based upon this and other guidance.

Furthermore, properties financed through the Lease Financing Facilities are evaluated under various accounting literature including EITF 92-1, “Allocation of Residual Value or First-Loss Guarantee to Minimum Lease Payments in Leases Involving Land and Buildings”, EITF 97-1, “Implementation Issues in Accounting for Lease Transactions Including those Involving Special Purpose Entities”, EITF 97-10, “The Effect of Lessee Involvement in Asset Construction”, among others. Based on the results of analysis performed by the Company, leases of the properties financed through the Original Lease Facility at April 27, 2003 are recorded as capital leases in the consolidated financial statements of the Company.

Advertising and Vendor Incentive Programs

The Company receives payments and credits from vendors pursuant to co-operative advertising programs, shared markdown programs, purchase volume incentive programs and magazine slotting programs. These programs continue to be beneficial for both the Company and vendors, and the Company expects continued participation in these types of programs. Changes in vendor participation levels, as well as changes in the volume of merchandise purchased, among other factors, could adversely impact the Company’s results of operations and liquidity.

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Pursuant to co-operative advertising programs offered by vendors, the Company contracts with vendors to promote merchandise for specified time periods. Pursuant to the provisions of Emerging Issues Task Force Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor” (EITF 02-16), which the Company adopted effective January 1, 2003, vendor consideration which represents a reimbursement of specific, incremental, identifiable costs is included in the “Selling, general and administrative” line on the consolidated statements of operations, along with the related costs, in the period the promotion takes place. Consideration which exceeds such costs is classified as a reduction of the “Cost of merchandise sold” line on the consolidated statements of operations. Prior to the adoption of EITF 02-16, all consideration and costs pursuant to co-operative advertising programs were included in the “Selling, general and administrative expenses” line of the consolidated statements of operations. The Company has reclassified the prior year’s vendor consideration to conform to current year presentation and EITF 02-16. Additionally, the Company recorded $0.3 million of excess vendor consideration as a reduction to its inventory balance at April 27, 2003.

The Company also receives credits from vendors pursuant to shared markdown programs, purchase volume programs, and magazine slotting programs. Credits received pursuant to these programs are classified in the “Cost of merchandise sold” line on the consolidated statements of operations, and are recognized upon certain product volume thresholds being met or product placements occurring.

New Accounting Guidance

As discussed above, the Emerging Issues Task Force issued EITF 02-16 in November 2002, which is effective prospectively for all vendor arrangements entered into after December 31, 2002. As previously discussed, the Consensus requires that consideration received from a vendor be considered a reduction of the prices of vendor’s products and shown as a reduction of cost of sales in the income statement of the customer. If the consideration represents a reimbursement of specific incremental identifiable costs incurred, these amounts should be offset against the related costs with any excess consideration recorded in cost of sales. In fiscal 2003, the Company has reclassified the prior year’s vendor consideration to conform to current year presentation and EITF 02-16. Additionally, the Company recorded $0.3 million of excess vendor consideration as a reduction to its inventory balance at April 27, 2003.

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity.

The Company leases four properties from unconsolidated variable interest entities (VIEs) that had borrowings outstanding under the Original Lease Facility at January 26, 2003 and April 27, 2003. Third parties have invested capital at risk equal to or in excess of 5% of the assets of the VIEs, with the remainder being financed through borrowings under the Original Lease Facility. This, and certain other criteria, allow the Company not to consolidate the VIEs in the Company’s financial statements at April 27, 2003. Rather, the Company accounts for these arrangements as capital leases. Accordingly, the capitalizable portion of the leased facilities and the related borrowings are reported in the Company’s accompanying balance sheets. Independent of the Company’s obligations relating to these leases, the Company and certain of its subsidiaries guarantee payment when due of all amounts required to be paid to the third-party lenders. At April 27, 2003, the maximum loss that the Company could incur under these guarantees approximated $22.6 million.

The Company also leases two properties from unconsolidated VIEs that had borrowings outstanding under the Original Lease Facility at January 26, 2003, but whose borrowings had been permanently financed through long-term leases during the first quarter of 2003. Third parties have invested capital at risk equal to 5% of the assets of the VIEs, with the remainder being financed through borrowings unrelated to the Lease Financing Facilities. This, and certain other criteria, allow the Company not to consolidate the VIEs in the Company’s financial statements at April 27, 2003. Rather, the Company accounts for these arrangements as operating leases. Accordingly, neither the leased facilities nor the related debt is reported in the Company’s accompanying balance sheets. Independent of the Company’s obligations relating to these leases, the Company and certain of its subsidiaries guarantee payment when due of all amounts required to be paid to the third-party lenders. At April 27, 2003, the maximum loss that the Company could incur under these guarantees approximated $6.0 million.

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The Company anticipates permanently refinancing two of the properties with borrowings outstanding under the Original Lease Facility at January 26, 2003 and April 27, 2003 through long-term leases. The Company expects to begin consolidating the remaining four VIEs in the quarter ending October 26, 2003, because it believes it is the VIEs’ primary beneficiary under FIN 46‘s requirements. At October 26, 2003, consolidation of these VIEs would have the effect of increasing property and equipment by $7.1 million, net of accumulated depreciation of $1.5 million, and increasing long-term capital lease and financing obligations by $6.9 million. Minority interests of $1.7 million would also be reported, and the Company would record a charge of $1.0 million, net of tax, as a cumulative effect of change in accounting principle.

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (FAS 149). In general, this statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”. This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of FAS 149 is not expected to have an impact on the Company’s consolidated financial position or disclosures.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (FAS 150). This statement affects the classification, measurement and disclosure requirements of the following three types of freestanding financial instruments: 1) manditorily redeemable shares, which the issuing company is obligated to buy back with cash or other assets; 2) instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets, which includes put options and forward purchase contracts; and 3) obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuers’ shares. In general, FAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of FAS 150 is not expected to have an impact on the Company’s consolidated financial position or disclosures.

Related Party Transactions

The Company has not engaged in any related party transactions which would have had a material effect on the Company’s financial position, cash flows, or results of operations.

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management’s current expectations and are inherently uncertain. The Company’s actual results may differ significantly from management’s expectations. Exhibit 99.1 to this report, “Cautionary Statement under the Private Securities Litigation Reform Act of 1995", identifies the forward-looking statements and describes some, but not all, of the factors that could cause these differences.

ITEM 4. CONTROLS AND PROCEDURES

Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.

Changes in Internal Controls

Since the Evaluation Date, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect such controls.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company’s Form 10-K Annual Report for the fiscal year ended January 26, 2003, describes pending lawsuits and claims against the Company. The status of such litigation and claims has not changed in any significant respect except as follows:

Mediation of the California overtime litigation did not result in a resolution of the matter, and the Company will continue to vigorously defend the action. Given current factual and legal uncertainties, the Company is not in a position to reasonably estimate the amount of the loss, if any. The trial has been scheduled for March 15, 2004.

