10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, 2009

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 No. 1-12302

Barnes & Noble, Inc.

(Exact name of registrant as specified in its Charter)

Delaware	06-1196501
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
122 Fifth Avenue, New York, NY	10011
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (212) 633-3300

Securities registered pursuant to Section 12(b) of the Act:

Title of Class	Name of Exchange on which registered
Common Stock, $0.001 par value per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  x	Accelerated filer  ¨	Non-accelerated filer  ¨	Smaller reporting company  ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $859,628,546 based upon the closing market price of $23.30 per share of Common Stock on the New York Stock Exchange as of August 2, 2008.

Number of shares of $.001 par value Common Stock outstanding as of March 31, 2009: 55,385,431

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the 2009 Annual Meeting of Shareholders are incorporated by reference into Part III.

Portions of the Registrant’s Annual Report to Shareholders for the fiscal year ended January 31, 2009 are incorporated by reference into Parts II and IV.

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	3
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	22
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8.	Financial Statements and Supplementary Data	24
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	24
Item 9A.	Controls and Procedures	25
Item 9B.	Other Information	26
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	26
Item 11.	Executive Compensation	26
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	27
Item 13.	Certain Relationships and Related Transactions, and Director Independence	27
Item 14.	Principal Accountant Fees and Services	27
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	28
	Signatures	34

PART I

ITEM 1. BUSINESS

General

Barnes & Noble, Inc. (Barnes & Noble or the Company), the nation’s largest bookseller¹, as of January 31, 2009 operated 778 bookstores and a website. Of the 778 bookstores, 726 operate primarily under the Barnes & Noble Booksellers trade name (35 of which were opened during the 52 weeks ended January 31, 2009 (fiscal 2008)) and 52 operate primarily under the B. Dalton Bookseller trade name. Barnes & Noble conducts the online part of its business through barnesandnoble.com llc (Barnes & Noble.com). Through Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), the Company is a leading general trade book publisher. Additionally, as of January 31, 2009, the Company owned an approximate 74% interest in Calendar Club, an operator of seasonal kiosks. The Company subsequently sold its interest in Calendar Club in February 2009. The Company employed approximately 37,000 full- and part-time employees as of January 31, 2009.

The Company’s principal business is the sale of trade books (generally hardcover and paperback consumer titles, excluding educational textbooks and specialized religious titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, bargain books, magazines, gift, café products and services, music and movies direct to customers. These collectively account for substantially all of the Company’s sales. During fiscal 2008, the Company’s share of the consumer book market was approximately 16.2%. Bestsellers (the “top ten” highest selling hardcover fiction and hardcover non-fiction) typically represent between 3% and 5% of Barnes & Noble sales.

The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of January. Fiscal 2008 ended January 31, 2009 and was comprised of 52 weeks. The fiscal year ended February 2, 2008 (fiscal 2007) was comprised of 52 weeks.

The Company was incorporated in Delaware in 1986.

Barnes & Noble is the nation’s largest operator of bookstores¹ with 726 Barnes & Noble stores located in all 50 states and the District of Columbia as of January 31, 2009. With over 40 years of bookselling experience, management has a strong sense of customers’ changing needs and the Company leads book retailing with a “community store” concept. Barnes & Noble’s typical store offers a comprehensive title base, a café, a children’s section, a music/DVD department, a magazine section and a calendar of ongoing events, including author appearances and children’s activities, which make each Barnes & Noble store an active part of its community.

Barnes & Noble stores range in size from 10,000 to 60,000 square feet depending upon market size, with an overall average store size of 26,000 square feet. In fiscal 2008, the Company added 0.5 million square feet to the Barnes & Noble store base, bringing the total square footage to 18.7 million square feet, a 3% increase over fiscal 2007. The Company plans to open approximately 15 Barnes & Noble stores in the fiscal year ending January 30, 2010 (fiscal 2009), which are expected to average 34,000 square feet in size. The weighted-average age per square foot of the Company’s 726 Barnes & Noble stores was 9.03 years as of January 31, 2009 and is expected to increase to approximately 9.68 years by January 30, 2010.

¹ Based upon sales reported in trade publications and public filings.

3

At the end of fiscal 2008, the Company operated 52 B. Dalton bookstores. Most of the B. Dalton stores range in size from 2,000 to 6,000 square feet. B. Dalton generally discounts between 15% and 30% off publishers’ suggested retail prices for hardcover bestsellers. B. Dalton also offers the Barnes & Noble Member Program which gives members additional discounts and other benefits.

The Company is continuing its controlled descent in the number of its B. Dalton stores in response to declining sales attributable primarily to superstore competition. Part of the Company’s strategy has been to close underperforming stores, which has resulted in the closing of 915 B. Dalton bookstores (33 in fiscal 2008) since 1989.

The Company believes that the key elements contributing to the success of the Barnes & Noble stores are:

Proximity to Customers. The Company’s strategy is to increase its share of the consumer book market, as well as to increase the size of the market. Since it began its bookstore roll-out, the Company has employed a market clustering strategy. As of January 31, 2009, Barnes & Noble had stores in 163 of the total 210 DMA (Designated Market Area) markets. In 66 of the 163 markets, the Company has only one Barnes & Noble store. The Company believes its bookstores’ proximity to their customers strengthens its market position and increases the value of its brand. Most Barnes & Noble stores are located in high-traffic areas with convenient access to major commercial thoroughfares and ample parking. Most stores offer extended shopping hours seven days a week.

Dominant Title Selection. Each Barnes & Noble store features an authoritative selection of books, ranging from 60,000 to 200,000 titles. The comprehensive title selection is diverse and reflects local interests. In addition, Barnes & Noble emphasizes books published by small and independent publishers and university presses. Bestsellers typically represent between 3% and 5% of Barnes & Noble store sales. Complementing this extensive on-site selection, all Barnes & Noble stores provide customers with access to the millions of books available to online shoppers at Barnes & Noble.com while offering an option to have the book sent to the store or shipped directly to the customer. The Company believes that its tremendous selection, including many otherwise hard-to-find titles, builds customer loyalty.

Store Design and Ambiance. Many of the Barnes & Noble stores create a comfortable atmosphere with ample public space, a café offering, among other things, sandwiches and bakery items, and public restrooms. The cafés, for which the Starbucks Corporation is the sole provider of coffee products, foster the image of the stores as a community meeting place. In addition, the Company continues to develop and introduce new product line extensions, such as proprietary gifts, and Barnes & Noble @ School, providing education tools for teachers, librarians and parents. These offerings and services have helped to make many of the stores neighborhood institutions.

Music/DVD Departments. Many of the Barnes & Noble stores have music/DVD departments, which range in size from 1,300 to 6,000 square feet. The music/DVD departments typically stock over 30,000 titles. The Company’s DVD selection is focused on foreign films, documentaries and episodic TV shows. In 2008, the Company introduced an extensive selection of BluRay discs. The music selection is tailored to the tastes of the Company’s core customers,

4

focused on classical music, opera, jazz, blues and pop rock. The music department features RedDotNet, an advanced listening station technology. RedDotNet enables customers to listen to any compact disc in the store, sampling up to 200,000 music titles using scanner technology. RedDotNet is connected to the Company’s online electronic music catalog.

Discount Pricing. Barnes & Noble stores employ an aggressive nationwide discount pricing strategy. The current pricing is 30% off publishers’ suggested retail prices for hardcover bestsellers and 20% off select feature titles in departments such as children’s books and computer books. The Barnes & Noble Member Program offers members greater discounts. For an annual fee of $25, members receive discounts of 40% off publishers’ suggested retail prices on hardcover bestsellers, 20% off adult hardcovers, and 10% off on almost all other merchandise. These discounts are available to members for purchases made at Barnes & Noble stores, B. Dalton bookstores and on Barnes & Noble.com. In addition, members receive exclusive offers and promotions via direct mail and email.

Marketing and Community Relations. Barnes & Noble stores are generally launched with a major grand opening campaign involving extensive print and radio advertising, direct-mail marketing and community events. Each store plans its own community-based calendar of events, including author appearances, children’s storytelling hours, poetry readings and discussion groups. The Company believes its community focus encourages customer loyalty, word-of-mouth publicity and media coverage. The Company also supports communities through efforts on behalf of local non-profit organizations that focus on literacy, the arts or K-12 education.

Merchandising and Marketing

The Company’s merchandising strategy for its Barnes & Noble stores is to be the authoritative community bookstore carrying a dominant selection of titles in all subjects, including an extensive selection of titles from small independent publishers and university presses. Each Barnes & Noble store features an extensive selection of books from 60,000 to 200,000 unique titles, of which approximately 50,000 titles are common to all stores. The balance is crafted to reflect the lifestyles and interests of each store’s customers. Before a store opens, the Company’s buyers study the community and customize the title selection with offerings from the store’s local publishers and authors. After the store opens, each Barnes & Noble store manager is responsible for adjusting the buyers’ selection to the interests, lifestyles and demands of the store’s local customers. BookMaster, the Company’s proprietary inventory management database, has more than seven million titles. It includes over 2.4 million active titles and provides each store with comprehensive title selections. By enhancing the Company’s existing merchandise replenishment systems, BookMaster allows the Company to achieve high in-stock positions and productivity at the store level through efficiencies in receiving, cashiering and returns processing. The Company also leverages its system investments through utilization of Barnes & Noble.com’s proprietary order management system, which enables customers to place orders at stores for any of the over one million titles in stock throughout the Company’s supply chain.

The Company has a multi-channel marketing strategy that deploys various merchandising programs and promotional activities to drive traffic to both its stores and website. At the center of this program is Barnes & Noble.com, which receives over 365 million visits annually, ranking it among the top 15 multi-channel retailer websites in terms of traffic, as measured by Comscore Media Metrix. As a result of this reach, the Company believes that the website provides significant advertising power which would be valued in the tens of millions of

5

dollars if such advertising were placed with third-party websites with comparable reach. In this way, Barnes & Noble.com serves as both the Company’s direct-to-home delivery service and as an important broadcast channel and advertising medium for the Barnes & Noble brand. For example, the online store locator at Barnes & Noble.com receives millions of customer visits each year providing store hours, directions, information about author events and other in-store activities.

The Company’s multi-channel marketing strategy enables it to have consistent cross-channel promotions which are primarily communicated via email. In addition, Barnes & Noble.com is an important component in the Barnes & Noble Member Program.

Another example of a multi-channel initiative is the Barnes & Noble MasterCard, an affinity credit card issued by Barclays Bank Delaware. Holders of the Barnes & Noble MasterCard receive an additional 5% rebate for all purchases made in Barnes & Noble stores, B. Dalton bookstores or at Barnes & Noble.com. In addition, points are accumulated for purchases made elsewhere, and may be redeemed for Barnes & Noble gift cards which can be used for purchases in either channel. The Company firmly believes that its website is a key factor behind its industry-leading comparable store sales.

Store Locations and Properties

The Company’s experienced real estate personnel select sites for new Barnes & Noble stores after an extensive review of demographic data and other information relating to market potential, bookstore visibility and access, available parking, surrounding businesses, compatible nearby tenants, competition and the location of other Barnes & Noble stores. Most stores are located in high-visibility areas adjacent to main traffic corridors in strip shopping centers or freestanding buildings and regional shopping malls.

6

The number of Barnes & Noble stores located in each state and the District of Columbia as of January 31, 2009 are listed below:

STATE	NUMBER OF STORES
Alabama	9
Alaska	2
Arizona	21
Arkansas	5
California	89
Colorado	17
Connecticut	13
Delaware	1
District of Columbia	2
Florida	47
Georgia	22
Hawaii	3
Idaho	3
Illinois	32
Indiana	14
Iowa	8
Kansas	4
Kentucky	7
Louisiana	7
Maine	1
Maryland	13
Massachusetts	18
Michigan	22
Minnesota	21
Mississippi	3
Missouri	14
Montana	4
Nebraska	4
Nevada	5
New Hampshire	4
New Jersey	26
New Mexico	3
New York	47
North Carolina	20
North Dakota	3
Ohio	20
Oklahoma	5
Oregon	8
Pennsylvania	28
Rhode Island	3
South Carolina	11
South Dakota	1
Tennessee	11
Texas	58
Utah	10
Vermont	1
Virginia	24
Washington	19
West Virginia	1
Wisconsin	11
Wyoming	1

7

The number of B. Dalton stores located in each state listed below and the District of Columbia as of January 31, 2009 are listed below:

STATE	NUMBER OF STORES
Arizona	1
Arkansas	1
California	7
District of Columbia	1
Florida	3
Idaho	1
Illinois	3
Iowa	4
Louisiana	1
Maine	2
Massachusetts	2
Michigan	4
Minnesota	2
Missouri	1
New Hampshire	1
New Jersey	3
New York	4
North Carolina	1
North Dakota	2
Ohio	2
Pennsylvania	1
South Dakota	1
Texas	1
Virginia	2
Wyoming	1

Sterling Publishing

The Company’s subsidiary Sterling Publishing is a leading publisher of non-fiction trade titles, with more than 5,000 books in print. Founded in 1949, Sterling publishes a wide range of non-fiction and illustrated books, consisting primarily of subjects such as crafts, food and wine, mind/ body/spirit, photography, puzzles and games, current affairs and children’s books. Sterling also publishes books for a number of brands, including many of the Hearst magazines such as Good Housekeeping and Cosmopolitan, Hasbro, The American Museum of Natural History, and AARP.

Sterling’s mission is to publish high-quality books that educate, entertain, and enrich the lives of its readers. Among its best-selling titles are Paul McKenna’s I Can Make You Thin, the Windows on the World Complete Wine Course from renowned wine expert Kevin Zraly, Peter Yarrow and Lenny Lipton’s Puff, the Magic Dragon, Charles Darwin’s On the Origin of the Species: The Illustrated Edition (Edited by David Quammen), and Cosmopolitan’s The Cosmo Kama Sutra.

The latest addition to Sterling’s line is Ecosystem - a comprehensive assortment of hard- and flexi- cover journals. The products are 100% made in the USA from 100% recycled paper.

Store Operations

The Company has seasoned management teams for its stores, including those for real estate, merchandising and store operations. Field management includes regional directors and district managers supervising multiple store locations.

8

Each Barnes & Noble store generally employs a store manager, two assistant store managers, a café manager and approximately 50 full- and part-time booksellers. Many Barnes & Noble stores also employ a full-time community relations manager. The large employee base provides the Company with experienced booksellers to fill positions in the Company’s new Barnes & Noble stores. The Company anticipates that a significant percentage of the personnel required to manage its new stores will continue to come from within its existing operations.

Field management for all of the Company’s bookstores, including regional directors, district managers and store managers, participate in an incentive program tied to store productivity. The Company believes that the compensation of its field management is competitive with that offered by other specialty retailers of comparable size.

Barnes & Noble has in-store training programs providing specific information needed for success at each level, beginning with the entry-level positions of bookseller. Store managers participate in annual merchandising conferences, and district managers participate in semi-annual training and merchandising conferences. Store managers are generally responsible for training other booksellers and employees in accordance with detailed procedures and guidelines prescribed by the Company utilizing a blended learning approach, including on-the job training, e-learning, facilitator-led training and training aids available at each bookstore.

Purchasing

Barnes & Noble’s buyers negotiate terms, discounts and cooperative advertising allowances with publishers and other suppliers for all of the Company’s bookstores. The Company’s distribution centers enable it to maximize available discounts and enhance its ability to create marketing programs with many of its vendors. The Company has buyers who specialize in customizing inventory for bookselling in stores and online. Store inventories are further customized by store managers, who may respond to local demand by purchasing a limited amount of fast-selling titles through a nationwide wholesaling network, including the Company’s distribution centers.

The Company purchases books on a regular basis from over 1,700 publishers and approximately 64 wholesalers or distributors. Purchases from the top five suppliers (including publishers, wholesalers and distributors) accounted for approximately 49% of the Company’s book purchases during fiscal 2008, and no single supplier accounted for more than 14% of the Company’s purchases during this period. Consistent with industry practice, a substantial majority of the Company’s book purchases are returnable for full credit, a practice which substantially reduces the Company’s risk of inventory obsolescence.

Publishers control the distribution of titles by virtue of copyright protection, which limits availability on most titles to a single publisher. Since the retail, or list, prices of titles, as well as the retailers’ cost price, are also generally determined by publishers, the Company has limited options concerning availability, cost and profitability of its book inventory. However, these limitations are mitigated by the substantial number of titles available, the Company’s ability to maximize available discounts and its well-established relationships with publishers, which are enhanced by the Company’s significant purchasing volume.

Publishers periodically offer their excess inventory in the form of remainder books to book retailers and wholesalers through an auction process which generally favors booksellers such as the Company, who are able to buy substantial quantities. These books are generally purchased in large quantities at favorable prices and are then sold to consumers at significant discounts off publishers’ list prices.

9

Distribution

The Company has invested significant capital in its systems and technology by building new platforms, implementing new software applications and building and maintaining efficient distribution centers. This investment has enabled the Company to source an increasingly larger percentage of its inventory through its own distribution centers, resulting in increased direct buying from publishers rather than wholesalers. Greater volume through the Company’s own distribution centers lowers distribution costs per unit, increases inventory turns, and improves product margins. This has also led to improved just-in-time deliveries to stores and the ability to offer “Fast&Free Delivery” through its website and for in-store orders placed by customers for home delivery.

As of January 31, 2009, the Company had approximately 2.0 million square feet of distribution center capacity. The Company has a 1,145,000 square foot distribution center in Monroe Township, New Jersey, which ships merchandise to stores throughout the country and to online customers. The Company also has a 600,000 square foot distribution center in Reno, Nevada, which is used to facilitate distribution to stores and online customers in the western United States. The Company also has 230,198 square feet of distribution center capacity for facilitating Sterling Publishing third-party sales.

In fiscal 2007, the Company closed its facility located in Memphis, Tennessee, as well as a small facility in New Jersey.

Management Information and Control Systems

The Company has focused a majority of its information resources on strategically positioning and implementing systems to support store operations, online technology requirements, merchandising, distribution, marketing and finance.

BookMaster, the Company’s proprietary bookstore inventory management system, integrates point-of-sale features that utilize a proprietary data-warehouse based replenishment system. BookMaster enhances communications and real-time access to the Company’s network of bookstores, distribution centers and wholesalers. In addition, the implementation of just-in-time replenishment has provided for more rapid replenishment of books to all of the Company’s bookstores, resulting in higher in-stock positions and better productivity at the bookstore level through efficiencies in receiving, cashiering and returns processing.

The Company believes that it has built a leading interactive e-commerce platform, and plans to continue to invest in technologies that will enable it to offer its customers the most convenient and user-friendly online shopping experience. Barnes & Noble.com has licensed existing commercial technology when available and has focused its internal development efforts on those proprietary systems necessary to provide the highest level of service to its customers. The overall mix of technologies and applications allows the Company to support a distributed, scalable and secure e-commerce environment.

The Company uses Intel-based server technology in a fully redundant configuration to power its website, which is hosted in two locations. At these locations, the Company maintains computers that store its web pages in electronic form and transmits them to requesting users. Such storage and transmittal is called hosting. The Company utilizes two hosting locations. One

10

location is hosted internally by the Company and the other is maintained by a third-party hosting vendor. Either site has sufficient capacity to support the volume of traffic directed toward the Company’s website during peak periods. Both hosting locations are configured with excess Internet telecommunications capacity to ensure quick response time and three separate Internet service providers are used. By maintaining redundant host locations, the Company has significantly reduced its exposure to downtime and service outages. Additionally, the Company believes its technology investments are scalable.

The Company continues to implement systems to improve efficiencies in back office processing in the human resources, finance and merchandising areas. An offsite business recovery capability has been developed and implemented to help assure uninterrupted systems support.

Competition

The book business is highly competitive in every channel in which Barnes & Noble competes. The Company competes with large bookstores including Borders Group, Inc. (Borders) and Books-A-Million and smaller format bookstores such as Waldenbooks. The Company faces competition with many e-commerce businesses, notably Amazon.com. The Company also faces competition from mass merchandisers, such as Wal-Mart and Costco, some of which may have greater financial and other resources than the Company. The Company’s bookstores also compete with specialty retail stores that offer books in particular subject areas, independent store operators, variety discounters, drug stores, warehouse clubs, mail-order clubs and other retailers offering books and music. In addition, the Company also faces competition from the expanding market for electronic books and digital distribution of book content.

The music and movie businesses are also highly competitive and the Company faces competition from mass merchants, discounters and electronic distribution. The store experience is geared towards the Company’s customer’s base, including a strong BluRay presence as well as a tailored, returnable product assortment.

Trademarks and Servicemarks

B. Dalton Bookseller, Sterling Publishing, Lark Books, Quamut and SparkNotes are some Company-owned servicemarks registered with the United States Patent and Trademark Office. The Company licenses the “Barnes & Noble” name under a royalty-free license agreement dated February 11, 1987, as amended, from Barnes & Noble College Booksellers, Inc. (B&N College), a company owned by Leonard Riggio and his wife. Barnes & Noble.com licenses the “Barnes & Noble” name under a royalty-free license agreement, dated October 31, 1998, as amended, between Barnes & Noble.com and B&N College (the License Agreement). Pursuant to the License Agreement, Barnes & Noble.com has been granted an exclusive license to use the “Barnes & Noble” name and trademark in perpetuity for the purpose of selling books over the Internet (excluding sales of college textbooks). Under a separate agreement dated as of January 31, 2001 (the Textbook License Agreement), between Barnes & Noble.com, B&N College and Textbooks.com, Inc. (Textbooks.com), a corporation owned by Leonard Riggio, Barnes & Noble.com was granted the right to sell college textbooks over the Internet using the “Barnes & Noble” name. Pursuant to the Textbook License Agreement, Barnes & Noble.com pays Textbooks.com a royalty on revenues (net of product returns, applicable sales tax and excluding shipping and handling) realized by Barnes & Noble.com from the sale of books designated as textbooks. The current term of the Textbook License Agreement is through January 31, 2010 and it renews annually for additional one-year periods unless terminated 12 months prior to the end of any given term.

11

Seasonality

The Company’s business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during the fourth quarter which includes the holiday selling season.

Employees

The Company cultivates a culture of outgoing, helpful and knowledgeable employees. As of January 31, 2009, the Company had approximately 37,000 full- and part-time booksellers. The Company’s employees are not represented by unions, with the exception of 45 Sterling Publishing employees, and the Company believes that its relationship with its employees is excellent.

12

Available Information

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (SEC). Any materials filed by the Company with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the SEC’s Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file electronically with the SEC. The Internet address of the SEC’s website is http://www.sec.gov.

The Company makes available on its corporate website at www.barnesandnobleinc.com under “For Investors”—“SEC Documents,” free of charge, all its SEC filings as soon as reasonably practicable after the Company electronically files such material with or furnishes such materials to the SEC.

