<PAGE>   1
                       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 April 29, 2001

                                       OR

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

                       For the transition period from      to     .
                                                      ----    ----

                         Commission file number 1-13740
                                                -------

                               BORDERS GROUP, INC.
                               -------------------
             (Exact name of registrant as specified in its charter)



          MICHIGAN                                         38-3294588
          --------                                         ----------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                           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
   --------------       --------------

                                            Shares Outstanding As of
        Title of Class                            June 4, 2001
        --------------                            ------------
         Common Stock                              80,432,575




<PAGE>   2
                               BORDERS GROUP, INC.



                                      INDEX


<TABLE>
<CAPTION>
Part I - Financial Information

                                                                                                     Page
<S>                <C>                                                                               <C>
     Item 1.       Financial Statements                                                                1

     Item 2.       Management's Discussion and Analysis of
                   Financial Condition and Results of
                   Operations                                                                          9

     Item 3.       Quantitative and Qualitative Disclosures about
                   Market Risk                                                                       N/A

Part II - Other information

     Item 1.       Legal Proceedings                                                                  15

     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                                                                  16

     Item 6.       Exhibits and Reports on Form 8-K                                                   17


Signatures                                                                                            18
</TABLE>


<PAGE>   3
                               BORDERS GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (DOLLARS IN MILLIONS EXCEPT COMMON SHARE DATA)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                              13 WEEKS ENDED
                                                                                     APRIL 29,               APRIL 23,
                                                                                       2001                     2000
                                                                               ----------------------   ---------------------
<S>                                                                            <C>                      <C>
Sales                                                                             $          729.9         $        679.6

Cost of merchandise sold, including
occupancy costs                                                                              545.1                  503.8
Fulfillment center inventory writedowns                                                       12.7                   --
                                                                               ----------------------   ---------------------

Gross margin                                                                                 172.1                  175.8
Selling, general and administrative expenses                                                 178.4                  170.5
Legal settlement expense                                                                       2.4                   --
Pre-opening expense                                                                            0.8                    1.2
Asset impairments and other writedowns                                                        15.8                   --
Goodwill amortization                                                                          0.7                    0.7
                                                                               ----------------------   ---------------------

Operating income (loss)                                                                      (26.0)                   3.4
Interest expense                                                                               4.0                    2.3
                                                                               ----------------------   ---------------------

Income (loss) from continuing operations before income tax                                   (30.0)                   1.1
Income tax provision (benefit)                                                               (11.1)                   0.4
                                                                               ----------------------   ---------------------

Income (loss) from continuing operations                                          $          (18.9)        $          0.7
Loss from discontinued operations, net of income tax credit of $1.0                           --                      1.6
                                                                               ----------------------   ---------------------
Net loss                                                                          $          (18.9)        $         (0.9)
                                                                               ======================   =====================

EARNINGS (LOSS) PER COMMON SHARE DATA --
   Diluted earnings (loss) per common share:
       Continuing operations                                                      $          (0.24)        $         0.01
       Discontinued operations                                                                0.00                  (0.02)
                                                                               ----------------------   ---------------------
       Net diluted loss per common share                                          $          (0.24)        $        (0.01)
                                                                               ======================   =====================
   Diluted weighted average common shares
   outstanding (in thousands)                                                                79,829                 80,158
                                                                               ======================   =====================

   Basic earnings (loss) per common share:
       Continuing operations                                                      $          (0.24)        $         0.01
       Discontinued operations                                                                0.00                  (0.02)
                                                                               ----------------------   ---------------------
       Net basic loss per common share                                            $          (0.24)        $        (0.01)
                                                                               ======================   =====================
   Basic weighted average common shares
   outstanding (in thousands)                                                                79,829                 77,961
                                                                               ======================   =====================
</TABLE>

           See accompanying Notes to Unaudited Condensed Consolidated
                              Financial Statements.



