SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10 - Q
(Mark One)

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

                  For the quarterly period ended July 23, 2000

                                       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
         (State or other jurisdiction of incorporation or organization)

                                   38-3196915
                                (I.R.S. Employer
                               Identification No.)


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

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
Yes    X       No


          Title of Class                      Shares Outstanding As of
          --------------                           August 15, 2000
           Common Stock                            ---------------
                                                      78,620,447
<PAGE>

                               BORDERS GROUP, INC.
                                      INDEX



Part I - Financial Information

                                                                    Page

   Item 1.   Financial Statements                                     1

   Item 2.   Management's Discussion and Analysis of
             Financial Condition and Results of
             Operations                                              10

   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                      15
             Securityholders

   Item 5.   Other Information                                      N/A

   Item 6.   Exhibits and Reports on Form 8-K                        16


Signatures                                                           17


<PAGE>
<TABLE>

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

                                                      13 Weeks Ended
                                                  July 23,         July 25,
                                                    2000             1999
                                               ---------------  ---------------
<S>                                              <C>              <C>
Sales                                            $     699.7      $     631.0
Cost of merchandise sold, including
occupancy costs                                        519.9            468.9
                                               ---------------  ---------------

Gross margin                                           179.8            162.1
Selling, general and administrative
  expenses                                             176.3            158.7
Pre-opening expense                                      1.2              2.2
Goodwill amortization                                    0.9              0.9
                                               ---------------  ---------------

Operating income                                         1.4              0.3
Interest expense                                         4.0              4.6
                                               ---------------  ---------------

Loss before income tax                                  (2.6)            (4.3)
Income tax benefit                                      (1.0)            (1.7)
                                               ---------------  ---------------

Net loss                                         $      (1.6)     $      (2.6)
                                               ===============  ===============

Earnings per common share data --
   Diluted loss per common share                 $      (0.02)    $     (0.03)
                                               ===============  ===============
   Diluted weighted average common shares
   outstanding (in thousands)                          80,691          80,633
                                               ===============  ===============

   Basic loss per common share                   $      (0.02)    $     (0.03)
                                               ===============  ===============
   Basic weighted average common shares
   outstanding (in thousands)                          78,380          77,876
                                               ===============  ===============
</TABLE>

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

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

                                                      26 Weeks Ended
                                                  July 23,         July 25,
                                                    2000             1999
                                               ---------------  ---------------
<S>                                              <C>              <C>
Sales                                            $   1,380.6      $   1,249.7
Cost of merchandise sold, including
occupancy costs                                      1,025.3            926.1
                                               ---------------  ---------------

Gross margin                                           355.3            323.6
Selling, general and administrative
  expenses                                             348.4            320.7
Pre-opening expense                                      2.4              3.6
Goodwill amortization                                    1.8              1.6
                                               ---------------  ---------------

Operating income (loss)                                  2.7             (2.3)
Interest expense                                         6.8              8.7
                                               ---------------  ---------------

Loss before income tax                                  (4.1)           (11.0)
Income tax benefit                                      (1.6)            (4.3)
                                               ---------------  ---------------

Net loss                                         $      (2.5)     $      (6.7)
                                               ===============  ===============

Earnings per common share data --
   Diluted loss per common share                 $      (0.03)    $     (0.09)
                                               ===============  ===============
   Diluted weighted average common shares
   outstanding (in thousands)                          80,424          77,610
                                               ===============  ===============

   Basic loss per common share                   $      (0.03)    $     (0.09)
                                               ===============  ===============
   Basic weighted average common shares
   outstanding (in thousands)                          78,171          77,610
                                               ===============  ===============
</TABLE>


