SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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## FORM 10 - Q

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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 28, 2002
OR[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Fot the transition period from  to

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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 | May 24, 2002            
|Common Stock   | 81,770,146              

# 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                                     | 10  
|                               |                                                |     
|Item 3.                        | Quantitative and Qualitative Disclosures about |     
|                               | Market Risk                                    | N/A 
|                               |                                                |     
|                               |                                                |     
|                               |                                                |     
|Part II - Other information    |                                                |     
|                               |                                                |     
|                               |                                                |     
|                               |                                                |     
|Item 1.                        | Legal Proceedings                              | 18  
|                               |                                                |     
|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               | 18  
|                               |                                                |     
|                               |                                                |     
|                               |                                                |     
|Signatures                     |                                                | 19  

# BORDERS GROUP,INC.
CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions except common share data)

# (Unaudited)

`13 Weeks Ended
                                                                                     April 28,                April 29,
                                                                                       2002                     2001
                                                                               ----------------------   ----------------------

Sales                                                                             $          751.7         $        729.9
Cost of merchandise sold, including
     occupancy costs                                                                         560.9                  545.1
Fulfillment center inventory writedowns                                                        -                     12.7
                                                                               ----------------------   ----------------------

Gross margin                                                                                 190.8                  172.1
Selling, general and administrative expenses                                                 181.3                  178.4
Legal settlement expense                                                                       -                      2.4
Pre-opening expense                                                                            0.8                    0.8
Asset impairments and other writedowns                                                         -                     15.8
Goodwill amortization                                                                          -                      0.7
                                                                               ----------------------   ----------------------

Operating income (loss)                                                                        8.7                  (26.0)
Interest expense                                                                               2.4                    4.0
                                                                               ----------------------   ----------------------

Income (loss) before income tax                                                                6.3                  (30.0)
Income tax provision (benefit)                                                                 2.4                  (11.1)
                                                                               ----------------------   ----------------------

Net income (loss)                                                                 $            3.9         $        (18.9)
                                                                               ======================   ======================

Earnings (loss) per common share data --

   Diluted earnings (loss) per common share                                       $          0.05          $        (0.24)
                                                                               ======================   ======================

   Diluted weighted average common shares outstanding (in thousands)                         84,091                 79,829
                                                                               ======================   ======================

   Basic earnings (loss) per common share                                         $          0.05          $        (0.24)
                                                                               ======================   ======================

   Basic weighted average common shares outstanding (in thousands)                           81,478                 79,829
                                                                               ======================   ======================`

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

1

# BORDERS GROUP,INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)

# (Unaudited)

`April 28,           April 29,          January 27,
                                                                    2002                2001                2002
                                                              ------------------  ------------------  ------------------
                           ASSETS
Current Assets:
   Cash and cash equivalents                                    $        60.1       $        73.4        $      190.2
   Merchandise inventories                                            1,194.0             1,189.0             1,178.8
   Accounts receivable and other current assets                          55.9                66.5                73.1
                                                              ------------------  ------------------  ------------------
         Total Current Assets                                         1,310.0             1,328.9             1,442.1
Property and equipment, net of accumulated depreciation of
   $591.5, $523.9 and $596.2 at April 28, 2002, April 29,
   2001, and January 27, 2002, respectively                             526.7               532.4               529.4
Other assets and deferred charges                                       116.4                54.1               119.1
Goodwill, net of accumulated amortization of  $53.8 and
   $55.8 at  April 29, 2001 and January 27, 2002,
   respectively                                                          90.4                91.5                88.7
                                                              ------------------  ------------------  ------------------
         Total Assets                                           $     2,043.5       $     2,006.9        $    2,179.3
                                                              ==================  ==================  ==================
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Short-term  debt and capital lease  obligations due within
     one year                                                   $        86.9       $       299.2        $       83.3
   Trade accounts payable                                               611.7               546.9               638.2
   Accrued payroll and other liabilities                                199.8               210.2               288.9
   Taxes, including income taxes                                         48.8                33.4                93.0
    Deferred income taxes                                                 3.3                 -                   3.3
                                                              ------------------  ------------------  ------------------
         Total Current Liabilities                                      950.5             1,089.7             1,106.7
Long-term capital lease obligations                                      51.0                14.8                49.7
Other long-term liabilities                                              74.4                69.0                73.0
                                                              ------------------  ------------------  ------------------
         Total Liabilities                                            1,075.9             1,173.5             1,229.4
                                                              ------------------  ------------------  ------------------
Stockholders' Equity:
Common stock; 200,000,000 shares authorized; 81,802,893,
80,393,499 and 81,202,967 issued and outstanding at April
28, 2002, April 29, 2001, and January 27, 2002,respectively             714.9               696.4               707.9
Officers receivable and deferred compensation                            (0.3)               (1.0)               (0.2)
Accumulated other comprehensive loss                                     (8.6)              (13.4)              (15.5)
Retained earnings                                                       261.6               151.4               257.7
                                                              ------------------  ------------------  ------------------
         Total Stockholders' Equity                                     967.6               833.4               949.9
                                                              ------------------  ------------------  ------------------
         Total Liabilities & Stockholders' Equity               $     2,043.5       $     2,006.9        $    2,179.3
                                                              ==================  ==================  ==================`

