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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-Q
_______________________________________________
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 30, 2021
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission File Number: 1-37499
_______________________________________________
BARNES & NOBLE EDUCATION, INC.
(Exact Name of Registrant as Specified in Its Charter)
_______________________________________________
Delaware 46-0599018
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
120 Mountain View Blvd.,  Basking Ridge, NJ 07920
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s Telephone Number, Including Area Code): (908) 991-2665
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Trading Symbol Name of Exchange on which registered
Common Stock, $0.01 par value per share BNED New York Stock Exchange
_______________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer
¨  
Smaller reporting company ¨
Emerging Growth Company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of February 26, 2021, 51,378,913 shares of Common Stock, par value $0.01 per share, were outstanding.


BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Fiscal Quarter Ended January 30, 2021
Index to Form 10-Q
 
      Page No.
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4
5
6
7
7
8
2

PART I - FINANCIAL INFORMATION
 
Item 1:    Financial Statements

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited) 
13 weeks ended 39 weeks ended
January 30,
2021
January 25,
2020
January 30,
2021
January 25,
2020
Sales:
Product sales and other $ 373,502  $ 453,678  $ 1,118,544  $ 1,474,448 
Rental income 38,111  48,614  92,568  119,729 
Total sales 411,613  502,292  1,211,112  1,594,177 
Cost of sales:
Product and other cost of sales 315,607  354,999  933,847  1,146,400 
Rental cost of sales 25,394  28,758  60,506  70,635 
Total cost of sales 341,001  383,757  994,353  1,217,035 
Gross profit 70,612  118,535  216,759  377,142 
Selling and administrative expenses 92,708  106,184  254,723  317,279 
Depreciation and amortization expense 13,307  15,117  40,563  46,542 
Impairment loss (non-cash) 27,630  —  27,630  433 
Restructuring and other charges 1,669  205  10,727  3,240 
Operating (loss) income (64,702) (2,971) (116,884) 9,648 
Interest expense, net 2,311  1,904  5,876  5,882 
(Loss) income before income taxes (67,013) (4,875) (122,760) 3,766 
Income tax (benefit) expense (18,724) (3,182) (35,334) 1,683 
Net (loss) income $ (48,289) $ (1,693) $ (87,426) $ 2,083 
(Loss) Income per share of common stock:
Basic $ (0.96) $ (0.04) $ (1.78) $ 0.04 
Diluted $ (0.96) $ (0.04) $ (1.78) $ 0.04 
Weighted average shares of common stock outstanding:
Basic 50,082  48,298  49,099  47,911 
Diluted 50,082  48,298  49,099  48,767 
See accompanying notes to condensed consolidated financial statements.

3

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data) 
January 30,
2021
January 25,
2020
May 2,
2020
  (unaudited) (unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,915  $ 9,798  $ 8,242 
Receivables, net 227,174  238,045  90,851 
Merchandise inventories, net 452,611  530,260  428,939 
Textbook rental inventories 40,720  48,474  40,710 
Prepaid expenses and other current assets 25,281  24,617  16,177 
Total current assets 755,701  851,194  584,919 
Property and equipment, net 87,405  101,055  97,739 
Operating lease right-of-use assets 242,937  251,743  250,837 
Intangible assets, net 155,536  179,596  175,125 
Goodwill 4,700  4,700  4,700 
Deferred tax assets, net 14,984  2,647  7,805 
Other noncurrent assets 27,195  37,169  35,307 
Total assets $ 1,288,458  $ 1,428,104  $ 1,156,432 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 318,795  $ 389,050  $ 143,678 
Accrued liabilities 125,815  193,705  95,420 
Current operating lease liabilities 105,624  102,247  92,571 
Short-term borrowings —  —  75,000 
Total current liabilities 550,234  685,002  406,669 
Long-term operating lease liabilities 190,453  169,227  186,142 
Other long-term liabilities 52,814  50,529  46,170 
Long-term borrowings 150,800  65,900  99,700 
Total liabilities 944,301  970,658  738,681 
Commitments and contingencies —  —  — 
Stockholders' equity:
Preferred stock, $0.01 par value; authorized, 5,000 shares; 0 shares issued and 0 shares outstanding
—  —  — 
Common stock, $0.01 par value; authorized, 200,000 shares; issued, 53,327, 52,139 and 52,140 shares, respectively; outstanding, 51,379, 48,297 and 48,298 shares, respectively
533  521  521 
Additional paid-in capital 733,019  732,320  732,958 
Accumulated deficit (370,253) (242,494) (282,827)
Treasury stock, at cost (19,142) (32,901) (32,901)
Total stockholders' equity 344,157  457,446  417,751 
Total liabilities and stockholders' equity $ 1,288,458  $ 1,428,104  $ 1,156,432 
See accompanying notes to condensed consolidated financial statements.
4

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
39 weeks ended
January 30,
2021
January 25,
2020
Cash flows from operating activities:
Net (loss) income $ (87,426) $ 2,083 
Adjustments to reconcile net (loss) income to net cash flows from operating activities:
Depreciation and amortization expense 40,563  46,542 
Content amortization expense 3,700  2,973 
Amortization of deferred financing costs 811  811 
Impairment loss (non-cash) 27,630  433 
Deferred taxes (7,179) (222)
Stock-based compensation expense 3,857  6,000 
Changes in other long-term assets and liabilities, net 11,291  2,663 
Changes in operating lease right-of-use assets and liabilities 11,937  9,890 
Changes in other operating assets and liabilities, net 36,402  20,834 
Net cash flows provided by operating activities 41,586  92,007 
Cash flows from investing activities:
Purchases of property and equipment (25,910) (26,841)
Net change in other noncurrent assets (78) (507)
Net cash flows used in investing activities (25,988) (27,348)
Cash flows from financing activities:
Proceeds from borrowings under Credit Agreement 547,600  383,400 
Repayments of borrowings under Credit Agreement (571,500) (451,000)
Sale of treasury shares 10,869  — 
Purchase of treasury shares (894) (1,265)
Net cash flows used in financing activities (13,925) (68,865)
Net increase (decrease) in cash, cash equivalents and restricted cash 1,673  (4,206)
Cash, cash equivalents and restricted cash at beginning of period 9,008  14,768 
Cash, cash equivalents and restricted cash at end of period $ 10,681  $ 10,562 
Changes in other operating assets and liabilities, net:
Receivables, net $ (136,323) $ (139,875)
Merchandise inventories (23,672) (109,938)
Textbook rental inventories (10) (1,473)
Prepaid expenses and other current assets (9,104) (12,839)
Accounts payable and accrued liabilities 205,511  284,959 
Changes in other operating assets and liabilities, net $ 36,402  $ 20,834 
See accompanying notes to condensed consolidated financial statements.

5

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(In thousands)
(unaudited)
Additional
Common Stock Paid-In Accumulated Treasury Stock Total
Shares Amount Capital Deficit Shares Amount Equity
Balance at April 27, 2019 51,030  $ 510  $ 726,331  $ (244,577) 3,467  $ (31,636) $ 450,628 
Stock-based compensation expense
2,321  2,321 
Vested equity awards
56  (1) — 
Shares repurchased for tax withholdings for vested stock awards
12  (40) (40)
Net loss (32,155) (32,155)
Balance at July 27, 2019 51,086  $ 511  $ 728,651  $ (276,732) 3,479  $ (31,676) $ 420,754 
Stock-based compensation expense
1,860  1,860 
Vested equity awards
1,053  10  (10) — 
Shares repurchased for tax withholdings for vested stock awards
363  (1,225) (1,225)
Net income 35,931  35,931 
Balance at October 26, 2019 52,139  $ 521  $ 730,501  $ (240,801) 3,842  $ (32,901) $ 457,320 
Stock-based compensation expense
1,819  1,819 
Net loss (1,693) (1,693)
Balance at January 25, 2020 52,139  $ 521  $ 732,320  $ (242,494) 3,842  $ (32,901) $ 457,446 
Additional
Common Stock Paid-In Accumulated Treasury Stock Total
Shares Amount Capital Deficit Shares Amount Equity
Balance at May 2, 2020 52,140  $ 521  $ 732,958  $ (282,827) 3,842  $ (32,901) $ 417,751 
Stock-based compensation expense
1,521  1,521 
Vested equity awards
514  (5) — 
Shares repurchased for tax withholdings for vested stock awards
179  (342) (342)
Net loss (46,652) (46,652)
Balance August 1, 2020 52,654  $ 526  $ 734,474  $ (329,479) 4,021  $ (33,243) $ 372,278 
Stock-based compensation expense
1,180  1,180 
Vested equity awards
662  (7) — 
Shares repurchased for tax withholdings for vested stock awards
231  (539) (539)
Net income 7,515  7,515 
Balance October 31, 2020 53,316  $ 533  $ 735,647  $ (321,964) 4,252  $ (33,782) $ 380,434 
Stock-based compensation expense
1,156  1,156 
Vested equity awards
11  —  —  — 
Sale of treasury shares (3,784) (2,308) 14,653  10,869 
Shares repurchased for tax withholdings for vested stock awards
(13) (13)
Net loss (48,289) (48,289)
Balance at January 30, 2021 53,327  $ 533  $ 733,019  $ (370,253) 1,948  $ (19,142) $ 344,157 
See accompanying notes to condensed consolidated financial statements.
6