                                       1
<PAGE>   4
                               BORDERS GROUP, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
               (DOLLARS IN MILLIONS EXCEPT PER COMMON SHARE DATA)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                  APRIL 29,           APRIL 23,          JANUARY 28,
                                                                    2001                2000                2001
                                                              ------------------  ------------------  ------------------
<S>                                                           <C>                 <C>                 <C>
                           ASSETS
Current Assets:

   Cash and cash equivalents                                    $        73.4       $        74.7        $       59.1

   Merchandise inventories                                            1,189.0             1,105.9             1,201.2

   Accounts receivable and other current assets                          66.5                64.5                74.8
                                                              ------------------  ------------------  ------------------
         Total Current Assets                                         1,328.9             1,245.1             1,335.1

Property and equipment, net of accumulated depreciation of
   $523.9, $413.9 and $515.9 at April 29, 2001, April 23,
   2000, and January 28, 2001, respectively                             532.4               548.1               562.3

Other assets and deferred charges                                        54.1                35.9                56.5

Goodwill, net of accumulated amortization of $53.8, $50.4
   and $53.1 at April 29, 2001, April 23, 2000 and January
   28, 2001, respectively                                                91.5               116.7                93.2
                                                              ------------------  ------------------  ------------------
         Total Assets                                           $     2,006.9       $     1,945.8        $    2,047.1
                                                              ==================  ==================  ==================

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

   Short-term debt and capital lease obligations due within
     one year                                                   $       299.2       $       291.9        $      144.4

   Trade accounts payable                                               546.9               537.0               623.6

   Accrued payroll and other liabilities                                210.2               191.1               256.6

   Taxes, including income taxes                                         33.4                36.1                93.3
                                                              ------------------  ------------------  ------------------
         Total Current Liabilities                                    1,089.7             1,056.1             1,117.9

Long-term debt and capital lease obligations                             14.8                15.9                15.0

Other long-term liabilities                                              69.0                67.6                67.7
                                                              ------------------  ------------------  ------------------
         Total Liabilities                                            1,173.5             1,139.6             1,200.6
                                                              ------------------  ------------------  ------------------

Stockholders' Equity:

Common stock; 200,000,000 shares authorized; 80,393,499,
   78,172,779 and 78,649,501 issued and outstanding at
   April 28, 2001, April 23, 2000, and January 28, 2001,
   respectively                                                         696.4               684.9               685.2

Officers receivable and deferred compensation                            (1.0)               (1.3)               (1.0)

Accumulated other comprehensive loss                                    (13.4)               (3.2)               (8.0)

Retained earnings                                                       151.4               125.8               170.3
                                                              ------------------  ------------------  ------------------
         Total Stockholders' Equity                                     833.4               806.2               846.5
                                                              ------------------  ------------------  ------------------
         Total Liabilities & Stockholders' Equity               $     2,006.9       $     1,945.8        $    2,047.1
                                                              ==================  ==================  ==================
</TABLE>

 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements



                                       2
<PAGE>   5
                               BORDERS GROUP, INC.
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      FOR THE 13 WEEKS ENDED APRIL 29, 2001
                              (DOLLARS IN MILLIONS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                  DEFERRED         ACCUMULATED
                                                                COMPENSATION          OTHER
                                         COMMON STOCK            AND OFFICER      COMPREHENSIVE     RETAINED
                                     SHARES         AMOUNT       RECEIVABLES           LOSS         EARNINGS       TOTAL
                                  --------------  ------------ ----------------  ----------------- ------------ ------------

<S>                               <C>             <C>          <C>               <C>               <C>          <C>
BALANCE AT JANUARY 28, 2001          78,649,501    $    685.2   $         (1.0)   $          (8.0)  $    170.3   $    846.5
                                  --------------  ------------ ----------------  ----------------- ------------ ------------
Net loss                                    --           --               --                 --          (18.9)       (18.9)

Currency translation adjustment             --           --               --                 (2.8)        --           (2.8)
Cumulative effect of change in
  accounting method, net of tax             --           --               --                 (1.6)        --           (1.6)
Change in fair value of
  derivatives, net of tax                   --           --               --                 (1.0)        --           (1.0)
                                                                                                                ------------
Comprehensive income                                                                                                  (24.3)

Issuance of common stock              1,743,998          10.1             --                 --           --           10.1

Tax benefit of equity
  compensation                               --           1.1             --                 --           --            1.1
                                  --------------  ------------ ----------------  ----------------- ------------ ------------

BALANCE AT APRIL 29, 2001            80,393,499    $    696.4   $         (1.0)   $         (13.4)  $    151.4   $    833.4
                                  ==============  ============ ================  ================= ============ ============
</TABLE>







See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.