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 28, 2002
(Dollars in millions)

# (Unaudited)

`Deferred          Accumulated
                                                                Compensation           Other
                                          Common Stock           and Officer      Comprehensive     Retained
                                     Shares         Amount       Receivables           Loss         Earnings       Total
                                  --------------  ------------ ----------------  ----------------- ------------ ------------


Balance at January 27, 2002          81,202,967    $    707.9   $         (0.2)   $         (15.5)  $    257.7   $    949.9
                                  --------------  ------------ ----------------  ----------------- ------------ ------------
Net income                                   -            -                -                  -            3.9          3.9

Currency translation adjustment              -            -                -                  6.2          -            6.2

Change in fair value of
  derivatives, net of tax                    -            -                -                  0.7          -            0.7
                                                                                                                ------------
Comprehensive income (loss)                                                                                            10.8

Issuance of common stock             1,065,326           13.6              -                  -            -           13.6

Repurchase and retirement of
  common stock                        (465,400)         (10.7)             -                  -            -          (10.7)

Change in receivable and
  deferred compensation                      -            -               (0.1)               -            -           (0.1)

Tax benefit of equity
compensation                                 -            4.1              -                  -            -            4.1
                                  --------------  ------------ ----------------  ----------------- ------------ ------------

Balance at April 28, 2002            81,802,893    $    714.9   $         (0.3)   $          (8.6)  $    261.6   $    967.6
                                  ==============  ============ ================  ================= ============ ============`

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 28,              April 29,
                                                                               2002                   2001
                                                                         ------------------    -------------------
Cash provided by (used for):
Operations
Net income / (loss)                                                        $          3.9         $        (18.9)
Adjustments to reconcile net income (loss) to operating cash flows:
   Depreciation and goodwill amortization                                            23.2                   22.6

   (Increase) / decrease in deferred income taxes                                    (0.2)                   3.9
   Change in other long-term assets and liabilities                                  10.9                   (0.3)
   Asset impairments and other writedowns                                             -                     10.0
   Cash provided by (used for) current assets and current liabilities:
     (Increase) / decrease in inventories                                           (12.9)                  10.8

     (Increase) / decrease in other assets                                           17.7                    8.0


     Increase / (decrease) in accounts payable                                      (27.3)                 (75.1)


     Increase / (decrease) in taxes payable                                         (46.5)                 (58.1)

     Increase / (decrease) in expenses payable and accrued liabilities              (89.0)                 (52.7)
                                                                         ------------------    -------------------
     Net cash used for continuing operations                                       (120.2)                (149.8)
     Net cash provided by (used for) discontinued operations                          -                      3.0
                                                                         ------------------    -------------------
         Net cash used for operations                                              (120.2)                (146.8)
                                                                         ------------------    -------------------
Investing
Capital expenditures                                                                (14.6)                  (4.8)
                                                                         ------------------    -------------------
         Net cash used for investing                                                (14.6)                  (4.8)
                                                                         ------------------    -------------------
Financing
Net funding from credit facility                                                     (0.3)                 160.4
Issuance of common stock                                                             13.6                   10.1
Repurchase of common stock                                                          (10.7)                   -
Other, net                                                                           (0.2)                  (4.2)
                                                                         ------------------    -------------------
         Net cash provided by financing                                               2.4                  166.3
Effect of exchange rates on cash and equivalents                                      2.3                   (0.4)
                                                                         ------------------    -------------------

Net increase (decrease) in cash and equivalents                                    (130.1)                  14.3

Cash and equivalents at beginning of year                                           190.2                   59.1
                                                                         ------------------    -------------------
Cash and equivalents at end of period                                       $        60.1         $         73.4
                                                                         ==================    ===================`

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4

# 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 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 27, 2002.

The Companys fiscal
year ends on the Sunday immediately preceding the last Wednesday in January. At
April 28, 2002, the Company operated 391 superstores primarily under the Borders
name, including 12 in the United Kingdom, six in Australia, two in Puerto Rico,
and one each in Singapore and New Zealand. The Company also operated 820
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

In August 1998, The
Intimate Bookshop, Inc. (Intimate) and its owner, Wallace Kuralt, fled 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
fled 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 fled 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. The Company intends to
vigorously defend the action, including contesting the certification of the
action as a class action.