The Company has adopted Corporate Governance Guidelines, a Code of Business Conduct and Ethics, a Code of Ethics for Senior Financial Officers, and written charters for the Company’s Audit Committee, Compensation Committee and Corporate Governance & Nominating Committee. Each of the foregoing is available on the Company’s website at www.barnesandnobleinc.com under “For Investors” – “Corporate Governance” and in print to any stockholder who requests it, in writing to the Company’s Secretary, Barnes & Noble, Inc., 122 Fifth Avenue, New York, New York 10011. In accordance with SEC rules, the Company intends to disclose any amendment (other than any technical, administrative, or other non-substantive amendment) to either of the above codes, or any waiver of any provision thereof with respect to any of the executive officers, on the Company’s website within four business days following such amendment or waiver.

ITEM 1A. RISK FACTORS

The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones faced by the Company. Additional risks and uncertainties not presently known or that are currently deemed immaterial also may impair the Company’s business operations. If any of the following risks occur, the Company’s business, financial condition, operating results and cash flows could be materially adversely affected.

Intense competition from traditional retail sources and the Internet may adversely affect the Company’s business.

The book business is highly competitive in every channel in which Barnes & Noble competes. The Company competes with large bookstores including Borders and Books-A-Million and smaller format bookstores such as Waldenbooks. The Company faces competition with many e-commerce businesses, notably Amazon.com. The Company also faces competition from mass merchandisers, such as Wal-Mart and Costco, some of which may have greater financial and other resources than the Company. The Company’s bookstores also compete with specialty retail stores that offer books in particular subject areas, independent store operators, variety discounters, drug stores, warehouse clubs, mail-order clubs and other retailers offering books and music. In addition, the Company also faces competition from the expanding market for electronic books and digital distribution of book content.

13

The music and movie businesses are also highly competitive and the Company faces competition from mass merchants, discounters and electronic distribution. The store experience is geared towards the Company’s customer’s base, including a strong BluRay presence as well as a tailored, returnable product assortment.

If the Company is unable to continue to open new stores, its growth may decline.

The Company’s growth depends in part on its ability to open new stores and operate them profitably. The Company opened 35 stores in fiscal 2008 and expects to open approximately 15 stores in fiscal 2009. In general, the rate of expansion depends, among other things, on general economic and business conditions affecting consumer confidence and spending, the availability of desired locations and qualified management personnel, the negotiation of acceptable lease terms, and the ability to manage the operational aspects of growth. It also depends upon the availability of adequate capital, which in turn depends in large part upon cash flow generated by the Company.

If stores are opened more slowly than expected, sales at new stores reach targeted levels more slowly than expected (or fail to reach targeted levels) or related overhead costs increase in excess of expected levels, the Company’s ability to successfully implement its expansion strategy would be adversely affected. In addition, the Company expects to open new Barnes & Noble stores in certain markets in which the Company is already operating stores, which could adversely affect sales at those existing stores.

Furthermore, increases in the complexity of the Company’s business could place a significant strain on its management, operations, technical performance, financial resources, and internal financial control and reporting functions, and there can be no assurance that the Company will be able to manage it effectively. The Company’s current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage its future operations, especially as the Company employs personnel in multiple geographic locations. The Company may not be able to hire, train, retain, motivate and manage required personnel, which may limit its growth. If any of this were to occur, it could damage the Company’s reputation, limit growth, negatively affect operating results and harm the Company’s business.

The Company faces various risks as an Internet retailer.

The Company may require additional capital in the future to sustain or grow its online business. Business risks related to its online business include risks associated with the need to keep pace with rapid technological change, Internet security risks, risks of system failure or inadequacy, government regulation and legal uncertainties with respect to the Internet, risks related to data privacy, and collection of sales or other taxes by one or more states or foreign jurisdictions. If any of these risks materializes, it could have a material adverse effect on the Company’s business.

14

The Company faces the risk of a shift in consumer spending patterns to e-content.

As technology evolves and consumers shift spending patterns to e-content, the Company may enter new markets in which it has limited experience. The offering of e-content may present new and difficult challenges. The Company’s gross margin of e-content products may be lower than its traditional product lines and the Company may not recover its investments in this space. These challenges may negatively affect the Company’s operating results.

The Company faces data security risks with respect to personal information.

The Company’s business involves the receipt and storage of personal information about customers and employees. The Company’s use of personal information is regulated at the international, federal and state levels. Privacy and information security laws and regulations change, and compliance with them may result in cost increases due to necessary systems changes and the development of new processes. If the Company shall fail to comply with these laws and regulations, it could be subjected to legal risk. In addition, even if the Company fully complies with all laws and regulations and even though it has taken significant steps to protect personal information, the Company could experience a data security breach and its reputation could be damaged, possibly resulting in lost future sales or decreased usage of the Company’s credit card products. On August 5, 2008, eleven individuals were charged with, among other things, identity theft. A number of these individuals subsequently pleaded guilty to various charges. Barnes & Noble was listed as one of several retailers that were targeted by these hackers. The Company reviewed this matter and provided information to the authorities in connection with their investigation.

The Company’s costs of doing business could increase as a result of changes in federal, state or local laws or regulations.

Changes in federal, state or local laws or regulations, including but not limited to laws related to employment, wages, data privacy and information security, taxes, products and product safety could increase the Company’s costs of doing business.

Changes in state sales and other tax collection regulations could harm the Company’s business.

While Barnes & Noble.com is currently collecting sales tax in a majority of states and the Company collects sales tax on the vast majority of its products and services, the Company receives communications from time to time from various states regarding the applicability of state sales tax to sales made to customers in their respective states prior to the commencement of sales tax collection or otherwise. While management believes that the accompanying financial statements reflect the best current estimate of any potential liability in this area, there can be no assurance that the outcome of any discussions with any state taxing authority will not result in the payment of state sales taxes for prior periods, or that the amount of any such payments will not be materially in excess of any liability currently recorded. In addition, changes in state sales and other tax collection regulations related to downloadable content could affect the Company’s business.

15

If the Company is unable to renew or enter into new leases on favorable terms, its revenue growth may decline.

Substantially all of the Company’s stores are located in leased premises. If the cost of leasing existing stores increases, the Company cannot assure that it will be able to maintain its existing store locations as leases expire. In addition, the Company may not be able to enter into new leases on favorable terms or at all, or it may not be able to locate suitable alternative sites or additional sites for new store expansion in a timely manner. The Company’s revenues and earnings may decline if the Company fails to maintain existing store locations, enter into new leases, locate alternative sites or find additional sites for new store expansion.

The Company’s business is dependent on the overall economic environment and consumer spending patterns.

Sales are primarily dependent upon discretionary consumer spending, which is affected by the overall economic environment, consumer confidence and other factors beyond the Company’s control. In addition, sales are dependent in part on the strength of new release products which are controlled by vendors. The recent economic downturn has led to declines in consumer traffic and spending patterns, adversely impacting the Company’s financial performance. A continuation or further decline of the current economic environment may further erode consumer spending, which could have a material adverse effect on the Company’s financial condition and results of operations, as well as its ability to fund its growth or its strategic business initiatives.

The Company faces the risk of disruption of vendor relationships and/or supply chain.

The products that the Company sells originate from a wide variety of domestic and international vendors. During fiscal 2008, the Company’s five largest suppliers accounted for approximately 49 percent of its merchandise purchased. While the Company believes that its relationships with its vendors are strong, vendors may modify the terms of these relationships due to general economic conditions or otherwise. A significant unfavorable change in the Company’s relationships with key suppliers could materially adversely affect its revenue and gross profit. In addition, any significant change in the payment terms that the Company has with its key suppliers could adversely affect its financial condition and liquidity.

The Company’s business is highly seasonal.

The Company’s business is highly seasonal, with sales generally highest in the fourth quarter and lowest in the first quarter. During fiscal 2008, 32% of sales and 98% of operating income were generated in the fourth quarter. The Company’s results of operations depend significantly upon the holiday selling season in the fourth quarter. Less than satisfactory net sales for such period could have a material adverse effect on the Company’s financial condition or results of operations for the year and may not be sufficient to cover any losses which may be incurred in the first three quarters of the year.

The Company’s results of operations may fluctuate from quarter to quarter, which could affect the Company’s business, financial condition and results of operations.

The Company’s results of operations may fluctuate from quarter to quarter depending upon several factors, some of which are beyond the Company’s control. These factors include the timing of new product releases, the timing of new store openings and shifts in the timing of certain promotions. These and other factors could affect the Company’s business, financial condition and results of operations, and this makes the prediction of the Company’s financial results on a quarterly basis difficult. Also, it is possible that the Company’s quarterly financial results may be below the expectations of public market analysts and investors.

16

The Company’s business relies on certain key personnel.

Management believes that the Company’s continued success will depend to a significant extent upon the efforts and abilities of Leonard Riggio, Chairman, Stephen Riggio, Chief Executive Officer, Mitchell S. Klipper, Chief Operating Officer, Joseph J. Lombardi, Chief Financial Officer, and William J. Lynch, Jr., President of Barnes & Noble.com, as well as certain other key officers of the Company and its subsidiaries. The loss of the services of any of these key officers could have a material adverse effect on the Company. The Company does not maintain “key man” life insurance on any of its officers.

The Company may engage in acquisitions which, among other things, could negatively impact its business if it fails to successfully complete and integrate them.

To enhance its efforts to grow and compete, the Company may engage in acquisitions. Any future acquisitions are subject to the Company’s ability to negotiate favorable terms for them. Accordingly, the Company cannot assure that future acquisitions will be completed. In addition, to facilitate future acquisitions, the Company may take actions that could dilute the equity interests of its stockholders, increase its debt or cause it to assume contingent liabilities, all of which may have a detrimental effect on the price of its common stock. Finally, if any acquisitions are not successfully integrated with the Company’s business, the Company’s ongoing operations could be adversely affected.

The Company received inquiries by the SEC and the Office of the U.S. Attorney for the Southern District of New York with respect to its option grant practices.

In July 2006, the SEC commenced an informal inquiry into the Company’s stock option granting practices, and in August 2006, the Office of the U.S. Attorney for the Southern District of New York also requested information on this subject. A Special Committee appointed by the Company’s Board of Directors, consisting of Patricia Higgins, reviewed all of the stock option grants by the Company and the Company’s wholly-owned subsidiary, Barnes & Noble.com, during the period from 1996 through 2006 and engaged independent outside counsel and an independent forensic auditor to assist in this matter. On April 2, 2007, the Special Committee presented its findings and recommendations to the Company’s Board of Directors, as reported in the Company’s Form 8-K filed April 4, 2007. The Company does not know what further actions the SEC or the Office of the U.S. Attorney may take and what, if any, actions may be required by the Company with regard to these two inquiries.

17

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

All but one of the active Barnes & Noble stores are leased. The leases typically provide for an initial term of 10 or 15 years with one or more renewal options. The terms of the Barnes & Noble store leases for its 725 leased stores open as of January 31, 2009 expire as follows:

Lease Terms to Expire During (12 months ending on or about January 31)	Number of Stores
2010	44
2011	87
2012	124
2013	110
2014	79
2015 and later	281

All B. Dalton stores are leased. The leases generally are short term for one to two years with no renewal options. Currently 4 store leases are on a month-to-month basis and the remaining 48 B. Dalton leases as of January 31, 2009 expire as follows:

Lease Terms to Expire During (12 months ending on or about January 31)	Number of Stores
2010	45
2011	1
2012	0
2013	2
2014	0
2015 and later	0

In addition to the bookstores, the Company leases two distribution centers, one in Monroe Township, New Jersey, under a lease expiring in 2020, and the other in Reno, Nevada, under a lease expiring in 2010. The Company’s distribution centers total 1,745,000 square feet.

During fiscal 2008, the Company exercised its purchase option under a lease on one of its distribution facilities located in South Brunswick, New Jersey from the New Jersey Economic Development Authority. Under the terms of the lease expiring in June 2011, the Company purchased the distribution facility and equipment for approximately $21.0 million.

The Company’s principal administrative, marketing and technical facilities are situated in New York, New York, and are covered by one lease which is for approximately 144,000 square feet of office space and expires in 2013.

18

The Company leases four additional locations in New York, New York for office space: 90,000 square feet under a lease expiring in 2015, 9,500 square feet under a lease expiring in 2016, 61,983 square feet under a lease expiring in 2036, and 55,000 square feet under leases expiring in 2014 and 2015.

The Company also has 79,463 square feet of office space in Westbury, New York under a lease expiring in 2012.

The Company also has 230,198 square feet of office/warehouse space in Edison, New Jersey for Sterling Publishing under two leases, one expiring in 2009 and the other expiring in 2015. Sterling Publishing also occupies 15,000 square feet of office space in Asheville, North Carolina under a lease expiring in 2009.

The Company also has 29,958 square feet of office space in Secaucus, New Jersey under a lease expiring in 2009. The Company leases 29,861 square feet of office space in Lyndhurst, New Jersey under a lease expiring in 2021.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of its business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, securities, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

The following is a discussion of the material legal matters involving the Company.

In re Barnes & Noble, Inc. Derivative Litigation

In July and August 2006, four putative stockholder derivative actions were filed in New York County Supreme Court against certain members of the Company’s Board of Directors and certain current and former executive officers of the Company, alleging breach of fiduciary duty and unjust enrichment in connection with the grant of certain stock options to certain executive officers and directors of the Company. These actions were subsequently consolidated under the caption In re Barnes & Noble, Inc. Derivative Litigation (the State Derivative Action). In September 2006, three putative stockholder derivative actions were filed in the United States District Court for the Southern District of New York naming the directors of the Company and certain current and former executive officers as defendants and alleging that the defendants backdated certain stock option grants to executive officers and caused the Company to file false or misleading financial disclosures and proxy statements. These actions were subsequently consolidated under the caption In re Barnes & Noble, Inc. Shareholders Derivative Litigation (the Federal Derivative Action).

On September 6, 2007, the parties in the State Derivative Action and in the Federal Derivative Action signed a Stipulation of Compromise and Settlement (the Settlement Agreement) with respect to these matters. In entering into the Settlement Agreement, neither the Company nor any of the named defendants admitted to any liability or wrongdoing. Under the terms of the Settlement Agreement, the Company agreed to institute certain corporate governance and internal control measures and to pay plaintiffs’ attorneys’ fees and expenses in the total amount of $2,750,000.

19

On May 5, 2008, the New York Supreme Court granted final approval to the Settlement Agreement in the State Derivative Action, and on May 7, 2008, entered final judgment dismissing all of the state derivative claims with prejudice. Pursuant to the terms of the Settlement Agreement, the parties then jointly applied to the United States District Court to dismiss all of the claims in the Federal Derivative Action with prejudice, and on May 16, 2008, the District Court entered an order doing so. The time to file notices of appeal in the State Derivative Action and the Federal Derivative Action expired in June 2008, and no such notices were filed.

In re Initial Public Offering Securities Litigation

The class action lawsuit In re Initial Public Offering Securities Litigation filed in the United States District Court for the Southern District of New York in April 2002 (the Action) named over 1,000 individuals and 300 corporations, including Fatbrain.com, LLC, a former subsidiary of Barnes & Noble.com (Fatbrain), and its former officers and directors. The amended complaints in the Action all allege that the initial public offering registration statements filed by the defendant issuers with the SEC, including the one filed by Fatbrain, were false and misleading because they failed to disclose that the defendant underwriters were receiving excess compensation in the form of profit sharing with certain of its customers and that some of those customers agreed to buy additional shares of the defendant issuers’ common stock in the after market at increasing prices. The amended complaints also allege that the foregoing constitute violations of: (i) Section 11 of the Securities Act of 1933, as amended (Securities Act), by the defendant issuers, the directors and officers signing the related registration statements, and the related underwriters; (ii) Rule 10b-5 promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), by the same parties; and (iii) the control person provisions of the Securities Act and Exchange Act by certain directors and officers of the defendant issuers. A motion to dismiss by the defendant issuers, including Fatbrain, was denied.

After extensive negotiations among representatives of plaintiffs and defendants, the parties entered into a memorandum of understanding (MOU), outlining a proposed settlement resolving the claims in the Action between plaintiffs and the defendant issuers. Subsequently a settlement agreement was executed between the defendants and plaintiffs in the Action, the terms of which are consistent with the MOU. The settlement agreement was submitted to the court for approval and on February 15, 2005, the judge granted preliminary approval of the settlement.

On December 5, 2006, the federal appeals court for the Second Circuit issued a decision reversing the District Court’s class certification decision in six focus cases. In light of that decision, the District Court stayed all proceedings, including consideration of the settlement. Plaintiffs then filed, in January 2007, a Petition for Rehearing En Banc before the Second Circuit, which was denied in April 2007. On May 30, 2007, plaintiffs moved, before the District Court, to certify a new class. On June 25, 2007, the District Court entered an order terminating the settlement agreement. On October 2, 2008, plaintiffs agreed to withdraw the class certification motion. On October 10, 2008, the District Court signed an order granting the request.

An agreement in principle has now been negotiated among counsel for all of the issuers, plaintiffs, insurers and underwriters, which remains subject to court approval. If the proposed settlement is approved, no settlement payment will be made by the Company. If the proposed settlement is not approved, the Company intends to vigorously defend this lawsuit.

20

Barnesandnoble.com LLC v. Yee, et al.

On December 21, 2007, Barnes & Noble.com filed a complaint in the United States District Court for the Eastern District of California for declaratory and injunctive relief against the members of the California Board of Equalization (the BOE) and others. The complaint sought a declaration that the actions of the State of California in seeking to impose California sales and use tax on the sales of Barnes & Noble.com for the period of May 1, 2000 through March 31, 2004 in the amount of approximately $17,000,000, plus interest and penalties, violate the Commerce Clause and the First Amendment of the United States Constitution, as well as the California Administrative Procedures Act. This assessment was also the subject of an administrative protest filed by Barnes & Noble.com. Barnes & Noble.com was also challenging another earlier assessment by the BOE in the amount of approximately $700,000, plus interest and penalties, for the period of November 15, 1999 through January 31, 2000. This earlier assessment was struck down by a decision of the California Superior Court on September 7, 2007 in favor of Barnes & Noble.com, and the BOE filed an appeal in the California Court of Appeal (First District).

On May 29, 2008, the BOE approved a global settlement with Barnes & Noble.com resolving all disputes between Barnes & Noble.com and the State of California for sales and use taxes, including the pending litigation in the United States District Court for the Eastern District of California and the California Court of Appeal (First District). Under the settlement, the two tax determinations against Barnes & Noble.com in the total amount of approximately $17,700,000, plus all interest and penalties, were canceled by the BOE. In addition, the BOE waived all claims for sales and use taxes, interest, and penalties through November 1, 2005, the date on which Barnes & Noble.com voluntarily commenced collecting and remitting sales and use taxes to the State of California. A final settlement agreement was entered into by the parties on August 19, 2008. In connection with the settlement, Barnes & Noble.com paid the State of California $8,302,393 on August 28, 2008.

Hostetter v. Barnes & Noble Booksellers, Inc. et al.

On December 4, 2008, a purported class action complaint was filed against Barnes & Noble Booksellers, Inc. in the Superior Court for the State of California making the following allegations against defendants with respect to hourly managers and/or assistant managers at Barnes & Noble stores located in the State of California: (1) failure to pay wages and overtime; (2) failure to provide meal and/or rest breaks; (3) waiting time penalties; and (4) unfair competition. The complaint contains no allegations concerning the number of any such alleged violations or the amount of recovery sought on behalf the purported class. On March 4, 2009, Barnes and Noble filed an answer denying all claims. On March 5, 2009, Barnes and Noble removed this matter to federal court.

21

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the 13 weeks ended January 31, 2009.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

The Company’s common stock is traded on the New York Stock Exchange (NYSE) under the symbol “BKS”. The following table sets forth, for the quarterly periods indicated, the high and low sales prices of the common stock on the NYSE Composite Tape:

	Fiscal 2008				Fiscal 2007
	High		Low		High		Low
First Quarter	$	34.02	$	25.01	$	43.27	$	35.31
Second Quarter		33.60		20.69		43.80		32.39
Third Quarter		33.64		16.16		39.74		30.01
Fourth Quarter		20.00		10.77		39.52		26.24

Approximate Number of Holders of Common Equity

Title of Class	Approximate Number of Record Holders as of March 31, 2009
Common stock, $0.001 par value	2,400

Dividends

During fiscal 2008, the Company paid a quarterly cash dividend of $0.15 per share on March 31, 2008 to stockholders of record at the close of business on March 10, 2008. On March 20, 2008, the Company announced that its Board of Directors has authorized an increase to its quarterly cash dividend from $0.15 to $0.25 per share, commencing with the dividend to be paid in June 2008. The Company paid quarterly cash dividends of $0.25 per share on June 30, 2008 to stockholders of record at the close of business on June 9, 2008, on September 30, 2008 to stockholders of record at the close of business on September 9, 2008, and on December 31, 2008 to stockholders of record at the close of business on December 10, 2008. The Company also paid a dividend of $0.25 per share on March 31, 2009 to stockholders of record at the close of business on March 10, 2009.

22

During fiscal 2007, the Company paid quarterly cash dividends of $0.15 per share on March 30, 2007 to stockholders of record at the close of business on March 9, 2007, on June 29, 2007 to stockholders of record at the close of business on June 8, 2007, on September 28, 2007 to stockholders of record at the close of business on September 7, 2007, and on December 28, 2007 to stockholders of record at the close of business on December 7, 2007.

The following table provides information with respect to purchases by the Company of shares of its common stock during the fourth quarter of 2008:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
November 2, 2008 – December 1, 2008	1,268	$	17.75	1,268	$	2,556,486
December 2, 2008 – December 31, 2008	4,225	$	15.01	4,225	$	2,533,979
January 1, 2009 – January 31, 2009	—		—	—	$	2,470,561
Total	5,493	$	15.64	5,493

On September 15, 2005, the Company’s Board of Directors authorized a stock repurchase program for the purchase of up to $200.0 million of the Company’s common stock. The Company completed this $200.0 million repurchase program during the 13 weeks ended November 3, 2007. On May 15, 2007, the Company announced that its Board of Directors authorized a new stock repurchase program for the purchase of up to $400.0 million of the Company’s common stock. The maximum dollar value of common stock that may yet be purchased under the current program is approximately $2.5 million as of January 31, 2009.

Stock repurchases under this program may be made through open market and privately negotiated transactions from time to time and in such amounts as management deems appropriate. As of January 31, 2009, the Company has repurchased 33,065,712 shares at a cost of approximately $1.0 billion under its stock repurchase programs. The repurchased shares are held in treasury.