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

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


                                             July 23,      July 25,    January 23,
                                              2000          1999         2000
                                           ------------  ------------ ------------
<S>                                          <C>           <C>          <C>
                  ASSETS
Current Assets:
  Cash                                       $    51.5     $    60.8    $    41.6
  Merchandise inventories                      1,115.4       1,032.6      1,077.7
  Accounts receivable and other current
    assets                                        70.2          59.5         78.9
                                           ------------  ------------ ------------
      Total Current Assets                     1,237.1       1,152.9      1,198.2
Property and equipment, net of
  accumulated depreciation of $434.9,
  $360.6 and $395.4 at July 23, 2000,
  July 25, 1999 and January 23, 2000,
  respectively                                   559.3         508.3        558.2
Other assets and deferred charges                 35.7          34.0         36.6
Goodwill, net of accumulated amortization
  of $51.3, $47.6 and $49.5 at July 23,
  2000, July 25, 1999 and January 23,
  2000, respectively                             113.6         120.1        121.8
                                           ------------  ------------ ------------
      Total Assets                           $ 1,945.7     $ 1,815.3    $ 1,914.8
                                           ============  ============ ============
   LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-term debt and capital lease
    obligations due within one year          $   289.3     $   345.0    $   136.1
  Trade accounts payable                         538.2         490.6        580.4
  Accrued payroll and other liabilities          194.1         178.1        232.2
  Taxes, including income taxes                   37.4          19.4         79.2
                                           ------------  ------------ ------------
      Total Current Liabilities                1,059.0       1,033.1      1,027.9
Long-term debt and capital lease
  obligations                                     15.7           6.3         16.2
Other long-term liabilities                       68.7          63.3         68.1
                                           ------------  ------------ ------------
      Total Liabilities                        1,143.4       1,102.7      1,112.2
                                           ------------  ------------ ------------
Stockholders' Equity:
Common stock; 300,000,000 shares
  authorized; 78,455,228,  78,052,169 and
  77,687,829 issued and outstanding at
  July 23, 2000, July 25, 1999, and
  January 23, 2000, respectively                 685.1         688.0        679.6
Officers receivable and deferred
  compensation                                    (1.3)         (5.0)        (3.9)
Accumulated other comprehensive income            (5.7)         (0.1)         0.2
Retained earnings                                124.2          29.7        126.7
                                           ------------  ------------ ------------
      Total Stockholders' Equity                 802.3         712.6        802.6
                                           ------------  ------------ ------------
      Total Liabilities & Stockholders'
        Equity                               $ 1,945.7     $ 1,815.3    $ 1,914.8
                                           ============  ============ ============
</TABLE>

            See accompanying Notes to Unaudited Condensed Consolidated
                              Financial Statements.


<PAGE>
<TABLE>

                               BORDERS GROUP, INC.
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      FOR THE 26 WEEKS ENDED JULY 23, 2000
                              (Dollars in millions)
                                   (Unaudited)
<CAPTION>


                                                     Deferred     Accumulated
                                                   Compensation      Other
                                 Common Stock       and Officer  Comprehensive  Retained
                               Shares     Amount    Receivables      Income     Earnings   Total
                             ----------  --------  ------------  -------------  --------  --------
<S>                          <C>         <C>       <C>           <C>            <C>       <C>
Balance at January 23, 2000  77,687,829  $ 679.6   $      (3.9)  $        0.2   $ 126.7   $ 802.6
                             ----------  --------  ------------  -------------  --------  --------

Net loss                             --       --            --             --      (2.5)     (2.5)

Currency translation
  adjustment                         --       --            --           (5.9)       --      (5.9)
                                                                                          --------
Comprehensive loss                                                                           (8.4)

Issuance of common
  stock                         906,080      8.5            --             --        --       8.5

Repurchase and retirement
  of common stock              (138,681)    (3.0)           --             --        --      (3.0)

Change in receivable and
  deferred compensation              --       --           2.6             --        --       2.6
                             ----------  --------  ------------  -------------  --------  --------

Balance at July 23, 2000     78,455,228  $ 685.1   $      (1.3)  $       (5.7)  $ 124.2   $ 802.3
                             ==========  ========  ============  =============  ========  ========

</TABLE>



            See accompanying Notes to Unaudited Condensed Consolidated
                              Financial Statements.

<PAGE>
<TABLE>

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

                                                         26 Weeks Ended
                                                     July 23,      July 25,
                                                      2000           1999
                                                   ------------  -------------
<S>                                                <C>           <C>
Cash provided by (used for):
Operations
Net loss                                             $     (2.5)   $     (6.7)
Adjustments to reconcile net loss to operating
cash flows:
  Depreciation and goodwill amortization                   46.8          40.8
  Change in other long-term assets and liabilities          1.9           1.2
  Cash  provided by (used for) current  assets and
  current liabilities:
   Increase in inventories                                (41.2)        (10.0)
   Decrease in accounts payable                           (40.7)       (116.7)
   Decrease in accrued liabilities                        (36.7)        (41.8)
   Decrease in taxes payable                              (42.1)         (6.4)
   Other, net                                               8.0          11.9
                                                   ------------  -------------
Net cash used for operations                             (106.5)       (127.7)