                                       3
<PAGE>   6
                               BORDERS GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (DOLLARS IN MILLIONS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                      13 WEEKS ENDED
                                                                              APRIL 29,             APRIL 23,
                                                                                2001                  2000
                                                                         -------------------   -------------------
<S>                                                                      <C>                   <C>
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net income (loss) from continuing operations                               $        (18.9)        $          0.7
Adjustments to reconcile net income (loss) to operating cash flows:
   Depreciation and goodwill amortization                                            22.6                   22.7
   Decrease in deferred income taxes                                                  3.9                    0.1
   Change in other long-term assets and liabilities                                  (0.3)                   1.1
   Asset impairments and other writedowns                                            10.0                   --
   Cash provided by (used for) current assets and current liabilities:
     Decrease (increase) in inventories                                              10.8                  (30.5)
     Decrease in accounts payable                                                   (75.1)                 (39.9)
     Decrease in taxes payable                                                      (58.1)                 (43.4)
     Other, net                                                                     (44.7)                 (24.1)
                                                                         -------------------   -------------------
     Net cash used for continuing operations                                       (149.8)                (113.3)
     Net cash provided by (used for) discontinued operations                          3.0                   (5.6)
                                                                         -------------------   -------------------
         Net cash used for operations                                              (146.8)                (118.9)

INVESTING
Capital expenditures                                                                 (4.8)                 (15.0)
Net investing activities of discontinued operations                                  --                     (0.6)
                                                                         -------------------   -------------------
         Net cash used for investing                                                 (4.8)                 (15.6)

FINANCING
Net funding from credit facility                                                    160.4                  160.1
Issuance of common stock                                                             10.1                    5.4
Repurchase of common stock                                                           --                     (0.1)
Other, net                                                                           (4.2)                   1.9
                                                                         -------------------   -------------------
         Net cash provided by financing                                             166.3                  167.3
Effect of exchange rates on cash and equivalents                                     (0.4)                   0.3
                                                                         -------------------   -------------------
NET INCREASE IN CASH AND EQUIVALENTS                                                 14.3                   33.1
Cash and equivalents at beginning of year                                            59.1                   41.6
                                                                         -------------------   -------------------
Cash and equivalents at end of period                                      $         73.4         $         74.7
                                                                         ===================   ===================
</TABLE>


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements





                                       4
<PAGE>   7
                               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 28, 2001.

    The Company's fiscal year ends on the Sunday immediately preceding the last
Wednesday in January. At April 29, 2001, the Company operated 354 superstores
primarily under the Borders name, including ten in the United Kingdom, two in
Australia, and one each in Singapore, New Zealand, and Puerto Rico. The Company
also operated 862 mall-based and other bookstores primarily under the
Waldenbooks name, and 32 bookstores under the Books etc. name in the United
Kingdom. The Company, through its subsidiary Borders Online, Inc., is also an
online retailer of books, music and video through the operation of its Internet
commerce site, 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. These mortgage pass-through certificates include a
provision requiring the Company to repurchase the underlying mortgage notes in
certain events, including the failure by the Company to make payments of rent
under the related leases, the failure by Kmart Corporation to maintain required
investment grade ratings or the termination of the guarantee by Kmart
Corporation of the Company's obligations under the related leases (which would
require the mutual consent of Kmart Corporation and Borders). In the event the
Company is required to repurchase all of the underlying mortgage notes, the
Company would be obligated to pay approximately $36.6.

