SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10 - Q
(Mark One)

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

                  For the quarterly period ended July 25, 1999

                                       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                          38-3196915
       (State or other jurisdiction of           (I.R.S. Employer
        incorporation or organization           Identification No.)


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


                Title of Class               Shares Outstanding As of
                 Common Stock                    September 2, 1999
                                                    78,097,591


<PAGE>





                               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

Part II - Other information

   Item 1.   Legal Proceedings                                       17

   Item 2.   Changes in Securities and Use of Proceeds               17

   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                        18


Signatures                                                           19


<PAGE>



                               BORDERS GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Dollars in millions except common share data)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                        13 Weeks Ended
                                                   July 25,         July 26,
                                                     1999             1998
                                                ---------------  ---------------

<S>                                             <C>              <C>

Sales                                             $     631.0      $     546.0
Cost of merchandise sold, including
occupancy costs                                         468.9            406.1
                                                ---------------  ---------------

Gross margin                                            162.1            139.9
Selling, general and administrative expenses            158.7            130.5
Pre-opening expense                                       2.2              0.8
Goodwill amortization                                     0.9              0.7
                                                ---------------  ---------------

Operating income                                          0.3              7.9
Interest expense                                          4.6              4.0
                                                ---------------  ---------------

Income (loss) before income tax                          (4.3)             3.9
Income tax expense (benefit)                             (1.7)             1.5
                                                ---------------  ---------------

Net income (loss)                                 $      (2.6)     $       2.4
                                                ===============  ===============

Earnings per common share data --
   Diluted earnings (loss) per common share       $     (0.03)     $      0.03
                                                ===============  ===============
   Diluted weighted average common shares
   outstanding (in thousands)                           80,633           83,449
                                                ===============  ===============

   Basic earnings (loss) per common share         $     (0.03)     $      0.03
                                                ===============  ===============
   Basic weighted average common shares
   outstanding (in thousands)                           77,876           76,682
                                                ===============  ===============
</TABLE>


           See accompanying Notes to Unaudited Condensed Consolidated
                              Financial Statements.


<PAGE>


                               BORDERS GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Dollars in millions except common share data)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                        26 Weeks Ended
                                                   July 25,         July 26,
                                                     1999             1998
                                                ---------------  ---------------

<S>                                            <C>               <C>

Sales                                             $   1,249.7      $   1,091.2
Cost of merchandise sold, including
occupancy costs                                         926.1            811.5
                                                ---------------  ---------------

Gross margin                                            323.6            279.7
Selling, general and administrative expenses            320.7            260.3
Pre-opening expense                                       3.6              1.1
Goodwill amortization                                     1.6              1.4
                                                ---------------  ---------------

Operating income (loss)                                  (2.3)            16.9
Interest expense                                          8.7              6.7
                                                ---------------  ---------------

Income (loss) before income tax                         (11.0)            10.2
Income tax expense (benefit)                             (4.3)             4.0
                                                ---------------  ---------------

Net income (loss)                                 $      (6.7)     $       6.2
                                                ===============  ===============

Earnings per common share data --
   Diluted earnings (loss) per common share       $      (0.08)    $      0.07
                                                ===============  ===============
   Diluted weighted average common shares
   outstanding (in thousands)                           80,475           83,238
                                                ===============  ===============

   Basic earnings (loss) per common share         $      (0.09)    $      0.08
                                                ===============  ===============
   Basic weighted average common shares
   outstanding (in thousands)                           77,610           76,227
                                                ===============  ===============
</TABLE>


           See accompanying Notes to Unaudited Condensed Consolidated
                              Financial Statements.


<PAGE>



                               BORDERS GROUP, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
               (Dollars in millions except per common share data)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                              July 25,    July 26,   January 24,
                                                1999        1998        1999
                                             ----------  ----------  ----------