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.

5

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

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. The Company does not believe that any such litigation will have a
material adverse effect on its liquidity or financial position.

## NOTE 3 -
FINANCING

Credit Facility: The Company
has a $472.8 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 covenants which limit, among other things, the Companys
ability to incur indebtedness, grant liens, make acquisitions, merge, declare
dividends, dispose of assets, issue or repurchase its common stock in excess of
$100.0 (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 require the Company to meet certain financial measures regarding
fixed charge coverage, leverage, and tangible net worth. The Company is
prohibited under the Credit Facility from paying cash dividends on common
shares. The Company had borrowings outstanding under the Credit Facility of
$85.3 at April 28, 2002, and $81.6 at January 27, 2002.

Lease Financing Facility:
The Company has a $175.0 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 guarantees 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. The Lease Facility contains covenants and events of default that
are similar to those contained in the Credit Facility described above. There was
$119.0 and $121.8 outstanding under the Lease Facility at April 28, 2002 and
January 27, 2002, respectively. The Company has recorded $51.0 and $49.7 of the
amounts under the Lease Facility as capitalized leases at April 28, 2002 and
January 27, 2002, respectively. These amounts have been treated as non-cash
items on the consolidated statements of cash flows. On April 30, 2002, the
Company permanently refinanced 9 properties with a total value of approximately
$28.0 through operating leases.

As discussed in Note 7 of
the Notes to Unaudited Condensed Consolidated Financial Statements, the Company
expects to be able to successfully replace the Credit and Lease Facilities in
June 2002.

## NOTE 4 
CHANGE IN ACCOUNTING PRINCIPLE

Effective January 28, 2002,
the Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (FAS 142). As required by FAS
142, the Company is no longer amortizing goodwill, but will be reviewing
annually (or more frequently if impairment indicators arise) for impairment.
Upon initial application of FAS 142, the Company determined that there was no
impairment of goodwill for any of its reporting units. The following pro forma
earnings and earnings per share data have been presented on a pro forma basis to
eliminate goodwill amortization, as required by FAS 142.

6

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

`13 Weeks Ended
                                                April 27,         April 28,
                                                  2002               2001
                                            ------------------ -----------------
Adjusted net income/(loss):
    Net income/(loss)                       $     3.9           $   (18.9)

    Goodwill amortization                          -                  0.7
                                            ------------------ -----------------
          Adjusted net income/(loss)        $     3.9           $   (18.2)
                                            ================== =================

Diluted earnings (loss) per share:

     Net income (loss)                      $     0.05          $   (0.24)

     Goodwill amortization                          -                0.01
                                            ------------------ -----------------
          Adjusted net income (loss)        $     0.05          $   (0.23)
                                            ================== =================

Basic earnings (loss) per share:

     Net income (loss)                      $     0.05          $  (0.24)

     Goodwill amortization                          -               0.01
                                            ------------------ -----------------
          Adjusted net income (loss)        $     0.05          $  (0.23)
                                            ================== =================`

## NOTE 5 
ASSET IMPAIRMENTS AND OTHER WRITEDOWNS

On March 15, 2001, the Company  announced an agreement with Ingram Book Group ("Ingram"),  a wholesaler of books,  spoken
audio and magazines,  pursuant to which Ingram  provides  fulfillment  services for the Company's  special order sales.  This
agreement  resulted  in a pre-tax  charge  of $15.8 in the first  quarter  of 2001.  This  charge  primarily  related  to the
writedown of assets used by the  Company-owned  facility to fulfill  special  order  sales,  including  warehouse  equipment,
hardware and  software,  and is  categorized  as "Asset  impairments  and other  writedowns"  on the  Condensed  Consolidated
Statements of Operations.

The  agreement  with Ingram also  resulted in a $12.7  pre-tax  charge in the first  quarter of 2001 for the writedown of
Fulfillment  center  inventory.  This charge is categorized as  "Fulfillment  center  inventory  writedowns" on the Condensed
Consolidated Statements of Operations.

