SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                  FORM 10-K

                      FOR ANNUAL AND TRANSITION REPORTS
                   PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)

                  For the fiscal year ended February 1, 1997

   [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                    EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

           For the transition period from __________ to __________

                         Commission File No. 1-12302

                             Barnes & Noble, Inc.
            (Exact name of registrant as specified in its Charter)

                Delaware                                 06-1196501
    (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                  Identification No.)

     122 Fifth Avenue, New York, NY                         10011
(Address of principal executive offices)                  (Zip Code)

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

Securities registered pursuant to Section 12(g) of the Act:
   Common Stock, $0.001 par value per share           New York Stock Exchange
              (Title of Class)                         (Name of Exchange on
                                                         which registered)


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

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $948,632,750 based upon the closing market price of

$37.25 per share of Common Stock on the New York Stock Exchange as of April 4,
1997.

Number of shares of $.001 par value Common Stock outstanding as of April 4, 
1997:  33,238,528

                             (Cover page 1 of 2)


<PAGE>

                     DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of 
Shareholders are incorporated by reference into Part III.

Portions of the Registrant's Annual Report to Shareholder for the fiscal year
ended February 1, 1997 are incorporated by reference into Parts II and IV.


<PAGE>

                              TABLE OF CONTENTS

                                                                          Page
                                                                          ----

                                    PART I


Item  1.  Business..................................................         4


Item  2.  Properties................................................        15


Item  3.  Legal Proceedings.........................................        15


Item  4.  Submission of Matters to a Vote of Security Holders.......        15


                                   PART II


Item  5.  Market for Registrant's Common Equity and Related 
             Stockholder Matters....................................        16


Item  6.  Selected Financial Data...................................        16


Item  7.  Management's Discussion and Analysis of Financial 
             Condition and Results of Operation.....................        17


Item  8.  Financial Statements and Supplementary Data...............        17


Item  9.  Changes in and Disagreements with Accountants on 
             Accounting and Financial Disclosure....................        17


                                   PART III


Item  10. Directors and Executive Officers of the Registrant........        17


Item  11. Executive Compensation....................................        17


Item  12. Security Ownership of Certain Beneficial 
             Owners and Management..................................        18


Item  13. Certain Relationships and Related Transactions............        18


                                   PART IV


Item  14. Exhibits, Financial Statement Schedules and 
             Reports on Form 8-K....................................        18

                                      3


<PAGE>


                                    PART I


ITEM 1.  BUSINESS


General

         Barnes & Noble, Inc. ("Barnes & Noble" or the "Company"), the world's
largest bookseller, operated 431 "super" bookstores in 47 states and the
District of Columbia and 577 mall-based bookstores in 46 states and the District
of Columbia as of February 1, 1997. The Company's rapidly expanding "super"
store business operates under the Barnes & Noble Booksellers, Bookstop and
Bookstar tradenames (collectively "Barnes & Noble stores") and its mall-based
business operates under the B. Dalton Bookseller, Doubleday Book Shops and
Scribner's Bookstore tradenames (collectively "B. Dalton").The Company is the
world's largest supplier of books through direct-mail catalogs and it publishes
books under its own imprint for exclusive sale through its retail bookstores and
mail-order catalogs. The Company is also the exclusive bookseller in America
Online's Marketplace and has plans to launch a World Wide Web site, operating
the "world's largest bookseller online," during 1997.

         The Company's principal business is the retail sale of trade books
(generally hardcover and paperback consumer titles, excluding educational
textbooks and specialized religious titles), mass market paperbacks (such as
mystery, romance, science fiction and other popular fiction), children's books,
off-price bargain books and magazines. These collectively account for
substantially all of the Company's sales.

         The Company generated revenues of $2.448 billion during the 53 weeks
ended February 1, 1997, an increase of 23.8% compared to revenues of $1.977
billion during the 52 weeks ended January 27, 1996. During the 53 weeks ended
February 1, 1997 revenues from the Barnes & Noble stores rose 37.9% to $1.861
billion from $1.350 billion during the 52 weeks ended January 27, 1996. The
Company's net earnings increased to $51.2 million during the 53 weeks ended
February 1, 1997 from $34.3 million during the 52 weeks ended January 27, 1996
and net earnings per common share were $1.48 compared with $1.05 for the same
respective periods.


Barnes & Noble Stores

         General

         The Company is the largest operator of book "super" stores in the
United States with 431 stores, of which 91 were opened during the 53 weeks ended
February 1, 1997. During the 53 weeks ended February 1, 1997, Barnes & Noble
stores generated 76.0% of total Company revenues, up from 68.3% during the 52
weeks ended January 27, 1996, and contributed more than 85% of the Company's
operating profits. The Barnes & Noble stores realized a comparable store sales
increase of 7.3% during the 53 weeks ended February 1, 1997.

         Barnes & Noble stores average 22,000 square feet and, depending upon
market size, range in size from 10,000 to 60,000 square feet. Since its
acquisition of 23 stores from Bookstop, Inc. ("Bookstop"), most of which
averaged 10,000 square feet, the Barnes & Noble store prototype has grown
steadily in size, reaching an average of 27,000 square feet in 1995, and has
since remained relatively constant through 1996. The Company upgraded 12 of its
early generation Barnes & Noble and Bookstop stores during the 53 weeks 

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<PAGE>
ended February 1, 1997 when it relocated and expanded the stores to conform to
its current "super" store prototype. The Company expects to complete this
modernization program during 1997 with eight more store relocations or
expansions. With its current, overall market leadership position and its high
standards for site selection, store design, merchandising and customer service,
the Company believes that its Barnes & Noble "super" store business has
significant growth opportunities and intends to expand its operations in new and
existing markets. During the 53 weeks ended February 1, 1997, the Company opened
91 Barnes & Noble stores and plans to continue to open as many new stores in the
future that meet its strict standard for return on investment. As of February 1,
1997, the total square footage of the Barnes & Noble stores exceeded 9.3 million
square feet, a 33% increase over the prior year. The Company intends to open
approximately 70 stores during the 52 weeks ending January 31, 1998. The Company
believes that the key elements contributing to the success of the Barnes & Noble
stores are:

         Proximity to Customers. The Company's strategy is to increase its share
of the consumer book market, as well as to increase the size of the market.
Since it began its "super" store roll-out, the Company has employed a market
clustering strategy. As of February 1, 1997 Barnes & Noble had stores in 132 of
the total 208 ADI markets (Area of Dominant Influence), and more than one
"super" store in 61 of these markets. The Company believes its early market
penetration and the stores' proximity to their customers strengthen its market
position and increase its franchise value. During the 53 weeks ended February
1, 1997, the Barnes & Noble stores' share of the consumer book market increased
to approximately 9%. Most Barnes & Noble stores are located in high-traffic
areas with convenient access to major commercial thoroughfares and ample
parking. Most stores offer extended shopping hours, generally 9:00 a.m. to 11:00
p.m., seven days a week.

         Dominant Title Selection. Each Barnes & Noble store features an
authoritative selection of books, ranging between 60,000 and 175,000 titles.
Each store's comprehensive title selection is customized to the local
community's interests and demands. To further the breadth of title selection,
Barnes & Noble funds the Discover Great New Writers program supporting the work
of newly published authors, and emphasizes books published by small and
independent publishers and university presses. In addition to this extensive
on-site selection, each store will special order any book from the more than 1.2
million books in print. The Company believes that its tremendous selection,
including many otherwise hard-to-find titles, builds customer loyalty.

         Experienced Booksellers. Six years into its "super" store roll-out, the
Company has a large and experienced base of booksellers from which it can select
managers and booksellers to fill positions in the Company's expanding business.
The Company's culture of outgoing, helpful and knowledgeable booksellers 
consists of 24,000 full- and part-time employees operating over 1,000 stores  as
of February 1, 1997. During the 53 weeks ended February 1, 1997, 75% of the new
Barnes & Noble store managers were promoted from within this group, a record for
which the Company expects to realize the benefits of better store-level

execution, staffing and customer service.

         Store Design and Ambiance. The Barnes & Noble stores are designed to be
reminiscent of an old world library, with wood fixtures, antique style chairs
and tables, ample public space, a cafe and public restrooms. Barnes & Noble's
literary cafes, for which the Starbucks Coffee Company is the sole provider of
coffee products, further the image of its "super" stores as a community meeting
place.


         Music Departments. As of February 1, 1997, the Company had 124 Barnes 
& Noble stores with music departments which range in size from 2,000 to 4,000
square feet. The music departments generally stock over 50,000 

                                      5


<PAGE>

titles in classical music, opera, jazz, blues and pop rock, tailored to the
tastes of the Company's core customers - the 35- to 45-year age group. Listening
stations are available for customers to preview selected compact disks.

         Discount Pricing. The Barnes & Noble stores employ a nationwide
discount pricing strategy. The New York Times hardcover bestsellers are
discounted 30% off the publishers' suggested retail price, with a 10% discount
on most other hardcover books. The Company believes that its pricing strategies
enable the Company to be highly competitive.

         Marketing and Community Relations. Barnes & Noble stores are launched
with a major grand opening campaign involving extensive print and radio
advertising, direct-mail marketing and community events. Each store plans its
own community-based calendar of events, including author appearances, children's
storytelling hours, poetry readings and discussion groups. The Company believes
its community focus encourages customer loyalty, significant word-of-mouth
publicity and free media coverage.

         Proprietary Product. The Company features titles published under the
Barnes & Noble Books imprint in its Barnes & Noble and B. Dalton stores and
mail-order catalogs. During the 53 weeks ended February 1, 1997, sales of Barnes
& Noble's self-published titles grew 40% over the 52 weeks ended January 27,
1996. During 1996 the Company introduced more than 350 new titles under its own
imprint, bringing its total catalog of self-published books to 1,500 titles.
Sales of these books enable the Company to distinguish its product offerings
from those of its competitors and offer customers high quality books at
excellent values while generating higher gross margins. Barnes & Noble expects
its proprietary publishing will become a larger part of its operations and plans
to increase the number of titles it publishes.

         Merchandising and Marketing

         The Company's merchandising strategy for its Barnes & Noble stores is
to be the authoritative community bookstore which carries a dominant selection
of titles in all subjects, including an extensive selection of titles from small
independent publishers and university presses. Each Barnes & Noble store stocks

from 60,000 to 175,000 titles, of which approximately 50,000 titles are common
to all stores; the balance is crafted to reflect the lifestyles and interests of
each store's customers. Before a store opens, the Company's buyers study the
community and customize the title selection with offerings from the store's
local publishers and authors. After the store opens, each Barnes & Noble store
manager is responsible for adjusting the buyers' selection to the interests,
lifestyles and demands of the store's local customers. The Company's proprietary
database, which has catalogued sales rankings of over 650,000 titles in over 110
subjects, provides each store with comprehensive title selections in those
subjects in which it seeks to expand. The Company's current on-line proprietary
inventory management information system, WINGS, enables store managers to
respond quickly to local sales trends. During 1997, the Company will roll-out
the next generation of its state-of-the-art store systems with its significantly
improved "BookMaster." The new store system greatly enhances store-level
customer service and productivity with its extremely fast register transactions
and its 2.5 million title database designed specifically for book browsing.

         Barnes & Noble store openings are launched with a major grand opening
campaign involving extensive print and radio advertising, direct-mail marketing
and community events. In markets where stores are clustered, the Company
generally leverages its existing advertising expenses with full-page

                                      6


<PAGE>

promotional ads funded by cooperative advertising funds from publishers. In
addition, the Company's mail-order catalogs generally include addresses of
Barnes & Noble stores located in the particular geographical area.

         Store Locations and Properties

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

         The number of Barnes & Noble stores located in each state and the 
District of Columbia as of February 1, 1997 are listed below:


<TABLE>
<CAPTION>
                         NUMBER                                  NUMBER
STATE                   OF STORES       STATE                   OF STORES
- -----                   ---------       -----                   ---------
<S>                     <C>             <C>                     <C> 
Alaska                      1           Montana                     2
Alabama                     5           Nebraska                    2
Arizona                    11           Nevada                      5
Arkansas                    2           New Hampshire               3

California                 64           New Jersey                 14
Colorado                    9           New Mexico                  2
Connecticut                 9           New York                   29
Dist. of Columbia           1           North Carolina             11
Florida                    34           North Dakota                1
Georgia                     8           Ohio                       11
Hawaii                      1           Oklahoma                    4
Idaho                       3           Oregon                      7
Illinois                   17           Pennsylvania               11
Indiana                     5           Rhode Island                1
Iowa                        2           South Carolina              4
Kansas                      4           South Dakota                1
Kentucky                    3           Tennessee                   6
Louisiana                   4           Texas                      51
Maine                       1           Utah                        7
Maryland                    3           Vermont                     1
Massachusetts              14           Virginia                    9
Michigan                   10           Washington                 11
Minnesota                  13           Wisconsin                   6
Missouri                    7           Wyoming                     1
</TABLE>


                                      7


<PAGE>

         Expansion

         The Company believes its Barnes & Noble store format offers the
greatest opportunity to increase its share of the expanding consumer book market
and intends to strengthen its position as the world's leading operator of book
superstores by opening approximately 70 new stores during the 52 weeks ending
January 31, 1998. The Company believes its lower capital program will strengthen
its financial position, improve its cash flow and allow its "super" store
profits to grow with the maturation of the base of "super" stores.

         All stores will be opened under the Barnes & Noble Booksellers
tradename, and with nearly 24,000 full- and part-time employees operating its
1,008 stores, the Company believes it will be able to fill positions in its new
stores with experienced managers and booksellers.

         The Company anticipates that its expansion plans will be supported by a
combination of continuing strong demand for consumer books, which has grown over
the past five years at a rate of 6% compounded annually according to Veronis,
Suhler & Associates Communications Industry Forecast ("Veronis Suhler") and
incremental sales generated by new "super" stores. The Company estimates that as
much as 80% of the sales generated by a new Barnes & Noble store can be
incremental to the community in which the store is located.

         Demographic trends in the United States support the prospect of
continued growth in the retail book industry. The principal book buying
population is between 35 and 54 years of age. According to the U.S. Bureau of
the Census, over the next five years this age group is expected to increase 10%.
In addition, Veronis Suhler estimates that more than 70% of consumer book buyers

have some college education. According to the U.S. Bureau of Labor Statistics,
the percentage of the U.S. population with some college education is at an
all-time high.

B. Dalton

         General

         The Company is the second largest operator of mall bookstores in the
United States. During the 53 weeks ended February 1, 1997, B. Dalton generated
revenues of approximately $564.9 million, or 23.1% of the Company's total
revenues, compared to 30.5% of total Company revenues during the 52 weeks ended
January 27, 1996.

         Most B. Dalton stores range in size from 2,800 to 6,000 square feet.
These stores stock between 15,000 and 25,000 titles, feature new releases,
bestsellers and children's books, and carry a standard selection of titles in
categories such as business, computers, cooking and reference. B. Dalton employs
a market-by-market discount pricing strategy which generally discounts hardcover
bestsellers from 15% to 25% off the publishers' suggested retail prices. B.
Dalton also offers a Book$avers discount card for an annual fee which allows
customers an additional 10% discount on substantially all purchases.

         The Company's 24 Doubleday and 9 Scribner's bookstores utilize a more
upscale format aimed at the "carriage trade" in higher-end shopping malls and
place a greater emphasis on hardcover and gift books.

                                      8


<PAGE>
         During the past six years, the Company has pursued a two-pronged
strategy to maximize returns from its B. Dalton division in response to
declining sales attributable primarily to superstore competition and, to a
lesser extent, weaker overall consumer traffic in shopping malls. The first part
of the Company's strategy has been to rigorously identify and close
underperforming stores. Since 1989, the Company has closed more than 50 B.
Dalton stores per year. During the fourth quarter of 1995, the Company
accelerated its store closing strategy, and provided for these closing costs as
part of the non-cash restructuring charge of $123.8 million ($87.3 million
after-tax or $2.65 per common share) with the aim of forming a core of more
profitable B. Dalton stores for the future. The Company's B. Dalton store
operations began to stabilize during 1996. During the 53 weeks ended February 1,
1997, same-store sales for the B. Dalton stores improved from a decline of 4.3%
during the 52 weeks ended January 27, 1996 to a decline of 1%.

         Concurrent with the implementation of the store closing strategy, the
Company has been expanding the size of some of its new B. Dalton stores and is
seeking better locations within malls for increased visibility and higher
traffic flow. A new B. Dalton prototype was developed for this purpose in 1993
and, since that time, more than 100 new or converted stores have been opened and
are performing, on average, better than the remaining store base.


         Merchandising and Marketing

         Each B. Dalton store carries a standard selection of core titles within
a variety of subject categories which are supplemented by new releases,
bestsellers and other titles specially selected to meet local demand. B.
Dalton's merchandise strategy is to expand title assortments within categories
it believes have significant growth potential, such as children's books, mass
market paperbacks (such as mystery, romance, science fiction and other popular
fiction), publishers' remainders and other bargain books including the Company's
self-published books. B. Dalton's product offerings are merchandised to attract
shoppers responding to movies, television talk show topics and current events.
Each store has the ability to customize its selection to its local customers
based upon their interests and demands.