Investing
Capital expenditures                                      (52.7)        (52.8)
Acquisitions, net of cash acquired                         --           (16.5)
                                                   ------------  -------------
Net cash used for investing                               (52.7)        (69.3)

Financing
Net funding from credit facility                          161.5         210.9
Issuance of common stock                                    8.5           8.1
Repurchase of common stock                                 (3.0)         (7.4)
Other, net                                                  1.4           3.4
                                                   ------------  -------------
Net cash provided by financing                            168.4         215.0
Effect of exchange rates on cash and equivalents            0.7          --
                                                   ------------  -------------
Net increase in cash and equivalents                        9.9          18.0
Cash and equivalents at beginning of year                  41.6          42.8
                                                   ------------  -------------
Cash and equivalents at end of period                $     51.5    $     60.8
                                                   ============  =============
</TABLE>


            See accompanying Notes to Unaudited Condensed Consolidated
                              Financial Statements.

<PAGE>


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


NOTE 1 - BASIS OF PRESENTATION

   The accompanying  unaudited condensed  consolidated  financial  statements of
Borders  Group,  Inc. (the  Company) have been prepared in accordance  with Rule
10-01  of  Regulation  S-X and do not  include  all the  information  and  notes
required by generally  accepted  accounting  principles  for complete  financial
statements.  All adjustments,  consisting only of normal recurring  adjustments,
have been made which,  in the opinion of  management,  are  necessary for a fair
presentation  of the results of the interim  periods.  The results of operations
for such interim periods are not necessarily indicative of results of operations
for a full year.  The  unaudited  condensed  consolidated  financial  statements
should  be  read  in  conjunction  with  the  Company's  consolidated  financial
statements and notes thereto for the fiscal year ended January 23, 2000.

   The Company's fiscal year ends on the Sunday  immediately  preceding the last
Wednesday in January.  At July 23, 2000,  the Company  operated 319  superstores
under the Borders name, including eight in the United Kingdom, two in Australia,
and one each in  Singapore  and New  Zealand.  The  Company  also  operated  891
mall-based and other  bookstores  primarily under the  Waldenbooks  name, and 30
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.

   Unexercised employee stock options to purchase $16.8 million common shares as
of July 25, 1999 were not included in the weighted  average  shares  outstanding
calculation  for the 26 weeks  ended July 25,  1999  because to do so would have
been antidilutive.

NOTE 2 - COMMITMENTS AND CONTINGENCIES

   During 1994, the Company entered into agreements in which leases with respect
to four Borders' locations serve as collateral for certain mortgage pass-through
certificates.   The  mortgage  pass-through  certificates  include  a  provision
requiring the Company to repurchase  the  underlying  mortgage  notes in certain
events,  including the failure by the Company to make payments of rent under the
related  leases,  the failure by Kmart  Corporation  (the  former  parent of the
Company) to maintain required investment grade ratings or the termination of the
guarantee by Kmart of the Company's  obligations under the related leases (which
would require mutual consent of Kmart and Borders).  In the event the Company is
required to repurchase all of the underlying  mortgage notes,  the Company would
be obligated to pay  approximately  $36.6  million.  The Company would expect to
fund this obligation through its Credit Facility.

   In  March  1998,  the  American   Booksellers   Association  ("ABA")  and  26
independent  bookstores  filed a lawsuit in the United States District Court for
the Northern District of California against the Company and Barnes & Noble, Inc.
alleging  violations of the  Robinson-Patman  Act, the  California  Unfair Trade
Practice Act and the  California  Unfair  Competition  Act. The Complaint  seeks
injunctive  and  declaratory  relief;  treble  damages  on behalf of each of the
bookstore plaintiffs,  and, with respect to the California bookstore plaintiffs,
any other damages permitted by California law;  disgorgement of money,  property
and gains  wrongfully  obtained  in  connection  with the  purchase of books for
resale,  or offered  for  resale,  in  California  from March 18, 1994 until the
action is  completed  and  prejudgement  interest on any amounts  awarded in the
action,  as well as attorney fees and costs. The trial is scheduled for April 9,
2001. The Company intends to vigorously defend the action.