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)
Unless the context otherwise indicates, references in these Notes to the accompanying condensed consolidated financial statements to “we,” “us,” “our” and “the Company” refer to Barnes & Noble Education or "BNED", Inc., a Delaware corporation. References to “Barnes & Noble College” refer to our college bookstore business operated through our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our virtual bookstore and wholesale textbook distribution business operated through our subsidiary MBS Textbook Exchange, LLC. References to “Student Brands” refer to our direct-to-student subscription-based writing services business operated through our subsidiary Student Brands, LLC.
This Form 10-Q should be read in conjunction with our Audited Consolidated Financial Statements and accompanying Notes to consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020, which includes consolidated financial statements for the Company for each of the three fiscal years ended May 2, 2020, April 27, 2019 and April 28, 2018 (Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively), the unaudited condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the 13 weeks ended August 1, 2020, and the unaudited condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the 26 weeks ended October 31, 2020.
Note 1. Organization
Description of Business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States. We are also one of the largest textbook wholesalers, inventory management hardware and software providers, and a leading provider of digital education solutions. We operate 1,441 physical, virtual, and custom bookstores and serve more than 6 million students, delivering essential educational content and tools within a dynamic omnichannel retail environment. Additionally, we offer direct-to-student products and services to help students study more effectively and improve academic performance.
The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands. We expect to continue to introduce scalable and advanced digital solutions focused largely on the student, expand our e-commerce capabilities, increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships. We expect general merchandise sales to continue to increase over the long term, as our product assortments continue to emphasize and reflect the changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, as we improve our e-commerce capabilities through investments we are making in new systems, processes and people.
We believe the BNC and MBS brands are synonymous with innovation in bookselling and campus retail, and, are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important for leading publishers who rely on us as one of their primary distribution channels, and for being a trusted source for students in our direct-to-student digital solutions business.
We have three reportable segments: Retail, Wholesale and DSS. For additional information related to our strategies, operations and segments, see Part I - Item 1. Business and Part II - Item 8. Financial Statements and Supplementary Data - Note 6. Segment Reporting in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.
Partnership with Fanatics and FLC
In December 2020, we entered into a new merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc. ("Fanatics") and Fanatics Lids College, Inc. ("FLC"). Through this partnership, we will receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our high margin general merchandise business. We will leverage Fanatics’ e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. FLC will manage in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores. FLC has agreed to purchase our logo and emblematic general merchandise inventory, which we expect to be finalized during our fiscal 2021 fourth quarter. We will maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We will also work closely with our campus partners to ensure that each campus store will maintain unique aspects of in-store merchandising, including localized product
7


BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

assortments and specific styles and designs that reflect each campus’s brand. We expect Fanatics and FLC to go live with this partnership beginning in the second calendar quarter of 2021.
Additionally, Fanatics, Inc. and Lids Holdings, Inc. jointly made a $15,000 strategic equity investment in BNED and received 2,307,692 common shares of BNED in exchange. We expect to use these proceeds to for general corporate purposes. For additional information, see Note 7. Equity and Earnings Per Share.
Wolfram|Alpha Agreement
In December 2020, we entered into an agreement with Wolfram|Alpha to develop a math solver as a new feature in our bartleby suite of homework help and learning solutions. Powered by Wolfram|Alpha’s best-in-class computation engine, the math solver will allow students to access an interactive digital calculator that provides real-time, step-by-step explanations for even the most advanced math problems.
COVID-19 Business Impact
Our business experienced an unprecedented and significant impact as a result of COVID-19 related campus store closures. Beginning in March 2020, colleges and universities nationwide began to close their campuses in light of safety concerns and as a result of local and state issued stay-at-home orders. By mid-March, during our fiscal 2020 fourth quarter, we closed the majority of our physical campus stores to protect the health and safety of our customers and employees.
While our campus stores were closed, we continued to serve institutions and students through our campus websites, providing free shipping on all orders and an expanded digital content offering to provide immediate access to course materials to students at our campuses that closed due to COVID-19. We developed and implemented plans to safely reopen our campus stores based on national, state and local guidelines, as well as the campus policies set by the school administration. Colleges and universities in the United States continue to adjust their plans for each academic term, with some implementing shortened semesters or choosing to remain fully virtual in order to best protect students and faculty.
Our fiscal 2021 results have been significantly impacted by the ongoing COVID-19 pandemic, as many schools continued to adjust their learning model and on-campus activities in response to the pandemic. Fewer students have returned to campus, as many schools implemented a remote learning model and curtailed on-campus classes and activities. While many big athletic conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company’s high-margin general merchandise business. Additionally, sales were impacted by overall enrollment declines in higher education. See Note 2. Summary of Significant Accounting Policies - Evaluation of Goodwill and Other Long-Lived Assets related to the impairment loss (non-cash) recognized during the 13 weeks ended January 30, 3021.
The COVID-19 impact on higher education remains a fluid situation, and we are committed to supporting our campus partners through our flexible offerings and our ability to quickly pivot to ensure uninterrupted service as institutions manage the safety of their campuses. There is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic. If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our results of operations, financial condition and cash flows from operations.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
Our condensed consolidated financial statements reflect our condensed consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position and the results of its operations and cash flows for the periods reported. These condensed consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by GAAP. All material intercompany accounts and transactions have been eliminated in consolidation.
Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. Due to the seasonal nature of the business, the results of operations for the 13 and 39 weeks ended January 30, 2021 are not indicative of the results expected for the 52 weeks ending May 1, 2021 (Fiscal 2021).
8


BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

For certain of our retail operations, sales are generally highest in the second and third fiscal quarters, when students purchase and rent textbooks and other course materials for the typical academic year, and lowest in the first and fourth fiscal quarters. Sales attributable to our wholesale business are generally highest in our first, second and third quarters, as MBS sells textbooks and other course materials for retail distribution. Our DSS segment sales and operating profit are realized relatively consistently throughout the year.
Use of Estimates
In preparing financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory.
Cost is determined primarily by the retail inventory method for our Retail segment and last-in first out, or “LIFO”, method for our Wholesale segment. Our textbook inventories, for Retail and Wholesale, and trade book inventories are valued using the LIFO method and the related reserve was not material to the recorded amount of our inventories.
For our physical bookstores, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends.
Textbook Rental Inventories
Physical textbooks out on rent are categorized as textbook rental inventories. At the time a rental transaction is consummated, the book is removed from merchandise inventories and moved to textbook rental inventories at cost. The cost of the book is amortized down to its estimated residual value over the rental period. The related amortization expense is included in cost of goods sold. At the end of the rental period, upon return, the book is removed from textbook rental inventories and recorded in merchandise inventories at its amortized cost.
Leases
We recognize lease assets and lease liabilities on the condensed consolidated balance sheet for all operating lease arrangements based on the present value of future lease payments as required by Accounting Standards Codification ("ASC") Topic 842, Leases. We do not recognize lease assets or lease liabilities for short-term leases (i.e., those with a term of twelve months or less). We recognize lease expense on a straight-line basis over the lease term for contracts with fixed lease payments, including those with fixed annual minimums, or over a rolling twelve-month period for leases where the annual guarantee resets at the start of each contract year, in order to best reflect the pattern of usage of the underlying leased asset. For additional information, see Note 5. Leases.
Revenue Recognition and Deferred Revenue
Product sales and rentals
The majority of our revenue is derived from the sale of products through our bookstore locations, including virtual bookstores, and our bookstore affiliated e-commerce websites, and contains a single performance obligation. Revenue from sales of our products is recognized at the point in time when control of the products is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for the products. For additional information, see Note 4. Revenue.
Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical
9


BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

textbooks at which point title passes and risk of loss is transferred to the customer. Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of goods sold.
Revenue from the rental of physical textbooks, which contains a single performance obligation, is deferred and recognized over the rental period based on the passage of time commencing at the point of sale, when control of the product transfers to the customer. Rental periods are typically for a single semester and are always less than one year in duration. We offer a buyout option to allow the purchase of a rented physical textbook at the end of the rental period if the customer desires to do so. We record the buyout purchase when the customer exercises and pays the buyout option price which is determined at the time of the buyout. In these instances, we accelerate any remaining deferred rental revenue at the point of sale.
Revenue from the rental of digital textbooks, which contains a single performance obligation, is recognized at the point of sale. A software feature is embedded within the content of our digital textbooks, such that upon expiration of the rental term the customer is no longer able to access the content. While the digital rental allows the customer to access digital content for a fixed period of time, once the digital content is delivered to the customer, our performance obligation is complete.
We estimate returns based on an analysis of historical experience. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.
For sales and rentals involving third-party products, we evaluate whether we are acting as a principal or an agent. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where we are the principal, we record revenue on a gross basis, and for those transactions where we are an agent to a third-party, we record revenue on a net basis.
We do not have gift card or customer loyalty programs. We do not treat any promotional offers as expenses. Sales tax collected from our customers is excluded from reported revenues. Our payment terms are generally 30 days and do not extend beyond one year.
Service and other revenue
Service and other revenue is primarily derived from DSS segment subscription-based service revenues and partnership marketing services which includes promotional activities and advertisements within our physical bookstores and web properties performed on behalf of third-party customers.
Subscription-based revenue, which contains a single performance obligation, is deferred and recognized based on the passage of time over the subscription period commencing at the point of sale, when control of the service transfers to the customer. The majority of subscriptions sold are one month in duration.
Partnership marketing agreements often include multiple performance obligations which are individually negotiated with our customers. For these arrangements that contain distinct performance obligations, we allocate the transaction price based on the relative standalone selling price method by comparing the standalone selling price (“SSP”) of each distinct performance obligation to the total value of the contract. The revenue is recognized as each performance obligation is satisfied, typically at a point in time for partnership marketing service and overtime for advertising efforts as measured based upon the passage of time for contracts that are based on a stated period of time or the number of impressions delivered for contracts with a fixed number of impressions.
Cost of Sales
Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.
Selling and Administrative Expenses
Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our DSS segment
10


BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

subscription-based services business. Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services.
Evaluation of Goodwill and Other Long-Lived Assets
As of January 30, 2021, we had $0, $0 and $4,700 of goodwill on our condensed consolidated balance sheet related to our Retail, Wholesale and DSS reporting units, respectively. In accordance with ASC 350-10, Intangibles - Goodwill and Other, we complete our annual goodwill impairment test as of the first day of the third quarter of each fiscal year, or whenever events or changes in circumstances indicate that the carrying amount of the reporting unit exceeds its fair value.
We completed our annual goodwill impairment test as of the first day of the third quarter of Fiscal 2021. In performing the valuation, we used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions. The fair value of the DSS reporting unit was determined to exceed the carrying value of the reporting unit; therefore, no goodwill impairment was recognized.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. As of January 30, 2021, our other long-lived assets include property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets of $87,405, $242,937, $155,536, and $27,195, respectively, on our condensed consolidated balance sheet.
Our fiscal 2021 results have been significantly impacted by the ongoing COVID-19 pandemic, as many schools continued to adjust their learning models and on-campus activities during the Spring semester of fiscal 2021. Many of the trends observed during the Fall semester continued into the Spring semester, as fewer students have returned to campus for the Spring semester, many colleges and universities continued with remote learning models and on-campus classes and activities have been further curtailed, including many big athletic conferences that have been either eliminated or severely restricted. These combined events continue to impact the Company’s course materials and general merchandise business. During the 13 weeks ended January 30, 2021, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $27,630, $20,506 after-tax, comprised of $5,085, $13,328, $6,278 and $2,939 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the condensed consolidated statement of operations. The fair value of the impaired long-lived assets were determined using an income approach (Level 3 input), using the Company’s best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations. For additional information, see Note 8. Fair Value Measurements.
During the 39 weeks ended January 25, 2020, we recorded an impairment loss (non-cash) of $433 in the Retail segment related to net capitalized development costs for a project which were not recoverable.
Income Taxes
As of January 30, 2021, other long-term liabilities includes $25,748 related to the long-term tax payable associated with the LIFO reserve. The LIFO reserve is impacted by changes in the consumer price index (“CPI”) and is dependent on the inventory levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling cycle. At the end of the most recent tax year, inventory levels declined as compared to the prior year resulting in approximately $7,597 of the LIFO reserve becoming currently payable. Given recent trends relating to the pricing and rental of textbooks, management believes that an additional portion of the remaining long-term tax payable associated with the LIFO reserve could be payable within the next twelve months. We are unable to predict future trends for CPI and inventory levels, therefore it is difficult to project with reasonable certainty how much of this liability will become payable within the next twelve months.
Note 3. Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU replaces the existing incurred loss impairment model for trade receivables with an expected loss model which requires the use of forward-looking information to calculate expected credit loss estimates. These changes may result in earlier recognition of credit losses. We adopted this
11


BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

guidance during the first quarter of Fiscal 2021 with no cumulative-effect adjustment to retained earnings. The guidance does not have a material impact on our condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance seeks to simplify the accounting for income taxes by removing the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance seeks to further simplify the accounting for income taxes by: 1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and 5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. We adopted ASU 2019-12 during the current quarter (third quarter of fiscal 2021). As a result of adopting this standard, we did not record a cumulative adjustment and there was not a material impact on our condensed consolidated financial statements.
Note 4. Revenue
Revenue from sales of our products and services is recognized either at the point in time when control of the products is transferred to our customers or over time as services are provided in an amount that reflects the consideration we expect to be entitled to in exchange for the products or services. See Note 2. Summary of Significant Accounting Policies for additional information related to our revenue recognition policies and Note 6. Segment Reporting for a description of each segment's product and service offerings.
Disaggregation of Revenue
The following table disaggregates the revenue associated with our major product and service offerings:
13 weeks ended 39 weeks ended
January 30, 2021 January 25, 2020 January 30, 2021 January 25, 2020
Retail
Product Sales $ 338,495  $ 400,170  $ 998,158  $ 1,320,587 
Rental Income 38,111  48,614  92,568  119,729 
Service and Other Revenue (a)
11,063  9,204  32,233  34,097 
Retail Total Sales $ 387,669  $ 457,988  $ 1,122,959  $ 1,474,413 
Wholesale Sales $ 39,465  $ 66,996  $ 156,146  $ 179,515 
DSS Sales (b)
$ 7,206  $ 6,435  $ 19,025  $ 17,024 
Eliminations (c)
$ (22,727) $ (29,127) $ (87,018) $ (76,775)
Total Sales $ 411,613  $ 502,292  $ 1,211,112  $ 1,594,177 
(a)Service and other revenue primarily relates to brand partnerships and other service revenues.
(b)DSS sales primarily relate to direct-to-student subscription-based revenue.
(c)The sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale.
12


BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

Contract Assets and Contract Liabilities
Contract assets represent the sale of goods or services to a customer before we have the right to obtain consideration from the customer. Contract assets consist of unbilled amounts at the reporting date and are transferred to accounts receivable when the rights become unconditional. Contract assets (unbilled receivables) were $0 as of January 30, 2021, January 25, 2020 and May 2, 2020 on our condensed consolidated balance sheets.
Contract liabilities represent an obligation to transfer goods or services to a customer for which we have received consideration and consists of our deferred revenue liability (deferred revenue). Deferred revenue consists of the following:
advanced payments from customers related to textbook rental and subscription-based performance obligations, which are recognized ratably over the terms of the related rental or subscription periods;
unsatisfied performance obligations associated with partnership marketing services, which are recognized when the contracted services are provided to our partnership marketing customers; and
unsatisfied performance obligations associated with the premium paid for the sale of treasury shares, which are expected to be recognized over the term of the merchandising contracts for Fanatics and FLC as discussed in Note 1. Organization - Partnership with Fanatics and FLC and Note 7. Equity and Earnings Per Share - Sale of Treasury Shares.
Deferred revenue of $47,166, $60,708, and $13,373 is recorded in accrued liabilities and $3,956, $0, and $0 is recorded in other long-term liabilities on our condensed consolidated balance sheets for the periods ended January 30, 2021, January 25, 2020 and May 2, 2020, respectively. As of January 30, 2021, we expect to recognize $47,166 of the deferred revenue balance within the next 12 months. The following table presents changes in contract liabilities:
39 weeks ended
January 30, 2021 January 25, 2020
Deferred revenue at the beginning of period $ 13,373  $ 20,418 
Additions to deferred revenue during the period 148,777  170,375 
Reductions to deferred revenue for revenue recognized during the period (111,028) (130,085)
Deferred revenue balance at the end of period $ 51,122  $ 60,708 

