<PAGE>   1
 
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                  FORM 10-K/A
                                AMENDMENT NO. 1
(MARK ONE)
      [X]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                   FOR THE FISCAL YEAR ENDED JANUARY 26, 1997
 
                                       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)
 
<TABLE>
<C>                                            <C>
                  DELAWARE                                      38-3196915
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)
</TABLE>
 
              500 EAST WASHINGTON STREET, ANN ARBOR, MICHIGAN 48104
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                                     (ZIP CODE)
 
                                 (313) 913-1100
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
<TABLE>
<CAPTION>
                                                             NAME OF EXCHANGE
               TITLE OF CLASS                               ON WHICH REGISTERED
               --------------                               -------------------
<C>                                            <C>
       COMMON STOCK ($.001 PAR VALUE)                     NEW YORK STOCK EXCHANGE
</TABLE>
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
                                      NONE
 
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 [ ]
 
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K
 
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT WAS APPROXIMATELY $1,495,460,897 BASED UPON THE CLOSING MARKET PRICE
OF $20.625 PER SHARE OF COMMON STOCK ON THE NEW YORK STOCK EXCHANGE AS OF APRIL
4, 1997.
 
NUMBER OF SHARES OF $.001 PAR VALUE COMMON STOCK OUTSTANDING AS OF APRIL 4,
1997: 75,897,031
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE MAY 15, 1997 ANNUAL MEETING
OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III.
 
                THE EXHIBIT INDEX IS LOCATED ON PAGE 43 HEREOF.
 
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<PAGE>   2
 
                              BORDERS GROUP, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 14 -- STOCK-BASED BENEFIT PLANS
 
     Stock Option Plan: In February 1995, the Company adopted the 1995 Stock
Option Plan (the 1995 Plan) pursuant to which the Company may grant options to
purchase its common stock. With the exception of certain option grants described
below, the exercise price of options granted under the 1995 Plan will generally
not be less than the fair value per share of the Company's common stock; such
options will generally vest after three years and will generally be exercisable
up to five years from grant date. All Company stock option grants participate in
the 2-for-1 split of the Company's common stock. All information presented has
been restated for the 2-for-1 split.
 
     The Company has established a compensation philosophy that is designed to
foster a performance oriented, entrepreneurially-led ownership culture. The 1995
Plan is an integral part of the Company's employee ownership culture and
compensation program. Options have been granted under the 1995 Plan to all
full-time employees of the Company and its subsidiaries with six months or more
of service, consisting of approximately 11,000 employees. The Company's
executive compensation is heavily oriented toward equity incentives that
includes a combination of stock and options which require at least some annual
out-of-pocket investment in the business on the part of management. Restrictions
on the equity incentives promote a long-term focus on the part of management and
maximize retention of personnel. Management believes the equity incentives have
been integral to its success in meeting operating objectives and reducing
employee turnover since the Offering.
 
     In February 1995, the Company granted options to purchase 1,925,000 shares
of common stock at an exercise price of $7.50 per share pursuant to the 1995
Plan (the 1995 Options). These options vest after three years and are
exercisable for a period of five years from grant date.
 
     In February 1995, the Company granted to certain senior management
personnel options to purchase 4,866,867 restricted shares of common stock under
the 1995 Plan (the Management Options). The exercise price of these options was
generally $6.00 per share, representing a discount from fair value at date of
grant. Such options were exercisable only at the time of the Offering. Options
were exercised to purchase 1,974,000 shares of restricted stock in 1995.
Restricted shares of common stock purchased upon exercise of the Management
Options are restricted from sale or transfer for three years from the date the
options were exercised. The remaining options not exercised were forfeited.
 
     In February 1995, the Company also granted to certain senior management
personnel 951,340 options to purchase an additional share of common stock (the
Matching Options) for each restricted share of common stock purchased through
exercise of Management Options at the time of the Offering. The exercise price
of the Matching Options was generally $7.50 per share. Matching Options vest
after three years and expire five years after the grant date.
 
     On November 8, 1995, the Company granted approximately 6.8 million stock
options at an exercise price of $8.69 to approximately 2,400 employees pursuant
to the 1995 Plan. Generally, this grant was intended to represent a one-time
grant in lieu of annual grants for the next three years. The options vest at the
rate of 25% per year, beginning on November 8, 1998.
 