Although an adverse resolution the lawsuits or claims described or referred to above could have a material adverse effect on the result of the operations of the Company for the applicable period or periods, the Company does not believe that any such litigation or claims will have a material effect on its liquidity or financial position.

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS:

(a)	Exhibits:
		10.51	Amendment No. 2 to the Multicurrency Revolving Credit Agreement dated as of May 20, 2003 among Borders Group Inc., certain of its subsidiaries and other Parties thereto.
		10.52	Omnibus Amendment No. 2 dated as of May 20, 2003, relating to the Amended and Restated Participation Agreement, the Amended and restated Credit Agreement, the Amended and Restated Guarantee Agreement, and certain other agreements among Borders Group Inc., certain of its subsidiaries and other Parties thereto.
		10.53	Amendment No. 1 to the Master Agreement dated as of May 20, 2003 among Borders Group Inc., certain of its subsidiaries and other Parties thereto.
		99.1	Cautionary Statement under the Private Securities Litigation Reform Act of 1995 - "Safe Harbor" for Forward-Looking Statements.
		99.2	Statement of Gregory P. Josefowicz, Chairman, President and Chief Executive Officer of Borders Group, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
		99.3	Statement of Edward W. Wilhelm, Senior Vice President and Chief Financial Officer of Borders Group, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b)	Reports on Form 8-K:
		Subsequent to the 13 weeks ended April 27, 2003 and prior to the filing of this Form 10-Q, one report was filed on Form 8-K under Item 9. Regulation FD Disclosure. This report, filed on May 22, 2003, furnished a press release with earnings information for the quarter ended April 27, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

BORDERS GROUP, INC.
(Registrant)

Date:        June 11, 2003	By: /s/ Edward W. Wilhelm
	Edward W. Wilhelm
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial and
	Accounting Officer)

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CERTIFICATIONS

I, Gregory P. Josefowicz, certify that:
1)	I have reviewed this quarterly report on Form 10-Q of Borders Group, Inc.;
2)	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3)	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4)	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5)	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6)	The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:     June 11, 2003	By:     /s/Gregory P. Josefowicz
	Gregory P. Josefowicz
	Chairman, President and
	Cheif Executive Officer

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I, Edward W. Wilhelm, certify that:
1)	I have reviewed this quarterly report on Form 10-Q of Borders Group, Inc.;
2)	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3)	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4)	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5)	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6)	The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:     June 11, 2003	By:     /s/ Edward W. Wilhelm
	Edward W. Wilhelm
	Senior Vice President and
	Chief Financial Officer

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EXHIBIT INDEX

DESCRIPTION OF EXHIBITS

(a)	Exhibits:
		10.51	Amendment No. 2 to the Multicurrency Revolving Credit Agreement dated as of May 20, 2003 among Borders Group Inc., certain of its subsidiaries and other Parties thereto.
		10.52	Omnibus Amendment No. 2 dated as of May 20, 2003, relating to the Amended and Restated Participation Agreement, the Amended and restated Credit Agreement, the Amended and Restated Guarantee Agreement, and certain other agreements among Borders Group Inc., certain of its subsidiaries and other Parties thereto.
		10.53	Amendment No. 1 to the Master Agreement dated as of May 20, 2003 among Borders Group Inc., certain of its subsidiaries and other Parties thereto.
		99.1	Cautionary Statement under the Private Securities Litigation Reform Act of 1995 - "Safe Harbor" for Forward-Looking Statements.
		99.2	Statement of Gregory P. Josefowicz, Chairman, President and Chief Executive Officer of Borders Group, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
		99.3	Statement of Edward W. Wilhelm, Senior Vice President and Chief Financial Officer of Borders Group, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b)	Reports on Form 8-K:
		Subsequent to the 13 weeks ended April 27, 2003 and prior to the filing of this Form 10-Q, one report was filed on Form 8-K under Item 9. Regulation FD Disclosure. This report, filed on May 22, 2003, furnished a press release with earnings information for the quarter ended April 27, 2003.

27

EX-10

EXHIBIT 10.53

BORDERS GROUP, INC.

FIRST AMENDMENT TO MASTER AGREEMENT

         This FIRST AMENDMENT TO MASTER AGREEMENT, dated as of May 20, 2003 (this “Amendment”), is among BORDERS GROUP, INC. (“BGI”) and certain Subsidiaries of BGI that are party hereto, as Guarantors (“Guarantors”), Borders, Inc., and certain other Subsidiaries of BGI that are party hereto as Lessees (“Lessees”), ATLANTIC FINANCIAL GROUP, LTD. (“Lessor”), certain financial institutions party hereto, as Lenders (each a “Lender” and, collectively, the “Lenders”), and FLEET NATIONAL BANK, as Co-Arranger and Syndication Agent, SUNTRUST BANK, a Georgia banking corporation, as Co-Arranger, Document Agent and Agent for the Lenders.

BACKGROUND

         1.   Lessees, Guarantors, Lessor, the Lenders, the Co-Arrangers, the Syndication Agent, the Documentation Agent and the Agent are parties to that certain Master Agreement, dated as of June 21, 2002 (as heretofore amended, the “Master Agreement”).

         2.   The parties hereto desire to amend the Master Agreement in certain respects as set forth herein.

         NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

         Section 1.   Definitions. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned thereto in the Master Agreement.

         Section 2.   Amendment. (a)  Section 2.2(c) of the Master Agreement is hereby amended by deleting the amount “$75,000,000” where it appears in subclause (i) of clause (y) of the first sentence thereof and substituting therefor the amount “$25,000,000”.

         (b)   The definition of “Required Funding Parties” set forth in Appendix A to the Master Agreement is hereby amended by deleting the percentage “50%” where it appears in the second line thereof and substituting therefor the percentage “75%.”

         (c)   The definition of “Required Lenders” set forth in Appendix A to the Master Agreement is hereby amended by deleting the percentage “50%” where it appears in the second line thereof and substituting therefor the percentage “75%.”

         (d)   The definition of “Restricted Payment Amount” set forth in Appendix A to the Master Agreement is hereby deleted in its entirety and the following definition is substituted therefor:

         “Restricted Payment Amount” means, over the term of the Revolving Credit Agreement, an amount not to exceed the sum of (i) $225,000,000 plus (ii) the aggregate amount paid to BGI (whether in cash or in shares of BGI’s stock), from time to time and at any time since the Documentation Date, by officers, employees or directors of BGI or any of its Subsidiaries in connection with the exercise of options to purchase shares of BGI’s stock, plus (iii) the realized tax benefit (as calculated by BGI in a manner satisfactory to the Agent) for tax years ending after the Documentation Date, resulting from the exercise, from time to time and at any time since the Documentation Date, of such options or resulting from the lapse, from time to time and at any time since the Documentation Date, of restrictions on (and vesting of rights in) certain shares of BGI’s stock subject to the Management Stock Purchase Plan or any similar successor plan. For purposes of calculating the Restricted Payment Amount, to the extent shares of BGI’s stock are delivered to BGI in payment of the exercise price of options, or in payment of taxes associated with the exercise of options or the vesting of restricted shares, such delivered shares are deemed to be repurchased by BGI at fair market value (as defined in BGI’s stock option plan) on the date of delivery to BGI. Such delivered share repurchases will serve to reduce the available Restricted Payment Amount.