23

ITEM 6. SELECTED FINANCIAL DATA

The information included in the Company’s Annual Report to Shareholders for the fiscal year ended January 31, 2009 included as Exhibit 13.1 to this Annual Report on Form 10-K (the Annual Report) under the section entitled “Selected Consolidated Financial Data” is incorporated herein by reference.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information included in the Annual Report under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company limits its interest rate risks by investing certain of its excess cash balances in short-term, highly-liquid instruments with an original maturity of one year or less. The Company does not expect any material losses from its invested cash balances and the Company believes that its interest rate exposure is modest. As of January 31, 2009, the Company’s cash and cash equivalents totaled approximately $281,608,000.

Additionally, the Company may from time to time borrow money under its revolving credit facility at various interest rate options based on the prime rate or the Eurodollar rate depending upon certain financial tests. Accordingly, the Company may be exposed to interest rate risk on money that it borrows under its revolving credit facility. The Company did not have any amounts outstanding under its revolving credit facility at January 31, 2009 and February 2, 2008.

The Company does not have any material foreign currency exposure as nearly all of its business is transacted in United States currency.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information included in the Annual Report under the sections entitled: “Consolidated Statements of Operations,” “Consolidated Balance Sheets,” “Consolidated Statements of Changes in Shareholders’ Equity,” “Consolidated Statements of Cash Flows” and “Notes to Consolidated Financial Statements” are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

24

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The management of the Company established and maintains disclosure controls and procedures that are designed to ensure that material information relating to the Company and its subsidiaries required to be disclosed in the reports that are filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon the Company’s evaluation, management concluded that the Company’s internal control over financial reporting was effective as of January 31, 2009.

BDO Seidman, LLP, the independent registered certified public accounting firm that audited the Company’s financial statements included in this Annual Report on Form 10-K, has also audited the Company’s internal control over financial reporting as of January 31, 2009 as stated in their report incorporated herein as part of the Company’s Annual Report.

25

(c) Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the most recent quarter ended January 31, 2009 that have materially affected, or are reasonably likely to affect, internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information with respect to directors, executive officers and corporate governance of the Company is incorporated herein by reference to the Company’s definitive Proxy Statement relating to the Company’s 2009 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the Company’s fiscal year ended January 31, 2009 (the Proxy Statement).

The information with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information with respect to executive compensation is incorporated herein by reference to the Proxy Statement.

The information with respect to compensation of directors is incorporated herein by reference to the Proxy Statement.

26

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The following table sets forth equity compensation plan information as of January 31, 2009:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders	5,967,000	$	20.11	1,832,000
Equity compensation plans not approved by security holders	—		—	—
Total	5,967,000	$	20.11	1,832,000

The information with respect to security ownership of certain beneficial owners and management is incorporated herein by reference to the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information with respect to certain relationships and related transactions and director independence is incorporated herein by reference to the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information with respect to principal accountant fees and services is incorporated herein by reference to the Proxy Statement.

27

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)    1. Consolidated Financial Statements:

(i) “The Report of Independent Registered Public Accountants” included in the Annual Report is incorporated herein by reference.

(ii) The information included in the Annual Report under the sections entitled: “Consolidated Statements of Operations,” “Consolidated Balance Sheets,” “Consolidated Statements of Changes in Shareholders’ Equity,” “Consolidated Statements of Cash Flows” and “Notes to Consolidated Financial Statements” are incorporated herein by reference.

2. Schedule:

Valuation and Qualifying Accounts.

For the 52-week period ended January 31, 2009, the 52-week period ended February 2, 2008, and the 53-week period ended February 3, 2007 (in thousands):

	Balance at beginning of period		Charge (recovery) to costs and expenses			Write-offs			Balance at end of period
Allowance for Doubtful Accounts
January 31, 2009	$	2,475	$	(138	)	$	(598	)	$	1,739
February 2, 2008	$	2,314	$	245		$	(84	)	$	2,475
February 3, 2007	$	2,882	$	(51	)	$	(517	)	$	2,314

28

3. Exhibits:

The following are filed as Exhibits to this form:

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of the Company, as amended. (1)
3.2	Amended and Restated By-laws of the Company. (14)
3.3	Certificate of Designation of Preferences and Rights of Preferred Stock, Series H of the Company. (2)
3.4	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June 17, 1998 and filed July 17, 1998. (2)
4.1	Specimen Common Stock certificate. (1)
10.1	License Agreement for “Barnes & Noble” service mark, dated as of February 11, 1987. (1)
10.2	Consents to “Barnes & Noble” License Agreement Assignments, dated as of November 18, 1988 and November 16, 1992, respectively. (3)
10.3	Employment Agreement between the Company and Mitchell S. Klipper, dated as of February 18, 2002. (4)
10.4	Amendment to Employment Agreement between the Company and Mitchell S. Klipper, dated as of December 18, 2008. (16)
10.5	Employment Agreement between the Company and Stephen Riggio, dated as of February 18, 2002. (6)
10.6	Amendment to Employment Agreement between the Company and Stephen Riggio, dated December 18, 2008. (16)
10.7	Letter Agreement (including General Release and Waiver) entered into on October 8, 2008, between barnesandnoble.com llc and Marie J. Toulantis. (15)
10.8	Employment Agreement between the Company and William J. Lynch, Jr., dated January 6, 2009. (17)
10.9	Credit Agreement, dated as of June 17, 2005 (the Credit Agreement), among the Company and certain of its Subsidiaries, Bank of America, N.A., as Administrative Agent, JPMorgan Chase Bank N.A., as Syndication Agent, and Citicorp USA, Inc., ING Capital LLC, Suntrust Bank and Wachovia Bank, National Association, as Documentation Agents, and the other Lenders named therein (the Lenders). (10)

29

Exhibit No.	Description
10.10	Subsidiary Guaranty Agreement, dated as of June 17, 2005, made by Doubleday Book Shops, Inc., B&N.Com Holding Corp., CCI Holdings, Inc., B&N General Partner (Texas) Corp., B&N Limited Partner (Texas) Corp., barnesandnoble.com inc., Barnes & Noble Bookquest LLC, Barnes & Noble Marketing Services Corp., f/k/a Marketing Services (Minnesota) Corp., and Barnes & Noble Services, Inc., as Guarantors, to Bank of America, N.A., as Administrative Agent for each of the Lenders. (10)
10.11	Amendment No. 1 to the Credit Agreement, dated as of August 2, 2006, among the Company and certain of its Subsidiaries, Bank of America, N.A., as Administrative Agent, JPMorgan Chase Bank N.A., as Syndication Agent, and Citicorp USA Inc., ING Capital LLC, Suntrust Bank and Wachovia Bank, National Association, as Co-Documentation Agents, and the other Lenders named therein. (11)
10.12	Waiver Agreement, dated as of December 5, 2006, among the Company, certain of its Subsidiaries, the Lenders named in the Credit Agreement, as amended, Bank of America, N.A., as Administrative Agent for the Lenders, and each of the Guarantors named therein. (12)
10.13	The Company’s Amended and Restated 1996 Incentive Plan. (5)
10.14	Amendment to the Company’s Amended and Restated 1996 Incentive Plan. (13)
10.15	The Company’s 2004 Executive Performance Plan. (8)
10.16	First Amendment to the Company’s 2004 Executive Performance Plan. (16)
10.17	The Company’s 2004 Incentive Plan. (8)
10.18	Amendment to the Company’s 2004 Incentive Plan. (13)
10.19	Second Amendment to the Company’s 2004 Incentive Plan. (16)
10.20	The Company’s Amended and Restated Deferred Compensation Plan. (16)
10.21	Form of Option Award Agreement of the Company. (9)
10.22	Form of Restricted Stock Award Agreement of the Company. (9)
13.1	The sections of the Company’s Annual Report entitled: “Selected Consolidated Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Consolidated Statements of Operations”, “Consolidated Balance Sheets”, “Consolidated Statements of Changes in Shareholders’ Equity”, “Consolidated Statements of Cash Flows”, “Notes to Consolidated Financial Statements” and “The Report of Independent Registered Public Accounting Firm”. (18)
14.1	Code of Ethics for Senior Financial Officers. (7)
14.2	Code of Business Conduct and Ethics. (18)

30

Exhibit No.	Description
21.1	List of Subsidiaries. (18)
23.1	Consent of BDO Seidman, LLP. (18)
23.2	Report of BDO Seidman, LLP. (18)
31.1	Certification by the Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a), under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (18)
31.2	Certification by the Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a), under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (18)
32.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (18)
32.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (18)

31

(1)	Previously filed as an exhibit to the Company’s Registration Statement on Form S-4 (Commission File No. 33-59778) filed with the Securities and Exchange Commission on March 22, 1993.
(2)	Previously filed as an exhibit to the Company’s Form 10-Q for the fiscal quarter ended August 1, 1998.
(3)	Previously filed as an exhibit to the Company’s Form 10-K for the fiscal year ended January 27, 1996.
(4)	Previously filed as an exhibit to the Company’s Form 10-K for the fiscal year ended February 2, 2002.
(5)	Previously filed as an exhibit to the Company’s Registration Statement on Form S-8 (Commission File No. 333-90538) filed with the Securities and Exchange Commission on June 14, 2002.
(6)	Previously filed as an exhibit to the Company’s Form 10-K for the fiscal year ended February 1, 2003.
(7)	Previously filed as an exhibit to the Company’s Form 10-K for the fiscal year ended January 31, 2004.
(8)	Previously filed as an exhibit to the Company’s Form 10-Q for the fiscal quarter ended May 1, 2004.
(9)	Previously filed as an exhibit to the Company’s Form 10-K for the fiscal year ended January 29, 2005.
(10)	Previously filed as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 20, 2005.
(11)	Previously filed as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 4, 2006.
(12)	Previously filed as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 7, 2006.
(13)	Previously filed as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 21, 2006.
(14)	Previously filed as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 14, 2008.
(15)	Previously filed as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 10, 2008.
(16)	Previously filed as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 19, 2008.

32

(17)	Previously filed as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 8, 2009.
(18)	Filed herewith.

33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BARNES & NOBLE, INC.
(Registrant)
By:	/s/ Stephen Riggio
	Stephen Riggio
	Chief Executive Officer
	April 1, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ Leonard Riggio Leonard Riggio	Chairman of the Board	April 1, 2009
/s/ Stephen Riggio Stephen Riggio	Vice Chairman and Chief Executive Officer (principal executive officer)	April 1, 2009
/s/ Joseph J. Lombardi Joseph J. Lombardi	Chief Financial Officer (principal financial officer)	April 1, 2009
/s/ Allen W. Lindstrom Allen W. Lindstrom	Vice President, Corporate Controller (principal accounting officer)	April 1, 2009
/s/ George Campbell Jr. George Campbell Jr.	Director	April 1, 2009
/s/ Michael J. Del Giudice Michael J. Del Giudice	Director	April 1, 2009
/s/ William Dillard II William Dillard II	Director	April 1, 2009
/s/ Patricia L. Higgins Patricia L. Higgins	Director	April 1, 2009
/s/ Irene R. Miller Irene R. Miller	Director	April 1, 2009
/s/ Margaret T. Monaco Margaret T. Monaco	Director	April 1, 2009
/s/ Lawrence S. Zilavy Lawrence S. Zilavy	Director	April 1, 2009

34

EX-13.1

Exhibit 13.1

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data of Barnes & Noble, Inc. and its subsidiaries (collectively, the Company) set forth on the following pages should be read in conjunction with the consolidated financial statements and notes included elsewhere in this report. The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of January. The Statement of Operations Data for the 52 weeks ended January 31, 2009 (fiscal 2008), 52 weeks ended February 2, 2008 (fiscal 2007), and 53 weeks ended February 3, 2007 (fiscal 2006) and the Balance Sheet Data as of January 31, 2009 and February 2, 2008 are derived from, and are qualified by reference to, audited consolidated financial statements which are included elsewhere in this report. The Statement of Operations Data for the 52 weeks ended January 28, 2006 (fiscal 2005) and 52 weeks ended January 29, 2005 (fiscal 2004) and the Balance Sheet Data as of February 3, 2007, January 28, 2006 and January 29, 2005 are derived from audited consolidated financial statements not included in this report.

The Company has restated its previously reported consolidated financial statements for fiscal 2007, 2006, 2005 and 2004 to reflect the results of Calendar Club as a discontinued operation as discussed in Note 2 to the Notes to Consolidated Financial Statements.

Fiscal Year (In thousands, except per share data)	2008			2007		2006		2005		2004
STATEMENT OF OPERATIONS DATA:
Sales
Barnes & Noble stores	$	4,525,020		4,648,409		4,533,912		4,356,611		4,121,398
B. Dalton stores		67,525		84,497		102,004		141,584		176,490
Barnes & Noble.com		466,082		476,870		433,425		439,657		419,821
Other(a)		63,177		76,898		70,277		56,080		52,445
Total sales		5,121,804		5,286,674		5,139,618		4,993,932		4,770,154
Cost of sales and occupancy		3,540,596		3,679,845		3,534,097		3,455,536		3,313,071
Gross profit		1,581,208		1,606,829		1,605,521		1,538,396		1,457,083
Selling and administrative expenses		1,251,524		1,225,791		1,178,038		1,112,005		1,029,895
Depreciation and amortization		173,557		168,600		166,581		169,354		178,139
Pre-opening expenses		12,796		10,387		12,897		10,938		8,862
Operating profit		143,331		202,051		248,005		246,099		240,187
Interest income (expense), net and amortization of deferred financing fees(b)		(2,344	)	7,483		1,680		(1,296	)	(10,978	)
Debt redemption charge(c)		—		—		—		—		(14,582	)
Earnings from continuing operations before taxes and minority interest		140,987		209,534		249,685		244,803		214,627
Income taxes		55,591		74,623		100,499		99,758		92,290
Earnings from continuing operations before minority interest		85,396		134,911		149,186		145,045		122,337
Minority interest (d)		30		—		—		—		—
Earnings from continuing operations		85,426		134,911		149,186		145,045		122,337
Earnings (loss) from discontinued operations (net of income tax)(e)		(9,506	)	888		1,341		1,636		21,039
Net earnings	$	75,920		135,799		150,527		146,681		143,376
Basic earnings per common share
Earnings from continuing operations	$	1.55		2.12		2.29		2.15		1.77
Earnings (loss) from discontinued operations		(0.17	)	0.01		0.02		0.02		0.30
Net earnings	$	1.38		2.13		2.31		2.17		2.08
Diluted earnings per common share
Earnings from continuing operations	$	1.49		2.01		2.16		2.01		1.67
Earnings (loss) from discontinued operations		(0.17	)	0.01		0.02		0.02		0.26
Net earnings	$	1.32		2.03		2.17		2.03		1.93
Dividends paid per share	$	0.90		0.60		0.60		0.30		—
Weighted average common shares outstanding
Basic		55,207		63,662		65,212		67,560		69,018
Diluted		57,327		67,050		69,226		72,150		75,696
OTHER OPERATING DATA:
Number of stores
Barnes & Noble stores		726		713		695		681		666
B. Dalton stores		52		85		98		118		154
Total		778		798		793		799		820
Comparable store sales increase (decrease)
Barnes & Noble stores(f)		(5.4	)%	1.8	%	(0.3	)%	2.9	%	3.1	%
Barnes & Noble.com(g)		(1.3	)%	13.4	%	(1.1	)%	5.0	%	(1.3	)%
Capital expenditures(h)	$	192,153		193,958		176,040		182,698		179,299
BALANCE SHEET DATA:
Total assets	$	2,993,888		3,249,826		3,196,798		3,156,250		3,318,389
Long-term debt	$	—		—		—		—		245,000

(a) Includes primarily third-party sales of Sterling Publishing Co., Inc., a wholly-owned subsidiary of the Company.

F-1

(b) Amounts for fiscal 2008, 2007, 2006, 2005 and 2004 are net of interest income of $1,518, $9,169, $5,292, $6,615 and $3,133, respectively.

(c) One-time charge associated with the redemption of the Company’s convertible subordinated notes in fiscal 2004.

(d) Minority interest represents the 50% outside interest in Begin Smart LLC.

(e) Includes results from Calendar Club for all periods presented and GameStop Corp’s operations in fiscal 2004 prior to the spin-off of GameStop.

(f) Comparable store sales increase (decrease) is calculated on a 52-week basis, and includes sales from stores that have been open for at least 15 months and does not include closed or relocated stores.

(g) Comparable online sales increase (decrease) is calculated by adjusting the prior year results to conform with the fiscal 2008 presentation.

(h) Excludes Calendar Club capital expenditures of $1,988, $2,551, $3,333, $4,469 and $5,586 for fiscal 2008, 2007, 2006, 2005 and 2004, respectively.

F-2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Barnes & Noble, Inc.’s (Barnes & Noble or the Company) fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of January. As used in this section, “fiscal 2009” represents the 52 weeks ending January 30, 2010, “fiscal 2008” represents the 52 weeks ended January 31, 2009, “fiscal 2007” represents the 52 weeks ended February 2, 2008 and “fiscal 2006” represents the 53 weeks ended February 3, 2007.

General

The Company is the nation’s largest bookseller¹, and as of January 31, 2009 operated 778 bookstores and a website. Of the 778 bookstores, 726 operate primarily under the Barnes & Noble Booksellers trade name (35 of which were opened in fiscal 2008) and 52 operate primarily under the B. Dalton Bookseller trade name. Barnes & Noble conducts the online part of its business through barnesandnoble.com llc (Barnes & Noble.com), one of the largest sellers of books on the Internet. Through Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), the Company is a leading general trade book publisher. Additionally, as of January 31, 2009, the Company owned an approximate 74% interest in Calendar Club, an operator of seasonal kiosks. The Company subsequently sold its interest in Calendar Club in February 2009. The results of Calendar Club have been classified as discontinued operations in all periods presented. The Company employed approximately 37,000 full- and part-time employees as of January 31, 2009.

Barnes & Noble stores are located in all 50 states and the District of Columbia as of January 31, 2009. With over 40 years of bookselling experience, management has a strong sense of customers’ changing needs and the Company leads book retailing with a “community store” concept. Barnes & Noble’s typical store offers a comprehensive title base, a café, a children’s section, a music/DVD department, a magazine section and a calendar of ongoing events, including author appearances and children’s activities that make each Barnes & Noble store an active part of its community.

Barnes & Noble stores range in size from 10,000 to 60,000 square feet depending upon market size with an overall average store size of 26,000 square feet. Each store features an authoritative selection of books, ranging from 60,000 to 200,000 unique titles. The comprehensive title selection is diverse and tailored to each store location to reflect local interests. In addition, Barnes & Noble emphasizes books published by small and independent publishers and university presses. Bestsellers (the “top ten” highest selling hardcover fiction and hardcover non-fiction titles) typically represent between 3% and 5% of Barnes & Noble sales. Complementing this extensive in-store selection, all Barnes & Noble stores provide customers with on-site access to the millions of books available to online shoppers while offering an option to have the book sent to the store or shipped directly to the customer through Barnes & Noble.com’s delivery system. All Barnes & Noble stores are equipped with the Company’s proprietary BookMaster in-store operating system, which enhances the Company’s merchandise-replenishment system, resulting in high in-stock positions and productivity at the store level through efficiencies in receiving, cashiering and returns processing. The Company is in the process of integrating the BookMaster system used in each store with Barnes & Noble.com so that its customers share the same experience across both channels.

¹ Based upon sales reported in trade publications and public filings.

F-3

During fiscal 2008, the Company added 0.5 million square feet to the Barnes & Noble store base, bringing the total square footage to 18.7 million square feet, a 3% increase over the prior year. Barnes & Noble stores contributed approximately 88.3% of the Company’s total sales in fiscal 2008. The Company plans to open approximately 15 Barnes & Noble stores in fiscal 2009, which are expected to average 34,000 square feet in size.

At the end of fiscal 2008, the Company operated 52 B. Dalton bookstores in 24 states and the District of Columbia. B. Dalton bookstores employ merchandising strategies that target the mainstream consumer book market, offering a wide range of bestsellers and general-interest titles. Most B. Dalton bookstores range in size from 2,000 to 6,000 square feet, and while they are appropriate to the size of adjacent mall tenants, the opening of book superstores in nearby locations continues to have a significant adverse impact on B. Dalton bookstores.

The Company is continuing its controlled descent in the number of its smaller format B. Dalton bookstores in response to declining sales attributable primarily to book superstore competition. Part of the Company’s strategy has been to close underperforming stores, which has resulted in the closing of 915 B. Dalton bookstores since 1989.

The Company has a multi-channel marketing strategy that deploys various merchandising programs and promotional activities to drive traffic to both its stores and website. At the center of this program is Barnes & Noble.com, which receives over 365 million visits annually, ranking it among the top 15 multi-channel retailer websites in terms of traffic, as measured by Comscore Media Metrix. As a result of this reach, the Company believes that its website provides significant advertising power which would be valued in the tens of millions of dollars if such advertising were placed with third-party websites with comparable reach. In this way, Barnes & Noble.com serves as both the Company’s direct-to-home delivery service and as an important broadcast channel and advertising medium for the Barnes & Noble brand. For example, the online store locator at Barnes & Noble.com receives millions of customer visits each year providing store hours, directions, information about author events and other in-store activities. Additionally, customers can view store availability for book, music and video products through the website and reserve the available items for pick-up at the store. The Company firmly believes that its website is a key factor behind its industry-leading comparable store sales performance.

The Company’s subsidiary Sterling Publishing is one of the leading publishers of non-fiction trade titles, with more than 5,000 books in print. Founded in 1949, Sterling publishes a wide range of non-fiction and illustrated books, consisting primarily of subjects such as crafts, food and wine, mind / body / spirit, photography, puzzles and games, current affairs and children’s books. Sterling also publishes books for a number of brands, including many of the Hearst magazines such as Good Housekeeping and Cosmopolitan, Hasbro, The American Museum of Natural History and AARP.

F-4

Results of Operations

Fiscal Year	2008			2007		2006
Sales (in thousands)	$	5,121,804		5,286,674		5,139,618
Earnings From Continuing Operations (in thousands)	$	85,426		134,911		149,186
Diluted Earnings Per Common Share From Continuing Operations	$	1.49		2.01		2.16
Comparable Store Sales Increase (Decrease)
Barnes & Noble stores(a)		(5.4	)%	1.8	%	(0.3	)%
Barnes & Noble.com(b)		(1.3	)%	13.4	%	(1.1	)%
Stores Opened
Barnes & Noble stores		35		31		32
B. Dalton stores		—		—		—
Total		35		31		32
Stores Closed
Barnes & Noble stores		22		13		18
B. Dalton stores		33		13		20
Total		55		26		38
Number of Stores Open at Year End
Barnes & Noble stores		726		713		695
B. Dalton stores		52		85		98
Total		778		798		793
Square Feet of Selling Space at Year End (in millions)
Barnes & Noble stores		18.7		18.2		17.5
B. Dalton stores		0.2		0.3		0.4
Total		18.9		18.5		17.9

(a) Comparable store sales increase (decrease) is calculated on a 52-week basis, and includes sales of stores that have been open at least 15 months and does not include closed or relocated stores.