7

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

## NOTE 6 
SEGMENT INFORMATION

The Company is organized
based upon the following operating segments: domestic Borders stores,
international Borders and Books etc. stores, Walden stores, and other
(consisting of the unallocated portion of interest expense and certain corporate
governance costs).

Segment data includes
charges allocating certain corporate headquarters costs to each segment.
Transactions between segments, consisting principally of inventory transfers,
are recorded primarily at cost. The Company evaluates the performance of its
segments and allocates resources to them based on anticipated future
contribution.

`13 Weeks Ended
                                                               April 28,         April 29,
                                                                  2002             2001
                                                             ---------------  ----------------
  Sales
        Borders                                                 $    518.5       $     500.6
        Walden                                                       170.0             176.8
        International                                                 63.2              52.5
                                                             ---------------  ----------------
  Total sales                                                   $    751.7       $     729.9
                                                             ===============  ================

  Net income (loss)
        Borders                                                 $     11.2       $      (9.5)
        Walden                                                         1.4              (1.2)
        International                                                 (4.7)             (3.5)
        Other                                                         (4.0)             (4.7)
                                                             ---------------  ----------------
  Total net income (loss)                                       $      3.9       $     (18.9)
                                                             ===============  ================

  Total assets
        Borders                                                 $  1,342.5       $   1,299.2
        Walden                                                       352.8             391.3
        International                                                258.9             209.3
        Other                                                         89.3              95.6
                                                             ---------------  ----------------
  Total continuing operations                                      2,043.5           1,995.4
        Discontinued operations                                        -                11.5
                                                             ---------------  ----------------
  Total assets                                                  $  2,043.5       $   2,006.9
                                                             ===============  ================`

8

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

## NOTE 7 
SUBSEQUENT EVENT

In June 2002, the Company expects
to complete a $400.0 Multicurrency Revolving Credit Agreement, which will expire
in June 2005. Borrowings under the Agreement would bear interest at a variable
base rate plus an increment or LIBOR plus an increment at the Companys
option. This agreement will contain covenants which limit, among other things,
the Companys ability to incur indebtedness, grant liens, make investments,
make acquisitions, merge, declare dividends, dispose of assets, repurchase its
common stock in excess of $100.0 over the term of the Agreement or $50.0 in any
fiscal year (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 will require the Company to meet certain
financial measures regarding fixed charge coverage, leverage, tangible net worth
and capital expenditures. This agreement will replace the Credit Facility
discussed in Note 3 of the Notes to Unaudited Condensed Consolidated Financial
Statements.

Also in June 2002, the
Company expects to complete agreements to (i) amend and extend until June 2004
(2005 if certain conditions are satisfied) the Lease Facility discussed in Note
3 of the Notes to Unaudited Condensed Consolidated Financial Statements (the
Existing Lease Facility), and (ii) establish a new lease financing
facility (the New Lease Facility). The aggregate amount available
under these facilities would be $100.0 until November 1, 2002, and $75.0
thereafter. Properties to be financed after the effective date of the New Lease
Facility would be financed under that facility, and no additional properties
would be financed under the Existing Lease Facility. By November 1, 2002, the
Company anticipates that a sufficient number of properties currently financed
under the Existing Lease Facility will be permanently financed such that the
amount transferred to the New Lease Facility is less than $75.0 million. The New
Lease Facility, which will expirein 2007, will 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, third-party lenders will
make equity contributions approximating 5% of the cost of each project.
Independent of its obligations relating to the leases, the Company will
guarantee payment when due of all amounts required to be paid to the third-party
lender. The agreements relating to both the New Lease Facility and the Existing
Lease Facility will contain convenants and events of default that are similar to
those contained in the Multicurrency Revolving Credit Agreement described above.

9

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

## GENERAL

Borders Group, Inc., (the
Company), through its subsidiaries, is the second largest operator of book and
music superstores and the largest operator of mall-based bookstores in the world
based upon both sales and number of stores. As of April 28, 2002, the Company
operated 391 superstores primarily under the Borders name, including 12 in the
United Kingdom, six in Australia, two in Puerto Rico and one each in Singapore
and New Zealand. The Company also operated 820 mall-based and other bookstores
primarily under the Waldenbooks name, 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 superstore business, (ii) driving international
growth by leveraging infrastructure investments and expanding established
markets, (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 an
average of 40 domestic Borders stores annually over the next several years.
International store growth over the next several years will focus on existing
markets, primarily in the United Kingdom and Australia, with approximately eight
to ten international store openings annually. Full year profitability is expected
to be achieved by the International segment in 2003. The Waldenbooks segment has
experienced decreased comparable sales percentages for the past few years
primarily due to the overall decrease in mall traffic and the impact of
superstore openings. As a result, the Company has developed a plan for the
optimization of its store base in order to improve 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 support consolidated annual sales growth of approximately 8%
to 10% and consolidated annual earnings growth of approximately 13% to 15%.