    In August 1998, The Intimate Bookshop, Inc. ("Intimate") and its owner,
Wallace Kuralt, filed a lawsuit in the United States District Court for the
Southern District of New York against the Company, Barnes & Noble, Inc., and
others alleging violation of the Robinson-Patman Act and other federal laws, New
York statutes governing trade practices and common law. In response to
Defendants' Motion to Dismiss the Complaint, plaintiff Kuralt withdrew his
claims and plaintiff Intimate voluntarily dismissed all but its Robinson-Patman
claims. Intimate has filed a Second Amended Complaint limited to allegations of
violations of the Robinson-Patman act. The Second Amended Complaint alleges that
Intimate has suffered $11.3 million or more in damages and requests treble
damages, injunctive and declaratory relief, interest, costs, attorneys fees and
other unspecified relief. The Company intends to vigorously defend the action.

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



                                       5
<PAGE>   8
                               BORDERS GROUP, INC.
                          NOTES TO UNAUDITED CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in millions except per common share data)


The Company intends to vigorously defend the action, including contesting the
certification of the action as a class action.

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

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

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 operating covenants which limit
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. The Company had borrowings outstanding
under the Credit Facility of $298.5 as of April 29, 2001 and $143.5 as of
January 28, 2001.

    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 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 $123.0 outstanding under the Lease Facility as of April 29,
2001 and $163.1 as of January 28, 2001.

NOTE 4 - 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 will provide book 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 is primarily related to the writedown of assets used by the
current 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 for the
writedown of Fulfillment center inventory. This charge is categorized as
"Fulfillment center inventory writedowns" on the Condensed Consolidated
Statements of Operations.

NOTE 5 - LEGAL SETTLEMENT

    On April 19, 2001, the Company announced that a settlement had been reached
in the action instituted by the American Booksellers Association and 26
independent bookstores against the Company and Barnes and Noble, Inc. The
Company paid $2.4 under the agreement. The Company has categorized this charge
as "Legal settlement expense" in the Condensed Consolidated Statements of
Operations.






                                       6
<PAGE>   9
                               BORDERS GROUP, INC.
                          NOTES TO UNAUDITED CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS
               (DOLLARS IN MILLIONS EXCEPT PER COMMON SHARE DATA)


NOTE 6 - CHANGE IN ACCOUNTING PRINCIPLE

    Effective January 29, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133), as amended. FAS 133 requires the transition adjustment
resulting from adoption to be reported in net income or other comprehensive
income, as appropriate, as the cumulative effect of a change in accounting
principle. Accordingly, the Company recorded a cumulative transition adjustment
to decrease other comprehensive income by $1.6, net of tax, to recognize the
fair value of its derivative financial instruments as of the date of adoption.

    The Company is subject to risk resulting from interest rate fluctuations, as
interest on the Company's borrowings is principally based on variable rates. The
Company's objective in managing its exposure to interest rate fluctuations is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. The Company primarily utilizes interest rate
swaps to achieve this objective, effectively converting a portion of its
variable-rate exposures to fixed interest rates. In accordance with the
provisions of FAS 133, the Company has designated all of its interest rate swap
agreements as cash flow hedges.

    The Company recognizes the fair value of its derivatives on the balance
sheet. Changes in the fair value of a derivative that is designated as and meets
all the required criteria for a cash flow hedge are recorded in accumulated
other comprehensive income and reclassified into earnings as the underlying
hedged item affects earnings. Amounts reclassified into earnings related to
interest swap agreements are included in interest expense. During the quarter
ended April 29, 2001, unrealized after-tax net losses of $2.6 related to
interest rate swaps were recorded in other comprehensive income, including the
$1.6 cumulative transition adjustment. As of April 29, 2001, $2.6 of net
unrealized losses related to interest rate swaps was included in accumulated
other comprehensive income, approximately $1.9 of which is expected to be
reclassified into earnings during the next twelve months. The hedge
ineffectiveness for the quarter ending April 29, 2001 was not material.