Note 5. Leases
We recognize lease assets and lease liabilities on the condensed consolidated balance sheets for substantially all lease arrangements as required by FASB ASC 842, Leases (Topic 842). Our portfolio of leases consists of operating leases comprised of operations agreements which grant us the right to operate on-campus bookstores at colleges and universities; real estate leases for office and warehouse operations; and vehicle leases. We do not have finance leases or short-term leases (i.e., those with a term of twelve months or less).
We recognize a right of use ("ROU") asset and lease liability in our condensed consolidated balance sheets for leases with a term greater than twelve months. Options to extend or terminate a lease are included in the determination of the ROU asset and lease liability when it is reasonably certain that such options will be exercised. Our lease terms generally range from one year to fifteen years and a number of agreements contain minimum annual guarantees, many of which are adjusted at the start of each contract year based on the actual sales activity of the leased premises for the most recently completed contract year.
Payment terms are based on the fixed rates explicit in the lease, including minimum annual guarantees, and/or variable rates based on: i) a percentage of revenues or sales arising at the relevant premises ("variable commissions"), and/or ii) operating expenses, such as common area charges, real estate taxes and insurance. For contracts with fixed lease payments, including those with minimum annual guarantees, we recognize lease expense on a straight-line basis over the lease term or over the contract year in order to best reflect the pattern of usage of the underlying leased asset and our minimum obligations arising from these types of leases. Our lease agreements do not contain any material residual value guarantees, material restrictions or covenants.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

We used our incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable. We utilized an estimated collateralized incremental borrowing rate as of the effective date or the commencement date of the lease, whichever is later.
The following table summarizes lease expense:
13 weeks ended 39 weeks ended
January 30, 2021 January 25, 2020 January 30, 2021 January 25, 2020
Variable lease expense $ 27,399  $ 23,402  $ 62,081  $ 54,412 
Operating lease expense 28,127  37,188  87,558  137,148 
Net lease expense $ 55,526  $ 60,590  $ 149,639  $ 191,560 
The decrease in lease expense is primarily due to lower sales for contracts based on a percentage of revenue and the impact of the timing and reduction of minimum contractual guarantees.
The following table summarizes our minimum fixed lease obligations, excluding variable commissions, as of January 30, 2021:
As of
January 30, 2021
Remainder of Fiscal 2021 $ 84,074 
Fiscal 2022 52,998 
Fiscal 2023 45,682 
Fiscal 2024 37,980 
Fiscal 2025 31,605 
Thereafter 88,819 
Total lease payments 341,158 
Less: imputed interest (45,081)
Operating lease liabilities at period end $ 296,077 
Future lease payment obligations related to leases that were entered into, but did not commence as of January 30, 2021, were not material.
The following summarizes additional information related to our operating leases:
As of
January 30, 2021
Weighted average remaining lease term (in years) 5.5 years
Weighted average discount rate 4.7  %
Supplemental cash flow information:
Cash payments for lease liabilities within operating activities $ 75,851 
ROU assets obtained in exchange for lease liabilities from initial recognition $ 108,873 
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

Note 6. Segment Reporting
We have three reportable segments: Retail, Wholesale and DSS. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as “Corporate Services”.
We identify our segments in accordance with the way our business is managed (focusing on the financial information distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance. The following summarizes the three segments. For additional information about each segment's operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.
Retail
The Retail Segment operates 1,441 college, university, and K-12 school bookstores, comprised of 765 physical bookstores and 676 virtual bookstores. Our bookstores typically operate under agreements with the college, university, or K-12 schools to be the official bookstore and the exclusive seller of course materials and supplies, including physical and digital products. The majority of the physical campus bookstores have school-branded e-commerce sites which we operate and which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts. The Retail Segment also offers inclusive access programs, in which course materials are offered at a reduced price through a fee charged by the institution or included in tuition, and delivered to students on or before the first day of class. Additionally, the Retail Segment offers a suite of digital content and services to colleges and universities, including a variety of open educational resource-based courseware.
Wholesale
The Wholesale Segment is comprised of our wholesale textbook business and is one of the largest textbook wholesalers in the country. The Wholesale Segment centrally sources, sells, and distributes new and used textbooks to approximately 3,300 physical bookstores (including our Retail Segment's 765 physical bookstores) and sources and distributes new and used textbooks to our 676 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to approximately 400 college bookstores.
DSS
The Digital Student Solutions (“DSS”) Segment includes direct-to-student products and services to assist students to study more effectively and improve academic performance. The DSS Segment is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, and bartleby®, a direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, writing and tutoring.
Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources.
Intercompany Eliminations
The eliminations are primarily related to the following intercompany activities:
The sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale, and
These cost of sales eliminations represent (i) the recognition of intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the current period.
Our international operations are not material and the majority of the revenue and total assets are within the United States.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

Summarized financial information for our reportable segments is reported below:
13 weeks ended 39 weeks ended
January 30,
2021
January 25,
2020
January 30,
2021
January 25,
2020
Sales:
Retail $ 387,669  $ 457,988  $ 1,122,959  $ 1,474,413 
Wholesale 39,465  66,996  156,146  179,515 
DSS 7,206  6,435  19,025  17,024 
Elimination (22,727) (29,127) (87,018) (76,775)
Total Sales $ 411,613  $ 502,292  $ 1,211,112  $ 1,594,177 
Gross Profit
Retail $ 53,523  $ 99,790  $ 165,170  $ 322,869 
Wholesale 10,658  14,235  38,129  41,688 
DSS 5,882  5,283  15,290  13,838 
Elimination 549  (773) (1,830) (1,253)
Total Gross Profit $ 70,612  $ 118,535  $ 216,759  $ 377,142 
Depreciation and Amortization
Retail $ 9,806  $ 11,699  $ 30,361  $ 35,372 
Wholesale 1,614  1,483  4,231  4,531 
DSS 1,863  1,904  5,883  6,543 
Corporate Services 24  31  88  96 
Total Depreciation and Amortization $ 13,307  $ 15,117  $ 40,563  $ 46,542 
Operating (Loss) Income
Retail $ (59,996) $ (3,747) $ (107,740) $ 11,478 
Wholesale 4,708  8,440  21,625  23,493 
DSS (2,567) (1,608) (6,218) (6,420)
Corporate Services (7,451) (5,412) (22,847) (17,832)
Elimination 604  (644) (1,704) (1,071)
Total Operating (Loss) Income $ (64,702) $ (2,971) $ (116,884) $ 9,648 
13 weeks ended 39 weeks ended
January 30,
2021
January 25,
2020
January 30,
2021
January 25,
2020
The following is a reconciliation of segment Operating (Loss) Income to consolidated (Loss) Income Before Income Taxes:
Total Operating (Loss) Income $ (64,702) $ (2,971) $ (116,884) $ 9,648 
Interest Expense, net 2,311  1,904  5,876  5,882 
(Loss) Income Before Income Taxes $ (67,013) $ (4,875) $ (122,760) $ 3,766 
During the 13 and 39 weeks ended January 30, 2021, we recognized an impairment loss (non-cash) of $27,630, $20,506 after-tax, in the Retail segment on the condensed consolidated statement of operations. For additional information, see Note 2. Summary of Significant Accounting Policies.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

Note 7. Equity and Earnings Per Share
Equity
Share Repurchases
On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50,000, in the aggregate, of our outstanding Common Stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. During the 39 weeks ended January 30, 2021, we did not repurchase shares of our Common Stock under the program and as of January 30, 2021, approximately $26,669 remains available under the stock repurchase program.
During the 39 weeks ended January 30, 2021, we repurchased 414,174 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.
Sale of Treasury Shares
In December 2020, we entered into a new merchandising partnership with Fanatics and FLC which included a strategic equity investment in the Company. Fanatics, Inc. and Lids Holdings, Inc. jointly purchased an aggregate 2,307,692 of our common shares (issued from treasury shares) for $15,000, representing a share price of $6.50 per share. The premium price paid above the fair market value of our common stock at closing was approximately $4,131 and was recorded as a contract liability ($175 in accrued liabilities and $3,956 in other long-term liabilities our condensed consolidated balance sheet) which is expected to be recognized over the term of the merchandising contracts for Fanatics and FLC, as discussed in Note 1. Organization - Partnership with Fanatics and FLC. We expect to use these proceeds for general corporate purposes.
Earnings Per Share
Basic EPS is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the year. We include participating securities (unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of unvested restricted stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. During the 13 weeks ended January 30, 2021 and January 25, 2020, average shares of 4,005,236 and 3,682,169 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. During the 39 weeks ended January 30, 2021 and January 25, 2020, average shares of 3,234,606 and 1,348,949 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively.