The Companys first
quarters of 2002 and 2001 consisted of the 13 weeks ended April 28, 2002 and
April 29, 2001, respectively.

## RESULTS OF
OPERATIONS

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

`13 Weeks Ended
                                                 April 28, 2002   April 29, 2001
                                                 --------------   --------------

    Sales                                            100.0%             100.0%
    Cost of merchandise sold (includes
    occupancy)                                        74.6               74.7
    Fulfillment center inventory writedowns            -                  1.7
                                                 ---------------- --------------
    Gross margin                                      25.4               23.6
    Selling, general and administrative
    expenses                                          24.1               24.5
    Legal settlement expense                           -                  0.3
    Pre-opening expense                                0.1                0.1
    Goodwill amortization                              -                  0.1
                                                 ---------------- --------------
    Operating income (loss) before asset
    impairments
      and other writedowns                             1.2                (1.4)
    Asset impairments and other writedowns             -                   2.2
                                                 ---------------- --------------
    Operating income (loss)                            1.2               (3.6)
    Interest expense                                   0.4                0.5
                                                 ---------------- --------------
    Income (loss) before income tax                    0.8               (4.1)
    Income tax                                         0.3               (1.5)
                                                 ---------------- --------------
    Net income (loss)                                  0.5%              (2.6)%
                                                 ================ ==============`

10

## CONSOLIDATED
RESULTS

## Sales

The increase in
consolidated sales for the 13 weeks ended April 28, 2002 as compared to the 13
weeks ended April 29, 2001 resulted primarily from the opening of new Borders
superstores.

## Gross margin

Consolidated gross margin
as a percentage of sales increased in the first quarter of 2002 compared to the
prior year. This primarily resulted from a $12.7 million pre-tax charge taken in
the first quarter of 2001 for the writedown of inventory affected by the
Companys agreement with Ingram Book Company (Ingram). On March
15, 2001, the Company announced an agreement with Ingram, a wholesaler of books,
spoken audio and magazines, pursuant to which Ingram provides fulfillment
services for the Companys special order book sales. The agreement included
the sale to Ingram of a large percentage of the book inventory housed in the
Companys fulfillment center in LaVergne, Tennessee, which handled the
function assumed by Ingram. Also contributing to the improvement of gross margin
in 2002 are lower promotional and distribution costs as a percentage of sales.

## Selling,
general and administrative expenses

Consolidated selling,
general and administrative expenses as a percentage of sales decreased in the
first quarter of 2002 compared to the prior year primarily as a result of strong
expense management and of the elimination of Borders.com operating expenses in
the third quarter of 2001. Through July 2001, the Company (through its
subsidiary Borders Online, Inc.) was an online retailer of books, music and
video through the operation of its Internet commerce site, Borders.com. In
August 2001, the Company entered into an agreement with Amazon.com, Inc. to
re-launch Borders.com as a co-branded Web site powered by Amazon.coms
e-commerce platform. Amazon.com is the seller of record, providing inventory,
fulfillment, site content, and customer service for the co-branded site.

## Legal
settlement expense

In March 1998, the American
Booksellers Association (ABA) and 26 independent bookstores fled 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. On April 19, 2001 the Company announced that
a settlement had been reached in this action. The Company paid $2.4 million
under the agreement. The Company has categorized this charge as Legal
settlement expense in the Condensed Consolidated Statements of Operations.

## Goodwill
amortization

In the first quarter of
fiscal 2002, the Company adopted Statement of Financial Accounting Standards No.
142 Goodwill and Other Intangible Assets (FAS 142). Adoption had the
impact of eliminating the Companys goodwill amortization and increasing
net income by approximately $0.7 million in the first quarter 2002. Upon initial
application, the Company determined no goodwill impairment existed.

## Asset
impairments and other writedowns

In addition to the
writedown of inventory discussed above, the Companys agreement with Ingram
resulted in a pre-tax charge of $15.8 million in the first quarter of 2001. This
charge was primarily related to the writedown of assets used by the current
Company-owned facility to fulfill special order sales, including computer
hardware and software, leasehold improvements, and warehouse equipment.