<S>                                          <C>         <C>        <C>
                  ASSETS
Current Assets:
  Cash                                       $     60.8  $     44.8  $     42.8
  Merchandise inventories                       1,032.6       888.8     1,019.6
  Accounts receivable and other current
    assets                                         59.5        54.9        70.9
                                             ----------  ----------  ----------
      Total Current Assets                      1,152.9       988.5     1,133.3
Property and equipment, net of
  accumulated depreciation of $360.6,
  $306.8 and $331.6 at July 25, 1999,
  July 26, 1998 and January 24, 1999,
  respectively                                    508.3       418.1       493.8
Other assets and deferred charges                  34.0        32.7        33.5
Goodwill, net of accumulated amortization
  of $47.6, $44.5, and $46.0 at July 25,
  1999, July 26, 1998 and January 24,
  1999, respectively                              120.1       107.5       106.0
                                             ----------  ----------  ----------
      Total Assets                           $  1,815.3  $  1,546.8  $  1,766.6
                                             ==========  ==========  ==========
   LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-term debt and capital lease
   obligations due within one year           $    345.0  $    291.5  $    134.1
  Trade accounts payable                          490.6       382.8       607.2
  Accrued payroll and other liabilities           178.1       170.6       221.7
  Taxes, including income taxes                    19.4        --          25.8
                                             ----------  ----------  ----------
      Total Current Liabilities                 1,033.1       844.9       988.8
Long-term debt and capital lease
  obligations                                       6.3         5.1         6.3
Other long-term liabilities                        63.3        52.9        56.4
                                             ----------  ----------  ----------
      Total Liabilities                         1,102.7       902.9     1,051.5
                                             ----------  ----------  ----------
Stockholders' Equity:
Common stock; 300,000,000 shares
  authorized; 78,052,169, 77,070,613 and
  77,695,124 issued and outstanding at
  July 25, 1999, July 26, 1998, and
  January 24, 1999, respectively                  688.0       700.1       687.3
Officers receivable and deferred
  compensation                                     (5.0)       (5.0)       (7.7)
Accumulated other comprehensive income             (0.1)       (1.7)       (0.9)
Retained earnings (accumulated deficit)            29.7       (49.5)       36.4
                                             ----------  ----------  ----------
      Total Stockholders' Equity                  712.6       643.9       715.1
                                             ----------  ----------  ----------
      Total Liabilities & Stockholders'
        Equity                               $  1,815.3  $  1,546.8  $  1,766.6
                                             ==========  ==========  ==========

</TABLE>
           See accompanying Notes to Unaudited Condensed Consolidated
                              Financial Statements


<PAGE>


                               BORDERS GROUP, INC.
                  CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      FOR THE 26 WEEKS ENDED JULY 25, 1999
                              (Dollars in millions)
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                   Deferred       Accumulated
                                                                 Compensation        Other
                                               Common Stock       and Officer    Comprehensive    Retained
                                            Shares      Amount    Receivables        Income       Earnings       Total
                                          ----------   --------  ------------    -------------    --------     --------
<S>                                      <C>          <C>        <C>             <C>              <C>          <C>

Balance at January 24, 1999 ...........   77,695,124   $  687.3        $ (7.7)          $ (0.9)      $ 36.4     $  715.1
                                          ----------   --------        ------           ------       ------     --------

Net loss ..............................         --          --            --               --          (6.7)        (6.7)
Currency translation
adjustment, net of
taxes .................................         --          --            --               0.8          --           0.8
                                                                                                                --------
Comprehensive Income ..................                                                              (5.9)
Issuance of common stock ..............    1,477,833        8.1           --               --           --           8.1
Repurchase and
retirement of common
stock .................................   (1,120,788)      (7.4)          --               --           --          (7.4)
Change in receivable
and deferred compensation .............         --          --            2.7              --           --           2.7
                                          ----------   --------        ------           ------       ------     --------

Balance at July 25, 1999 ..............   78,052,169   $  688.0        $ (5.0)          $ (0.1)      $ 29.7     $  712.6
                                          ==========   ========        ======           ======       ======     ========

</TABLE>


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.



<PAGE>


                               BORDERS GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Dollars in millions)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                         26 Weeks Ended
                                                     July 25,      July 26,
                                                      1999           1998
                                                   ------------  -------------
<S>                                               <C>            <C>
Cash provided by (used for):
Operations
Net income (loss)                                    $     (6.7)   $      6.2
Adjustments to reconcile net income (loss) to
operating cash flows:
  Depreciation and goodwill amortization                   40.8          30.1
  Change in other long-term assets and liabilities          1.2           3.3
  Cash provided by (used for) current assets and
   current liabilities:
   Increase in inventories                                (10.0)         (9.7)
   Decrease in accounts payable                          (116.7)        (97.9)
   Decrease in accrued liabilities                        (41.8)        (29.5)
   Decrease in taxes payable                               (6.4)        (70.3)
   Other, net                                              11.9          17.3
                                                   ------------  -------------
Net cash used for operations                             (127.7)       (150.5)
                                                   ------------  -------------
Investing
Capital expenditures                                      (52.8)        (72.7)
Acquisitions, net of cash acquired                        (16.5)         --
                                                   ------------  -------------
Net cash used for investing                               (69.3)        (72.7)
                                                   ------------  -------------
Financing
Net funding from credit facility                          210.9         164.2
Issuance of common stock                                    8.1          23.8
Repurchase of common stock                                 (7.4)         (1.9)
Other, net                                                  3.4          16.8
                                                   ------------  -------------
Net cash provided by financing                            215.0         202.9
                                                   ------------  -------------
Net increase/(decrease) in cash and equivalents            18.0         (20.3)
Cash and equivalents at beginning of year                  42.8          65.1
                                                   ------------  -------------
Cash and equivalents at end of period                $     60.8    $     44.8
                                                   ============  =============
</TABLE>

           See accompanying Notes to Unaudited Condensed Consolidated
                              Financial Statements


<PAGE>


                               BORDERS GROUP, INC.
                          NOTES TO UNAUDITED CONDENSED
                        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 generally  accepted  accounting  principles  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 24, 1999.

