10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 30, 2010

OR

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

For the transition period from              to             

Commission File Number: 1-12302

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)

(212) 633-3300

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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 the definitions 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	¨  (Do not check if a smaller reporting company)	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

As of November 30, 2010, 60,230,280 shares of Common Stock, par value $.001 per share, were outstanding, which number includes 2,627,575 shares of unvested restricted stock that have voting rights and are held by members of the Board of Directors and the Company’s employees.

BARNES & NOBLE, INC. AND SUBSIDIARIES

Fiscal Quarter Ended October 30, 2010

Index to Form 10-Q

		Page No.
PART I -	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Operations - For the 13 and 26 weeks ended October 30, 2010 and October 31, 2009		3
	Consolidated Balance Sheets – October 30, 2010, October 31, 2009 and May 1, 2010		4
	Consolidated Statement of Changes in Shareholders’ Equity – For the 26 weeks ended October 30, 2010		6
	Consolidated Statements of Cash Flows - For the 26 weeks ended October 30, 2010 and October 31, 2009		7
	Notes to Consolidated Financial Statements		8
	Report of Independent Registered Public Accounting Firm		28
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		39
Item 4.	Controls and Procedures		40
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings		40
Item 1A.	Risk Factors		43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 6.	Exhibits		45
	SIGNATURES		47
	Exhibit Index		48

PART I - FINANCIAL INFORMATION

Item 1: Financial Statements

BARNES & NOBLE, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)

	13 weeks ended						26 weeks ended
	October 30, 2010			October 31, 2009			October 30, 2010			October 31, 2009
Sales	$	1,905,577			1,160,895			3,302,147			2,316,576
Cost of sales and occupancy		1,455,457			818,706			2,500,327			1,618,532
Gross profit		450,120			342,189			801,820			698,044
Selling and administrative expenses		403,795			324,144			786,177			612,795
Depreciation and amortization		56,777			49,169			113,681			94,022
Pre-opening expenses		27			1,284			54			2,983
Operating loss		(10,479	)		(32,408	)		(98,092	)		(11,756	)
Interest expense, net and amortization of deferred financing fees		12,791			3,945			26,053			4,248
(Loss) income before taxes		(23,270	)		(36,353	)		(124,145	)		(16,004	)
Income taxes		(10,690	)		(12,421	)		(49,023	)		(4,311	)
Net loss		(12,580	)		(23,932	)		(75,122	)		(11,693	)
Net loss (income) attributable to noncontrolling interests		12			(25	)		37			4
Net loss attributable to Barnes & Noble, Inc.	$	(12,568	)		(23,957	)		(75,085	)		(11,689	)
Basic loss per common share
Net loss attributable to Barnes & Noble, Inc.	$	(0.22	)		(0.43	)		(1.34	)		(0.21	)
Diluted loss per common share
Net loss attributable to Barnes & Noble, Inc.	$	(0.22	)		(0.43	)		(1.34	)		(0.21	)
Weighted average common shares outstanding
Basic		56,708			55,230			56,239			55,208
Diluted		56,708			55,230			56,239			55,208
Dividends declared per common share	$	0.25			0.25			0.50			0.50

See accompanying notes to consolidated financial statements.

3

BARNES & NOBLE, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share data)

	October 30, 2010		October 31, 2009		May 1, 2010
	(unaudited)		(unaudited)		(audited)
ASSETS
Current assets:
Cash and cash equivalents	$	30,163		95,727		60,965
Receivables, net		185,253		146,035		106,576
Merchandise inventories		1,761,118		1,730,876		1,370,111
Prepaid expenses and other current assets		126,326		101,556		181,825
Total current assets		2,102,860		2,074,194		1,719,477
Property and equipment:
Land and land improvements		8,618		9,298		8,618
Buildings and leasehold improvements		1,210,232		1,212,259		1,212,567
Fixtures and equipment		1,638,652		1,563,163		1,594,048
		2,857,502		2,784,720		2,815,233
Less accumulated depreciation and amortization		2,101,057		1,932,410		2,003,199
Net property and equipment		756,445		852,310		812,034
Goodwill		526,327		524,060		528,541
Intangible assets, net		573,789		587,913		580,962
Other noncurrent assets		59,845		68,854		64,672
Total assets	$	4,019,266		4,107,331		3,705,686

(Continued)

4

BARNES & NOBLE, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share data)

	October 30, 2010			October 31, 2009			May 1, 2010
	(unaudited)			(unaudited)			(audited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,318,744			1,279,257			868,976
Accrued liabilities		608,301			716,685			755,432
Short-term note payable		100,000			—			100,000
Total current liabilities		2,027,045			1,995,942			1,724,408
Long-term debt		376,900			325,000			260,400
Deferred taxes		310,712			281,668			311,607
Other long-term liabilities		481,426			626,717			505,903
Shareholders’ equity:
Common stock; $.001 par value; 300,000 shares authorized; 90,231, 88,461 and 88,993 shares issued, respectively		90			88			89
Additional paid-in capital		1,313,678			1,277,674			1,286,215
Accumulated other comprehensive loss		(13,212	)		(12,015	)		(13,212	)
Retained earnings		576,277			661,481			681,082
Treasury stock, at cost, 33,360, 33,213 and 33,285 shares, respectively		(1,053,650	)		(1,050,802	)		(1,052,356	)
Total Barnes & Noble, Inc. shareholders’ equity		823,183			876,426			901,818
Noncontrolling interest		—			1,578			1,550
Total shareholders’ equity		823,183			878,004			903,368
Commitments and contingencies		—			—			—
Total liabilities and shareholders’ equity	$	4,019,266			4,107,331			3,705,686

See accompanying notes to consolidated financial statements.

5

BARNES & NOBLE, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Shareholders’ Equity

For the 26 weeks ended October 30, 2010

(In thousands)

(unaudited)

	Noncontrolling Interest			Barnes & Noble, Inc. Shareholders’ Equity														Total
				Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Losses			Retained Earnings			Treasury Stock at Cost
Balance at May 1, 2010	$	1,550			89		1,286,215			(13,212	)		681,082			(1,052,356	)	$	903,368
Comprehensive income:
Net loss		(37	)		—		—			—			(75,085	)		—
Total comprehensive loss																			(75,122	)
Purchase of noncontrolling interest		(1,513	)		—		1,213			—			—			—			(300	)
Exercise of 1,003 common stock options		—			1		16,950			—			—			—			16,951
Stock options and restricted stock tax benefits		—			—		(1,074	)		—			—			—			(1,074	)
Stock-based compensation expense		—			—		10,374			—			—			—			10,374
Cash dividend paid to stockholders		—			—		—			—			(29,720	)		—			(29,720	)
Treasury stock acquired, 76 shares		—			—		—			—			—			(1,294	)		(1,294	)
Balance at October 30, 2010	$	—			90		1,313,678			(13,212	)		576,277			(1,053,650	)	$	823,183

See accompanying notes to consolidated financial statements.

6

BARNES & NOBLE, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars)

(unaudited)

	26 weeks ended
	October 30, 2010			October 31, 2009
Cash flows from operating activities:
Net loss	$	(75,122	)		(11,693	)
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities:
Depreciation and amortization (including amortization of deferred financing fees)		118,432			96,453
Stock-based compensation expense		10,374			7,813
Deferred taxes		1,319			1,363
Loss (gain) on disposal of property and equipment		643			(122	)
Decrease in other long-term liabilities		(24,477	)		(12,878	)
Changes in operating assets and liabilities, net		(114,208	)		(99,381	)
Net cash flows from operating activities		(83,039	)		(18,445	)
Cash flows from investing activities:
Purchases of property and equipment		(51,449	)		(47,390	)
Acquisition of Barnes & Noble College Booksellers, Inc. (net of cash acquired)		—			(178,982	)
Acquisition of Tikatok, LLC		—			(2,305	)
Net decrease in other noncurrent assets		(37	)		(2,994	)
Purchase of noncontrolling interest		(300	)		—
Net cash flows from investing activities		(51,786	)		(231,671	)
Cash flows from financing activities:
Net increase in credit facility		116,500			325,000
Proceeds from exercise of common stock options		16,951			745
Excess tax benefit from stock-based compensation		1,586			686
Purchase of treasury stock		(1,294	)		(1,474	)
Cash dividend paid to shareholders		(29,720	)		(28,639	)
Financing fees paid related to debt used to acquire Barnes & Noble College Booksellers, Inc.		—			(37,069	)
Net cash flows from financing activities		104,023			259,249
Net (decrease) increase in cash and cash equivalents		(30,802	)		9,133
Cash and cash equivalents at beginning of period		60,965			86,594
Cash and cash equivalents at end of period	$	30,163			95,727
Changes in operating assets and liabilities, net:
Receivables, net	$	(78,677	)		78,415
Merchandise inventories		(391,007	)		(131,943	)
Prepaid expenses and other current assets		(21,477	)		29,519
Accounts payable and accrued liabilities		376,953			(75,372	)
Changes in operating assets and liabilities, net	$	(114,208	)		(99,381	)
Supplemental cash flow information:
Cash paid during the period for:
Interest paid	$	21,293			846
Income taxes (net of refunds)	$	17,859			3,340
Supplemental disclosure of subsidiaries acquired:
Assets acquired (net of cash acquired)	$	1,513			1,409,232
Liabilities assumed (including Seller Notes)		1,213			1,227,945
Cash paid	$	300			181,287

See accompanying notes to consolidated financial statements.

7

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

The unaudited consolidated financial statements include the accounts of Barnes & Noble, Inc. and its subsidiaries (collectively, Barnes & Noble or the Company).

In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position as of October 30, 2010 and the results of its operations and its cash flows for the 13 and 26 weeks then ended. These consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the 52 weeks ended May 1, 2010 (fiscal 2010).

On September 29, 2009, the Board of Directors of Barnes & Noble, Inc. authorized a change in the Company’s fiscal year end from the Saturday closest to the last day of January to the Saturday closest to the last day of April. The change in fiscal year, which became effective on September 30, 2009 upon the closing of the acquisition of Barnes & Noble College Booksellers, Inc. (B&N College) by Barnes & Noble, Inc. (the Acquisition), gives the Company and B&N College the same fiscal year (see Note 13). The change was intended to better align the Company’s fiscal year with the business cycles of both Barnes & Noble, Inc. and B&N College. As a result of the change in fiscal year, the Company’s 2010 fiscal year began on May 3, 2009 and ended on May 1, 2010 (fiscal 2010).

Due to the increased focus on the internet and digital businesses, the Company performed an evaluation on the effect of its impact on the identification of operating segments. The assessment considered 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. As a result of this assessment, the Company has determined that it has three operating segments: B&N Retail, B&N College and B&N.com (See Note 6).

Due to the seasonal nature of the business, the results of operations for the 13 and 26 weeks ended October 30, 2010 are not indicative of the results to be expected for the 52 weeks ending April 30, 2011 (fiscal 2011).

(1) Merchandise Inventories

Merchandise inventories are stated at the lower of cost or market. Cost is determined primarily by the retail inventory method under both the first-in, first-out (FIFO) basis and the last-in, first-out (LIFO) basis. The Company uses the retail inventory method for 98% of the Company’s merchandise inventories. As of October 30, 2010, October 31, 2009 and May 1, 2010, 81%, 82% and 87%, respectively, of the Company’s inventory on the retail inventory method was valued under the FIFO basis. B&N College’s textbook and trade book inventories are valued using the LIFO method, where the related reserve was not material to the recorded amount of the Company’s inventories or results of operations.

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.

8

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

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.

(2) Reclassifications

Certain prior period amounts have been reclassified to conform to the current presentation.

(3) Revenue Recognition

Revenue from sales of the Company’s products is recognized at the time of sale, other than those with multiple elements. The Company accrues for estimated sales returns in the period in which the related revenue is recognized based on historical experience and industry standards. Sales taxes collected from retail customers are excluded from reported revenues. All of the Company’s sales are recognized as revenue on a “net” basis, including sales in connection with any periodic promotions offered to customers. The Company does not treat any promotional offers as expenses.

In accordance with ASC 605-25, Revenue Recognition, Multiple Element Arrangements and Accounting Standards Updates (ASU) 2009-13 and 2009-14, for multiple-element arrangements that involve tangible products that contain software that is essential to the tangible product’s functionality, undelivered software elements that relate to the tangible product’s essential software and other separable elements, the Company allocates revenue to all deliverables using the relative selling-price method. Under this method, revenue is allocated at the time of sale to all deliverables based on their relative selling price using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence, third-party evidence of selling price, or best estimate of selling price. NOOK™ eBook Reader revenue (which includes revenue from the Company’s NOOK™ 3G, NOOK™ Wi-Fi and NOOKcolor™ devices) is recognized at the segment point of sale. References herein to NOOK™ in the context of eReader revenue refer to NOOK™ 3G, NOOK™ Wi-Fi and NOOKcolor™.

The Company includes post-service customer support (PCS) in the form of software updates and potential increased functionality on a when-and-if-available basis, as well as AT&T wireless access and wireless connectivity with the purchase of NOOK™ from the Company. Using the relative selling price described above, the Company allocates revenue based on the best estimate of selling price for the deliverables as no vendor-specific objective evidence or third-party evidence exists for any of the elements. Revenue allocated to NOOK™ and the software essential to its functionality is recognized at the time of sale, provided all other conditions for revenue recognition are met. Revenue allocated to the PCS and the AT&T wireless access is deferred and recognized on a straight-line basis over the 2-year estimated life of NOOK™.

The Company also pays certain vendors who distribute NOOK™ a commission on the content sales sold through that device. The Company accounts for these transactions as a reduction in the sales price of the NOOK™ based on historical trends of content sales and a liability is established for the estimated commission expected to be paid over the life of the product. The Company recognizes revenue of the content at the point of sale of the content.

9

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

The Company records revenue from sales of digital content, sales of third-party extended warranties, service contracts and other products, for which the Company is not obligated to perform, and for which the Company does not meet the criteria for gross revenue recognition under ASC 605-45-45, Reporting Revenue Gross as a Principal versus Net as an Agent, on a net basis. All other revenue is recognized on a gross basis.

The Barnes & Noble Member Program entitles Members to receive the following benefits: (i) in the stores, 40% discount off the current hardcover Barnes & Noble bestsellers, 20% discount off all adult hardcover books and 10% discount off Barnes & Noble sale price of other eligible items; (ii) unlimited free express shipping on orders made on Barnes & Noble.com; (iii) periodic special promotions at Barnes & Noble stores and online at Barnes & Noble.com. 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.

(4) Research and Development Costs for Software Products

Software development costs to be sold, leased, or otherwise marketed are capitalized in accordance with ASC 985-20. Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. The Company’s products reach technological feasibility shortly before the products are released and therefore research and development costs are generally expensed as incurred.

(5) Earnings (Loss) per Share

In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class Method, the Company’s unvested restricted shares and shares issuable under the Company’s deferred compensation plan are considered participating securities. During periods of net income, the calculation of earnings per share for common stock are reclassified to exclude the income attributable to the unvested restricted shares and shares issuable under the Company’s deferred compensation plan from the numerator and exclude the dilutive impact of those shares from the denominator. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. Due to the net loss during the periods, participating securities in the amounts of 3,215,679 and 2,148,913 for the 13 weeks ended October 30, 2010 and October 31, 2009, respectively, and participating securities in the amounts of 3,168,058, and 2,018,667 for the 26 weeks ended October 30, 2010 and October 31, 2009, respectively, were excluded in the calculation of earnings per share using the two-class method because the effect would be antidilutive.

10

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

The following is a reconciliation of the Company’s basic and diluted earnings per share calculation:

	13 weeks ended						26 weeks ended
	October 30, 2010			October 31, 2009			October 30, 2010			October 31, 2009
Numerator for basic earnings per share:
Net loss attributable to Barnes & Noble, Inc.	$	(12,568	)		(23,957	)		(75,085	)		(11,689	)
Less allocation of earnings and dividends to participating securities		—			—			—			—
Net loss available to common shareholders	$	(12,568	)		(23,957	)		(75,085	)		(11,689	)
Numerator for diluted earnings per share:
Net loss available to common shareholders	$	(12,568	)		(23,957	)		(75,085	)		(11,689	)
Effect of dilutive options		—			—			—			—
Net loss available to common shareholders	$	(12,568	)		(23,957	)		(75,085	)		(11,689	)
Denominator for basic and diluted earnings per share:
Basic weighted average common shares		56,708			55,230			56,239			55,208
Average dilutive options		—			—			—			—
Diluted weighted average common shares		56,708			55,230			56,239			55,208
Basic earnings per common share
Net loss attributable to Barnes & Noble, Inc.	$	(0.22	)		(0.43	)		(1.34	)		(0.21	)
Diluted earnings per common share
Net loss attributable to Barnes & Noble, Inc.	$	(0.22	)		(0.43	)		(1.34	)		(0.21	)

11

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

(6) Segment Reporting

The Company identifies its operating segments based on 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. As a result of this assessment, the Company has determined that it has three operating segments: B&N Retail, B&N College and B&N.com.

B&N Retail

This segment includes 717 bookstores as of October 30, 2010, primarily under the Barnes & Noble Booksellers trade name. The 717 Barnes & Noble stores generally offer a NOOK™ Boutique/Counter, a comprehensive title base, a café, a children’s section, a music department, a magazine section and a calendar of ongoing events, including author appearances and children’s activities. The B&N Retail segment also includes the Company’s publishing operation, Sterling Publishing.

B&N College

This segment includes 637 stores as of October 30, 2010 that are primarily stores operated under contracts by B&N College. The 637 B&N College stores generally sell and rent new, used and digital textbooks, as well as sell course-related materials, emblematic apparel and gifts, trade books, school and dorm supplies, and convenience and café items.