         B. Dalton's advertising and promotional programs focus on point-of-sale
and storefront signage and other in-store promotions designed to attract walk-by
mall traffic. B. Dalton takes full advantage of cooperative advertising funds
made available by publishers and generally limits its expenditures and
promotional programs to the amount of such funds. In addition, stores
customarily incur advertising costs, often in amounts equal to a percentage of
their annual sales, for lease required advertising of mall-related promotional
events.

         Store Locations and Properties

         Approximately 90% of B. Dalton stores are located in enclosed regional
shopping malls. The remaining stores are located in strip shopping centers and
central business districts. Site selections for all new B. Dalton stores are
made after an extensive review of demographic data, mall tenants, proposed
location within the mall and competitive factors.

                                      9


<PAGE>

         The number of B. Dalton stores located in each state and the District  
of Columbia as of February 1, 1997 are listed below:


<TABLE>
<CAPTION>
                           NUMBER                                   NUMBER
STATE                     OF STORES         STATE                  OF STORES
- -----                     ---------         -----                  ---------
<S>                       <C>               <C>                    <C>
Alabama                        2            Montana                    4
Arizona                       12            Nebraska                   3
Arkansas                       2            Nevada                     3
California                    81            New Hampshire              2
Colorado                      12            New Jersey                19
Connecticut                    7            New Mexico                 2
Delaware                       1            New York                  25
Dist. of Columbia              4            North Carolina            12
Florida                       32            North Dakota               4
Georgia                       16            Ohio                      24
Idaho                          3            Oklahoma                   5

Illinois                      21            Oregon                     6
Indiana                        8            Pennsylvania              26
Iowa                          12            South Carolina             8
Kansas                         7            South Dakota               2
Kentucky                       4            Tennessee                  5
Louisiana                     13            Texas                     41
Maine                          2            Utah                       7
Maryland                      14            Virginia                  16
Massachusetts                 10            Washington                17
Michigan                      28            West Virginia              1
Minnesota                     24            Wisconsin                 11
Mississippi                    1            Wyoming                    2
Missouri                      16
</TABLE>


         The Company remains committed to opening stores in new shopping mall
projects which meet the Company's return on investment criteria and anticipates
opening four new B. Dalton stores during the 52 weeks ending January 31, 1998.
Given the declining rate of new mall development and the Company's continuing
plans to close B. Dalton stores pursuant to its restructuring plan, the Company
anticipates it will continue to realize a decline in the number of B. Dalton
stores during 1997. During the 53 weeks ended February 1, 1997, the Company
opened eight B. Dalton stores and closed 72 stores, primarily as a result of not
renewing expiring leases.

Other Strategies

         Proprietary Publishing. With publishing and distribution rights to over
1,500 titles covering a wide range of subject categories, the Company further
differentiates its product offerings from those of its competitors by publishing
books under its own Barnes & Noble Books imprint for exclusive sale in its
retail stores and direct mail catalogs. As part of this activity, the Company
licenses titles directly from domestic and international publishers as well as 
from literary agents, commissions books directly from

                                      10


<PAGE>

authors, reprints classic titles in the public domain and creates collections of
fiction and non-fiction using in-house editors. These books are published under
the Barnes & Noble Books imprint. By self-publishing books, the Company is able
to significantly lower its merchandise costs and pass on a portion of the
savings to its customers. While the prices of these books represent significant
value to customers, they also generate substantially higher gross profit margins
than those realized on sales of non-proprietary books.

         Books published by the Company are featured prominently in the
Company's direct-mail catalogs and in the front of the Company's stores. The
Company is continuing to expand the scope of its publishing program by
increasing the number of titles it publishes, particularly dictionaries,
reference books, children's books and classics. During the 53 weeks ended
February 1, 1997, sales of the Company's proprietary books increased 40% over
proprietary book sales during the 52 weeks ended January 27, 1996.


         Mail-Order. Complementing its leadership position as the world's
largest bookseller, Barnes & Noble is the world's largest supplier of books
through direct-mail catalogs. The Company mails over 20 million catalogs each
year to its in-house mailing list of over one million customers. The Company
acquires new customers by mailing additional catalogs to potential customers on
targeted mailing lists, as well as by placing catalog-request ads in national
and local newspapers and upscale magazines. Through the direct-mail catalogs,
the Company sells publishers' remainders and imported books at up to 80% off
publishers' suggested retail prices, as well as the Company's self-published
books under its Barnes & Noble Books imprint. The Company believes that its
extensive catalog mailings over the past ten years have created substantial name
recognition in the United States and internationally, and have facilitated the
introduction of Barnes & Noble stores and the Company's online business.

         Online Business. The Company believes the emergence of the World Wide
Web as a viable marketplace for retail distribution poses substantial
opportunities. During the 53 weeks ended February 1, 1997, the Company developed
its online business including distribution, editorial, customer service and
merchandising and marketing partnerships. In early 1997 Barnes & Noble launched
an online business as the exclusive bookseller for America Online (AOL keyword:
Barnes and Noble). The Company plans to launch its own World Wide Web site
(BarnesandNoble.com) during the first half of 1997. The Company expects its
existing asset base can be leveraged with significant competitive advantages
which include: its distribution center, its 2.5 million title database, its
special order capabilities, its direct marketing expertise, its franchise value
and name recognition, its international presence and reputation and particularly
its bookselling expertise.

         Strategic Investments. During the 53 weeks ended February 1, 1997, the
Company selectively pursued strategic alliances with Chapters Inc. ("Chapters")
and Calendar Club LLC ("Calendar Club") to further leverage its invested capital
with its extensive retailing experience. Chapters is the largest book retailer
in Canada with 360 mall bookstores and the leading Canadian book superstore
retailer with 12-15 book superstores. During September 1996 the Company
purchased 20% of Chapters' common stock and, shortly thereafter, its ownership
position was diluted to 13% when Chapters consummated an initial public offering
during December 1996. The Company activated its one-year maintenance right
during April 1997 and plans to increase its investment in Chapters to its
original 20% during May 1997. Also during 1996, the Company acquired 50% of
Calendar Club, an operator of seasonal calendar kiosks in the 

                                      11


<PAGE>

United States and internationally. Based upon their financial performance during
1996, Barnes & Noble expects its return on investment in these companies to grow
significantly in the future.

Store Operations

         The Company has separate management teams for its Barnes & Noble and B.
Dalton stores, including those for real estate, merchandising and store

operations. Field management includes regional store directors and district
managers supervising multiple store locations. Each B. Dalton store generally
employs a manager, an assistant manager and approximately seven full-time and
part-time booksellers. By comparison, each Barnes & Noble store generally
employs a manager, two assistant managers and approximately 40 full-time and
part-time booksellers. Most Barnes & Noble stores also employ a full-time
community relations manager. The Company's large employee base provides the
Company with experienced booksellers to fill positions in the Company's new
Barnes & Noble stores. The Company anticipates that a significant percentage of
the personnel required to manage its expanding business will continue to come
from within its existing operations.

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

         The Company has a twelve-week manager training program in which
existing store managers train new store managers in all areas of store
operations. Store managers are generally responsible for training other
booksellers in accordance with detailed procedures and guidelines prescribed by
the Company, utilizing training aids available at each bookstore. In addition,
district managers participate in semi-annual training and merchandising
conferences.

Purchasing

         Barnes & Noble's buyers negotiate terms, discounts and cooperative
advertising allowances with publishers for all of the Company's bookstores. The
Company's substantial purchasing power enables it to maximize available
discounts and the Company's multiple strategies greatly enhance its ability to
create customized marketing programs with many of its vendors. The Company has
teams of buyers who specialize in customizing inventory for each of the
Company's bookselling strategies. Store inventories are further customized by
the store managers, who may respond to local demand by purchasing a limited
amount of fast-selling titles through a nationwide wholesaling network.

         The Company purchases books on a regular basis from over 1,200
publishers and approximately 50 wholesale distributors. Purchases from the top
five suppliers (including publishers and wholesale distributors) accounted for
approximately 48% of the Company's book purchases during the 53 weeks ended
February 1, 1997, and no single supplier accounted for more than 19% of the
Company's purchases during this period. Consistent with retail book industry
practice, substantially all of the Company's book purchases are returnable for
full credit, a practice which substantially reduces the Company's risk of
inventory obsolescence.

                                      12


<PAGE>

         Publishers control the distribution of titles by virtue of copyright
protection, which limits availability on most titles to a single publisher.

Since the retail, or list, prices of titles, as well as the retailers' cost
price, are also generally determined by publishers, the Company has limited
options concerning availability, cost and profitability of its book inventory.
However, these limitations are mitigated by (i) the substantial number of titles
available (over 1.2 million), (ii) the Company's ability to maximize volume
discounts, (iii) its positive relationships with publishers, which are enhanced
by the Company's significant purchasing volume and (iv) its ability to obtain
most titles from alternative wholesale distributors.

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

Distribution

         Over the past two years, the Company has invested significant capital
in its systems and technology, by building new platforms, implementing new
software applications and opening a new distribution center. During September
1996 the Company opened a new state-of-the-art 344,000 square foot distribution
facility in South Brunswick, New Jersey. Historically, the Company  replenished
through its distribution network some of its fast-moving frontlist titles and
bargain and self-published books and had the remaining inventory drop-shipped
directly to the stores from wholesalers and publishers. Significantly more
inventory will be replenished through its new distribution center which will
provide increasing gross margins with more direct buying from publishers rather
than wholesalers; improve store-level just-in-time deliveries to yield higher
sales volumes; and increase inventory turnover.

         The Company's distribution network will also provide a significant
competitive advantage for its new online business. By stocking over 400,000
titles, the Company will be in a position to provide overnight delivery service
to its online customers at gross margins which will allow the Company to offer
very deep discounts.

Management Information and Control Systems

         The Company has focused a majority of its information resources on
strategically positioning and implementing systems to support store operations,
merchandising and finance. The Company determined that an open-architecture
distributed computing environment would provide the flexibility needed in the
future and as a result a migration to a client server platform was initiated.

         Building on the Company's previous proprietary inventory management
system, during 1996 the Company introduced a new client server store system
("BookMaster"). BookMaster is an inventory management system with integrated
point of sale features that utilizes a proprietary data-warehouse-based
replenishment system. It enhances communications and real-time access to our
network of stores, distribution center and wholesalers. In addition,
implementation of just-in-time replenishment has provided for more rapid
replenishment of books to all stores. The BookMaster system will replace

existing systems over the next two years.

         As applications have been developed and placed into production, network
expansion to support them has been essential. The Company has implemented a
client server based payroll and human resource management system which has
improved operational efficiencies in payroll processing and simplified the
ability to manage payroll requirements and analysis.

         An offsite business recovery capability has been developed and
implemented to assure uninterrupted systems support.

                                  13

<PAGE>

Trademarks and Servicemarks

         B. Dalton Bookseller, Bookstar and Book$avers are Company-owned service
marks registered with the United States Patent and Trademark Office. Barnes &
Noble, Doubleday Book Shops and Scribner's Bookstores are federally registered
service marks which have been licensed to the Company under long-term license
agreements which are royalty-free. These license agreements provide the Company
with the exclusive right to use the Doubleday and Scribner's service marks only
in connection with the retail sale of books.

Employees

         The Company currently employs approximately 3,100 full-time salaried,
10,200 full-time hourly and between 10,500 and 10,700 part-time hourly
employees. The fluctuation in the number of part-time hourly employees is due to
the seasonality of the business. The Company's employees are not represented by
unions, except in the case of one Doubleday store, and the Company believes that
its relationship with its employees is excellent.

                                      14


<PAGE>


I
TEM 2.  PROPERTIES

         All but one of the Barnes & Noble stores are leased. The leases
typically provide for an initial term of ten or fifteen years with one or more
renewal options. The terms of the Barnes & Noble store leases for its 430 leased
stores open as of February 1, 1997 expire as follows:

Lease Terms to Expire During                          Number of
(twelve months ending on or about January 31)           Stores
                                                      ---------

1998...............................................       3
1999...............................................       2
2000...............................................       4
2001...............................................       6
2002...............................................       7
2003 and later.....................................     408


         All B. Dalton stores are leased. The leases generally provide for an
initial ten-year term with no renewal option. The terms of the 577 B. Dalton
leases as of February 1, 1997 expire as follows:

Lease Terms to Expire During                          Number of
(twelve months ending on or about January 31)           Stores
                                                      ---------
1998...............................................      124
1999...............................................       72
2000...............................................       62
2001...............................................       76
2002...............................................       49
2003 and later.....................................      194

         Stores scheduled for closing pursuant to the Company's restructuring
plan are included in the preceding table. The Company has generally been able to
renew expiring leases on favorable terms, and it believes that renewals of
leases expiring in the next two fiscal years will not have a material adverse
effect on the Company's financial condition or results of operations.


ITEM 3.  LEGAL PROCEEDINGS

         Various claims and lawsuits arising in the normal course of business
are pending against the Company. The subject matter of these proceedings
primarily includes commercial disputes and employment issues. The results of
these proceedings are not expected to have a material adverse effect on the
Company's consolidated financial position or results of operations.


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

         There were no matters submitted to a vote of security holders during
the 14 weeks ended February 1, 1997.

                                      15


<PAGE>


                                   PART II


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

Price Range of Common Stock

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

                                  Fiscal 1996                 Fiscal 1995
                              ---------------------       --------------------
                                High         Low            High        Low
                              ---------    --------        -------    --------


First Quarter                  $36 1/4      23 3/4          32 3/4      27 1/4
Second Quarter                  37 3/4      28 3/4          38 7/8      26 5/8
Third Quarter                   35 3/4      29 5/8          42 1/4      33 7/8
Fourth Quarter                  34 3/8      25 3/4          39 3/4      23 1/4

Approximate Number of Holders of Common Equity

                                                   Approximate
                                                    Number of
                                                  Record Holders
                                                      as of
      Title of Class                               April 4, 1997
      --------------                               -------------
      Common stock, $0.001 par value                    885

Dividends

         The terms of the Company's senior credit facility prohibit and the
indenture governing the Company's senior subordinated notes due 2003 limit
payment of cash dividends. During the 53 weeks ended February 1, 1997, the
Company did not declare or pay any cash dividends or make distributions or
payments on its common stock.


ITEM 6.  SELECTED FINANCIAL DATA

         The information included in the Company's Annual Report to Shareholders
for the fiscal year ended February 1, 1997 (Annual Report) under the section
entitled "Selected Financial Data" is incorporated herein by reference.

                                      16


<PAGE>


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

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


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


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

         None.



                                   PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information with respect to directors and executive officers of the
Company is incorporated herein by reference to the Company's definitive Proxy
Statement relating to the Company's 1997 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission within 120 days of the
Company's fiscal year ended February 1, 1997 (Proxy Statement).

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


ITEM 11. EXECUTIVE COMPENSATION

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

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


                                      17


<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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


                                   PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  1.  Consolidated Financial Statements:

         (i)   "The Report of Independent Certified Public Accountants"
               included in the Annual Report is incorporated herein by 
               reference.

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


     2.  Schedules:

         All schedules are omitted because the information is either not
         applicable or is contained in the consolidated financial statements
         incorporated herein by reference.