         (e)   Schedule 2.2 to the Master Agreement is hereby amended by deleting such schedule in its entirety and substituting therefor Schedule 2.2 attached hereto.

         Section 3.   Departing Lenders. Each of the financial institutions that was party to the Master Agreement but is designated on the signature pages hereto as a “Departing Lender” shall have no further rights or obligations under the Operative Documents, except that all claims of the Departing Lenders pertaining to the representations, warranties, covenants and indemnities of the Borrower, the Guarantors and the Lessees under the Operative Documents (without giving effect to this Amendment) shall survive in accordance with the terms of the Operative Documents (without giving effect to this Amendment) to the extent such claims arose out of events occurring prior to the date hereof.

         Section 4.   Notes. The Notes issued by the Lessor on the Closing Date to the Agent (the “Original Notes”) shall be replaced with a new A Note and B Note for the benefit of the Lenders; upon such replacement, such Original Notes shall be deemed to be cancelled. Any reference to the Notes in the Operative Documents shall be deemed to refer to such replacement Notes.

         Section 5.   Guarantee; Representations. The Guarantors hereby affirm their obligations under the Guaranty after giving effect to this Amendment. Each Guarantor and each Lessee hereby represents and warrants that, after giving effect to this Amendment, (i) no Event of Default or Default has occurred and is continuing or will result from this Amendment, (ii) there shall not have occurred any event that could reasonably be expected to have a Material Adverse Effect since the Balance Sheet Date, and (iii) each representation and warranty of each Guarantor and each Lessee contained in the Master Agreement and the other Operative Documents is true and correct in all material respects on the date hereof as though made on and as of the date hereof, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date.

         Section 6.   Conditions. The effectiveness of this Amendment shall be conditioned upon the receipt by the Agent of the following documents, each of which shall be satisfactory in form and substance to the Agent: (i) the replacement Notes referred to in Section 4 of this Amendment executed by the Borrower; (ii) certificates of an appropriate officer of each of the Guarantors and the Lessees, dated as of the date hereof, certifying as to (A) no amendments, modifications or supplements to the Governing Documents of any Guarantor or Lessee and that such Governing Documents are in full force and effect or attaching certified copies of any amendments, modifications or supplements thereto, (B) the corporate actions taken by each of the Guarantors and the Lessees authorizing the execution, delivery, and performance hereof, and (C) the names, titles, incumbency, and specimen signatures of the officers of each of the Guarantors and the Lessees authorized to sign this Amendment on behalf of such Guarantor or Lessee; and (iii) receipt by the Departing Lenders of all accrued interest, costs, expenses and fees of the Departing Lenders in accordance with the Operative Documents (including their pro rata share of the Facility Fee due July 1, 2003).

         Section 7.   Miscellaneous. This Amendment shall be governed by, and construed in accordance with, the laws of the state of Georgia. This Amendment may be executed by the parties hereto in separate counterparts, (including by facsimile), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same agreement. The Operative Documents, as amended hereby, remain in full force and effect. Any reference to any Operative Document from and after the date hereof shall be deemed or referred to such Operative Documents and amended hereby, unless otherwise expressly stated.

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective duly authorized officers as of the year first above written.

BORDERS GROUP, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Chief Financial Officer

BORDERS, INC., as a Lessee and a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

PLANET MUSIC, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

BORDERS PROPERTIES, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

WALDENBOOKS PROPERTIES, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

BORDERS ONLINE, LLC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

BORDERS OUTLET, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

BORDERS FULFILLMENT, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

THE LIBRARY, LTD., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

WALDEN BOOK COMPANY, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

BORDERS ONLINE, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

ATLANTIC FINANCIAL GROUP, LTD., as Lessor

By:Atlantic Financial Managers, Inc., its General Partner

By: /S/ STEPHEN BROOKSHIRE             

Name Printed: Stephen Brookshire

Title: President

SUNTRUST BANK, as Co-Arranger, Documentation Agent, Agent and as a Lender

By: /S/ WILLIAM C. HUMPHRIES             

Name Printed: William C. Humphries

Title: Director

FLEET NATIONAL BANK, as Co-Arranger and Syndication Agent

By:                                                               

Name Printed:

Title:

PNC BANK NATIONAL ASSOCIATION, as a Departing Lender

By: /S/ SHARON L. GEFFEL          

Name Printed: Sharon L. Geffel

Title: Assistant Vice President

COMERICA BANK, as a Departing Lender

By: /S/ DAVID C. BIRD                 

Name Printed: David C. Bird

Title: Vice President

HIBERNIA NATIONAL BANK, as a Lender

By: /S/ LAURA K. WATTS          

Name Printed: Laura K. Watts

Title: Vice President

THE BANK OF NEW YORK, as a Departing Lender

By: /S/ WILLIAM BARNUM          

Name Printed: William Barnum

Title: Vice President

U.S. BANK NATIONAL ASSOCIATION, as a Departing Lender

By: /S/ THOMAS L. BAYER          

Name Printed: Thomas L. Bayer

Title: Vice President

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Departing Lender

By: /S/ WILLIAM F. FOX          

Name Printed: William F. Fox

Title: Vice President

NATIONAL CITY BANK, as a Departing Lender

By: /S/ BRIAN R. STRAYTON          

Name Printed: Brian R. Strayton

Title: Vice President

MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., as a Lender

By: /S/ RANDALL R. MECK          

Name Printed: Randall R. Meck

Title: Vice President

SCHEDULE 2.2

AMOUNT OF EACH FUNDING PARTY'S
COMMITMENT AND MAXIMUM COMMITMENT

Lessor Commitment Percentage:	5%
Lender Commitment Percentages:
SunTrust Bank	15%
Hibernia National Bank	20%
Merrill Lynch Buisness Financial Services Inc.	60%
Lessor Maximum Commitment:	$1,250,000
Lender Maximum Commitments:
SunTrust Bank	$3,750,000
Hibernia National Bank	$5,000,000
Merrill Lynch Buisness Financial Services Inc.	$15,000,000

EX-10

EXHIBIT 10.52

BORDERS GROUP, INC.