(b) Comparable online sales increase (decrease) is calculated by adjusting the prior year results to conform with the fiscal 2008 presentation.

F-5

The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales of the Company:

Fiscal Year	2008		2007		2006
Sales	100.0	%	100.0	%	100.0	%
Cost of sales and occupancy	69.1		69.6		68.8
Gross margin	30.9		30.4		31.2
Selling and administrative expenses	24.4		23.2		22.9
Depreciation and amortization	3.4		3.2		3.2
Pre-opening expenses	0.2		0.2		0.3
Operating margin	2.8		3.8		4.8
Interest income, net and amortization of deferred financing fees	—		0.1		—
Earnings before income taxes and minority interest	2.8		4.0		4.9
Income taxes	1.1		1.4		2.0
Earnings before minority interest	1.7		2.6		2.9
Minority interest	—		—		—
Earnings from continuing operations	1.7	%	2.6	%	2.9	%

Discontinued Operations

During the fourth quarter of fiscal 2008, the Company committed to a plan to dispose of its approximate 74% interest in Calendar Club. The Company subsequently sold its interest in Calendar Club in February 2009 to Calendar Club and its chief executive officer for $7.0 million, which was comprised of $1.0 million in cash and $6.0 million in notes. Calendar Club qualified for held for sale accounting treatment in fiscal 2008 and was written down to its fair value. The Company recorded an after tax charge of $9.7 million related to the write down in fiscal 2008. The results of Calendar Club have been classified as discontinued operations in all periods presented.

Tax Settlement

During the first quarter of fiscal 2008, the Company recorded a charge of $8.3 million in connection with a settlement regarding the collection of sales and use taxes on sales made by Barnes & Noble.com from 1999 to 2005. See Note 16, Legal Proceedings under “Barnesandnoble.com LLC v. Yee, et al.” to the consolidated financial statements for additional information regarding this settlement.

Stock Option Review

In July 2006, the Company created a Special Committee of the Board of Directors, consisting of Patricia Higgins, to review all of the stock option grants by the Company and the Company’s wholly-owned subsidiary, Barnes & Noble.com, during the period from 1996 through 2006 and engaged independent outside counsel and an independent forensic auditor to assist in this matter. On April 2, 2007, the Special Committee presented its findings and recommendations to the Company’s Board of Directors, as reported in the Company’s Form 8-K filed April 4, 2007. The Special Committee indicated that the Committee and its advisors received the Company’s full cooperation throughout its investigation.

F-6

Among other findings, the Special Committee determined that there were numerous instances of stock option grants for which there was an improper measurement of compensation expense under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Although the Special Committee determined that there were instances of stock options having been dated using favorable dates that were selected with the benefit of hindsight and that serious mistakes were made, the Special Committee did not find any intent to defraud or fraudulent misconduct by any individual or group of individuals. The Special Committee found that the Company’s dating and pricing practice for stock options was applied uniformly by Company personnel to stock options granted and was not used selectively to benefit any one group or individual within the Company. The Company evaluated these findings and agreed with the Special Committee. The Company concluded that the charges were not material to the financial statements in any of the periods to which such charges relate and therefore did not restate its historic financial statements. The Company recorded an adjustment of $0.4 million ($0.2 million after tax) to increase non-cash compensation expense in the fourth quarter of fiscal 2006 to correctly present compensation expense for fiscal 2006. In accordance with Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company also recorded an adjustment to decrease retained earnings by $22.8 million, increase deferred taxes by $5.9 million and increase additional paid-in capital by $28.7 million, to correct the consolidated balance sheet for the cumulative impact of the misstated compensation cost in periods prior to fiscal 2006.

In December 2006, the Board members and all Section 16 officers holding options unvested as of December 31, 2004 voluntarily agreed to reprice such options, upon a finding by the Special Committee that such options were improperly priced, to an exercise price determined to be the appropriate fair market value by the Special Committee. The Special Committee recommended that all incorrectly dated and unexercised stock options issued to Section 16 officers and directors of the Company, other than hiring grants, be re-priced to reflect the greater of the original grant price or the price appropriate to the measurement date as determined by the Special Committee. The Board members and Section 16 officers did not receive any cash payments to compensate them for their voluntary agreements to reprice such options. The total difference in exercise price as a result of the re-pricing of these unexercised options was approximately $2.6 million.

Consistent with the Special Committee’s recommendation that all incorrectly dated and unexercised options issued to Section 16 officers be re-priced, the Section 16 officers voluntarily agreed to repay to the Company for options granted and exercised while they were Section 16 officers an amount equal to the difference in the price at which the stock options were exercised and the price at which the Special Committee believes the stock options should have been priced, net of any allocable portion of income taxes paid in connection with such exercise. The total amount voluntarily repaid to the Company by Section 16 officers was approximately $2.0 million, prior to any allocable portion of income taxes paid in connection with such exercise, which was recorded as an increase to additional paid-in capital in fiscal 2007.

Incorrectly dated options that vested after December 31, 2004 and were exercised in 2006 were subject to penalty taxes under Section 409A of the Internal Revenue Code. The Company reimbursed Section 16 officers who voluntarily repaid the Company and were subject to these penalty taxes. The Board approved payment to such executives who were subject to Section 409A taxes in connection with exercised options in an amount equal to the cost of the Section 409A penalty tax, any interest or penalties, plus an amount to offset the associated income tax consequences of the reimbursement payments. In reaching this decision, the Board took into consideration, among other factors, the fact that the applicable taxes under Section 409A far exceeded the amount of any possible enrichment to such

F-7

officers as a result of improper grant dating and the agreement by such officers to repay the amount of any enrichment as a result of the improper dating. The aggregate payments to such officers, including the gross-up amounts, were $1.2 million.

Additionally, the Company made payments on behalf of option holders who were not Section 16 officers, for any Section 409A tax liability due to the exercise of incorrectly dated options in 2006. These payments, including gross-up payments, were $1.2 million.

The Company implemented a program for employees who were not Section 16 officers to amend incorrectly dated options that vested after December 31, 2004 so as to increase the exercise price to the trading price on the correct measurement date determined by the Special Committee. In addition, the Company paid such employees whose options were repriced cash bonuses in the amount of the difference. The aggregate amount paid by the Company as cash bonuses under this program was $1.4 million, which was paid in January 2008 to comply with applicable tax laws.

52 Weeks Ended January 31, 2009 Compared with 52 Weeks Ended

February 2, 2008

Sales

The Company’s sales decreased $164.9 million, or 3.1%, during fiscal 2008 to $5,121.8 million from $5,286.7 million during fiscal 2007. This decrease was primarily attributable to a $123.4 million decrease in sales at Barnes & Noble stores, a $17.0 million decrease in sales at B. Dalton stores and a $10.8 million decrease in sales at Barnes & Noble.com.

Barnes & Noble store sales decreased $123.4 million, or 2.7%, during fiscal 2008 to $4,525.0 million from $4,648.4 million during fiscal 2007 and accounted for 88.3% of total Company sales. The 2.7% decrease in Barnes & Noble store sales was primarily attributable to a 5.4% decrease in comparable store sales or $237.7 million, closed stores that decreased sales by $101.3 million, offset by new Barnes & Noble store sales of $208.5 million.

B. Dalton sales decreased $17.0 million, or 20.1%, during fiscal 2008 to $67.5 million from $84.5 million during fiscal 2007. This decrease was primarily attributable to the closing of 33 B. Dalton stores.

Barnes & Noble.com sales decreased $10.8 million, or 2.3%, during fiscal 2008 to $466.1 million from $476.9 million during fiscal 2007. This decrease was primarily attributable to a 1.3% decrease in comparable sales or $6.1 million.

In fiscal 2008, the Company opened 35 Barnes & Noble stores and closed 22, bringing its total number of Barnes & Noble stores to 726 with 18.7 million square feet. The Company closed 33 B. Dalton stores, ending the period with 52 B. Dalton stores and 0.2 million square feet. As of January 31, 2009, the Company operated 778 stores in the fifty states and the District of Columbia.

Cost of Sales and Occupancy

The Company’s cost of sales and occupancy includes costs such as merchandise costs, distribution center costs (including payroll, freight, supplies, depreciation and other operating expenses), rental expense, common area maintenance and real estate taxes, partially offset by landlord tenant allowances amortized over the life of the lease.

F-8

Cost of sales and occupancy decreased $139.2 million, or 3.8%, to $3,540.6 million in fiscal 2008 from $3,679.8 million in fiscal 2007. As a percentage of sales, cost of sales and occupancy decreased to 69.1% in fiscal 2008 from 69.6% in fiscal 2007. This decrease was primarily attributable to reduced promotional markdowns, better product mix and increased volume through the Company’s distribution centers, which more than offset the deleveraging of fixed occupancy costs on the negative comparable store sales.

Selling and Administrative Expenses

Selling and administrative expenses increased $25.7 million, or 2.1%, to $1,251.5 million in fiscal 2008 from $1,225.8 million in fiscal 2007. As a percentage of sales, selling and administrative expenses increased to 24.4% in fiscal 2008 from 23.2% in fiscal 2007. Included in selling and administrative expenses in fiscal 2008 were an $11.7 million impairment charge for property and equipment, an $8.3 million charge for the settlement with the State of California regarding the collection of sales and use taxes on sales made by Barnes & Noble.com from 1999 to 2005, $4.1 million of severance related to the elimination of certain corporate office expenses and a $3.0 million charge related to a management resignation. Included in selling and administrative expenses in fiscal 2007 were legal costs of $11.1 million, and an impairment charge of $5.9 million, offset by a $6.4 million gain in insurance proceeds from the Hurricane Katrina settlement. Excluding these charges, selling and administrative expenses increased in fiscal 2008 as a percentage of sales to 23.9% from 23.0% in fiscal 2007. This increase was primarily due to the deleveraging of fixed expenses with the negative comparable store sales.

Depreciation and Amortization

Depreciation and amortization increased $5.0 million, or 2.9%, to $173.6 million in fiscal 2008 from $168.6 million in fiscal 2007. The increase was primarily due to the depreciation on additional capital expenditures for existing store maintenance, technology investments and new store openings, offset by $2.6 million of accelerated depreciation in fiscal 2007 related to an Internet distribution center closing.

Pre-Opening Expenses

Pre-opening expenses increased $2.4 million, or 23.2%, in fiscal 2008 to $12.8 million from $10.4 million in fiscal 2007. This was primarily the result of the timing of new store openings.

Operating Profit

The Company’s consolidated operating profit decreased $58.7 million, or 29.1%, to $143.3 million in fiscal 2008 from $202.0 million in fiscal 2007. This decrease in operating profit was primarily due to the negative comparable store sales, as well as the matters discussed above.

Interest Income (Expense), Net and Amortization of Deferred Financing Fees

Interest income (expense), net and amortization of deferred financing fees, decreased $9.8 million, or 131.3%, to ($2.3) million in fiscal 2008 from $7.5 million in fiscal 2007. The decrease was primarily due to the utilization of cash to buy back shares under the Company’s repurchase program during the first quarter of fiscal 2008, as well as the decline in operating profit discussed above.

F-9

Income Taxes

Income taxes were $55.6 million in fiscal 2008 compared with $74.6 million in fiscal 2007. The Company’s effective tax rate was 39.43% and 35.61% during fiscal 2008 and 2007, respectively. The provision for income taxes for fiscal 2007 included a tax benefit of $10.3 million resulting from previously unrecognized tax benefits for which the statute of limitations expired in fiscal 2007.

Earnings (Loss) from Discontinued Operations

During the fourth quarter of fiscal 2008, the Company committed to a plan to dispose of its approximate 74% interest in Calendar Club. The Company subsequently sold its interest in Calendar Club in February 2009 to Calendar Club and its chief executive officer for $7.0 million, which was comprised of $1.0 million in cash and $6.0 million in notes. Calendar Club qualified for held for sale accounting treatment in fiscal 2008 and was written down to its fair value. The Company recorded an after tax charge of $9.7 million related to the write down in fiscal 2008. The results of Calendar Club have been classified as discontinued operations in all periods presented.

Net Earnings

As a result of the factors discussed above, the Company reported consolidated net earnings of $75.9 million (or $1.32 per diluted share) during fiscal 2008 compared with consolidated net earnings of $135.8 million (or $2.03 per diluted share) during fiscal 2007.

52 Weeks Ended February 2, 2008 Compared with 53 Weeks Ended

February 3, 2007

Sales

The Company’s sales increased $147.0 million, or 2.9%, during fiscal 2007 to $5,286.7 million from $5,139.6 million during fiscal 2006. This increase was primarily attributable to a $114.5 million increase in sales at Barnes & Noble stores and a $43.4 million increase in Barnes & Noble.com sales, offset by a $17.5 million decrease in sales at B. Dalton stores.

Barnes & Noble store sales increased $114.5 million, or 2.5%, during fiscal 2007 to $4,648.4 million from $4,533.9 million during fiscal 2006 and accounted for 87.9% of total Company sales. The 2.5% increase in Barnes & Noble store sales was primarily attributable to new Barnes & Noble store sales of $159.9 million, coupled with a 1.8% increase in comparable store sales which increased sales by $76.1 million, offset by closed stores that decreased sales by $70.4 million and the inclusion of the 53^rd week in fiscal 2006 which accounted for $77.7 million of sales.

B. Dalton sales decreased $17.5 million, or 17.2%, during fiscal 2007 to $84.5 million from $102.0 million during fiscal 2006. This decrease was primarily attributable to the closing of 13 B. Dalton stores.

Barnes & Noble.com sales increased $43.4 million, or 10.0%, during fiscal 2007 to $476.9 million from $433.4 million during fiscal 2006. This increase was attributable to a 13.4% increase in comparable sales.

F-10

In fiscal 2007, the Company opened 31 Barnes & Noble stores and closed 13, bringing its total number of Barnes & Noble stores to 713 with 18.2 million square feet. The Company closed 13 B. Dalton stores, ending the period with 85 B. Dalton stores and 0.3 million square feet. As of February 2, 2008, the Company operated 798 stores in the fifty states and the District of Columbia.

Cost of Sales and Occupancy

The Company’s cost of sales and occupancy includes costs such as merchandise costs, distribution center costs (including payroll, freight, supplies, depreciation and other operating expenses), rental expense, common area maintenance and real estate taxes, partially offset by landlord tenant allowances amortized over the life of the lease.

Cost of sales and occupancy increased $145.7 million, or 4.1%, to $3,679.8 million in fiscal 2007 from $3,534.1 million in fiscal 2006. As a percentage of sales, cost of sales and occupancy increased to 69.6% in fiscal 2007 from 68.8% in fiscal 2006. This increase was primarily attributable to the impact of the new discount structure in the Company’s Member program, which went into effect in October 2006, and the deep discount on J.K. Rowling’s Harry Potter and the Deathly Hallows, offset by a favorable variance of $10.3 million related to the annual physical count of inventory.

Selling and Administrative Expenses

Selling and administrative expenses increased $47.8 million, or 4.1%, to $1,225.8 million in fiscal 2007 from $1,178.0 million in fiscal 2006. As a percentage of sales, selling and administrative expenses increased to 23.2% in fiscal 2007 from 22.9% in fiscal 2006. This increase was primarily due to legal costs offset by a gain in insurance proceeds from the Hurricane Katrina settlement.

Depreciation and Amortization

Depreciation and amortization increased $2.0 million, or 1.2%, to $168.6 million in fiscal 2007 from $166.6 million in fiscal 2006. The increase was primarily due to the accelerated depreciation related to the closing of the Company’s Internet distribution center and higher depreciation in the Company’s new distribution center, offset by lower depreciation in the Company’s home office due to certain assets that became fully depreciated.

Pre-Opening Expenses

Pre-opening expenses decreased $2.5 million, or 19.5%, in fiscal 2007 to $10.4 million from $12.9 million in fiscal 2006. The decrease in pre-opening expenses was primarily the result of the timing of new store openings.

Operating Profit

The Company’s consolidated operating profit decreased $46.0 million, or 18.5%, to $202.0 million in fiscal 2007 from $248.0 million in fiscal 2006. This decrease was primarily due to the matters discussed above.

F-11

Interest Income (Expense), Net and Amortization of Deferred Financing Fees

Interest income (expense), net and amortization of deferred financing fees, increased $5.8 million, or 345.4%, to $7.5 million in fiscal 2007 from $1.7 million in fiscal 2006. The increase was primarily due to higher average cash investments and lower average borrowings.

Income Taxes

Barnes & Noble’s effective tax rate in fiscal 2007 decreased to 35.61% compared with 40.25% during fiscal 2006. The provision for income taxes for fiscal 2007 included a tax benefit of $10.3 million resulting from previously unrecognized tax benefits for which the statute of limitations expired in fiscal 2007.

Earnings from Discontinued Operations

During the fourth quarter of fiscal 2008, the Company committed to a plan to dispose of its approximate 74% interest in Calendar Club. Calendar Club qualified for held for sale accounting treatment in fiscal 2008 and was written down to its fair value. The results of Calendar Club have been classified as discontinued operations in all periods presented.

Net Earnings

As a result of the factors discussed above, the Company reported consolidated net earnings of $135.8 million (or $2.03 per diluted share) during fiscal 2007 compared with consolidated net earnings of $150.5 million (or $2.17 per diluted share) during fiscal 2006.

Seasonality

The Company’s business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during the fourth quarter which includes the holiday selling season.

Liquidity and Capital Resources

Working capital requirements are generally at their highest in the Company’s fiscal quarter ending on or about January 31 due to the higher payments to vendors for holiday season merchandise purchases. In addition, the Company’s sales and merchandise inventory levels will fluctuate from quarter to quarter as a result of the number and timing of new store openings.

Cash and cash equivalents on hand, cash flows from operating activities, funds available under its senior credit facility and short-term vendor financing continue to provide the Company with liquidity and capital resources for store expansion, seasonal working capital requirements and capital investments.

Cash Flow

Cash flows provided from operating activities were $376.2 million, $429.0 million and $258.0 million during fiscal 2008, 2007 and 2006, respectively. The decrease in cash flows provided from operating activities in fiscal 2008 was primarily due to lower earnings as a result of negative comparable store sales. The increase in cash flows provided from operating activities in fiscal 2007 was due to timing of payments on inventory purchases, related principally to the impact of the 53^rd week in fiscal 2006.

F-12

Capital Structure

Strong cash flows from operations and a continued emphasis on working capital management strengthened the Company’s balance sheet in fiscal 2008.

The Company has an $850 million revolving credit facility dated as of June 17, 2005, as amended and restated on August 2, 2006 (Revolving Credit Facility). The Revolving Credit Facility has a maturity date of July 31, 2011 and may be increased to $1.0 billion under certain circumstances at the option of the Company. The Revolving Credit Facility has an applicable margin that is applied to loans and standby letters of credit ranging from 0.500% to 1.000% above the stated Eurodollar rate. A fee is paid on commercial letters of credit ranging from 0.2500% to 0.5000%. In addition, a commitment fee ranging from 0.100% to 0.200% is paid on the unused portion of the Revolving Credit Facility. In each case, the applicable rate is based on the Company’s consolidated fixed charge coverage ratio. Proceeds from the Revolving Credit Facility are used for general corporate purposes, including seasonal working capital needs.

Selected information related to the Company’s Revolving Credit Facility (in thousands):

Fiscal Year	2008			2007		2006
Revolving credit facility at year end	$	—		—		—
Average balance outstanding during the year	$	63,871		1,392		23,337
Maximum borrowings outstanding during the year	$	199,900		37,600		91,800
Weighted average interest rate during the year (a)		6.05	%	173.16	%	15.40	%
Interest rate at end of year		—		—		—

(a) The fiscal 2007 and 2006 interest rates are higher than the fiscal 2008 interest rate due to the lower average borrowings and the fixed nature of the amortization of the deferred financing fees and commitment fees. Excluding the deferred financing fees and the commitment fees in fiscal 2007 and 2006, the weighted average interest rate was 7.51% and 7.70%, respectively.

Fees expensed with respect to the unused portion of the Revolving Credit Facility were $1.0 million, $1.0 million and $1.3 million, during fiscal 2008, 2007 and 2006, respectively.

The Company has no agreements to maintain compensating balances.

Capital Investment

Capital expenditures for continuing operations were $192.2 million, $194.0 million and $176.0 million during fiscal 2008, 2007 and 2006, respectively. Capital expenditures planned for fiscal 2009 primarily relate to the opening of approximately 15 new Barnes & Noble stores, the maintenance of existing stores and system enhancements for the retail stores and the website. The capital expenditures are projected to be in the range of $120.0 million to $130.0 million for fiscal 2009, although commitment to many of such expenditures has not yet been made.

Based on planned operating levels and capital expenditures for fiscal 2009, management believes cash and cash equivalents on hand, cash flows generated from operating activities, short-term vendor financing and borrowing capacity under the Revolving Credit Facility will be sufficient to meet the Company’s working capital and debt service requirements, and support the development of its short- and long-term strategies for at least the next 12 months.

F-13

On September 15, 2005, the Company’s Board of Directors authorized a stock repurchase program for the purchase of up to $200.0 million of the Company’s common stock. The Company completed this $200.0 million repurchase program during the third quarter of fiscal 2007. On May 15, 2007, the Company announced that its Board of Directors authorized a new stock repurchase program for the purchase of up to $400.0 million of the Company’s common stock. The maximum dollar value of common stock that may yet be purchased under the current program is approximately $2.5 million as of January 31, 2009.

Stock repurchases under this program may be made through open market and privately negotiated transactions from time to time and in such amounts as management deems appropriate. As of January 31, 2009, the Company has repurchased 33,065,712 shares at a cost of approximately $1.0 billion under its stock repurchase programs. The repurchased shares are held in treasury.

Contractual Obligations

The following table sets forth the Company’s contractual obligations as of January 31, 2009 (in millions):

	Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Long-term debt	$	—	$	—	$	—	$	—	$	—
Capital lease obligations		—		—		—		—		—
Operating lease obligations (a)		1,961.8		362.7		611.6		421.3		566.2
Purchase obligations (b)		45.0		30.5		11.0		3.5		—
Other long-term liabilities reflected on the Company’s balance sheet under GAAP(c)		—		—		—		—		—
Total	$	2,006.8	$	393.2	$	622.6	$	424.8	$	566.2

(a) Excludes operating leases for Calendar Club of $11.3, $2.8, $4.7, $3.3 and $0.5 for total, less than 1 year, 1-3 years, 3-5 years and more than 5 years, respectively.