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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

The following is a reconciliation of the basic and diluted earnings per share calculation:
13 weeks ended 39 weeks ended
(shares in thousands) January 30,
2021
January 25,
2020
January 30,
2021
January 25,
2020
Numerator for basic earnings per share:
Net (loss) income available to common shareholders $ (48,289) $ (1,693) $ (87,426) $ 2,083 
Less allocation of earnings to participating securities —  —  —  (1)
Net (loss) income available to common shareholders $ (48,289) $ (1,693) $ (87,426) $ 2,082 
Numerator for diluted earnings per share:
Net (loss) income available to common shareholders $ (48,289) $ (1,693) $ (87,426) $ 2,082 
Allocation of earnings to participating securities —  —  — 
Less diluted allocation of earnings to participating securities —  —  —  (1)
Net (loss) income available to common shareholders $ (48,289) $ (1,693) $ (87,426) $ 2,082 
Denominator for basic earnings per share:
Basic weighted average shares of Common Stock 50,082  48,298  49,099  47,911 
Denominator for diluted earnings per share:
Basic weighted average shares of Common Stock 50,082  48,298  49,099  47,911 
Average dilutive restricted stock units —  —  —  403 
Average dilutive performance shares —  —  — 
Average dilutive restricted shares —  —  —  12 
Average dilutive performance share units —  —  —  432 
Average dilutive stock options —  —  —  — 
Diluted weighted average shares of Common Stock 50,082  48,298  49,099  48,767 
(Loss) Earnings per share of Common Stock:
Basic $ (0.96) $ (0.04) $ (1.78) $ 0.04 
Diluted $ (0.96) $ (0.04) $ (1.78) $ 0.04 
 
Note 8. Fair Value Measurements
In accordance with ASC No. 820, Fair Value Measurements and Disclosures, the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1—Observable inputs that reflect quoted prices in active markets
Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3—Unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions
Our financial instruments include cash and cash equivalents, receivables, accrued liabilities and accounts payable. The fair values of cash and cash equivalents, receivables, accrued liabilities and accounts payable approximates their carrying values because of the short-term nature of these instruments, which are all considered Level 1. The fair value of short-term and long-term debt approximates its carrying value.

18


BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

Non-Financial Assets and Liabilities

Our non-financial assets include goodwill, property and equipment, operating lease right-of-use assets, and intangible assets. Such assets are reported at their carrying values and are not subject to recurring fair value measurements. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. During the 13 weeks ended January 30, 2021, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $27,630, $20,506 after-tax, on the condensed consolidated statement of operations. For additional information, see Note 2. Summary of Significant Accounting Policies. The fair value of the impaired long-lived assets were determined using an income approach (Level 3 input), using our best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations. The following table shows the fair values of our non-financial assets and liabilities that were required to be remeasured at fair value on a non-recurring basis during the 13 and 39 weeks ended January 30, 2021 and the 39 weeks ended January 25, 2020, and the total impairments recorded as a result of the remeasurement process:
13 and 39 weeks ended January 30, 2021 39 weeks ended January 25, 2020
Carrying Value
Prior to Impairment
Fair Value Impairment Loss
(non-cash)
Carrying Value Prior to Impairment Fair Value Impairment Loss
(non-cash)
Receivables, net $ —  $ —  $ —  $ 245  $ —  $ 245 
Property and equipment, net 5,505  420  5,085  300  —  300 
Operating lease right-of-use assets 26,427  13,099  13,328  —  —  — 
Intangible assets, net 7,723  1,445  6,278  —  —  — 
Other noncurrent assets 3,539  600  2,939  —  —  — 
Accrued liabilities —  —  —  (112) —  (112)
Total $ 43,194  $ 15,564  $ 27,630  $ 433  $ —  $ 433 

Non-Financial Liabilities
We granted phantom share units as long-term incentive awards which are settled in cash based on the fair market value of a share of common stock of the Company at each vesting date. The fair value of the liability for the cash-settled phantom share unit awards will be remeasured at the end of each reporting period through settlement to reflect current risk-free rate and volatility assumptions. As of January 30, 2021, we recorded a liability of $1,729 (Level 2 input) which is reflected in accrued liabilities ($1,093) and other long-term liabilities ($636) on the condensed consolidated balance sheet. For additional information, see Note 12. Long-Term Incentive Plan Compensation Expense.
Note 9. Credit Facility
We have a credit agreement (the “Credit Agreement”), amended March 1, 2019, under which the lenders committed to provide us with a 5-year asset-backed revolving credit facility in an aggregate committed principal amount of $400,000 (the “Credit Facility”) effective from the date of the amendment. We have the option to request an increase in commitments under the Credit Facility of up to $100,000, subject to certain restrictions. Proceeds from the Credit Facility are used for general corporate purposes, including seasonal working capital needs. The agreement includes an incremental first in, last out seasonal loan facility (the “FILO Facility”) for a $100,000 incremental facility maintaining the maximum availability under the Credit Agreement at $500,000.
For additional information including interest terms and covenant requirements related to the Credit Facility, refer to Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.
During the 39 weeks ended January 30, 2021, we borrowed $547,600 and repaid $571,500 under the Credit Agreement, with $150,800 of outstanding borrowings as of January 30, 3021, comprised entirely of borrowings under the Credit Facility. During the 39 weeks ended January 25, 2020, we borrowed $383,400 and repaid $451,000 under the Credit Agreement, with
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

$65,900 of outstanding borrowings as of January 25,2020, comprised entirely of borrowings under the Credit Facility. As of both January 30, 2021 and January 25, 2020, we have issued $4,759 in letters of credit under the Credit Facility.
Note 10. Supplementary Information
Impairment Loss (non-cash)
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets.
During the 13 and 39 weeks ended January 30, 2021, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $27,630, $20,506 after-tax, comprised of $5,085, $13,328, $6,278 and $2,939 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the condensed consolidated statement of operations. For additional information, see Note 2. Summary of Significant Accounting Policies and Note 8. Fair Value Measurements.
During the 39 weeks ended January 25, 2020, we recognized an impairment loss (non-cash) of $433 in the Retail segment related to net capitalized development costs for a project which were not recoverable.
Restructuring and other charges
During the 13 and 39 weeks ended January 30, 2021, we recognized restructuring and other charges totaling $1,669 and $10,727, respectively, comprised primarily of $1,285 and $5,756, respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($4,660 is included in accrued liabilities in the consolidated balance sheet as of January 30, 2021), $172 and $4,644, respectively, for professional service costs related to restructuring, process improvements, the financial advisor strategic review process, costs related to development and integration associated with the Fanatics and FLC partnership agreements and shareholder activist activities, and $212 and $327, respectively, related to liabilities for a facility closure.
During the 13 and 39 weeks ended January 25, 2020, we recognized restructuring and other charges totaling $205 and $3,240, respectively, comprised primarily of $0 and $791, respectively, for severance and other employee termination and benefit costs associated with several management changes and the elimination of various positions as part of cost reduction objectives, and $205 and $2,249, respectively, for professional service costs related to restructuring, process improvements, and shareholder activities.
Note 11. Employee Benefit Plans
We sponsor defined contribution plans for the benefit of substantially all of the employees of BNC and DSS. MBS maintains a profit sharing plan covering substantially all full-time employees of MBS. For all plans, we are responsible to fund the employer contributions directly. Total employee benefit expense for these plans was $0 and $844 during the 13 weeks ended January 30, 2021 and January 25, 2020, respectively. Total employee benefit expense for these plans was $0 and $2,683 during the 39 weeks ended January 30, 2021 and January 25, 2020, respectively.
Effective April 2020, due to the significant impact as a result of COVID-19 related campus store closures, we have temporarily suspended employer matching contributions into our 401(k) plans through the end of Fiscal 2021.
Note 12. Long-Term Incentive Plan Compensation Expense
We recognize compensation expense for restricted stock awards and performance share awards ratably over the requisite service period of the award, which is generally three years. We recognize compensation expense for these awards based on the number of awards expected to vest, which includes an estimated average forfeiture rate. We calculate the fair value of these awards based on the closing stock price on the date the award was granted. For those awards with market conditions, we have determined the grant date fair value using the Monte Carlo simulation model and compensation expense is recognized ratably over the requisite service period regardless of whether the market condition is satisfied.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