                                      18


<PAGE>

     3.  Exhibits:

         The following are filed as Exhibits to this form:

  Exhibit
    No.                                Description
  -------                              -----------              

     3.1     Amended and Restated Certificate of Incorporation of the Company, 
             as amended.(1)
     3.2     Amendment to the Amended and Restated Certificate of Incorporation
             of the Company filed May 30, 1996.(2)
     3.3     Amended and Restated By-laws of the Company.(1)
     3.4     Amendment to the Company's By-laws adopted May 31, 1995.(3)
     4.1     Specimen Common Stock certificate. (1)
    10.1     Credit  Agreement, dated as of March 28, 1996, among the Company,  
             its subsidiaries, The Chase Manhattan Bank (National Association),
             as Administrative Agent (the "Agent") and the Banks party 
             thereto.(4)
    10.2     Amendment No. 1, dated as of December 28, 1996, to the Company's 
             Credit Agreement. (5)
    10.3     Pledge and Security Agreement dated as of March 29, 1996, among 
             the Company, its subsidiaries and the Agent.(4)
    10.4     Amended and Restated Indenture for the Subordinated Notes, between 
             the Company and United States Trust Company of New York, as 
             trustee.(6)
    10.5     1996 Incentive Plan.(2)
    10.6     1991 Employee Incentive Plan.(1)
    10.7     Extended Savings Plan.(1)
    10.8     Amendment to the Extended Savings Plan dated as of December 22, 
             1995.(4)
    10.9     Employees' Retirement Plan.(1)
   10.10     Supplemental Compensation Plan.(7)
   10.11     License Agreement for "Barnes & Noble" service mark, dated as of 
             February 11, 1987.(1)
   10.12     Consents to "Barnes & Noble" License Agreement Assignments, dated 
             as of November 18, 1988 and November 16, 1992, respectively.(4)
   10.13     License Agreement for "Doubleday Book Shops" service mark, dated 
             as of May 31, 1990. (1)
   10.14     License Agreement for "Scribner's Bookstores" mark, dated as of 
             February 21, 1989.(1)
   10.15     Lease dated June 3, 1987 between B. Dalton, as tenant, and 
             Bromley Rockleigh Associates, L.P., as landlord.(1)

   10.16     Services Agreement, dated as of November 16, 1992, between 
             Barnes & Noble Bookstores, Inc. and the Company.(1)
   10.17     Aircraft Use  Agreement, dated as of June 30, 1993, between the 
             Company and B&N Aircraft Company, Inc.(6)

                                      19


<PAGE>

   10.18     Asset Purchase Agreement dated as of July 29, 1996 among NeoStar 
             Retail Group, Inc. (and its wholly-owned subsidiary, Software Etc. 
             Stores, Inc.) and Barnes & Noble, Inc.(8)
   10.19     Stock Option and Repurchase Agreements, dated as of August 1, 
             1988, between the Company and each of Mitchell S. Klipper and 
             Stephen Riggio, as amended November 16, 1992.(6)
   10.20     Stock Option Certificates, dated March 15, 1993, granting options 
             to purchase Common Stock to each of Mitchell S. Klipper, Stephen 
             Riggio and Irene R. Miller pursuant to the Company's 1991 
             Employee Incentive Plan.(6)
   10.21     Employment Agreements between the Company and each of Mitchell S.  
             Klipper and Stephen Riggio, dated as of April 1, 1993 and July 
             15, 1993, respectively.(6)
   10.22     Stock Option Certificates, dated September 28, 1993, granting 
             options to purchase Common Stock to Leonard Riggio, Mitchell S. 
             Klipper and Stephen Riggio.(9)
    13.1     The sections of the Company's Annual Report entitled: "Selected
             Financial Data", "Management's Discussion and Analysis of Financial
             Condition and Results of Operations", "Consolidated Statements of
             Operations", "Consolidated Balance Sheets", "Consolidated
             Statements of Changes in Shareholders' Equity", "Consolidated
             Statements of Cash Flows", "Notes to Consolidated Financial
             Statements" and "The Report of Independent Certified Public
             Accountants".(5)
    21.1     List of Subsidiaries(4)
    23.1     Consent of BDO Seidman, LLP.(5)

- ---------------------------
    (1)      Previously filed as an exhibit to the Company's Registration 
             Statement on Form S-4 (Commission File No. 33-59778) and 
             incorporated herein by reference.
    (2)      Previously filed as an exhibit to the Company's Form 10-Q for the 
             fiscal quarter ended April 27, 1996.
    (3)      Previously filed as an exhibit to the Company's Form 10-Q for the 
             fiscal quarter ended April 29, 1995.
    (4)      Previously filed as an exhibit to the Company's Form 10-K for the 
             fiscal year ended January 27, 1996.
    (5)      Filed herewith.
    (6)      Previously filed as an exhibit to the Company's Registration 
             Statement on Form S-1 (Commission File No. 33-50548) and 
             incorporated herein by reference.
    (7)      Previously  filed as an exhibit to the Company's Form 10-Q for 
             the fiscal quarter ended July 29, 1995.
    (8)      Previously filed as an exhibit to the Company's Form 10-Q for 
             the fiscal quarter ended July 27, 1996.
    (9)      Previously filed as an exhibit to the Company's Registration 

             Statement on Form S-1 (Commission File No. 33-77484) and 
             incorporated herein by reference.

                                      20



<PAGE>


                                  SIGNATURES

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

                                  BARNES & NOBLE, INC.
                                  (Registrant)

                                  By:/s/ Leonard Riggio
                                     ------------------
                                  Leonard Riggio, Chairman
                                    of the Board and Chief
                                    Executive Officer
                                    April __, 1997

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

Name                         Title                               Date

/s/ Leonard Riggio           Chairman of the Board and Chief     May 2, 1997
- ------------------------       Executive Officer (Principal
  Leonard Riggio               Executive Officer)

/s/ Irene R. Miller          Vice Chairman and Chief             May 2, 1997
- ------------------------       Financial Officer 
  Irene R. Miller              (Principal Financial 
                               and Accounting Officer)

/s/ Matthew A. Berdon        Director                            May 2, 1997
- ------------------------
  Matthew A. Berdon

/s/ William Dillard, II      Director                            May 2, 1997
- ------------------------
  William Dillard, II

/s/ Jan Michiel Hessels      Director                            May 2, 1997
- ------------------------
  Jan Michiel Hessels

/s/ Margaret T. Monaco       Director                            May 2, 1997
- ------------------------
  Margaret T. Monaco

/s/ Stephen Riggio           Director                            May 2, 1997
- ------------------------     
  Stephen Riggio

/s/ Michael N. Rosen         Director                            May 2, 1997

- ------------------------
  Michael N. Rosen

/s/ William Sheluck, Jr.     Director                            May 2, 1997
- ------------------------
  William Sheluck, Jr.


                                      21







<PAGE>

                                                                  Exhibit 10.2

                               AMENDMENT No. 1

         AMENDMENT NO. 1 dated as of December 28, 1996 between BARNES & NOBLE,
INC., a corporation duly organized and validly existing under the laws of the
State of Delaware (the "Company"); each of the Subsidiaries of the Company
identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages
hereto (individually, a "Subsidiary Guarantor" and, collectively, the
"Subsidiary Guarantors" and, together with the Company, the "Obligors"); each of
the lenders named under the caption "Lenders" on the signature pages hereto
(individually, a "Lender" and, collectively, the "Lenders"); THE CHASE MANHATTAN
BANK, in its capacity as Swingline Bank under Section 2.01(c) of the Credit
Agreement (in such capacity, together with its successors in such capacity, the
"Swingline Bank"); and THE CHASE MANHATTAN BANK, as agent for the Lenders (in
such capacity, together with its successors in such capacity, the
"Administrative Agent").

         The Company, the Subsidiary Guarantors, the Lenders and the
Administrative Agent are parties to a Credit Agreement dated as of March 28,
1996 (as heretofore modified and supplemented and in effect on the date hereof,
the "Credit Agreement"), providing, subject to the terms and conditions thereof,

for extensions of credit (by making of loans and issuing letters of credit) to
be made by said Lenders to the Company in an aggregate principal or face amount
not exceeding $550,000,000. The Company, the Subsidiary Guarantors, the Lenders
and the Administrative Agent wish to amend the Credit Agreement in certain
respects and, accordingly, the parties hereto hereby agree as follows:

         Section 1.  Definitions.  Except as otherwise defined in this 
Amendment No. 1, terms defined in the Credit Agreement are used herein as
defined therein.

         Section 2.  Amendments.  Subject to the satisfaction of the 
conditions precedent specified in Section 5 below, but effective as of the date
hereof, the Credit Agreement shall be amended as follows:

         2.01.  Step-up in Revolving Credit Commitments.

         (a) Section 2.01(a) of the Credit Agreement shall be amended by
replacing clauses (ii), (iii) and (iv) thereof with the following:


<PAGE>

                  "(ii) the aggregate principal amount of all Revolving Credit
         Loans, together with the aggregate amount of all Letter of Credit
         Liabilities and the aggregate amount of all Swingline Loans, shall not,
         without the prior consent of all of the Lenders, exceed $325,000,000
         prior to the later of the following dates (the "1997 Step-up Date"):

                           (x) the date 15 days after the Lenders shall have
                  received the financial information required pursuant to
                  Section 9.01(b) hereof for the fiscal year ended on or about

                  January 31, 1997, and

                           (y) April 1, 1997; and

                  (iii) the aggregate principal amount of all Revolving Credit
         Loans, together with the aggregate amount of all Letter of Credit
         Liabilities and the aggregate amount of all Swingline Loans, shall not
         exceed $325,000,000 on or after the 1997 Step-up Date, unless both of
         the following conditions are satisfied:

                           (x) EBITDA for the fiscal year ending on or about 
                  January 31, 1997 shall be at least equal to $175,000,000; and

                           (y) immediately prior to, and on, the 1997 Step-up 
                  Date, no Default shall be continuing."

         (b) Section 2.05(a) of the Credit Agreement (Commitment Fees) shall be
amended by deleting the reference therein to Section 2.01(a)(iv).

         2.02.  Investments in Unrestricted Subsidiaries. Clause (g) of 
Section 9.08 shall be amended by deleting the number "$15,000,000" and
substituting in its place the number "$20,000,000".

         2.03.  Capital Expenditures.  Section 9.11(a)(i) of the Credit 
Agreement shall be amended by replacing the table therein with the following
table:

   "Fiscal Year End                                       Amount

    January 31, 1997                                    $175,000,000
    January 31, 1998                                    $150,000,000
    January 31, 1999                                    $125,000,000
    January 31, 2000                                    $150,000,000
    January 31, 2001                                    $150,000,000; plus"

                                     -2-

<PAGE>
         Section 3. New Subsidiary Guarantor. Effective as of January 14, 1997
(the date of incorporation of Barnes and Noble Online, Inc. ("Online")), Online
shall be a Subsidiary Guarantor and an Obligor under the Credit Agreement and
each other Basic Document, and shall assume all obligations of a Subsidiary
Guarantor and Obligor under the Credit Agreement and each other Basic Document.

         Section 4. Representations and Warranties. The Company represents and
warrants to the Lenders that the representations and warranties set forth in
Section 8 of the Credit Agreement are true and complete on the date hereof as if
made on and as of the date hereof (or, if such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date) and as if each reference in said Section 8 to "this Agreement" included
reference to this Amendment No. 1.


         Section 5. Conditions Precedent. As provided in Section 2 above, the
amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of the date hereof, upon the satisfaction of the following
conditions precedent:

         5.01. Execution. This Amendment No. 1 shall have been duly executed 
and delivered by each Obligor, the Administrative Agent and the Majority
Lenders, provided that the amendment set forth in Section 2.01 hereof shall not
become effective unless this Amendment No. 1 shall have been executed and
delivered by the Supermajority Lenders.

         5.02. Online. The Administrative Agent shall have received the
documents described in Section 7.01(a) of the Credit Agreement with respect to
Online, together with the certificates evidencing the capital stock of Online,
duly endorsed in pledge to the Administrative Agent, and such duly executed
Uniform Commercial Code financing statements as the Administrative Agent shall
have requested in order to perfect the security interests in Property of Online
created pursuant to the Security Agreement.

         Section 6.  Miscellaneous.  Except as herein provided, the Credit 
Agreement shall remain unchanged and in full force and effect (except that each
reference in the Credit Agreement to "this Agreement" shall be deemed to be a
reference to the Credit Agreement as amended by this Amendment No. 1).  This
Amendment No. 1 may be executed in any number of counterparts, all of which
taken together shall constitute one and the same amendatory instrument and any
of the parties hereto may execute this Amendment No. 1 by signing any such
counterpart.  This Amendment No. 1 shall be governed by, and construed in
accordance with, the law of the State of New York.

                                     -3-


<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be duly executed and delivered as of the day and year first above written.

                                   BARNES & NOBLE, INC.


                                   By__________________________________
                                     Title:


                                   SUBSIDIARY GUARANTORS

                                   B. DALTON BOOKSELLER, INC.


                                   By__________________________________
                                     Title:

                                   BARNES & NOBLE SUPERSTORES, INC.


                                   By__________________________________
                                     Title:

                                   MARBORO BOOKS CORP.


                                   By__________________________________
                                     Title:
 
                                   DOUBLEDAY BOOK SHOPS, INC.


                                   By__________________________________
                                     Title:

                                   CCI HOLDINGS, INC.


                                   By__________________________________
                                     Title:

                                     -4-


<PAGE>

                                   SUBSIDIARY GUARANTOR

                                   BARNES AND NOBLE ONLINE, INC.


                                   By__________________________________
                                     Title:

                                   LENDERS

                                   THE CHASE MANHATTAN BANK


                                   By__________________________________
                                     Title:

                                   CIBC INC.


                                   By__________________________________
                                     Title:

                                   ING (U.S.) CAPITAL CORPORATION


                                   By__________________________________
                                     Title:

                                   THE BANK OF NOVA SCOTIA


                                   By__________________________________
                                     Title:

                                   FIRST UNION NATIONAL BANK


                                   By__________________________________
                                     Title:

                                     -5-


<PAGE>
                                   LENDERS

                                   THE INDUSTRIAL BANK OF JAPAN, LIMITED


                                   By__________________________________
                                     Title:

                                   COOPERATIEVE CENTRALE RAIFFEISEN-
                                   BOERENLEENBANK B.A., "RABOBANK
                                   NEDERLAND", New York Branch


                                   By__________________________________
                                     Title:

                                   MELLON BANK, N.A.


                                   By__________________________________
                                     Title:

                                   DEUTSCHE BANK AG, New York Branch
                                   and/or Cayman Islands Branch


                                   By__________________________________
                                     Title:

                                   CORESTATES BANK


                                   By__________________________________
                                     Title:

                                   DG BANK DEUTSCHE GENOSSENSCHAFTSBANK



                                   By__________________________________
                                     Title:

                                     -6-


<PAGE>

                                   LENDERS

                                   HIBERNIA NATIONAL BANK


                                   By__________________________________
                                     Title:

                                   MERITA BANK LTD., New York Branch


                                   By__________________________________
                                     Title:

                                   CREDIT LYONNAIS, New York Branch


                                   By__________________________________
                                     Title:

                                   THE BANK OF NEW YORK


                                   By__________________________________
                                     Title:

                                   BHF-BANK AKTIENGESELLSCHAFT


                                   By__________________________________
                                     Title:

                                   THE MITSUBISHI TRUST AND BANKING
                                   CORPORATION


                                   By__________________________________
                                     Title:

                                   SOCIETE GENERALE, New York Branch


                                   By__________________________________
                                     Title:

                                     -7-



<PAGE>

                                   LENDERS

                                   THE SUMITOMO TRUST & BANKING CO., LTD.,
                                   New York Branch


                                   By__________________________________
                                     Title:

                                   SUMMIT BANK


                                   By__________________________________
                                     Title:

                                   WELLS FARGO BANK N.A.


                                   By__________________________________
                                     Title:

                                   BANK OF TOKYO-MITSUBISHI, LIMITED,
                                   New York Branch


                                   By__________________________________
                                     Title:

                                   THE FUJI BANK, LIMITED,
                                   New York Branch


                                   By__________________________________
                                     Title:

                                   THE TORONTO-DOMINION BANK


                                   By__________________________________
                                     Title:

                                     -8-


<PAGE>

                                   LENDERS

                                   ABN-AMRO BANK, N.V.


                                   By__________________________________
                                     Title:


                                   UNITED STATES NATIONAL BANK OF OREGON


                                   By__________________________________
                                     Title:

                                   FIRST HAWAIIAN BANK


                                   By__________________________________
                                     Title:

                                   THE SUMITOMO BANK, LIMITED,
                                   New York Branch


                                   By__________________________________
                                     Title:

                                   IBJ SCHRODER BANK & TRUST COMPANY


                                   By__________________________________
                                     Title:

                                   GIRO CREDIT BANK
                                   AKTIENGESELLSCHAFT DER SPARKASSEN


                                   By__________________________________
                                     Title:

                                     -9-

<PAGE>
                                   SWINGLINE BANK

                                   THE CHASE MANHATTAN BANK


                                   By__________________________________
                                     Title:


                                   ADMINISTRATIVE AGENT

                                   THE CHASE MANHATTAN BANK


                                   By__________________________________
                                     Title:


                                     -10-




<PAGE>

Selected Consolidated Financial Data
- --------------------------------------------------------------------------------

The selected consolidated financial data of Barnes & Noble, Inc. and its
wholly-owned subsidiaries (collectively, the Company) set forth on the following
pages should be read in conjunction with the consolidated financial statements
and notes included elsewhere in this report. The Company's fiscal year is
comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of
January. The Statement of Operations Data for the 53 weeks ended February 1,
1997 (fiscal 1996) and for the 52 weeks ended January 27, 1996 (fiscal 1995) and
January 28, 1995 (fiscal 1994) and the Balance Sheet Data as of February 1, 1997
and January 27, 1996 are derived from, and are qualified by reference to,
audited consolidated financial statements which are included elsewhere in this
report. The Statement of Operations Data for the 52 weeks ended January 29, 1994
(fiscal 1993) and January 30, 1993 (fiscal 1992) and the Balance Sheet Data as
of January 28, 1995, January 29, 1994 and January 30, 1993 are derived from
audited consolidated financial statements not included in this report.