B&N.com

This segment includes the Company’s online business, which includes the Company’s e-commerce site and features an eBookstore and digital newsstand. Additionally, this segment includes the development and support of the Company’s NOOK™ product offering. These products enable customers to buy and read eBooks on the widest range of platforms, including NOOK™ eBook Readers, devices from partner companies, and hundreds of the most popular mobile and computing devices using free NOOK™ software.

12

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

Summarized financial information concerning the Company’s reportable segments is presented below:

Sales

	13 Weeks Ended				26 Weeks Ended
	October 30, 2010		October 31, 2009		October 30, 2010		October 31, 2009
B&N Retail	$	930,793	$	975,153	$	1,957,062	$	2,028,819
B&N College(a)		798,081		65,254		1,023,670		65,254
B&N.com		176,703		120,488		321,415		222,503
Total	$	1,905,577	$	1,160,895	$	3,302,147	$	2,316,576

Depreciation and Amortization

	13 Weeks Ended				26 Weeks Ended
	October 30, 2010		October 31, 2009		October 30, 2010		October 31, 2009
B&N Retail	$	39,919	$	39,333	$	79,321	$	78,910
B&N College(a)		10,758		3,874		21,326		3,874
B&N.com		6,100		5,962		13,034		11,238
Total	$	56,777	$	49,169	$	113,681	$	94,022

Operating Profit/(Loss)

	13 Weeks Ended						26 Weeks Ended
	October 30, 2010			October 31, 2009			October 30, 2010			October 31, 2009
B&N Retail	$	(38,654	)	$	(2,628	)	$	(52,535	)	$	29,477
B&N College(a)		84,523			(10,163	)		64,422			(10,163	)
B&N.com		(56,348	)		(19,617	)		(109,979	)		(31,070	)
Total	$	(10,479	)	$	(32,408	)	$	(98,092	)	$	(11,756	)

Capital Expenditures

	13 Weeks Ended				26 Weeks Ended
	October 30, 2010		October 31, 2009		October 30, 2010		October 31, 2009
B&N Retail	$	13,756	$	16,759	$	23,620	$	34,915
B&N College(a)		9,191		1,530		16,368		1,530
B&N.com		7,078		5,820		11,461		10,945
Total	$	30,025	$	24,109	$	51,449	$	47,390

Total Assets

	October 30, 2010		October 31, 2009
B&N Retail	$	2,518,279	$	2,525,571
B&N College		1,260,014		1,248,504
B&N.com		240,973		333,256
Total	$	4,019,266	$	4,107,331

(a) Includes only the financial information of B&N College since the date of the Acquisition on September 30, 2009.

13

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

A reconciliation of operating profit from reportable segments to income from continuing operations before taxes in the consolidated financial statements is as follows:

	13 Weeks Ended						26 Weeks Ended
	October 30, 2010			October 31, 2009			October 30, 2010			October 31, 2009
Reportable segments operating loss	$	(10,479	)	$	(32,408	)	$	(98,092	)	$	(11,756	)
Interest, net		12,791			3,945			26,053			4,248
Consolidated income before taxes	$	(23,270	)	$	(36,353	)	$	(124,145	)	$	(16,004	)

(7) Changes in Intangible Assets and Goodwill

			As of October 30, 2010
Amortizable intangible assets	Useful Life		Gross Carrying Amount		Accumulated Amortization			Total
Customer relationships		5-25	$	257,410	$	(12,567	)	$	244,843
Author contracts		10		18,461		(14,281	)		4,180
Technology		5-10		5,850		(1,223	)		4,627
Distribution contracts		10		8,325		(3,991	)		4,334
Other		3-10		4,632		(3,730	)		902
			$	294,678	$	(35,792	)	$	258,886
Unamortizable intangible assets
Trade name								$	293,400
Copyrights									166
Publishing contracts									21,336
								$	314,902

14

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

All amortizable intangible assets are being amortized over their useful life on a straight-line basis, except for the customer relationships related to the Fictionwise acquisition that are being amortized on an accelerated basis.

Aggregate Amortization Expense:
For the 26 weeks ended October 30, 2010	$	7,286
For the 26 weeks ended October 31, 2009	$	3,652
Estimated Amortization Expense:
(12 months ending on or about April 30)
2011	$	14,511
2012	$	14,144
2013	$	13,813
2014	$	13,077
2015	$	11,293

The changes in the carrying amount of goodwill by segment for the 26 weeks ended October 30, 2010 are as follows:

	B&N Retail and B&N.com (a)			B&N College		Total Company
Balance as of May 1, 2010	$	254,471		$	274,070	$	528,541
Benefit of excess tax amortization (b)		(2,214	)		—		(2,214	)
Balance as of October 30, 2010	$	252,257		$	274,070	$	526,327

(a) The Company is currently evaluating the allocation of goodwill between B&N Retail and B&N.com.

(b) The tax basis of goodwill arising from an acquisition during the 52 weeks ended January 29, 2005 exceeded the related basis for financial reporting purposes by approximately $96,576. In accordance with ASC 740-10-30, Accounting for Income Taxes, 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.

(8) Gift Cards

The Company sells gift cards which can be used in its 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. Through fiscal 2010, the Company also sold online gift certificates for use solely on Barnes

15

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

& Noble.com, which were treated the same way as gift cards. The Company recognized gift card breakage of $4,929 and $5,479 during the 13 weeks ended October 30, 2010 and October 31, 2009, respectively, and $9,914 and $10,944 during the 26 weeks ended October 30, 2010 and October 31, 2009, respectively. The Company had gift card liabilities of $270,830 and $256,288 as of October 30, 2010 and October 31, 2009, respectively, which amounts are included in accrued liabilities.

(9) Other Long-Term Liabilities

Other long-term liabilities consist primarily of deferred rent and obligations under the Junior Seller Note (see Note 13). 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 classified as deferred rent. Other long-term liabilities also include accrued pension liabilities and store closing expenses. The Company had the following long-term liabilities at October 30, 2010, October 31, 2009 and May 1, 2010:

	October 30, 2010		October 31, 2009		May 1, 2010
Deferred Rent	$	300,184		348,640		324,528
Junior Seller Note (see Note 13)		150,000		250,000		150,000
Other		31,242		28,077		31,375
Total long-term liabilities	$	481,426		626,717		505,903

(10) Income Taxes

As of October 30, 2010, the Company had $15,457 of unrecognized tax benefits, all of which, if recognized, would affect the Company’s effective tax rate. The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company had $3,131 accrued for interest and penalties, which is included in the $15,457 of unrecognized tax benefits noted above.

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 2007 and forward. Some earlier years remain open for a small minority of states.

16

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

(11) Fair Values of Financial Instruments

In accordance with ASC 820, Fair Value Measurements and Disclosures, the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1  – Observable inputs that reflect quoted prices in active markets

Level 2  – Inputs other than quoted prices in active markets that are either directly or indirectly observable

Level 3  – Unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own assumptions

	Quarter Ended October 30, 2010		Fair Value Measurement Using
Description			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Contingent consideration (See Note 15)	$	5,626		—		—		5,626		(143	)

The following table presents the changes in Level 3 contingent consideration liability for the 26 weeks ended October 30, 2010:

	Acquisition of Fictionwise
Beginning balance, May 1, 2010	$	8,165
Payments		(2,682	)
Losses		143
Balance, October 30, 2010	$	5,626

Fair Value of Financial Instruments

The Company’s financial instruments, other than those presented in the disclosures above, include cash, receivables, other investments, accounts payable and accrued liabilities. The fair values of cash, receivables, and accounts payable and accrued liabilities approximated carrying values because of the short-term nature of these instruments. The Company believes that its Credit Facility approximates fair value since interest rates are adjusted to reflect current rates. The Company believes that the terms and conditions of the Seller Notes are consistent with comparable market debt issues.

17

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

(12) Credit Facility

On September 30, 2009, the Company entered into a credit agreement (the Credit Agreement) with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders, under which the lenders committed to provide up to $1,000,000 in commitments under a four-year asset-backed revolving credit facility (the Credit Facility) and which is secured by eligible inventory and accounts receivable and related assets. Borrowings under the Credit Agreement are limited to a specified percentage of eligible inventories and accounts receivable and accrue interest, at the election of the Company, at Base Rate or LIBO Rate, plus, in each case, an Applicable Margin (each term as defined in the Credit Agreement). In addition, the Company has the option to request the increase in commitments under the Credit Agreement by up to $300,000, subject to certain restrictions.

The Credit Agreement includes a fixed charge coverage ratio requirement which would be triggered if Availability (as defined in the Credit Agreement) were to fall below (a) the greater of (i) 15% of the Loan Cap (as defined in the Credit Agreement) or (ii) $110,000. In addition, the Credit Facility contains covenants that limit, among other things, the Company’s ability to incur indebtedness, create liens, make investments, make restricted payments, merge or acquire assets, and contains default provisions that are typical for this type of financing, among other things.

The Company paid $37,207 for advisory and arrangement fees related to the Credit Facility, which are being amortized over the four-year life of the Credit Facility.

The Credit Facility replaces the Company’s prior $850,000 credit agreement which had a maturity date of January 30, 2010, as well as B&N College’s $400,000 credit agreement which had a maturity date of November 13, 2011. The remaining unamortized deferred costs of $807 relating to the Company’s prior credit facility were deferred and are being amortized over the four-year term of the Credit Facility.

(13) Acquisition of B&N College

On September 30, 2009, the Company completed the Acquisition of B&N College from Leonard Riggio and Louise Riggio (Sellers) pursuant a Stock Purchase Agreement dated as of August 7, 2009 among the Company and the Sellers (Purchase Agreement). Mr. Riggio is the Chairman of the Company’s Board of Directors and a significant stockholder. As part of the transaction, the Company acquired the Barnes & Noble trade name that had been owned by B&N College and licensed to the Company.

On September 30, 2009, in connection with the closing of the Acquisition described above, the Company issued the Sellers (i) a senior subordinated note in the principal amount of $100,000, payable in full on December 15, 2010, with interest of 8% per annum payable on the unpaid principal amount (the Senior Seller Note), and (ii) a junior subordinated note in the principal amount of $150,000, payable in full on the fifth anniversary of the closing of the Acquisition, with interest of 10% per annum payable on the unpaid principal amount (the Junior Seller Note; and together with the Senior Seller Note, the Seller Notes). On December 22, 2009, the Company consented to the pledge and assignment of the Senior Seller Note by the Sellers as collateral security.

18

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

The purchase price paid to the Sellers under the Purchase Agreement was $596,000, consisting of $346,000 in cash and $250,000 in Seller Notes. However, pursuant to the terms of the Purchase Agreement, the cash paid to the Sellers was reduced by $82,352 in cash bonuses paid by B&N College to 192 members of its management team and employees, not including Leonard Riggio. The Company financed the Acquisition through $250,000 of seller financing, $150,000 from the Credit Facility and the remainder from both the Company’s and B&N College’s cash on hand.

The Acquisition was accounted for as a business purchase pursuant to Accounting Standards Codification (ASC) 805, Business Combinations (ASC 805). As required by ASC 805-20, the Company allocated the purchase price to assets and liabilities based on their estimated fair value at the acquisition date.

The following unaudited pro forma condensed financial information assumes that the Acquisition was accounted for using the acquisition method of accounting for business combinations in accordance with ASC 805 and represents a pro forma presentation based upon available information of the combining companies giving effect to the Acquisition as if it had occurred on May 3, 2009, the first date of B&N College’s prior fiscal year, with adjustments for amortization expense of intangible assets, depreciation expense for the fair value of property and equipment above its book value, termination or changes in certain compensation arrangements, termination of textbook royalties, non-operating expenses not acquired in the Acquisition, interest expense and income tax expense:

	13 weeks ended October 31, 2009		26 weeks ended October 31, 2009
Sales	$	1,921,668	$	3,292,674
Net income (loss) from continuing operations attributable to Barnes & Noble, Inc.	$	17,695	$	5,203
Income (loss) from continuing operations attributable to Barnes & Noble, Inc. per common share
Basic	$	0.31	$	0.09
Diluted	$	0.30	$	0.09

The unaudited pro forma condensed financial information is based on the assumptions and adjustments which give effect to events that are: (i) directly attributable to the Acquisition; (ii) expected to have a continuing impact; and (iii) factually supportable. The unaudited pro forma condensed financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have been achieved had the Acquisition been consummated as of the dates indicated or of the results that may be obtained in the future.

19

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

(14) Tikatok Acquisition

On September 24, 2009, the Company acquired the assets of Tikatok Inc. (Tikatok) for $2,305 in cash. Tikatok is an online platform where parents and their children and others can write, illustrate, and publish stories into hardcover and paperback books. On its website, Tikatok makes available, among other things, its patent-pending StorySparks™ system, which helps to walk children through the process of creating and writing stories and expands the Company’s reach to additional parents, educators and librarians. In addition to the closing purchase price, the Company has made and may make bonus and/or earn out payments if certain performance targets are met over the next four years.

The Tikatok acquisition was accounted for as a business purchase pursuant to ASC 805. In accordance with ASC 805-20, the purchase price has been allocated to assets based on their estimated fair value at the acquisition date.

The results of operations for the period subsequent to the Tikatok acquisition are included in the consolidated financial statements. The pro forma effect assuming the acquisition of Tikatok at the beginning of the fiscal year period and prior fiscal year is not material.

(15) Acquisition of Fictionwise

On March 4, 2009, the Company acquired Fictionwise, Inc. (Fictionwise), then a leader in the eBook marketplace, for $15,729 in cash. In addition to the closing purchase price, the Company has made and may make earn-out payments through 2011. The acquisition provided a core component to the Company’s overall digital strategy, enabling the launch of one of the world’s largest eBookstores on July 20, 2009. The eBookstore on Barnes & Noble.com enables customers to buy eBooks and read them on a wide range of platforms, including NOOK™, the Company’s eBook reader, iPhone^® and iPod touch^®, BlackBerry^®, Motorola™ smartphones, as well as most laptops or full-sized desktop computers.

The Fictionwise acquisition was accounted for as a business purchase pursuant to ASC 805, Business Combinations. In accordance with ASC 805-20, the purchase price has been allocated to assets and liabilities based on their estimated fair value at the acquisition date. The fair value of the contingent consideration at the Fictionwise acquisition date is included in the purchase price. The fair value of the contingent consideration arrangement is determined by estimating the expected (probability – weighted) earn-out payments discounted to present value. Changes to the fair value of the contingent consideration were recorded in selling and administrative expenses. There was no material change in the fair value of contingent consideration at October 30, 2010 compared to the fair value estimated at October 31, 2009.

20

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

The Fictionwise results of operations for the period subsequent to the Fictionwise acquisition date are included in the consolidated financial statements. The pro forma effect assuming the acquisition of Fictionwise at the beginning of the fiscal year and prior fiscal year is not material.

(16) Stock-Based Compensation

The Company maintains three share-based incentive plans: the 1996 Incentive Plan, the 2004 Incentive Plan and the 2009 Incentive Plan. Prior to June 2, 2009, the Company issued restricted stock and stock options under the 1996 and 2004 Incentive Plans. On June 2, 2009, the Company’s shareholders approved the 2009 Incentive Plan. The maximum number of shares issuable under the 2009 Incentive Plan is 950,000, plus shares that remain available under the Company’s shareholder-approved 2004 Incentive Plan. At October 30, 2010, there were approximately 999,846 shares of common stock available for future grants under the 2009 Incentive Plan.

A restricted stock award is an award of common stock 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 unvested 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. The Company’s 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.

No options were granted for the 26 weeks ended October 30, 2010 and for the 26 weeks ended October 31, 2009.

21

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

Stock-Based Compensation Activity

The following table presents a summary of the Company’s stock options activity for the 26 weeks ended October 30, 2010:

	Number of Shares (in thousands)			Weighted Average Exercise Price
Balance, May 1, 2010		5,498		$	20.19
Granted		—			—
Exercised		(1,003	)		16.90
Forfeited		(34	)		18.93
Balance, October 30, 2010		4,461			20.94
Exercisable at October 30, 2010		3,961		$	20.80

As of October 30, 2010, there was $2,304 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 2.42 years.

The following table presents a summary of the Company’s restricted stock activity for the 26 weeks ended October 30, 2010:

	Number of Shares (in thousands)			Weighted Average Grant Date Fair Value
Balance, May 1, 2010		2,330		$	24.15
Granted		591			16.96
Vested		(236	)		28.24
Forfeited		(50	)		27.32
Balance, October 30, 2010		2,635		$	22.11

As of October 30, 2010, there was $48,683 of unrecognized stock-based compensation expense related to unvested restricted stock awards. That cost is expected to be recognized over a weighted average period of 2.64 years.

For the 13 and 26 weeks ended October 30, 2010 and October 31, 2009, the Company recognized stock-based compensation expense as follows:

	13 weeks ended				26 weeks ended
	October 30, 2010		October 31, 2009		October 30, 2010		October 31, 2009
Selling and administrative expenses	$	5,225		4,075		10,374		7,813

22

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

(17) Acquisition of Noncontrolling Interest

Sterling Publishing had a joint venture in Begin Smart LLC (Begin Smart), owning a 50% interest to develop, sell, and distribute books for infants, toddlers, and children under the brand name BEGIN SMART^®. During the 13 weeks ended October 30, 2010, the Company purchased the remaining 50% outside interest in Begin Smart for $300. 100% of Begin Smart results of operations for the period subsequent to the Begin Smart acquisition date are included in the consolidated financial statements. The pro forma effect assuming the acquisition of Begin Smart at the beginning of the fiscal year and prior fiscal year is not material.

(18) Pension and Other Postretirement Benefit 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 barnesandnoble.com llc (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 $631 and $822 for the 13 weeks ended October 30, 2010 and October 31, 2009, respectively, and $1,245 and $1,584 for the 26 weeks ended October 30, 2010 and October 31, 2009, respectively.

The Company provides certain health care and life insurance benefits (the Postretirement Plan) to certain 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 $38 for the 13 weeks ended October 30, 2010 and October 31, 2009, respectively, and $75 for the 26 weeks ended October 30, 2010 and October 31, 2009, respectively.