## Interest
expense

Interest expense decreased
as a percentage of sales for the 13 weeks ended April 28, 2002 compared to the
prior year primarily as a result of lower borrowing levels.

## Taxes

The effective tax rate for
the quarters presented differed from the federal statutory rate primarily as a
result of state income taxes. The Companys estimated effective tax rate
used was 38.1% in 2002 compared to 37.0% in 2001. The increase is primarily due
to changes in the mix of income subject to tax in the various taxing
jurisdictions.

11

## SEGMENT RESULTS

The Company is organized
based upon the following operating segments: domestic Borders stores,
Waldenbooks stores, international Borders and Books etc. stores, and other
(consisting of the unallocated portion of interest expense and certain corporate
governance costs). See Note 6 of the Notes to Unaudited Condensed Consolidated
Financial Statements for further information relating to these segments.

Segment data includes
charges allocating certain corporate headquarters costs to each segment.
Transactions between segments, consisting principally of inventory transfers,
are recorded primarily at cost. The Company evaluates the performance of its
segments and allocates resources to them based on anticipated future
contribution.

`Borders
     (dollar amounts in millions)
                                                 13 Weeks Ended
                                         April 28, 2002    April 29, 2001
                                        ---------------- -----------------
     Sales                              $  518.5          $  500.6
     Net income (loss)                  $   11.2          $   (9.5)
     Net income (loss) as % of sales         2.2%             (1.9)%

     Depreciation and
        amortization  expense           $   16.4          $   15.4
     Interest expense                   $      -          $    2.8

     Store Openings                            6                 4
     Store Closings                            -                 -
     Store Count                             369               339`

The increase in Borders
sales for the first 13 weeks of 2002 is primarily the result of new store
openings, partially offset by a comparable store sales decrease of 0.4%. Borders
operated 369 and 339 stores at the end of the first quarter of 2002 and 2001,
respectively. The comparable store sales decrease was partially due to weak
music sales in the first quarter of 2002 compared to the first quarter of 2001.

For the first quarter of
2002, Borders generated net income of $11.2 million, compared to a net loss of
$9.5 million in the first quarter of 2001. The net loss in 2001 primarily
resulted from the writeoff of certain assets and inventory pursuant to the
alliance with Ingram. Excluding the impact of these writeoffs, Borders generated
net income of $8.6 million, or approximately 1.7% of sales. The increase in 2002
net income compared to the prior year (excluding writeoffs) was the result of
store openings, Borders ability to leverage fixed costs over a larger
sales base and the elimination of Borders.com operating expenses in conjunction
with the agreement with Amazon.com. The increase in net income as a percentage
of sales (excluding writeoffs) was also primarily the result of the elimination
of Borders.com operating expenses.

Depreciation and
amortization expense increased in 2002 compared to the prior year primarily as a
result of the depreciation expense recognized on new stores capital
expenditures, partially offset by the cessation of goodwill amortization in the
first quarter of 2002.

Interest expense decreased
in 2002 compared to the prior year primarily as a result of lower average
borrowing levels at fixed internal interest rates.

12

`Waldenbooks
(dollar amounts in millions)
                                             13 Weeks Ended
                                     April 28, 2002   April 29, 2001
                                   ----------------- ----------------
Sales                              $  170.0           $  176.8
Net income (loss)                  $    1.4           $   (1.2)
Net income  (loss) as % of sales        0.8%              (0.7)%

Depreciation expense               $    4.5          $     5.0
Interest income                    $    8.3          $     7.0

Store Openings                            -                  4
Store Closings                            7                 11
Store Count                             820                862`

The decrease in Waldenbooks
sales in the first quarter of 2002 compared to the first quarter of 2001 is
primarily the result of the decrease in store count coupled with a comparable
store sales decrease of 0.2%.

Net income in 2002 of $1.4
million compared favorably to a net loss of $1.2 million in 2001 primarily as a
result of an increase in gross margin. This was primarily due to lower
promotional markdowns and lower distribution costs as a percentage of sales.

Depreciation expense
decreased in 2002 primarily as a result of the decrease in store count and the
impairment of 97 underperforming stores leaseholds and fixtures in the
fourth quarter of 2001.

Interest income increased
in 2002 as a result of Waldenbooks continued positive cash flow at fixed
internal rates.