For stock options granted with an "at market" exercise price, we determined the grant fair value using the Black-Scholes model and for stock options granted with "a premium" exercise price, we determined the grant date fair value using the Monte Carlo simulation model. The fair value models for stock options use assumptions that include the risk-free interest rate, expected volatility, expected dividend yield and expected term of the options.
During the 39 weeks ended January 30, 2021, we granted the following awards:
243,905 restricted stock units ("RSU") awards and 146,343 restricted stock ("RS") awards with a one year vesting period to the Board of Directors ("BOD") members for annual compensation.
1,250,518 stock options with an exercise price of $2.46 per stock option, which was the fair market value on the date of grant (Stock Option Grant #1) and 1,250,518 stock options with an exercise price of $5.00 per stock option (Stock Option Grant #2) granted to employees. The stock options are exercisable in four equal annual installments commencing one year after the date of grant and have a ten year term. Holders are not entitled to receive dividends (if any) prior to vesting and exercise of the options. The following summarizes the stock option fair value assumptions:
Stock Option Grant #1 Stock Option Grant #2
Exercise Price $ 2.46  $ 5.00 
Valuation method utilized Black-Scholes Monte Carlo
Risk-free interest rate 0.27  % 0.68  %
Expected option term 6.2 years 10.0 years
Company volatility 73  % 73  %
Dividend yield —  % —  %
Grant date fair value per award $ 1.58  $ 1.28 
The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for periods corresponding to the expected stock option term. For Stock Option Grant #1, we are permitted to use the simplified approach to estimate the expected term of the stock options, which typically assumes exercise occurs at the mid-point between the end of the vesting period and the expiration date. The simplified approach is not allowed for premium-priced options (Stock Option Grant #2), which were estimated using a stock price multiple, as there is no option exercise history which to base an early exercise option. The expected stock option term represents the weighted average period of time that stock options granted are expected to be outstanding, based on vesting schedules and the contractual term of the stock options. Volatility is based on the historical volatility of the Company’s common stock over a period of time corresponding to the expected stock option term.
2,345,528 phantom share units granted to employees. Each phantom share represents the economic equivalent to one share of the Company's common stock and will be settled in cash based on the fair market value of a share of common stock at each vesting date in an amount not to exceed $7.38 per share. The phantom shares vest and will be settled in three equal installments commencing one year after the date of grant. The fair value of the phantom shares was determined using the closing stock price on the date of the award less the fair value of the call option which was estimated using the Black-Scholes model. The average fair value on the date of grant was $1.88 per phantom share using risk-free rates ranging from 0.12%-0.15% for the three tranches and annual volatility ranging from 86%-114% for the three tranches. The fair value of the liability for the cash-settled phantom share unit awards will be remeasured at the end of each reporting period through settlement to reflect current risk-free rate and volatility assumptions. As of January 30, 2021, we recorded a liability of $1,729 (Level 2 input) which is reflected in accrued liabilities and other long-term liabilities on the condensed consolidated balance sheet.

21


BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 39 weeks ended January 30, 2021 and January 25, 2020
(Thousands of dollars, except share and per share data)
(unaudited)

We recognized compensation expense for long-term incentive plan awards in selling and administrative expenses as follows:
13 weeks ended 39 weeks ended
January 30,
2021
January 25,
2020
January 30,
2021
January 25,
2020
Stock-based awards
Restricted stock expense $ 88  $ 30  $ 138  $ 90 
Restricted stock units expense 786  1,515  3,121  5,227 
Performance shares expense
—  —  —  12 
Performance share units expense 12  274  217  671 
Stock option expense 270  —  381  — 
Sub-total stock-based awards: $ 1,156  $ 1,819  $ 3,857  $ 6,000 
Cash settled awards
Phantom share units expense $ 1,505  $ —  $ 1,729  $ — 
Total compensation expense for long-term incentive awards $ 2,661  $ 1,819  $ 5,586  $ 6,000 

Total unrecognized compensation cost related to unvested awards as of January 30, 2021 was $12,318 and is expected to be recognized over a weighted-average period of 2.4 years.
Note 13. Income Taxes
We recorded an income tax benefit of $(18,724) on a pre-tax loss of $(67,013) during the 13 weeks ended January 30, 2021, which represented an effective income tax rate of 27.9% and income tax benefit of $(3,182) on a pre-tax loss of $(4,875) during the 13 weeks ended January 25, 2020, which represented an effective income tax rate of 65.3%.
We recorded an income tax benefit of $(35,334) on a pre-tax loss of $(122,760) during the 39 weeks ended January 30, 2021, which represented an effective income tax rate of 28.8% and income tax expense of $1,683 on pre-tax income of $3,766 during the 39 weeks ended January 25, 2020, which represented an effective income tax rate of 44.7%.
The effective tax rate for the 13 and 39 weeks ended January 30, 2021 is lower as compared to the prior year comparable period due to permanent differences.
Note 14. Legal Proceedings
We are involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of our business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on our condensed consolidated financial position, results of operations, or cash flows.
Between January 22, 2020 and June 15, 2020, thirteen purported class action complaints were filed in the United States District Court for the District of Delaware, the United States District Court for the District of New Jersey, and the United States District Court for the Northern District of Illinois against the Company, along with several publishers, another collegiate bookstore retailer, and an industry association. The plaintiffs are retailers of collegiate course materials or current or former college students. Although the specific allegations vary, the plaintiffs generally claim, on their own behalf and on behalf of the purported classes, that the Company and the other defendants violated Section 1 of the Sherman Act (15 U.S.C. § 1), Section 2 of the Sherman Act (15 U.S.C. § 2), Section 13(a) of the Robinson-Patman Act (15 U.S.C. §13(a)), and various state antitrust and unfair trade practices laws for alleged activities in connection with inclusive access and the sale of course materials to universities and their students. The United States Judicial Panel on Multidistrict Litigation has consolidated these and other related cases in a consolidated proceeding before the Hon. Denise L. Cote of the United States District Court for the Southern District of New York. On October 16, 2020, three named student plaintiffs filed a Consolidated Amended Complaint, as did the retailer plaintiffs. We intend to vigorously defend this matter and are currently unable to estimate any potential losses.
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Item 2:    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise indicates, references to “we,” “us,” “our” and “the Company” refer to Barnes & Noble Education, Inc. or “BNED”, a Delaware corporation. References to “Barnes & Noble College” or “BNC” refer to our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our subsidiary MBS Textbook Exchange, LLC. References to “Student Brands refer to our subsidiary Student Brands, LLC.
Overview
Description of Business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States. We are also one of the largest textbook wholesalers, inventory management hardware and software providers, and a leading provider of digital education solutions. We operate 1,441 physical, virtual, and custom bookstores and serve more than 6 million students, delivering essential educational content and tools within a dynamic omnichannel retail environment. Additionally, we offer direct-to-student products and services to help students study more effectively and improve academic performance.
The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands. We expect to continue to introduce scalable and advanced digital solutions focused largely on the student, expand our e-commerce capabilities, increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships. We expect general merchandise sales to continue to increase over the long term, as our product assortments continue to emphasize and reflect the changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, as we improve our e-commerce capabilities through investments we are making in new systems, processes and people.
We believe the BNC and MBS brands are synonymous with innovation in bookselling and campus retail, and are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important for leading publishers who rely on us as one of their primary distribution channels, and for being a trusted source for students in our direct-to-student digital solutions business.
For additional information related to our business, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.
Partnership with Fanatics and FLC
In December 2020, we entered into a new merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc. ('Fanatics") and Fanatics Lids College, Inc. ("FLC"). Through this partnership, we will receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our high margin general merchandise business. Fanatics’ cutting-edge e-commerce and technology expertise will offer our campus stores expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with FLC, the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores will have improved access to trend and sales performance data on licensees, product styles, and design treatments. FLC has agreed to purchase our logo and emblematic general merchandise inventory, which we expect to be finalized during our fiscal 2021 fourth quarter.
We will maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We will also work closely with our campus partners to ensure that each campus store will maintain unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus’s brand. We will leverage Fanatics’ e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. FLC will manage in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores. We expect to go live with this partnership beginning in the second calendar quarter of 2021.
Additionally, Fanatics, Inc. and Lids Holdings, Inc. jointly made a $15,000 strategic equity investment in BNED and received 2,307,692 common shares of BNED in exchange. We expect to use these proceeds for general corporate purposes. For additional information, see Item 1. Financial Statements - Note 7. Equity and Earnings Per Share.
Wolfram|Alpha Agreement
In December 2020, we entered into an agreement with Wolfram|Alpha to develop a math solver as a new feature in our bartleby suite of homework help and learning solutions. Powered by Wolfram|Alpha’s best-in-class computation engine, the
23

math solver will allow students to access an interactive digital calculator that provides real-time, step-by-step explanations for even the most advanced math problems.