(19) Shareholders’ Equity

On November 17, 2009, the Board of Directors of the Company declared a dividend, payable to stockholders of record on November 27, 2009 of one right (a Right) per each share of outstanding Common Stock of the Company, par value $0.001 per share (Common Stock), to purchase 1/1000th of a share of Series I Preferred Stock, par value $0.001 per share, of the Company (the Preferred Stock), at a price of $100.00 per share (such amount, as may be adjusted from time to time as provided in the Rights Agreement described below, the Purchase Price). In connection therewith, on November 17, 2009, the Company entered into a Rights Agreement, dated November 17, 2009 (as amended February 17, 2010, June 23, 2010 and October 29, 2010, and as may be further amended from time to time, the Rights Agreement) with Mellon Investor Services LLC, as Rights Agent. The Rights will be exercisable upon the earlier of (i) such date the Company learns that a

23

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

person or group, without Board approval, acquires or obtains the right to acquire beneficial ownership of 20% or more of Barnes & Noble’s outstanding common stock or a person or group that already beneficially owns 20% or more of the Company’s outstanding common stock at the time the Rights Agreement was entered into, without Board approval, acquires any additional shares (other than pursuant to the Company’s compensation or benefit plans) (any person or group specified in this sentence, an Acquiring Person) and (ii) such date a person or group announces an intention to commence or following the commencement of (as designated by the Board) a tender or exchange offer which could result in the beneficial ownership of 20% or more of Barnes & Noble’s outstanding common stock. The Rights will expire on November 17, 2012, unless earlier redeemed or canceled by the Company. If a person or group becomes an Acquiring Person, each Rights holder (other than the Acquiring Person) will be entitled to receive, upon exercise of the Right and payment of the Purchase Price, that number of 1/1000ths of a share of Preferred Stock equal to the number of shares of Common Stock which at the time of the applicable triggering transaction would have a market value of twice the Purchase Price. In the event the Company is acquired in a merger or other business combination by an Acquiring Person, or 50% or more of the Company’s assets are sold to an Acquiring Person, each Right will entitle its holder (other than an Acquiring Person) to purchase common shares in the surviving entity at 50% of the market price. In connection with the 2010 Annual Meeting of Stockholders, held on September 28, 2010, Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P. submitted a non-binding proposal requesting the Board of Directors amend the Rights Agreement to increase the beneficial ownership threshold in the Rights Agreement from 20% to 30%. A majority of the votes cast by stockholders at the 2010 Annual Meeting of Stockholders were against this non-binding proposal. On October 28, 2010 the Board of Directors of the Company gave notice of a Special Meeting of Stockholders on November 17, 2010 to seek stockholder ratification of the Rights Agreement. At the November 17, 2010 Special Meeting, the holders of a majority of the outstanding Common Stock entitled to vote at that Special Meeting voted to ratify the Board’s adoption of the Rights Agreement. See Note 20 for a description of certain legal proceedings with respect to the Rights Agreement.

(20) 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 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

24

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

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 aftermarket 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.

A settlement agreement in principle, subject to court approval, was negotiated among counsel for all of the issuers, plaintiffs, insurers and underwriters and executed by Barnes & Noble. Final court approval of the settlement was granted on October 5, 2009. The District Court has finished entering the judgments approving the settlement in all of the IPO cases, with the last judgment entered on January 22, 2010. Pursuant to the settlement, no settlement payment will be made by the Company. Since that time, various notices of appeal have been filed by certain objectors on an interlocutory basis. Should any of these appeals be successful and the approval of the settlement overturned, the Company intends to vigorously defend this lawsuit.

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

On May 1, 2009, a purported class action complaint was filed against B&N Booksellers, Inc. (B&N Booksellers) in the Superior Court for the State of California alleging wage payments by instruments in a form that did not comply with the requirements of the California Labor Code, allegedly resulting in impermissible wage payment reductions and calling for imposition of statutory penalties. The complaint also alleges a violation of the California Labor Code’s Private Attorneys General Act and seeks restitution of such allegedly unpaid wages under California’s

25

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

unfair competition law, and an injunction compelling compliance with the California Labor Code. The complaint alleges two subclasses of 500 and 200 employees, respectively (there may be overlap among the subclasses), but contains no allegations concerning the number of alleged violations or the amount of recovery sought on behalf of the purported class. On June 3, 2009, B&N Booksellers filed an answer denying all claims. Discovery concerning purported class member payroll checks and related information is ongoing. On August 19, 2010, B&N Booksellers filed a motion to dismiss the case for lack of a class representative when the name plaintiff advised she did not wish to continue to serve in that role. On October 15, 2010 the Court issued an order denying B&N Bookseller’s motion to dismiss. The Court further ruled that Ms. Minor could not serve as a class representative. The Court also granted Plaintiff’s Motion to Compel Further Responses to previously-served discovery seeking contact information for the putative class. B&N Booksellers provided that information on October 15, 2010. The previously scheduled Case Management Conference has been continued to January 27, 2011.

In re Barnes & Noble Stockholder Derivative Litigation (Consolidated Cases Formerly Captioned Separately as: Louisiana Municipal Police Employees Retirement System v. Riggio et al.; Southeastern Pennsylvania Transportation Authority v. Riggio et al.; City of Ann Arbor Employees’ Retirement System v. Riggio et al.; Louise Schuman v. Riggio et al.; Virgin Islands Government Employees’ Retirement System v. Riggio et al.; Electrical Workers Pension Fund, Local 103, I.B.E.W. v. Riggio et al.)

Between August 17, 2009 and August 31, 2009, five putative shareholder derivative complaints were filed in Delaware Chancery Court against the Company’s directors. The complaints generally allege breach of fiduciary duty, waste of corporate assets and unjust enrichment in connection with the Company’s entry into a definitive agreement to purchase Barnes & Noble College Booksellers, which was announced on August 10, 2009 (the Transaction). The complaints generally seek damages in favor of the Company in an unspecified amount; costs, fees and interest; disgorgement; restitution; and equitable relief, including injunctive relief. On September 1, 2009, the Delaware Chancery Court issued an Order of Consolidation consolidating the five lawsuits (the Consolidated Cases) and directing plaintiffs to file a consolidated amended complaint. In a related development, on August 27, 2009, the Company received a demand pursuant to Delaware General Corporation Law, Section 220, on behalf of the Electrical Workers Pension Fund, Local 103, I.B.E.W., a shareholder, seeking to inspect certain books and records related to the Transaction. The Company provided this shareholder with certain documents, on a confidential basis, in response to its demand. On September 18, 2009, this shareholder filed a shareholder derivative complaint in Delaware Chancery Court against certain of the Company’s directors alleging breach of fiduciary duty and unjust enrichment and seeking to enjoin the consummation of the Transaction. At that time, this shareholder also filed a motion for expedited proceedings. At a hearing held on September 21, 2009, the court denied plaintiff’s request for expedited proceedings. On October 6, 2009, the plaintiffs in the Consolidated Cases filed a motion seeking to consolidate the later-filed sixth case with the Consolidated Cases. Also on October 6, 2009, the plaintiff in the sixth case filed a separate motion seeking to consolidate its case with the Consolidated Cases and appoint it as co-lead plaintiff and to appoint its counsel as co-lead counsel. On November 3, 2009, a Consolidated Complaint was filed in the Consolidated Cases. The Company and defendants sought an extension of their time to answer or otherwise respond to the complaints while the plaintiffs’ respective consolidation motions were pending. On December 11, 2009, the court entered an order consolidating all actions and appointing co-lead counsel for plaintiffs. Plaintiffs designated the Consolidated Complaint filed on November 3, 2009 to be the operative Complaint. The Company and defendants filed motions to dismiss the Consolidated Complaint on January 12, 2010. On

26

BARNES & NOBLE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For the 26 weeks ended October 30, 2010 and October 31, 2009

(Thousands of dollars, except per share data)

(unaudited)

January 29, 2010, plaintiffs informed defendants that they would amend their Complaint rather than respond to defendants’ motions to dismiss. Plaintiffs filed an Amended Consolidated Complaint on March 16, 2010. The Company and defendants filed motions to dismiss the Amended Consolidated Complaint on April 30, 2010. Plaintiffs filed their response to the motion to dismiss on June 2, 2010. Oral argument on the motions to dismiss was held on October 21, 2010. Following those arguments, the Court denied the Company’s motion to dismiss, denied in part and granted in part the motion to dismiss filed by Defendants Leonard Riggio, Stephen Riggio and Lawrence Zilavy, and denied in part and granted in part the motion to dismiss filed by the remaining defendants, dismissing all claims asserted against Directors George Campbell, Jr. and Patricia Higgins. Discovery in this matter is proceeding.

Spring Design Inc. v. Barnesandnoble.com LLC

On November 2, 2009, plaintiff filed a complaint against Barnes & Noble.com in the United States District Court for the Northern District of California alleging breach of nondisclosure agreement, misappropriation of trade secrets and unfair competition in connection with Barnes & Noble.com’s development of its NOOK™ eReader. On November 11, 2009, plaintiff filed its first amended complaint and a motion for a preliminary injunction seeking to enjoin shipments of NOOK™. A hearing on plaintiff’s preliminary injunction motion took place on November 30, 2009. On December 1, 2009, the Court issued an order denying plaintiff’s motion for a preliminary injunction, in which it stated, among other things, that plaintiff had not presented sufficient evidence to show that it is likely to succeed on the merits. On January 12, 2010, plaintiff filed a second amended complaint, and on April 22, 2010, after Barnes & Noble.com’s motion to dismiss certain issues on the face of the pleadings was denied, Barnes & Noble.com filed an answer denying all claims. Fact discovery ensued and was completed on July 13, 2010. The parties then submitted expert reports and engaged in expert discovery. After fact and expert discovery closed, both parties filed motions for summary judgment. Hearings on the parties’ motions were conducted on November 22, 2010. The Court referred the parties to meet and confer with the Special Master in the litigation to set a time table for the submission of their proposed chronology of undisputed fact and directed the Special Master to submit a report to the Court containing a final chronology on or before December 10, 2010. The parties met with the Special Master on November 23, 2010. The Court will set a further hearing date on the motion for summary judgment after receipt of the Special Master’s report, if deemed necessary by the Court.

Yucaipa American Alliance Fund II, L.P. v. Leonard Riggio, et al.

On May 5, 2010, a complaint was filed in Delaware Chancery Court by two of the Company’s shareholders against the Company and its directors. The complaint generally alleges breaches of fiduciary duties by the Company’s directors in connection with the adoption of a Shareholders Rights Plan on November 17, 2009, and the amendment of that plan on February 17, 2010. The complaints generally seek damages in an unspecified amount; costs and fees; and equitable relief, including injunctive relief. On May 5, 2010, the plaintiffs also filed a motion for expedited proceedings. The Court granted that motion on May 25, 2010 and set a trial on the matter to begin on July 8, 2010. Trial concluded on July 13, and post-trial argument was held on July 22. On August 12, the Court ruled in favor of defendants and dismissed plaintiffs’ claims. On August 20, plaintiffs filed a post-trial motion for relief from the August 12 judgment, requesting that the Chancery Court reverse its ruling. Defendants filed an opposition to plaintiffs’ post-trial motion on August 24, 2010, and the motion was denied on September 2, 2010. On September 2, 2010, plaintiffs filed a notice of appeal from the Chancery Court’s August 12 judgment and the denial of plaintiffs’ post-trial motion. Briefing on that appeal has not yet been completed.

27

Report of Independent Registered Public Accounting Firm

The Board of Directors

Barnes & Noble, Inc.

New York, New York

We have reviewed the condensed consolidated balance sheets of Barnes & Noble, Inc. and Subsidiaries as of October 30, 2010 and October 31, 2009, and the related consolidated statements of operations for the 13 and 26 week periods ended October 30, 2010 and October 31, 2009, changes in shareholders’ equity for the 26 week period ended October 30, 2010, and cash flows for the 26 week periods ended October 30, 2010 and October 31, 2009 included in the accompanying Securities and Exchange Commission Form 10-Q for the period ended October 30, 2010. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of Barnes & Noble, Inc. and Subsidiaries as of May 1, 2010, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated June 30, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 1, 2010 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ BDO USA, LLP

BDO USA, LLP

New York, New York

December 9, 2010

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

The primary sources of Barnes & Noble, Inc.’s (Barnes & Noble or the Company) cash are net cash flows from operating activities, funds available under its senior credit facility and short-term vendor financing.

The Company’s cash and cash equivalents were $30.2 million as of October 30, 2010, compared with $95.7 million as of October 31, 2009.

Merchandise inventories increased $30.2 million, or 1.75%, to $1.761 billion as of October 30, 2010, compared with $1.731 billion as of October 31, 2009.

The Company’s investing activities consist principally of capital expenditures for the Company’s website and digital initiatives, new store construction, the maintenance of existing stores and system enhancements for the Company’s stores. Capital expenditures totaled $51.4 million and $47.4 million during the 26 weeks ended October 30, 2010 and October 31, 2009, respectively. This increase was due to the inclusion of B&N College offset by less new B&N Retail store openings.

On September 30, 2009, the Company completed the acquisition (the Acquisition) of B&N College from Leonard Riggio and Louise Riggio (the Sellers) pursuant to a Stock Purchase Agreement dated as of August 7, 2009 among the Company and the Sellers (the Purchase Agreement). Mr. Riggio is the Chairman of the Company’s Board of Directors and a significant stockholder.

The purchase price paid to the Sellers under the Purchase Agreement was $596 million, consisting of $346 million in cash and $250 million in aggregate principal amount of the Seller Notes described in Note 13 to the Consolidated Financial Statements contained herein. However, pursuant to the terms of the Purchase Agreement, the cash paid to the Sellers was reduced by approximately $82 million in cash bonuses paid by B&N College to 192 members of its management team and employees, not including Leonard Riggio.

On September 30, 2009, the Company entered into a credit agreement (the Credit Agreement) with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders, under which the lenders committed to provide up to $1.0 billion in commitments under a four-year asset-backed revolving credit facility (the Credit Facility) and which is secured by eligible inventory and accounts receivable and related assets. Borrowings under the Credit Agreement are limited to a specified percentage of eligible inventories and accounts receivable and accrue interest, at the election of the Company, at Base Rate or LIBO Rate, plus, in each case, an Applicable Margin (each term as defined in the Credit Agreement). In addition, the Company has the option to request the increase in commitments under the Credit Agreement by up to $300 million subject to certain restrictions.

The Credit Agreement includes a fixed charge coverage ratio requirement which would be triggered if Availability (as defined in the Credit Agreement) were to fall below (a) the greater of (i) 15% of the Loan Cap (as defined in the Credit Agreement) or (ii) $110 million. In addition, the Credit Facility contains covenants that limit, among other things, the Company’s ability to incur indebtedness, create liens, make investments, make restricted payments, merge or acquire assets, and contains default provisions that are typical for this type of financing, among other things.

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The Credit Facility replaces the Company’s prior $850 million credit agreement which had a maturity date of October 30, 2011, as well as B&N College’s $400 million credit agreement which had a maturity date of November 13, 2011. The remaining unamortized deferred costs of $0.8 million relating to the Company’s prior credit facility was deferred and will be amortized over the four-year term of the Credit Facility.

The Company had $376.9 million of outstanding debt under its Credit Facility as of October 30, 2010 compared with $325.0 million as of October 31, 2009.

Based upon the Company’s current operating levels, management believes cash and cash equivalents on hand, net cash flows from operating activities and the capacity under the Credit Facility will be sufficient to meet the Company’s normal working capital and debt service requirements for at least the next twelve months. The Company regularly evaluates its capital structure and conditions in the financing markets to ensure it maintains adequate flexibility to successfully execute its business plan.

The Company paid a dividend of $0.25 per share on June 30, 2010 to stockholders of record at the close of business on June 11, 2010 and on September 30, 2010 to stockholders of record at the close of business on September 9, 2010. On November 30, 2010, the Company announced that its Board of Directors had authorized a quarterly cash dividend of $0.25 per share for stockholders of record at the close of business on December 10, 2010, payable on December 31, 2010.

Due to the increased focus on the internet and digital businesses, the Company performed an evaluation on the effect of its impact on the identification of operating segments. The assessment considered 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. As a result of this assessment, the Company has determined that it has three operating segments: B&N Retail, B&N College and barnesandnoble.com llc. (B&N.com). B&N Retail refers to Barnes & Noble excluding B&N College and B&N.com. B&N.com encompasses one of the Web’s largest multichannel retail eCommerce sites, the Barnes & Noble eBookstore, Barnes & Noble eReader software, and the Company’s eBook Reader devices and other hardware support.

Seasonality

The B&N Retail and B&N.com business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during the third fiscal quarter, which includes the holiday selling season. The B&N College business is also seasonal, with the major portion of sales and operating profit realized during the second and third fiscal quarters, when college students generally purchase textbooks for the upcoming semesters.

Business Overview

Over the past two years, the Company’s financial performance has been adversely impacted by a number of factors, including the economic downturn, increased competition and the expanding digital market.

The Company’s core business is the operation of B&N Retail and B&N College stores, from which it derives the majority of its sales and net income. B&N Retail comparable store sales have declined in recent years due to lower consumer traffic as a result of the factors noted above. Even as the economy improves, the Company expects these trends to continue as consumer spending patterns shift toward internet retailers and digital content. The Company faces increasing competition from the expanding market for electronic books, or “eBooks”, eBook readers and digital distribution of content.

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Despite these challenges, the Company believes it has attractive opportunities for future development.