OMNIBUS AMENDMENT NO. 2

         This OMNIBUS AMENDMENT NO. 2, dated as of May 20, 2003 (this “Amendment”), is among BORDERS GROUP, INC. (the “Company”), BORDERS, INC. (“Borders”), WALDEN BOOK COMPANY, INC. (“Walden”), WALDENBOOKS PROPERTIES, INC. (“WPI”), BORDERS PROPERTIES, INC. (“BPI”), WILMINGTON TRUST COMPANY, not in its individual capacity, except as expressly stated herein, but solely as Owner Trustee (“Owner Trustee”), SAM PROJECT FUNDING CORP. I, as Investor (“Investor”), SUNTRUST BANK, as Co-Arranger, Administrative Agent (“Administrative Agent”), Real Estate Administrative Agent (“Real Estate Administrative Agent”) and Documentation Agent (“Documentation Agent”), FLEET NATIONAL BANK (f/k/a BankBoston, N.A.), as Co-Arranger (together with SunTrust Bank, each a “Co-Arranger” and collectively, “Co-Arrangers”) and Syndication Agent (“Syndication Agent”), and the Lenders party thereto (the “Lenders”).

BACKGROUND

         1.   The Company, Borders, Walden, WPI, BPI, Owner Trustee, Investor, Administrative Agent, Syndication Agent, Real Estate Administrative Agent, Documentation Agent and certain of the Lenders are parties to that certain Participation Agreement, dated as of November 22, 1995, which was Amended and Restated October 17, 1997, and which was amended pursuant to the Omnibus Amendment dated as of June 21, 2002 (as heretofore amended, the “Participation Agreement”).

         2.   Owner Trustee, as Borrower, Administrative Agent, Syndication Agent and Real Estate Administrative Agent are parties to that certain Credit Agreement, dated as of November 22, 1995, which was Amended and Restated as of October 17, 1997, and which was amended pursuant to the Omnibus Amendment dated as of June 21, 2002 (as heretofore amended, the “Credit Agreement”).

         3.   The parties hereto desire to amend the Participation Agreement, the Credit Agreement and certain other Operative Agreements (as defined below) in order to decrease the facility provided thereunder and reallocate the outstanding amounts of the Loans among the Lenders.

         NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

         Section 1.   Definitions. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned thereto in the Participation Agreement.

         Section 2.   Certain Definitions.  Appendix A is hereby amended by deleting the definitions “Aggregate Commitment Amount”, “New Synthetic Lease Facility”, “Required Lenders” and “Restricted Payment Amount” and the following definitions are substituted therefor:

         “Aggregate Commitment Amount” shall mean $25,000,000, as such amount may be increased or decreased pursuant to the Credit Agreement.

         “New Synthetic Lease Facility” shall mean the Synthetic Lease facility agented by SunTrust Bank to be entered into by the Company and certain of its Subsidiaries on June 21, 2002 pursuant to the New Synthetic Lease Documents with a total facility amount not to exceed $25,000,000.

         “Required Lenders” shall mean (i) Lenders whose Commitments aggregate 80% of the Commitments of all of the Lenders, or (ii) if the Commitments shall have been terminated, Lenders whose outstanding Loans aggregate 80% of the total principal amount of outstanding Loans hereunder.

         “Restricted Payment Amount” means, over the term of the Revolving Credit Agreement, an amount not to exceed the sum of (i) $225,000,000 plus (ii) the aggregate amount paid to the Company (whether in cash or in shares of the Company’s stock), from time to time and at any time since the Omnibus Amendment Effective Date, by officers, employees or directors of the Company or any of its Subsidiaries in connection with the exercise of options to purchase shares of the Company’s stock, plus (iii) the realized tax benefit (as calculated by the Company in a manner satisfactory to the Agent) for tax years ending after the Omnibus Amendment Effective Date, resulting from the exercise, from time to time and at any time since the Omnibus Amendment Effective Date, of such options or resulting from the lapse, from time to time and at any time since the Omnibus Amendment Effective Date, of restrictions on (and vesting of rights in) certain shares of the Company’s stock subject to the Management Stock Purchase Plan or any similar successor plan. For purposes of calculating the Restricted Payment Amount, to the extent shares of the Company’s stock are delivered to the Company in payment of the exercise price of options, or in payment of taxes associated with the exercise of options or the vesting of restricted shares, such delivered shares are deemed to be repurchased by the Company at fair market value (as defined in the Company’s stock option plan) on the date of delivery to the Company. Such delivered share repurchases will serve to reduce the available Restricted Payment Amount.

         Section 3.   Aggregate Limit on Loans.  (a) Section 2.01 of the Participation Agreement is hereby amended by deleting the amount “$100,000,000” where it appears in clause (a) of the first sentence thereof and substituting therefor the amount “$25,000,000”.

         (b)   Section 2.02 of the Participation Agreement is hereby amended by deleting the amount “$100,000,000” where it appears in the third line thereof and substituting therefor the amount “$25,000,000”.

         Section 4.   Amendment of Commitments. Section 12.01 of the Credit Agreement is hereby amended by deleting the amount “$100,000,000” where it appears in clause (ii) of the second sentence thereof and substituting therefor the amount “$25,000,000”.

         Section 5.   Amendment of Guarantee. Section 12.01(j) of the Guarantee is hereby amended by deleting the amount “$75,000,000” where it appears in the last line thereof and substituting therefore the amount “$25,000,000”.

         Section 6.   Commitments; Departing Lenders. Schedule II to the Credit Agreement is hereby amended by deleting it in its entirety and substituting therefor Schedule II attached hereto. On the date hereof, the Lenders that are listed on Schedule II attached hereto (the “Remaining Lenders”) shall make payments to the Administrative Agent, who shall distribute such payments to the other Lenders (including the Departing Lenders) as prepayments of the principal of such other Lenders’ Revolving Credit Loans and Swing Loans, such that, after giving effect to such payment and distributions, each Lender’s outstanding Revolving Credit Loans shall be equal to the product of (A) aggregate outstanding Revolving Credit Loans times (B) such Lender’s Ratable Share. Such payment shall be made in immediately available funds to such account as the Administrative Agent shall specify to the Lenders. Each of the financial institutions that was party to the Participation Agreement and the Credit Agreement but is designated on the signature pages hereto as a “Departing Lender” hereby acknowledges receipt as of the date hereof of the amounts distributable to it pursuant to this Section, and in connection therewith such Departing Lender shall have no further rights or obligations under the Operative Agreements, except that all claims of the Departing Lenders pertaining to the representations, warranties, covenants and indemnities of the Borrower, the Guarantors and the Lessees under the Operative Agreements (without giving effect to this Amendment) shall survive in accordance with the terms of the Operative Agreements (without giving effect to this Amendment) to the extent such claims arose out of events occurring prior to the date hereof.

         Section 7.   Notes. The Notes issued by the Borrower on the Omnibus Amendment Effective Date to the Administrative Agent (the “Original Notes”) shall be replaced with Tranche A Note and Tranche B Note issued by the Borrower to the Administrative Agent for the benefit of the Lenders; upon such replacement, such Original Notes shall be deemed to be cancelled. Any reference to the Notes in the Operative Agreements shall be deemed to refer to such replacement Notes.