                                       7
<PAGE>   10
                               BORDERS GROUP, INC.
                          NOTES TO UNAUDITED CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS
               (DOLLARS IN MILLIONS EXCEPT PER COMMON SHARE DATA)


NOTE 7 - 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 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. Amounts relating to Borders.com, other than intercompany
interest expense (net of related taxes) have been included in the Borders
segment; intercompany interest charges (net of related taxes) relating to
Borders.com have been included in the Other segment.
<TABLE>
<CAPTION>
                                                       13 WEEKS ENDED
                                                 APRIL 29,        APRIL 23,
                                                   2001             2000
                                              ---------------  ----------------
<S>                                           <C>              <C>
Sales:
     Borders                                     $     500.6      $    449.5
     Walden                                            176.8           184.0
     International                                      52.5            46.1
                                              ---------------  ----------------
                                                 $     729.9      $    679.6
                                              ===============  ================

Net income (loss):
     Borders                                     $      (9.5)     $      4.7
     Walden                                             (1.2)            1.4
     International                                      (3.5)           (3.6)
     Other                                              (4.7)           (1.8)
                                              ---------------  ----------------
Total continuing operations                            (18.9)            0.7
          Discontinued operations                        0.0             1.6
                                              ---------------  ----------------
Total net income (loss)                          $     (18.9)     $     (0.9)
                                              ===============  ================
<CAPTION>
                                                 APRIL 29,         APRIL 23,
                                                   2001              2000
                                              ---------------  ----------------
<S>                                           <C>              <C>
Total assets:
     Borders                                     $   1,299.2     $   1,214.6
     Walden                                            391.3           397.4
     International                                     209.3           200.5
     Other                                              95.6           104.1
                                              ---------------  ----------------
Total continuing operations                          1,995.4         1,916.6
                                              ===============  ================
          Discontinued operations                       11.5            29.2
                                              ===============  ================
Total assets                                     $   2,006.9      $  1,945.8
                                              ===============  ================
</TABLE>

                                       8
<PAGE>   11

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 and music superstores and the largest operator of mall-based bookstores in
the world based upon both sales and number of stores. At April 29, 2001, the
Company operated 354 superstores primarily under the Borders name, including ten
in the United Kingdom, two in Australia, and one each in Singapore, New Zealand,
and Puerto Rico. The Company also operated 862 mall-based and other bookstores
primarily under the Waldenbooks name, and 32 bookstores under the Books etc.
name in the United Kingdom. The Company, through its subsidiary Borders Online,
Inc., is also an online retailer of books, music and video through the operation
of its Internet commerce site, Borders.com.

    The Company's business strategy is to continue its growth and increase its
profitability through (i) the continued expansion and refinement of its Borders
superstore operation in the United States and internationally, (ii) the
continued focus on opportunistic store openings in its mall-based bookstore
operations and expansion of its kiosk operations, (iii) the development of
web-based commerce technologies which enhance the customer experience in-store,
and (iv) realization of synergies and economies of scale through a combination
of certain of its books and music operations.

    The Company's first quarters of 2001 and 2000 consisted of the 13 weeks
ended April 29, 2001 and April 23, 2000, 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.

<TABLE>
<CAPTION>
                                           APR. 29, 2001    APR. 23, 2000
                                           -------------    -------------
<S>                                        <C>              <C>
             RESULTS OF OPERATIONS
             Sales                             100.0%           100.0%
             Cost of merchandise sold
               (includes occupancy)             74.7             74.1
             Fulfillment center
               inventory writedowns              1.7               --
                                               -----            -----
             Gross margin                       23.6             25.9
             Selling, general and
               administrative expenses          24.5             25.1
             Legal settlement expense            0.3               --
             Pre-opening expense                 0.1              0.2
             Goodwill amortization               0.1              0.1
                                               -----            -----
             Operating income before
               asset impairments and
               other writedowns                 (1.4)             0.5
             Asset impairments and
               other writedowns                  2.2               --
                                               -----            -----
             Operating income (loss)            (3.6)             0.5
             Interest expense                    0.5              0.3
                                               -----            -----
             Income (loss) before income tax    (4.1)             0.2
             Income tax                         (1.5)             0.1
                                               ------           -----
             Income (loss) from continuing
               operations                       (2.6)             0.1
                                               ------           -----
             Discontinued operations,
               net of tax:
             Loss from operations of All
               Wound Up                          0.0              0.2
             Net loss                           (2.6)%           (0.1)%
                                               ------           ------
</TABLE>






                                       9
<PAGE>   12

CONSOLIDATED RESULTS

    Consolidated sales increases in the first quarter of fiscal 2001 resulted
primarily from the opening of new Borders superstores and Borders' comparable
store sales increases.