The Company plans to leverage its unique assets, iconic brands and reach to become a leader in the distribution of digital content, as well as increase the online distribution of physical books. In 2009, the Company entered the eBook market with its acquisition of Fictionwise, a leader in the eBook marketplace, and the popularity of its eBook site continues to grow. Since then, the Company launched its NOOK™ brand of eReading products, which provide a fun, easy-to-use and immersive digital reading experience. With NOOK™, customers gain access to the Company’s expansive NOOKbook™ Store of more than two million digital titles, and the ability to enjoy content across a wide array of popular devices. In October 2010, Barnes & Noble introduced NOOKcolor™, the first full-color touch Reader’s Tablet, complementing its NOOK 3G™ and NOOK Wi-Fi™ devices, which offer a paper-like reading experience with a color touch screen for navigation. In addition to NOOK™ devices, the Company makes it easy for customers to enjoy any book, anytime, anywhere with its free line of NOOK™ software. Customers can use Barnes & Noble’s free eReading software to access and read books from their personal Barnes & Noble digital library on devices including iPad™, iPhone^®, iPod touch^®, Android™, BlackBerry^® and other smartphones, PC, and Mac^®. Lifetime Library™ helps ensure that Barnes & Noble customers will always be able to access their digital libraries on NOOK™ products and software-enabled devices and BN.com. The Company also offers NOOKstudy™, an innovative study platform and software solution for higher education and NOOK kids™, a collection of digital picture and chapter books for children.

As digital and electronic sales become a larger part of its business, the Company believes its footprint of more than 1,300 stores will continue to be a major competitive asset. The Company is integrating its traditional retail, trade book and college bookstores businesses with its electronic and internet offerings, using retail stores in attractive geographic markets to promote and sell digital devices and content. Customers can see, feel and experiment with the NOOK™ in the Company’s stores.

Although the stores will be just a part of the offering, they will remain a key driver of sales and cash flow as the Company expands its multi-channel relationships with its customers. The Company does not expect to open retail stores in new geographic markets or expand the total number of retail stores in the near future.

B&N College provides direct access to a large and well educated demographic group, enabling the Company to build relationships with students throughout their college years and beyond. The Company also expects to be the beneficiary of market consolidation as more and more schools outsource their bookstore management. The Company is in a unique market position to benefit from this trend given its full suite of services: bookstore management, textbook rental and digital delivery.

Although the Company believes cash on hand, cash flows from operating activities, funds available from its senior credit facility and short-term vendor financing provide the Company with adequate liquidity and capital resources for seasonal working capital requirements, the Company may raise additional capital to support the growth of online and digital businesses.

Strategic alternative process. On August 3, 2010, the Company’s Board of Directors created a Special Committee to review strategic alternatives, including a possible sale of the Company. This review process is currently ongoing and the Company is meeting with both strategic and financial institutions. There can be no assurance that the review of strategic alternatives will result in a sale of the Company or in any other transaction.

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Results of Operations

13 and 26 weeks ended October 30, 2010 compared with the 13 and 26 weeks ended October 31, 2009

Sales

The following table summarizes the Company’s sales for the 13 and 26 weeks ended October 30, 2010 and October 31, 2009:

	13 weeks ended										26 weeks ended
Dollars in thousands	October 30, 2010		% Total			October 31, 2009		% Total			October 30, 2010		% Total			October 31, 2009		% Total
B&N Retail	$	930,793		48.8	%	$	975,153		84.0	%	$	1,957,062		59.3	%	$	2,028,819		87.6	%
B&N College		798,081		41.9	%		65,254		5.6	%		1,023,670		31.0	%		65,254		2.8	%
B&N.com		176,703		9.3	%		120,488		10.4	%		321,415		9.7	%		222,503		9.6	%
Total Sales	$	1,905,577		100.0	%	$	1,160,895		100.0	%	$	3,302,147		100.0	%	$	2,316,576		100.0	%

During the 13 weeks ended October 30, 2010, the Company’s sales increased $744.7 million, or 64.2%, to $1.906 billion from $1.161 billion during the 13 weeks ended October 31, 2009. This increase was primarily attributable to the following:

• B&N College sales increased $732.8 million to $798.1 million during the 13 weeks ended October 30, 2010 from $65.3 million during the 13 weeks ended October 31, 2009. This increase in sales was due to the Acquisition on September 30, 2009. Comparable sales for B&N College decreased 1.5% for the 13 weeks ended October 30, 2010.

• B&N.com sales increased $56.2 million, or 46.7%, to $176.7 million during the 13 weeks ended October 30, 2010 from $120.5 million during the 13 weeks ended October 31, 2009. Comparable sales for B&N.com increased 59.3% for the 13 weeks ended October 30, 2010. This increase to sales was primarily due to the launch of NOOK™, the Company’s proprietary eReader and digital content sales, as well as higher sales of physical products.

This increase was offset by the following:

• Barnes & Noble store sales for the 13 weeks ended October 30, 2010 decreased $44.4 million, or 4.5%, to $930.8 million from $975.2 million during the same period a year ago, and accounted for 48.8% of total Company sales. This decrease was primarily attributable to a 3.3% decrease in comparable store sales, which decreased sales by $30.0 million, and by closed stores that decreased sales by $12.9 million, offset by new Barnes & Noble stores that contributed to an increase in sales of $7.4 million. B&N Retail also includes third-party sales of Sterling Publishing Co., Inc., a wholly-owned subsidiary of the Company.

During the 13 weeks ended October 30, 2010, the Company had no store openings or closings, ending the period with 717 Barnes & Noble stores with 18.6 million square feet. During the 13 weeks ended October 30, 2010, the Company added seven B&N College stores and closed three, ending the period with 637 B&N College stores. As of October 30, 2010, the Company operated 1,354 stores in the fifty states and the District of Columbia.

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During the 26 weeks ended October 30, 2010, the Company’s sales increased $985.6 million, or 42.5%, to $3.302 billion from $2.317 billion during the 26 weeks ended October 31, 2009. This increase was primarily attributable to the following:

• B&N College sales increased $958.4 million to $1.024 billion during the 26 weeks ended October 30, 2010. This increase in sales was due to the Acquisition on September 30, 2009. Comparable sales for B&N College decreased 0.7% for the 26 weeks ended October 30, 2010.

• B&N.com sales increased $98.9 million, or 44.5%, to $321.4 million during the 26 weeks ended October 30, 2010 from $222.5 million during the 26 weeks ended October 31, 2009. Comparable sales for B&N.com increased 56.5% for the 26 weeks ended October 30, 2010. This increase to sales was primarily due to the launch of NOOK™, the Company’s proprietary eReader and digital content sales, as well as higher sales of physical products.

This increase was offset by the following:

• Barnes & Noble store sales for the 26 weeks ended October 30, 2010 decreased $71.8 million, or 3.5%, to $1.957 billion from $2.029 billion during the same period a year ago, and accounted for 59.3% of total Company sales. This decrease was primarily attributable to a 2.1% decrease in comparable store sales, which decreased sales by $39.0 million, and by closed stores that decreased sales by $30.4 million, offset by new Barnes & Noble stores that contributed to an increase in sales of $20.9 million.

During the 26 weeks ended October 30, 2010, the Company opened one Barnes & Noble store and closed four, bringing its total number of Barnes & Noble stores to 717 with 18.6 million square feet. During the 26 weeks ended October 30, 2010, the Company added 10 B&N College stores and closed 10, ending the period with 637 B&N College stores. As of October 30, 2010, the Company operated 1,354 stores in the fifty states and the District of Columbia.

Cost of Sales and Occupancy

	13 weeks ended										26 weeks ended
Dollars in thousands	October 30, 2010		% of Sales			October 31, 2009		% of Sales			October 30, 2010		% of Sales			October 31, 2009		% of Sales
B&N Retail	$	661,079		71.0	%	$	668,026		68.5	%	$	1,391,677		71.1	%	$	1,386,969		68.4	%
B&N College		628,931		78.8	%		50,585		77.5	%		803,823		78.5	%		50,585		77.5	%
B&N.com		165,447		93.6	%		100,095		83.1	%		304,827		94.8	%		180,978		81.3	%
Total Cost of Sales and Occupancy	$	1,455,457		76.4	%	$	818,706		70.5	%	$	2,500,327		75.7	%	$	1,618,532		69.9	%

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.

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During the 13 weeks ended October 30, 2010, cost of sales and occupancy increased $636.8 million, or 77.9%, to $1.455 billion from $818.7 million during the 13 weeks ended October 31, 2009. Cost of sales and occupancy increased as a percentage of sales to 76.4% from 70.5% during the same period one year ago. This increase was primarily attributable to the following:

• B&N Retail cost of sales and occupancy increased as a percentage of sales to 71.0% from 68.5% during the same period one year ago. This increase was primarily attributable to the inclusion of NOOK™ sales, which have lower margins.

• The inclusion of the B&N College cost of sales and occupancy since the Acquisition on September 30, 2009, which is a lower gross margin business.

• B&N.com cost of sales and occupancy increased as a percentage of sales to 93.6% from 83.1% during the same period one year ago. This increase was primarily attributable to the inclusion of NOOK™ sales online and the launch of “everyday low pricing” (EDLP) last fall.

During the 26 weeks ended October 30, 2010, cost of sales and occupancy increased $881.8 million, or 54.5%, to $2.500 billion from $1.619 billion during the 26 weeks ended October 31, 2009. Cost of sales and occupancy increased as a percentage of sales to 75.7% from 69.9% during the same period one year ago.

• B&N Retail cost of sales and occupancy increased as a percentage of sales to 71.1% from 68.4% during the same period one year ago. This increase was primarily attributable to the inclusion of NOOK™ sales, which have lower margins.

• The inclusion of the B&N College cost of sales and occupancy since the Acquisition on September 30, 2009, which is a lower gross margin business.

• B&N.com cost of sales and occupancy increased as a percentage of sales to 94.8% from 81.3% during the same period one year ago. This increase was primarily attributable to the inclusion of NOOK™ sales online and the launch of EDLP last fall.

Selling and Administrative Expenses

	13 weeks ended										26 weeks ended
Dollars in thousands	October 30, 2010		% of Sales			October 31, 2009		% of Sales			October 30, 2010		% of Sales			October 31, 2009		% of Sales
B&N Retail	$	268,446		28.8	%	$	269,156		27.6	%	$	538,616		27.5	%	$	530,498		26.1	%
B&N College		73,845		9.3	%		20,940		32.1	%		134,028		13.1	%		20,940		32.1	%
B&N.com		61,504		34.8	%		34,048		28.3	%		113,533		35.3	%		61,357		27.6	%
Total Selling and Administrative Expenses	$	403,795		21.2	%	$	324,144		27.9	%	$	786,177		23.8	%	$	612,795		26.5	%

Selling and administrative expenses increased $79.7 million, or 24.6%, to $403.8 million during the 13 weeks ended October 30, 2010 from $324.1 million during the 13 weeks ended October 31, 2009. Selling and administrative expenses decreased as a percentage of sales to 21.2% from 27.9% during the same period one year ago. This decrease was primarily attributable to the following:

• The inclusion of the B&N College selling and administrative expenses since the Acquisition on September 30, 2009, which includes the back to school rush period during the 13 weeks ended October 30, 2010, which drives the selling and administrative expenses as a percentage of sales down.

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This decrease was offset by the following:

• B&N Retail selling and administrative expenses increased as a percentage of sales to 28.8% from 27.6% during the same period one year ago. This increase was attributable to the deleveraging against the comparable sales decline and legal costs relating to the shareholder rights plan litigation and a proxy contest.

• B&N.com selling and administrative expenses increased as a percentage of sales to 34.8% from 28.3% during the same period one year ago. This increase was primarily due to increased resources allocated to the Company’s digital strategies.

Selling and administrative expenses increased $173.4 million, or 28.3%, to $786.2 million during the 26 weeks ended October 30, 2010 from $612.8 million during the 26 weeks ended October 31, 2009. Selling and administrative expenses decreased as a percentage of sales to 23.8% from 26.5% during the same period one year ago. This decrease was primarily attributable to the following:

• The inclusion of the B&N College selling and administrative expenses since the Acquisition on September 30, 2009, which includes the back to school rush period during the 26 weeks ended October 30, 2010, which drives the selling and administrative expenses as a percentage of sales down.

This decrease was offset by the following:

• B&N Retail selling and administrative expenses increased as a percentage of sales to 27.5% from 26.1% during the same period one year ago. This increase was attributable to the deleveraging against the comparable sales decline and legal costs relating to the shareholder rights plan litigation and a proxy contest.

• B&N.com selling and administrative expenses increased as a percentage of sales to 35.3% from 27.6% during the same period one year ago. This increase was primarily due to increased resources allocated to the Company’s digital strategies.

Depreciation and Amortization

	13 weeks ended										26 weeks ended
Dollars in thousands	October 30, 2010		% of Sales			October 31, 2009		% of Sales			October 30, 2010		% of Sales			October 31, 2009		% of Sales
B&N Retail	$	39,919		4.3	%	$	39,333		4.0	%	$	79,321		4.1	%	$	78,910		3.9	%
B&N College		10,758		1.3	%		3,874		5.9	%		21,326		2.1	%		3,874		5.9	%
B&N.com		6,100		3.5	%		5,962		4.9	%		13,034		4.1	%		11,238		5.1	%
Total Depreciation and Amortization	$	56,777		3.0	%	$	49,169		4.2	%	$	113,681		3.4	%	$	94,022		4.1	%

During the 13 weeks ended October 30, 2010, depreciation and amortization increased $7.6 million, or 15.5%, to $56.8 million from $49.2 million during the same period one year ago. This increase was primarily attributable to the inclusion of the B&N College depreciation and amortization since the Acquisition on September 30, 2009, which increased $6.9 million to $10.8 million during the 13 weeks ended October 30, 2010 from $3.8 million during the same period last year.

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During the 26 weeks ended October 30, 2010, depreciation and amortization increased $19.7 million, or 20.9%, to $113.7 million from $94.0 million during the same period last year. This increase was primarily attributable to the inclusion of the B&N College depreciation and amortization since the Acquisition on September 30, 2009, which increased $17.5 million to $21.3 million during the 26 weeks ended October 30, 2010 from $3.8 million during the same period last year.

Pre-opening Expenses

	13 weeks ended										26 weeks ended
Dollars in thousands	October 30, 2010		% of Sales			October 31, 2009		% of Sales			October 30, 2010			% of Sales			October 31, 2009		% of Sales
B&N Retail	$	3		0.0	%	$	1,266		0.1	%	$	(17	)		0.0	%	$	2,965		0.1	%
B&N College		24		0.0	%		18		0.0	%		71			0.0	%		18		0.0	%
B&N.com		—		0.0	%		—		0.0	%		—			0.0	%		—		0.0	%
Total Pre-opening Expenses	$	27		0.0	%	$	1,284		0.1	%	$	54			0.0	%	$	2,983		0.1	%

Pre-opening expenses decreased $1.3 million, or 97.9%, to $0.03 million during the 13 weeks ended October 30, 2010 from $1.3 million for the 13 weeks ended October 31, 2009. This decrease was primarily the result of the lower volume of B&N Retail new store openings.

Pre-opening expenses decreased $2.9 million, or 98.2%, to $0.05 million during the 26 weeks ended October 30, 2010 from $3.0 million for the 26 weeks ended October 31, 2009. This decrease was primarily the result of the lower volume of B&N Retail new store openings.

Operating Profit (Loss)

	13 weeks ended												26 weeks ended
Dollars in thousands	October 30, 2010			% of Sales			October 31, 2009			% of Sales			October 30, 2010			% of Sales			October 31, 2009			% of Sales
B&N Retail	$	(38,654	)		-4.2	%	$	(2,628	)		-0.3	%	$	(52,535	)		-2.7	%	$	29,477			1.5	%
B&N College		84,523			10.6	%		(10,163	)		-15.6	%		64,422			6.3	%		(10,163	)		-15.6	%
B&N.com		(56,348	)		-31.9	%		(19,617	)		-16.3	%		(109,979	)		-34.2	%		(31,070	)		-14.0	%
Total Operating Profit (Loss)	$	(10,479	)		-0.5	%	$	(32,408	)		-2.8	%	$	(98,092	)		-3.0	%	$	(11,756	)		-0.5	%

The Company’s consolidated operating loss decreased $21.9 million, or 67.7%, to ($10.5) million during the 13 weeks ended October 30, 2010 from an operating loss of ($32.4) million during the 13 weeks ended October 31, 2009. This decrease was due to the matters discussed above.

The Company’s consolidated operating loss increased $86.3 million, or 734.4%, to ($98.1) million during the 26 weeks ended October 30, 2010 from an operating loss of ($11.8) million during the 26 weeks ended October 31, 2009. This increase was due to the matters discussed above.

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Interest Expense, Net and Amortization of Deferred Financing Fees

	13 weeks ended							26 weeks ended
Dollars in thousands	October 30, 2010		October 31, 2009		% of Change			October 30, 2010		October 31, 2009		% of Change
Interest Expense, Net and Amortization of Deferred Financing Fees	$	12,791	$	3,945		224.2	%	$	26,053	$	4,248		513.3	%

Net interest expense and amortization of deferred financing fees increased $8.8 million, to $12.8 million during the 13 weeks ended October 30, 2010 from $3.9 million during the 13 weeks ended October 31, 2009. This increase in interest expense was primarily due to the interest expense related to the debt from the Acquisition of B&N College and the investments made in digital.

Net interest expense and amortization of deferred financing fees increased $21.8 million, to $26.1 million during the 26 weeks ended October 30, 2010 from $4.2 million during the 26 weeks ended October 31, 2009. This increase in interest expense was primarily due to the interest expense related to the debt from the Acquisition of B&N College and the investments made in digital.

Income Taxes

	13 weeks ended												26 weeks ended
Dollars in thousands	October 30, 2010			Effective Rate			October 31, 2009			Effective Rate			October 30, 2010			Effective Rate			October 31, 2009			Effective Rate
Income Taxes	$	(10,690	)		45.9	%	$	(12,421	)		34.2	%	$	(49,023	)		39.5	%	$	(4,311	)		26.9	%

The Company had an income tax benefit of $10.7 million during the 13 weeks ended October 30, 2010 compared with an income tax benefit of $12.4 million during the 13 weeks ended October 31, 2009. The Company’s effective tax rate was 45.9% and 34.2% for the 13 weeks ended October 30, 2010 and October 31, 2009, respectively. The higher effective tax rate for 13 weeks ended October 30, 2010 is primarily due to discrete items in such period combined with the non-deductible portion of the Acquisition-related fees in the prior period.