         Section 8.   Guarantee; Representations. The Guarantors hereby affirm their obligations under the Guarantee after giving effect to this Amendment. Each Guarantor and each Lessee hereby represents and warrants that, after giving effect to this Amendment, (i) no Lease Event of Default, Event of Default, Lease Default or Default has occurred and is continuing or will result from this Amendment, (ii) there shall not have occurred any event that could reasonably be expected to have a Material Adverse Effect since the Balance Sheet Date, and (iii) each representation and warranty of each Guarantor and each Lessee contained in the Participation Agreement and the other Operative Agreements is true and correct in all material respects on the date hereof as though made on and as of the date hereof, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date.

         Section 9.    Conditions. The effectiveness of this Amendment shall be conditioned upon the receipt by the Administrative Agent of the following documents, each of which shall be satisfactory in form and substance to the Administrative Agent: (i) the replacement Notes referred to in Section 7 of this Amendment executed by the Borrower; (ii) certificates of an appropriate officer of each of the Guarantors and the Lessees, dated as of the date hereof, certifying as to (A) no amendments, modifications or supplements to the Governing Documents of any Guarantor or Lessee and that such Governing Documents are in full force and effect or attaching certified copies of any amendments, modifications or supplements thereto, (B) the corporate actions taken by each of the Guarantors and the Lessees authorizing the execution, delivery, and performance hereof, and (C) the names, titles, incumbency, and specimen signatures of the officers of each of the Guarantors and the Lessees authorized to sign this Amendment on behalf of such Guarantor or Lessee; and (iii) receipt by the Departing Lenders of the prepayment amounts of Revolving Credit Loans and Swing Loans described in Section 6 hereof, together with the payment by the Lessees and the Guarantors of all accrued interest, costs, expenses and fees of the Departing Lenders in accordance with the Operative Agreements (including their pro rata share of the Facility Fee due July 1, 2003.

         Section 10.    Miscellaneous. This Amendment shall be governed by, and construed in accordance with, the laws of the state of New York. This Amendment may be executed by the parties hereto and separate counterparts, (including by facsimile), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one in the same agreement. The Operative Agreements, as amended hereby, remain in full force and effect and are hereby ratified by each of the parties hereto. Any reference to any Operative Agreement from and after the date hereof shall be deemed to refer to such Operative Agreements as amended hereby, unless otherwise expressly stated. The Company hereby agrees to promptly pay, or reimburse the Administrative Agent and the Lenders for all costs and expenses, including reasonable legal fees and disbursements, incurred by such Person in connection with this Amendment.

         Section 11.   Instruction to Owner Trustee. Each of the undersigned Lessees and Agents (the “Instructing Parties”), by executing its counterpart of this Amendment hereby authorizes and instructs the Owner Trustee to execute and deliver this Amendment, the Tranche A Note and the Tranche B Note pursuant to Section 4.2 of the Trust Agreement. Each of the undersigned Instructing Parties hereby certifies that it has reviewed and approved of this Amendment, the Tranche A Note and the Tranche B Note, and this instruction and such action by the Owner Trustee pursuant to this instruction are not contrary to any obligation of the Owner Trustee, and are consistent with, permitted by and in compliance with each of the Operative Agreements. In order to induce the Owner Trustee to take the foregoing actions, each of the undersigned Lessees hereby agrees to indemnify Wilmington Trust Company, its directors, officers, employees, and agents (each, an “Indemnitee”) for, and agrees to hold each Indemnitee harmless against, any liability, loss or expense (including, without limitation, legal and other professional fees and expenses) incurred by an Indemnitee in connection with or arising out of the taking by Wilmington Trust Company, as Owner Trustee, of the foregoing actions. In addition, the undersigned Lessees hereby consent to the taking by the Owner Trustee of the foregoing actions.

        IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective duly authorized officers as of the year first above written.

BORDERS GROUP, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Chief Financial Officer

BORDERS, INC., as a Lessee and a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

WALDEN BOOK COMPANY, INC., as a Lessee and a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

WALDENBOOKS PROPERTIES, INC., as a Lessee and a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

BORDERS PROPERTIES, INC., as a Lessee and a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

PLANET MUSIC, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

BORDERS ONLINE,LLC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

BORDERS OUTLET, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

BORDERS FULFILLMENT, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

THE LIBRARY, LTD., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

BORDERS ONLINE, INC., as a Guarantor

By: /S/ EDWARD W. WILHELM             

Name Printed: Edward W. Wilhelm

Title: Senior Vice President and Treasurer

WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee

By: /S/ JOSEPH B. FELL                

Name Printed: Joseph B. Fell

Title: Assistant Vice President

SAM PROJECT FUNDING CORP. I

By: /S/ LORI GEBRON                    

Name Printed: Lori Gebron

Title: Vice President

SUNTRUST BANK, as Co-Arranger, Documentation Agent, Administrative Agent and a Lender

By: /S/ WILLIAM C. HUMPHRIES          

Name Printed: William C. Humphries

Title: Director

FLEET NATIONAL BANK, as Co-Arranger and Syndication Agent

By:                                                               

Name Printed:

Title:

PNC BANK NATIONAL ASSOCIATION, as a Departing Lender

By: /S/ SHARON L. GEFFEL          

Name Printed: Sharon L. Geffel

Title: Assistant Vice President

COMERICA BANK, as a Departing Lender

By: /S/ DAVID C. BIRD                 

Name Printed: David C. Bird

Title: Vice President

HIBERNIA NATIONAL BANK, as a Lender

By: /S/ LAURA K. WATTS          

Name Printed: Laura K. Watts

Title: Vice President

THE BANK OF NEW YORK, as a Lender

By: /S/ WILLIAM BARNUM          

Name Printed: William Barnum

Title: Vice President

U.S. BANK NATIONAL ASSOCIATION, as a Departing Lender

By: /S/ THOMAS L. BAYER          

Name Printed: Thomas L. Bayer

Title: Vice President

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Departing Lender

By: /S/ WILLIAM F. FOX          

Name Printed: William F. Fox

Title: Vice President

NATIONAL CITY BANK, as a Departing Lender

By: /S/ BRIAN R. STRAYTON          

Name Printed: Brian R. Strayton

Title: Vice President

MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., as a Lender

By: /S/ RANDALL R. MECK          

Name Printed: Randall R. Meck

Title: Vice President

SCHEDULE II

Commitments of Lenders

Name of Lender	Address for Notices	Amount of Commitment	Ratable Share
SunTrust Bank	303 Peachtree Street Atlanta, GA 30308 Attn.: Jonathan Simon Fax No.: 404/588-8506	$5,000,000	20%
Hibernia National Bank	313 Carondelet Street 6th Floor New Orleans, Louisiana 70130 Attn: Matt Breaux Fax No.: 504/533-5344	$5,000,000	20%
Merrill Lynch Business Financial Services Inc.	222 North LaSalle Street 17th Floor Chicago, Illinois 60601 Attn: Valerie Moore Fax No.: 312/269-1379	$15,000,000	60%

EX-10

EXHIBIT 10.51

BORDERS GROUP, INC.