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


    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   recently  filed  a  Second  Amended  Complaint  limited  to
allegations  of  violation  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.  Many of the  allegations in the
Second Amended Complaint are similar to those contained in the action instituted
by the ABA and 26 bookseller  plaintiffs against the Company and Barnes & Noble,
Inc. in March, 1998. The Company intends to vigorously defend the action.

   In  April  2000,  two  former  employees,  individually  and on  behalf  of a
purported  class,  filed an action  against  Borders  in the  Superior  Court of
California for the County of San Francisco.  The purported class consists of all
current and former  store  management  employees of Borders in  California  who,
within the applicable  statutes of limitations,  were denied payment of overtime
compensation  in violation of  California  law. The  Complaint  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 Complaint  alleges  violations  of the  California  Labor Code,  the
California  Business and  Professions  Code and  conversion.  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, attorneys fees and such
other relief as the Court deems proper.  On August 17, 2000, the Court entered a
Tentative  Order  dismissing the class action,  conversion  and punitive  damage
aspects of the Complaint on the following  grounds:  (i) individual  issues will
predominate  and,  therefore,  class  treatment is not  warranted,  and (ii) the
plaintiffs  failed to allege  facts  sufficient  to state a cause of action  for
conversion,  and punitive damages could only be awarded on the conversion claims
in the  Complaint.  The Court  stated that the  plaintiffs  would be entitled to
limited  discovery on the class action  aspects of the case, and that they could
file an amended complaint asserting more specifically the basis for class action
status upon the conclusion of that discovery.  The Company intends to vigorously
defend the action.

   On May 31, 2000,  Keith  Markowitz  instituted an action in the United States
District Court for the Eastern  District of  Pennsylvania  as a purported  class
action against Sony Music Entertainment, Inc. ("Sony"),  Warner-Elektra-Atlantic
Corporation  ("WEA"),  EMI  Music  Distribution   ("EMI"),  BMG  Music  ("BMG"),
Universal Music & Video Corp. ("UMVD"),  Wal Mart Stores, Inc., ("Wal Mart") and
Borders, Inc., ("Borders", a subsidiary of the Company). The purported Plaintiff
Class is composed of all similarly  situated  purchasers  who since May 31, 1996
(the "Class Period")  purchased  compact discs of prerecorded  music distributed
and/ or manufactured by defendants. Wal Mart and Borders are named as defendants
individually and as representatives of a purported Defendant Class consisting of
all retailers  and other  distributors  of compact discs  produced by defendants
Sony,  WEA, EMI, BMG, and UMVD during the Class Period,  and who conspired  with
Sony,  WEA, EMI, BMG,  and/or UMVD to carry out the unlawful  conduct alleged in
the complaint. The complaint alleges that Sony, WEA, EMI, BMG, and UMVD each had
agreements with retailers setting out minimum  advertised price policies and the
benefits  conferred  on retailers  for  adhering to such  policy,  and that such
agreements  amounted to  vertical  agreements  in  restraint  of trade  fixing a
minimum  price for  prerecorded  music  products,  including  CDs. The complaint
further alleges that the alleged  agreements  violated of the Sherman Anti-Trust
Act and caused the plaintiffs to pay  supra-competitive  prices for the CDs they
purchased.  Plaintiffs seek a permanent injunction,  treble damages,  attorneys'
fees, costs and  disbursements,  pre- and post-judgment  interest and such other
relief as the court may deem as  appropriate.  Borders denies the allegations of
wrongdoing and intends to vigorously defend this litigation.

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


   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,  make  acquisitions,  dispose of
assets,  issue or repurchase  its common stock in excess of $100.0 million (plus
any proceeds  and tax benefits  resulting  from stock option  exercises  and tax
benefits  resulting  from  restricted  shares  purchased by  employees  from the
Company),  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
$287.4 as of July 23, 2000 and $133.4 as of January 23, 2000.

   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 will
guarantee payment when due of all amounts required to be paid to the third party
lender.  The principal amount  guaranteed is limited to approximately 89% of the
original  cost of a project so long as the  Company is not in default  under the
lease relating to such project. The Lease Facility contains covenants and events
of default that are similar to those contained in the Credit Facility  described
above. There was $164.9 outstanding under the Lease Facility as of July 23, 2000
and $162.9 as of January 23, 2000.