<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year                                                        1996          1995           1994          1993          1992
(Thousands of dollars, except per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>            <C>            <C>           <C>           <C>       
Statement
 of Operations Data:
Revenues
   Barnes & Noble stores(9)                                    $ 1,861,177     1,349,830        952,697       614,646       328,766
   B. Dalton Bookseller(10)                                        564,926       603,204        646,876       688,220       706,862
   Other                                                            22,021        23,866         23,158        34,520        51,075
                                                               -----------    ----------     ----------    ----------    ----------
     Total revenues                                              2,448,124     1,976,900      1,622,731     1,337,386     1,086,703
Cost of sales, buying and occupancy                              1,569,448     1,269,001      1,050,011       874,038       711,845
                                                               -----------    ----------     ----------    ----------    ----------
   Gross profit                                                    878,676       707,899        572,720       463,348       374,858
Selling and administrative expenses                                456,181       376,773        311,344       262,861       221,266
Rental expense                                                     225,450       182,473        147,225       120,326        91,792
Depreciation and amortization                                       59,806        47,881         36,617        29,077        25,082
Pre-opening expenses                                                17,571        12,160          9,021         8,940         6,004
Restructuring charge(8)                                               --         123,768           --            --            --
                                                               -----------    ----------     ----------    ----------    ----------
   Operating profit (loss)                                         119,668       (35,156)        68,513        42,144        30,714
Interest expense, net and amortization of
   deferred financing fees(1)                                       38,286        28,142         22,955        25,807        26,858
                                                               -----------    ----------     ----------    ----------    ----------
   Earnings (loss) before provision (benefit) for income
     taxes, extraordinary item and cumulative effect of
     a change in accounting principle                               81,382       (63,298)        45,558        16,337         3,856
Provision (benefit) for income taxes                                30,157       (10,322)        20,085         8,584         3,646
                                                               -----------    ----------     ----------    ----------    ----------
   Earnings (loss) before extraordinary item and
     cumulative effect of a change in accounting principle          51,225       (52,976)        25,473         7,753           210

Extraordinary loss(2)                                                 --            --             --            --           6,663
Cumulative effect of a change in accounting principle(3)              --            --             --            --           2,052
                                                               -----------    ----------     ----------    ----------    ----------
   Net earnings (loss)(4)                                      $    51,225       (52,976)        25,473         7,753        (8,505)
                                                               ===========       =======         ======         =====        ====== 

Net earnings (loss) per common share(7)                        $      1.48         (1.70)          0.81          0.30          0.01
Weighted average common shares outstanding(5)(7)                34,576,000    31,217,000     31,344,000    26,194,000    20,528,000

Store Operating Data:
Stores open at end of period
   Barnes & Noble stores(9)                                            431           358            268           203           135
   B. Dalton Bookseller(10)                                            577           639            698           734           781
                                                               -----------    ----------     ----------    ----------    ----------
     Total                                                           1,008           997            966           937           916
                                                               ===========    ==========     ==========    ==========    ==========
</TABLE>



                                                                              17
                                                            Barnes & Noble, Inc.


<PAGE>



Selected Consolidated Financial Data (Continued)
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year                                                 1996             1995            1994             1993            1992
(Thousands of dollars, except per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>             <C>               <C>             <C>    

Comparable store sales increase (decrease)(6)
   Barnes & Noble stores(9)                                     7.3%            6.9%           12.6%            8.6%            5.2%
   B. Dalton Bookseller(10)                                    (1.0)           (4.3)           (2.3)           (0.3)            2.5

Capital Expenditures                                    $   171,885         154,913          88,763          81,116          64,987

Balance Sheet Data (at end of period):
Working capital                                         $   212,692         226,500         155,976         182,403         114,677
Total assets                                            $ 1,446,647       1,315,342       1,026,418         895,863         712,055
Long-term debt, less current portions                   $   290,000         262,400         190,000         190,000         190,000
Preferred stock subject to redemption, including
   cumulative dividends in arrears                      $      --              --              --              --            66,248
Shareholders' equity                                    $   455,989         400,235         358,173         328,841         146,754
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)  Interest  expense  for fiscal  1996,  1995,  1994,  1993 and 1992 is net of

     interest income of $2,288, $2,138, $3,008, $1,838 and $2,228, respectively.

(2)  Reflects a net  extraordinary  charge  during  fiscal 1992 due to the early
     extinguishment  of debt,  consisting  of:  (i) a  pre-tax  charge of $6,509
     associated   with  the   redemption   premiums  on  the  Company's   senior
     subordinated notes and debentures;  (ii) the associated write-off of $5,179
     of unamortized  deferred finance costs related to the early  extinguishment
     of the Company's senior  subordinated  notes and debentures;  and (iii) the
     related tax benefits of $5,025 on the extraordinary charges.

(3)  Reflects  the  cumulative  effect of a change in  accounting  principle  of
     $2,052 (net of tax  benefits of $1,548)  during  fiscal 1992 related to the
     adoption of new accounting standards for post-retirement benefits.

(4)  Net  earnings  (loss) does not give effect to  preferred  stock  dividends.
     Holders  of the  Company's  Series  C  Preferred  Stock  were  entitled  to
     dividends of $4,466 and $1,375 during  fiscal 1993 and 1992,  respectively.
     Such  accumulated  dividends  were paid from the proceeds of the  Company's
     initial  public  offering  completed on October 4, 1993 (IPO).  Accumulated
     dividends  on all  other  series of  preferred  stock  outstanding  for all
     periods were converted into common stock or waived.

(5)  The pro forma  weighted  average number of shares  outstanding  used in the
     computation of pro forma earnings before  extraordinary item and cumulative
     effect of a change in accounting principle per common share gives effect to
     an approximate  2.058-for-1  stock split  completed by the Company prior to
     the  consummation of the IPO, the effect of certain  employee stock options
     using the  treasury  stock  method,  the number of shares  issued  upon the
     conversions  of preferred  stock and the exercise of warrants in connection
     with the IPO and the number of shares issued which is equal in value to the
     redemption price of the Series C Preferred Stock, including accumulated and
     unpaid dividends.

(6)  Comparable  store sales  increase  (decrease) is calculated  using sales of
     stores  that have been open for 12 months for B. Dalton  Bookseller  and 15
     months for Barnes & Noble stores (due to the high sales  volume  associated
     with grand openings).  The comparable  store sales increase  (decrease) for
     fiscal 1996 has been adjusted to reflect the elimination of the fifty-third
     week.  Comparable  store sales for fiscal 1996 include  relocated  Barnes &
     Noble  stores and exclude B.  Dalton  Bookseller  stores  which the Company
     closed in fiscal 1996 or has a formal plan to close during fiscal 1997.

(7)  Computed on a pro forma basis for fiscal 1993 and 1992. Earnings per common
     share are before  extraordinary  item and cumulative  effect of a change in
     accounting principle for fiscal 1992.

(8)  Restructuring  charge includes  restructuring  and asset impairment  losses
     recognized  upon  adoption of Statement of Financial  Accounting  Standards
     Board No. 121  "Impairment  of Long-Lived  Assets and Assets to be Disposed
     Of."

(9)  Also includes Bookstop and Bookstar stores.

(10) Also includes  Doubleday  Book Shops,  Scribner's  Bookstores  and discount

     bookstores  operated under the Barnes & Noble  tradename  representing  the
     Company's original retail strategy.


18
Barnes & Noble, Inc.



<PAGE>



Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations
- --------------------------------------------------------------------------------

     The  Company's  fiscal year is comprised  of 52 or 53 weeks,  ending on the
Saturday  closest to the last day of January.  As used in this section,  "fiscal
1996"  represents the 53 weeks ended February 1, 1997,  "fiscal 1995" represents
the 52 weeks ended  January 27, 1996 and "fiscal 1994"  represents  the 52 weeks
ended January 28, 1995.

GENERAL

     Barnes & Noble,  Inc. (Barnes & Noble or the Company),  the world's largest
bookseller,  operates 431 "super"stores, 91 of which were opened in fiscal 1996,
under the Barnes & Noble Booksellers,  Bookstop and Bookstar tradenames, and 577
mall  bookstores  under  the B.  Dalton  Bookseller,  Doubleday  Book  Shops and
Scribner's  Bookstore  tradenames,  as of  February  1,  1997.  Barnes  &  Noble
publishes  books  under its own imprint for  exclusive  sale  through its retail
stores and mail-order catalogs.  The Company is also the exclusive bookseller in
America  Online's  Marketplace  and has plans to  launch a World  Wide Web site,
operating the "world's  largest  bookseller  online,"  during 1997.  The Company
employed  approximately 24,000 full and part-time booksellers and created nearly
2,600 new jobs nationwide during fiscal 1996 primarily in relation to its Barnes
& Noble store expansion.

     Barnes & Noble is the largest operator of book "super" stores in the United
States with 431 Barnes & Noble  stores  located in 47 states and the District of
Columbia  as of February 1, 1997.  With more than  thirty  years of  bookselling
experience,  management has a strong sense of customers'  changing needs and the
Company leads book retailing with a "community store" concept.  Barnes & Noble's
typical  store  offers a  comprehensive  title  base,  a cafe and a calendar  of
ongoing events - author  appearances and children's  activities - that make each
Barnes & Noble store an active part of its community.  Management estimates that
as  much  as 80% of the  sales  generated  by a new  Barnes  &  Noble  store  is
incremental  to the  community  in which the store is located -  representing  a
combination of previously unfulfilled and newly created demand.

     Barnes & Noble  stores  range in size from  10,000 to  60,000  square  feet
depending upon market size, and each store features an  authoritative  selection
of books,  ranging between 60,000 to 175,000  titles.  The  comprehensive  title
selection  is diverse and  customized  to the local  community's  interests  and
demands. To further this diversity,  Barnes & Noble funds the Discover Great New

Writers program supporting the work of newly published  authors,  and emphasizes
books published by small and independent  publishers and university  presses. In
addition to the extensive on-site  selection,  each store will special order any
book from the more than 1.2 million books in print.

     The  book  "super"  store  concept  originated  in  the  mid-1970s  when  a
predecessor to the Company  joined  together the Barnes & Noble "Main Store" and
"Sale Annex" which became the "World's Largest Bookstore," with close to 100,000
square feet of total retail space.  Based on the success of this retail  format,
several  Barnes & Noble  stores were opened in midtown  Manhattan  and  downtown
Boston.  However, the Company did not begin to expand nationally until 1987 when
several Barnes & Noble store  prototypes were tested in suburban  locations.  In
late 1989,  with four Barnes & Noble stores  already in  operation,  the Company
acquired 23 stores from Bookstop,  Inc.  thereby  gaining market  penetration in
Texas,  Florida and Southern California.  Subsequently,  the Company accelerated
its  expansion  adding eight new stores in fiscal 1990; 28 in fiscal 1991; 78 in
fiscal 1992; 72 in fiscal 1993; 70 in fiscal 1994; 97 in fiscal 1995;  and 91 in
fiscal 1996.

     Although the early  prototypes  of the Barnes & Noble and  Bookstop  stores
were highly  profitable,  their smaller store size (roughly  10,000 square feet)
limited sales potential and created opportunity for competition. As a result, 12
of the Company's  original  Barnes & Noble or Bookstop  stores were relocated or
expanded  during  fiscal  1996 to conform to the new  prototype  which has grown
steadily in size since 1990,  reaching an average of 27,000 square feet by 1995.
The Company  plans to complete its  modernization  program  during  fiscal 1997.
Barnes & Noble stores opened  during fiscal 1996 added 2.54 million  square feet
to the Barnes & Noble base,  bringing  the total  square  footage to 9.3 million
square  feet,  a 33%  increase  over the prior year.  The Company  plans to open
approximately  70 Barnes & Noble  stores in 1997 which are  expected  to average
26,000 square feet in size.


                                                                              19
                                                            Barnes & Noble, Inc.


<PAGE>




Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations
- --------------------------------------------------------------------------------

     At the end of fiscal 1996, the Company  operated 577 B. Dalton stores in 46
states,   and  the  District  of  Columbia.   These  mall-based   stores  employ
merchandising strategies that target the "middle-American" consumer book market,
offering a wide range of bestsellers and general-interest  titles. Doubleday and
Scribner's  bookstores  utilize a more  upscale  format  aimed at the  "carriage
trade" in higher-end  shopping  malls and place a greater  emphasis on hardcover
and gift books.  Most of the B. Dalton  stores range in size from 2,800 to 6,000
square  feet,  and,  while they are  appropriate  to the size of  adjacent  mall
tenants,  the stores  continue  to be  significantly  impacted by the opening of
superstores in nearby locations.


     During the past six years, the Company has pursued a two-pronged  strategy
to maximize returns from its B. Dalton division in response to declining sales
attributable primarily to superstore competition and, to a lesser extent, weaker
overall consumer traffic in shopping  malls. The first part of the Company's
strategy has been to rigorously identify and close underperforming stores. Since
1989, the Company has closed more than 50 B. Dalton stores per year. At the end
of fiscal 1995, the Company accelerated its store closing strategy, and provided
for these closing costs as part of the non-cash restructuring charge of $123.8
million ($87.3 million after tax or $2.65 per common share), with the aim of
forming a core of more-profitable B. Dalton stores for the future. During fiscal
1996 the Company closed 72 underperforming  B. Dalton stores identified during
fiscal 1995 as part of the B. Dalton business restructuring. This two-pronged
business strategy is beginning to stabilize B. Dalton's store operations. During
fiscal 1996, same-store sales for the B. Dalton stores improved from a decline
of 4.3% during fiscal 1995 to a decline of 1.0%.

     Concurrent  with the  implementation  of the store  closing  strategy,  the
Company has been  expanding  the size of some of its new B. Dalton stores and is
seeking  better  locations  within  malls for  increased  visibility  and higher
traffic  flow. A new B. Dalton  prototype was developed for this purpose in 1993
and, since that time, more than 100 new or converted stores have been opened and
are performing, on average, better than the remaining store base.

     Complementing  its leadership  position as the world's largest  bookseller,
Barnes & Noble is the world's largest  supplier of books through  catalogs.  The
Company mails over 20 million catalogues each year and enjoys a list of over one
million customers.  Barnes & Noble's extensive catalog mailings over the past 13
years have created substantial name recognition in the U.S. and internationally,
and have facilitated the introduction of Barnes & Noble stores and the Company's
online business.

     With  publishing  and  distribution  rights to over 1,500 book titles,  the
Company  further   differentiates  its  product  offerings  from  those  of  its
competitors  by publishing  books under its own Barnes & Noble Books imprint for
exclusive  sale in its Barnes & Noble  stores,  B. Dalton stores and direct mail
catalogs.  Through its proprietary  publishing,  Barnes & Noble offers customers
high quality  books at excellent  values  while  generating  higher gross profit
margins.

     During  fiscal  1996,  the Company  selectively  pursued  opportunities  to
leverage  its  "know-how"   through  strategic   alliances  with  Chapters  Inc.
(Chapters) and Calendar Club LLC (Calendar Club).

     In 1996, the Company  purchased 20% of Chapter's common stock.  Chapters is
the largest  book  retailer in Canada with 360 mall  bookstores  and the leading
Canadian book superstore  retailer with 12-15 book superstores.  During December
1996,  Chapters  completed an initial  public  offering  diluting the  Company's
ownership to 13%. The Company,  however,  has a one-year maintenance right which
allows the Company to regain its 20% ownership position.

     In 1996,  the Company also  acquired 50% of Calendar  Club,  an operator of
seasonal calendar kiosks in the U.S. and internationally.



20
Barnes & Noble, Inc.



<PAGE>



Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations
- --------------------------------------------------------------------------------

RESULTS OF OPERATIONS

     The Company's  revenues,  comparable  store sales,  store  openings,  store
closings  and number of stores  open at fiscal  year end are set forth below for
the Company's various retailing strategies for the periods indicated:

- --------------------------------------------------------------------------------
Fiscal Year                            1996             1995            1994
(Thousands of dollars)
- --------------------------------------------------------------------------------

Revenues(1)
Barnes & Noble stores(3)           $ 1,861,177       1,349,830         952,697
B. Dalton Bookseller(4)                564,926         603,204         646,876
Other                                   22,021          23,866          23,158
                                   -----------       ---------       ---------
   Total revenues                  $ 2,448,124       1,976,900       1,622,731
                                   ===========       =========       =========
Comparable Store Sales
Increase (Decrease)(2)
Barnes & Noble stores(3)                   7.3%            6.9%           12.6%
B. Dalton Bookseller(4)                   (1.0)           (4.3)           (2.3)
                                   ===========       =========       =========

Stores Opened
Barnes & Noble stores(3)                    91              97              70
B. Dalton Bookseller(4)                     10              10              13
                                   -----------       ---------       ---------
   Total                                   101             107              83
                                   ===========       =========       =========

Stores Closed
Barnes & Noble stores(3)                    18               7               5
B. Dalton Bookseller(4)                     72              69              49
                                   -----------       ---------       ---------
   Total                                    90              76              54
                                   ===========       =========       =========

Number of Stores Open at Year End
Barnes & Noble stores(3)                   431             358             268
B. Dalton Bookseller(4)                    577             639             698

                                   -----------       ---------       ---------
   Total                                 1,008             997             966
                                   ===========       =========       =========

Square Feet of Selling Space
at Year End (in millions)
Barnes & Noble stores(3)                   9.3             7.0             4.5
B. Dalton Bookseller(4)                    2.2             2.4             2.5
                                   -----------       ---------       ---------
   Total                                  11.5             9.4             7.0
                                   ===========       =========       =========



(1)  The Company's revenues include net sales from the Company's  bookstores and
     other  operations,  income  from  the  sale  of  the  Company's  B.  Dalton
     Book$avers and Bookstop/Bookstar  Reader's Choice discount cards, and other
     miscellaneous revenue items.

(2)  Comparable store sales for B. Dalton Bookseller are determined using stores
     open at least  twelve  months.  Comparable  store  sales for Barnes & Noble
     stores are determined using stores open at least 15 months, due to the high
     sales  volume  associated  with  grand  openings.  Comparable  store  sales
     increase (decrease) is computed on a 52-week basis for fiscal 1996.