INCREASE OF TOTAL COMMITMENT
AND
AMENDMENT NO. 2
to the
MULTICURRENCY REVOLVING CREDIT AGREEMENT

         This INCREASE OF TOTAL COMMITMENT AND AMENDMENT NO. 2 dated as of May 20, 2003 (the “Amendment”) to the MULTICURRENCY REVOLVING CREDIT AGREEMENT is by and among BORDERS GROUP, INC. (“BGI”), BORDERS, INC., WALDEN BOOK COMPANY, INC., BGP (UK) LIMITED, BORDERS (UK) LIMITED and BORDERS AUSTRALIA PTY LTD (each individually, a “Borrower” and together with BGI, the “Borrowers”), the lending institutions signatory hereto, PNC Bank, National Association, as administrative agent for itself and such other lending institutions (the “Administrative Agent”), Fleet National Bank, as syndication agent for itself and such other lending institutions (the “Syndication Agent”), Wachovia Bank, National Association, as co-syndication agent for itself and such other lending institutions and Bank One, NA (Main Office Chicago) as documentation agent for itself and such other lending institutions.

         WHEREAS, the Borrowers, the lending institutions listed on Schedule 1 thereto (the “Lenders”), the Administrative Agent, the Syndication Agent, Wachovia Bank, National Association, as co-syndication agent for itself and such other lending institutions and Bank One, NA (Main Office Chicago) as documentation agent for itself and such other lending institutions are parties to that certain Multicurrency Revolving Credit Agreement dated as of June 21, 2002 (as amended and in effect from time to time, the “Credit Agreement”);

         WHEREAS, certain Lenders have agreed to increase their Commitments pursuant to §2.3.2 of the Credit Agreement thus increasing the Total Commitment to $450,000,000;

         WHEREAS, at the Borrowers’ request, the Lenders and the Bank Agents, subject to the terms and conditions hereof, have agreed to amend the Credit Agreement as set forth herein;

         NOW, THEREFORE, the Borrowers, the Lenders and the Bank Agents hereby agree as follows:

         §1. Defined Terms.  Capitalized terms used herein without definition that are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement.

         §2. Amendments to the Credit Agreement.  The Credit Agreement is hereby amended as follows:

         (a)   Amendment of New Synthetic Lease Facility Definition. The definition of “New Synthetic Lease Facility” set forth in §1.1 of the Credit Agreement is amended by deleting the figure “$75,000,000” that appears in such definition and substituting in place thereof the figure “$25,000,000”.

         (b)   Amendment of Restricted Payment Amount Definition. The definition of “Restricted Payment Amount” set forth in §1.1 of the Credit Agreement is amended and restated in its entirety to read as follows:

“Restricted Payment Amount. Over the term of the Credit Agreement, an amount not to exceed the sum of (i) $225,000,000 plus (ii) the aggregate amount paid to BGI (whether in cash or in shares of BGI’s stock), from time to time and at any time since the Closing Date, by officers, employees or directors of BGI or any of its Subsidiaries in connection with the exercise of options to purchase shares of BGI’s stock, plus (iii) the realized tax benefit (as calculated by BGI in a manner satisfactory to the Bank Agents) for tax years ending after the Closing Date, resulting from the exercise, from time to time and at any time since the Closing Date, of such options or resulting from the lapse, from time to time and at any time since the Closing Date, of restrictions on (and vesting of rights in) certain shares of BGI’s stock subject to the Management Stock Purchase Plan or any similar successor plan. For purposes of calculating the Restricted Payment Amount, to the extent shares of BGI’s stock are delivered to BGI in payment of the exercise price of options, or in payment of taxes associated with the exercise of options or the vesting of restricted shares, such delivered shares are deemed to be repurchased by BGI at fair market value (as defined in BGI’s stock option plan) on the date of delivery to BGI. Such delivered share repurchases will serve to reduce the available Restricted Payment Amount.”

         (c)   Amendment of Total Commitment Definition.  The definition of “Total Commitment” set forth in §1.1 of the Credit Agreement is amended by deleting the figure “$400,000,000” that appears in such definition and substituting in place thereof the figure “ $450,000,000”.

         (d)   Amendment of Restrictions on Indebtedness Covenant.  Section 9.1(j) of the Credit Agreement is amended by deleting the figure “$75,000,000” and substituting in place thereof the figure “$25,000,000”.

         §3.   Increase in Total Commitment.  Pursuant to §2.3.2 of the Credit Agreement, the Total Commitment is hereby increased to $450,000,000 and Schedule 1(b) to the Credit Agreement is amended by the Bank Agents and the Borrowers by replacing such schedule in its entirety with Schedule 1(b) attached hereto. Effective as of the Effective Date (as defined below), each Lender shall make such dispositions and arrangements with each other Lender with respect to the then outstanding Revolving Credit Loans (“the Adjustment”) as shall result in the amount of Revolving Credit Loans owed to each Lender being equal to the product of such Lender's Commitment Percentage multiplied by the aggregate Revolving Credit Loans outstanding on the Effective Date (the “Adjusted Amount”). Each of the Borrowers and the Guarantors hereby agrees that each Lender's Adjusted Amount shall be Revolving Credit Loans owed by the Borrowers jointly and severally to such Lender as if such Lender had initially made Revolving Credit Loans to the Borrowers in the amount of the Adjusted Amount. The Borrowers also hereby jointly and severally agree to pay all amounts referred to in §5.10 of the Credit Agreement arising in connection with the Adjustment. Upon the occurrence of the Adjustment, (a) each of the Bank Agents shall appropriately adjust its records to reflect each Lender's Adjusted Amount and (b) each of the Lenders shall as soon as practicable return to the Syndication Agent (for further delivery to the Borrowers pursuant to §9 hereof) (i) its existing Australian Note, (ii) its existing UK Note and (ii) its existing Co-Borrower Note if such Lender's Commitment has increased pursuant to this Amendment, each of which shall be replaced by an amended and restated Australian Note, UK Note or Co-Borrower Note, as applicable, to be delivered in connection with this Amendment and the contemplated increase and reallocation of the Total Commitment. The Lenders shall make any appropriate adjustments in payments received in respect of the Obligations which are allocable to periods prior to the Effective Date directly among themselves as shall be necessary to effect the proper allocation of such payments among the Lenders, reflecting their respective portions of the applicable Obligations held by them from time to time.

         §4.   Amendment Fee. The Borrowers shall pay to each Lender which returns an executed counterpart signature page to this Amendment to the Syndication Agent on or prior to 5:00p.m. (Boston time) on May 14, 2003, an amendment fee (the “Amendment Fee”) equal to eight hundredths of one percent (.08%) of such Lender's Commitment, as amended hereby.

         §5.   Affirmation of the Borrowers and Guarantors. Each of the Borrowers hereby affirms its absolute and unconditional promise to pay to each Lender and the Agents the Loans and all other amounts due under the Notes and the Credit Agreement as amended hereby, at the times and in the amounts provided for therein. Each of the Guarantors hereby affirms its guaranty of the Obligations in accordance with the provisions of the Guaranty.