   Seasonal Facility:  The Company had a $25.0 multicurrency  seasonal revolving
credit facility (the Seasonal Facility) which expired in July, 2000. The Company
had no  borrowings  outstanding  under the Seasonal  Facility  during the period
ended July 23, 2000 or as of January 23, 2000.
<PAGE>

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


NOTE 4 - SEGMENT INFORMATION

   The  Company  is  organized  based  upon the  following  operating  segments:
domestic Borders stores,  international  Borders and Books etc.  stores,  Walden
stores, online retailing through Borders.com,  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.


<TABLE>
<CAPTION>
                                   13 Weeks Ended           26 Weeks Ended
                                July 23,    July 25,     July 23,    July 25,
                                  2000        1999         2000        1999
                                ----------  ----------  ----------- -----------
<S>                             <C>         <C>         <C>         <C>
Sales:
    Borders                       $  462.3    $  405.6    $  909.3    $  797.7
    Walden                           187.5       186.2       372.8       374.7
    International                     44.8        35.9        88.1        70.8
                                ----------  ----------  ----------- -----------
       Total stores                  694.6       627.7     1,370.2     1,243.2
    Borders.com                        5.1         3.3        10.4         6.5
                                ----------  ----------  ----------- -----------
                                  $  699.7    $  631.0    $1,380.6    $1,249.7
                                ==========  ==========  =========== ===========

Net income (loss):
    Borders                       $   10.2    $    4.7    $   18.5    $    9.8
    Walden                            (1.3)        0.3        (1.6)        3.4
    International                     (3.9)       (2.9)       (7.4)       (5.3)
    Other                             (2.4)       (1.3)       (3.2)       (6.9)
                                ----------  ----------  ----------- -----------
       Total stores                    2.6         0.8         6.3         1.0
    Borders.com                       (4.2)       (3.4)       (8.8)       (7.7)
                                ----------  ----------  ----------- -----------
                                  $   (1.6)   $   (2.6)   $   (2.5)   $   (6.7)
                                ==========  ==========  =========== ===========
</TABLE>
<TABLE>
<CAPTION>
                                                         July 23,    July 25,
                                                           2000        1999
                                                        ----------- -----------
<S>                                                     <C>         <C>
Total assets:
    Borders                                               $1,158.6    $1,050.4
    Walden                                                   442.9       456.1
    International                                            202.5       168.1
    Other                                                     85.0        90.0
                                                        ----------- -----------
       Total stores                                        1,889.0     1,764.6
    Borders.com                                               56.7        50.7
                                                        ----------- -----------
                                                          $1,945.7    $1,815.3
                                                        =========== ===========
</TABLE>
<PAGE>




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

General

   The Company, through its subsidiaries, is the second largest operator of book
and music  superstores and the largest operator of mall-based  bookstores in the
world based upon both sales and number of stores.  At July 23, 2000, the Company
operated 319 superstores  under the Borders name,  including eight in the United
Kingdom,  two in  Australia,  and one each in  Singapore  and New  Zealand.  The
Company also operated 891 mall-based and other  bookstores  primarily  under the
Waldenbooks  name,  and 30  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  second  quarters of 2000 and 1999  consisted  of the 13 weeks
ended July 23, 2000 and July 25, 1999, respectively.

Results of Operations

   The following table presents the Company's statement of operations data, as a
percentage of sales, for the periods indicated. Data for the 26 weeks ended July
25,  1999  excludes  a one-time  charge  ($5.5  million  pre-tax,  $3.4  million
net-of-tax) related to the departure of a former executive of the Company.


<TABLE>
<CAPTION>
                                         13 Weeks Ended       26 Weeks Ended
                                       July 23,   July 25,  July 23,  July 25,
                                        2000       1999      2000      1999
                                      ---------  --------- --------- ---------

<S>                                     <C>        <C>       <C>       <C>
Sales                                   100.0%     100.0%    100.0%    100.0%
Cost of merchandise sold, including
  occupancy costs                        74.3       74.3      74.3      74.1
                                      ---------  --------- --------- ---------
Gross margin                             25.7       25.7      25.7      25.9
Selling, general and administrative
  expenses                               25.2       25.1      25.2      25.3
Pre-opening expense                       0.2        0.4       0.2       0.3
Goodwill amortization                     0.1        0.1       0.1       0.1
                                      ---------  --------- --------- ---------
Operating income                          0.2        0.1       0.2       0.2
Interest expense                          0.6        0.8       0.5       0.7
                                      ---------  --------- --------- ---------
Loss before income taxes                 (0.4)      (0.7)     (0.3)     (0.5)
Income tax benefit                       (0.2)      (0.3)     (0.1)     (0.2)
                                      ---------  --------- --------- ---------
Net loss                                 (0.2)%     (0.4)%    (0.2)%    (0.3)%
                                      =========  ========= ========= =========
</TABLE>
<PAGE>