     The Company's fiscal year ends on the Sunday immediately preceding the last
Wednesday in January.  At July 25, 1999,  the Company  operated 274  superstores
under the Borders name, including one in Singapore,  one in Australia,  and four
in the United Kingdom,  888 mall-based and other bookstores  primarily under the
Waldenbooks  name and 27  bookstores  under the Books  etc.  name in the  United
Kingdom.  The Company  also  operates an Internet  commerce  site under the name
Borders.com.

NOTE 2 - COMMITMENTS AND CONTINGENCIES

     During  1994,  the Company  entered  into  agreements  in which leases with
respect to four  Borders'  locations  serve as collateral  for certain  mortgage
pass-through  certificates.  The mortgage  pass-through  certificates  include a
provision  requiring the Company to repurchase the underlying  mortgage notes in
certain  events,  including  the failure by the Company to make payments of rent
under the related leases, the failure by Kmart Corporation (the former parent of
the Company) to maintain required investment grade ratings or the termination of
the guarantee by Kmart of the  Company's  obligations  under the related  leases
(which would  require  mutual  consent of Kmart and  Borders).  In the event the
Company is required to repurchase  all of the  underlying  mortgage  notes,  the
Company would be obligated to pay approximately $36.6 million. The Company would
expect to fund this obligation through its Credit Facility. Since February 1995,
Kmart has failed to maintain  investment grade ratings,  and,  therefore,  these
notes  are now  subject  to put by the  holder.  To  date,  the  holder  has not
exercised its right to put the notes. The Company does not believe that the note
purchase,  if required,  would have a material effect on the Company's financial
position or earnings.






<PAGE>


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



     In  March  1998,  the  American  Booksellers  Association  ("ABA")  and  26
independent  bookstores  filed a lawsuit in the United States District Court for
the Northern District of California against the Company and Barnes & Noble, Inc.
alleging  violations of the  Robinson-Patman  Act, the  California  Unfair Trade
Practice Act and the  California  Unfair  Competition  Act. The Complaint  seeks
injunctive  and  declaratory  relief;  treble  damages  on behalf of each of the
bookstore plaintiffs,  and, with respect to the California bookstore plaintiffs,
any other damages permitted by California law;  disgorgement of money,  property
and gains  wrongfully  obtained  in  connection  with the  purchase of books for
resale,  or offered  for  resale,  in  California  from March 18, 1994 until the
action is  completed  and  prejudgement  interest on any amounts  awarded in the
action,  as well as attorney fees and costs.  The Company  intends to vigorously
defend the action.

     In August 1998, The Intimate Bookshop,  Inc. 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.,  Amazon.com,  Inc., certain
publishers and others alleging  violation of the  Robinson-Patman  Act and other
federal law, New York  statutes  governing  trade  practices  and common law. An
Amended   Complaint  was  subsequently   filed   eliminating  the  class  action
allegations  contained in the original Complaint.  The Amended Complaint alleges
that the named  plaintiffs have suffered  damages of $11.25 or more and requests
treble  damages [on behalf of the named  plaintiffs],  as well as injunctive and
declaratory  relief  (including  an  injunction  requiring the closure of all of
defendants' stores within 10 miles of any location where plaintiff either has or
had a retail  bookstore  during  the four  years  preceding  the  filing  of the
Complaint,  and  prohibiting  the opening by defendants of any bookstore in such
areas for the next 10 years),  disgorgement of alleged discriminatory discounts,
rebates,  deductions and payments,  punitive damages, interest, costs, attorneys
fees and other  relief.  Many of the  allegations  in the Amended  Complaint are
similar to those contained in the action instituted by the ABA and 26 bookseller
plaintiffs  against  the  Company  and  Barnes & Noble,  Inc.  in March of 1998.
Defendants have filed a Motion to Dismiss, which has been briefed and argued. In
response to the Motion to Dismiss,  Plaintiffs  voluntarily withdrew their state
law claims. The Company intends to vigorously defend the action.

     On November 20, 1998,  six  independent  booksellers  instituted  an action
entitled Rae  Richardson  et al vs. Barnes & Noble et al against the Company and
Barnes and Noble in the United States  District Court for the Northern  District
of California  asserting claims, and seeking relief,  similar to claims made and
relief sought in the ABA litigation  described above. Counsel for the plaintiffs
has requested  informally to add  approximately  75 additional  plaintiffs.  The
Company intends to vigorously defend the action.