    Consolidated gross margin decreased as a percentage of sales in the first
quarter of 2001. The decrease in the first quarter of 2001 primarily resulted
from a $12.7 million pre-tax charge 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 will provide book fulfillment
services for the Company's special order sales. The agreement includes the sale
to Ingram of a large percentage of the book inventory housed in the Company's
fulfillment center in LaVergne, Tennessee, which handles the function to be
assumed by Ingram. The decrease in gross margin as a percentage of sales in 2001
was also driven by a lower gross margin percentage primarily for the Walden
segment related to incremental promotional costs.

    Consolidated selling, general and administrative expenses decreased slightly
as a percentage of sales in the first quarter of 2001, primarily the result of
lower Borders' store payroll expenses as a percentage of sales.

    On April 19, 2001, the Company announced that a settlement had been reached
in the action instituted by the American Booksellers Association and 26
independent bookstores against the Company and Barnes and Noble, Inc. 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.

    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 is 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 increased as a percentage of sales in the first quarter of
2001 as a result of higher consolidated borrowing levels.

    In January 2001, the Company adopted a plan to discontinue operations of All
Wound Up, a seasonal retailer of interactive toys and novelty merchandise the
Company had acquired in March 1999. All Wound Up is reflected in the
Consolidated Statements of Operations as a discontinued operation.

    Income tax benefit in the first quarter of 2001 was $11.1 million versus an
income tax provision of $0.4 million in 2000, reflecting an effective tax rate
of 37.0% in 2001 versus 36.4% in 2000.

    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.





                                       10
<PAGE>   13
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 interest expense and certain corporate
governance costs). See Note 7 of the Notes to 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. Amounts relating to Borders.com, other than intercompany
interest expense (net of related taxes) have been included in the Borders
segment; intercompany interest charges (net of related taxes) relating to
Borders.com have been included in the Other segment.

<TABLE>
<CAPTION>
              (DOLLAR AMOUNTS IN MILLIONS)
              BORDERS                            APR. 29, 2001    APR. 23, 2000
                                                 -------------    -------------
<S>                                              <C>              <C>
              Sales                              $   500.6        $   449.5
              Net income (loss)                  $    (9.5)       $     4.7
              Net income (loss) as % of sales         (1.9)%            1.0%
              Depreciation and
                amortization  expense            $    15.4        $    14.9
              Interest expense                   $     2.8        $     2.7
              Store openings                             4                6
              Store count                              339              297
                                                 ---------        ---------
</TABLE>
    The increase in Borders sales for the first 13 weeks of 2001 is primarily
the result of new store openings and comparable store sales increases. Borders
operated 339 and 297 stores at the end of the first quarter of 2001 and 2000,
respectively, and experienced comparable store sales increases of 2.0% and 2.3%
in the first quarter of 2001 and 2000, respectively.

    Net loss for the first quarter of 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 net income (excluding writeoffs)
was the result of store openings and Borders' ability to leverage fixed costs
over a larger sales base. The increase in net income as a percentage of sales
(excluding writeoffs) was the result of lower store payroll expenses as a
percentage of sales, partially offset by a lower gross margin percentage. The
decreased gross margin percentage resulted from increased store occupancy
expense as a percentage of sales.

    Depreciation and amortization expense increased in the first quarter of 2001
primarily as a result of the depreciation expense recognized on new stores'
capital expenditures.

    Interest expense was essentially flat in the first 13 weeks of 2001 compared
to the first 13 weeks of 2000.

    On April 11, 2001, the Company announced 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 will be the seller of record, providing
inventory, fulfillment, site content and customer service for the co-branded
site. Borders.com will continue in its current format until the launch of the
co-branded site planned in August 2001.