Store Activity

The Company's store activity is summarized below:


<TABLE>
<CAPTION>
                                                                        Year
                          13 Weeks Ended         26 Weeks Ended         Ended
                        July 23,   July 25,    July 23,   July 25,   January 23,
                          2000       1999        2000       1999        2000
                        ---------  ---------   ---------  ---------  -----------

<S>                     <C>        <C>         <C>        <C>        <C>
Borders Superstores
Beginning number of
  stores                     309        262        300         250         250
Openings                      10         12         19          24          50
                        ---------  ---------   ---------  ---------  -----------
Ending number of stores      319        274        319         274         300
                        =========  =========   =========  =========  ===========


Walden Mall Bookstores
Beginning number of
  stores                     887        886        904         900         900
Openings                       5          8          5          16          39
Closings                      (1)        (6)       (18)        (28)        (35)
                        ---------  ---------   ---------  ---------  -----------
Ending number of stores      891        888        891         888         904
                        =========  =========   =========  =========  ===========
</TABLE>


13 Weeks Ended July 23, 2000 and July 25, 1999

   Store  sales in the  second  quarter  of 2000 were  $694.6  million,  a $66.9
million,  or 10.7%,  increase over second quarter 1999 sales of $627.7  million.
Borders  domestic  superstore  sales  increased  $56.7  million,  or 14.0%,  due
primarily  to new store  openings  and a 3.6%  comparable  store sales  increase
during the quarter. Walden sales increased $1.3 million due to the higher number
of stores and a  comparable  store  sales  increase of 0.4%.  Borders.com  sales
increased  54.5% to $5.1  million  versus $3.3  million for the same period last
year.

   Gross margin as a percentage of sales was 25.7% in the second quarter of 2000
and 1999.

   As a percentage  of sales,  SG&A  expense was 25.2% in the second  quarter of
2000,  which was  substantially  the same as the 25.1% for the same  period last
year.

   Pre-opening  expense in the second  quarter of 2000 was $1.2  million  versus
$2.2  million  from  the  same  period  in 1999.  Pre-opening  expense  consists
principally of  grand-opening  advertising  expense and store payroll related to
the opening,  and is expensed as incurred.  Pre-opening expense per store varies
primarily  as a  result  of  differing  levels  of  grand  opening  advertising,
depending on the presence of the Company and its  competitors  in the market and
differing  levels of labor costs  associated with  merchandising  the store. The
Company opened 10 Borders  superstores and 5 Walden stores in the second quarter
of 2000 as compared to 12 Borders  superstores and 8 Walden stores in the second
quarter of 1999.

   Goodwill  amortization  was $0.9  million in the  second  quarter of 2000 and
1999.
<PAGE>

   Interest  expense was $4.0 million in the second  quarter of 2000 as compared
to $4.6 million in 1999.  The decrease of $0.6 million is primarily due to lower
debt levels during the quarter versus a year ago.

     Income tax benefit in the second  quarter of 2000 was $1.0  million  versus
$1.7 million in 1999.

26 Weeks Ended July 23, 2000 and July 25, 1999

   Store  sales in the 26 weeks  ended July 23, 2000 were  $1,370.2  million,  a
$127.0 million,  or 10.2%,  increase over sales of $1,243.2 a year ago.  Borders
domestic  superstore sales increased $111.6 million,  or 14.0%, due primarily to
new store openings and a 3.0% comparable store sales increase during the period.
Walden sales  decreased  $1.9 million due primarily to a comparable  store sales
decrease of 1.3%. Borders.com sales increased 60.0% to $10.4 million versus $6.5
million for the same period last year.

   Gross margin as a  percentage  of sales was 25.7% for the 26 weeks ended July
23,  2000  versus  25.9% for the same  period of 1999.  The  decrease  primarily
reflects the loss of leverage on occupancy costs due to lower sales for Walden.