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

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



<PAGE>


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



NOTE 3 - FINANCING

     Credit Facility:  The Company has a $425.0  multicurrency  credit agreement
(the Credit Facility) which expires in October 2002. Borrowings under the Credit
Facility  bear  interest  at a base  rate  or an  increment  over  LIBOR  at the
Company's option. The Credit Facility contains  operating  covenants which limit
the  Company's  ability to incur  indebtedness,  make  acquisitions,  dispose of
assets,  issue or repurchase  its common stock in excess of $100.0 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),  pay  dividends on its common  stock,  and require the Company to meet
certain  financial  measures  regarding  fixed  charge  coverage,  leverage  and
tangible  net worth.  The Company had  borrowings  outstanding  under the Credit
Facility of $342.4 at July 25, 1999 and $131.9 at January 24, 1999.

     Seasonal  Facility:  During the second  quarter the Company  entered into a
$130.0 multicurrency  seasonal revolving credit facility (the Seasonal Facility)
which expires in July 2000. Borrowings under the Seasonal Facility bear interest
at a base rate or an increment over LIBOR at the Company's option.  The Seasonal
Facility  contains  operating  covenants  that  are  similar  to  the  operating
covenants  contained in the Credit Facility  described above. The Company had no
borrowings outstanding under the Seasonal Facility as of July 25, 1999.

     Lease Financing Facility: The Company has a $250.0 lease financing facility
(the Lease Facility) to finance new stores and other property through  operating
leases,  which expires in October 2002. The Lease Facility provides financing to
lessors  through  loans from a third  party  lender for up to 95% of a project's
cost. It is expected that Lessors will make equity  contributions  approximating
5% of each project.  Independent of its obligations as lessee,  the Company will
guarantee payment when due of all amounts required to be paid to the third party
lender.  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.  There was $144.7  outstanding  under the Lease
Facility at July 25, 1999 and $123.9 at January 24, 1999.



<PAGE>


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



NOTE 4 - SEGMENT INFORMATION

     The  Company is  organized  based upon the  following  operating  segments:
domestic Borders stores,  international  Borders and Books etc.  stores,  Walden
stores, and online retailing. These operating segments have been aggregated into
two reporting segments: stores and online retailing.  Although stores and online
retailing share a number of economic characteristics,  such as the nature of the
merchandise  sold, the methods of merchandise  procurement used, and the type of
customer for the  merchandise  sold, they differ in their method of distributing
merchandise to customers.

     Segment data includes charges allocating all  corporate-headquarters  costs
to each  segment.  The Company  evaluates  the  performance  of its segments and
allocates resources to them based on anticipated future contribution.

<TABLE>
<CAPTION>

                                   13 Weeks Ended           26 Weeks Ended
                                 July 25,    July 26,    July 25,    July 26,
                                   1999        1998        1999        1998
                                ----------  ----------  ----------  ----------
<S>                             <C>         <C>         <C>         <C>

Sales:
    Stores                        $  627.7    $  545.5    $1,243.2    $1,090.7
    Borders.com                        3.3         0.5         6.5         0.5
                                ----------  ----------  ----------  ----------

    Total sales                   $  631.0    $  546.0    $1,249.7    $1,091.2
                                ==========  ==========  ==========  ==========


Net income (loss):
    Stores                        $    0.8    $    4.5    $    1.0    $   10.1
    Borders.com                       (3.4)       (2.1)       (7.7)       (3.9)
                                ----------  ----------  ----------  ----------
    Total net income (loss)       $   (2.6)   $    2.4    $   (6.7)   $    6.2
                                ==========  ==========  ==========  ==========
</TABLE>

<TABLE>
<CAPTION>

                                                         July 25,    July 26,
                                                           1999        1998
                                                        ----------  ----------
<S>                                                     <C>         <C>

Total assets:
    Stores                                                $1,764.6    $1,508.2
    Borders.com                                               50.7        38.6
                                                        ----------  ----------
    Total assets                                          $1,815.3    $1,546.8
                                                        ==========  ==========
</TABLE>

<PAGE>

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



NOTE 5 - ACCOUNTING POLICIES

     Effective  January 24, 1999, the Company adopted the American  Institute of
Certified Public  Accountants'  Statement of Position (SOP) 98-5,  "Reporting on
the Costs of Start-Up Activities".  This SOP requires store pre-opening costs to
be expensed as incurred. The Company had expensed store pre-opening costs in the
first fiscal month of a store's operations. This SOP does not permit restatement
of amounts recorded prior to the adoption of the SOP; however,  adoption of this
SOP did not have a material impact on the Company's financial position,  results
of operations, or liquidity in the first or second quarter of 1999.

     In  the  first  quarter  of  1999,  the  Company  shortened  the  estimated
depreciable lives of certain  categories of personal computer equipment to three
years and extended the estimated  depreciable lives of certain store fixtures up
to ten years.  The Company believes that these changes better reflect the useful
lives of these  assets.  The  Company  accounted  for this change as a change in
estimate;  accordingly,  the  Company  will  utilize the new  depreciable  lives
prospectively.  These  changes did not have a material  impact on the  Company's
financial  position or results of operations  in the first or second  quarter of
1999, and are not expected to have a material impact for the full year.