Income tax benefit during the 26 weeks ended October 30, 2010 was $49.0 million compared with an income tax benefit of $4.3 million during the 26 weeks ended October 31, 2009. The Company’s effective tax rate was 39.5% and 26.9% for the 26 weeks ended October 30, 2010 and October 31, 2009, respectively. Tax benefit in the current year is a result of operating losses incurred during the 26 weeks ended October 30, 2010. The lower effective tax rate for the 26 weeks ended October 31, 2009 was due to the non-deductible portion of the Acquisition-related fees in such prior period.

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Net Income (Loss) Attributable to Noncontrolling Interest

The Company recorded a net loss attributable to noncontrolling interests of $0.01 million during the 13 weeks ended October 30, 2010 compared with net income of $0.03 million during the 13 weeks ended October 31, 2009. The noncontrolling interest relates to the 50% outside interest in Begin Smart LLC (Begin Smart).

Net loss attributable to noncontrolling interests was $0.04 during the 26 weeks ended October 30, 2010 compared with $0.004 during the 26 weeks ended October 31, 2009, and relates to the 50% outside interest in Begin Smart.

During the 13 weeks ended October 30, 2010, the Company purchased the remaining 50% outside interest in Begin Smart for $300. 100% of Begin Smart results of operations for the period subsequent to the Begin Smart acquisition date are included in the consolidated financial statements.

Net Loss Attributable to Barnes & Noble, Inc.

	13 weeks ended						26 weeks ended
Dollars in thousands	October 30, 2010			October 31, 2009			October 30, 2010			October 31, 2009
Net Loss Attributable to Barnes & Noble, Inc.	$	(12,568	)	$	(23,957	)	$	(75,085	)	$	(11,689	)

As a result of the factors discussed above, the Company reported a consolidated net loss attributable to Barnes & Noble, Inc. of ($12.6) million during the 13 weeks ended October 30, 2010, compared with a consolidated net loss attributable to Barnes & Noble, Inc. of ($24.0) million during the 13 weeks ended October 31, 2009.

As a result of the factors discussed above, the Company reported a consolidated net loss attributable to Barnes & Noble, Inc. of ($75.1) million during the 26 weeks ended October 30, 2010, compared with a consolidated net loss attributable to Barnes & Noble, Inc. of ($11.7) million during the 26 weeks ended October 31, 2009.

Critical Accounting Policies

During the second quarter of fiscal 2011, there were no changes in the Company’s policies regarding the use of estimates and other critical accounting policies. The Company has disclosed an additional policy below. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” found in the Company’s Annual Report on Form 10-K for the fiscal year ended May 1, 2010 for additional information relating to the Company’s use of estimates and other critical accounting policies.

Research and Development Costs for Software Products. Software development costs to be sold, leased, or otherwise marketed are capitalized in accordance with ASC 985-20. Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. The Company’s products reach technological feasibility shortly before the products are released and therefore research and development costs are generally expensed as incurred.

Disclosure Regarding Forward-Looking Statements

This quarterly report on Form 10-Q may contain certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act)) and information relating to the Company that are based

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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, the general economic environment and consumer spending patterns, decreased consumer demand for the Company’s products, low growth or declining sales and net income due to various factors, possible disruptions in the Company’s computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of the Company’s online, digital and other initiatives, the performance and successful integration of acquired businesses, the success of the Company’s strategic investments, unanticipated increases in merchandise, component 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 and component shortages, the outcome of Barnes & Noble’s evaluation of strategic alternatives, including a possible sale of Barnes & Noble, as announced on August 3, 2010, 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 May 1, 2010, and in the Company’s other filings made hereafter from time to time with the SEC. 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 Form 10-Q.

Item 3: 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 October 30, 2010, the Company’s cash and cash equivalents totaled approximately $30.2 million.

Additionally, the Company may from time to time borrow money under its credit facility at various interest rate options based on the Base Rate or LIBO Rate (each term as defined in the Credit Agreement described in the Quarterly Report under the section titled “Notes to Consolidated Financial Statements”) depending upon certain financial tests. Accordingly, the Company may be exposed to interest rate risk on borrowings under its credit facility. The Company had $376.9 million in borrowings under its credit facility at October 30, 2010 compared with $325.0 million in borrowings as of October 31, 2009. The Company had $260.4 million in borrowing under its credit facility at May 1, 2010.

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

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Item 4: Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company’s management conducted an evaluation (as required under Rules 13a-15(b) and 15d-15(b) under the Exchange Act), under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s period reports. Based on management’s evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

(b) Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. 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 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 aftermarket 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

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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.

A settlement agreement in principle, subject to court approval, was negotiated among counsel for all of the issuers, plaintiffs, insurers and underwriters and executed by Barnes & Noble. Final court approval of the settlement was granted on October 5, 2009. The District Court has finished entering the judgments approving the settlement in all of the IPO cases, with the last judgment entered on January 22, 2010. Pursuant to the settlement, no settlement payment will be made by the Company. Since that time, various notices of appeal have been filed by certain objectors on an interlocutory basis. Should any of these appeals be successful and the approval of the settlement overturned, the Company intends to vigorously defend this lawsuit.

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

On May 1, 2009, a purported class action complaint was filed against B&N Booksellers, Inc. (B&N Booksellers) in the Superior Court for the State of California alleging wage payments by instruments in a form that did not comply with the requirements of the California Labor Code, allegedly resulting in impermissible wage payment reductions and calling for imposition of statutory penalties. The complaint also alleges a violation of the California Labor Code’s Private Attorneys General Act and seeks restitution of such allegedly unpaid wages under California’s unfair competition law, and an injunction compelling compliance with the California Labor Code. The complaint alleges two subclasses of 500 and 200 employees, respectively (there may be overlap among the subclasses), but contains no allegations concerning the number of alleged violations or the amount of recovery sought on behalf of the purported class. On June 3, 2009, B&N Booksellers filed an answer denying all claims. Discovery concerning purported class member payroll checks and related information is ongoing. On August 19, 2010, B&N Booksellers filed a motion to dismiss the case for lack of a class representative when the name plaintiff advised she did not wish to continue to serve in that role. On October 15, 2010 the Court issued an order denying B&N Bookseller’s motion to dismiss. The Court further ruled that Ms. Minor could not serve as a class representative. The Court also granted Plaintiff’s Motion to Compel Further Responses to previously-served discovery seeking contact information for the putative class. B&N Booksellers provided that information on October 15, 2010. The previously scheduled Case Management Conference has been continued to January 27, 2011.

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In re Barnes & Noble Stockholder Derivative Litigation (Consolidated Cases Formerly Captioned Separately as: Louisiana Municipal Police Employees Retirement System v. Riggio et al.; Southeastern Pennsylvania Transportation Authority v. Riggio et al.; City of Ann Arbor Employees’ Retirement System v. Riggio et al.; Louise Schuman v. Riggio et al.; Virgin Islands Government Employees’ Retirement System v. Riggio et al.; Electrical Workers Pension Fund, Local 103, I.B.E.W. v. Riggio et al.)

Between August 17, 2009 and August 31, 2009, five putative shareholder derivative complaints were filed in Delaware Chancery Court against the Company’s directors. The complaints generally allege breach of fiduciary duty, waste of corporate assets and unjust enrichment in connection with the Company’s entry into a definitive agreement to purchase Barnes & Noble College Booksellers, which was announced on August 10, 2009 (the Transaction). The complaints generally seek damages in favor of the Company in an unspecified amount; costs, fees and interest; disgorgement; restitution; and equitable relief, including injunctive relief. On September 1, 2009, the Delaware Chancery Court issued an Order of Consolidation consolidating the five lawsuits (the Consolidated Cases) and directing plaintiffs to file a consolidated amended complaint. In a related development, on August 27, 2009, the Company received a demand pursuant to Delaware General Corporation Law, Section 220, on behalf of the Electrical Workers Pension Fund, Local 103, I.B.E.W., a shareholder, seeking to inspect certain books and records related to the Transaction. The Company provided this shareholder with certain documents, on a confidential basis, in response to its demand. On September 18, 2009, this shareholder filed a shareholder derivative complaint in Delaware Chancery Court against certain of the Company’s directors alleging breach of fiduciary duty and unjust enrichment and seeking to enjoin the consummation of the Transaction. At that time, this shareholder also filed a motion for expedited proceedings. At a hearing held on September 21, 2009, the court denied plaintiff’s request for expedited proceedings. On October 6, 2009, the plaintiffs in the Consolidated Cases filed a motion seeking to consolidate the later-filed sixth case with the Consolidated Cases. Also on October 6, 2009, the plaintiff in the sixth case filed a separate motion seeking to consolidate its case with the Consolidated Cases and appoint it as co-lead plaintiff and to appoint its counsel as co-lead counsel. On November 3, 2009, a Consolidated Complaint was filed in the Consolidated Cases. The Company and defendants sought an extension of their time to answer or otherwise respond to the complaints while the plaintiffs’ respective consolidation motions were pending. On December 11, 2009, the court entered an order consolidating all actions and appointing co-lead counsel for plaintiffs. Plaintiffs designated the Consolidated Complaint filed on November 3, 2009 to be the operative Complaint. The Company and defendants filed motions to dismiss the Consolidated Complaint on January 12, 2010. On January 29, 2010, plaintiffs informed defendants that they would amend their Complaint rather than respond to defendants’ motions to dismiss. Plaintiffs filed an Amended Consolidated Complaint on March 16, 2010. The Company and defendants filed motions to dismiss the Amended Consolidated Complaint on April 30, 2010. Plaintiffs filed their response to the motion to dismiss on June 2, 2010. Oral argument on the motions to dismiss was held on October 21, 2010. Following those arguments, the Court denied the Company’s motion to dismiss, denied in part and granted in part the motion to dismiss filed by Defendants Leonard Riggio, Stephen Riggio and Lawrence Zilavy, and denied in part and granted in part the motion to dismiss filed by the remaining defendants, dismissing all claims asserted against Directors George Campbell, Jr. and Patricia Higgins. Discovery in this matter is proceeding.

Spring Design Inc. v. Barnesandnoble.com LLC

On November 2, 2009, plaintiff filed a complaint against Barnes & Noble.com in the United States District Court for the Northern District of California alleging breach of nondisclosure agreement, misappropriation of trade secrets and unfair competition in connection with Barnes & Noble.com’s development

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of its NOOK™ eReader. On November 11, 2009, plaintiff filed its first amended complaint and a motion for a preliminary injunction seeking to enjoin shipments of NOOK™. A hearing on plaintiff’s preliminary injunction motion took place on November 30, 2009. On December 1, 2009, the Court issued an order denying plaintiff’s motion for a preliminary injunction, in which it stated, among other things, that plaintiff had not presented sufficient evidence to show that it is likely to succeed on the merits. On January 12, 2010, plaintiff filed a second amended complaint, and on April 22, 2010, after Barnes & Noble.com’s motion to dismiss certain issues on the face of the pleadings was denied, Barnes & Noble.com filed an answer denying all claims. Fact discovery ensued and was completed on August 13, 2010. The parties then submitted expert reports and engaged in expert discovery. After fact and expert discovery closed, both parties filed motions for summary judgment. Hearings on the parties’ motions were conducted on November 22, 2010. The Court referred the parties to meet and confer with the Special Master in the litigation to set a time table for the submission of their proposed chronology of undisputed fact and directed the Special Master to submit a report to the Court containing a final chronology on or before December 10, 2010. The parties met with the Special Master on November 23, 2010. The Court will set a further hearing date on the motion for summary judgment after receipt of the Special Master’s report, if deemed necessary by the Court.

Yucaipa American Alliance Fund II, L.P. v. Leonard Riggio, et al.

On May 5, 2010, a complaint was filed in Delaware Chancery Court by two of the Company’s shareholders against the Company and its directors. The complaint generally alleges breaches of fiduciary duties by the Company’s directors in connection with the adoption of a Shareholders Rights Plan on November 17, 2009, and the amendment of that plan on February 17, 2010. The complaints generally seek damages in an unspecified amount; costs and fees; and equitable relief, including injunctive relief. On May 5, 2010, the plaintiffs also filed a motion for expedited proceedings. The Court granted that motion on May 25, 2010 and set a trial on the matter to begin on July 8, 2010. Trial concluded on July 13, and post-trial argument was held on July 22. On August 12, the Court ruled in favor of defendants and dismissed plaintiffs’ claims. On August 20, plaintiffs filed a post-trial motion for relief from the August 12 judgment, requesting that the Chancery Court reverse its ruling. Defendants filed an opposition to plaintiffs’ post-trial motion on August 24, 2010, and the motion was denied on September 2, 2010. On September 2, 2010, plaintiffs filed a notice of appeal from the Chancery Court’s August 12 judgment and the denial of plaintiffs’ post-trial motion. Briefing on that appeal has not yet been completed.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended May 1, 2010.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased (a)		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
August 1, 2010 – August 30, 2010		21,751	$	14.62		—	$	2,470,561
August 31, 2010 – September 29, 2010		1,183	$	15.63		—	$	2,470,561
September 30, 2010 – October 30, 2010		23,715	$	15.95		—	$	2,470,561
Total		46,649	$	15.32		—

(a) All of the shares on this table above were originally granted to employees as restricted stock pursuant to the Company’s 2004 Incentive Plan and 2009 Incentive Plan. Both Incentive Plans provide for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock, and pursuant to the 2004 Incentive Plan, the shares reflected above were relinquished by employees in exchange for the Company’s agreement to pay federal and state withholding obligations resulting from the vesting of the Company’s restricted stock.

On May 15, 2007, the Company announced its Board of Directors authorized a 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 this program is approximately $2.5 million as of October 30, 2010.

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 October 30, 2010, the Company has repurchased 33,360,341 shares at a cost of approximately $1,053.6 million. The repurchased shares are held in treasury.

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Item 6. Exhibits

(a) Exhibits filed with this Form 10-Q:

4.1	Third Amendment dated as of October 29, 2010, to the Rights Agreement dated as of November 17, 2009, between Barnes & Noble, Inc. and Mellon Investor Services LLC, as rights agent, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed October 29, 2010.
10.11	Employment Agreement dated September 27, 2010 between Barnes & Noble, Inc. and Eugene V. DeFelice.
15.11	Letter from BDO USA, LLP regarding unaudited interim financial information.
22.1	Final voting results for each of the proposals submitted to a vote of the stockholders of the Company at the Annual Meeting, incorporated by reference to Exhibit 22.1 to the Company’s Current Report on Form 8-K/A filed on October 13, 2010.
31.11	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.
31.21	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.
32.11	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.
32.21	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.
101.INS	XBRL Instance Document 2
101.SCH	XBRL Taxonomy Extension Schema Document2
101.CAL	XBRL Taxonomy Calculation Linkbase Document2
101.DEF	XBRL Taxonomy Definition Linkbase Document2
101.LAB	XBRL Taxonomy Label Linkbase Document2
101.PRE	XBRL Taxonomy Presentation Linkbase Document2

¹ Filed herewith.

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² Attached as Exhibits 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 2010 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statement of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements tagged as blocks of text.

The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

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SIGNATURES

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

BARNES & NOBLE, INC.
(Registrant)
By:	/s/    JOSEPH J. LOMBARDI
	Joseph J. Lombardi
	Chief Financial Officer
	(principal financial officer)
By:	/s/    ALLEN W. LINDSTROM
	Allen W. Lindstrom
	Vice President, Corporate Controller
	(principal accounting officer)

December 9, 2010

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EXHIBIT INDEX

4.1	Third Amendment dated as of October 29, 2010, to the Rights Agreement dated as of November 17, 2009, between Barnes & Noble, Inc. and Mellon Investor Services LLC, as rights agent, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed October 29, 2010.
10.11	Employment Agreement dated September 27, 2010 between Barnes & Noble, Inc. and Eugene V. DeFelice.
15.11	Letter from BDO USA, LLP regarding unaudited interim financial information.
22.1	Final voting results for each of the proposals submitted to a vote of the stockholders of the Company at the Annual Meeting, incorporated by reference to Exhibit 22.1 to the Company’s Current Report on Form 8-K/A filed on October 13, 2010.
31.11	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.
31.21	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.
32.11	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.
32.21	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.
101.INS	XBRL Instance Document 2
101.SCH	XBRL Taxonomy Extension Schema Document2
101.CAL	XBRL Taxonomy Calculation Linkbase Document2
101.DEF	XBRL Taxonomy Definition Linkbase Document2
101.LAB	XBRL Taxonomy Label Linkbase Document2
101.PRE	XBRL Taxonomy Presentation Linkbase Document2

¹ Filed herewith.

² Attached as Exhibits 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 2010 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statement of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements tagged as blocks of text.

The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

EX-10.1

Exhibit 10.1

September 27, 2010

Mr. Eugene V. DeFelice

122 Fifth Avenue

New York, NY 10011

Dear Mr. DeFelice:

This letter agreement (the “Agreement”) is intended to set forth our mutual understanding regarding your employment as Vice President, General Counsel and Corporate Secretary (“General Counsel”) of Barnes & Noble, Inc. (the “Company”).

Accordingly, we are pleased to agree as follows:

1. Duties. You agree to be General Counsel for the term of this Agreement. In this capacity, you shall perform such duties and have such responsibilities as are typically associated with such position, including such duties and responsibilities as are prescribed by the Board of Directors of the Company (the “Board”) consistent with such position. While you are the Company’s employee, you agree to devote your full business time and attention to the performance of your duties and responsibilities hereunder. You shall report to the Company’s Chief Financial Officer.