   As a percentage of sales, SG&A expense (excluding  one-time charge) was 25.2%
for the 26 weeks  ended July 23,  2000  versus  25.3% for the same period a year
ago.

   Pre-opening  expense for the 26 weeks  ended July 23,  2000 was $2.4  million
versus $3.6 million from the same period in 1999.  Pre-opening  expense consists
principally of  grand-opening  advertising  expense and store payroll related to
the opening,  and is expensed as incurred.  Pre-opening expense per store varies
primarily  as a  result  of  differing  levels  of  grand  opening  advertising,
depending on the presence of the Company and its  competitors  in the market and
differing  levels of labor costs  associated with  merchandising  the store. The
Company opened 19 Borders  superstores and 5 Walden stores in the 26 weeks ended
July 23, 2000 as compared to 24 Borders  superstores and 16 Walden stores in the
26 weeks ended July 25, 1999.

   Goodwill  amortization  was $1.8 million for the 26 weeks ended July 23, 2000
versus $1.6  million for the same  period  last year.  The  increase in goodwill
amortization  is due to the  acquisition of All Wound Up in the first quarter of
1999.

   Interest  expense  was $6.8  million  for the 26 weeks ended July 23, 2000 as
compared to $8.7 million in 1999.  The decrease of $1.9 million is primarily due
to lower debt levels during the period versus a year ago.

   Income tax  benefit  for the 26 weeks  ended July 23,  2000 was $1.6  million
versus $2.2 million in 1999 (excluding $2.1 million for one-time charge).


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  Borders.com  and the retail  convergence
strategy.

   Net cash used for  operations for the 26 weeks ended July 23, 2000 was $106.5
million as compared to $127.7 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 inventory  purchases,  and decreases
in accounts payable, taxes payable and accrued liabilities during the period.

   Net cash used for  investing for the first 26 weeks of 2000 was $52.7 million
as  compared  to $69.3  million  in the  first 26 weeks of 1999,  and  primarily
represents capital expenditures for new stores.
<PAGE>

   Net cash  provided  by  financing  in the  first 26 weeks of 2000 was  $168.4
million  versus $215.0  million in the first 26 weeks of 1999. Net cash provided
by financing resulted primarily from net borrowings under the credit facility.

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

   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, make acquisitions, dispose of assets, issue or repurchase
its common stock in excess of $100.0 million (plus any proceeds and tax benefits
resulting from stock option exercises and tax benefits resulting from restricted
shares purchased by employees from the Company), 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 $287.4 as of July 23, 2000 and $133.4 as of January
23, 2000.

   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 will guarantee  payment
when due of all  amounts  required  to be paid to the third  party  lender.  The
principal amount guaranteed is limited to approximately 89% of the original cost
of a project so long as the Company is not in default  under the lease  relating
to such project.  The Lease  Facility  contains  covenants and events of default
that are similar to those contained in the Credit Facility described above.

   There were 44 and 41 properties  financed through the Lease Facility,  with a
financed value of $164.9 and $162.9 million, as of July 23, 2000 and January 23,
2000, respectively.  Management believes that the rental payments for properties
financed  through the lease  facility  may be lower than those which the Company
could obtain  elsewhere  due to, among other  factors,  (i) the lower  borrowing
rates available to the Company's landlords under the facility, and (ii) the fact
the rental payments for properties  financed through the facility do not include
amortization of the principal amounts of the landlords'  indebtedness related to
the  properties.  Rental  payments  relating to such properties will be adjusted
when permanent  financing is obtained to reflect the interest rates available at
the time of the refinancing and the amortization of principal.

   The Company had a $25.0 multicurrency seasonal revolving credit facility (the
Seasonal  Facility)  which expired in July,  2000. The Company had no borrowings
outstanding under the Seasonal Facility during the period ended July 23, 2000 or
as of January 23, 2000.

   During 1994, the Company entered into agreements in which leases with respect
to four Borders' locations serve as collateral for certain mortgage pass-through
certificates.   The  mortgage  pass-through  certificates  include  a  provision
requiring the Company to repurchase  the  underlying  mortgage  notes in certain
events,  including the failure by the Company to make payments of rent under the
related  leases,  the failure by Kmart  Corporation  (the  former  parent of the
Company) to maintain required investment grade ratings or the termination of the
guarantee by Kmart of the Company's  obligations under the related leases (which
would require mutual consent of Kmart and Borders).  In the event the Company is
required to repurchase all of the underlying  mortgage notes,  the Company would
be obligated to pay  approximately  $36.6  million.  The Company would expect to
fund this obligation through its Credit Facility.