<PAGE>



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

General

     The Company,  through its  subsidiaries,  is the second largest operator of
book superstores and the largest operator of mall-based  bookstores in the world
based  upon both  sales and  number of stores.  At July 25,  1999,  the  Company
operated 274 superstores under the Borders name, including one in Singapore, one
in  Australia,  and  four  in the  United  Kingdom,  888  mall-based  and  other
bookstores  primarily  under the  Waldenbooks  name and 27 bookstores  under the
Books etc.  name in the United  Kingdom.  The Company also  operates an Internet
commerce site under the name Borders.com. Borders is one of the nation's largest
specialty   coffee   retailers  with  cafe  operations  in  nearly  all  of  its
superstores.

     The Company's  second  quarters of 1999 and 1998  consisted of the 13 weeks
ended July 25, 1999 and July 26, 1998, respectively.

Results of Operations

     The following table presents the Company's statement of operations data, as
a percentage of sales,  for the periods  indicated  (data for the 26 weeks ended
July 25,  1999  excludes  the  non-recurring  charge  related  to Mr.  Pfeffer's
departure):

<TABLE>
<CAPTION>
                                         13 Weeks Ended       26 Weeks Ended
                                       July 25,   July 26,  July 25,  July 26,
                                        1999       1998      1999      1998
                                      ---------  --------- --------- ---------
<S>                                   <C>        <C>       <C>       <C>

Sales                                   100.0%     100.0%    100.0%    100.0%
Cost of merchandise sold, including
occupancy costs                          74.3       74.4      74.1      74.4
                                      ---------  --------- --------- ---------
Gross margin                             25.7       25.6      25.9      25.6
Selling, general and administrative
expenses                                 25.1       23.9      25.3      23.9
Pre-opening expense                       0.4        0.1       0.3       0.1
Goodwill amortization                     0.1        0.1       0.1       0.1
                                      ---------  --------- --------- ---------
Operating income                          0.1        1.4       0.2       1.5
Interest expense                          0.8        0.7       0.7       0.6
                                      ---------  --------- --------- ---------
Income (loss) before income taxes        (0.7)       0.7      (0.5)      0.9
Income tax expense (benefit)             (0.3)       0.3      (0.2)      0.3
                                      ---------  --------- --------- ---------
Net income (loss)                        (0.4)%      0.4%     (0.3)%     0.6%
                                      =========  ========= ========= =========
</TABLE>


<PAGE>


Store Activity

The Company's store activity is summarized below:


<TABLE>
<CAPTION>
                           13 Weeks Ended         26 Weeks Ended     Year Ended
                         July 25,   July 26,    July 25,   July 26,  January 24,
                           1999       1998        1999       1998        1999
                        ---------  ---------   ---------  ---------  -----------
<S>                     <C>        <C>         <C>        <C>        <C>
Borders Superstores
Beginning number of
  stores                     262        206        250         203         203
Openings                      12          7         24          10          47
                        ---------  ---------   ---------  ---------  -----------

Ending number of stores      274        213        274         213         250
                        =========  =========   =========  =========  ===========


Walden Mall Bookstores
Beginning number of
  stores                     886        903        900         923         923
Openings                       8          1         16           5          16
Closings                      (6)        (5)       (28)        (29)        (39)
                        ---------  ---------   ---------  ---------  -----------

Ending number of stores      888        899        888         899         900
                        =========  =========   =========  =========  ===========

</TABLE>


13 Weeks Ended July 25, 1999 and July 26, 1998

     Store  sales in the second  quarter of 1999 were  $627.7  million,  a $82.2
million,  or 15.1%,  increase over second quarter 1998 sales of $545.5  million.
This increase  reflects a $84.2  million,  or 24.8%,  increase in Borders' sales
resulting from new store openings and a comparable  store sales increase of 4.4%
(3.9% including  non-prototypical stores). This increase was partially offset by
a decline in Walden  sales of $1.9 million due to a lower number of stores and a
comparable store sales decrease of 1.9%.

     Gross margin as a percentage of sales was 25.7% in 1999 versus 25.6% in the
second quarter of 1998. The increase  primarily reflects a higher mix of Borders
stores which have a lower percentage occupancy cost.

     As a  percentage  of sales,  SG&A expense was 25.1% in 1999 versus 23.9% in
the  second  quarter  of  1998.  The  increase  in SG&A is  largely  related  to
Borders.com expenses,  international initiatives and start-up costs of All Wound
Up.

     Pre-opening  expense in the second  quarter of 1999 was $2.2 million versus
$0.8  million  from  the  same  period  in 1998.  Pre-opening  expense  consists
principally of  grand-opening  advertising  expense and store payroll related to
the opening,  and is expensed as incurred.  Pre-opening expense per store varies
primarily  as a  result  of  differing  levels  of  grand  opening  advertising,
depending on the presence of the Company and its  competitors  in the market and
differing  levels of labor costs  associated with  merchandising  the store. The
Company opened 12 Borders  superstores and 8 Walden stores in the second quarter
of 1999 as compared to 7 Borders  superstores  and 1 Walden  store in the second
quarter of 1998.