(b) Excludes purchase obligations for Calendar Club of $0.4, $0.2 and $0.1 for total, less than 1 year and 1-3 years, respectively.

(c) Excludes $23.8 million of unrecognized tax benefits for which the Company cannot make a reasonably reliable estimate of the amount and period of payment. See Note 9 to the Notes to Consolidated Financial Statements.

See also Note 8 to the Notes to Consolidated Financial Statements for information concerning the Company’s Pension and Postretirement Plans.

F-14

Off-Balance Sheet Arrangements

As of January 31, 2009, the Company had no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

Impact of Inflation

The Company does not believe that inflation has had a material effect on its net sales or results of operations.

Certain Relationships and Related Transactions

See Note 17 to the Notes to Consolidated Financial Statements.

Critical Accounting Policies

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

Merchandise Inventories

Merchandise inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out (FIFO) basis. The Company uses the retail inventory method on the FIFO basis for 97% and 98% of the Company’s merchandise inventories as of January 31, 2009 and February 2, 2008, respectively.

Market is determined based on the estimated net realizable value, which is generally the selling price. Reserves for non-returnable inventory are based on the Company’s history of liquidating non-returnable inventory.

The Company also estimates and accrues shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends.

Stock-Based Compensation

The calculation of share-based employee compensation expense involves estimates that require management’s judgment. These estimates include the fair value of each of the stock option awards granted, which is estimated on the date of grant using a Black-Scholes option pricing model. There are two significant inputs into the Black-Scholes option pricing model: expected volatility and expected

F-15

term. The Company estimates expected volatility based on traded option volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. See Note 3 to the Consolidated Financial Statements for a further discussion on stock-based compensation.

Other Long-Lived Assets

The Company’s other long-lived assets include property and equipment and amortizable intangibles. At January 31, 2009, the Company had $820.7 million of property and equipment, net of accumulated depreciation, and $13.6 million of amortizable intangible assets, net of accumulated amortization, accounting for approximately 27.9% of the Company’s total assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, the Company will first compare the carrying amount of the assets to the individual store’s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying amount of the assets, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the assets to the individual store’s fair value based on its estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value. Impairment losses included in selling and administrative expenses totaled $11.7 million, $5.9 million and $3.4 million in fiscal 2008, 2007 and 2006, respectively, and are related to individual store locations.

Goodwill and Unamortizable Intangible Assets

At January 31, 2009, the Company had $240.0 million of goodwill and $69.9 million of unamortizable intangible assets (those with an indefinite useful life), accounting for approximately 10.4% of the Company’s total assets. SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), requires that goodwill and other unamortizable intangible assets no longer be amortized, but instead be tested for impairment at least annually or earlier if there are impairment indicators. The Company performs a two-step process for impairment testing of goodwill as required by SFAS 142. The first step of this test, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount. The second step (if necessary) measures the amount of the impairment. The Company completed its annual impairment test on the goodwill in November 2008 and deemed that no impairment charge was necessary. The Company has noted no subsequent indicators of impairment. During the third quarter of fiscal 2007, the Company reevaluated the categorization of distribution contracts based on the then recently observed rate of contract retention and reclassified certain of these contracts having a recorded value of $8.3 million from an unamortizable intangible asset to an amortizable intangible asset. Such distribution contracts were tested for impairment prior to the

F-16

reclassification and the Company determined that no impairment charge was necessary. The Company also completed its annual impairment tests for its other unamortizable intangible assets by comparing the estimated fair value to the carrying value of such assets and determined that no impairment was necessary. Changes in market conditions, among other factors, could have a material impact on these estimates.

Gift Cards

The Company sells gift cards which can be used in stores or on Barnes & Noble.com. The Company does not charge administrative or dormancy fees on gift cards, and gift cards have no expiration dates. Upon the purchase of a gift card, a liability is established for its cash value. Revenue associated with gift cards is deferred until redemption of the gift card. Over time, some portion of the gift cards issued is not redeemed. The Company estimates the portion of the gift card liability for which the likelihood of redemption is remote based upon the Company’s historical redemption patterns. The Company records this amount in income on a straight-line basis over a 12-month period beginning in the 13th month after the month the gift card was originally sold. If actual redemption patterns vary from the Company’s estimates, actual gift card breakage may differ from the amounts recorded. The Company also sells online gift certificates for use solely on Barnes & Noble.com, which are treated the same way as gift cards.

Income Taxes

Judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, tax issues may arise where the ultimate outcome is uncertain. Additionally, the Company’s tax returns are subject to audit by various tax authorities. Consequently, changes in the Company’s estimates for contingent tax liabilities may materially impact the Company’s results of operations or financial position.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities. Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company adopted SFAS 157 at February 3, 2008, and the adoption had no impact on the Company’s financial position, results of operations and cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits an entity to measure certain financial assets and financial liabilities at fair value that were not previously required to be measured at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The Company has not elected to measure any financial assets and financial liabilities at fair value that were not previously required to be measured at fair value. Therefore, the adoption of this standard has had no impact on the Company’s financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified

F-17

as a component of equity within the consolidated balance sheets. SFAS 160 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited, and the Company does not expect SFAS 160 to have a material impact on its financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R significantly changes the accounting for business combinations in a number of areas, including the treatment of contingent consideration, preacquisition contingencies, transaction costs, in-process research and development and restructuring costs. In addition, under SFAS 141R, changes in an acquired entity’s deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. SFAS 141R is effective for fiscal years beginning after December 15, 2008. This standard will change the Company’s accounting treatment for business combinations, if any, on a prospective basis, including the treatment of any income tax adjustments related to past acquisitions. The Company is currently evaluating the effect, if any, that the adoption of SFAS 141R will have on its financial position, results of operations and cash flows.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP No. FAS 142-3), which amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful lives of recognized intangible assets. FSP No. FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the effect, if any, that the adoption of FSP No. FAS 142-3 will have on its financial position, results of operations and cash flows.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP No. EITF 03-6-1), which classifies unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities and requires them to be included in the computation of earnings per share pursuant to the two-class method described in SFAS No. 128, Earnings per Share. This Staff Position is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period earnings per share data presented are to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this Staff Position, with early application not permitted. The Company is currently evaluating the effect, if any, that the adoption of FSP No. EITF 03-6-1 will have on its financial position, results of operations and cash flows.

Disclosure Regarding Forward-Looking Statements

This report may contain certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and information relating to the Company that are based on the beliefs of the management of the Company as well as assumptions made by and information currently available to the management of the Company. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions, as they relate to the Company or the management of the Company, identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events, the outcome of which is subject to certain risks, including, among others, general economic and market conditions, decreased consumer demand for the Company’s products, possible disruptions in the Company’s computer or telephone systems, possible risks associated with data privacy and information security, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible disruptions or delays in the opening of new stores or

F-18

the inability to obtain suitable sites for new stores, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of the Company’s online and other initiatives such as Barnes & Noble.com, the performance and successful integration of acquired businesses, the success of the Company’s strategic investments, unanticipated increases in merchandise or occupancy costs, unanticipated adverse litigation results or effects, the results or effects of any governmental review of the Company’s stock option practices, product shortages, and other factors which may be outside of the Company’s control, including those factors discussed in detail in Item 1A, “Risk Factors,” in the Company’s Form 10-K for the fiscal year ended January 31, 2009, and in the Company’s other filings made from time to time with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Annual Report.

F-19

CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Year (In thousands, except per share data)	2008			2007	2006
Sales	$	5,121,804		5,286,674	5,139,618
Cost of sales and occupancy		3,540,596		3,679,845	3,534,097
Gross profit		1,581,208		1,606,829	1,605,521
Selling and administrative expenses		1,251,524		1,225,791	1,178,038
Depreciation and amortization		173,557		168,600	166,581
Pre-opening expenses		12,796		10,387	12,897
Operating profit		143,331		202,051	248,005
Interest income (expense), net and amortization of deferred financing fees		(2,344	)	7,483	1,680
Earnings from continuing operations before taxes and minority interest		140,987		209,534	249,685
Income taxes		55,591		74,623	100,499
Earnings from continuing operations before minority interest		85,396		134,911	149,186
Minority interest		30		—	—
Earnings from continuing operations		85,426		134,911	149,186
Earnings (loss) from discontinued operations (net of income tax)		(9,506	)	888	1,341
Net earnings	$	75,920		135,799	150,527
Basic earnings per common share
Earnings from continuing operations	$	1.55		2.12	2.29
Earnings (loss) from discontinued operations		(0.17	)	0.01	0.02
Net earnings	$	1.38		2.13	2.31
Diluted earnings per common share
Earnings from continuing operations	$	1.49		2.01	2.16
Earnings (loss) from discontinued operations		(0.17	)	0.01	0.02
Net earnings	$	1.32		2.03	2.17
Weighted average common shares outstanding
Basic		55,207		63,662	65,212
Diluted		57,327		67,050	69,226

See accompanying notes to consolidated financial statements.

F-20

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)	January 31, 2009			February 2, 2008
Assets
Current assets:
Cash and cash equivalents	$	281,608		335,080
Receivables, net		80,998		107,137
Merchandise inventories		1,203,471		1,358,170
Prepaid expenses and other current assets		127,028		125,043
Current assets of discontinued operations		30,199		40,251
Total current assets		1,723,304		1,965,681
Property and equipment:
Land and land improvements		9,298		3,247
Buildings and leasehold improvements		1,096,801		1,053,490
Fixtures and equipment		1,385,454		1,310,225
		2,491,553		2,366,962
Less accumulated depreciation and amortization		1,670,839		1,553,067
Net property and equipment		820,714		813,895
Goodwill		240,008		242,633
Intangible assets, net		83,443		87,987
Deferred taxes		110,098		102,633
Other noncurrent assets		8,000		8,372
Noncurrent assets of discontinued operations		8,321		28,625
Total assets	$	2,993,888		3,249,826
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	746,599		831,669
Accrued liabilities		710,269		725,054
Current liabilities of discontinued operations		18,807		33,444
Total current liabilities		1,475,675		1,590,167
Deferred taxes		189,268		173,496
Other long-term liabilities		393,006		397,674
Noncurrent liabilities of discontinued operations		12,713		13,769
Minority interest		1,612		—
Shareholders’ equity:
Common stock; $.001 par value; 300,000 shares authorized; 87,681 and 86,754 shares issued, respectively		88		87
Additional paid-in capital		1,262,358		1,233,343
Accumulated other comprehensive loss		(14,503	)	(9,523	)
Retained earnings		721,200		696,861
Treasury stock, at cost, 33,066 and 26,461 shares, respectively		(1,047,529	)	(846,048	)
Total shareholders’ equity		921,614		1,074,720
Commitments and contingencies		—		—
Total liabilities and shareholders’ equity	$	2,993,888		3,249,826

See accompanying notes to consolidated financial statements.

F-21

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Treasury Stock at Cost		Total
Balance at January 28, 2006	$	83	1,091,018		(9,085	)	512,594		(478,769	)	$	1,115,841
Comprehensive earnings:
Net earnings		—	—		—		150,527		—
Other comprehensive earnings (loss), net of tax (See Note 10):
Foreign currency translation		—	—		843		—		—
Minimum pension liability		—	—		1,156		—		—
Total comprehensive earnings												152,526
Exercise of 1,177 common stock options		2	19,733		—		—		—			19,735
Stock options and restricted stock tax benefits		—	12,551		—		—		—			12,551
Stock-based compensation expense		—	17,146		—		—		—			17,146
Cash dividends paid to stockholders		—	—		—		(39,910	)	—			(39,910	)
APB 25 cumulative adjustment (See Note 3)		—	28,719		—		(22,807	)	—			5,912
Treasury stock acquired, 2,830 shares		—	—		—		—		(118,936	)		(118,936	)
Balance at February 3, 2007		85	1,169,167		(7,086	)	600,404		(597,705	)		1,164,865
Comprehensive earnings:
Net earnings		—	—		—		135,799		—
Other comprehensive earnings (loss), net of tax (See Note 10):
Foreign currency translation		—	—		73		—		—
Minimum pension liability		—	—		(2,510	)	—		—
Total comprehensive earnings												133,362
Exercise of 1,852 common stock options		2	31,216		—		—		—			31,218
Stock options and restricted stock tax benefits		—	15,792		—		—		—			15,792
Stock-based compensation expense		—	17,168		—		—		—			17,168
Cash dividends paid to stockholders		—	—		—		(39,342	)	—			(39,342	)
Treasury stock acquired, 6,941 shares		—	—		—		—		(248,343	)		(248,343	)
Balance at February 2, 2008		87	1,233,343		(9,523	)	696,861		(846,048	)		1,074,720
Comprehensive earnings:
Net earnings		—	—		—		75,920		—
Other comprehensive earnings (loss), net of tax (See Note 10):
Foreign currency translation		—	—		(3,352	)	—		—
Minimum pension liability		—	—		(1,628	)	—		—
Total comprehensive earnings												70,940
Exercise of 488 common stock options		1	9,661		—		—		—			9,662
Stock options and restricted stock tax benefits		—	(1,195	)	—		—		—			(1,195	)
Stock-based compensation expense		—	20,549		—		—		—			20,549
Cash dividends paid to stockholders		—	—		—		(51,581	)	—			(51,581	)
Treasury stock acquired, 6,604 shares		—	—		—		—		(201,481	)		(201,481	)
Balance at January 31, 2009	$	88	1,262,358		(14,503	)	721,200		(1,047,529	)	$	921,614

See accompanying notes to consolidated financial statements.

F-22

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Year (In thousands)	2008			2007		2006
Cash flows from operating activities:
Net earnings	$	75,920		135,799		150,527
Net earnings (loss) from discontinued operations		(9,506	)	888		1,341
Net earnings from continuing operations		85,426		134,911		149,186
Adjustments to reconcile net earnings from continuing operations to net cash flows from operating activities:
Depreciation and amortization (including amortization of deferred financing fees)		174,104		169,145		167,098
Stock-based compensation expense		20,549		17,168		17,146
Property and equipment impairment charge		11,715		5,876		3,411
Deferred taxes		(430	)	11,593		1,368
Decrease (increase) in other long-term liabilities		7,590		(2,858	)	(2,048	)
Loss on disposal of property and equipment		4,625		2,927		1,391
Minority interest		(30	)	—		—
Changes in operating assets and liabilities, net		72,700		90,251		(79,577	)
Net cash flows from operating activities		376,249		429,013		257,975
Cash flows from investing activities:
Purchases of property and equipment		(192,153	)	(193,958	)	(176,040	)
Net increase in other noncurrent assets		(723	)	(523	)	(583	)
Insurance proceeds from property claims		—		4,666		—
Payments on GameStop note receivable		—		12,173		12,173
Net cash flows from investing activities		(192,876	)	(177,642	)	(164,450	)
Cash flows from financing activities:
Purchase of treasury stock through repurchase program		(201,481	)	(248,343	)	(118,936	)
Cash dividends paid to shareholders		(51,581	)	(39,342	)	(39,910	)
Proceeds from exercise of common stock options		9,662		31,218		19,735
Excess tax benefit from stock-based compensation		869		15,792		12,551
Net cash flows from financing activities		(242,531	)	(240,675	)	(126,560	)
Cash flows from discontinued operations
Operating cash flows		7,242		4,880		4,476
Investing cash flows		(738	)	(2,849	)	(2,834	)
Financing cash flows		(818	)	(1,162	)	(1,228	)
Net cash flows from discontinued operations		5,686		869		414
Net increase (decrease) in cash and cash equivalents		(53,472	)	11,565		(32,621	)
Cash and cash equivalents at beginning of year		335,080		323,515		356,136
Cash and cash equivalents at end of year	$	281,608		335,080		323,515
Changes in operating assets and liabilities, net:
Receivables, net	$	13,881		3,037		6,027
Merchandise inventories		154,699		(12,436	)	(39,159	)
Prepaid expenses and other current assets		(1,985	)	(4,425	)	(31,641	)
Accounts payable and accrued liabilities		(93,895	)	104,075		(14,804	)
Changes in operating assets and liabilities, net	$	72,700		90,251		(79,577	)
Supplemental cash flow information:
Cash paid (received) during the period for:
Interest paid (received)	$	1,812		(8,251	)	(1,040	)
Income taxes (net of refunds)	$	50,383		60,716		85,898

See accompanying notes to consolidated financial statements.

F-23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except per share data)

For the 52 weeks ended January 31, 2009 (fiscal 2008), the 52 weeks ended February 2, 2008 (fiscal 2007) and the 53 weeks ended February 3, 2007 (fiscal 2006).

1. Summary of Significant Accounting Policies

Business

Barnes & Noble, Inc. (Barnes & Noble), through its subsidiaries (collectively, the Company), is primarily engaged in the sale of books. As of January 31, 2009, the Company operated 778 bookstores, 726 primarily under the Barnes & Noble Booksellers trade name (hereafter collectively referred to as Barnes & Noble stores) and 52 primarily under the B. Dalton Bookseller trade name (hereafter collectively referred to as B. Dalton stores). Barnes & Noble conducts the online part of its business through barnesandnoble.com llc (Barnes & Noble.com). The Company publishes books under its own imprints which include the imprints of Sterling Publishing Co., Inc. (Sterling or Sterling Publishing). Additionally, as of January 31, 2009, the Company owned an approximate 74% interest in Calendar Club, an operator of seasonal kiosks. The Company subsequently sold its interest in Calendar Club in February 2009. The results of Calendar Club have been classified as discontinued operations in all periods presented.

Consolidation

The consolidated financial statements include the accounts of Barnes & Noble and its wholly and majority-owned subsidiaries. Investments in affiliates in which ownership interests range from 20% to 50%, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company consolidates a variable interest entity in which the Company absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership.

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

Merchandise Inventories

Merchandise inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out (FIFO) basis. The Company uses the retail inventory method on the FIFO basis for 97% and 98% of the Company’s merchandise inventories as of January 31, 2009 and February 2, 2008, respectively.

F-24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Market is determined based on the estimated net realizable value, which is generally the selling price. Reserves for non-returnable inventory are based on the Company’s history of liquidating non-returnable inventory.

The Company also estimates and accrues shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends.

Property and Equipment

Property and equipment are carried at cost, less accumulated depreciation and amortization. For financial reporting purposes, depreciation is computed using the straight-line method over estimated useful lives. For tax purposes, different methods are used. Maintenance and repairs are expensed as incurred, while major maintenance and remodeling costs are capitalized. Leasehold improvements are capitalized and amortized over the shorter of their estimated useful lives or the terms of the respective leases. Capitalized lease acquisition costs are being amortized over the lease terms of the underlying leases. Costs incurred in purchasing management information systems are capitalized and included in property and equipment. These costs are amortized over their estimated useful lives from the date the systems become operational.

Other Long-Lived Assets

The Company’s other long-lived assets include property and equipment, and amortizable intangibles. At January 31, 2009, the Company had $820,714 of property and equipment, net of accumulated depreciation, and $13,563 of amortizable intangible assets, net of accumulated amortization, accounting for approximately 27.9% of the Company’s total assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, the Company will first compare the carrying amount of the assets to the individual store’s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying amount of the assets, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the assets to the individual store’s fair value based on its estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value. Impairment losses included in selling and administrative expenses totaled $11,715, $5,876 and $3,411 in fiscal 2008, 2007 and 2006, respectively, and relate to individual store locations.

Goodwill and Unamortizable Intangible Assets

The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance sheets.

At January 31, 2009, the Company had $240,008 of goodwill and $69,880 of unamortizable intangible assets (i.e., those with an indefinite useful life), accounting for approximately 10.4% of the Company’s total assets. SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), requires that goodwill and other unamortizable intangible assets no longer be amortized, but instead be tested for impairment at least annually or earlier if there are impairment indicators. The Company performs a two-

F-25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

step process for impairment testing of goodwill as required by SFAS 142. The first step of this test, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount. The second step (if necessary) measures the amount of the impairment. The Company completed its annual impairment test on the goodwill in November 2008 and determined that no impairment charge was necessary. The Company has noted no subsequent indicators of impairment. During the third quarter of fiscal 2007, the Company reevaluated the categorization of distribution contracts based on the then recently observed rate of contract retention and reclassified certain of these contracts having a recorded value of $8,325 from an unamortizable intangible asset to an amortizable intangible asset. Such distribution contracts were tested for impairment prior to the reclassification and the Company determined that no impairment charge was necessary. The Company also completed its annual impairment tests for its other unamortizable intangible assets by comparing the estimated fair value to the carrying value of such assets and determined that no impairment was necessary. Changes in market conditions, among other factors, could have a material impact on these estimates.

Deferred Charges

Costs incurred to obtain long-term financing are amortized over the terms of the respective debt agreements using the straight-line method, which approximates the interest method. Unamortized costs included in other noncurrent assets as of January 31, 2009 and February 2, 2008 were $1,208 and $1,677, respectively. Amortization expense included in interest and amortization of deferred financing fees was $547, $546 and $517 during fiscal 2008, 2007 and 2006, respectively.

Revenue Recognition

Revenue from sales of the Company’s products is recognized at the time of sale. Sales returns (which are not significant) are recognized at the time returns are made. Sales taxes collected from retail customers are excluded from reported revenues.

The Barnes & Noble Member Program entitles Members to receive the following benefits: 40% discount of each week’s hardcover Barnes & Noble store bestsellers, 20% discount of all adult hardcover books, 10% discount on all other purchases made, as well as periodic special promotions. The annual fee of $25.00 is non-refundable after the first 30 days. Revenue is recognized over the twelve-month period based upon historical spending patterns for Barnes & Noble Members. Refunds of fees due to cancellations within the first 30 days are minimal.

Advertising Costs

The costs of advertising are expensed as incurred during the year pursuant to Statement of Position 93-7, Reporting on Advertising Costs. Advertising costs charged to selling and administrative expenses were $28,772, $27,158 and $27,335 during fiscal 2008, 2007 and 2006, respectively.

The Company receives payments and credits from vendors pursuant to co-operative advertising and other programs, including payments for product placement in stores, catalogs and online. In accordance with Emerging Issues Task Force Issue 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, the Company classifies certain co-op advertising received as a reduction in costs of sales and occupancy. The gross advertising expenses noted above were completely offset by allowances received from vendors and the excess allowances received were recorded as a reduction of cost of goods sold or inventory, as appropriate.