         §6.   Conditions to Effectiveness. Upon satisfaction of the following conditions, this Amendment shall be deemed effective as of the date hereof (the “Effective Date”):

         (a)  Amendment.  This Amendment shall have been duly executed by the Borrowers, the Guarantors, the Syndication Agent, the Required Lenders and each Lender directly affected hereby and delivered to the Syndication Agent.

         (b)  Notes.  Each Lender whose Commitment has increased pursuant to this Amendment shall have received a duly executed amended and restated Co-Borrower Note in the amount of such Lender’s Commitment and each Lender shall have received a duly executed (i) amended and restated Australian Note in the amount of such Lender’s Commitment Percentage of the UK/Australian Sublimit and (ii) amended and restated UK Note in the amount of such Lender’s Commitment Percentage of the UK/Australian Sublimit, which shall, from and after the Effective Date, be deemed to constitute, respectively, the Co-Borrower Notes, the Australian Notes and the UK Notes held by such Lenders as referred to in the Credit Agreement.

        (c)  Corporate Action.  The Syndication Agent shall have received certificates of an appropriate officer of each of the Borrowers and their Subsidiaries, dated as of the date hereof, certifying as to (i) no amendments, modifications or supplements to the Governing Documents of any Borrower or Subsidiary and that such Governing Documents are in full force and effect or attaching certified copies of any amendments, modifications or supplements thereto, (ii) the corporate actions taken by each of the Borrowers and their Subsidiaries authorizing the execution, delivery, and performance hereof, and (iii) the names, titles, incumbency, and specimen signatures of the officers of each of the Borrowers and their Subsidiaries authorized to sign this Amendment on behalf of such Borrower or Subsidiary.

        (d)  Amendment to Synthetic Lease Facilities.  Each of the Existing Synthetic Lease Facility Documents and the New Synthetic Lease Documents shall have been amended and such amendments shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to the Syndication Agent. The Syndication Agent shall have received a fully executed copy of such amendment. Each of the Existing Synthetic Lease Facility and the New Synthetic Lease Facility shall have been amended such that the combined principal amount under each facility does not exceed $25,000,000.

        (e)  Payment of Amendment Fee.  The Administrative Agent shall have received payment of the Amendment Fee by the Borrowers for the account of the applicable Lenders.

         §7.   Representations and Warranties. The Borrowers hereby represent and warrant to the Lenders, the Agents and the Issuing Bank as follows:

         (a)  Representations and Warranties in Credit Agreement.   The representations and warranties of the Borrowers and their Subsidiaries contained in the Credit Agreement, as amended hereby, are true and correct on the date hereof (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date), and no Default or Event of Default has occurred and is continuing.

         (b)  Authority, No Conflicts, Etc.  The execution, delivery and performance of this Amendment and all related documents and the consummation of the transactions contemplated hereby and thereby (a) are within the corporate (or the equivalent company) authority of such Person, (b) have been duly authorized by all necessary corporate (or the equivalent company) proceedings, (c) do not and will not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which any of the Borrowers or any of their Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to any of the Borrowers or any of their Subsidiaries and (d) do not conflict with any provision of the Governing Documents of, or any agreement or other instrument binding upon, any of the Borrowers or any of their Subsidiaries.

         (c)  Enforceability of Obligations.   This Amendment, the Notes and the Credit Agreement as amended hereby constitute the legal, valid and binding obligations of each Borrower and each of their respective Subsidiaries party thereto, enforceable against each Borrower and each of their respective Subsidiaries, in accordance with their respective terms, except as limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or other laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in equity or at law) and an implied covenant of good faith and fair dealing, and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought.

         §8.   No Other Amendments. Except as expressly provided in this Amendment, all of the terms, conditions and provisions of the Credit Agreement and and the other Loan Documents shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement, as amended hereby, shall continue in full force and effect, and that this Amendment and the Credit Agreement shall be read and construed as one instrument.

         §9.   Return of Superseded Notes. As soon as practicable upon the effectiveness of this Amendment, each Lender holding an Australian Note, UK Note or Co-Borrower Note previously delivered to such Lender under the Credit Agreement (prior to giving effect to this Amendment) that has been superseded and replaced by an amended and restated Australian Note, UK Note or Co-Borrower Note,as applicable, delivered to such Lender pursuant to this Amendment shall return such superseded note, marked “cancelled”, to the Borrowers.

         §10.   Execution in Counterparts.  This Amendment may be executed in any number of counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Amendment, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought.

         §11.   Governing Law.  THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER SEAL UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH WITHOUT REFERENCE TO PRICIPLES OF CONFLICTS OR CHOICE OF LAW.

         §12.   Headings.  Headings or captions used in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof.

         §13.   Expenses. The Borrowers jointly and severally hereby agree to pay to the Syndication Agent, on demand by the Syndication Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Syndication Agent in connection with the preparation of this Amendment (including reasonable legal fees).

[Reminder of page intentionally left blank]

        IN WITNESS WHEREOF, the parties have executed this Amendment under seal as of the date first above written.