     Goodwill amortization was $0.9 million in the second quarter of 1999 versus
$0.7  million  from  the  second  quarter  of 1998.  The  increase  in  goodwill
amortization is due to the acquisition of All Wound Up in 1999.

     Interest expense was $4.6 million in the second quarter of 1999 as compared
to $4.0 million in 1998.  The  increase of $0.6 million is primarily  related to
interest  on  borrowings  to fund the  opening  of  domestic  and  international
superstores.

     Income  tax  benefit  in the  second  quarter  of 1999 was $1.7  million as
compared to income tax expense of $1.5 million in 1998.

26 Weeks Ended July 25, 1999 and July 26, 1998

     Store sales in the 26 weeks ended July 25, 1999 were  $1,243.2  million,  a
$152.5  million,  or 14%,  increase over store sales for the 26 weeks ended July
26, 1998 of $1,090.7 million. This increase reflects a $158.6 million, or 23.5%,
increase in Borders'  sales  resulting  from new store openings and a comparable
store sales  increase of 4.2% (3.6%  including  non-prototypical  stores).  This
increase was  partially  offset by a decline in Walden sales of $7.1 million due
to a lower number of stores and a comparable store sales decrease of 2.1%.

     Gross margin as a percentage of sales was 25.9% for the 26 weeks ended July
25,  1999  versus  25.6% for the same  period in 1998.  The  increase  primarily
reflects a higher mix of Borders stores which have a lower percentage  occupancy
cost.

     As a percentage of sales, SG&A expense (excluding the non-recurring pre-tax
charge of $5.5 million related to Mr. Pfeffer's  departure) was 25.3% in for the
26 weeks ended July 25, 1999  versus  23.9% for the same period a year ago.  The
increase  in SG&A is largely  related  to  Borders.com  expenses,  international
initiatives and start-up costs of All Wound Up.

     Pre-opening  expense in the 26 weeks ended July 25,  1999 was $3.6  million
versus $1.1 million from the same period in 1998.  Pre-opening  expense consists
principally of  grand-opening  advertising  expense and store payroll related to
the opening,  and is expensed as incurred.  Pre-opening expense per store varies
primarily  as a  result  of  differing  levels  of  grand  opening  advertising,
depending on the presence of the Company and its  competitors  in the market and
differing  levels of labor costs  associated with  merchandising  the store. The
Company opened 24 Borders superstores and 16 Walden stores in the 26 weeks ended
July 25, 1999 as compared to 10 Borders  superstores  and 5 Walden stores in the
26 weeks ended July 26, 1998.

     Goodwill  amortization was $1.6 million in the 26 weeks ended July 25, 1999
versus  $1.4  million  for the same  period in 1998.  The  increase  in goodwill
amortization is due to the acquisition of All Would Up in 1999.

     Interest  expense  was $8.7  million in the 26 weeks ended July 25, 1999 as
compared to $6.7  million in 1998.  The  increase of $2.0  million is  primarily
related  to  interest  on  borrowings  to  fund  the  opening  of  domestic  and
international superstores.

     Income tax  benefit  (excluding  the  non-recurring  charge  related to Mr.
Pfeffers's  departure)  for the 26 weeks ended July 25, 1999 was $2.2 million as
compared to income tax expense of $4.0 million in 1998.

     In the first  quarter of fiscal 1999,  Philip M. Pfeffer  resigned as Chief
Executive  Officer and  director  of the  Company.  The Company  took a one-time
charge  of  $3.4  million  ($5.5  million  pre-tax)  relating  to Mr.  Pfeffer's
departure in the first quarter.

Liquidity and Capital Resources

     The Company's  principal  capital  requirements are to fund working capital
needs, the opening of new stores,  the  refurbishment  and expansion of existing
stores and its Borders.com business.

     Net cash  used for  operations  for the 26 weeks  ended  July 25,  1999 was
$127.7 million as compared to $150.5 million in the corresponding  period in the
prior year. The current year operating cash inflows primarily reflects operating
results, net of non-cash depreciation and amortization expense of $40.8 million.
Operating  cash outflows for the period were  primarily the result of a decrease
in accounts payable and other accrued liabilities during the period.

     Net  cash  used for  investing  for the  first  26 weeks of 1999 was  $69.3
million  as  compared  to $72.7  million  in the  first  26  weeks of 1998,  and
primarily  represents capital expenditures for new stores and the acquisition of
All Wound Up.

     Net cash  provided  by  financing  in the first 26 weeks of 1999 was $215.0
million  versus $202.9  million in the first 26 weeks of 1998. Net cash provided
by financing resulted primarily from net borrowings under the credit facility.

     On a consolidated  basis,  the Company expects its capital  requirements to
increase as a result of its expansion program for its Borders  superstores (both
domestic and international) and Borders.com investment.