F-26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Closed Store Expenses

When the Company closes or relocates a store, the Company charges unrecoverable costs to expense. Such costs include the net book value of abandoned fixtures and leasehold improvements and, when a store is closed prior to the expiration of the lease, a provision for future lease obligations, net of expected sublease recoveries. Costs associated with store closings of $11,875, $9,378 and $7,425 during fiscal 2008, 2007 and 2006, respectively, are included in selling and administrative expenses in the accompanying consolidated statements of operations.

Net Earnings Per Common Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of the Company’s outstanding stock options, common shares released from restriction upon the vesting of the Company’s outstanding restricted stock and the impact of common shares issuable under the Company’s deferred compensation plan. The Company has not excluded any shares from the computation of diluted earnings per share.

Income Taxes

The provision for income taxes includes federal, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. The deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance, if determined to be necessary.

Stock-Based Compensation

The calculation of share-based employee compensation expense involves estimates that require management’s judgment. These estimates include the fair value of each of the stock option awards granted, which is estimated on the date of grant using a Black-Scholes option pricing model. There are two significant inputs into the Black-Scholes option pricing model: expected volatility and expected term. The Company estimates expected volatility based on traded option volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. See Note 3 to the Consolidated Financial Statements for a further discussion on stock-based compensation.

F-27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Gift Cards

The Company sells gift cards which can be used in stores or on Barnes & Noble.com. The Company does not charge administrative or dormancy fees on gift cards, and gift cards have no expiration date. Upon the purchase of a gift card, a liability is established for its cash value. Revenue associated with gift cards is deferred until redemption of the gift card. Over time, some portion of the gift cards is not redeemed. The Company estimates the portion of the gift card liability for which the likelihood of redemption is remote based upon the Company’s historical redemption patterns. The Company records this amount in income on a straight-line basis over a 12-month period beginning in the 13th month after the month the gift card was originally sold. If actual redemption patterns vary from the Company’s estimates, actual gift card breakage may differ from the amounts recorded. The Company also sells online gift certificates for use solely on Barnes & Noble.com, which are treated the same way as gift cards.

Reclassifications

Certain prior-period amounts have been reclassified for comparative purposes to conform with the fiscal 2008 presentation.

Reporting Period

The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of January. The reporting periods ended January 31, 2009, February 2, 2008 and February 3, 2007 contained 52 weeks, 52 weeks and 53 weeks, respectively.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities. Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company adopted SFAS 157 at February 3, 2008, and the adoption had no impact on the Company’s financial position, results of operations and cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits an entity to measure certain financial assets and financial liabilities at fair value that were not previously required to be measured at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The Company has not elected to measure any financial assets and financial liabilities at fair value that were not previously required to be measured at fair value. Therefore, the adoption of this standard has had no impact on the Company’s financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. SFAS 160 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited and the Company does not expect SFAS 160 to have a material impact on its financial position, results of operations and cash flows.

F-28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R significantly changes the accounting for business combinations in a number of areas, including the treatment of contingent consideration, preacquisition contingencies, transaction costs, in-process research and development and restructuring costs. In addition, under SFAS 141R, changes in an acquired entity’s deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. SFAS 141R is effective for fiscal years beginning after December 15, 2008. This standard will change the Company’s accounting treatment for business combinations, if any, on a prospective basis, including the treatment of any income tax adjustments related to past acquisitions. The Company is currently evaluating the effect, if any, that the adoption of SFAS 141R will have on its financial position, results of operations and cash flows.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP No. FAS 142-3), which amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful lives of recognized intangible assets. FSP No. FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the effect, if any, that the adoption of FSP No. FAS 142-3 will have on its financial position, results of operations and cash flows.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP No. EITF 03-6-1), which classifies unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities and requires them to be included in the computation of earnings per share pursuant to the two-class method described in SFAS No. 128, Earnings per Share. This Staff Position is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period earnings per share data presented are to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this Staff Position, with early application not permitted. The Company is currently evaluating the effect, if any, that the adoption of FSP No. EITF 03-6-1 will have on its financial position, results of operations and cash flows.

F-29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. Discontinued Operations

During the fourth quarter of fiscal 2008, the Company committed to a plan to dispose of its approximate 74% interest in Calendar Club. The Company subsequently sold its interest in Calendar Club in February 2009 to Calendar Club and its chief executive officer for $7,000, which was comprised of $1,000 in cash and $6,000 in notes. Calendar Club qualified for held for sale accounting treatment in fiscal 2008 and was written down to its fair value. The Company recorded a charge of $18,655 ($9,675 after tax) related to the write down in fiscal 2008. The results of Calendar Club have been classified as discontinued operations in all periods presented.

The operations of Calendar Club have been segregated from continuing operations and are reflected as discontinued operations in each period’s consolidated statement of operations as follows:

Fiscal Year	2008			2007	2006
Sales	$	113,539		124,154	121,636
Earnings (loss) from discontinued operations, net of tax	$	(9,506	)	888	1,341
Diluted earnings (loss) per common share from discontinued operations, net of tax	$	(0.17	)	0.01	0.02

Fiscal Year	January 31, 2009		February 2, 2008
Cash and cash equivalents	$	23,370	25,967
Receivables, net		760	5,061
Merchandise inventories		5,569	8,689
Prepaid expenses and other current assets		500	534
Current assets of discontinued operations		30,199	40,251
Net property and equipment		3,813	10,739
Goodwill		—	12,656
Other noncurrent assets		4,508	5,230
Noncurrent assets of discontinued operations		8,321	28,625
Accounts payable		16,028	23,002
Accrued liabilities		2,779	10,442
Current liabilities of discontinued operations		18,807	33,444
Noncurrent liabilities of discontinued operations		12,713	13,769
Net assets of discontinued operations	$	7,000	21,663

3. Stock-Based Compensation

The Company has share-based awards outstanding under its 1996 Incentive Plan (the 1996 Plan) and its 2004 Incentive Plan (the 2004 Plan). Stock options granted and outstanding under each of the plans generally begin vesting in one year in 33-1/3% or 25% increments per year, expire 10 years from issuance and are conditioned upon continued employment during the vesting period.

F-30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

The 2004 Plan allows the Company to grant options to purchase up to 8,376,562 shares of common stock. Restricted stock awards are counted against this limit as two shares for every one share granted.

A restricted stock award is an award of common shares that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of nonvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. Restricted stock awards vest over a period of one to five years. The Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’s common stock on the grant date.

The Company uses the Black-Scholes option-pricing model to value the Company’s stock options for each stock option award. Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company’s stock option awards, which are generally subject to pro-rata vesting annually over four years, is expensed on a straight-line basis over the vesting period of the stock options. The expected volatility assumption is based on traded options volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The expected term assumption incorporates the contractual term of an option grant, which is ten years, as well as the vesting period of an award, which is generally pro-rata vesting annually over four years. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the option granted.

The Company recognizes stock-based compensation costs, net of estimated forfeitures, for only those shares expected to vest on a straight-line basis over the requisite service period of the award. The Company estimated the forfeiture rates for fiscal 2008, 2007 and 2006 based on its historical experience.

The weighted average assumptions relating to the valuation of the Company’s stock options for fiscal years 2008, 2007 and 2006 were as follows:

Fiscal Year	2008			2007			2006
Weighted average fair value of grants	$	7.52		$	11.61		$	11.10
Volatility		65.36	%		28.00	%		30.22	%
Risk-free interest rate		1.43	%		4.59	%		4.91	%
Expected life		.94 years			5 years			5 years
Expected dividend yield		3.54	%		1.47	%		1.63	%

F-31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Stock-Based Compensation Activity

The following table presents a summary of the Company’s stock options activity:

	Number of Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Balance, January 28, 2006	9,769			18.62	6.61 years	$	224,067
Granted	45			36.94
Exercised	(1,177	)		16.90
Forfeited	(132	)		17.55
Balance, February 3, 2007	8,505			18.97	5.64 years	$	182,557
Granted	20			40.70
Exercised	(1,852	)		16.84
Forfeited	(91	)		22.58
Balance, February 2, 2008	6,582			20.19	4.98 years	$	91,597
Granted	289			23.19
Exercised	(488	)		19.79
Forfeited	(416	)		23.88
Balance, January 31, 2009	5,967		$	20.11	4.03 years	$	3,557
Vested and expected to vest in the future at January 31, 2009	5,967		$	20.11	4.03 years	$	3,557
Exercisable at January 31, 2009	5,883		$	19.90	4.00 years	$	3,557
Available for grant at January 31, 2009	1,832

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the related fiscal year and the exercise price, multiplied by the related in-the-money options) that would have been received by the option holders had they exercised their options at the end of the fiscal year. This amount changes based on the market value of the Company’s common stock. The amount as of February 3, 2007 has been reduced by $2,643 due to the increase in price of certain options resulting from the stock option review discussed below. Total intrinsic value of options exercised for fiscal 2008, 2007 and 2006 (based on the difference between the Company’s stock price on the exercise date and the respective exercise price, multiplied by the number of options exercised) was $3,997, $43,649 and $30,029, respectively.

As of January 31, 2009, there was $248 of total unrecognized compensation expense related to unvested stock options granted under the Company’s share-based compensation plans. That expense is expected to be recognized over a weighted average period of 0.2 years.

F-32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

The following table presents a summary of the Company’s restricted stock activity:

	Number of Shares (in thousands)		Weighted Average Grant Date Fair Value
Balance, January 28, 2006	452		$	33.60
Granted	479			45.85
Vested	(124	)		33.52
Forfeited	(40	)		38.94
Balance, February 3, 2007	767			40.97
Granted	539			40.01
Vested	(236	)		39.83
Forfeited	(44	)		40.87
Balance, February 2, 2008	1,026			40.74
Granted	991			28.27
Vested	(431	)		39.27
Forfeited	(135	)		31.13
Balance, January 31, 2009	1,451		$	33.55

Total fair value of shares of restricted stock that vested during fiscal 2008, 2007 and 2006 was $12,108, $9,108 and $5,666, respectively. As of January 31, 2009, there was $37,111 of unrecognized stock-based compensation expense related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted average period of 2.8 years.

For fiscal 2008, 2007 and 2006, stock-based compensation expense of $20,549, $17,168 and $17,146, respectively, is included in selling and administrative expenses.

Stock Option Review

In July 2006, the Company created a Special Committee of the Board of Directors, consisting of Patricia Higgins, to review all of the stock option grants by the Company and the Company’s wholly-owned subsidiary, Barnes & Noble.com, during the period from 1996 through 2006 and engaged independent outside counsel and an independent forensic auditor to assist in this matter. On April 2, 2007, the Special Committee presented its findings and recommendations to the Company’s Board of Directors, as reported in the Company’s Form 8-K filed April 4, 2007. The Special Committee indicated that the Committee and its advisors received the Company’s full cooperation throughout its investigation.

Among other findings, the Special Committee determined that there were numerous instances of stock option grants for which there was an improper measurement of compensation expense under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Although the Special Committee determined that there were instances of stock options having been dated using favorable dates that were selected with the benefit of hindsight and that serious mistakes were made, the Special Committee did not find any intent to defraud or fraudulent misconduct by any individual or group of individuals. The Special Committee found that the Company’s dating and pricing practice for stock options was applied uniformly by Company personnel to stock options granted and was not used selectively to benefit any one group or individual within the Company. The Company has evaluated these findings and agrees with the Special Committee. The Company has concluded, however,

F-33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

that the charges are not material to the financial statements in any of the periods to which such charges relate and therefore will not restate its historic financial statements. The Company recorded an adjustment of $411 ($246 after tax) to increase non-cash compensation expense in the fourth quarter of fiscal 2006 to correctly present compensation expense for fiscal 2006. In accordance with Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company also recorded an adjustment to decrease retained earnings by $22,807, increase deferred taxes by $5,911 and increase additional paid-in capital by $28,719, to correct the consolidated balance sheet for the cumulative impact of the misstated compensation cost in periods prior to fiscal 2006.

In December 2006, the Board members and all Section 16 officers holding options unvested as of December 31, 2004 voluntarily agreed to reprice such options, upon a finding by the Special Committee that such options were improperly priced, to an exercise price determined to be the appropriate fair market value by the Special Committee. The Special Committee recommended that all incorrectly dated and unexercised stock options issued to Section 16 officers and directors of the Company, other than hiring grants, be re-priced to reflect the greater of the original grant price or the price appropriate to the measurement date as determined by the Special Committee. The Board members and Section 16 officers did not receive any cash payments to compensate them for their voluntary agreements to reprice such options. The total difference in exercise price as a result of the re-pricing of these unexercised options was approximately $2,643.

Consistent with the Special Committee’s recommendation that all incorrectly dated and unexercised options issued to Section 16 officers be re-priced, the Section 16 officers voluntarily agreed to repay to the Company for options granted while they were Section 16 officers an amount equal to the difference in the price at which the stock options were exercised and the price at which the Special Committee believes the stock options should have been priced, net of any allocable portion of income taxes paid in connection with such exercise. The total amount voluntarily repaid to the Company by Section 16 officers was approximately $1,981, prior to any allocable portion of income taxes paid in connection with such exercise, which was recorded as an increase to additional paid in capital upon receipt.

Incorrectly dated options that vested after December 31, 2004 and were exercised in 2006 were subject to penalty taxes under Section 409A of the Internal Revenue Code. The Company reimbursed Section 16 officers who voluntarily repaid the Company and were subject to these penalty taxes. The Board approved payment to such executives who were subject to Section 409A taxes in connection with exercised options in an amount equal to the cost of the Section 409A penalty tax, any interest or penalties, plus an amount to offset the associated income tax consequences of the reimbursement payments. In reaching this decision, the Board took into consideration, among other factors, the fact that the applicable taxes under Section 409A far exceeded the amount of any possible enrichment to such officers as a result of improper grant dating and the agreement by such officers to repay the amount of any enrichment as a result of the improper dating. The aggregate payments to such officers, including the gross-up amounts, were $1,194.

Additionally, the Company made payments on behalf of option holders who were not Section 16 officers, for any Section 409A tax liability due to the exercise of incorrectly dated options in 2006. These payments, including gross-up payments, were $1,216.

The Company implemented a program for employees who were not Section 16 officers to amend incorrectly dated options that vested after December 31, 2004 so as to increase the exercise price to the trading price on the correct measurement date determined by the Special Committee. In addition, the

F-34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Company paid such employees whose options were repriced cash bonuses in the amount of the difference. The aggregate amount paid by the Company as cash bonuses under this program was $1,389, which was paid in January 2008 to comply with applicable tax laws.

4. Receivables, Net

Receivables represent customer, credit/debit card, advertising, landlord and other receivables due within one year as follows:

	January 31, 2009		February 2, 2008
Credit/debit card receivables (a)	$	36,311	35,878
Trade accounts		15,429	18,511
Advertising		13,842	11,616
Receivables from landlords for leasehold improvements		10,576	33,281
Other receivables		4,840	7,851
Total receivables, net	$	80,998	107,137

(a) Credit/debit card receivables consist of receivables from credit/debit card companies. The Company assumes no customer credit risk for these receivables.

5. Debt

The Company has an $850,000 revolving credit facility dated as of June 17, 2005, as amended and restated on August 2, 2006 (Revolving Credit Facility). The Revolving Credit Facility has a maturity date of July 31, 2011 and may be increased to $1,000,000 under certain circumstances at the option of the Company. The Revolving Credit Facility has an applicable margin that is applied to loans and standby letters of credit ranging from 0.500% to 1.000% above the stated Eurodollar rate. A fee is paid on commercial letters of credit ranging from 0.2500% to 0.5000%. In addition, a commitment fee ranging from 0.100% to 0.200% is paid on the unused portion of the Revolving Credit Facility. In each case, the applicable rate is based on the Company’s consolidated fixed charge coverage ratio. Proceeds from the Revolving Credit Facility are used for general corporate purposes, including seasonal working capital needs.

Selected information related to the Company’s Revolving Credit Facility:

Fiscal Year	2008			2007		2006
Revolving credit facility at year end	$	—		—		—
Average balance outstanding during the year	$	63,871		1,392		23,337
Maximum borrowings outstanding during the year	$	199,900		37,600		91,800
Weighted average interest rate during the year (a)		6.05	%	173.16	%	15.40	%
Interest rate at end of year		—		—		—

(a) The fiscal 2007 and 2006 interest rates are higher than the fiscal 2008 interest rate due to the lower average borrowings and the fixed nature of the amortization of the deferred financing fees and commitment fees. Excluding the deferred financing fees and the commitment fees in fiscal 2007 and 2006, the weighted average interest rate was 7.51% and 7.70%, respectively.

Fees expensed with respect to the unused portion of the Revolving Credit Facility were $956, $1,034 and $1,275, during fiscal 2008, 2007 and 2006, respectively.

F-35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

The Company has no agreements to maintain compensating balances.

6. Fair Values of Financial Instruments

The carrying values of cash and cash equivalents reported in the accompanying consolidated balance sheets approximate fair value due to the short-term maturities of these assets. The aggregate fair value of the Revolving Credit Facility approximates its carrying amount because of its recent and frequent repricing based upon market conditions.

7. Net Earnings Per Share

Following is a reconciliation of earnings from continuing operations and weighted average common shares outstanding for purposes of calculating basic and diluted earnings per share:

Fiscal Year	2008		2007	2006
Numerator:
Earnings from continuing operations	$	85,426	134,911	149,186
Denominator:
Basic weighted average common shares outstanding		55,207	63,662	65,212
Dilutive effect of stock awards		2,120	3,388	4,014
Diluted outstanding shares		57,327	67,050	69,226
Earnings from continuing operations
Basic	$	1.55	2.12	2.29
Diluted	$	1.49	2.01	2.16

8. Employees’ Retirement and Defined Contribution Plans

As of December 31, 1999, substantially all employees of the Company were covered under a noncontributory defined benefit pension plan (the Pension Plan). As of January 1, 2000, the Pension Plan was amended so that employees no longer earn benefits for subsequent service. Effective December 31, 2004, the Barnes & Noble.com Employees’ Retirement Plan (the B&N.com Retirement Plan) was merged with the Pension Plan. Substantially all employees of Barnes & Noble.com were covered under the B&N.com Retirement Plan. As of July 1, 2000, the B&N.com Retirement Plan was amended so that employees no longer earn benefits for subsequent service. Subsequent service continues to be the basis for vesting of benefits not yet vested at December 31, 1999 and June 30, 2000 for the Pension Plan and the B&N.com Retirement Plan, respectively, and the Pension Plan will continue to hold assets and pay benefits. The actuarial assumptions used to calculate pension costs are reviewed annually. Pension expense was $1,301, $576 and $645 for fiscal 2008, 2007 and 2006, respectively.

F-36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

The Company maintains a defined contribution plan (the Savings Plan) for the benefit of substantially all employees. Total Company contributions charged to employee benefit expenses for the Savings Plan were $11,645, $10,699 and $10,243 during fiscal 2008, 2007 and 2006, respectively. In addition, the Company provides certain health care and life insurance benefits (the Postretirement Plan) to retired employees, limited to those receiving benefits or retired as of April 1, 1993. Total Company contributions charged to employee benefit expenses for the Postretirement Plan were $210, $199 and $183 during fiscal 2008, 2007 and 2006, respectively.

9. Income Taxes

The Company files a consolidated federal return with all subsidiaries owned 80% or more. Federal and state income tax provisions (benefits) for fiscal 2008, 2007 and 2006 are as follows:

Fiscal Year	2008			2007	2006
Current:
Federal	$	44,038		50,325	83,377
State		11,983		12,705	15,754
Total current		56,021		63,030	99,131
Deferred:
Federal		2,540		10,687	703
State		(2,970	)	906	665
Total deferred		(430	)	11,593	1,368
Total	$	55,591		74,623	100,499

F-37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Reconciliation between the effective income tax rate and the federal statutory income tax rate is as follows:

Fiscal Year	2008		2007		2006
Federal statutory income tax rate	35.00	%	35.00	%	35.00	%
State income taxes, net of federal income tax benefit	4.31		4.20		4.26
Expiration of statute of limitations	(0.23	)	(4.90	)	—
Other, net	0.35		1.31		0.99
Effective income tax rate	39.43	%	35.61	%	40.25	%

The tax effects of temporary differences that give rise to significant components of the Company’s deferred tax assets and liabilities as of January 31, 2009 and February 2, 2008 are as follows:

	January 31, 2009			February 2, 2008
Deferred tax liabilities:
Investment in Barnes & Noble.com	$	(94,843	)	(94,784	)
Depreciation		(63,224	)	(47,201	)
Goodwill and intangible asset amortization		(29,703	)	(25,454	)
Prepaid expenses		(5,927	)	(5,945	)
Other		(1,499	)	(6,057	)
Total deferred tax liabilities		(195,196	)	(179,441	)
Deferred tax assets:
Loss carryover		42,907		43,948
Lease transactions		41,285		35,745
Estimated accruals		41,098		30,145
Stock-based compensation		14,375		13,343
Insurance liability		9,697		9,541
Pension		9,400		7,471
Inventory		7,584		7,978
Investments in equity securities		2,132		2,126
Total deferred tax assets		168,478		150,297
Net deferred tax liabilities	$	(26,718	)	(29,144	)
Balance Sheet caption reported in:
Prepaid expenses and other current assets	$	58,380		47,664
Deferred taxes (assets)		110,098		102,633
Accrued liabilities		(5,928	)	(5,945	)
Deferred taxes (liabilities)		(189,268	)	(173,496	)
Net deferred tax liabilities	$	(26,718	)	(29,144	)

F-38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

At January 31, 2009, the Company had federal and state net operating loss carryforwards (NOLs) of approximately $93,000 that expire beginning in 2018 through 2022, the utilization of which is limited to approximately $6,700 on an annual basis. These NOLs account for $36,722 of the $42,907 of loss carryover deferred tax assets at January 31, 2009, with the remainder relating primarily to other state NOLs.

In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertain income tax positions that are recognized in a company’s financial statements in accordance with the provisions of FASB Statement No. 109, Accounting for Income Taxes (SFAS 109). FIN 48 also provides guidance on the derecognition of uncertain positions, financial statement classification, accounting for interest and penalties, accounting for interim periods and new disclosure requirements. FIN 48 is effective for fiscal years beginning after December 15, 2006.

The Company adopted FIN 48 as of February 4, 2007. The adoption of FIN 48 did not result in any adjustments to the Company’s reserves for uncertain tax positions.

As of January 31, 2009, the Company had $23,833 of unrecognized tax benefits, all of which, if recognized, would affect the Company’s effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal 2007 and fiscal 2008 is as follows:

Balance at February 3, 2007	$	23,155
Additions for tax positions of the current period		853
Additions for tax positions of prior periods		7,022
Expiration of statute of limitations		(10,294	)
Settlements paid during the current period		(1,303	)
Other reductions for tax positions of prior periods		(487	)
Balance at February 2, 2008	$	18,946
Additions for tax positions of the current period		455
Additions for tax positions of prior periods		5,000
Expiration of statute of limitations		(329	)
Settlements paid during the current period		(55	)
Other reductions for tax positions of prior periods		(184	)
Balance at January 31, 2009	$	23,833

The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. As of January 31, 2009, the Company had accrued $6,349 for interest and penalties, which is included in the $23,833 of unrecognized tax benefits noted above. The Company recognized $2,482 in income tax expense for interest and penalties in its fiscal 2008 statement of operations.