COVID-19 Business Impact
Our business experienced an unprecedented and significant impact as a result of COVID-19 related campus store closures. Beginning in March 2020, colleges and universities nationwide began to close their campuses in light of safety concerns and as a result of local and state issued stay-at-home orders. By mid-March, during our fiscal 2020 fourth quarter, we closed the majority of our physical campus stores to protect the health and safety of our customers and employees.
While our campus stores were closed, we continued to serve institutions and students through our campus websites, providing free shipping on all orders and an expanded digital content offering to provide immediate access to course materials to students at our campuses that closed due to COVID-19. We developed and implemented plans to safely reopen our campus stores based on national, state and local guidelines, as well as the campus policies set by the school administration. Colleges and universities in the United States continue to adjust their plans for each academic term, with some implementing shortened semesters or choosing to remain fully virtual in order to best protect students and faculty. As many schools adjusted their learning model and curtailed on-campus activities in response to the pandemic, our flexible offerings ensured that students were equipped with their course materials regardless of whether schools resumed classes on campus, remotely or via a hybrid learning model.
Our fiscal 2021 results have been significantly impacted by the ongoing COVID-19 pandemic, as many schools continued to adjust their learning model and on-campus activities in response to the pandemic. Fewer students have returned to campus, as many schools implemented a remote learning model and curtailed on-campus classes and activities. While many big athletic conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company’s high-margin general merchandise business. Additionally, sales were impacted by overall enrollment declines in higher education. See Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies - Evaluation of Goodwill and Other Long-Lived Assets related to the impairment loss (non-cash) recognized during the 13 weeks ended January 30, 3021.
The COVID-19 impact on higher education remains a fluid situation, and we are committed to supporting our campus partners through our flexible offerings and our ability to quickly pivot to ensure uninterrupted service as institutions manage the safety of their campuses. There is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic. If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our results of operations, financial condition and cash flows from operations.
Segments
We have three reportable segments: Retail, Wholesale and DSS. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as “Corporate Services”.
We identify our segments in accordance with the way our business is managed (focusing on the financial information distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance. The following summarizes the three segments. For additional information about each segment's operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.
Retail Segment
The Retail Segment operates 1,441 college, university, and K-12 school bookstores, comprised of 765 physical bookstores and 676 virtual bookstores. Our bookstores typically operate under agreements with the college, university, or K-12 schools to be the official bookstore and the exclusive seller of course materials and supplies, including physical and digital products. The majority of the physical campus bookstores have school-branded e-commerce sites which we operate and which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts. The Retail Segment also offers inclusive access programs, in which course materials are offered at a reduced price through a fee charged by the institution or included in tuition, and delivered to students on or before the first day of class. Additionally, the Retail Segment offers a suite of digital content and services to colleges and universities, including a variety of open educational resource-based courseware.
24

Wholesale Segment
The Wholesale Segment is comprised of our wholesale textbook business and is one of the largest textbook wholesalers in the country. The Wholesale Segment centrally sources, sells, and distributes new and used textbooks to approximately 3,300 physical bookstores (including our Retail Segment's 765 physical bookstores) and sources and distributes new and used textbooks to our 676 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to approximately 400 college bookstores.
DSS Segment
The Digital Student Solutions (“DSS”) Segment includes direct-to-student products and services to assist students to study more effectively and improve academic performance. The DSS Segment is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, and bartleby®, a direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, writing and tutoring.
Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources.
Seasonality
Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April.
For our retail operations, sales are generally highest in the second and third fiscal quarters, when students generally purchase and rent textbooks and other course materials, and lowest in the first and fourth fiscal quarters. Sales attributable to our wholesale business are generally highest in our first, second and third quarter, as it sells textbooks and other course materials for retail distribution. For our DSS segment, or direct-to-student business, sales and operating profit are realized relatively consistently throughout the year.
Trends, Competition and Other Business Conditions Affecting Our Business
The market for educational materials is undergoing unprecedented change. As tuition and other costs rise, colleges and universities face increasing pressure to attract and retain students and provide them with innovative, affordable educational content and tools that support their educational development. Current trends, competition and other factors affecting our business include:
Overall Economic Environment, College Enrollment and Consumer Spending Patterns. Our business is affected by the COVID-19 pandemic, the overall economic environment, funding levels at colleges and universities, by changes in enrollments at colleges and universities, and spending on course materials and general merchandise.
Impact of COVID-19: The COVID-19 pandemic has materially and adversely impacted certain segments of the U.S. economy, with legislative and regulatory responses including unprecedented monetary and fiscal policy actions across all sectors, and there is significant uncertainty as to timing of stabilization and recovery, including the ability to gain adequate herd-immunity levels through vaccine programs and their resilience to future virus variants. Many colleges and K-12 schools have been required to cease in-person classes in an attempt to limit the spread of the COVID-19 pandemic and ensure the safety of their students. Although many institutions have reopened, academic institutions are considering alternatives to traditional in-person instruction, including on-line learning and significantly reduced classroom size. Additionally, many big athletic conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company’s high-margin general merchandise business.
Economic Environment: Retail general merchandise sales are subject to short-term fluctuations driven by the broader retail environment.
Enrollment Trends: The growth of our business depends on our ability to attract new customers and to increase the level of engagement by our current student customers. We continue to see downward enrollment trends and shrinking resources from state and federal government for colleges and universities. Enrollment trends, specifically at community colleges, generally correlate with changes in the economy and unemployment factors, e.g. low unemployment tends to lead to low enrollment and higher unemployment rates tend to lead to higher enrollment trends, as students generally enroll to obtain skills that are in demand in the workforce. Enrollment trends have been negatively impacted overall by COVID-19 concerns at physical campuses. A significant reduction in U.S. economic activity and increased unemployment could lead to decreased enrollment and consumer spending. Additionally, enrollment trends are impacted by the dip in the United States birth rate resulting in fewer students at the traditional
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18-24 year-old college age. Online degree program enrollments continue to grow, even in the face of declining overall higher education enrollment.
Increased Use of Online and Digital Platforms as Companions or Alternatives to Printed Course Materials. Students and faculty can now choose from a wider variety of educational content and tools than ever before, delivered across both print and digital platforms.
Distribution Network Evolving. The way course materials are distributed and consumed is changing significantly, a trend that is expected to continue. The market for course materials, including textbooks and supplemental materials, is intensely competitive and subject to rapid change.
Disintermediation. We are experiencing growing competition from alternative media and alternative sources of textbooks and other course materials. In addition to the official physical or virtual campus bookstore, course materials are also sold through off-campus bookstores, e-commerce outlets, digital platform companies, publishers, including Cengage, Pearson and McGraw Hill, bypassing the bookstore distribution channel by selling or renting directly to students and educational institutions, and student-to-student transactions over the Internet.
Supply Chain and Inventory. Since the demand for used textbooks has historically been greater than the available supply, our financial results are highly dependent upon Wholesale’s ability to build its textbook inventory from suppliers in advance of the selling season. Recently, the impact of fewer students on campus due to COVID-19 has significantly impacted our on-campus buyback programs which supplies Wholesale’s used textbook inventory for future selling periods. Some textbook publishers have begun to supply textbooks pursuant to consignment or rental programs which could impact used textbook supplies in the future. Additionally, Wholesale is a national distributor for rental textbooks offered through McGraw-Hill Education's and Pearson Education’s consignment rental program, both of which are relatively nascent.
Price Competition. In addition to the competition in the services we provide to our customers, our textbook and other course materials business faces significant price competition. Students purchase textbooks and other course materials from multiple providers, are highly price sensitive, and can easily shift spending from one provider or format to another.
A Large Number of Traditional Campus Bookstores Have Yet to be Outsourced.
Outsourcing Trends. We continue to see the trend towards outsourcing in the campus bookstore market and also continue to see a variety of business models being pursued for the provision of course materials (such as inclusive access programs and publisher subscription models) and general merchandise.
New and Existing Bookstore Contracts. We expect awards of new accounts resulting in new physical and virtual store openings will continue to be an important driver of future growth in our business. We also expect that certain less profitable or essential bookstores we operate may close. Such stores could be included in contracts for stores we operate that may be deemed non-essential; and such stores could be operated by others or independently by schools. The scope of any such store closures remains uncertain, although we are not aware, at this time, of any significant volume of stores which we operate that are likely to close or have informed us of upcoming closures.
For additional discussion of our trends and other factors affecting our business, see Part I - Item 1. Business in our Annual Report on Form 10-K for the year ended May 2, 2020.
Elements of Results of Operations
Our condensed consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”).
Our sales are primarily derived from the sale of course materials, which include new, used and digital textbooks, and at college and university bookstores which we operate, we sell high margin general merchandise, including emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and café items and graduation products. Our rental income is primarily derived from the rental of physical textbooks. We also derive revenue from other sources, such as sales of inventory management, hardware and point-of-sale software, direct-to-student subscription-based services, and other services.
Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.
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Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based services business. Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services as discussed in the Overview - Segments discussion above.
Results of Operations - Summary
  13 weeks ended 39 weeks ended
Dollars in thousands January 30,
2021
January 25,
2020
January 30,
2021
January 25,
2020
Sales:
Product sales and other $ 373,502  $ 453,678  $ 1,118,544  $ 1,474,448 
Rental income 38,111  48,614  92,568  119,729 
Total sales $ 411,613  $ 502,292  $ 1,211,112  $ 1,594,177 
Net (loss) income $ (48,289) $ (1,693) $ (87,426) $ 2,083 
Adjusted Earnings (non-GAAP) (a)
$ (25,572) $ (748) $ (56,213) $ 7,011 
Adjusted EBITDA (non-GAAP) (a)
Retail $ (22,222) $ 8,140  $ (44,538) $ 49,220 
Wholesale 6,322  9,923  25,856  28,024 
DSS 1,005  1,150  3,358  2,492 
Corporate Services (6,491) (5,154) (17,236) (15,829)
Elimination 604  (644) (1,704) (1,071)
Total Adjusted EBITDA (non-GAAP) $ (20,782) $ 13,415  $ (34,264) $ 62,836 
 