`International
(dollar amounts in millions)
                                            13 Weeks Ended
                                     April 28, 2002   April 29, 2001
                                    ---------------- -----------------
Sales                               $   63.2            $   52.5
Net loss                            $    4.7            $    3.5
Net loss as % of sales                   7.4%               6.7%

Depreciation and amortization
   expense                          $    2.3            $     2.2
Interest expense                    $    3.8            $     3.3

Superstore Store Openings                  -                    1
Superstore Store Count                    22                   15
Books etc. Store Openings                  -                    1
Books etc. Store Closings                  -                    -
Books etc. Store Count                    36                   32`

The increase in
International sales in the first quarter of 2002 compared to the first quarter
of 2001 resulted from new superstore openings.

Net loss and net loss as a
percentage of sales increased for the 13 weeks ended April 28, 2002 compared to
the prior year primarily as a result of the opening of eight new superstores
during fiscal 2001. As expected, new superstores incur losses in their first
yearas sales levels are not sufficient to leverage store costs. The losses
generatedby these stores was partially offset by the net income generated by the
more mature stores.

Depreciation and
amortization expense remained relatively flat the first quarter of 2002. This
was the result of increased depreciation expense from the opening of new stores
offset by the cessation of goodwill amortization in the first quarter of 2002.

Interest expense increased
in 2002 compared to the prior year due to higher average borrowing levels
necessary to finance investments in new stores at fixed internal rates.

13

`Other
(dollars in millions)
                                       13 Weeks Ended
                               April 28, 2002    April 29, 2001
                               --------------    --------------
           Net loss             $   4.0           $    4.7
           Interest expense     $   6.9                4.9`

Net loss consists of
various corporate governance costs and income. The net loss for the first
quarter of 2002 decreased from the same period in the prior year. This was
primarily due to legal and settlement costs incurred in the first quarter of
2001, which were associated with the American Booksellers Association
litigation, partially offset by increased interest expense for this segment.
Interest expense represents corporate-level interest costs not charged to the
Companys operating 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
continuing operations was $120.2 million and $149.8 million for the 13 weeks
ended April 28, 2002 and April 29, 2001, respectively. Cash from operations for
the period primarily reflects operating results net of non-cash depreciation and
amortization expense. Operating cash outflows for the period were primarily the
result of decreases in accounts payable, taxes payable, and accrued liabilities
during the period offset by an increase in inventory.

Net cash used for investing
was $14.6 million and $4.8 million for the 13 weeks ended April 28, 2002 and
April 29, 2001, respectively, which primarily funded capital expenditures for
new stores, the refurbishment of existing stores and technology investments.

Net cash provided by
financing in the first 13 weeks of 2002 was $2.4 million versus $166.3 million
in the first 13 weeks of 2001. The decrease was primarily the result of
decreased borrowing needs due to the cash flows being generated by the maturing
Borders superstores.

The Company expects capital
expenditures to increase to approximately $120.0 million for the full year of
2002, resulting primarily from domestic store 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 40 domestic
Borders superstores and eight international stores in 2002. Average cash
requirements for the opening of a domestic 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 currently has a
share repurchase program in place with remaining authorization to repurchase
approximately $77.2 million.

The Company has a $472.8
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 covenants which limit, among other things, the Companys ability
to incur indebtedness, grant liens, make acquisitions, merge, declare dividends,
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), and require the Company to meet certain financial measures regarding
fixed charge coverage, leverage, and tangible net worth. The Company is
prohibited under the Credit Facility from paying cash dividends on common
shares.

14

In June 2002, the Company
expects to complete a $400.0 million Multicurrency Revolving Credit Agreement,
which will expire in June 2005. Borrowings under the Agreement would bear
interest at a variable base rate plus an increment or LIBOR plus an increment at
the Companys option. This agreement will contain covenants which limit,
among other things, the Companys ability to incur indebtedness, grant
liens, make investments, make acquisitions, merge, declare dividends, dispose of
assets, repurchase its common stock in excess of $100.0 million over the term of
the Agreement or $50.0 million in any fiscal year (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 will require the
Company to meet certain financial measures regarding fixed charge coverage,
leverage, tangible net worth and capital expenditures. This agreement will
replace the Credit Facility discussed in Note 3 of the Notes to Unaudited
Condensed Consolidated Financial Statements, and it will result in an increased
borrowing rate.

The Company has a $175.0
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 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 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. The
Lease Facility contains covenants and events of default that are similar to
those contained in the Credit Facility described above.

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
Facility (or its successor) would be sufficient to meet its obligations.

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 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.