     The Company has a $425.0 million multicurrency credit agreement (the Credit
Facility)  which expires in October 2002.  Borrowings  under the Credit Facility
bear interest at a base rate or an increment over LIBOR at the Company's option.
The Credit  Facility  contains  operating  covenants  which limit the  Company's
ability to incur indebtedness,  make acquisitions,  dispose of assets,  issue or
repurchase  its common stock in excess of $100.0  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),  pay dividends
on its common stock, and require the Company to meet certain financial  measures
regarding fixed charge  coverage,  leverage and tangible net worth.  The Company
had borrowings  outstanding  under the credit facility of $342.4 million at July
25, 1999 and $131.9 million at January 24, 1999.

     During  the  second  quarter  the  Company  entered  into a $130.0  million
multicurrency  seasonal  revolving credit facility (the Seasonal Facility) which
expires in July 2000.  Borrowings under the Seasonal Facility bear interest at a
base rate or an  increment  over LIBOR at the  Company's  option.  The  Seasonal
Facility  contains  operating  covenants  that  are  similar  to  the  operating
covenants  contained in the Credit Facility  described above. The Company had no
borrowings outstanding under the Seasonal Facility as of July 25, 1999.

     The  Company  has a $250.0  million  lease  financing  facility  (the Lease
Facility) to finance new stores and other  property  through  operating  leases,
which expires in October  2002.  The Lease  Facility  will provide  financing to
lessors through loans from a third party lender for up to 95% of a project cost.
It is expected that lessors will make equity  contributions  approximating 5% of
each project.  Independent of its obligations as lessee,  the Company guarantees
payment when due of all amounts  required to be paid to the third party  lender.
The principal  amount  guaranteed  will be 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.

     There  were 39  properties  financed  through  the Lease  Facility,  with a
financed value of $144.7 million, at July 25, 1999. Management believes that the
rental payments for properties  financed through the lease facility 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 the 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  serve as collateral  for certain  mortgage
pass-through  certificates.  The mortgage  pass-through  certificates  include a
provision  requiring the Company to repurchase the underlying  mortgage notes in
certain  events,  including  the failure by the Company to make payments of rent
under the related leases, the failure by Kmart Corporation (the former parent of
the Company) to maintain required investment grade ratings or the termination of
the guarantee by Kmart of the  Company's  obligations  under the related  leases
(which would  require  mutual  consent of Kmart and  Borders).  In the event the
Company is required to repurchase  all of the  underlying  mortgage  notes,  the
Company would be obligated to pay approximately $36.6 million. The Company would
expect to fund this obligation through its Credit Facility. Since February 1995,
Kmart has failed to maintain  investment grade ratings,  and,  therefore,  these
notes  are now  subject  to put by the  holder.  To  date,  the  holder  has not
exercised its right to put the notes.

     The  Company  currently  has a  share  repurchase  program  in  place  with
remaining authorization to repurchase  approximately $72.4 million of its common
stock at July 25,  1999.  During the 13 and 26 weeks  ended July 25,  1999,  the
Company  repurchased  $6.1  million  and  $7.4  million  of  its  common  stock,
respectively.


Other Matters

   Year 2000 Issue

     The Year 2000 Issue is the result of computer  programs being written using
two  digits  rather  than  four to define a  specific  year.  Absent  corrective
actions,  a computer  program that has  date-sensitive  software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions to various activities and
operations.

     The Company  initiated  assessments  in prior  years to  identify  the work
efforts  required to assure that systems  supporting  the business  successfully
operate  beyond  the  turn  of the  century.  The  scope  of  this  work  effort
encompasses   information   technology   systems,   systems  utilizing  embedded
technology,  such as  microcontrollers,  and the  readiness  of  external  third
parties, such as suppliers and service providers.


      Financial and Non-Financial Information Technology Systems
      These systems  encompass both  application  software and operating  system
      software.  Assessment,  renovation,  and  implementation  of modifications
      concerning critical  application software and operating system software is
      complete. The assessment of non-critical  application and operating system
      software is also complete.  Renovation and implementation of modifications
      concerning  non-critical  software  has been  completed on all but a small
      number of systems;  the  remaining  non-compliant  systems are expected to
      have  the  necessary  modifications  implemented  by the end of the  third
      quarter  of 1999.  The  Borders.com  system  was  designed  with Year 2000
      compliant data structures,  and verification that Year 2000 standards have
      been maintained within Borders.com critical applications is complete.


      Embedded Technology Systems
      The Company has completed its assessment of the potential risks associated
      with embedded  technology  systems,  such as HVAC,  elevators and security
      systems at the Company's stores,  distribution  centers, and headquarters.
      This involved  inventorying all equipment utilizing embedded technology by
      vendor and model, and contacting the necessary vendors with regards to the
      compliance  status of each item.  Confirmation of Year 2000 compliance for
      all  HVAC,  elevators  and  security  systems  at  the  Company's  stores,
      distribution centers, and headquarters has been received from all vendors.
      The Company has completed the assessment,  renovation,  and implementation
      of modifications concerning critical PC and server-related  equipment. The
      assessment,  renovation and implementation of modifications concerning the
      remaining  non-critical PC and server-related  equipment is expected to be
      completed by the end of the third quarter of fiscal 1999.