2. Term. (a) Your first day of employment hereunder shall be September 27, 2010 (the “Effective Date”). The initial term of this Agreement shall be for a period beginning on the Effective Date and ending on the third anniversary thereof or, if earlier, the termination of your employment in accordance with the provisions set forth below (the “Initial Term”). At the expiration (but not earlier termination) of the Initial Term, and any subsequent “Renewal Term” (as defined below), the term of this Agreement shall automatically renew for additional periods of one year (each, a “Renewal Term”), unless your employment has earlier terminated or either party hereto has given the other party written notice of non-renewal at least 90 days prior to the expiration date of the Initial Term or the Renewal Term, as applicable. In the event that either party has given written notice of non-renewal, and your employment with the Company continues after the expiration of the Initial Term or any Renewal Term, such post-expiration employment shall be “at-will” and either party may terminate such employment with or without notice and for any reason or no reason.

(b) Your employment hereunder shall terminate upon your death and may be terminated by the Company upon written notice to you following your Disability (as defined below). Your employment hereunder may also be terminated by the Company immediately for Cause (as defined below) or following two weeks written notice to you for any other reason. Your employment hereunder may also be terminated by you following written notice to the Company of your intention to resign with or without Good Reason (as defined below); provided that a resignation for Good Reason shall comply with Section 2(c)(iv).

(c) For purposes of this Agreement:

(i) “Cause” means (A) your engaging in intentional misconduct or gross negligence that, in either case, is injurious to the Company; (B) your indictment, entry of a plea of nolo contendere or conviction by a court of competent jurisdiction with respect to any crime or violation of law involving fraud or dishonesty (with the exception of misconduct based in good faith on the advice of professional consultants, such as attorneys and accountants) or any felony (or equivalent crime in a non-U.S. jurisdiction); (C) any gross negligence, intentional acts or intentional omissions by you (as determined by a majority vote of the Board in its reasonable discretion and judgment) that constitute fraud, dishonesty,

embezzlement or misappropriation in connection with the performance of your employment duties and responsibilities; (D) your engaging in any act of intentional misconduct or moral turpitude (as determined by a majority vote of the Board in its reasonable discretion and judgment) reasonably likely to adversely affect the Company or its business; (E) your abuse of or dependency on alcohol or drugs (illicit or otherwise) that adversely affects your job performance; (F) your willful failure or refusal to properly perform (as determined by a majority vote of the Board in its reasonable discretion and judgment) the duties, responsibilities or obligations of your employment for reasons other than Disability or authorized leave, or to properly perform or follow (as determined by a majority vote of the Board in its reasonable discretion and judgment) any lawful direction by the Company (with the exception of a willful failure or refusal to properly perform based in good faith on the advice of professional consultants, such as attorneys and accountants); or (G) your material breach of this Agreement or of any other contractual duty to, written policy of, or written agreement with the Company (with the exception of a material breach based in good faith on the advice of professional consultants, such as attorneys and accountants).

(ii) “Disability” shall mean a written determination by a majority of three physicians (one of which shall be your most recent primary care provider) mutually agreeable to the Company and you (or, in the event of your total physical or mental disability, your legal representative) that you are physically or mentally unable to perform your duties as General Counsel under this Agreement and that such disability can reasonably be expected to continue for a period of six consecutive months or for shorter periods aggregating 180 days in any 12-month period.

(iii) “Good Reason” shall mean the occurrence of one or more of the following events without your written consent: (A) there shall have been a material diminution of your authority, duties or responsibilities; (B) there shall have been a greater than 10% reduction in your Annual Base Salary (as defined below) in effect as of the Effective Date pursuant to Section 3.1; (C) the principal executive offices of the Company shall be relocated to a location more than 50 miles from New York City; or (D) the Company fails to make material payments to you (or provide to you restricted common stock) as required by this Agreement.

(iv) You shall only be deemed to terminate employment for Good Reason if (A) you provide the Company with written notice of Good Reason within a period not to exceed 90 days after the initial existence of the condition alleged to give rise to Good Reason, (B) the Company fails to remedy the condition within 30 days of such notice and (C) your termination is within six months following the initial existence of the condition alleged to give rise to Good Reason.

3. Compensation.

3.1. Annual Base Salary. During your employment hereunder, the Company shall pay you, for all services you perform hereunder, an annual base salary of U.S. $550,000.00, or such higher amount as the Compensation Committee of the Board (the “Compensation Committee”) may determine, payable in accordance with the Company’s payroll schedule applicable to executive officers of the Company (“Annual Base Salary”).

3.2. Bonus Compensation. During your employment hereunder, the Company shall pay you annual bonus compensation, as determined by the Compensation Committee, with an annual target amount of not less than 40% of your Annual Base Salary, which shall be paid in accordance with and subject to the terms and conditions of the Company’s Incentive Compensation Plan (attached hereto as Exhibit A and incorporated herein by reference and as may be amended from time to time) or such other incentive or compensation plan or arrangement specified by the Compensation Committee. Notwithstanding the foregoing, subject to Sections 3.7 and 3.8, the amount of your annual bonus compensation for the fiscal year ending May 1, 2011 shall be guaranteed at 40% of your Annual Base Salary, 50% of which ($110,000) shall be paid on the Effective Date and, subject to your continued employment with the Company through May 1, 2011, 50% of which ($110,000) shall be paid on or prior to June 30, 2011.

3.3. Employee Benefits. During your employment hereunder, you shall be eligible to participate in and receive any benefits to which you are entitled under the employee benefit plans that the Company provides for its employees generally, as well as any employee benefit plans that the Company provides for its executive officers generally.

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3.4. Expenses. During your employment hereunder, the Company shall reimburse you for all expenses incurred by you in the performance of your duties and responsibilities under this Agreement, including entertainment and travel expenses, in accordance with the policies and procedures established by the Compensation Committee.

3.5. Equity Awards. On October 1, 2010 (the “Grant Date”), you shall be granted 50,000 shares of restricted common stock of the Company (the “Stock Grant”) in accordance with the Company’s 2009 Incentive Plan, vesting in four equal annual installments on the first through the fourth anniversaries of the Grant Date, except that no installment shall vest unless you are still employed by the Company at the time of such vesting. Notwithstanding the foregoing, the Stock Grant shall vest immediately (i) upon the occurrence of a Change of Control (as defined in and pursuant and subject to the terms of Section 3.8) or (ii) in the event that, during your employment hereunder, (x) your employment is terminated by the Company without Cause or (y) you voluntarily terminate your employment for Good Reason. Except as provided above, the Stock Grant shall be subject to the terms and conditions set forth in the Company’s customary award agreements. During your employment hereunder, you shall be eligible to receive additional equity awards of the Company under the terms of the Company’s 2009 Incentive Plan, as determined by the Compensation Committee.

3.6 Relocation. The Company shall reimburse you for certain relocation expenses in accordance with the Company’s Corporate Relocation Policy (attached hereto as Exhibit B and incorporated herein by reference and as may be amended from time to time); provided, however, that, notwithstanding the section titled “Temporary Living Expenses” of the Company’s Corporate Relocation Policy, the Company shall reimburse you for the reasonable costs of temporary housing for up to three months, in an amount not to exceed $20,000.

3.7. Severance. In the event that (a) your employment is terminated by the Company without Cause or (b) you voluntarily terminate your employment for Good Reason, the Company shall pay you, in full satisfaction of the Company’s obligations hereunder, an amount equal to the product of the Severance Multiple (as defined below) and the sum of (i) your then Annual Base Salary and (ii) (A) in the event that such termination occurs prior to September 27, 2011, $220,000, or (B) in all other cases, the average of the annual bonuses actually paid to you with respect to the three completed years preceding the date of your termination of employment (or such lesser number of completed years beginning on the Effective Date and ending on the date of your termination of employment), less all applicable withholding and other applicable taxes and deductions (“Severance Amount”); provided that (x) you execute and deliver to the Company, and do not revoke, a release of all claims against the Company substantially in the form attached hereto as Exhibit C (“Release”) and (y) you have not materially breached as of the date of such termination any provisions of this Agreement and do not materially breach such provisions at any time during the Relevant Period (as defined below). The Severance Multiple shall be equal to (I) two during the period between the Effective Date and the fourth anniversary thereof and (II) one at any time thereafter. The Company’s obligation to make such payment shall be cancelled upon the occurrence of any such material breach and, in the event such payment has already been made, you shall repay to the Company such payment within 30 days after demand therefore; provided, however, such repayment shall not be required if the Company shall have materially breached this Agreement prior to the time of your breach. The Severance Amount shall be paid in cash in a single lump sum on the later of (1) the first day of the month following the month in which such termination occurs and (2) the date the Revocation Period (as defined in the Release) has expired. Notwithstanding anything in this paragraph to the contrary, if a Release is not executed and delivered to the Company within 60 days of such termination of employment (or if such Release is revoked in accordance with its terms), the Severance Amount shall not be paid. Upon the expiration of this Agreement due to non-renewal, or upon the termination of your employment hereunder for Cause or by your death or Disability, or by your voluntary termination of your employment hereunder without Good Reason, you shall be entitled only to the payment of such installments of your Annual Base Salary that have been earned through the date of such expiration and/or termination.

3.8. Change of Control Payments. (a) In the event that (i) there is a Change of Control (as defined below) and (ii) your employment is terminated by the Company without Cause or you voluntarily terminate your employment for Good Reason, in either case, within two years following the Change of Control, then the Company shall pay you the Severance Amount. The Severance Amount shall be paid to you in cash in a single lump sum within 30 days after the date your employment terminates. In the event that it is determined that the aggregate amount of the payments and benefits that could be considered “parachute payments” within the meaning of

3

Section 280G of the Internal Revenue Code of 1986, as amended (collectively, with the regulations and other guidance promulgated thereunder, the “Code”; and such payments and benefits, the “Parachute Payments”) that, but for this Section 3.8 would be payable to you under this Agreement or any other plan, policy or arrangement of the Company, exceeds the greatest amount of Parachute Payments that could be paid to you without giving rise to any liability for any excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the aggregate amount of Parachute Payments payable to you shall not exceed the amount that produces the greatest after-tax benefit to you after taking into account any Excise Tax to be payable by you. Any reduction in Parachute Payments pursuant to the immediately preceding sentence shall be made in the following order: (1) cash payments that do not constitute deferred compensation within the meaning of Section 409A of the Code, (2) welfare or in-kind benefits, (3) equity compensation awards and (4) cash payments that do constitute deferred compensation, in each case, such reductions shall be made in the manner that maximizes the present value to you of all such payments. Subject to the Section 280G limitation referred to above, to the extent that you are not fully vested in any retirement benefits from any pension, profit-sharing or other retirement plan or program maintained by the Company and your employment terminates in the circumstances contemplated by this Section 3.8(a), the Company shall pay directly to you within 30 days after the date on which your employment terminates the difference between the amounts that would have been paid to you had you been fully vested on the date that your employment terminates and the amounts actually paid or payable to you pursuant to such plans or programs. The amounts payable to you under this Section 3.8(a) during the two-year period following a Change of Control shall be in lieu of any amounts payable to you under Section 3.7 and shall be in full satisfaction of the Company’s obligations hereunder; provided, however, that if your employment is terminated by the Company without Cause or by you for Good Reason following such two-year period, Section 3.7, and not Section 3.8, shall apply.

(b) As used herein, “Change of Control” shall mean the occurrence of one or more of the following events:

(i) after the Effective Date hereof, any person, entity or “group” as identified in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “1934 Act”), other than you or any of your affiliates or Leonard Riggio or any of his heirs or affiliates, becomes a beneficial owner (as such term is defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company representing 40% or more of the total number of votes that may be cast for the election of directors of the Company; or

(ii) within two years after a merger, consolidation, liquidation or sale of assets involving the Company, or a contested election of a Company director, or any combination of the foregoing, the individuals who were directors of the Company immediately prior thereto shall cease to constitute a majority of the Board; or

(iii) within two years after a tender offer or exchange offer for voting securities of the Company, the individuals who were directors of the Company immediately prior thereto shall cease to constitute a majority of the Board.

4. Non-Competition and Confidential Information.

4.1. Non-Competition. You agree that during your employment hereunder and for a period of two years (the “Relevant Period”) after the termination for any reason of your employment, you shall not, directly or indirectly, (a) employ or retain, or induce or cause any other person or entity to employ or retain, any person who is, or who at any time in the twelve-month period prior to such time had been, employed or retained by the Company or any of its subsidiaries or affiliates; or (b) provide services, whether as principal or as agent, officer, director, employee, consultant, shareholder, or otherwise, alone or in association with any other person, corporation or other entity, to any Competing Business (as defined below); provided, however, that you may provide services to a Competing Business (other than Amazon.com, Inc. and its subsidiaries and affiliates and their respective successors (collectively, “Amazon”)) that is engaged in one or more businesses other than the Business Area (as defined below) but only to the extent that you do not provide services, directly or indirectly, to the segment of such Competing Business that is engaged in the Business Area. For purposes of this Agreement, the term “Competing Business” shall mean (i) Amazon or (ii) any person, corporation or other entity engaged in the Business Area. For purposes of this Agreement, the term “Business Area” shall mean the sale, distribution or attempted sale or distribution of books, textbooks, periodicals, newspapers, digital or audio versions of any of the foregoing or e-reading devices and related

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software. Notwithstanding the foregoing, the restrictions of this Section 4.1 shall not apply to the placement of general advertisements or the use of general search firm services with respect to a particular geographic area, but which are not targeted, directly or indirectly, towards employees of the Company or any of its subsidiaries.

4.2. Ownership of Other Securities. Nothing in Section 4.1 shall be construed as denying you the right to own securities of any corporation listed on a national securities exchange or quoted in the NASDAQ System in an amount up to 5% of the outstanding number of such securities.

4.3. Confidential Information. (a) You shall use best efforts and diligence both during and after any employment with the Company, regardless of how, when or why such employment ends, to protect the confidential, trade secret and/or proprietary character of all Confidential Information and Trade Secret Information (as defined below). You shall not, directly or indirectly, use (for your benefit or for the benefit of any other person) or disclose any Confidential Information or Trade Secret Information, for so long as it shall remain proprietary or protectable, except as may be necessary for the performance of your duties for the Company. For purposes of this Agreement, “Confidential Information” shall mean all confidential information of the Company, regardless of the form or medium in which it is or was created, stored, reflected or preserved, information that is either developed by you (alone or with others) or to which you shall have had access during any employment with the Company. Confidential Information includes, but is not limited to, Trade Secret Information, and also includes information that is learned or acquired by the Company from others with whom the Company has a business relationship in which, and as a result of which, such information is revealed to the Company. For purposes of this Agreement, “Trade Secret Information” shall mean all information, regardless of the form or medium in which it is or was created, stored, reflected or preserved, that is not commonly known by or generally available to the public and that: (i) derives or creates economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The Company’s Trade Secret Information may include, but is not limited to, all confidential information relating to or reflecting the Company’s research and development plans and activities; compilations of data; product plans; sales, marketing and business plans and strategies; pricing, price lists, pricing methodologies and profit margins; current and planned incentive, recognition and rewards programs and services; personnel; inventions, concepts, ideas, designs and formulae; current, past and prospective customer lists; current, past and anticipated customer needs, preferences and requirements; market studies; computer software and programs (including object code and source code); and computer and database technologies, systems, structures and architectures. You understand that Confidential Information and/or Trade Secret Information may or may not be labeled as such, and you shall treat all information that appears to be Confidential Information and/or Trade Secret Information as confidential unless otherwise informed or authorized by the Company. Nothing in this Agreement shall be construed to mean that Company owns any intellectual property or ideas that were conceived by you before you commenced employment with Company and which you have previously disclosed to the Company. Subject to Section 4.3(b), nothing in this Section 4.3(a) shall prevent you from complying with a valid legal requirement (whether by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information or Trade Secret Information.

(b) You agree that both during and after any employment with the Company, regardless of how, when or why such employment ends, if you are legally required (whether by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information or Trade Secret Information, you shall promptly notify the Company of such request or requirement so that the Company may seek to avoid or minimize the required disclosure and/or to obtain an appropriate protective order or other appropriate relief to ensure that any information so disclosed is maintained in confidence to the maximum extent possible by the agency or other person receiving the disclosure, or, in the discretion of the Company to waive compliance with the provisions of this Section 4.3. Thereafter, you shall use reasonable efforts, in cooperation with the Company or otherwise, to avoid or minimize the required disclosure and/or to obtain such protective order or other relief. If, in the absence of a protective order or the receipt of a waiver hereunder, you are compelled to disclose the Confidential Information or Trade Secret Information or else stand liable for contempt or suffer other sanction, censure or penalty, you shall disclose only so much of the Confidential Information or Trade Secret Information to the party compelling disclosure as you believe in good faith on the basis of advice of counsel is required by law, and you shall give the Company prior notice of the Confidential Information or Trade Secret Information you believe you are required to disclose. The Company shall reimburse any reasonable legal fees and related expenses you incur in order to comply with this Section 4.3(b).

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4.4. Inventions. You shall promptly disclose and provide to the Company, any original works of authorship, designs, formulas, processes, improvements, compositions of matter, computer software programs, data, information or databases, methods, procedures or other inventions, developments or improvements of any kind that you conceive, originate, develop, improve, modify and/or create, solely or jointly with others, during the period of your employment, or as a result of such employment (collectively, “Inventions”), and whether or not any such Inventions also may be included within “Confidential Information” or “Trade Secret Information” (as defined under this Agreement), or are patentable, copyrightable or protectable as trade secrets. You acknowledge and agree that the Company is and shall be the exclusive owner of all rights, title and interest in and to the Inventions and, specifically, that any copyrightable works prepared by you within the scope of your employment are “works for hire” under the Copyright Act, that such “works for hire” are Inventions and that the Company shall be considered the author and owner of such copyrightable works. In the event that any Invention is deemed not to be a “work for hire”, or in the event that you should, by operation of law, be deemed to be entitled to retain any rights, title or interest in and to any Invention, you hereby irrevocably waive all rights, title and interest and assign to the Company, without any further consideration and regardless of any use by the Company of any such Inventions, all rights, title and interest, if any, in and to such Invention. You agree that the Company, as the owner of all Inventions, has the full and complete right to prepare and create derivative works based upon the Inventions and to use, reproduce, publish, print, copy, market, advertise, distribute, transfer, sell, publicly perform and publicly display and otherwise exploit by all means now known or later developed, such Inventions and derivative works anywhere throughout the world and at any time during or after your employment hereunder or otherwise.