(3)  Also includes Bookstop and Bookstar stores.

(4)  Also includes  Doubleday  Book Shops,  Scribner's  Bookstores  and discount
     bookstores  operated under the Barnes & Noble  tradename  representing  the
     Company's original retail strategy.

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


- --------------------------------------------------------------------------------
Fiscal Year                                       1996        1995         1994
- --------------------------------------------------------------------------------

Revenues                                         100.0%      100.0%       100.0%
Cost of sales, buying
   and occupancy                                  64.1        64.2         64.7
                                                 -----       -----        ----- 
     Gross profit                                 35.9        35.8         35.3
Selling and administrative
   expenses                                       18.6        19.1         19.2
Rental expense                                     9.2         9.2          9.1
Depreciation and
   amortization                                    2.5         2.4          2.2
Pre-opening expenses                               0.7         0.6          0.6
Restructuring charge                              --           6.3         --
                                                 -----       -----        ----- 
   Operating profit (loss)(1)                      4.9        (1.8)         4.2
Interest expense, net

   and amortization of
   deferred financing fees                         1.6         1.4          1.4
                                                 -----       -----        ----- 
     Earnings (loss) before
      provision (benefit)
      for income taxes(1)                          3.3        (3.2)         2.8
Provision (benefit) for
   income taxes(1)                                 1.2        (0.5)         1.2
                                                 -----       -----        ----- 
     Net earnings (loss)(1)                        2.1%       (2.7)%        1.6%
                                                 =====       =====        ===== 


(1)  If operating profit (loss),  earnings (loss) before provision (benefit) for
     income taxes,  provision (benefit) for income taxes and net earnings (loss)
     were presented before the effects of the  restructuring  charge of $123,768
     during fiscal 1995, the percentage relationship that these items would bear
     to total  revenues  of the  Company  would be 4.5%,  3.1%,  1.4% and  1.7%,
     respectively.



                                                                              21
                                                            Barnes & Noble, Inc.


<PAGE>



Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations
- --------------------------------------------------------------------------------

53 WEEKS ENDED FEBRUARY 1, 1997 COMPARED TO 52 WEEKS ENDED JANUARY 27, 1996

Revenues

     The Company's revenues increased 23.8% during fiscal 1996 to $2.448 billion
from $1.977 billion during fiscal 1995. Fiscal 1996 includes 53 weeks; excluding
the impact of the fifty-third  week,  revenues  increased  21.5%.  During fiscal
1996,  revenues  from Barnes & Noble stores  (which also  includes  Bookstop and
Bookstar  stores) rose 37.9% to $1.861 billion from $1.350 billion during fiscal
1995 and contributed 76.0% of total revenues,  up from 68.3% during fiscal 1995.
B. Dalton  Bookseller  (which also  includes  Doubleday  Book Shops,  Scribner's
Bookstores and discount  bookstores  operated under the Barnes & Noble tradename
representing  the Company's  original  retail  strategy)  generated  revenues of
$564.9 million (or 23.1% of total revenues) during fiscal 1996, down from $603.2
million (or 30.5% of total revenues) during fiscal 1995.

     The increase in revenues was primarily attributable to an increase in sales
from  Barnes & Noble  stores.  The Company  opened 91 Barnes & Noble  stores and
closed 18 during  fiscal 1996 (12 of which were  relocated),  increasing  square
footage by 33% in fiscal 1996. Comparable store sales for Barnes & Noble stores,
which  excludes  the impact of the  fifty-third  week of sales,  increased  7.3%

during fiscal 1996,  in  comparison  to 6.9% during  fiscal 1995.  During fiscal
1996, revenues of B. Dalton Bookseller  declined,  primarily due to the 72 store
closings and a comparable store sales decrease of 1.0%.

Cost of Sales, Buying and Occupancy

     The Company's cost of sales,  buying and occupancy includes occupancy costs
(such as common area maintenance,  merchant  association dues and lease-required
advertising,  but  excluding  rental  expense),  certain  overhead  costs of the
Company's buying departments and adjustments for LIFO.

     Cost of sales,  buying and occupancy  increased 23.7% during fiscal 1996 to
$1.569  billion  from $1.269  billion  during  fiscal 1995,  but  decreased as a
percentage of revenues to 64.1% during fiscal 1996 from 64.2% during fiscal 1995
due to  improvements  in  merchandise  mix, as well as increases in  merchandise
margins due to direct purchasing through the Company's new distribution  center.
Excluding  the  impact  of  LIFO,  cost of  sales,  buying  and  occupancy  as a
percentage  of  revenues  declined  to 64.1% in fiscal 1996 from 64.5% in fiscal
1995.

Selling and Administrative Expenses

     Selling and administrative  expenses increased $79.4 million,  or 21.1%, to
$456.2  million  during fiscal 1996 from $376.8  million during fiscal 1995. The
Company's  operating leverage continued to improve as selling and administrative
expenses  decreased as a percentage of revenues to 18.6% during fiscal 1996 from
19.1% during fiscal 1995.

Rental Expense, Depreciation and Amortization

     Rental expense increased $43.0 million,  or 23.6%, to $225.5 million during
fiscal  1996  from  $182.5   million  during  fiscal  1995.   Depreciation   and
amortization  increased $11.9 million,  or 24.9%, to $59.8 million during fiscal
1996 from $47.9 million  during  fiscal 1995.  The  increases  were  primarily a
result of the addition of 91 Barnes & Noble stores during fiscal 1996.

Pre-Opening Expenses

     Pre-opening  expenses  increased $5.4 million,  or 44.5%,  to $17.6 million
during  fiscal  1996 from $12.2  million  during  fiscal  1995.  As the  Company
amortizes  pre-opening  expenses over the respective store's first twelve months
of operation, the increase reflects the opening of 109 new Barnes & Noble stores
during the second half of fiscal 1995 and the first half of fiscal 1996 compared
with 68 stores in the corresponding period of the previous year.

Operating Profit (Loss)

     Operating  profit,  before the effects of the $123.8 million  restructuring
charge in fiscal 1995,  increased  $31.1  million,  or 35.0%,  to $119.7 million
during  fiscal 1996 from $88.6  million  during  fiscal 1995. As a percentage of
revenues, operating profit increased to 4.9% during fiscal 1996 from 4.5% during
fiscal  1995  (before  the  effects  of the  restructuring  charge),  reflecting
improved operating leverage.


Interest Expense, Net and Amortization of
Deferred Financing Fees

     Interest  expense,  net of interest  income,  and  amortization of deferred
financing fees increased $10.2 million, or 36.0%, to $38.3 million during fiscal
1996 from $28.1 million during fiscal 1995. The increase resulted from a rise in
borrowings  under the Company's  credit  facility to finance working capital and
capital  expenditures.  The impact of the  increased  borrowings  was  partially
offset by a reduction in the  Company's  weighted  average  interest rate on its
short-term borrowings.


22
Barnes & Noble, Inc.



<PAGE>



Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations
- --------------------------------------------------------------------------------

Provision (Benefit) for Income Taxes

     The  Company's  income tax  provision  during fiscal 1996 was $30.2 million
compared  with $26.1  million in fiscal  1995  (before the effects of the $123.8
million  restructuring  charge).  Barnes & Noble's  effective tax rate was 37.1%
during  fiscal  1996 and 43.2%  during  fiscal  1995  (before the effects of the
restructuring  charge). Such rates exceeded the Federal statutory rate primarily
due to the combined effects of goodwill  amortization and state and local taxes.
The  fiscal  1996   provision  also  reflects  a   non-recurring   $3.0  million
rehabilitation tax credit.

Net Earnings (Loss)

     As a result of the factors  discussed  above, the Company's net earnings in
fiscal 1996 increased to $51.2 million from $34.3 million in fiscal 1995 (before
the effects of the $123.8 million  restructuring  charge).  Fiscal 1996 earnings
increased due to the continuing  improvement in Barnes & Noble operating profits
combined with accelerating revenues over which to spread overhead costs.

     Net earnings per common share were $1.48 during  fiscal 1996  compared with
$1.05 during fiscal 1995 (before the effects of the restructuring  charge).  Net
earnings  increased  49.3% while  earnings per share  increased  41.0% due to an
increase in the  weighted  average  common  shares  outstanding  to 34.6 million
shares  during  fiscal  1996  from  32.8  million  shares  during  fiscal  1995,
reflecting  the full-year  impact of 2.5 million common shares issued in October
of 1995.

52 WEEKS ENDED JANUARY 27, 1996 COMPARED TO 52 WEEKS ENDED JANUARY 28, 1995

Revenues


     The Company's revenues increased 21.8% during fiscal 1995 to $1.977 billion
from $1.623 billion during fiscal 1994. During fiscal 1995, revenues from Barnes
& Noble stores rose 41.7% to $1.350  billion from $952.7  million  during fiscal
1994 and contributed  68.3% of total  revenues,  up from 58.7% of total revenues
during fiscal 1994. B. Dalton  Bookseller  generated  revenues of $603.2 million
(or 30.5% of total  revenues)  during  fiscal 1995,  down 6.8% from  revenues of
$646.9 million (or 39.9% of total revenues) during fiscal 1994.

     The increase in revenues was primarily attributable to an increase in sales
of Barnes & Noble stores. The Company opened 97 Barnes & Noble stores and closed
seven  during  fiscal  1995.  Comparable  store sales for Barnes & Noble  stores
increased  6.9% during  fiscal 1995,  in comparison to 12.6% during fiscal 1994.
During fiscal 1995, B. Dalton Bookseller revenues declined, primarily due to the
69 store closings and a comparable  store sales decrease of 4.3% which reflected
accelerating superstore competition and a continuing decline in mall traffic.

Cost of Sales, Buying and Occupancy

     The Company's cost of sales,  buying and occupancy includes occupancy costs
(such as common area maintenance,  merchant  association dues and lease required
advertising,  but  excluding  rental  expense),  certain  overhead  costs of the
Company's buying departments and adjustments for LIFO.

     Cost of sales,  buying and occupancy  increased 20.9% during fiscal 1995 to
$1.269  billion  from $1.050  billion  during  fiscal 1994,  but  decreased as a
percentage of revenues to 64.2% during fiscal 1995 from 64.7% during fiscal 1994
due to the effects of improvements in merchandise mix.

Selling and Administrative Expenses

     Selling and administrative  expenses increased $65.5 million,  or 21.0%, to
$376.8  million  during fiscal 1995 from $311.3  million during fiscal 1994 on a
revenue base which increased  21.8% during fiscal 1995. The Company's  operating
leverage continued to improve as selling and  administrative  expenses decreased
as a percentage of revenues to 19.1% during fiscal 1995 from 19.2% during fiscal
1994.

Rental Expense, Depreciation and Amortization

     Rental expense increased $35.3 million,  or 23.9%, to $182.5 million during
fiscal  1995  from  $147.2   million  during  fiscal  1994.   Depreciation   and
amortization  increased $11.3 million,  or 30.8%, to $47.9 million during fiscal
1995 from $36.6 million  during  fiscal 1994.  The  increases  were  primarily a
result of the net addition of 90 Barnes & Noble stores  during fiscal 1995 which
were approximately 22% larger than the stores opened during fiscal 1994.

Pre-Opening Expenses

     Pre-opening  expenses  increased $3.2 million,  or 34.8%,  to $12.2 million
during fiscal 1995 from $9.0 million during fiscal 1994 primarily as a result of
the increase in Barnes & Noble store  openings to 97 stores  during  fiscal 1995
from 70 stores during fiscal 1994 and the 22% increase in average new store size
during fiscal 1995.


Restructuring Charge

     Concurrent with the establishment of its restructuring plan, Barnes & Noble
evaluated  its  accounting  policy  for  measuring  the  recoverability  of  its
long-lived   assets  and



                                                                              23
                                                            Barnes & Noble, Inc.


<PAGE>



Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations
- --------------------------------------------------------------------------------

elected early  adoption of Statement of Financial  Accounting  Standard No. 121,
"Accounting  for  Impairment of Long-Lived  Assets and Assets to be Disposed Of"
(SFAS 121).  During the fourth  quarter of fiscal 1995,  the Company  recorded a
non-cash charge to operating earnings  approximating $123,768 ($87,303 after-tax
or $2.65 per share) to reflect the aggregate  impact of its  restructuring  plan
and change in accounting policy.

     The change in the Company's method of valuing long-lived assets resulted in
a reduction in goodwill amortization expense of approximately $1,100 and $275 on
an annual and quarterly basis, respectively.

Operating Profit (Loss)

     Operating  profit  (loss)  was (35.2)  million in fiscal  1995 and $68.5 in
fiscal  1994.  Operating  profit,  before  the  effects  of the  $123.8  million
restructuring charge, increased $20.1 million, or 29.3%, to $88.6 million during
fiscal  1995 from  $68.5  million  during  fiscal  1994 on a revenue  base which
expanded  21.8% during  fiscal  1995.  As a  percentage  of revenues,  operating
profit, before the effects of the restructuring charge, increased to 4.5% during
fiscal 1995 from 4.2% during fiscal 1994.

Interest Expense, Net and Amortization of Deferred Financing Fees

     Interest  expense,  net of interest  income,  and  amortization of deferred
financing fees increased $5.1 million,  or 22.6%, to $28.1 million during fiscal
1995 from $23.0 million during fiscal 1994. The increase resulted from a rise in
borrowings  under the Company's  revolving  credit  facility to fund the working
capital requirements of the Company's new and existing stores. The impact of the
increased  borrowings  was  partially  offset by a  reduction  in the  Company's
weighted  average  interest rate on its  borrowings  under the revolving  credit
facility that resulted from the Company's increased profitability which improved
its interest coverage ratio on which the borrowing rates were based.

Provision for Income Taxes


     During fiscal 1995,  the provision for income taxes,  before the effects of
the $123.8 million  restructuring  charge, was $26.1 million compared with $20.1
million during fiscal 1994. The increase  resulted from the Company's  improving
profitability.  Barnes & Noble's  effective  tax rate of 43.2% and 44.1%  during
fiscal 1995 and fiscal 1994,  respectively,  exceeded the Federal statutory rate
due  primarily to the combined  effects of goodwill  amortization  and state and
local taxes.

Net Earnings (Loss)

     As a result of the  factors  discussed  above,  the  Company's  net loss in
fiscal 1995 was $53.0 million. The Company's net earnings, before the effects of
the $123.8 million  restructuring  charge, were $34.3 million during fiscal 1995
compared with $25.5 million  during fiscal 1994 - a 34.8%  increase on a revenue
base  increase  of 21.8%.  Fiscal 1995 net  earnings  (before the effects of the
$123.8 million restructuring charge) increased due to the continuing improvement
in Barnes & Noble store operating  profits combined with  accelerating  revenues
which  created a larger  revenue  base  over  which to  spread  overhead  costs.
Earnings   per  common  share   (before  the  effects  of  the  $123.8   million
restructuring  charge) were $1.05 during  fiscal 1995 compared with $0.81 during
fiscal 1994.

SEASONALITY

     The Company's business,  like that of many retailers, is seasonal, with the
major portion of sales and operating  profit  realized  during the quarter which
includes the Christmas  selling  season.  The following table sets forth certain
information  with respect to the Company's  revenues and operating profit (loss)
for the last twelve fiscal quarters:

- --------------------------------------------------------------------------------
Revenues and Operating Profit (Loss) for the Fiscal Quarter Ended on or About
(Thousands of dollars)   
                                  April 30      July 31   October 31  January 31
- --------------------------------------------------------------------------------

1996 Revenues(1)                  $ 508,755    $ 524,321   $ 532,563   $ 882,485

     Operating profit (loss)(1)        (141)       5,622       4,578     109,609

1995 Revenues                       401,971      420,080     432,315     722,534

     Operating profit (loss)(2)      (1,929)       3,478       2,537      84,526

1994 Revenues                       320,301      350,584     359,009     592,837

     Operating profit (loss)         (5,347)         576       1,301      71,983

- --------------------------------------------------------------------------------

(1)  The fourth  quarter of fiscal  1996  includes 14 weeks.  All other  periods
     presented include 13 weeks.


(2)  Operating   profit   (loss)  is   presented   before  the  effects  of  the
     restructuring charge of $123,768 during the fourth quarter of fiscal 1995.

     Working  capital  requirements  are generally at their  highest  during the
Company's  fiscal  quarter  ending  on or  about  January  31 due to the  higher
payments  to  vendors  for  holiday   season   merchandise   purchases  and  the
replenishment  of  merchandise  inventories  following  this period of increased
sales. In addition,  the Company's sales and merchandise  inventory  levels will
fluctuate  from  quarter  to quarter as a result of the number and timing of new
store  openings,  as well as the amount and timing of sales  contributed  by new
stores.

LIQUIDITY AND CAPITAL RESOURCES

     Cash flows from  operations,  funds  available  under its revolving  credit
facility and vendor financing continue to provide the Company with liquidity and
capital resources for



24
Barnes & Noble, Inc.


<PAGE>



Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations
- --------------------------------------------------------------------------------

store expansion, seasonal working capital requirements and capital investments.