	BORDERS GROUP, INC.
	By: /S/ EDWARD W. WILHELM
	Name: Edward W. Wilhelm
	Title: Senior Vice President and Chief Financial Officer
	BORDERS, INC. WALDEN BOOK COMPANY, INC.
	By: /S/ EDWARD W. WILHELM
	Name: Edward W. Wilhelm
	Title: Senior Vice President and Treasurer
	BGP (UK) LIMITED BORDERS (UK) LIMITED
	By: /S/ EDWARD W. WILHELM
	Name: Edward W. Wilhelm
	Title: Director
	BORDERS AUSTRALIA PTY LTD
	By: /S/ EDWARD W. WILHELM
	Name: Edward W. Wilhelm
	Title: Director
	By:
	Name:
	Title: Director
	FLEET NATIONAL BANK, individually and as Syndication Agent and Issuing Bank
	By: /S/ DANIEL PLATT
	Name: Daniel Platt
	Title: Vice President
	PNC BANK, NATIONAL ASSOCIATION, individually and as Administrative Agent and Swingline Lender
	By: /S/ SHARON L. GEFFEL
	Name: Sharon L. Geffel
	Title: Assistant Vice President
	BANK ONE, NA, (MAIN OFFICE CHICAGO) individually and as Documentation Agent
	By: /S/ STEVEN P. SULLIVAN
	Name: Steven P. Sullivan
	Title: Director
	WACHOVIA BANK, NATIONAL ASSOCIATION individually and as Co-Syndication Agent
	By: /S/ WILLIAM F. FOX
	Name: William F. Fox
	Title: Vice President
	COMERICA BANK
	By: /S/ DAVID C. BIRD
	Name: David C. Bird
	Title: Vice President
	SUNTRUST BANK
	By: /S/ WILLIAM C. HUMPHRIES
	Name: William C. Humphries
	Title: Director
	KEYBANK NATIONAL ASSOCIATION
	By: /S/ JEFFREY DINCHER
	Name: Jeffrey Dincher
	Title: Portfolio Mgmt. Officer
	UNION BANK OF CALIFORNIA, N.A.
	By: /S/ TIMOTHY P. STREB
	Name: Timothy P. Streb
	Title: Vice President
	U.S. BANK NATIONAL ASSOCIATION
	By: /S/ THOMAS L. BAYER
	Name: Thomas L. Bayer
	Title: Vice President
	NATIONAL CITY BANK
	By: /S/ BRIAN T. STRAYTON
	Name: Brian T. Strayton
	Title: Vice President
	FIFTH THIRD BANK, EASTERN MICHIGAN
	By: /s/ MICHAEL DOLSON
	Name: Michael Dolson
	Title: Vice President
	THE BANK OF NEW YORK
	By: /S/ WILLIAM M. BARNUM
	Name: William M. Barnum
	Title: Vice President
	FIRST HAWAIIAN BANK
	By: /S/ CHARLES L. JENKINS
	Name: Charles L. Jenkins
	Title: Vice President, Manager
	FORTIS PROJECT FINANCE LTD
	By:
	Name:
	Title:
For purposes of §5 hereof:
PLANET MUSIC, INC.
BORDERS PROPERTIES, INC.
WALDENBOOKS PROPERTIES, INC.
BORDERS OUTLET, INC.
BORDERS FULFILLMENT, INC.
THE LIBRARY, LTD.
BORDERS ONLINE, INC.
By: /S/ EDWARD W. WILHELM
Name: Edward W. Wilhelm
Title: Senior Vice President and Treasurer
BORDERS ONLINE, LLC.
By: BORDERS, INC., its Sole Member
By: /S/ EDWARD W. WILHELM
Name: Edward W. Wilhelm
Title: Senior Vice President and Treasurer

Schedule 1(b)

Commitments (Following SunTrust Increase Date)

Lender	Commitment	Commitment Percentage
Fleet National Bank	$55,000,000.00	12.222222%
Wachovia Bank, National Association	$48,500,000.00	10.777778%
Bank One, NA (Main Office Chicago)	$48,000,000.00	10.666667%
PNC Bank, National Association	$45,500,000.00	10.111111%
SunTrust Bank	$43,000,000.00	9.555556%
KeyBank National Association	$40,000,000.00	8.888889%
Union Bank of California, N.A.	$35,000,000.00	7.777778%
U.S. Bank National Association	$30,000,000.00	6.666667%
Comerica Bank	$30,000,000.00	6.666667%
National City Bank	$25,000,000.00	5.555556%
Fifth Third Bank, Eastern Michigan	$15,000,000.00	3.333333%
The Bank of New York	$15,000,000.00	3.333333%
First Hawaiian Bank	$10,000,000.00	2.222222%
Fortis Project Finance Ltd	$10,000,000.00	2.222222%
Total	450,000,000.00	100%

EX-99

EXHIBIT 99.2

BORDERS GROUP, INC.

STATEMENT OF GREGORY P. JOSEFOWICZ,
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF BORDERS GROUP, INC.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory P. Josefowicz, certify that the Form 10-Q, dated April 27, 2003, of Borders Group, Inc. fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Borders Group, Inc.

Date: June 11, 2003

/s/ GREGORY P. JOSEFOWICZ
- -----------------------------------------------
Gregory P. Josefowicz
Chairman, President and Chief Executive Officer
Borders Group, Inc.

A signed original of this written statement required by Section 906 has been provided to Borders Group, Inc. and will be retained by Borders Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99

EXHIBIT 99.3

BORDERS GROUP, INC.

STATEMENT OF EDWARD W. WILHELM,
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF BORDERS GROUP, INC.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Edward W. Wilhelm, certify that the Form 10-Q, dated April 27, 2003, of Borders Group, Inc. fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Borders Group, Inc.

Date: June 11, 2003

/s/ EDWARD W. WILHELM
- -----------------------------------------------
Edward W. Wilhelm
Senior Vice President and Chief Financial Officer
Borders Group, Inc.

A signed original of this written statement required by Section 906 has been provided to Borders Group, Inc. and will be retained by Borders Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99

EXHIBIT 99.1

BORDERS GROUP, INC.

CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995—“SAFE HARBOR” FOR FORWARD-LOOKING STATEMENTS

This report and other written reports and oral statements made from time to time by Borders Group, Inc. (the “Company”) may contain so-called “forward-looking” statements, all of which are subject to risks and uncertainties. One can identify these forward-looking statements by the use of words such as “expects,” “seeing,” “anticipates,” “plans,” “agendas,” “will,” “estimates,” “believes,” “may,” “indicates,” “forecasts,” “focusing,” “guidance,” “outlook,” “projects,” “initiatives,” “strives,” “seeks,” “goals,” “objectives,” “assumes,” “looks,” “should,” “supports,” “comfortable with,” “confident,” and other words of similar meaning. One also can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, future financial performance (including sales and earnings projections), shareholder value, share repurchases, strategic alternatives, potential alliances or the anticipated benefits therefrom, marketing and expansion plans, retail convergence initiatives, such as Title Sleuth and related capabilities, and the impact of growth initiatives. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of risks and uncertainties, including some that are known and some that are not. Although it is not possible to predict or identify all such factors, they may include the following:

– consumer demand for the Company’s products, particularly during the holiday season, which is believed to be related to a number of factors, including general economic and geopolitical conditions and overall consumer spending patterns, weather conditions and, with respect to the mall business, overall mall traffic;

– an unexpected increase in competition, including Internet competition and competition resulting from electronic or other alternative methods of delivery of books, music, videos and other products to consumers, or unanticipated margin or other disadvantages relative to our competitors;

– impairments relating to under-performing stores or other unusual items;

– changes in accounting rules;

– the continued availability of adequate capital to fund the Company's operations;

– the timing and amount of insurance recoveries relating to the former Borders store at the World Trade Center;

– uninsured losses from risks such as terrorism, earthquakes or floods for which no, or limited, insurance coverage is maintained;

– higher than anticipated interest, occupancy, labor, distribution and inventory shrinkage costs;

– energy shortages or disruptions or higher than anticipated energy costs;

– adverse litigation expenses or results;

– unanticipated work stoppages;

– higher than anticipated costs associated with the closing of under performing stores;

– unanticipated increases in the cost of the merchandise sold by the Company;

– the performance of the Company's strategic initiatives, including international expansion;

– the stability and capacity of the Company's information systems;

– unanticipated costs or problems relating to the informational technology systems required for the operations of the Company;

– changes in foreign currency exchange rates; and

– the continued ability of the Company to locate and develop suitable sites for its superstore expansion and kiosk programs.

The Company does not undertake any obligation to update forward-looking statements.