     In January and August 1996 and January 1997, the Company granted to more
than 10,000 individual store employees approximately 2,020,000 stock options in
aggregate at prevailing market prices at the time of grant. The options
generally vest 12 months from the grant date and expire 10 years from grant. In
addition, during 1996, the Company granted 1,150,000 stock options to 1,250
home-office employees. Generally, these grants were a one-time grant in lieu of
grants for the next three years for newly hired or promoted employees. The
options generally vest 20%-40% per year with final vesting in 2001 and expire 10
years from the grant date. The purpose of the option program is to promote stock
ownership and corresponding ownership behavior, for all full-time employees with
at least six months of service.
 
                                       29
<PAGE>   3
 
                              BORDERS GROUP, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     In addition, in January 1997, the Company granted 693,000 stock options
with an exercise price of $17.32 to certain senior management personnel. These
grants were in lieu of cash compensation for the following year and vest one
year from the date of grant with an expiration two and one-quarter years from
the grant date.
 
     The Company will recognize compensation expense for the difference between
the exercise price and the fair value per share at grant date of the Management
Options. Such expense will be recognized over the three-year vesting period.
 
     In connection with the Offering, the Company adopted a management stock
purchase plan (the Management Plan) and an employee stock purchase plan (the
Employee Plan). Under the Management Plan, the Company's senior management
personnel are required to use 20%, and may use up to 100%, of their annual
incentive bonuses to purchase restricted shares of the Company's common stock,
at a 20% discount from the fair value of the same number of unrestricted shares
of common stock. Restricted shares of common stock purchased under the
Management Plan will generally be restricted from sale or transfer for three
years from date of purchase. The Employee Plan allows the Company's associates
not covered under the Management Plan to purchase shares of the Company's common
stock at a 15% discount from their fair-market value.
 
     The Company will recognize compensation expense for the discount on
restricted shares of common stock purchased under the Management Plan. Such
discount will be recognized as expense on a straight-line basis over the
three-year period during which the shares are restricted from sale or transfer.
Compensation expense under the Management Plan aggregated $0.4 in 1996 and $0.2
in 1995. The Company is not required to record compensation expense with respect
to shares purchased under the Employee Plan.
 
     Stock Appreciation Rights: In connection with its acquisition by Kmart,
Borders established a stock appreciation rights (SARs) plan covering all
employees at that date; options outstanding at the acquisition date under
Borders' existing stock option plans were converted to SARs in connection with
the acquisition. Under the SARs plan, employees were entitled to receive a cash
payment per share equal to the excess of the fair value of a Borders' share over
the base price defined in the plan. In fiscal year 1994, the Company recorded
compensation expense of $8.1 million for the increase in the value of shares
subject to SARs over the related base price. In connection with the Offering,
substantially all remaining SARs were converted to options on the Company's
common stock.
 
     At January 26, 1997, the Company has 411,694 shares authorized for the
grant of stock options under the 1995 Plan.
 
     A summary of the information relative to the Company's stock option plans
follows:
 
<TABLE>
<CAPTION>
                                                                             WEIGHTED         WEIGHTED
                                                            NUMBER OF        AVERAGE        AVERAGE GRANT
                                                              SHARES      EXERCISE PRICE      DATE FMV
                                                            ---------     --------------    -------------
<S>                                                         <C>           <C>               <C>
STOCK OPTIONS
Outstanding at January 22, 1995
  Granted.................................................  20,087,188        $ 6.92            $2.87
  Exercised...............................................   1,984,656        $ 5.91            $0.65
  Forfeited...............................................   3,398,628        $ 6.09            $0.65
Outstanding at January 28, 1996...........................  14,703,904        $ 7.25            $3.68
  Granted.................................................   3,360,826        $16.00            $7.33
  Exercised...............................................     296,764        $ 5.44            $3.74
  Forfeited...............................................   1,581,242        $ 9.19            $3.97
Outstanding at January 26, 1997...........................  16,186,724        $ 8.92            $4.42
Exercisable at January 26, 1997...........................   2,277,784        $ 2.70            $4.71
</TABLE>
 
                                       30
<PAGE>   4
 
                              BORDERS GROUP, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Certain options granted by the Company upon conversions of existing SARs at
the time of the IPO, were granted with exercise prices less than market value at
the date of the grant. The weighted average exercise price and weighted average
grant date fair value were $5.02 and $9.35, respectively for such grants.
 