<TABLE>
<CAPTION>
                  WALDENBOOKS                       APR. 29, 2001      APR. 23, 2000
                                                    -------------      -------------
<S>                                                 <C>                <C>
                  Sales                               $  176.8         $  184.0
                  Net income (loss)                   $   (1.2)        $    1.4
                  Net income  (loss) as % of sales        (0.7)%            0.8%
                  Depreciation expense                $    5.0         $    5.8
                  Interest income                     $    7.0         $    6.5
                  Store Openings                             4                0
                  Store Closings                            11               17
                  Store Count                              862              887
                                                       -------          -------
</TABLE>
    The decrease in Waldenbooks sales in the first quarter of 2001 is primarily
the result of the decrease in store count coupled with a comparable store sales
decrease of 1.8%.




                                       11
<PAGE>   14


    The net loss in the first quarter of 2001 resulted primarily from a decrease
in gross margin. This was due to higher promotional, distribution and store
occupancy costs as a percentage of sales resulting from the smaller store base
and lower sales volume as compared to the prior year.

    Depreciation expense decreased in the first 13 weeks of 2001 primarily as a
result of the decrease in store count and the impairment of 103 underperforming
stores' leaseholds and fixtures in the fourth quarter of 2000.

    Interest income increased in the first quarter of 2001 as a result of
Waldenbooks' continued positive cash flow in the years presented.

<TABLE>
<CAPTION>
                   INTERNATIONAL                     APR. 29, 2001   APR. 23, 2000
                                                     -------------   -------------
<S>                                                  <C>              <C>
                   Sales                             $   52.5         $   46.1
                   Net loss                          $    3.5         $    3.6
                   Net loss as % of sales                 6.7%             7.8%
                   Depreciation and amortization
                     expense                         $    2.2         $    2.0
                   Interest expense                  $    3.3         $    2.7
                   Superstore Store Openings                1                3
                   Superstore Store Count                  15               12
                   Books etc. Store Openings                1                1
                   Books etc. Store Closings                0                0
                   Books etc. Store Count                  32               28
                                                      -------          -------
</TABLE>
    The increase in International sales for the first quarter of 2001 is
primarily the result of new superstore openings and comparable store sales
increases. In the first 13 weeks of 2001, the Company opened one additional
store in the United Kingdom.

    Net loss for the first quarter of 2001 was essentially flat with the net
loss of the first quarter of 2000. As a percentage of sales, however, net loss
for the first quarter of 2001 decreased compared to the first quarter of 2000
due to fewer new store openings in the first quarter of 2001 compared to 2000,
as well as increased operating income generated from the maturation of the prior
years' store base.

    Depreciation and amortization expense increased in the first quarter of 2001
primarily as a result of the depreciation expense recognized on new stores'
capital expenditures.

    Interest expense increased in the first 13 weeks in 2001 due to higher
average borrowing levels necessary to finance investments in new stores.

<TABLE>
<CAPTION>
                   OTHER              APR. 29, 2001    APR. 23, 2000
                                      -------------    -------------
<S>                                   <C>              <C>
                   Net loss           $  4.7           $  1.8
                   Interest expense   $  4.9           $  3.4
                                      ------           ------
</TABLE>

    Net loss consists of various corporate governance costs and income. The net
loss increased from the same period in the prior year primarily due to the
settlement of the American Booksellers Association litigation, which totaled
approximately $1.4 million after-tax. 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 working capital
needs, the opening of new stores, the refurbishment and expansion of existing
stores, and continued development of information commerce technologies.

    Net cash used for continuing operations for the 13 weeks ended April 29,
2001, was $149.8 million as compared




                                       12
<PAGE>   15
to $113.3 million in the corresponding period in the prior year. 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.

    Net cash provided by discontinued operations represents the cash provided by
operations of All Wound Up in the first 13 weeks of 2001. Net cash used by
discontinued operations represents the cash needed for the operations of All
Wound Up in the first 13 weeks of 2000.

    Net cash used for investing for the first 13 weeks of 2001 was $4.8 million
as compared to $15.6 million in the first 13 weeks of 2000, and primarily
represents capital expenditures for new stores.

    Net cash provided by financing in the first 13 weeks of 2001 was $166.3
versus $167.3 million in the first 13 weeks of 2000, resulting primarily from
net borrowings under the Credit Facility and the issuance of common stock under
the Company's employee benefit plans.