The Company is subject to U.S. federal income tax as well as income tax in jurisdictions of each state having an income tax. The tax years that remain subject to examination are primarily fiscal 2004 through fiscal 2008. Some earlier years remain open for a small minority of states. Prior to fiscal 2006, the Company had a fiscal tax year ending in October.

F-39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

10. Other Comprehensive Earnings (Loss), Net of Tax

Comprehensive earnings are net earnings, plus certain other items that are recorded directly to shareholders’ equity, as follows:

Fiscal Year	2008			2007		2006
Net earnings	$	75,920		135,799		150,527
Other comprehensive earnings (loss), net of tax:
Foreign currency translation adjustments		(3,352	)	73		843
Decrease (increase) in minimum pension liability (net of deferred tax expense (benefit) of ($1,048), ($1,674) and $788, respectively)		(1,628	)	(2,510	)	1,156
Total comprehensive earnings	$	70,940		133,362		152,526

The components of Accumulated Other Comprehensive Loss are as follows:

	Foreign Currency Translation			Minimum Pension Liability		Accumulated Other Comprehensive Loss
Balance at January 28, 2006	$	(180	)	(8,905	)	$	(9,085	)
Change during period		843		1,156			1,999
Balance at February 3, 2007		663		(7,749	)		(7,086	)
Change during period		73		(2,510	)		(2,437	)
Balance at February 2, 2008		736		(10,259	)		(9,523	)
Change during period		(3,352	)	(1,628	)		(4,980	)
Balance at January 31, 2009	$	(2,616	)	(11,887	)	$	(14,503	)

F-40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

11. Changes in Intangible Assets and Goodwill

	As of January 31, 2009
	Gross Carrying Amount		Accumulated Amortization		Total
Amortizable intangible assets
Author contracts	$	18,461	(11,045	)	$	7,416
Distribution contracts		8,325	(2,894	)		5,431
D&O Insurance		3,202	(2,486	)		716
	$	29,988	(16,425	)	$	13,563
Unamortizable intangible assets
Trade name					$	48,400
Copyrights						144
Publishing contracts						21,336
					$	69,880

Author contracts, distribution contracts and D&O insurance are generally being amortized over 10 years, 10 years and 6 years, respectively.

Aggregate Amortization Expense:
For the 52 weeks ended January 31, 2009	$	4,563
Estimated Amortization Expense:
(12 months ending on or about January 31)
2010	$	3,009
2011	$	2,650
2012	$	2,473
2013	$	2,473
2014	$	2,456

The changes in the carrying amount of goodwill for the 52 weeks ended January 31, 2009 are as follows:

Balance as of February 2, 2008 (as previously reported)	$	255,290
Discontinued operations (See Note 2)		(12,657	)
Balance as of February 2, 2008	$	242,633
Goodwill acquired (See Note 12)		1,803
Benefit of excess tax amortization (a)		(4,428	)
Balance as of January 31, 2009	$	240,008

(a) The tax basis of goodwill arising from an acquisition in fiscal 2004 exceeded the related basis for financial reporting purposes by approximately $96,576. In accordance with SFAS 109, the Company is recognizing the tax benefits of amortizing such excess as a reduction of goodwill as it is realized on the Company’s income tax return.

F-41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

12. Other Acquisitions

Sterling Publishing entered into a joint venture in Begin Smart LLC, acquiring a 50% interest to develop, sell, and distribute books for infants, toddlers, and children under the brand name BEGIN SMART™. In fiscal 2008, the Company determined that Begin Smart LLC should be consolidated under the provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, as revised and, accordingly, the results of operations for the period subsequent to the acquisition are included in the consolidated financial statements. The operating results of Begin Smart LLC are immaterial to the Company.

13. Shareholders’ Equity

On September 15, 2005, the Company’s Board of Directors authorized a stock repurchase program for the purchase of up to $200,000 of the Company’s common stock. The Company completed this $200,000 repurchase program during the third quarter of fiscal 2007. On May 15, 2007, the Company’s Board of Directors authorized a new stock repurchase program for the purchase of up to $400,000 of the Company’s common stock. The maximum dollar value of common stock that may yet be purchased under the current program is approximately $2,471 as of January 31, 2009. Stock repurchases under this program may be made through open market and privately negotiated transactions from time to time and in such amounts as management deems appropriate. As of January 31, 2009, the Company has repurchased 33,065,712 shares at a cost of approximately $1,047,529 under its stock repurchase programs. The repurchased shares are held in treasury.

14. Commitments and Contingencies

The Company leases retail stores, warehouse facilities, office space and equipment. Substantially all of the retail stores are leased under noncancelable agreements which expire at various dates through 2036 with various renewal options for additional periods. The agreements, which have been classified as operating leases, generally provide for both minimum and percentage rentals and require the Company to pay insurance, taxes and other maintenance costs. Percentage rentals are based on sales performance in excess of specified minimums at various stores.

Rental expense under operating leases is as follows:

Fiscal Year	2008		2007	2006
Minimum rentals	$	310,967	302,060	299,022
Percentage rentals		4,380	6,932	7,171
	$	315,347	308,992	306,193

F-42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Future minimum annual rentals, excluding percentage rentals, required under leases that had initial, noncancelable lease terms greater than one year, as of January 31, 2009 are:

Fiscal Year	(a)
2009	$	362,714
2010		332,304
2011		279,293
2012		231,226
2013		190,087
After 2013		566,221
	$	1,961,845

(a) Excludes future minimum annual rentals for Calendar Club of $2,754, $2,339, $2,387, $1,909, $1,438 and $488 for fiscal years 2009, 2010, 2011, 2012, 2013 and after 2013, respectively.

The Company provides for minimum rent expense over the lease terms (including the build-out period) on a straight-line basis. The excess of such rent expense over actual lease payments (net of tenant allowances) is reflected primarily in other long-term liabilities in the accompanying balance sheets.

On June 26, 2008, the Company exercised its purchase option under a lease on one of its distribution facilities located in South Brunswick, New Jersey from the New Jersey Economic Development Authority. Under the terms of the lease expiring in June 2011, the Company purchased the distribution facility and equipment for approximately $21,000.

15. Segment Reporting

The Company has determined that it has one operating segment: bookselling. This evaluation was made in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131), and took into account the Company’s determination that it operates in one business segment was based on application of the criteria in paragraph 10 of SFAS 131. The Company’s evaluation includes the identification of operating segments by considering the way the business is managed (focusing on the financial information distributed) and the manner in which the chief operating decision maker interacts with other members of management. The bookselling segment has as its principal business the sale of trade books, mass market paperbacks, children’s books, bargain books, magazines, music, movies, calendars, games, café products and services, and gift items directly to customers. Most of these products are sourced by third parties while some are sourced through the Company’s own publishing activities. These product sales collectively account for substantially all of the Company’s sales. Operating segments for the Company have not been aggregated.

F-43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

16. Legal Proceedings

The Company is involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of its business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, securities, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

The following is a discussion of the material legal matters involving the Company.

In re Barnes & Noble, Inc. Derivative Litigation

In July and August 2006, four putative stockholder derivative actions were filed in New York County Supreme Court against certain members of the Company’s Board of Directors and certain current and former executive officers of the Company, alleging breach of fiduciary duty and unjust enrichment in connection with the grant of certain stock options to certain executive officers and directors of the Company. These actions were subsequently consolidated under the caption In re Barnes & Noble, Inc. Derivative Litigation (the State Derivative Action). In September 2006, three putative stockholder derivative actions were filed in the United States District Court for the Southern District of New York naming the directors of the Company and certain current and former executive officers as defendants and alleging that the defendants backdated certain stock option grants to executive officers and caused the Company to file false or misleading financial disclosures and proxy statements. These actions were subsequently consolidated under the caption In re Barnes & Noble, Inc. Shareholders Derivative Litigation (the Federal Derivative Action).

On September 6, 2007, the parties in the State Derivative Action and in the Federal Derivative Action signed a Stipulation of Compromise and Settlement (the Settlement Agreement) with respect to these matters. In entering into the Settlement Agreement, neither the Company nor any of the named defendants admitted to any liability or wrongdoing. Under the terms of the Settlement Agreement, the Company agreed to institute certain corporate governance and internal control measures and to pay plaintiffs’ attorneys’ fees and expenses in the total amount of $2,750.

On May 5, 2008, the New York Supreme Court granted final approval to the Settlement Agreement in the State Derivative Action, and on May 7, 2008, entered final judgment dismissing all of the state derivative claims with prejudice. Pursuant to the terms of the Settlement Agreement, the parties then jointly applied to the United States District Court to dismiss all of the claims in the Federal Derivative Action with prejudice, and on May 16, 2008, the District Court entered an order doing so. The time to file notices of appeal in the State Derivative Action and the Federal Derivative Action expired in June 2008, and no such notices were filed.

In re Initial Public Offering Securities Litigation

The class action lawsuit In re Initial Public Offering Securities Litigation filed in the United States District Court for the Southern District of New York in April 2002 (the Action) named over 1,000 individuals and 300 corporations, including Fatbrain.com, LLC, a former subsidiary of Barnes & Noble.com (Fatbrain), and its former officers and directors. The amended complaints in the Action all allege that the initial public offering registration statements filed by the defendant issuers with the SEC, including the one filed by Fatbrain, were false and misleading because they failed to disclose that the

F-44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

defendant underwriters were receiving excess compensation in the form of profit sharing with certain of its customers and that some of those customers agreed to buy additional shares of the defendant issuers’ common stock in the after market at increasing prices. The amended complaints also allege that the foregoing constitute violations of: (i) Section 11 of the Securities Act of 1933, as amended (Securities Act), by the defendant issuers, the directors and officers signing the related registration statements, and the related underwriters; (ii) Rule 10b-5 promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), by the same parties; and (iii) the control person provisions of the Securities Act and Exchange Act by certain directors and officers of the defendant issuers. A motion to dismiss by the defendant issuers, including Fatbrain, was denied.

After extensive negotiations among representatives of plaintiffs and defendants, the parties entered into a memorandum of understanding (MOU), outlining a proposed settlement resolving the claims in the Action between plaintiffs and the defendant issuers. Subsequently a settlement agreement was executed between the defendants and plaintiffs in the Action, the terms of which are consistent with the MOU. The settlement agreement was submitted to the court for approval and on February 15, 2005, the judge granted preliminary approval of the settlement.

On December 5, 2006, the federal appeals court for the Second Circuit issued a decision reversing the District Court’s class certification decision in six focus cases. In light of that decision, the District Court stayed all proceedings, including consideration of the settlement. Plaintiffs then filed, in January 2007, a Petition for Rehearing En Banc before the Second Circuit, which was denied in April 2007. On May 30, 2007, plaintiffs moved, before the District Court, to certify a new class. On June 25, 2007, the District Court entered an order terminating the settlement agreement. On October 2, 2008, plaintiffs agreed to withdraw the class certification motion. On October 10, 2008, the District Court signed an order granting the request.

An agreement in principle has now been negotiated among counsel for all of the issuers, plaintiffs, insurers and underwriters, which remains subject to court approval. If the proposed settlement is approved, no settlement payment will be made by the Company. If the proposed settlement is not approved, the Company intends to vigorously defend this lawsuit.

Barnesandnoble.com LLC v. Yee, et al.

On December 21, 2007, Barnes & Noble.com filed a complaint in the United States District Court for the Eastern District of California for declaratory and injunctive relief against the members of the California Board of Equalization (the BOE) and others. The complaint sought a declaration that the actions of the State of California in seeking to impose California sales and use tax on the sales of Barnes & Noble.com for the period of May 1, 2000 through March 31, 2004 in the amount of approximately $17,000, plus interest and penalties, violate the Commerce Clause and the First Amendment of the United States Constitution, as well as the California Administrative Procedures Act. This assessment was also the subject of an administrative protest filed by Barnes & Noble.com. Barnes & Noble.com was also challenging another earlier assessment by the BOE in the amount of approximately $700, plus interest and penalties, for the period of November 15, 1999 through January 31, 2000. This earlier assessment was struck down by a decision of the California Superior Court on September 7, 2007 in favor of Barnes & Noble.com, and the BOE filed an appeal in the California Court of Appeal (First District).

On May 29, 2008, the BOE approved a global settlement with Barnes & Noble.com resolving all disputes between Barnes & Noble.com and the State of California for sales and use taxes, including the pending litigation in the United States District Court for the Eastern District of California and the California Court of Appeal (First District). Under the settlement, the two tax determinations against

F-45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Barnes & Noble.com in the total amount of approximately $17,700, plus all interest and penalties, were canceled by the BOE. In addition, the BOE waived all claims for sales and use taxes, interest, and penalties through November 1, 2005, the date on which Barnes & Noble.com voluntarily commenced collecting and remitting sales and use taxes to the State of California. A final settlement agreement was entered into by the parties on August 19, 2008. In connection with the settlement, Barnes & Noble.com paid the State of California $8,302 on August 28, 2008.

Hostetter v. Barnes & Noble Booksellers, Inc. et al.

On December 4, 2008, a purported class action complaint was filed against Barnes & Noble Booksellers, Inc. in the Superior Court for the State of California making the following allegations against defendants with respect to hourly managers and/or assistant managers at Barnes & Noble stores located in the State of California: (1) failure to pay wages and overtime; (2) failure to provide meal and/or rest breaks; (3) waiting time penalties; and (4) unfair competition. The complaint contains no allegations concerning the number of any such alleged violations or the amount of recovery sought on behalf the purported class. On March 4, 2009, Barnes and Noble filed an answer denying all claims. On March 5, 2009, Barnes and Noble removed this matter to federal court.

17. Certain Relationships and Related Transactions

The Company believes that the transactions and agreements discussed below (including renewals of any existing agreements) between the Company and related third parties are at least as favorable to the Company as could have been obtained from unrelated parties at the time they were entered into. The Audit Committee of the Board of Directors is designated to approve in advance any new proposed transaction or agreement (including amendments of any existing agreements) with related parties and utilizes procedures in evaluating the terms and provisions of such proposed transaction or agreements as are appropriate in accordance with the fiduciary duties of directors under Delaware law. In addition, management annually analyzes all existing related party agreements and transactions and reviews them with the Audit Committee.

The Company has leases for two locations for its corporate offices with related parties: the first location is leased from an entity in which Leonard Riggio (the Company’s Founder and Chairman) has a majority interest and expires in 2013; the second location is leased from an entity in which Leonard Riggio has a minority interest and expires in 2016. The space was rented at an aggregate annual rent including real estate taxes of $4,681, $4,603 and $4,559 in fiscal years 2008, 2007 and 2006, respectively.

The Company leases an office/warehouse from a partnership in which Leonard Riggio has a 50% interest, pursuant to a lease expiring in 2023. The space was rented at an annual rent of $810, $738 and $727 in fiscal years 2008, 2007 and 2006, respectively. Net of subtenant income, the Company paid $307, $258 and $260 in fiscal years 2008, 2007 and 2006, respectively.

The Company leases retail space in a building in which Barnes & Noble College Booksellers, Inc. (B&N College), a company owned by Leonard Riggio and his wife, subleases space from the Company, pursuant to a sublease expiring in 2020. Pursuant to such sublease, the Company charged B&N College $773, $840 and $884 for such subleased space and other operating costs incurred on its behalf during fiscal years 2008, 2007 and 2006, respectively. The amount paid by B&N College to the Company exceeds the cost per square foot paid by the Company to its unaffiliated third-party landlord.

F-46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

The Company purchases new and used textbooks at market prices directly from MBS Textbook Exchange, Inc. (MBS), a corporation majority-owned by Leonard Riggio, Stephen Riggio and various members of the Riggio family. Total purchases were $8,250, $7,539 and $6,945 for fiscal years 2008, 2007 and 2006, respectively. MBS distributes certain proprietary products on behalf of the Company. Net sales received by the Company after deducting MBS fees were $340, $419 and $362 for fiscal years 2008, 2007 and 2006, respectively. Fees paid to MBS were $50, $65 and $55 during fiscal years 2008, 2007 and 2006, respectively. In fiscal 2006, MBS began selling used books as part of the Barnes & Noble.com dealer network. MBS pays Barnes & Noble.com the same commission as other dealers in the Barnes & Noble dealer network. Barnes & Noble.com earned a commission of $1,410, $1,598 and $1,626 on the MBS used book sales in fiscal 2008, 2007 and 2006, respectively. In addition, Barnes & Noble.com maintains a link on its website which is hosted by MBS and through which Barnes & Noble.com customers are able to sell used books directly to MBS. Barnes & Noble.com is paid a fixed commission on the price paid by MBS to the customer. Total commissions paid to Barnes & Noble.com were $130, $81 and $34 for fiscal years 2008, 2007 and 2006, respectively.

The Company licenses the “Barnes & Noble” name under a royalty-free license agreement dated February 11, 1987, as amended, from B&N College. Barnes & Noble.com licenses the “Barnes & Noble” name under a royalty-free license agreement, dated October 31, 1998, as amended, between Barnes & Noble.com and B&N College (the License Agreement). Pursuant to the License Agreement, Barnes & Noble.com has been granted an exclusive license to use the “Barnes & Noble” name and trademark in perpetuity for the purpose of selling books over the Internet (excluding sales of college textbooks). Under a separate agreement dated as of January 31, 2001 (the Textbook License Agreement), between Barnes & Noble.com, B&N College and Textbooks.com, Inc. (Textbooks.com), a corporation owned by Leonard Riggio, Barnes & Noble.com was granted the right to sell college textbooks over the Internet using the “Barnes & Noble” name. Pursuant to the Textbook License Agreement, Barnes & Noble.com pays Textbooks.com a royalty on revenues (net of product returns, applicable sales tax and excluding shipping and handling) realized by Barnes & Noble.com from the sale of books designated as textbooks. The current term of the agreement is through January 31, 2010 and it renews annually for additional one-year periods unless terminated 12 months prior to the end of any given term. Royalty expense was $5,814, $4,864 and $3,916 for fiscal years 2008, 2007 and 2006, respectively, under the terms of the Textbook License Agreement.

The Company reimbursed B&N College certain operating costs B&N College incurred on the Company’s behalf. These charges are included in the accompanying consolidated statements of operations and were $235, $200 and $248 for fiscal 2008, 2007 and 2006, respectively. B&N College purchased inventory, at cost plus an incremental fee, of $49,172, $50,597 and $48,574 from the Company during fiscal 2008, 2007 and 2006, respectively. B&N College reimbursed the Company $3,506, $4,889 and $2,698 for fiscal years 2008, 2007 and 2006, respectively, for capital expenditures, business insurance and other operating costs incurred on its behalf.

The Company uses a jet aircraft owned by B&N College and pays for the costs and expenses of operating the aircraft based upon the Company’s usage. Such costs which include fuel, insurance and other costs were $1,823, $1,921 and $1,722 during fiscal 2008, 2007 and 2006, respectively, and are included in the accompanying consolidated statements of operations.

B&N College operates campus bookstores pursuant to agreements with a large number of colleges and universities. The Company has recently learned that an officer of the Company executed one such agreement between B&N College and a university in 1998 purportedly limiting the Company’s ability to open a store within five miles of the university bookstore without the university’s consent. This agreement, which expires in December 2012, has not played and is not expected to play any role in the Company’s decisions about where to open stores, and the Company has advised B&N College that the provision in question is not enforceable against the Company.

GameStop Corp. (GameStop), a company in which Leonard Riggio is a member of the Board of Directors and a minority shareholder, operates departments within some of the Company’s bookstores. GameStop pays a license fee to the Company in an amount equal to 7% of the gross sales of such departments, which totaled $1,250, $1,221 and $996 during fiscal 2008, 2007 and 2006, respectively.

F-47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

GameStop sells new and used video games and consoles on the Barnes & Noble.com website. Barnes & Noble.com receives a commission on sales made by GameStop. For fiscal years 2008, 2007 and 2006, the commission earned by Barnes & Noble.com was $531, $447 and $343, respectively.

Until June 2005, GameStop participated in the Company’s worker’s compensation, property and general liability insurance programs. The costs incurred by the Company under these programs were allocated to GameStop based upon GameStop’s total payroll expense, property and equipment, and insurance claim history. GameStop reimbursed the Company for these services $162, $289 and $838 during fiscal 2008, 2007 and 2006, respectively. Although GameStop secured its own insurance coverage, costs are continuing to be incurred by the Company on insurance claims which were made under its programs prior to June 2005 and any such costs applicable to insurance claims against GameStop will be charged to GameStop at the time incurred.

The Company is provided with national freight distribution, including trucking services by Argix Direct Inc. (Argix), a company in which a brother of Leonard and Stephen Riggio owns a 20% interest, pursuant to a transportation agreement expiring in 2012. The Company paid Argix $16,981, $18,953 and $20,524 for such services during fiscal years 2008, 2007 and 2006, respectively. At the time of the agreement, the cost of freight delivered to the stores by Argix was comparable to the prices charged by publishers and the Company’s other third party freight distributors. However, due to higher contracted fuel surcharge and transportation costs, Argix’s rates are now higher than the Company’s other third party freight distributors. As a result, the Company amended its existing agreement with Argix effective January 1, 2009. The amendment provides the Company with a $3,000 annual credit to its freight and transportation costs for the remaining life of the existing agreement. Argix also leases office and warehouse space from the Company in Jamesburg, New Jersey, pursuant to a lease expiring in 2011. The Company charged Argix $2,835, $2,642 and $2,005 for such leased space and other operating costs incurred on its behalf during fiscal 2008, 2007 and 2006, respectively.

The Company uses Source Interlink Companies, Inc. (Source Interlink) as its primary supplier of music and DVD/video, as well as magazines and newspapers. Leonard Riggio is an investor in an investment company that owns a minority interest in Source Interlink. In addition, Ronald W. Burkle, who owns a minority interest in the Company, also owns a minority interest in Source Interlink through his ownership interests in AEC Associates, LLC. The Company paid Source Interlink $395,144, $438,159 and $442,685 for merchandise purchased at market prices during fiscal 2008, 2007 and 2006, respectively. Outstanding amounts payable to Source Interlink for merchandise purchased were $53,217, $58,822 and $68,048 as of January 31, 2009, February 2, 2008 and February 3, 2007, respectively.