4.5. Return of Information. You shall promptly deliver to the Company, upon the termination for any reason of your employment, or at any other time at the Company’s request, without retaining any copies, all documents, information and other material in your possession or control containing, reflecting and/or relating, directly or indirectly, to any Confidential Information and/or Trade Secret Information.

4.6 Cooperation. You agree that both during and after any employment with the Company, regardless of how, when or why such employment ends, you shall provide reasonable cooperation to the Company and its affiliates in connection with any pending or future lawsuit, arbitration, or proceeding between the Company and/or any affiliate and any third party, any pending or future regulatory or governmental inquiry or investigation concerning the Company and/or any affiliate and any other legal, internal or business matters of or concerning the Company and/or any affiliate. Such cooperation shall include meeting with and providing information the Company, any affiliate and/or their respective attorneys, auditors or other representatives as reasonably requested by the Company. The Company shall reimburse any reasonable legal fees and related expenses you incur in order to comply with this Section 4.6.

4.7. Non-Disparagement. During and after any employment with the Company, regardless of how, when or why such employment ends, (a) you shall not make, either directly or by or through another person, any oral or written negative, disparaging or adverse statements or representations of or concerning the Company or its subsidiaries or affiliates, any of their clients or businesses or any of their current or former officers, directors, employees or shareholders and (b) Company Parties (as defined below) shall not make any oral or written negative, disparaging or adverse statements or representations of or concerning you; provided, however, that nothing herein shall prohibit (i) critical communications between you and the Company or Company Parties during your employment hereunder and in connection with your employment or (ii) you or any Company Party from disclosing truthful information if legally required (whether by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process). For purposes of this Agreement, the term “Company Parties” shall mean the executive officers and designated spokespersons of the Company.

4.8. Severability. If any of the restrictions in this Section 4 should for any reason whatsoever be declared invalid, the validity or enforceability of the remainder of this Agreement shall not be adversely affected thereby.

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4.9. Equitable Relief. (a) You acknowledge that your services to the Company are of a unique character that gives them a special value to the Company. You further recognize that any violation of the restrictions in this Section 4 may give rise to losses or damages for which the Company cannot be reasonably or adequately compensated in an action at law and that such violation may result in irreparable and continuing harm to the Company. Accordingly, you agree that, in addition to any other remedy that the Company may have at law or in equity, the Company shall be entitled to injunctive relief to restrain any violation by you of the restrictions in this Section 4.

(b) In addition, the Company recognizes that any violation of the restrictions in Section 4.7(b) may give rise to losses or damages for which you cannot be reasonably or adequately compensated in an action at law and that such violation may result in irreparable and continuing harm to you. Accordingly, the Company agrees that, in addition to any other remedy that you may have at law or in equity, you shall be entitled to injunctive relief to restrain any violation by the Company of the restrictions in Section 4.7(b).

4.10. Reasonableness. You acknowledge that the limitations and obligations contained in this Section 4 are, individually and in the aggregate, reasonable and properly required by the Company and that in the event that any such limitations are found to be unreasonable and unenforceable, you shall submit to such limitations and/or obligations in such form as the arbitrator shall determine. You agree that you shall not challenge or contest the reasonableness, validity or enforceability of any such limitations and obligations.

5. Indemnification. You shall be indemnified by the Company, as an officer of the Company and its affiliates, against all actions, suits, claims, legal proceedings and the like to the fullest extent permitted by law, including advancement of expenses, partial indemnification, indemnification following the termination of this Agreement, indemnification of your estate and similar matters. For purposes of this Agreement, such indemnification shall extend to, to the fullest extent permitted by law, legal fees, costs, expenses, judgments, settlements, claim resolution payments, arbitration fees, arbitrator fees, mediation fees, negotiation fees and hold harmless obligations.

6. Miscellaneous.

6.1. Entire Agreement. This Agreement constitutes the entire agreement between you and the Company with respect to the terms and conditions of your employment by the Company and supersedes all prior agreements, understandings and arrangements, oral or written, between you and the Company with respect to the subject matter hereof.

6.2. Binding Effect; Benefits. This Agreement shall inure to the benefit of and shall be binding upon you and the Company and our respective heirs, legal representatives, successors and assigns.

6.3. Amendments and Waivers. This Agreement may not be amended or modified except by an instrument or instruments in writing signed by both parties to this Agreement. Electronic communications, even if receipt is acknowledged, shall not constitute an amendment or modification of this Agreement.

6.4. Assignment. Neither this Agreement nor any rights or obligations that either party may have by reason of this Agreement shall be assignable by either party without the prior written consent of the other party.

6.5. Notices. Any notice that may or must be given under this Agreement shall be in writing and shall be personally delivered or sent by certified or registered mail, postage prepaid, or reputable overnight courier, addressed to you at the address set forth on the first page hereof, or to the Company at 122 Fifth Avenue, New York, NY 10011 to the attention of the Vice President for Human Resources for the Company (with a copy to the Company’s Chief Financial Officer), or to such other address as you or the Company, as the case may be, may designate in writing in accordance with the provisions of this section.

6.6. Section and Other Headings; Other. The section and other headings contained in this Agreement are for reference purposes only and are not deemed to be a part of this Agreement or to affect the meaning and interpretation of this Agreement. For purposes of this Agreement, the term “including” shall mean “including, without limitation.”

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6.7. Governing Law. This Agreement shall be construed (both as to validity and performance) and enforced in accordance with and governed by the laws of the State of New York applicable to agreements made and to be performed wholly within the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. Except as provided in Section 6.9, exclusive jurisdiction for all disputes or claims arising under or in connection with this Agreement, and any and all claims by or against you relating to your employment with the Company, shall lie in any Federal or state court located within the County of New York.

6.8. Survival of Rights and Obligations. All rights and obligations arising hereunder shall continue to have full force and effect after the termination of this Agreement unless otherwise provided herein to the extent necessary to preserve the intended benefits of such provisions. If any section of this Agreement is determined to be void, voidable or unenforceable, it shall have no effect on the remainder of this Agreement, which shall remain in full force and effect, and the provisions so held invalid or unenforceable shall be deemed modified as to give such provisions the maximum effect permitted by applicable law.

6.9. Arbitration. The parties agree that all disputes arising under or in connection with this Agreement, and any and all claims by you relating to your employment with the Company, including any claims of discrimination or other employment-related claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, the Americans with Disabilities Act or any other employment-related Federal, state or local law, shall be submitted to arbitration before the American Arbitration Association (“AAA”) under its rules then prevailing for the type of claim in issue before one arbitrator and to be held at the AAA’s office located in the County of New York. In any arbitration hereunder, the arbitrator shall have the power to issue appropriate injunctive or other non-monetary relief, and award appropriate compensatory damages. The parties agree that no damages other than compensatory damages shall be sought or claimed by either party and each party waives any claim, right or entitlement to punitive, exemplary or consequential damages, or any other damages, and each relevant arbitrator is specifically divested of any power to award any damages in the nature of punitive, exemplary or consequential damages, or any other damages of any kind or nature in excess of compensatory damages. Nothing in this arbitration provision shall preclude, and the parties expressly acknowledge that either party may seek, temporary injunctive relief from any Federal or state court located within the County of New York in connection with or as supplement to an arbitration hereunder, including regarding any claim under Section 4. For purposes of any such action or proceeding, the parties each hereby specifically submit to the personal jurisdiction of any Federal or state court located within the County of New York and further agree that service of process may be made within or without the State of New York by giving notice in the manner provided in Section 6.5.

6.10. Section 409A of the Code. It is intended that the provisions of this Agreement comply with Section 409A of the Code, and all provisions of this Agreement shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. If, at the time of your separation from service (within the meaning of Section 409A of the Code), (a) you shall be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (b) the Company shall make a good faith determination that an amount payable under this Agreement or any other plan, policy, arrangement or agreement of or with the Company (this Agreement and such other plans, policies, arrangements and agreements, the “Company Plans”) constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company shall not pay any such amount on the otherwise scheduled payment date but shall instead accumulate such amount and pay it, without interest, on the first day of the seventh month following such separation from service. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to or for your benefit under any Company Plan may not be reduced by, or offset against, any amount owing by you to the Company. Except as specifically permitted by Section 409A of the Code, the benefits and reimbursements provided to you under this Agreement and any Company Plan during any calendar year shall not affect the benefits and reimbursements to be provided to you under the relevant section of this Agreement or Company Plan in any other calendar year, and the right to such benefits and reimbursements cannot be liquidated or exchanged for any other benefit and shall be provided in accordance with Treas. Reg. Section 1.409A-3(i)(1)(iv) or any successor thereto. Further, in the case of

8

reimbursement payments, such payments shall be made to you on or before the last day of the calendar year following the calendar year in which the underlying fee, cost or expense is incurred. Notwithstanding the preceding, the Company makes no representations concerning the tax consequences of your participation in this Agreement under Section 409A of the Code or any other Federal, state or local tax law. Your tax consequences shall depend, in part, upon the application of relevant tax law, including Section 409A of the Code, to the relevant facts and circumstances. You should consult a competent and independent tax advisor regarding the tax consequences of this Agreement.

6.11. Representations and Warranties. You hereby represent and warrant to the Company that (a) your execution, delivery and performance of this Agreement do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which you are a party or by which you are bound; (b) you are not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity that has not been disclosed to the Company prior to the execution of this Agreement; (c) in the performance of any duties and responsibilities on behalf of the Company, you shall not divulge or use in any way any trade secrets or confidential or proprietary information that are within your possession or knowledge (if any), are owned by any other person or entity and regardless of whether or not such trade secrets or confidential or proprietary information are subject to any written agreement; and (d) upon the execution and delivery of this Agreement, it shall be a valid and binding obligation, enforceable in accordance with its terms. You hereby acknowledge and represent that you fully understand the terms and conditions contained herein.

6.12. Counterparts. This Agreement may be executed in one or more identical counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

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If the foregoing accurately reflects our agreement, kindly sign and return to us the enclosed duplicate copy of this letter.

Very truly yours,
BARNES & NOBLE, INC.
By:	/s/ Michelle Smith
	Name: Michelle Smith
	Title: VP, Human Resources

Accepted and Agreed to:
EUGENE V. DEFELICE
By:	/s/ Eugene V. DeFelice
	Name: Eugene V. DeFelice

Date: 9/22/10

[Signature Page to Employment Agreement]

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EXHIBIT A

Barnes & Noble, Inc.

2011 Incentive Compensation Plan

Performance Period: 1/31/10 – 4/30/11

Home Office Management

Objective

The objective of the Incentive Compensation Plan is to reward key employees who have an impact on the overall results of the Company. Bonuses are based on achieving established Company financial goals and individual performance goals.

Eligibility and Bonus Targets

Employees of Barnes & Noble, Inc. are eligible to participate in the Plan based on their position within the organization and their level of compensation.

Participants are eligible for a bonus based on a percentage of their base salary earned during the 2011 performance period. The annual bonus percentage targets for eligible positions are:

• Vice Presidents                                     25% - 30% of base salary

• Directors                                                15% - 20% of base salary

• Managers earning $65,000 and Up      10% of base salary

Fiscal Year Impact

Due to the change in the fiscal year, bonuses for 2011 will be based on 15 months of salary, instead of the usual 12 months.

Components and Weightings

Bonus awards are based on achievement of company and individual performance. Each component is weighted as follows:

• Consolidated EBITDA – (Weighted 50%) based on the total Company meeting its profitability target as measured by Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).

• Individual Component – (Weighted 50%) based on employee’s individual performance as evaluated by their manager using specific, measurable objectives and overall performance.

Determination of Company Performance

Performance Relative to Target	% of Component
112% of Target or more		115	%
108% to less than 112%		105	%
92% to less than 108%		100	%
88% to less than 92%		75	%
84% to less than 88%		50	%
Less than 84% of Target		0	%

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EXHIBIT A

Determination of Individual Performance

Each participant’s individual performance will be evaluated relative to specific goals established as well as overall job performance. Objectives should be mutually agreed upon, specifying performance outcome and/or tasks to be accomplished within a specific time frame. Participants receive 100% payout for achievement of all personal objectives. If all goals are not achieved or are only partially complete, a lesser amount may be awarded.

Plan Provisions

• The full bonus paid will be the aggregate of all Components awarded.

• Base salary is defined as the base salary as of 5/2/2010 and bonuses will be calculated based on 15 months of salary.

• Late entrants to the Plan will be based on the salary earned for the number of complete months during the performance period. Employees who transfer from one bonus-eligible position to another during the performance period are eligible for a pro-rated bonus for each position. Anyone hired after January 31, 2011 will not be eligible to participate in the Plan until the following fiscal year.

• Paid or unpaid time during a leave of absence exceeding three months will not be considered as eligible time for bonus calculation.

• Employees must be actively employed in an eligible position and rated as “Meets Standards” or higher, not on a final warning or Improvement Plan at the time bonuses are paid. The Company will deduct any federal, state or local taxes, which are required by law.

• Bonuses will be paid to participants as soon as financial results are available, calculations are complete and appropriate Senior Management approval is obtained. The Compensation Committee is the ultimate authority for final approval of incentive compensation awards.

• The company shall pay bonuses (under this plan and other company bonus plans) in the aggregate of at least the amount declared by the Compensation Committee in its last meeting before the company’s fiscal year end, which declaration is final and binding.

Plan Administration

This 2011 Incentive Compensation Plan is the sole incentive compensation plan in effect for Home Office Management, superseding and replacing all other plans, arrangements and agreements. The Plan is administered by the Compensation Committee, which retains sole authority to interpret the Plan and may suspend, amend or terminate the Plan in whole or part at any time.

Any questions regarding the Plan should be directed to Michelle Smith, Vice President, Human Resources at (212) 633-3280.

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EXHIBIT B

Barnes & Noble, Inc.

Corporate Relocation Policy

Revised

January 2010

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EXHIBIT B

Barnes & Noble, Inc.

Corporate Relocation Policy

Purpose

To provide assistance for Company initiated transfers in order to minimize the financial and emotional impact of relocating for you and your family with minimal disruption.

Eligibility

Relocation of General Office Management, Regional Directors, District Managers and Regional Management.

Initiating Your Relocation

To initiate the relocation process, a Relocation Authorization Form (sample attached) must be completed and approved by your Department Head or Regional Director. Once the form is completed and approved, it should be faxed directly to the Human Resources Department at 516-338-8018.

• If you are relocating as a homeowner and selling your home, we will need to establish the anticipated sales price for the property. The Company will arrange for a designated ERC certified real estate appraiser to conduct an independent appraisal.

• If a Relocation Advance is required, you will need to sign a Relocation Advance Request Confirmation and fax it back to the Human Resources Department at (516) 338-8018 along with the completed and approved Relocation Authorization Form. Once approved, you will receive a check.

Any questions regarding the Corporate Relocation Policy should be directed to Kathy DeSimone in Human Resources at 516-338-8032.

Once the Relocation Expense Reports are completed and approved, submit all receipts to Kathy DeSimone in the Westbury office who will review and forward to Expense Payable for processing.

Pre-Moving Expenses

You and your spouse or domestic partner shall be permitted two (2) weekend trips to the new location to look for suitable housing or one (1) full week trip depending upon the distance at the direction of your supervisor.

Expenses to be Reimbursed for Relocation Travel

The following expenses will be reimbursed when incurred as a result of an overnight stay when searching for suitable housing:

• Meals – Reasonable actual expenses for breakfast and dinner will be reimbursed for you, your spouse or domestic partner and dependent children.

• Lodging – You will be reimbursed for the expense of lodging consistent with the Company’s Travel & Expense Policy.

• Transportation – You and your spouse shall be reimbursed for the cost of the airfare, or car travel at 16.5¢ per mile recorded due to the relocation process for the use of a personal car for travel to and from airports, house hunting trips, etc. A rental car will be provided, if necessary, where you will be reimbursed for gas (with receipts).

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EXHIBIT B

For further information regarding travel expense reimbursement, see the Travel & Expense Policy. A copy of this policy can be obtained by contacting Kathy DeSimone in Human Resources at 516-338-8032.

Rental Assistance

The following expenses will be reimbursed, provided the apartment rental is your principal place of residence.

Lease Termination – Costs of terminating a lease for living quarters at your former location are reimbursed provided you make every effort to sublet where permissible. Reimbursement is not to exceed the equivalent of two (2) month’s rent. A signed receipt from the landlord must be submitted with an expense report.

Note: Should any deposit money be withheld due to damages to the property, etc., the Company will not reimburse you for any expenses attributable to those damages or negligence.

Rental Commission – Fees paid to a rental agent at the new location for locating rental property are reimbursable provided they do not exceed one (1) month’s rent. An invoice or signed receipt must be obtained from the rental agent and submitted on an expense report.

Home Sale Assistance

The following expenses will be reimbursed, provided the house that you own is your principal place of residence, and you must be at least a 50% owner and listed on the title.

Closing Costs – The following are closing costs that are reimbursable on the sale of your former residence when relocating at the Company’s request.

• Attorney’s Fees

• Title Search Cost – If paid by Seller

• Real Estate Brokerage Fee – Reimbursement at the normal rate in effect for the area, not to exceed six (6) percent of the purchase price.