     Cash  Flow.  Cash flows  provided  from (used by)  operations  were  $119.5
million,  ($56.8)  million and $17.9 million during fiscal 1996,  1995 and 1994,
respectively.  In addition to improved net  earnings,  the  improvement  in cash
flows from operations in fiscal 1996 was the result of improved  working capital
management;  revenues  increased  23.8% while  inventory  levels  declined  1.1%
through faster  inventory  turns.  The decline in cash flows from  operations in
fiscal  1995 is  attributable  to the  increase in working  capital  required by
Barnes & Noble's  accelerated store expansion and declining B. Dalton Bookseller
operating profits,  which were partially offset by increasing  operating profits
of Barnes & Noble stores.

     The weighted  average age per square foot of the  Company's  431 stores was
2.3 years as of February  1, 1997 and is  expected to increase to  approximately
2.8 years by January 31,  1998.  As the  relatively  young Barnes & Noble stores
mature,  and as the number of new stores  opened  during the fiscal year becomes
smaller as a percentage of the existing  store base,  the  increasing  operating
profits of Barnes & Noble stores are  expected to generate a greater  portion of
cash flows required for working  capital,  including new store  inventories  and
capital  expenditures.   Earnings  before  interest,   taxes,  depreciation  and
amortization  (EBITDA)  increased  $43.0  million or 31.5% to $179.5  million in
fiscal 1996 from $136.5 million in fiscal 1995 (pre-restructuring).


     Capital Structure. Strong cash flows from operations, coupled with improved
working  capital  management,  strengthened  the Company's  balance sheet during
fiscal  1996.  The  Company's  shareholders'  equity  increased  13.9% to $456.0
million as of February 1, 1997 from $400.2  million as of January 27, 1996,  and
return on equity increased to 12.8% in fiscal 1996 from 9.6% during fiscal 1995.

     Although  Barnes & Noble's  growing  business  is somewhat  mitigating  the
seasonality  of the Company's  operations,  the Company  continues to experience
significant seasonal  fluctuations in its financing needs,  primarily during the
holiday  season in which there is a  concentration  of store openings as well as
increases in inventory  levels to support more than 35% of the Company's  sales.
To meet the  seasonal  demands of its  growing  inventory  and sales  base,  the
Company  entered  into a five-year  senior  credit  facility in March 1996.  The
facility  includes  a $325.0  million  revolving  credit  facility  and a $100.0
million term loan facility and provides for an additional  $125.0  million which
will become available to the Company in fiscal 1997.

     Borrowings under the Company's  revolving  credit facility  averaged $101.7
million,  $62.0  million and $3.1 million and peaked at $192.8  million,  $152.2
million and $41.6 million during fiscal 1996, 1995 and 1994, respectively.

     Capital Investment.  Capital  expenditures  totaled $171.9 million,  $154.9
million and $88.8  million  during  fiscal  1996,  1995 and 1994,  respectively.
Capital  expenditures in fiscal 1997, primarily for an estimated 70 new Barnes &
Noble  stores as well as computer  hardware  and  software  associated  with the
rollout of the  Company's  new store  point-of-sale  system,  are expected to be
significantly less than fiscal 1996.

     Based on current  operating levels and the store expansion  planned for the
next fiscal year,  management  believes cash flows  generated  from  operations,
short-term  vendor  financing  and its  borrowing  capacity  under its revolving
credit  facility will be sufficient  to meet the Company's  working  capital and
debt  service  requirements,   fund  restructuring   reserves  and  support  the
development  of its short and long-term  strategies for at least the next twelve
months.

DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS

     This annual report  contains  certain  forward-looking  statements (as such
term is defined in the  Private  Securities  Litigation  Reform Act of 1995) and
information  relating  to the  Company  that  are  based on the  beliefs  of the
management  of the  Company  as well  as  assumptions  made  by and  information
currently  available to the management of the Company.  When used in this annual
report,  the words  "anticipate,"  "believe,"  "estimate,"  "expect,"  "intend,"
"plan" and similar expressions,  as they relate to the Company or the management
of the Company, identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events, the outcome of which
is subject to certain risks,  including among others general economic and market
conditions, possible disruptions in the Company's computer or telephone systems,
possible  increases  in shipping  rates or  interruptions  in shipping  service,
effects of  competition,  possible  disruptions  or delays in the opening of new
stores,  the level and volatility of interest rates, and other factors which may

be  outside  of the  Company's  control.  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  herein 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.



                                                                              25
                                                            Barnes & Noble, Inc.


<PAGE>



Consolidated Statements of Operations
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year                                                                                 1996            1995             1994
(Thousands of dollars, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>              <C>              <C>       
Revenues                                                                                $ 2,448,124       1,976,900        1,622,731
Cost of sales, buying and occupancy                                                       1,569,448       1,269,001        1,050,011
                                                                                        -----------      ----------       ----------
   Gross profit                                                                             878,676         707,899          572,720
                                                                                        -----------      ----------       ----------
Selling and administrative expenses                                                         456,181         376,773          311,344
Rental expense                                                                              225,450         182,473          147,225
Depreciation and amortization                                                                59,806          47,881           36,617
Pre-opening expenses                                                                         17,571          12,160            9,021
Restructuring charge                                                                           --           123,768             --
                                                                                        -----------      ----------       ----------
   Operating profit (loss)                                                                  119,668         (35,156)          68,513

Interest (net of interest income of $2,288, $2,138 and $3,008, respectively)
   and amortization of deferred financing fees                                               38,286          28,142           22,955
                                                                                        -----------      ----------       ----------
     Earnings (loss) before provision (benefit) for income taxes                             81,382         (63,298)          45,558
Provision (benefit) for income taxes                                                         30,157         (10,322)          20,085
                                                                                        -----------      ----------       ----------
   Net earnings (loss)                                                                  $    51,225         (52,976)          25,473
                                                                                        ===========      ==========       ==========

Net earnings (loss) per common share                                                    $      1.48           (1.70)            0.81
Weighted average common shares outstanding                                               34,576,000      31,217,000       31,344,000
</TABLE>




See accompanying notes to consolidated financial statements.



26
Barnes & Noble, Inc.


<PAGE>


Consolidated Balance Sheets
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(Thousands of dollars, except per share data)                                                   February 1, 1997   January 27, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                   <C>                 <C>      
ASSETS
Current assets:
   Cash and cash equivalents                                                                          $   12,447              9,276
   Receivables, net                                                                                       45,558             49,019
   Merchandise inventories                                                                               732,203            740,351
   Prepaid expenses and other current assets                                                              76,747             49,542
                                                                                                      ----------          ---------
     Total current assets                                                                                866,955            848,188
                                                                                                      ----------          ---------

Property and equipment:
   Land and land improvements                                                                                681                681
   Buildings and leasehold improvements                                                                  326,392            249,603
   Fixtures and equipment                                                                                289,684            204,528
                                                                                                      ----------          ---------
                                                                                                         616,757            454,812
   Less accumulated depreciation and amortization                                                        181,983            134,932
                                                                                                      ----------          ---------
     Net property and equipment                                                                          434,774            319,880
                                                                                                      ----------          ---------

Intangible assets, net                                                                                    93,494             96,799
Other noncurrent assets                                                                                   51,424             50,475
                                                                                                      ----------          ---------
   Total assets                                                                                       $1,446,647          1,315,342
                                                                                                      ==========          =========

LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities:
   Revolving credit facility                                                                          $   40,000               --
   Accounts payable                                                                                      373,340            415,698
   Accrued liabilities                                                                                   240,923            205,990
                                                                                                      ----------          ---------
     Total current liabilities                                                                           654,263            621,688
                                                                                                      ----------          ---------


Long-term debt                                                                                           290,000            262,400
Other long-term liabilities                                                                               46,395             31,019

Shareholders' equity:
   Common stock; $.001 par value; 100,000,000 shares authorized;
     33,188,125 and 32,958,614 shares issued and outstanding, respectively                                    33                 33
   Additional paid-in capital                                                                            446,298            441,769
   Retained earnings (deficit)                                                                             9,658            (41,567)
                                                                                                      ----------          ---------
     Total shareholders' equity                                                                          455,989            400,235
                                                                                                      ----------          ---------
Commitments and  contingencies
                                                                                                      ----------          ---------
   Total liabilities and shareholders' equity                                                         $1,446,647          1,315,342
                                                                                                      ==========          =========
</TABLE>



See accompanying notes to consolidated financial statements.



                                                                              27
                                                            Barnes & Noble, Inc.


<PAGE>



Consolidated Statements of Changes in Shareholders' Equity
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>

- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                       Additional         Retained
                                                                        Common            paid-in         earnings
(Thousands of dollars)                                                   Stock            capital         (deficit)          Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>               <C>              <C>               <C>    
Balance at January 29, 1994                                            $     30          342,875          (14,064)          328,841
Exercise of 219,082 common stock options,
   including tax benefits of $2,221                                        --              3,859             --               3,859
Net earnings                                                               --               --             25,473            25,473
                                                                       --------          -------          -------           -------
Balance at January 28, 1995                                                  30          346,734           11,409           358,173
Issuance of 2,500,000 shares of common stock                                  3           88,722             --              88,725
Exercise of  375,447 common stock options,
   including tax benefits of $3,470                                        --              6,313             --               6,313
Net loss                                                                   --               --            (52,976)          (52,976)
                                                                       --------          -------          -------           -------
Balance at January 27, 1996                                                  33          441,769          (41,567)          400,235

Exercise of  229,511 common stock options,
   including tax benefits of $2,272                                        --              4,529             --               4,529
Net earnings                                                               --               --             51,225            51,225
                                                                       --------          -------           -------          -------
Balance at February 1, 1997                                            $     33          446,298            9,658           455,989
                                                                       ========          =======           =======          =======
</TABLE>



See accompanying notes to consolidated financial statements.



28
Barnes & Noble, Inc.


<PAGE>



Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year                                                                                 1996            1995             1994
(Thousands of dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>              <C>              <C>       
Cash flows from operating activities:
   Net earnings (loss)                                                                  $    51,225         (52,976)         25,473
   Adjustments to reconcile net earnings (loss) to
     net cash flows from operating activities:
     Depreciation and amortization                                                           61,652          50,185          38,921
     (Gain) loss on disposal of property and equipment                                         (130)          4,657           2,959
     Deferred taxes                                                                           6,604         (32,110)         (5,394)
     Restructuring charge                                                                      --           123,768            --
     Increase in other long-term liabilities for
       scheduled rent increases in long-term leases                                          15,663          10,670           7,266
     Changes in operating assets and liabilities, net                                       (15,477)       (161,038)        (51,342)
                                                                                        -----------        --------         ------- 
       Net cash flows from operating activities                                             119,537         (56,844)         17,883
                                                                                        -----------        --------         ------- 

Cash flows from investing activities:
   Purchases of property and equipment                                                     (171,885)       (154,913)        (88,763)
   Proceeds from sales of property and equipment                                                177             551               3
   Net increase in other noncurrent assets                                                  (16,787)         (2,378)        (15,876)
                                                                                        -----------        --------         ------- 
     Net cash flows from investing activities                                              (188,495)       (156,740)       (104,636)
                                                                                        -----------        --------         ------- 

Cash flows from financing activities:

   Net (decrease) increase in revolving credit facility                                     (32,400)         72,400            --
   Proceeds from issuance of long-term debt                                                 100,000            --              --
   Proceeds from issuance of common stock, net                                                 --            88,725            --
   Proceeds from exercise of common stock options                                             4,529           6,313           3,859
                                                                                        -----------        --------         ------- 
     Net cash flows from financing activities                                                72,129         167,438           3,859
                                                                                        -----------        --------         ------- 

Net increase (decrease) in cash and cash equivalents                                          3,171         (46,146)        (82,894)
Cash and cash equivalents at beginning of year                                                9,276          55,422         138,316
                                                                                        -----------        --------         ------- 
Cash and cash equivalents at end of year                                                $    12,447           9,276          55,422
continued                                                                               ===========        ========         ======= 
</TABLE>




                                                                              29
                                                            Barnes & Noble, Inc.


<PAGE>



Consolidated Statements of Cash Flows (continued)
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year                                                                                 1996            1995             1994
(Thousands of dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>              <C>              <C>       
Changes in operating assets and liabilities, net:
   Receivables, net                                                                     $     3,461         (19,191)         (9,474)
   Merchandise inventories                                                                    8,148        (241,432)       (137,576)
   Prepaid expenses and other current assets                                                (19,502)        (17,340)          1,751
   Accounts payable and accrued liabilities                                                  (7,584)        116,925          93,957
                                                                                        -----------        --------         ------- 
     Changes in operating assets and liabilities, net                                   $   (15,477)       (161,038)        (51,342)
                                                                                        ===========        ========         ======= 

Supplemental cash flow information:
  Cash paid during the period for:
     Interest                                                                           $    38,103          27,656          23,364
     Income taxes                                                                       $    24,574          19,937          20,740

See accompanying notes to consolidated financial statements.
</TABLE>




30

Barnes & Noble, Inc.


<PAGE>




Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
For the 53 weeks  ended  February 1, 1997  (fiscal  1996) and the 52 weeks ended
January 27, 1996 (fiscal 1995) and January 28, 1995 (fiscal 1994).

(Thousands of dollars, except per share data)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Business

Barnes & Noble,  Inc. (Barnes & Noble),  through its  wholly-owned  subsidiaries
(collectively,  the Company),  is primarily engaged in the sale of books through
three principal  bookselling  strategies:  its superstore  strategy  through its
wholly-owned  subsidiary,  Barnes & Noble  Superstores,  Inc. under its Barnes &
Noble  Booksellers,  Bookstop and Bookstar  tradenames  (hereafter  collectively
referred  to  as  Barnes  &  Noble  stores),   its  mall  strategy  through  its
wholly-owned subsidiaries,  B. Dalton Bookseller, Inc. and Doubleday Book Shops,
Inc.  under its B.  Dalton  Bookseller,  Doubleday  Book  Shops  and  Scribner's
Bookstore  tradenames   (hereafter   collectively   referred  to  as  B.  Dalton
Bookseller), and its publishing and mail-order business.


Consolidation

The consolidated financial statements include the accounts of Barnes & Noble and
its  wholly-owned  subsidiaries.   All  significant  intercompany  accounts  and
transactions have been eliminated in consolidation.


Use of Estimates

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


Supplemental Cash Flow Information

The Company considers all short-term,  highly liquid instruments  purchased with
an  original  maturity  of  three  months  or less to be cash  equivalents.  The
Company's  cash and cash  equivalents  are carried at cost,  which  approximates
market value,  and consists  primarily of  Eurodollar  and time  deposits.  Cash
equivalents as of January 28, 1995 were $49,600.



Merchandise Inventories

Merchandise  inventories  are  stated  at the lower of cost or  market.  Cost is
determined  primarily by the retail inventory method on the first-in,  first-out
(FIFO)  basis for 79% and 73% of the  Company's  merchandise  inventories  as of
February 1, 1997 and January 27, 1996,  respectively.  The remaining merchandise
inventories are valued on the last-in, first-out (LIFO) method.

If  substantially  all of the merchandise  inventories  currently valued at LIFO
costs were  valued at current  costs,  merchandise  inventories  would  increase
approximately  $8,800 and $8,326 as of February  1, 1997 and  January 27,  1996,
respectively.


Property and Equipment

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


Intangible Assets and Amortization

The  costs in excess  of net  assets  of  businesses  acquired  are  carried  as
intangible  assets,  net  of  accumulated  amortization,   in  the  accompanying
consolidated balance sheets. The net intangible assets,  consisting primarily of
goodwill  and  tradenames,  of $63,604 and  $29,890 as of February 1, 1997,  and
$65,771 and $31,028 as of January 27, 1996,  are being  amortized  over 40 years
using the straight-line method. 



                                                                              31
                                                            Barnes & Noble, Inc.


<PAGE>



Notes to Consolidated Financial Statements (Continued)
- --------------------------------------------------------------------------------


Amortization   of  goodwill  and  tradenames   included  in   depreciation   and
amortization  in the  accompanying  consolidated  statements  of  operations  is
$3,305,  $4,272 and $4,264  during  fiscal  1996,  1995 and 1994,  respectively.
Accumulated  amortization  at  February 1, 1997 and January 27, 1996 was $38,036
and $34,731, respectively.

Annually,  the Company evaluates the recoverability of goodwill not allocable to
acquired   business  assets  and  considers  whether  this  goodwill  should  be
completely or partially written off or the amortization periods accelerated. The
Company assesses the recoverability of this goodwill based upon several factors,
including  management's  intention  with respect to the acquired  operations and
those operations' projected undiscounted cash flows.


Deferred Charges

Net  unamortized  costs  incurred to obtain  long-term  financing  of $9,789 and
$5,964 as of  February 1, 1997 and January  27,  1996,  respectively,  are being
amortized  over  the  terms  of  the  respective  debt   agreements   using  the
straight-line  method,  which  approximates  the interest  method.  Amortization
expense  is  $1,846,   $2,304  and  $2,304  for  fiscal  1996,  1995  and  1994,
respectively.  These  amounts  are  included  in interest  and  amortization  of
deferred  financing  fees  in  the  accompanying   consolidated   statements  of
operations.