The Company uses Digital on Demand as its provider of music and video database equipment and services. Leonard Riggio owns a minority interest in Digital on Demand through the same investment company through which he owns a minority interest in Source Interlink. The Company paid Digital on Demand $4,893, $4,396 and $4,705 for music and video database equipment and services during fiscal 2008, 2007 and 2006, respectively.

18. Dividends

During fiscal 2008, the Company paid a quarterly cash dividend of $0.15 per share on March 31, 2008 to stockholders of record at the close of business on March 10, 2008. On March 20, 2008, the Company announced that its Board of Directors had authorized an increase to its quarterly cash dividend from $0.15 to $0.25 per share, commencing with the dividend to be paid in June 2008. The Company paid quarterly cash dividends of $0.25 per share on June 30, 2008 to stockholders of record at the close of business on June 9, 2008, on September 30, 2008 to stockholders of record at the close of business on September 9, 2008, and on December 31, 2008 to stockholders of record at the close of business on December 10, 2008. The Company also paid a dividend of $0.25 per share on March 31, 2009 to stockholders of record at the close of business on March 10, 2009.

F-48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

During fiscal 2007, the Company paid quarterly cash dividends of $0.15 per share on March 30, 2007 to stockholders of record at the close of business on March 9, 2007, on June 29, 2007 to stockholders of record at the close of business on June 8, 2007, on September 28, 2007 to stockholders of record at the close of business on September 7, 2007, and on December 28, 2007 to stockholders of record at the close of business on December 7, 2007.

19. Subsequent Events

On March 4, 2009, the Company acquired Fictionwise, a leader in the e-book marketplace, for $15,700 in cash. The Company plans to use Fictionwise as part of its overall digital strategy, which includes the expected launch of an e-Bookstore later this year. In addition to the purchase price, the Company will make earn out payments if certain performance targets are met over the next two years.

F-49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

20. Selected Quarterly Financial Information (Unaudited)

A summary of quarterly financial information for each of the last two fiscal years is as follows:

Fiscal 2008 Quarter Ended On or About	April 2008			July 2008		October 2008		January 2009		Total Fiscal Year 2008
Sales	$	1,155,882		1,220,989		1,113,317		1,631,616		5,121,804
Gross profit	$	347,967		374,399		336,123		522,717		1,581,208
Earnings (loss) from continuing operations	$	(566	)	16,771		(15,952	)	85,172		85,426
Loss from discontinued operations		(1,658	)	(1,360	)	(2,468	)	(4,020	)	(9,506	)
Net earnings (loss)	$	(2,224	)	15,411		(18,420	)	81,152		75,920
Basic earnings (loss) per common share:
Earnings (loss) from continuing operations	$	(0.01	)	0.31		(0.29	)	1.56		1.55
Loss from discontinued operations		(0.03	)	(0.03	)	(0.05	)	(0.07	)	(0.17	)
Net earnings (loss)	$	(0.04	)	0.28		(0.34	)	1.49		1.38
Diluted earnings (loss) per common share:
Earnings (loss) from continuing operations	$	(0.01	)	0.30		(0.29	)	1.53		1.49
Loss from discontinued operations		(0.03	)	(0.03	)	(0.05	)	(0.07	)	(0.17	)
Net earnings (loss)	$	(0.04	)	0.27		(0.34	)	1.46		1.32
Fiscal 2007 Quarter Ended On or About	April 2007			July 2007		October 2007		January 2008		Total Fiscal Year 2007
Sales	$	1,142,256		1,241,434		1,164,004		1,738,980		5,286,674
Gross profit	$	333,783		362,167		354,230		556,649		1,606,829
Earnings (loss) from continuing operations	$	(128	)	19,897		6,601		108,540		134,911
Earnings (loss) from discontinued operations		(1,543	)	(1,845	)	(2,224	)	6,501		888
Net earnings (loss)	$	(1,671	)	18,052		4,377		115,041		135,799
Basic earnings (loss) per common share:
Earnings (loss) from continuing operations	$	(0.00	)	0.30		0.10		1.78		2.12
Earnings (loss) from discontinued operations		(0.02	)	(0.03	)	(0.04	)	0.11		0.01
Net earnings (loss)	$	(0.03	)	0.28		0.07		1.88		2.13
Diluted earnings (loss) per common share:
Earnings (loss) from continuing operations	$	(0.00	)	0.29		0.10		1.69		2.01
Earnings (loss) from discontinued operations		(0.02	)	(0.03	)	(0.04	)	0.10		0.01
Net earnings (loss)	$	(0.03	)	0.26		0.07		1.79		2.03

F-50

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Barnes & Noble, Inc.

New York, New York

We have audited the accompanying consolidated balance sheets of Barnes & Noble, Inc. and subsidiaries as of January 31, 2009 and February 2, 2008 and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the three fiscal years in the period ended January 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barnes & Noble, Inc. and subsidiaries as of January 31, 2009 and February 2, 2008 and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Barnes & Noble, Inc. and subsidiaries’ internal control over financial reporting as of January 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 31, 2009 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

New York, New York

March 31, 2009

F-51

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Barnes & Noble, Inc.

New York, New York

We have audited Barnes & Noble, Inc.’s internal control over financial reporting as of January 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Barnes & Noble, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Barnes & Noble, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Barnes & Noble, Inc. and subsidiaries as of January 31, 2009 and February 2, 2008, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three fiscal years in

F-52

the period ended January 31, 2009, and our report dated March 31, 2009 expressed an unqualified opinion on those consolidated financial statements.

/s/ BDO SEIDMAN, LLP

BDO Seidman, LLP

New York, New York

March 31, 2009

F-53

MANAGEMENT’S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS

The management of Barnes & Noble, Inc. is responsible for the contents of the Consolidated Financial Statements, which are prepared in conformity with accounting principles generally accepted in the United States of America. The Consolidated Financial Statements necessarily include amounts based on judgments and estimates. Financial information elsewhere in the Annual Report is consistent with that in the Consolidated Financial Statements.

The Company maintains a comprehensive accounting system which includes controls designed to provide reasonable assurance as to the integrity and reliability of the financial records and the protection of assets. An internal audit staff is employed to regularly test and evaluate both internal accounting controls and operating procedures, including compliance with the Company’s statement of policy regarding ethical and lawful conduct. The Audit Committee of the Board of Directors composed of directors who are not members of management, meets regularly with management, the independent registered public accountants and the internal auditors to ensure that their respective responsibilities are properly discharged. BDO Seidman, LLP and the Internal Audit Department of the Company have full and free independent access to the Audit Committee. The role of BDO Seidman, LLP, an independent registered public accounting firm, is to provide an objective examination of the Consolidated Financial Statements and the underlying transactions in accordance with the standards of the Public Company Accounting Oversight Board. The report of BDO Seidman, LLP accompanies the Consolidated Financial Statements.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Barnes & Noble, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules13a-15(f) and 15d-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company’s evaluation, management concluded that the Company’s internal control over financial reporting was effective as of January 31, 2009. The Company’s internal control over financial reporting as of January 31, 2009 has been independently audited by BDO Seidman, LLP, an independent registered public accounting firm, and their attestation is included herein.

OTHER INFORMATION

The Company has included the Section 302 certifications of the Chief Executive Officer and the Chief Financial Officer of the Company as Exhibits 31.1 and 31.2 to its Annual Report on Form 10-K for fiscal 2008 filed with the Securities and Exchange Commission, and the Company has submitted to the New York Stock Exchange a certificate of the Chief Executive Officer of the Company certifying that he is not aware of any violation by the Company of New York Stock Exchange corporate governance listing standards.

F-54

EX-14.2

Exhibit 14.2

As adopted by the Board of Directors

on March 11, 2004

Barnes & Noble, Inc.

CODE OF BUSINESS CONDUCT AND ETHICS

Introduction

It is the general policy of Barnes & Noble, Inc. (the “Company”) to conduct its business activities and transactions with the highest level of integrity and ethical standards and in accordance with all applicable state and federal laws. Obeying the law both in letter and in spirit is the foundation on which this Company’s ethical standards are built. In carrying out this policy, the Company has adopted the following Code of Business Conduct and Ethics (the “Code”).

This Code covers a wide range of business practices and procedures. It does not cover every issue that may arise, but it sets out basic principles to guide all employees, officers and directors of the Company. All our employees, officers and directors must conduct themselves accordingly and seek to avoid the appearance of improper behavior. The Code should also be provided to and followed by the Company’s agents and representatives, including consultants.

If a law conflicts with a policy in this Code, you must comply with the law; however, if a local custom or policy conflicts with this Code, you must comply with the Code. If you have any questions about these conflicts, you should ask your supervisor how to handle the situation. Those who violate the standards in this Code will be subject to disciplinary action, up to and including dismissal. If you are in a situation that you believe may violate or lead to a violation of this Code, follow the guidelines described in section 14 of this Code.

1. Compliance with Laws, Rules and Regulations

The Company complies with all applicable laws and regulations in the conduct of its activities and expects the employees to do the same. All employees must respect and obey the laws of the cities and states in which we operate. Although not all employees are expected to know the details of these laws, it is important to know enough to determine when to seek advice from supervisors, managers or other appropriate personnel.

2. Conflicts of Interest

It is the policy of the Company to avoid situations that create an actual or potential conflict between an employee’s personal interests and the interests of the Company.

A conflict of interest exists when a person’s loyalties or actions are divided between the interests of the Company and those of another, such as a competitor, supplier, customer or personal business. A conflict of interest can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his or her Company work objectively and effectively. Conflicts of interest may also arise when an employee, officer or director, or members of his or her family, receives improper personal benefits as a result of his or her position in the Company. Moreover, the appearance of a conflict of interest alone can adversely affect the Company and its relations with its customers, suppliers and employees. The appearance of a conflict should also be avoided.

Employees are expected to use good judgment, to adhere to high ethical standards and to avoid situations that create an actual or potential conflict of interest. It is almost always a conflict of interest for a Company employee to work simultaneously for a competitor, customer or supplier. You are not allowed to work for a competitor as a consultant or board member. The best policy is to avoid any direct or indirect business connection with our customers, suppliers or competitors, except on our behalf.

Conflicts of interest are prohibited as a matter of Company policy, except under guidelines approved by the Board of Directors. Conflicts of interest may not always be clear-cut, so if you have a question, you should consult with higher levels of management, who in turn may wish to consult with the Company’s legal counsel. Any employee, officer or director who becomes aware of a conflict or potential conflict should bring it to the attention of a supervisor, manager or other appropriate personnel or consult the procedures described in Section 14 of this Code.

Federal law now prohibits most loans or extensions of credit from a Company whose stock is publicly traded to its directors or executive officers. The Company will not directly or indirectly extend any loan or credit to any director or executive officer except as permitted by law and approved by a vote of the disinterested members of the Audit Committee of the Board of Directors.

3. Insider Trading

Employees who have access to confidential information are not permitted to use or share that information for stock trading purposes or for any other purpose except the conduct of our business. All non-public information about the Company should be considered confidential information. To use non-public information for personal financial benefit or to “tip” others who might make an investment decision on the basis of this information is not only unethical but also illegal. If you have any questions, please consult with the Company’s senior management, who in turn may wish to consult with the Company’s legal counsel.

4. Corporate Opportunities

Employees, officers and directors are prohibited from taking for themselves personally opportunities that are discovered through the use of corporate property, information or their position without the consent of the Board of Directors. No employee may use corporate property, information, or their position for improper personal gain, and no employee may compete with the Company directly or indirectly. Employees, officers and directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises.

5. Competition and Fair Dealing

We seek to outperform our competition fairly and honestly. We seek competitive advantages through superior performance, never through unethical or illegal business practices. Stealing proprietary information, possessing trade secret information that was obtained without the owner’s consent, or inducing such disclosures by past or present employees of other companies is prohibited. Each employee should endeavor to respect the rights of and deal fairly with the Company’s customers, suppliers, competitors and employees. No employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other intentional unfair-dealing practice.

Company personnel should not engage a competitor in discussions, agreements or understandings concerning prices or allocations of territory, customers or sales. In addition, Company personnel should avoid discussing with a competitor of any other agreements inhibiting free and open competition or involving tie-in sales or reciprocal transactions without prior authorization from the Company’s senior management, who may wish to consult with the Company’s legal counsel.

The purpose of business entertainment and gifts in a commercial setting is to create good will and sound working relationships, not to gain unfair advantage with customers. No gift or entertainment should ever be offered, given, provided or accepted by any Company employee, family member of an employee or agent unless it: (1) is not a cash gift, (2) is consistent with customary business practices, (3) is not excessive in value, (4) cannot be construed as a bribe or payoff and (5) does not violate any laws or regulations. Please discuss with your supervisor any gifts or proposed gifts which you are not certain are appropriate.

6. Equal Employment and Working Conditions

Each of us has a fundamental responsibility to show respect and consideration to our teammates. The diversity of the Company’s employees is a tremendous asset. We are firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment of any kind. All employment practices and decisions, including those involving recruiting, hiring, transfers, promotions, training, compensation, benefits, discipline, and termination, will be

conducted without regard to age, sex, race, color, ancestry, religion, creed, citizenship status, disability, national origin, marital status, military status, sexual orientation, gender identity and expression, or any factors not related to the job and will comply with all applicable laws.

7. Health and Safety

The Company strives to provide each employee with a safe and healthful work environment. Each employee has a responsibility to maintain a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries, and unsafe equipment, practices, or conditions.

Violence and threatening behavior are not permitted. Employees should report to work in condition to perform their duties, free from the influence of illegal drugs, controlled substances used for nonmedical purposes or alcoholic beverages. The use of illegal drugs, controlled substances used for nonmedical purposes or alcoholic beverages in the workplace will not be tolerated. Consumption of alcoholic beverages on Barnes & Noble premises is only permitted, with prior management approval, for Company-sponsored events.

8. Record-Keeping

The Company requires honest and accurate recording and reporting of information in order to make responsible business decisions. For example, only the true and actual number of hours worked should be reported.

Many employees regularly use business expense accounts, which must be documented and recorded accurately. If you are not sure whether a certain expense is legitimate, ask your supervisor. Rules and guidelines are available from the Accounting Department.

All of the Company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions and must conform both to applicable legal requirements and to the Company’s system of internal controls. All Company business data, records and reports must be prepared truthfully and accurately.

Business records and communications often become public, and we should avoid exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies that can be misunderstood. This applies equally to e-mail, internal memos, and formal reports. Records should always be retained or destroyed according to the Company’s record retention policies. In accordance with those policies, in the event of litigation or governmental investigation please consult the Company’s senior management, who in turn may wish to consult with the Company’s legal counsel.

9. Confidentiality

Employees must maintain the confidentiality of confidential information entrusted to them by the Company or its customers, except when disclosure is required by laws or regulations or authorized by the Company’s senior management, who may wish to consult with the Company’s legal counsel. Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company or its customers, if disclosed. It also includes information that suppliers and customers have entrusted to us. The obligation to preserve confidential information continues even after employment ends.

10. Protection and Proper Use of Company Assets

All employees should endeavor to protect the Company’s assets and ensure their efficient use. Theft, carelessness, and waste have a direct impact on the Company’s profitability. Any suspected incident of fraud or theft should be immediately reported for investigation. Company equipment should not be used for non-Company business, though incidental personal use may be permitted.

The obligation of employees to protect the Company’s assets includes its proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, engineering and manufacturing ideas, designs, databases, records, salary information and any unpublished financial data and reports. Unauthorized use or distribution of this information would violate Company policy. It could also be illegal and result in civil or even criminal penalties.

11. Political Contributions and Payments to Government Personnel

The Company encourages its personnel to participate in political activities on their own time and at their own expense. Federal law and many state and local laws prohibit corporate contributions to political parties or candidates. Company assets, facilities and resources may not be used for political purposes except in accordance with law and after approval by the Board of Directors.

The U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. It is strictly prohibited to make illegal payments to government officials of any country.

In addition, the U.S. government has a number of laws and regulations regarding business gratuities which may be accepted by U.S. government personnel. The promise, offer or delivery to an official or employee of the U.S. government of a gift, favor or

other gratuity in violation of these rules would not only violate Company policy but could also be a criminal offense. State and local governments, as well as foreign governments, may have similar rules. The Company’s senior management, in consultation with the Company’s legal counsel, can provide guidance to you in this area.

12. Waivers of the Code of Business Conduct and Ethics

Any waiver of this Code for executive officers or directors may be made only by the Board of Directors or a committee of the Board of Directors and will be promptly disclosed as required by law or stock exchange regulation.

13. Reporting any Illegal or Unethical Behavior

Employees are responsible for being aware of the corporate policies applicable to their activities and to comply with them fully. Employees also have a duty to report any apparent misconduct through appropriate management channels, or any special and confidential reporting mechanisms which may be established within the Company for such purposes, and to assist the Company in the prevention and correction of such problems. Employees are encouraged to talk to supervisors, managers or other appropriate personnel about observed illegal or unethical behavior and when in doubt about the best course of action in a particular situation. Employees who know or have good reason to believe that other employees are engaged in conduct violating this policy should report this to the Company. No supervisor shall retaliate against an employee, either directly or indirectly, who in good faith and in accordance with Company procedure, reports an act of apparent misconduct. Employees are also expected to cooperate fully with the Company or governmental authorities in any investigation of an alleged violation. Failure of any employee to comply with such policies will result in disciplinary action, which may include termination.

14. Compliance Procedures

We must all work to ensure prompt and consistent action against violations of this Code. However, in some situations it is difficult to know right from wrong. Since we cannot anticipate every situation that will arise, it is important that we have a way to approach a new question or problem. These are the steps to keep in mind:

• Make sure you have all the facts. In order to reach the right solutions, we must be as fully informed as possible.

• Ask yourself: What specifically am I being asked to do? Does it seem unethical or improper? This will enable you to focus on the specific question you are faced with, and the alternatives you have. Use your judgment and common sense; if something seems unethical or improper, it probably is.

• Clarify your responsibility and role. In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem.

• Discuss the problem with your supervisor. This is the basic guidance for all situations. In many cases, your supervisor will be more knowledgeable about the question, and will appreciate being brought into the decision-making process. Remember that it is your supervisor’s responsibility to help solve problems.

• Seek help from Company resources. In the rare case where it may not be appropriate to discuss an issue with your supervisor, or where you do not feel comfortable approaching your supervisor with your question, discuss it with your District Manager, Regional Director, Human Resources management or Company counsel. Our General Counsel’s office can be reached at 212-633-3300 or, in writing, at Barnes & Noble, Office of the General Counsel, 122 Fifth Avenue, New York, NY, 10011. You can also contact We Listen to raise issues at welisten@bn.com or 877-WE-LISTN (877-935-4786).

• You may report violations in confidence and without fear of retaliation. If your situation requires that your identity be kept secret, your anonymity will be protected, as appropriate. The Company does not permit retaliation of any kind against employees for good faith reports of ethical violations.

• Always ask first, act later. If you are unsure of what to do in any situation, seek guidance before you act.

EX-21.1

Exhibit 21.1

Subsidiaries of Barnes & Noble, Inc.

1. Barnes & Noble Booksellers, Inc., a Delaware corporation.

2. B. Dalton Bookseller, LLC, a Delaware limited liability company.

3. Doubleday Book Shops, Inc., a Delaware corporation.

4. barnesandnoble.com llc, a Delaware limited liability company.

5. CCI Holdings, Inc., a Texas corporation.

6. CCI Holdings (Canada), Inc., a Delaware corporation.

7. Sterling Publishing Co., Inc., a New York corporation.

8. Barnes & Noble Marketing Services Corp., a Florida corporation.

9. Barnes & Noble Services, Inc., a New York corporation.

10. Barnes & Noble Purchasing, Inc., a New York corporation.

11. Chelsea Insurance Company Ltd., a Bermuda corporation.

12. Barnes & Noble BookQuest LLC, a Delaware limited liability company.

13. SparkNotes LLC, a New York limited liability company.

14. Fictionwise LLC, a Delaware limited liability company.

15. PalmGear, Inc. a Tennessee corporation.

16. Palm Digital Media, Inc., a Massachusetts corporation.

17. Begin Smart LLC, a Delaware limited liability company.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Barnes & Noble, Inc.

New York, New York

We hereby consent to the incorporation by reference in the Prospectuses constituting a part of the following Registration Statements on Form S-3 (No. 333-23855, No. 333-69731, No. 333-62210, No. 33-84826 and No. 33-89258) and Form S-8 (No. 333-27033, No. 33-89260, No. 333-90538, No. 333-116382 and No. 333-59111) of Barnes & Noble, Inc. of our reports dated March 31, 2009, relating to the consolidated financial statements and the effectiveness of Barnes & Noble, Inc.’s internal control over financial reporting, which appear in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated March 31, 2009 relating to the financial statement schedule, which appears in this Form 10-K.

We also consent to the references to us under the caption “Experts” in the Prospectuses.

/s/ BDO Seidman, LLP

New York, New York

March 31, 2009

EX-23.2

Exhibit 23.2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Barnes & Noble, Inc.

The audits referred to in our reports dated March 31, 2009 relating to the consolidated financial statements of Barnes & Noble, Inc. and subsidiaries, which is incorporated in Item 8 of this Form 10-K by reference to the annual report to shareholders for the fiscal year ended January 31, 2009, included the audit of the consolidated financial statement schedule listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based upon our audits.

In our opinion such financial statement schedule presents fairly, in all material respects, the information set forth therein.

/s/ BDO Seidman, LLP

New York, New York

March 31, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION BY THE

CHIEF EXECUTIVE OFFICER PURSUANT TO

17 CFR 240.13a-14(a)/15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen Riggio, certify that:

1. I have reviewed this report on Form 10-K of Barnes & Noble, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 1, 2009
By:	/s/ Stephen Riggio
	Stephen Riggio Chief Executive Officer Barnes & Noble, Inc.

EX-31.2

Exhibit 31.2

CERTIFICATION BY THE

CHIEF FINANCIAL OFFICER PURSUANT TO

17 CFR 240.13a-14(a)/15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph J. Lombardi, certify that:

1. I have reviewed this report on Form 10-K of Barnes & Noble, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 1, 2009
By:	/s/ Joseph J. Lombardi
	Joseph J. Lombardi Chief Financial Officer Barnes & Noble, Inc.

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934

AND 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Barnes & Noble, Inc. (the “Company”) on Form 10-K for the period ended January 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen Riggio, Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Stephen Riggio

Stephen Riggio

Chief Executive Officer

Barnes & Noble, Inc.

April 1, 2009

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934

AND 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Barnes & Noble, Inc. (the “Company”) on Form 10-K for the period ended January 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph J. Lombardi, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Joseph J. Lombardi

Joseph J. Lombardi

Chief Financial Officer

Barnes & Noble, Inc.

April 1, 2009

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.