There were 30 and 31
properties financed through the Lease Facility, with a financed value of $119.0
million and $121.8 million, as of April 28, 2002, and January 27, 2002,
respectively. Of this amount, the Company has recorded $51.0 million and $49.7
million as capital leases on the consolidated balance sheets. On April 30, 2002,
the Company permanently refinanced 9 properties with a total value of
approximately $28.0 million through operating leases. The Company expects that
the remaining properties financed under the Lease Facility will either be
transferred to a new facility described below or be permanently financed.

In June 2002, the Company
expects to complete agreements to (i) amend and extend until June 2004 (2005 if
certain conditions are satisfied) the Lease Facility discussed in Note 3 of the
Notes to Unaudited Condensed Consolidated Financial Statements (the
Existing Lease Facility), and (ii) establish a new lease financing
facility (the New Lease Facility). The aggregate amount available
under these facilities would be $100.0 million until November 1, 2002, and $75.0
million thereafter. Properties to be financed after the effective date of the
New Lease Facility would be financed under that facility, and no additional
properties would be financed under the Existing Lease Facility. By November 1,
2002, the Company anticipates that a sufficient number of properties currently
financed under the Existing Lease Facility will be permanently financed such
that the amount transferred to the New Lease Facility is less than $75.0
million. The New Lease Facility, which will expire in 2007, will 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,
third-party lenders will make equity contributions approximating 5% of the cost
of each project. Independent of its obligations relating to the leases, the
Company will guarantee payment when due of all amounts required to be paid to
the third-party lender. The agreements relating to both the New Lease Facility
and the Existing Lease Facility will contain convenants and events of default
that are similar to those contained in the Multicurrency Revolving Credit
Agreement described above.

15

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 Lease and Credit Facilities (or their successors). The Company
believes funds generated from operations, borrowings under the Credit Facility
or its successor, and financing through the Lease Facility or its successor will
be sufficient to fund its anticipated capital requirements for the next several
years.

The following table
summarizes the Companys significant financing and lease obligations at April
28, 2002:

`Fiscal Year                       2002       2003-2004       2005-2006      2007 and         Total
(dollars in millions)                                                       thereafter
                              ----------     ----------      ----------     -----------     ----------
Credit Facility borrowings    $   85.3       $    --         $    --        $      --       $    85.3
Capital lease obligations          1.6            --              --             51.0            52.6
Operating lease obligations      201.8           488.7           436.3        1,940.1         3,066.9
                              -----------    ----------      -----------    -----------     ----------
Total                          $ 288.7       $   488.7       $   436.3      $ 1,991.1       $ 3,204.8

Lease Facility guarantees(1)   $ 119.0       $    --         $    --        $      --       $   119.0

(1) Includes $51.0 million treated as capital lease obligations.`

## CRITICAL
ACCOUNTING 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
estimates.

## Goodwill
Impairment Testing

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. Changes in any of the assumptions
underlying these estimates may result in the future impairment of goodwill. The
Company anticipates that its future annual tests of goodwill impairment will be
based upon the methodology described above and will be subject to the same risks
and uncertainties.

## Asset
Impairment Testing

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 each of its 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
its estimated fair value. Fair value is estimated using expected discounted
future cash flows. To the extent that there is significant deterioration in the
performance of the Companys stores, or changes in the other assumptions
underlying the estimates of expected discounted future cash flows, significant
asset impairments may result.

16

## Inventory

The Company records
reserves for shrinkage and non-returnable inventory based on actual historical
rates. If future experience differs from these historical rates, the recorded
amounts for inventory and cost of sales will be impacted.

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 approximate 2% of total inventory. The extent to which
these costs are included in inventory is based on certain estimates of space and
labor allocation.

## 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.

17

# PART II -
OTHER INFORMATION

## ITEM 1. LEGAL
PROCEEDINGS

The Companys Form
10-K Annual Report for the fiscal year ended January 27, 2002, describes pending
lawsuits against the Company. An adverse judgment against the Company in any of
these matters could have a material adverse effect on the Company. The status of
such litigation has not changed in any material respect during the period
covered by this Report.

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

## ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K

Exhibits:
(a)        Exhibits:
           99.1  Cautionary  Statement  under  the  Private  Securities  Litigation  Reform  Act of  1995 - "Safe  Harbor" for
           Forward-Looking Statements.
(b)        Reports on Form 8-K:
        None18
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 12, 2002By: /s/ Edward W. WilhelmEdward W. WilhelmSenior Vice President andChief Financial Officer(Principal Financial andAccounting Officer)19