Barnes

1
Barnes Noble Inc. Sell Pitch

• Michael Polark

2
BKS in our Portfolio

• Own 200 shares purchased on February 20, 1996 for
  13.31 a share.
• One of our three oldest holdings
• Closed Friday at 37.06
• Valued Friday at 7,412
• If we sell 200 shares we net a profit of 4,750
  or a 178 gain.

3
Who is BKS?

• Headquarters in NYC
• Owns 801 bookstores in 50 states making it the
  number 1 domestic bookseller
• Also operates recently overhauled online web
  store that has exceeded expectations since being
  completed
• Developing a publishing program giving BKS rights
  to book titles not found anywhere else but at
  their stores. Bought Sparknotes.com (2001) and
  Sterling Publishing (2003) to expand publishing
  exposure.

4
Since we Bought it
5
Why we should sell

• The weak consumer confidence heading into the
  holiday season
• Small internal growth
• External growth was looking promising earlier in
  the year, now seems to be on hold
• Will BKS online web store be able to compete with
  Amazon?
• In the future, how practical are bookstores when
  books will possibly be available completely
  online?

6
Holiday season

• Consumer confidence low how will consumer
  spending play out during the 4th quarter?
• BKS earns approx. 90 of revenue during holiday
  season
• Recent News BKS raises 4th quarter outlook after
  a positive 3rd quarter and claims it will be
  immune to possibly low consumer spending
• BUT will BKS success be able to stand out and
  thrive amongst overall low retail results in the
  short term?

7
Small internal growth

• Revenue growth predicted for 2007 between 2 to
  4. Sales up to 4.6B from 4.5B in 06.
• Earnings forecast of 1.87 per share in 2007 down
  from 2.17 per share in 06.
• Five year EPS growth is 10 compared to 12.69
  for the broad SP 500.

8
External growth?

• Completely domestic companyno plans at ALL for
  international expansion
• Newly revamped website is BKS attempt at
  international businesscan it compete with the
  likes of Amazon?
• Largest competitor Borders has international
  stores in the UK and Ireland as well as an
  Asia-Pacific chain

9
Leonard Riggio (Chairman)

• Founder and Chairman Riggio recently completed
  three month (Aug-Oct) personal buying spree of
  620K shares, increasing his personal stake in the
  company to 24.
• Can be an indicator of rosier forecasts to come
  (raised fourth Q outlook)
• BUT analysts had been anticipating a possible MA
  announcement with Borders
• Buying spree eliminates this possibility in the
  near future because spree would be viewed as
  insider trading

10
Future of Books

• Amazons Jeff Bezos has developed the Kindle, a
  new E-Reader that can store books (bought
  through the website) and get daily newspaper
  editions as well as being able to connect to the
  internet (featured in Newsweek)
• Googles continuing attempt to archive thousands
  of classic titles
• Are physical books practical in the technological
  age?
• Can BKS keep up with its competitors and future
  innovations?

11

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Summary

• Old holding, large gain, time to LOCK IN
• Entering uncertain consumer season
• No plan for international growth, MA prospects
  squashed by buying spree
• What is the future of books?
• Time to use this cash to invest in smaller-cap,
  larger growth stocks