• Loss of Sale between Appraised Value and Actual Selling Price – If necessary, the Company will reimburse you on the loss of sale of your residence up to 10% of the appraised value to bring the sale price as close to the appraised value as possible. To establish the appraised value for the property, an independent appraisal will be conducted by a designated real estate appraiser selected by the Company.

Delay on Sale of Residence – In instances where the sale of the home is delayed due to circumstances beyond your control (e.g. your family cannot relocate at the same time, the closing on the sale of your home is delayed, etc.), the Company will reimburse you the interest, taxes, insurance and normal maintenance paid for the former home for a period of up to three (3) months.

3

EXHIBIT B

Home Purchase Assistance

Closing Costs – The Company will reimburse the following expenses necessary for the purchase of a new home with proper documentation providing you are a current homeowner (prior to relocation) and have initiated your relocation within one year from the effective date of your new position:

• Attorney’s Fees

• Lending Institution’s Attorney Fees

• Recording Fees for Deed and Mortgage

• Local and State Mortgage Taxes

• Title Insurance

• Appraisal Fee (if paid by purchaser)

• Survey Cost

• Mortgage Loan Origination Fee

• Real Estate Transfer Taxes

Temporary Living Expenses

When your family cannot move at the time of the transfer, you will be reimbursed for your temporary travel and living expenses for a period of up to thirty (30) days for the following expenses:

• Meals – Reasonable actual expenses for breakfast and dinner will be reimbursed.

• Lodging – You will be reimbursed for the expense of lodging consistent with the Company’s Travel & Expense Policy.

• Transportation – You will be reimbursed the cost of airfare or car travel at 16.5¢ per mile recorded due to the relocation process for the use of a personal car. A rental car will be provided, if necessary, where you will be reimbursed for gas (with receipts).

• Return Trips – When your family does not move at the same time, you will be reimbursed the travel costs for two (2) weekend trips to your home.

Movement of Household Goods

You must notify the Human Resources Department two weeks in advance of your move with the approximate date and final destination. The Company will make the actual arrangements with the moving company and the moving company will call you to finalize the arrangements.

The national carrier companies provide a maximum amount of coverage due to damage during the move. The Company will not assume any additional liability. If you are moving any unusually large items, (i.e., a piano, etc.) you may wish to purchase additional insurance at your own expense. The following expenses are covered when you move normal household goods from your old location to your new location:

• Packing at old location and transportation of the household goods to your new location. (Unpacking at the destination will not be reimbursed except for large items such as beds, mattresses, mirrors, etc.)

4

EXHIBIT B

• If necessary, storage charges for household goods for a period of up to thirty (30) days may be reimbursed provided this charge has advance approval from your supervisor.

• You shall be granted a reasonable amount of time off for moving with pay from date of packing to date of delivery at destination, if within five (5) working days.

• In certain situations, (e.g. cross country moves), automobiles may be transported by an automobile carrier/moving company at the Company’s expense. Prior approval must be obtained from your supervisor.

Non-covered Moving Expenses

Transportation of items not covered under this policy includes (but not limited to):

• Boats

• Collectibles

• Precious metals or stones

• Perishables

• Hazardous material

• Pets/Livestock

• Free standing hot tubs, swimming pools, storage sheds, doghouses, etc.

• Yard ornaments including concrete furniture, statues, gazebos

Employee Transportation to New Residence

Should you use a personal car to transport your family to the new location, mileage will be paid at 16.5¢ per mile recorded due to the relocation process, plus tolls for each vehicle driven, not to exceed two (2) vehicles. You will be reimbursed for either gas (with receipts) or mileage, but not both.

Employee’s Liability

If you resign within one (1) year of your relocation, you will be required to repay 100% of your relocation expenses to the Company.

Taxes

The Internal Revenue Service requires that each employee include in income, any non-deductible relocation expenses reimbursements received from the employer or paid on the employee’s behalf by the employer for the expense of moving from one residence to another. The IRS has established the rules for moving expenses and has severely limited the costs, which are deductible by the employee. Some of the rules are as follows:

1. Deductible Costs:

(a) Cost of packing and moving household goods and other personal goods, including an in-transit storage.

(b) Actual traveling expenses, including lodging, for an employee and his/her immediate family from his/her old to his/her new residence (no limit - one trip per family member only). Note: This no longer includes the cost of meals.

2. In order to qualify as a deductible, the employee must also meet two tests:

(a) Distance – The new job must be at least 50 miles further from the taxpayer’s former residence than the former residence was from the former place of work.

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EXHIBIT B

(b) Time – During the twelve months following the move, the taxpayer must be employed full-time, by the Company, for at least 39 weeks, during the 12 months immediately after your move.

3. The IRS requires that the employer withhold income taxes for the amounts reimbursed to the employee or paid by the employer on behalf of the employee for relocation expenses, which are not deductible costs as per 1 above.

4. Each year the Company will calculate the tax liability to non-deductible relocation expenses for each employee that relocated during the year. The Company will pay the additional taxes due to these non-deductible expenses on behalf of each employee. You should not incur any additional tax liability due to the relocation process.

5. Because of the complexity of the law, it is recommended that each employee who relocates at the Company’s request consult with a tax advisor to determine the extent of tax liability.

6

EXHIBIT C

GENERAL RELEASE AND WAIVER

1. [Name] (“Employee”) hereby acknowledges and agrees that Employee’s employment with Barnes & Noble, Inc. (the “Company”) terminated on                     , 20     (the “Termination Date”).

2. Employee acknowledges and agrees that Employee’s executing this General Release and Waiver (“Release”) is a condition precedent to the Company’s obligation to pay (and the Employee’s right to retain) the payments and benefits set forth in Section 3.7 of the employment letter agreement, dated as of September 27, 2010, between Employee and the Company (such agreement referred to herein as the “Employment Agreement” and such payments and benefits collectively referred to herein as the “Separation Benefit”), that the Separation Benefit is adequate consideration for this Release, and that any monetary or other benefits that, prior to the execution of this Release, Employee may have earned or accrued, or to which Employee may have been entitled, have been paid or such payments or benefits have been released, waived or settled by Releasor (as defined below) except as expressly provided in this Release.

3. (a) THIS SECTION PROVIDES A COMPLETE RELEASE AND WAIVER OF ALL EXISTING AND POTENTIAL CLAIMS EMPLOYEE MAY HAVE AGAINST EVERY PERSON AND ENTITY INCLUDED WITHIN THE DESCRIPTION BELOW OF “RELEASEE.” BEFORE EMPLOYEE SIGNS THIS RELEASE, EMPLOYEE MUST READ THIS SECTION CAREFULLY, AND MAKE SURE THAT EMPLOYEE UNDERSTANDS IT FULLY.

(b) In consideration of Employee’s receipt and acceptance of the Separation Benefit from the Company, and on behalf of the Company and each Releasee (as defined below), Employee, on Employee’s behalf and on behalf of Employee’s heirs, executors, administrators, successors and assigns (collectively, “Releasor”), hereby irrevocably, unconditionally and generally releases the Company, its current and former officers, directors, shareholders, trustees, parents, members, managers, affiliates, subsidiaries, branches, divisions, benefit plans, agents, attorneys, advisors, counselors and employees, and the current and former officers, directors, shareholders, agents, attorneys, advisors, counselors and employees of any such parent, affiliate, subsidiary, branch or division of the Company and the heirs, executors, administrators, receivers, successors and assigns of all of the foregoing (each, a “Releasee”), from or in connection with, and hereby waives and/or settles, except as provided in Section 3(c), any and all actions, causes of action, suits, debts, dues, sums of money, accounts, controversies, agreements, promises, damages, judgments, executions, or any liability, claims or demands, known or unknown and of any nature whatsoever, whether or not related to employment, and which Releasor ever had, now has or hereafter can, shall or may have as of the date of this Release, including, without limitation, (i) any rights and/or claims arising under any contract, express or implied, written or oral, including, without limitation, the Employment Agreement; (ii) any rights and/or claims arising under any applicable foreign, Federal, state, local or other statutes, orders, laws, ordinances, regulations or the like, or case law, that relate to employment or employment practices, including, without limitation, family and medical, and/or, specifically, that prohibit discrimination based upon age, race, religion, sex, color, creed, national origin, sexual orientation, marital status, disability, medical condition, pregnancy, veteran status or any other unlawful bases, including, without limitation, the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, as amended, the Civil Rights Acts of 1866 and 1871, as amended, the Age Discrimination in Employment Act of 1967, as amended, the Americans with Disabilities Act of 1990, as amended, the Family Medical Leave Act of 1993, as amended, the Employee Retirement Income Security Act of 1974, as amended, the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, as amended, the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any similar applicable statutes, orders, laws, ordinances, regulations or the like, or case law, of the State of New York and any State in which any Releasee is subject to jurisdiction, or any political subdivision thereof, including, without limitation, the New York State Human Rights Law, the New York State Labor Law and the New York City Human Rights Law, and all applicable rules and regulations promulgated pursuant to or concerning any of the foregoing statutes, orders, laws, ordinances, regulations or the like; (iii) any waivable rights and/or claims relating to wages and hours, including under state or local labor or wage payment laws; (iv) any rights and/or claims to benefits that Employee may have or become entitled to receive under any severance, termination, change of control, bonus or similar policy, plan, program, agreement or similar or related arrangements, including, without limitation, any offer letter, letter agreement or employment agreement between Employee and the Company; (v) any rights and/or claims that Employee may have to receive any equity in the Company (whether restricted or unrestricted) in the future; and (vi) and any rights and/or claims for attorneys’ fees. Employee agrees not to challenge or contest the reasonableness, validity or enforceability of this Release.

1

EXHIBIT C

(c) Notwithstanding the foregoing, Employee does not release any Releasee from any of the following rights and/or claims: (i) any rights and/or claims Employee may have that arise after the date Employee signs this Release; (ii) any rights and/or claims that by law cannot be waived by private agreement; (iii) Employee’s right to file a charge with or participate in any investigation or proceeding conducted by the U.S. Equal Employment Opportunity Commission (“EEOC”) or similar government agency; provided that even though Employee can file a charge or participate in an investigation or proceeding conducted by the EEOC or similar government agency, by executing this Release, Employee is waiving his ability to obtain relief of any kind from any Releasee to the extent permitted by law; (iv) Employee’s non-forfeitable rights to accrued benefits (within the meaning of Sections 203 and 204 of ERISA); (v) any rights and/or claims to insurance coverage under any directors’ and officers’ personal liability insurance or fiduciary insurance policy; and (vi) any rights and/or claims to enforce the Employment Agreement in accordance with its terms.

4. Employee represents and warrants that Employee has not filed or commenced any complaints, claims, actions or proceedings of any kind against any Releasee with any Federal, state or local court or any administrative, regulatory or arbitration agency or body. Employee hereby waives any right to, and agrees not to, seek reinstatement or employment of any kind with any Releasee and, without waiver by any Releasee of the foregoing, the existence of this Release shall be a valid, nondiscriminatory basis for rejecting any such application or, in the event Employee obtains such employment, for terminating such employment. This Release and the Separation Benefit are not intended to be, shall not be construed as and are not, an admission or concession by any Releasee of any wrongdoing or illegal or actionable acts or omissions.

5. (a) Employee hereby represents and agrees that Employee shall keep confidential and not disclose orally or in writing, to any person, except as may be required by law, any and all information concerning the existence or terms of this Release and the amount of any payments made hereunder. Employee further agrees that, except as shall be required by law, Employee shall keep confidential and not disclose orally or in writing, directly or indirectly, to any person (except Employee’s immediate family, attorneys and accountant), any and all information concerning any facts, claims or assertions relating or referring to any experiences of Employee or treatment Employee received by or on behalf of any Releasee through the date of this Release.

(b) If Employee is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any information covered by Section 5(a), Employee shall promptly notify the Company of such request or requirement so that the Company may seek to avoid or minimize the required disclosure and/or to obtain an appropriate protective order or other appropriate relief to ensure that any information so disclosed is maintained in confidence to the maximum extent possible by the agency or other person receiving the disclosure, or, in the discretion of the Company, to waive compliance with the provisions of this Release. Employee shall use reasonable efforts, in cooperation with the Company or otherwise, to avoid or minimize the required disclosure and/or to obtain such protective order or other relief. If, in the absence of a protective order or the receipt of a waiver hereunder, Employee is compelled to disclose such information or else stand liable for contempt or suffer other sanction, censure or penalty, Employee shall disclose only so much of such information to the party compelling disclosure as he believes in good faith on the basis of advice of counsel is required by law, and Employee shall give the Company prior notice of such information he believes he is required to disclose.

6. (a) Employee shall not make, either directly or by or through another person, any oral or written negative, disparaging or adverse statements or representations of or concerning any Releasee.

(b) Without limitation to the survival of any other terms of the Employment Agreement subsequent to the end of Employee’s employment, the expiration or termination of the Employment Agreement, and/or the execution and effectiveness of this Release, Employee and the Company expressly acknowledge that the terms of Sections 4 and 5 of the Employment Agreement survive and shall be in full force and effect as provided in the Employment Agreement.

2

EXHIBIT C

7. The covenants, representations and acknowledgments made by Employee in this Release shall continue to have full force and effect after the execution and effectiveness of this Release and the delivery of the Separation Benefit, and this Release shall inure to the benefit of each Releasee, and the successors and assigns of each of them, to the extent necessary to preserve the intended benefits of such provisions. If any section of this Release is determined to be void, voidable or unenforceable, it shall have no effect on the remainder of this Release, which shall remain in full force and effect, and the provisions so held invalid or unenforceable shall be deemed modified as to give such provisions the maximum effect permitted by applicable law. Without limitation to Section 3.7 of the Employment Agreement, the Company shall be excused and released from any obligation to make payment of the Separation Benefit, and Employee shall be obligated to return to the Company the Separation Benefit, in the event that Employee is found to have (a) made a material misstatement in any term, condition, covenant, representation or acknowledgment in this Release, or (b) Employee is found to have committed or commits a material breach of any term, condition or covenant in this Release.

8. This Release and the Employment Agreement constitute the sole and complete agreement between the parties with respect to the matters set forth therein and supersedes all prior agreements, understandings and arrangements, oral or written, between Employee and the Company with respect to the subject matter thereof. This Release may not be amended or modified except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Either party may, by an instrument in writing, waive compliance by the other party with any term or provision of this Release to be performed or complied with by such other party.

9. With respect to any claims or disputes under or in connection with this Release or any claims released under Section 3 of this Release, Employee and the Company hereby acknowledge and agree that Sections 6.7 and 6.9 of the Employment Agreement shall govern. Employee acknowledges that a breach or threatened breach of the provisions of this Release may give rise to losses or damages for which the Company cannot be reasonably or adequately compensated in an action at law, and that such violation may result in irreparable and continuing harm to the Company. Accordingly, Employee agrees that, in addition to any other remedy that the Company may have at law or in equity, the Company shall be entitled to seek equitable relief, including, without limitation, injunction and specific performance and Employee hereby waives any requirements for security or posting of any bond in connection with such relief. No specification in this Release of any particular remedy shall be construed as a waiver or prohibition of any other remedies (including claims for damages) in the event of a breach or threatened breach of this Release.

10. Employee agrees and acknowledges that (a) Employee has had an adequate opportunity to review this Release and all of its terms, (b) Employee understands all of the terms of this Release, which are fair, reasonable and are not the result of any fraud, duress, coercion, pressure or undue influence exercised by or on behalf of any Releasee and (c) Employee has agreed to and/or entered into this Release and all of the terms hereof, knowingly, freely and voluntarily.

11. By executing this Release, Releasor acknowledges that (a) Employee has been advised by the Company to consult with an attorney before executing this Release; (b) Employee was provided adequate time (i.e., at least 21 days) to review this Release and to consider whether to sign this Release and (c) Employee has been advised that Employee has 7 days following execution to revoke this Release (“Revocation Period”). Notwithstanding anything to the contrary contained herein or in the Employment Agreement, this Release shall not be effective or enforceable, and the Separation Benefit is not payable and shall not be delivered or paid by the Company, until the Revocation Period has expired and provided that Employee has not revoked this Release. Employee agrees that any revocation shall be made in writing and delivered to                 , Vice President, Human Resources, Barnes & Noble, Inc., 122 Fifth Avenue, NY, NY 10011. Employee acknowledges that revocation of this Release shall result in the Company’s not having an obligation to pay the Separation Benefit.

Signature:		Date:
	[Name]

3

EX-15.1

Exhibit 15.1

December 9, 2010

Securities and Exchange Commission

450 Fifth Street N.W.

Washington, D.C. 20549

We are aware that Barnes & Noble, Inc. has incorporated by reference in its 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, No. 333-59111 and No. 333-160560) our report dated December 9, 2010, relating to the Company’s unaudited interim consolidated financial statements appearing in its quarterly report on Form 10-Q for the quarter ended October 30, 2010. Pursuant to Regulation C under the Securities Act of 1933 (the “Act”), that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. It should be noted that we have not performed any procedures subsequent to December 9, 2010.

/s/ BDO USA, LLP

BDO USA, LLP

New York, New York

EX-31.1

Exhibit 31.1

CERTIFICATION BY THE

CHIEF EXECUTIVE OFFICER PURSUANT TO

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

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William J. Lynch, Jr., certify that:

1. I have reviewed this report on Form 10-Q for the quarterly period ended October 30, 2010 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: December 9, 2010

By:	/s/ William J. Lynch, Jr.
	William J. Lynch, Jr. 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)/15(d)-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-Q for the quarterly period ended October 30, 2010 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: December 9, 2010

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 quarterly report of Barnes & Noble, Inc. (the “Company”) on Form 10-Q for the period ended October 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William J. Lynch, Jr., 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/ William J. Lynch, Jr.

William J. Lynch, Jr.

Chief Executive Officer

Barnes & Noble, Inc.

December 9, 2010

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 quarterly report of Barnes & Noble, Inc. (the “Company”) on Form 10-Q for the period ended October 30, 2010, 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.

December 9, 2010

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.