    The Company expects capital expenditures will decrease to approximately
$110.0 to $120.0 million in 2001, resulting primarily from fewer domestic store
openings. In addition, capital expenditures will result from international store
openings, refurbishment of a number of existing stores, and investment in
information systems technology. The Company currently plans to open
approximately 25 to 30 domestic Borders superstores and five to seven
international stores in 2001. Average cash requirements for the opening of a
domestic prototype Borders books and music superstore are $2.3 million,
representing capital expenditures of $1.1 million, inventory requirements, net
of related accounts payable, of $1.1 million and $0.1 million of pre-opening
costs. The Company plans to lease new store locations predominantly under
operating leases.

    The Company plans to execute its expansion plans for its Borders superstores
and other strategic initiatives principally with funds generated from operations
and financing through the Credit Facility. The Company believes funds generated
from operations, borrowings under the Credit Facility and financing through the
Lease Facility will be sufficient to fund its anticipated capital requirements
for at least the next two to three years. As discussed below, the Credit and
Lease Facilities expire in October 2002, but the Company expects to be able to
successfully renew the Facilities. The Company believes that its borrowing costs
may increase beginning in November 2002, if financial market conditions are
unchanged.

    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.

    The Company has a $175.0 million lease financing facility (the Lease
Facility) to finance new stores and other property through operating leases that
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 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.

    There were 32 and 40 properties financed through the Lease Facility, with a
financed value of $123.0 and $163.1 million, as of April 29, 2001, and January
28, 2001, respectively. Management believes that the rental payments for




                                       13
<PAGE>   16
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.

    During 1994, the Company entered into agreements in which leases with
respect to four Borders' locations serve as collateral for certain mortgage
pass-through certificates. These mortgage pass-through certificates include a
provision requiring the Company to repurchase the underlying mortgage notes in
certain events, including the failure by the Company to make payments of rent
under the related leases, the failure by Kmart Corporation (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 line of credit.

OTHER MATTERS

    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.























                                       14
<PAGE>   17
                           PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

    The Company's Form 10-K Annual Report for the fiscal year ended January 28,
2001, 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 since the filing of the Company's Annual Report except that, in May
2001, Walden Book Company, Inc. settled the lawsuit brought by Lucky, Inc. for
an amount that is not material.

    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.

































                                       15
<PAGE>   18
ITEM 5. OTHER INFORMATION

    As reported in its Form 10-K Annual Report for the fiscal year ended January
28, 2001, the Company and Borders entered into an agreement with Kmart
Corporation ("Kmart") pursuant to which (i) the Company and Borders agreed
to take certain actions in order to secure the release of up to 30 Kmart lease
guarantees (including by providing substitute lease guarantees from the Company
in certain cases and by assigning certain Borders' leases to Walden), and (ii)
Kmart agreed that, if the Company and Borders were successful in their
efforts to obtain the release of at least three out of a group of 10 designated
Kmart lease guarantees and certain other conditions were satisfied, then the
Lease Guaranty Agreement will be amended to eliminate most of the restrictions
which are imposed on the Company by the Lease Guaranty Agreement. The Company
and Borders have obtained the release of a sufficient number of Kmart lease
guarantees, and the Lease Guaranty Agreement has been amended to eliminate most
of such restrictions.





























                                       16
<PAGE>   19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits:

(a)  Exhibits:

        10.44  First Amendment to Lease Guaranty Agreement between Borders
               Group, Inc. and Kmart Corporation.

         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:

         During the 13-week period ended April 29, 2001, one report was filed on
         Form 8-K under Item 7 - Financial Statements and Exhibits. This report
         was filed on April 13, 2001 (File No. 1-13740).
































                                       17
<PAGE>   20
                                   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 13, 2001                    By: /s/ Edward W. Wilhelm
                                            ------------------------------------
                                              Edward W. Wilhelm
                                              Senior Vice President and
                                              Chief Financial Officer
                                              (Principal Financial and
                                              Accounting Officer)



































                                       18
<PAGE>   21
                                 EXHIBIT INDEX


        10.44     First Amendment to Lease Guaranty Agreement between Borders
                  Group, Inc. and Kmart Corporation.

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