Revenue Recognition

Revenue from sales of the Company's products is recognized at the time of sale.

The Company sells memberships which entitle purchasers to additional  discounts.
The   membership   revenue  is  deferred  and  recognized  as  income  over  the
twelve-month membership period.

Sales returns (which are not significant) are recognized at the time returns are
made.


Pre-opening Expenses

All costs  associated  with the opening of new stores are deferred and amortized
over the respective store's first twelve months of operations.


Closed Store Expenses

Upon a formal  decision  to close or  relocate  a  store,  the  Company  charges
unrecoverable  costs to  expense.  Such  costs  include  the net  book  value of
abandoned  fixtures and leasehold  improvements and a provision for future lease
obligations,  net of expected sublease  recoveries.  Costs associated with store
closings of $5,113 and $2,006  during  fiscal 1995 and 1994,  respectively,  are
included in selling and administrative expenses in the accompanying consolidated
statements of operations.



Net Earnings (Loss) Per Common Share

Net  earnings  (loss) per common share is computed  using the  weighted  average
number of shares of common stock and common stock equivalents outstanding during
the period.


Income Taxes

The  provision  (benefit)  for income taxes  includes  Federal,  state and local
income  taxes  currently   payable  and  those  deferred  because  of  temporary
differences  between  the  financial  statement  and tax  bases  of  assets  and
liabilities.  The deferred  tax assets and  liabilities  are measured  using the
enacted  tax  rates  and  laws  that  are  expected  to be in  effect  when  the
differences reverse.


Stock Options

The Company accounts for all transactions  under which employees  receive shares
of stock or other  equity  instruments  in the  Company  or the  Company  incurs
liabilities  to  employees  in  amounts  based  on the  price  of its  stock  in
accordance  with the provisions of Accounting  Principles  Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has not adopted the fair
value method encouraged,  but not required by Statement of Financial  Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."


Reporting Period

The Company's fiscal year is comprised of 52 or 53 weeks, ending on the Saturday
closest to the last day of January.  The reporting period ended February 1, 1997
(fiscal 1996)  includes 53 weeks.  All other fiscal years  presented  include 52
weeks.




32
Barnes & Noble, Inc.


<PAGE>



Notes to Consolidated Financial Statements (Continued)
- --------------------------------------------------------------------------------

2. RESTRUCTURING CHARGE

From 1989 through 1995, the Company closed,  on average,  between 50 and 60 mall
bookstores per year primarily due to increasing competition from superstores and
declining  mall traffic.  During the fourth  quarter of fiscal 1995, the Company

accelerated its mall bookstore closing program with the aim of forming a core of
more-profitable  B. Dalton  Bookseller  stores,  and provided for these  closing
costs and asset valuation  adjustments through a non-cash  restructuring charge,
and early  adoption of  Statement  of  Financial  Accounting  Standards  No. 121
"Accounting  for Impairment of Long-Lived  Assets to be Disposed Of" (SFAS 121).
In January 1996, the Company recorded a non-cash charge to operating earnings of
$123,768  ($87,303 after tax or $2.65 per share) to reflect the aggregate impact
of its  restructuring  plan and  change  in  accounting  policy.  The  charge to
earnings  included a $33,000  writedown of goodwill,  and $45,862 related to the
writedown of fixed assets and other long-term assets.  The Company has completed
a  substantial  portion of the planned  store  closings with the remainder to be
completed in 1997 and 1998.

The  following  table sets forth the  restructuring  liability  activity  during
fiscal 1996:


- --------------------------------------------------------------------------------
Fiscal 1996 Activity
- --------------------------------------------------------------------------------
                                                          Fiscal
                                          Beginning         1996       Ending
                                            Balance     Activity      Balance
                                            -------       ------       ------
Provision for store closings                $ 5,974        4,442        1,532
Lease termination costs                      32,833        2,371       30,462
Other                                         6,099        4,497        1,602
                                            -------       ------       ------
   Total                                    $44,906       11,310       33,596
                                            =======       ======       ======

The remaining balance of $33,596, which is classified as a current liability, is
expected  to  be  adequate  for  all  remaining   obligations   related  to  the
restructuring.


3. RECEIVABLES, NET

Receivables  represent  customer,  bankcard,  landlord and other receivables due
within one year as follows:


- --------------------------------------------------------------------------------
                                                  February 1,      January 27,
                                                         1997             1996
- --------------------------------------------------------------------------------

Trade accounts                                        $  5,126            4,028
Bankcard receivables                                    12,800           10,968
Receivables for retail
  display allowances                                       663            1,821
Receivables from landlords                              19,374           22,345
Other receivables                                        7,931           10,262
Allowance for doubtful accounts                           (336)            (405)

                                                      --------           ------
   Total receivables, net                             $ 45,558           49,019
                                                      ========           ======


4. DEBT

Revolving Credit Facility and Term Loan Agreement

The Company's  five-year,  senior credit facility includes a $325,000  revolving
credit  facility and $100,000  term loan facility and provides for an additional
commitment of $125,000  which will be available to the Company in 1997.  Fees of
up to 3/8 of 1% are assessed on the unused  portion of the Company's  commitment
under the facility.  The senior  credit  facility,  which permits  borrowings at
various  interest rate options based on the prime rate or London Interbank Offer
Rate (LIBOR), contains covenants,  representations and events of default typical
of credit  facility  arrangements of this size and nature,  including  financial
covenants which require the Company to meet,  among other things,  cash flow and
interest  coverage  ratios and which limit capital  expenditures.  The revolving
credit  and term loan  facility  are  secured  by the  capital  stock,  accounts
receivable and general intangibles of the Company's subsidiaries.

During fiscal 1996, the Company entered into  three-year and four-year  interest
rate swap  agreements  for  $70,000  and  $30,000  respectively,  involving  the
exchange of fixed and floating interest payment obligations without the exchange
of  underlying  principal  amounts.  The Company  enters into interest rate swap
agreements to manage interest costs and risk associated with changes in interest
rates. These agreements effectively convert underlying  variable-rate debt based
on prime rate or LIBOR to fixed-rate debt. The Company recorded interest expense
of  $365  during  fiscal  1996  associated  with  these   agreements.  



                                                                              33
                                                            Barnes & Noble, Inc.


<PAGE>



Notes to Consolidated Financial Statements (Continued)
- --------------------------------------------------------------------------------

Selected  information  related to the Company's  revolving credit facility is as
follows:

- --------------------------------------------------------------------------------
Fiscal Year                                      1996         1995         1994
- --------------------------------------------------------------------------------
Balance at end of year                        $40,000       72,400         --
Average balance outstanding
   during the year                            101,671       62,036        3,087
Maximum borrowings
   outstanding during

   the year                                   192,800      152,200       41,600
Weighted average interest
   rate during the year                          7.56%        8.13%        9.45%
Interest rate at end of year                     6.87%        8.21%        --

The  average  balance  outstanding  during the period was based on the number of
days  outstanding.  The  weighted  average  interest  rate during the period was
calculated  as the result of dividing  the related  interest  expense by average
borrowings outstanding.

Fees  expensed  with respect to the unused  portion of the  Company's  revolving
credit  commitment  were $911,  $454 and $760 during fiscal 1996, 1995 and 1994,
respectively.


Long-Term Debt

In November 1992, the Company issued $190,000 senior subordinated notes, bearing
interest at 11.875%,  which are subject to  redemption  on or after  January 15,
1998 at the option of the Company and are due on January 15, 2003. The indenture
covering the senior  subordinated  notes contains various  covenants which limit
additional  indebtedness,  dividends  and  transactions  with  shareholders  and
affiliates.

The $72,400  outstanding  as of January 27,  1996 under the  Company's  previous
credit facility was refinanced  pursuant to the consummation of Barnes & Noble's
senior credit  facility and has been  classified as long-term debt as of January
27, 1996 in the accompanying consolidated balance sheets.

The $100,000 term loan is due in twelve  installments due each quarter beginning
on June 30, 1998. Each of the first eight  installments are due in the amount of
$7,500 and each of the ninth through twelfth  installments are due in the amount
of $10,000.

Long-term debt maturities are as follows:

- --------------------------------------------------------------------------------
Fiscal year
- --------------------------------------------------------------------------------
1997                                                                 $     --
1998                                                                   22,500
1999                                                                   30,000
2000                                                                   37,500
2001                                                                   10,000
Thereafter                                                            190,000
                                  
The Company has no agreements to maintain compensating balances.


5. FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying values of cash and cash  equivalents  reported in the  accompanying
consolidated  balance  sheets  approximate  fair  value  due to  the  short-term
maturities of these assets.


The  aggregate  fair value of the revolving  credit  facility  approximates  its
carrying amount,  because of its recent and frequent repricing based upon market
conditions. The fair value of long-term debt is based upon quoted market prices.

The carrying amounts and fair values of the Company's  financial  instruments as
of February 1, 1997 and January 27, 1996 are as follows:

- --------------------------------------------------------------------------------
                                          February 1,            January 27,
                                             1997                   1996
- --------------------------------------------------------------------------------
                                    Carrying        Fair    Carrying        Fair
                                      Amount       Value      Amount       Value
                                    --------     -------     -------     -------

Cash and cash equivalents           $ 12,447      12,447       9,276       9,276
Revolving credit facility           $ 40,000      40,000      72,400      72,400
Long-term debt                      $290,000     307,575     190,000     208,810


34
Barnes & Noble, Inc.


<PAGE>



Notes to Consolidated Financial Statements (Continued)
- --------------------------------------------------------------------------------

6. EMPLOYEES' RETIREMENT AND DEFINED CONTRIBUTION PLANS

The Company  maintains  a  noncontributory  defined  benefit  pension  plan (the
Pension Plan) for the benefit of  substantially  all of its employees.  Benefits
provided  by the  Pension  Plan are  based on years  of  credited  service,  the
employee's  compensation for any of five consecutive years in the last ten years
of service and the primary Social Security benefit. The Company's  contributions
to  the  Pension  Plan  are  generally  in  amounts  determined  by  independent
consulting actuaries.

The Company also sponsors a defined contribution plan (the Savings Plan) for the
benefit of  substantially  all of its  employees  who meet  certain  eligibility
requirements,  primarily  age and length of  service.  The  Savings  Plan allows
employees  to invest up to 15% of their  current  gross cash  compensation  on a
pre-tax or post-tax basis, at their option.  The Company's  contributions to the
Savings Plan are  generally in amounts  based upon a certain  percentage  of the
employees' pre-tax contributions.

A summary of the  components  of net periodic  pension cost for the Pension Plan
and the total contributions charged to employee benefit expenses for the Savings
Plan follows:



- --------------------------------------------------------------------------------
Fiscal Year                                      1996         1995         1994
- --------------------------------------------------------------------------------
Defined benefit plans:
   Service cost                               $ 2,542        1,475        1,702
   Interest cost                                1,354        1,011          981
   Actual return on
     plan assets                               (2,378)      (3,202)         184
   Net amortization
     and deferral                                 914        2,047       (1,175)
                                              -------        -----        -----
         Net periodic
           pension cost                       $ 2,432        1,331        1,692
                                              =======        =====        =====
Defined contribution plan                     $ 2,115        1,495        1,112
                                              =======        =====        =====

Actuarial assumptions used in determining the net periodic pension costs and the
funded status of the Pension Plan are as follows:

- --------------------------------------------------------------------------------
                                          February 1,  January 27,  January 28,
                                                 1997         1996         1995
- --------------------------------------------------------------------------------
Discount rate
   (beginning of year)                            7.5%         8.8%         7.5%
Discount rate (end of year)                       7.5%         7.5%         8.8%
Expected long-term rate of
   return on Plan assets                          9.5%         9.5%         9.8%
Assumed rate of
   compensation increase                          4.0%         4.0%         4.0%


The  following  table sets forth the funded  status of the Pension  Plan and the
pension   liability   recognized  for  the  Pension  Plan  in  the  accompanying
consolidated balance sheets:

- --------------------------------------------------------------------------------
                                                   February 1,      January 27,
                                                          1997             1996
- --------------------------------------------------------------------------------

Actuarial present value of benefit obligation:
     Vested benefits                                  $(12,138)         (10,784)
     Nonvested benefits                                 (2,114)          (1,962)
                                                      --------          ------- 
Accumulated benefit obligation                         (14,252)         (12,746)
Effect of projected future
   compensation increases                               (7,126)          (5,537)
                                                      --------          ------- 
Projected benefit obligation                           (21,378)         (18,283)
Plan assets at market value                             18,565           15,361
                                                      --------          ------- 
Projected benefit obligation in

   excess of Plan assets                                (2,813)          (2,922)
Unrecognized net loss                                      100            1,086
Unrecognized net obligation
   remaining                                               274              328
Unrecognized prior service cost                           (219)            (237)
                                                      --------          ------- 
   Pension liability                                  $ (2,658)          (1,745)
                                                      ========          ======= 




                                                                              35
                                                            Barnes & Noble, Inc.


<PAGE>



Notes to Consolidated Financial Statements (Continued)
- --------------------------------------------------------------------------------

In addition to providing pension  benefits,  the Company provides certain health
care and life insurance  benefits to retired  employees  (the Plan).  Only those
employees  receiving  benefits  or retired as of April 1, 1993 are  eligible  to
participate in the Plan and receive these  benefits.  The Plan is unfunded.  The
following table sets forth the status of the Plan and the post-retirement health
care liability of the Plan, which is attributable solely to retirees, recognized
in the  accompanying  consolidated  balance  sheets as of  February  1, 1997 and
January 27, 1996 using a discount rate of 7.5% at both dates:


- --------------------------------------------------------------------------------
                                                   February 1,      January 27,
                                                          1997             1996
- --------------------------------------------------------------------------------
Projected benefit obligation                          $ (4,349)          (4,474)
Unrecognized loss                                          137              393
                                                      --------           ------ 
Post-retirement health care liability                 $ (4,212)          (4,081)
                                                      ========           ====== 

The net periodic cost for the  post-retirement  health care  benefits  under the
Plan is related to interest  costs of $326,  $375 and $416 during  fiscal  1996,
1995 and 1994, respectively.  The unrecognized loss resulting from the impact of
experience changes on current assumptions is recorded over the average remaining
life expectancy of Plan participants.

The  health  care cost  trend rate used to  measure  the  expected  cost of Plan
benefits is assumed to be 8.5% in 1997, declining at one-half percent decrements
each year through 2004 to 5.0% in 2004 and each year thereafter. The health care
cost trend  assumption  has a significant  effect on the amounts  reported.  For
example,  a 1% increase in the health  care cost trend rate would  increase  the
accumulated  post-retirement  benefit  obligation  by  approximately  $478 as of

February 1, 1997 and the net periodic  cost by  approximately  $36 during fiscal
1996.


7. INCOME TAXES

The Company files a consolidated  Federal  return.  Federal and state income tax
provisions (benefits) for fiscal 1996, 1995 and 1994 are as follows:


- --------------------------------------------------------------------------------
Fiscal Year                                      1996         1995         1994
- --------------------------------------------------------------------------------
Current:
   Federal                                    $18,413       17,317       18,106
   State                                        5,140        4,471        7,373
                                              -------      -------       ------
                                               23,553       21,788       25,479
                                              -------      -------       ------

Deferred:
   Federal                                      5,300      (25,717)      (4,119)
   State                                        1,304       (6,393)      (1,275)
                                              -------      -------       ------
                                                6,604      (32,110)      (5,394)
                                              -------      -------       ------
     Total                                    $30,157      (10,322)      20,085
                                              =======      =======       ======

A  reconciliation  between  the  provision  (benefit)  for income  taxes and the
expected  provision  (benefit) for income taxes at the Federal statutory rate of
35% during fiscal 1996, 1995, and 1994 are as follows:


- --------------------------------------------------------------------------------
Fiscal Year                                      1996         1995         1994
- --------------------------------------------------------------------------------
Expected provision (benefit)
   for income taxes at
   Federal statutory rate                     $28,484      (22,154)      15,945
Amortization of goodwill
   and tradenames and
   writedown of goodwill                        1,157       12,978        1,428
State income taxes, net of
   Federal income tax benefit                   3,341        2,906        4,792
Rehabilitation tax credit                      (2,974)        --           --
Other, net                                        149       (4,052)      (2,080)
                                              -------      -------       ------
   Provision (benefit) for
      income taxes                            $30,157      (10,322)      20,085
                                              =======      =======       ======




36
Barnes & Noble, Inc.


<PAGE>



Notes to Consolidated Financial Statements (Continued)
- --------------------------------------------------------------------------------

The  tax  effects  of  temporary  differences  that  give  rise  to  significant
components of the Company's  deferred tax assets and  liabilities as of February
1, 1997 and January 27, 1996 are as follows:

- --------------------------------------------------------------------------------
                                                   February 1,      January 27,
                                                          1997             1996
- --------------------------------------------------------------------------------
Deferred tax liabilities:
   Operating expenses                                 $ (6,910)          (4,940)
   Depreciation                                         (7,979)          (2,441)
                                                      --------           ------ 
     Total deferred tax liabilities                    (14,889)          (7,381)
                                                      --------           ------ 

Deferred tax assets:
   Inventory                                             4,828            4,087
   Lease transactions                                   13,007            7,339
   Reversal of estimated accruals                        5,701            3,581
   Restructuring charge                                 26,599           36,465
   Insurance liability                                   2,769            1,711
   Deferred income                                       4,296            3,281
   Other                                                 2,927            2,759
                                                      --------           ------ 
     Total deferred tax assets                          60,127           59,223
                                                      --------           ------ 
       Net deferred tax assets                        $ 45,238           51,842
                                                      ========           ====== 


8. PUBLIC OFFERING OF COMMON STOCK

On October 2, 1995, the Company  completed a public offering of 2,500,000 shares
of common stock which generated proceeds of $88,725 after deducting underwriting
discounts and commissions  and expenses.  The net proceeds were used for general
corporate  purposes,   including  the  financing  of  capital  expenditures  and
inventory purchases in connection with the accelerated expansion of the Barnes &
Noble store operations.