      Suppliers and Service Providers
      The Company  relies on numerous third parties to provide  merchandise  and
      services.  As such,  attention has been focused on  compliance  attainment
      efforts of vendors.  Key parties have been contacted for  clarification of
      their Year 2000 plans and their compliance status. Merchandise or services
      provided  by  non-compliant  vendors  identified  through  the  assessment
      process will be evaluated for  potential  alternative  arrangements.  Such
      arrangements may include less reliance on electronic  ordering or sourcing
      through alternative  distribution  channels to the extent that merchandise
      is available through such channels.

     Notwithstanding  the substantive work efforts  described above, the Company
could  potentially  experience  disruptions  to  some  aspects  of  its  various
activities and operations,  including those resulting from non-compliant systems
utilized by unrelated third party business  entities.  The Company has developed
the major elements of business contingency plans in order to attempt to mitigate
the extent of potential disruption to business operations. The contingency plans
address the following: 1) transition coverage before, during, and after the year
2000  begins,  2)  alternative  processes  to be used in the event of any system
failures,  3)  pro-active  and  preventative  actions to mitigate  the effect of
mission-critical system failures, and 4) the establishment of a specialized Year
2000 Problem  Management Center.  Detailed  procedures and full documentation of
these plans is expected to be  completed  by the end of the third  quarter.  The
Company  will  continuously  monitor  the  adequacy  of  its  contingency  plans
throughout the remainder of fiscal 1999.

     Costs of addressing the Year 2000 Issue have not been material to date and,
based on  preliminary  information  gathered  to date from the  Company  and its
vendors,  are not currently  expected to have a material  adverse  impact on the
Company's  financial  position,  results of  operations  or cash flows in future
periods.  However,  if the  Company or its  vendors  are unable to resolve  such
processing  issues in a timely manner,  it could result in a material  financial
risk,  including loss of revenue,  substantial  unanticipated  costs and service
interruptions.


   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.



<PAGE>


                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

     The Company's Form 10-K Annual Report for the fiscal year ended January 24,
1999 describes three pending lawsuits against the Company  asserting  anti-trust
and other  claims.  An  adverse  judgment  against  the  Company in any of these
matters could have a material adverse effect on the Company. There have not been
any material  developments in these matters during the fiscal quarter covered by
this  Report  except,  as  follows:  (i) at a hearing on July 30,  1999,  on the
Company's  Motion to Dismiss the  lawsuit  filed in the United  States  District
Court for the  Southern  District of New York by the  Intimate  Bookshop,  Inc.,
counsel for the plaintiffs  agreed to voluntarily  dismiss all state law claims;
and (ii) counsel for the  plaintiffs in Rae  Richardson et al vs. Barnes & Noble
et al, the action instituted by six independent booksellers in the United States
District Court for the Northern District of California, has requested informally
to increase by approximately 75 the number of plaintiffs to join the action, the
Company has asked for  information  relating to such  request and the court also
has requested additional information.

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



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

     The following  actions were taken at the Annual Meeting of  Stockholders of
the  Company  held on May 13,  1999,  with the  votes on such  matters  being as
indicated below:

1.    The following  individuals were elected to serve as directors for one year
      terms expiring in 2000:

                                                                     Authority
Name                                                    For           Withheld

Robert F. DiRomualdo                             65,762,110 shares     647,036
Peter R. Formanek                                65,775,998 shares     633,148
Victor L. Lund                                   65,762,407 shares     646,739
Dr. Edna Greene Medford                          65,746,130 shares     663,016
George R. Mrkonic                                65,757,112 shares     652,034
Larry Pollock                                    65,730,276 shares     678,870
Leonard A. Schlesinger                           65,769,216 shares     639,930



<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits:

(a)   Exhibits:

10.36             Omnibus  Amendment No. 1  to Amended  and  Restated  Guarantee
                  Agreement  among  Borders Group,  Inc., its  subsidiaries  and
                  Parties thereto.

10.37             Multicurrency Revolving Credit Facility Credit Agreement dated
                  July 9, 1999 among Borders Group,  Inc., its  subsidiaries and
                  Parties thereto.

27.0              Financial Data Schedule.

99.1              Cautionary  Statement under the Private Securities  Litigation
                  Reform  Act  of  1995  "Safe   Harbor"   for   Forward-Looking
                  Statements.



<PAGE>


                                   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: September 8, 1999                   By:
                                             ---------------------------
                                             Kenneth E. Scheve
                                             Senior Vice President, Chief
                                             Financial Officer and Treasurer
                                             (Principal Financial and
                                             Accounting Officer)