<TABLE>
<CAPTION>
                                                                                              WEIGHTED
                                                                             WEIGHTED       AVERAGE FAIR
                                                            NUMBER OF        AVERAGE        MARKET VALUE
                                                              SHARES      PURCHASE PRICE      AT GRANT
                                                            ---------     --------------    ------------
<S>                                                         <C>           <C>               <C>
STOCK ISSUED UNDER STOCK PURCHASE PLANS
Management Plan
  1995....................................................      93,266        $ 7.13           $ 8.91
  1996....................................................      48,166        $ 9.33           $11.67
Employee Plan
  1995....................................................     494,458        $ 6.43           $ 7.56
  1996....................................................     196,064        $14.00           $16.48
</TABLE>
 
     Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" (FAS 123) requires recognition of compensation expense
for stock options and other stock-based compensation for the fair value of the
instruments at date of grant. The Company has adopted the disclosure-only option
of FAS 123, for the 1996 fiscal year. The pro forma net income (loss) and pro
forma earnings (loss) per share had the Company adopted the fair-value
accounting provisions of FAS No. 123 would have been $50.8, $(220.6) and $20.9,
and $0.62, $(2.65) and $0.24 in 1996, 1995 and 1994, respectively.
 
   
     The Black-Scholes option valuation model was used to calculate the fair
market value of the options at the grant date for the purpose of disclosures
required by FAS 123. The following assumptions were used in the calculation:
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                                 ----         ----
<S>                                                           <C>          <C>
Risk-Free Interest Rate.....................................   5.5-6.5%     5.0-7.4%
Expected Life...............................................  2-10 years   2-10 years
Expected Volatility.........................................  33.3-40.0%   33.3-40.0%
Expected Dividends..........................................      0%           0%
</TABLE>
 
     The following table summarizes the information regarding stock options
outstanding at January 26, 1997.
 
<TABLE>
<CAPTION>
                                                                                       EXERCISABLE
                                                                               ----------------------------
         RANGE OF           NUMBER OF    WEIGHTED AVERAGE   WEIGHTED AVERAGE   NUMBER OF   WEIGHTED AVERAGE
     EXERCISE PRICES          SHARES      REMAINING LIFE     EXERCISE PRICE     SHARES      EXERCISE PRICE
     ---------------        ---------    ----------------   ----------------   ---------   ----------------
<S>                         <C>          <C>                <C>                <C>         <C>
$ 0.17-$ 4.64.............   2,095,580         3.0               $ 2.19        2,095,580        $2.19
$ 6.86-$11.57.............  11,236,224         6.1               $ 8.24          182,204        $8.63
$14.25-$17.32.............   2,854,920         5.8               $16.59               --           --
</TABLE>
    
 
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<PAGE>   5
 
                              BORDERS GROUP, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 15 -- UNAUDITED QUARTERLY FINANCIAL DATA
 
   
<TABLE>
<CAPTION>
                                                                   FISCAL 1996 QUARTER ENDED
                                                              -----------------------------------
                                                              APRIL     JULY    OCTOBER   JANUARY
                                                              -----     ----    -------   -------
                                                                     (DOLLARS IN MILLIONS
                                                                   EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>      <C>      <C>       <C>
Sales.......................................................  $404.0   $414.3    $413.5    $727.0
Cost of Merchandise Sold (Includes Occupancy)...............   310.8    316.4     314.3     496.3
Operating Income (Loss).....................................    (3.7)    (2.0)     (2.9)    111.7
Net Income (Loss)...........................................    (3.4)    (2.2)     (2.7)     66.2
Earnings (Loss) Per Common Share............................   (0.04)   (0.03)    (0.03)     0.82
</TABLE>
 
<TABLE>
<CAPTION>
                                                                  FISCAL 1995 QUARTER ENDED
                                                             ------------------------------------
                                                             APRIL     JULY     OCTOBER   JANUARY
                                                             -----     ----     -------   -------
                                                                     (DOLLARS IN MILLIONS
                                                                  EXCEPT PER SHARE AMOUNTS)
<S>                                                          <C>      <C>       <C>       <C>
Sales......................................................  $353.6   $ 363.8    $362.1    $669.5
Cost of Merchandise Sold (Includes Occupancy)..............   274.4     282.8     279.4     465.7
Operating Income (Loss) (Excluding Restructuring
  Provision)...............................................    (8.8)     (7.7)     (8.0)     89.0
Net Income (Loss)..........................................    (5.6)   (186.9)     (6.0)    (12.6)
Pro Forma Earnings (Loss) Per Common Share.................   (0.07)    (2.14)    (0.08)    (0.16)
</TABLE>
 
     Earnings per share amounts for each quarter are required to be computed
independently and may not equal the amount computed for the total year.
    
 
                                       32
<PAGE>   6
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
 
                                          BORDERS GROUP, INC.
                                          (Registrant)
 
                                          By:      /s/ GEORGE R. MRKONIC
 
                                            ------------------------------------
                                                     George R. Mrkonic
                                                 Vice Chairman and Director
                                                          (Principal
                                             Financial and Accounting Officer)
 
May 30, 1997
 
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