9. STOCK OPTION PLANS

The Company  currently has two incentive  plans under which stock options may be
granted to  officers,  directors  and key  employees  of the  Company - the 1991
Employee  Incentive  Plan (the 1991 Plan) and the 1996  Incentive Plan (the 1996

Plan). The options to purchase common shares generally are issued at fair market
value on the date of the grant,  begin  vesting after one year in 33 1/3% or 25%
increments  per year,  expire ten years from issuance and are  conditioned  upon
continual employment during the vesting period.

Under the 1996 Plan,  approved by the shareholders on May 29, 1996, and the 1991
Plan,  the Company may grant  options to purchase up to 3,000,000  and 2,366,352
shares of common stock, respectively.

In addition to the two incentive plans, the Company has granted stock options to
certain key executives and directors. The vesting terms and contractual lives of
these grants are similar to that of the incentive plans.

The Company applies Accounting  Principles Board Opinion No. 25, "Accounting for
Stock Issued to  Employees,"  and related  interpretations  for its stock option
grants.  Generally,  compensation  expense is not  recognized  for stock  option
grants.

In  accordance  with the  Statement of Financial  Accounting  Standards No. 123,
"Accounting for Stock-Based  Compensation" (SFAS 123), the Company discloses the
pro forma impact of recording  compensation  expense utilizing the Black-Scholes
model.  The  Black-Scholes  option  valuation  model  was  developed  for use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  the   Company's   stock   options  have   characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion,  the Black-Scholes  model does not necessarily  provide a
reliable measure of the fair value of its stock options.

Had  compensation  cost for the Company's  stock option  grants been  determined
based on the fair value at the stock  option  grant  dates  consistent  with the
method of SFAS 123, the Company's net earnings and earnings per share for fiscal
1996 and 1995,  would have been reduced by  approximately  $5,305,  or $0.15 per
share, and $1,448, or $0.05 per share, respectively.


                                                                              37
                                                            Barnes & Noble, Inc.


<PAGE>



Notes to Consolidated Financial Statements (Continued)
- --------------------------------------------------------------------------------

Because the application of the pro forma  disclosure  provisions of SFAS 123 are
required  only to be  applied to grants of options  made by the  Company  during
fiscal 1995 and after, the above pro forma amounts may not be  representative of
the effects of applying SFAS 123 to future years.

The  weighted-average  fair value of the options  granted during fiscal 1996 and

1995 were estimated at $9.32 and $11.97  respectively,  using the  Black-Scholes
option-pricing  model  with  the  following  assumptions:   volatility  of  28%,
risk-free  interest rate of 6.63% in fiscal 1996,  and 6.59% in fiscal 1995, and
an expected life of six years.

A summary of the status of the Company's stock options is presented below:


- --------------------------------------------------------------------------------
                                                               Weighted-Average
(Shares in thousands)                                   Shares   Exercise Price
- --------------------------------------------------------------------------------
Balance, January 29, 1994                                3,753         $  16.36
   Granted                                                 308            24.29
   Exercised                                              (219)            7.48
   Forfeited                                               (30)           22.65
                                                         -----                 
Balance, January 28, 1995                                3,812            17.46
   Granted                                                 590            28.62
   Exercised                                              (375)            7.57
   Forfeited                                               (76)           26.22
                                                         -----                 
Balance, January 27, 1996                                3,951            19.90
   Granted                                                 928            29.25
   Exercised                                              (230)            9.90
   Forfeited                                               (78)           29.94
                                                         -----                 
Balance, February 1, 1997                                4,571         $  22.13
                                                         =====                 


Options  exercisable  as of February  1, 1997,  January 27, 1996 and January 28,
1995 were 3,535,000, 2,260,000 and 1,342,000, respectively.


The following  table  summarizes  information as of February 1, 1997  concerning
outstanding and exercisable options:


- --------------------------------------------------------------------------------
                               Options Outstanding         Options Exercisable
- --------------------------------------------------------------------------------
                                     Weighted
                                     -Average  Weighted                Weighted
     Range of            Number     Remaining  -Average       Number   -Average
     Exercise       Outstanding   Contractual  Exercise  Exercisable   Exercise
      Prices            (000's)          Life     Price      (000's)      Price
- --------------------------------------------------------------------------------
  $ 6.42-$ 7.53            859          6.07     $7.16          859      $7.16
  $20.00-$24.38          1,882          7.36     21.96        1,394      21.13
  $27.00-$34.88          1,830          7.50     29.33        1,136      27.31
                         -----                                -----           
  $ 6.42-$34.88          4,571          7.18     22.13        3,389      19.66
                         =====                                =====           



10. LEASES

The  Company  leases  retail  stores,  warehouse  facilities,  office  space and
equipment. Substantially all of the retail stores are leased under noncancelable
agreements  which expire at various  dates  through  2020 with  various  renewal
options for additional  periods.  The agreements,  which have been classified as
operating leases,  generally provide for both minimum and percentage rentals and
require the Company to pay all  insurance,  taxes and other  maintenance  costs.
Percentage  rentals  are  based on sales  performance  in  excess  of  specified
minimums at various stores.

Rental expense under operating leases are as follows:


- --------------------------------------------------------------------------------
Fiscal Year                                      1996         1995         1994
- --------------------------------------------------------------------------------
Minimum rentals                                $222,700     179,941      143,927
Percentage rentals                                2,750       2,532        3,298
                                               --------     -------      -------
                                               $225,450     182,473      147,225
                                               ========     =======      =======




38
Barnes & Noble, Inc.


<PAGE>



Notes to Consolidated Financial Statements (Continued)
- --------------------------------------------------------------------------------

Future minimum annual  rentals,  excluding  percentage  rentals,  required under
leases that had initial,  noncancelable lease terms greater than one year, as of
February 1, 1997 are:


- --------------------------------------------------------------------------------
Fiscal Year
- --------------------------------------------------------------------------------
1997                                                                  $  235,086
1998                                                                     228,378
1999                                                                     220,565
2000                                                                     210,953
2001                                                                     206,345
After 2001                                                             1,385,078
                                                                      ----------
                                                                      $2,486,405

                                                                      ==========

Future minimum annual rentals for stores  scheduled for closing  pursuant to the
Company's  restructuring plan are included in the preceding table. Future rental
payments  representing  the exit costs associated with these store closings were
included in the Company's  non-cash  restructuring  charge of $123,768  recorded
during fiscal 1995 and,  therefore,  do not represent future operating expenses.
Minimum rental  obligations  may decline in the future,  as the leases for these
stores subject to the  restructuring  plan are  terminated or the  restructuring
plan is otherwise completed.


11. LITIGATION

Various claims and lawsuits arising in the normal course of business are pending
against the Company. The subject matter of these proceedings  primarily includes
commercial  disputes and employment issues. The results of these proceedings are
not expected to have a material  adverse  effect on the  Company's  consolidated
financial position or results of operations.


12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company  leases space for its  executive  offices in  properties  in which a
principal  shareholder/director/executive  officer of the Company has a minority
interest. The space was rented at an aggregate annual rent including real estate
taxes of  approximately  $1,307 in fiscal  year 1996 and  $1,376 in fiscal  year
1995. Such space is rented under leases expiring in 1997 and 1998, respectively.

Marboro Books Corp., the Company's mail-order subsidiary, leases a 76,000 square
foot    office/warehouse    from   a   partnership    in   which   a   principal
shareholder/director/executive  officer  of  the  Company  has a  50%  interest,
pursuant to a 15-year lease dated August 1987 requiring an annual rent of $700.

The Company is provided with certain package shipping services by the LTA Group,
Inc.   ("LTA"),    a   company   in   which   the   brother   of   a   principal
shareholder/director/executive  officer of the Company  acquired a 20%  interest
during  fiscal 1996.  During  fiscal 1996,  the Company paid LTA $9,100 for such
services.

Barnes & Noble  College  Bookstores,  Inc. (B&N  College),  a company owned by a
principal  shareholder/director/executive  officer  of  the  Company,  allocated
certain  expenses it incurred  on behalf of the Company for  salaries,  employee
benefit plan expenses and office support services. These charges are included in
selling and administrative expenses in the accompanying  consolidated statements
of operations and approximated  $115,  $1,219 and $1,368 for fiscal 1996, fiscal
1995 and fiscal 1994, respectively.


                                                                              39
                                                            Barnes & Noble, Inc.


<PAGE>




Notes to Consolidated Financial Statements (Continued)
- --------------------------------------------------------------------------------

The Company uses a jet aircraft  owned by B&N College and pays for the costs and
expenses of operating the aircraft  based upon the Company's  usage.  Such costs
which include fuel,  insurance,  personnel and other costs  approximate  $1,685,
$1,298 and $1,384 during fiscal 1996, fiscal 1995 and fiscal 1994, respectively,
and are included in the accompanying consolidated statements of operations.

The Company  leases  retail  space in a building in which B&N College  subleases
space for its executive offices. Occupancy costs allocated by the Company to B&N
College for this space totaled $544 during  fiscal 1996. In connection  with the
space,  during  fiscal 1996 the  Company  reimbursed  B&N College for  leasehold
improvement costs totaling $2,200 which have been recorded as an addition to the
Company's buildings and leasehold improvements in the accompanying  consolidated
balance sheets.

On February 1, 1988 the Company sold its retail software  operations to Software
Etc.   Stores,   Inc.    (Software),    a   company   owned   by   a   principal
shareholder/director/executive  officer of the Company.  Following the sale, the
Company provided  Software certain  management and  administrative  services and
continued   benefits   for   Software's   employees,   subject  to   eligibility
requirements,  through  fiscal 1995.  Software,  a  wholly-owned  subsidiary  of
NeoStar  Retail Group,  Inc.  (NeoStar)  since December  1994,  operated  retail
software  departments  within the Company's  Barnes & Noble and B. Dalton stores
for  which   Software  was  required  to  pay  the  Company  under  license  fee
arrangements  6.5%  or  7.0%  of  the  department's  gross  sales  or 50% of the
department's  operating earnings,  subject to certain  reimbursements.  Software
also  continued  to  operate  retail  software  stores  for which B.  Dalton was
primarily  liable for rent and other operating costs  associated with leases for
Software  stores devoted  exclusively to the retail  software  business prior to
February 1, 1988.  In  addition,  the Company  subleased  space to Software in a
building under terms which were substantially identical to the obligation of the
Company. On November 27, 1996,  Babbage's Etc. LLC (Babbage's),  a company owned
by a principal  shareholder/director/executive  officer of the Company, acquired
substantially  all of Neostar's  assets.  Babbage's assumed the operations of 14
retail  software  departments  located  within  Barnes  & Noble  stores  and the
remaining 27 stores  devoted  exclusively  to the retail  software  business for
which B. Dalton is primarily liable for rent and operating costs. As of November
27, 1996,  the Company pays all rent  related to these  properties  for which it
receives a license fee from  Babbage's  equal to 7.0% or 8.0% of the gross sales
of such  departments  and stores.  The  Company  also  provides  real estate and
construction  services to  Babbage's  and  purchases  business  insurance on its
behalf for which the Company is reimbursed its incremental costs to provide such
services.  The Company  charged  Software and  Babbage's,  on a combined  basis,
$1,282, $4,992 and $4,924 during fiscal 1996, 1995 and 1994,  respectively,  for
such services, license fees, rent, operating costs, insurance costs and benefits
coverage.


40
Barnes & Noble, Inc.



<PAGE>


Notes to Consolidated Financial Statements (Continued)
- --------------------------------------------------------------------------------

13. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

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


<TABLE>
<CAPTION>

- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal 1996 Quarter End                                                                                             Total Fiscal
On or About                                       April 1996        July 1996     October 1996     January 1997(1)          1996(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                 <C>              <C>              <C>            <C>      
Revenues                                          $  508,755          524,321          532,563          882,485        2,448,124
Operating profit (loss)                                 (141)           5,622            4,578          109,609          119,668
Earnings (loss) before provision
   (benefit) for income taxes                         (8,485)          (4,547)          (5,014)          99,428           81,382
Net earnings (loss)                                   (5,393)          (2,721)          (2,622)          61,961           51,225
Net earnings (loss) per common share                   (0.16)           (0.08)           (0.08)            1.80             1.48
</TABLE>




<TABLE>
<CAPTION>

- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995 Quarter End                                                                                              Total Fiscal
On or About                                       April 1995        July 1995     October 1995      January 1996             1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                 <C>              <C>              <C>            <C>      

Revenues                                          $  401,971          420,080          432,315          722,534        1,976,900
Restructuring charge                                    --               --               --            123,768          123,768
Operating profit (loss)                               (1,929)           3,478            2,537          (39,242)         (35,156)
Loss before benefit for income taxes                  (7,979)          (3,597)          (5,148)         (46,574)         (63,298)
Net loss                                              (5,286)          (2,579)          (3,545)         (41,566)         (52,976)
Net loss per common share                              (0.17)           (0.08)           (0.11)           (1.26)           (1.70)
</TABLE>


(1)  The fourth quarter of 1996 includes 14 weeks.

(2)  Fiscal 1996 includes 53 weeks.



R
eport of Independent Certified Public Accountants
- --------------------------------------------------------------------------------


The Board of Directors
Barnes & Noble, Inc.

   We have  audited the  accompanying  consolidated  balance  sheets of Barnes &
Noble, Inc. and subsidiaries as of February 1, 1997 and January 27, 1996 and the
related consolidated  statements of operations,  changes in shareholders' equity
and cash flows for the fiscal years ended February 1, 1997, January 27, 1996 and
January 28, 1995.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

   In our  opinion,  the  consolidated  financial  statements  referred to above
present fairly,  in all material  respects,  the financial  position of Barnes &
Noble, Inc. and subsidiaries as of February 1, 1997 and January 27, 1996 and the
results of their  operations  and their cash  flows for the fiscal  years  ended
February 1, 1997,  January 27,  1996,  and January 28, 1995 in  conformity  with
generally accepted accounting principles.


New York, New York
March 11, 1997




                                                             /s/BDO Seidman, LLP


                                                                BDO Seidman, LLP


                                                                              41
                                                            Barnes & Noble, Inc.





<PAGE>
                                                                   Exhibit 23.1


                            CONSENT OF INDEPENDENT
                         CERTIFIED PUBLIC ACCOUNTANTS


Barnes & Noble, Inc.
New York, New York


We hereby consent to the incorporation by reference of our report dated March
11, 1997 relating to the consolidated financial statements of Barnes & Noble,
Inc. and subsidiaries, incorporated by reference into the Company's Annual
Report on Form 10-K for the year ended February 1, 1997, into the prospectuses
constituting a part of the following registration statements: No. 33-84826 on
Form S-3, No. 33-89258 on Form S-3, No. 33-89260 on Form S-8, and No. 33-97410
on Form S-3.

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


                                                   BDO Seidman, LLP

New York, New York
April 30, 1997





<TABLE> <S> <C>


<ARTICLE> 5
<MULTIPLIER> 1000
       
<S>                           <C>
<PERIOD-TYPE>                 YEAR
<FISCAL-YEAR-END>             FEB-01-1997
<PERIOD-END>                  FEB-01-1997
<CASH>                             12,447
<SECURITIES>                            0
<RECEIVABLES>                      45,558
<ALLOWANCES>                            0
<INVENTORY>                       732,203
<CURRENT-ASSETS>                  866,955
<PP&E>                            616,757
<DEPRECIATION>                    181,983
<TOTAL-ASSETS>                  1,446,647
<CURRENT-LIABILITIES>             659,263
<BONDS>                           290,000
<PREFERRED-MANDATORY>                   0
<PREFERRED>                             0
<COMMON>                               33
<OTHER-SE>                        455,956
<TOTAL-LIABILITY-AND-EQUITY>    1,446,647
<SALES>                         2,448,124
<TOTAL-REVENUES>                2,448,124
<CGS>                           1,569,448
<TOTAL-COSTS>                   1,569,448
<OTHER-EXPENSES>                  302,827
<LOSS-PROVISION>                        0
<INTEREST-EXPENSE>                 38,286
<INCOME-PRETAX>                    81,382
<INCOME-TAX>                       30,157
<INCOME-CONTINUING>                51,225
<DISCONTINUED>                          0
<EXTRAORDINARY>                         0
<CHANGES>                               0
<NET-INCOME>                       51,225
<EPS-PRIMARY>                        1.48
<EPS-DILUTED>                        1.48
        


</TABLE>