   The Company currently has a share repurchase  program in place with remaining
authorization to repurchase  approximately  $66.9 million of its common stock as
of July  23,  2000.  During  the 26  weeks  ended  July 23,  2000,  the  Company
repurchased $3.0 million of its common stock.
<PAGE>


Other Matters

   Strategic Alternatives

   On July 6, 2000,  the Company  announced that  discussions  with regards to a
potential acquisition were terminated. Also, in a press release dated August 17,
2000, the Company announced that the Board of Directors reaffirmed its authority
previously  granted to management  to purchase  Company stock from time to time.
That authority,  which was approximately  $66.9 million as stated above, was not
increased.  In its release the Company stated, "the Company carefully considered
a major stock repurchase.  However, given the favorable borrowing rates that the
Company enjoys and the need to renegotiate  those rates and other  agreements in
order to do a major stock buy back,  shareholders simply would not be better off
by the Company pursuing that course at this time."

   Year 2000 Issue

   The Company has  experienced  no  significant  disruptions  to  operations of
business  systems to date as a result of the  transition  from 1999 to 2000. The
Company does not expect any material subsequent  disruption to its operations or
business systems from this transition.

   Forward-Looking Statements

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


                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

   The  Company's  Form 10-K Annual Report for the fiscal year ended January 23,
2000 and its Form 10-Q  report  for the  fiscal  quarter  ended  April 23,  2000
describe 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.  There have not been any material  developments in these matters during
the fiscal quarter covered by this Report except as follows: On August 17, 2000,
the Court entered a Tentative Order dismissing the class action,  conversion and
punitive  damage aspects of the  litigation  relating to overtime pay brought by
two former  employees of Borders in the  Superior  Court of  California  for the
County of San Francisco.  The grounds for the court's  decision were as follows:
(i) individual  issues will predominate and,  therefore,  class treatment is not
warranted,  and (ii) the plaintiffs failed to allege facts sufficient to state a
cause of action for  conversion,  and punitive  damages could only be awarded on
the  conversion  claims in the  Complaint.  The Court stated that the plaintiffs
would be entitled to limited  discovery on the class action aspects of the case,
and that they could file an amended  complaint  asserting more  specifically the
basis for class action status upon the conclusion of that discovery.

   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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

   The following actions were taken at the Annual Meeting of Stockholders of the
Company held on May 24, 2000,  with the votes on such matters being as indicated
below:

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

<TABLE>
<CAPTION>
                                                                     Authority
Name                                                    For           Withheld

<S>                                              <C>                 <C>
Robert F. DiRomualdo                             72,096,162 Shares   1,560,704
Peter R. Formanek                                72,407,417 Shares   1,249,449
Gregory P. Josefowicz                            72,400,861 Shares   1,256,005
Victor L. Lund                                   72,392,520 Shares   1,264,346
Dr. Edna Greene Medford                          72,385,248 Shares   1,271,618
George R. Mrkonic                                72,085,616 Shares   1,571,250
Larry Pollock                                    72,384,807 Shares   1,272,059
Beth M. Pritchard                                72,396,817 Shares   1,260,049
</TABLE>

2. The amendment to extend the term of the Company's Annual Incentive Bonus Plan
   and to re-affirm the performance  goals and maximum amounts payable under the
   Plan was approved and adopted:

<TABLE>
<CAPTION>
                                                                    Broker
         For                Against             Abstain           Non-votes

     <S>                   <C>                  <C>                  <C>
     68,698,933            4,666,837            291,096               --
</TABLE>
<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits:

(a)   Exhibits:


27.0  Financial Data Schedule.

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 July 23,  2000,  one report was filed on
      Form 8-K under Item 5 - Other Events.  This report stated that discussions
      with  respect  to the  potential  acquisition  of  the  Company  had  been
      terminated.




<PAGE>


                                   SIGNATURES

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

                               BORDERS GROUP, INC.
                                  (Registrant)




Date: September 6, 2000                   By:          /s/
                                             ---------------------------
                                             Edward W. Wilhelm
                                             Senior Vice President and
                                             Chief Financial Officer
                                             (Principal Financial and
                                              Accounting Officer)