(a)Adjusted Earnings and Adjusted EBITDA are non-GAAP financial measures. See Adjusted Earnings (non-GAAP) and Adjusted EBITDA (non-GAAP) discussion below.

The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales:
  13 weeks ended 39 weeks ended
January 30,
2021
January 25,
2020
January 30,
2021
January 25,
2020
Sales:
Product sales and other 90.7  % 90.3  % 92.4  % 92.5  %
Rental income 9.3  9.7  7.6  7.5 
Total sales 100.0  100.0  100.0  100.0 
Cost of sales:
Product and other cost of sales (a)
84.5  78.2  83.5  77.8 
Rental cost of sales (a)
66.6  59.2  65.4  59.0 
Total cost of sales 82.8  76.4  82.1  76.3 
Gross margin 17.2  23.6  17.9  23.7 
Selling and administrative expenses 22.5  21.1  21.0  19.9 
Depreciation and amortization expense 3.2  3.0  3.3  2.9 
Impairment loss (non-cash) 6.7  —  2.3  — 
Restructuring and other charges 0.4  —  0.9  0.2 
Operating (loss) income (15.6) % (0.5) % (9.6) % 0.7  %
 
(a)Represents the percentage these costs bear to the related sales, instead of total sales.

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Results of Operations - 13 and 39 weeks ended January 30, 2021 compared with the 13 and 39 weeks ended January 25, 2020
13 weeks ended, January 30, 2021
Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total
Sales:
Product sales and other $ 349,558  $ 39,465  $ 7,206  $ —  $ (22,727) $ 373,502 
Rental income 38,111  —  —  —  —  38,111 
Total sales 387,669  39,465  7,206  —  (22,727) 411,613 
Cost of sales:
Product and other cost of sales 308,752  28,807  1,324  —  (23,276) 315,607 
Rental cost of sales 25,394  —  —  —  —  25,394 
Total cost of sales 334,146  28,807  1,324  —  (23,276) 341,001 
Gross profit 53,523  10,658  5,882  —  549  70,612 
Selling and administrative expenses 75,921  4,336  6,015  6,491  (55) 92,708 
Depreciation and amortization expense 9,806  1,614  1,863  24  —  13,307 
Sub-Total: $ (32,204) $ 4,708  $ (1,996) $ (6,515) $ 604  (35,403)
Impairment loss (non-cash) 27,630 
Restructuring and other charges 1,669 
Operating loss $ (64,702)
13 weeks ended, January 25, 2020
Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total
Sales:
Product sales and other $ 409,374  $ 66,996  $ 6,435  $ —  $ (29,127) $ 453,678 
Rental income 48,614  —  —  —  —  48,614 
Total sales 457,988  66,996  6,435  —  (29,127) 502,292 
Cost of sales:
Product and other cost of sales 329,440  52,761  1,152  —  (28,354) 354,999 
Rental cost of sales 28,758  —  —  —  —  28,758 
Total cost of sales 358,198  52,761  1,152  —  (28,354) 383,757 
Gross profit 99,790  14,235  5,283  —  (773) 118,535 
Selling and administrative expenses 91,860  4,312  4,987  5,154  (129) 106,184 
Depreciation and amortization expense 11,699  1,483  1,904  31  —  15,117 
Sub-Total: $ (3,769) $ 8,440  $ (1,608) $ (5,185) $ (644) (2,766)
Restructuring and other charges 205 
Operating loss $ (2,971)

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39 weeks ended, January 30, 2021
Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total
Sales:
Product sales and other $ 1,030,391  $ 156,146  $ 19,025  $ —  $ (87,018) $ 1,118,544 
Rental income 92,568  —  —  —  —  92,568 
Total sales 1,122,959  156,146  19,025  —  (87,018) 1,211,112 
Cost of sales:
Product and other cost of sales 897,283  118,017  3,735  —  (85,188) 933,847 
Rental cost of sales 60,506  —  —  —  —  60,506 
Total cost of sales 957,789  118,017  3,735  —  (85,188) 994,353 
Gross profit 165,170  38,129  15,290  —  (1,830) 216,759 
Selling and administrative expenses 210,286  12,273  15,054  17,236  (126) 254,723 
Depreciation and amortization expense 30,361  4,231  5,883  88  —  40,563 
Sub-Total: $ (75,477) $ 21,625  $ (5,647) $ (17,324) $ (1,704) (78,527)
Impairment loss (non-cash) 27,630 
Restructuring and other charges 10,727 
Operating loss $ (116,884)
39 weeks ended, January 25, 2020
Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total
Sales:
Product sales and other $ 1,354,684  $ 179,515  $ 17,024  $ —  $ (76,775) $ 1,474,448 
Rental income 119,729  —  —  —  —  119,729 
Total sales 1,474,413  179,515  17,024  —  (76,775) 1,594,177 
Cost of sales:
Product and other cost of sales 1,080,909  137,827  3,186  —  (75,522) 1,146,400 
Rental cost of sales 70,635  —  —  —  —  70,635 
Total cost of sales 1,151,544  137,827  3,186  —  (75,522) 1,217,035 
Gross profit 322,869  41,688  13,838  —  (1,253) 377,142 
Selling and administrative expenses 274,253  13,664  13,715  15,829  (182) 317,279 
Depreciation and amortization expense 35,372  4,531  6,543  96  —  46,542 
Sub-Total: $ 13,244  $ 23,493  $ (6,420) $ (15,925) $ (1,071) 13,321 
Impairment loss (non-cash) 433 
Restructuring and other charges 3,240 
Operating income $ 9,648 
Sales
The following table summarizes our sales for the 13 and 39 weeks ended January 30, 2021 and January 25, 2020:
  13 weeks ended 39 weeks ended
Dollars in thousands January 30, 2021 January 25, 2020 % January 30, 2021 January 25, 2020 %
Product sales and other $ 373,502  $ 453,678  (17.7)% $ 1,118,544  $ 1,474,448  (24.1)%
Rental income 38,111  48,614  (21.6)% 92,568  119,729  (22.7)%
Total Sales $ 411,613  $ 502,292  (18.1)% $ 1,211,112  $ 1,594,177  (24.0)%

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Sales decreased by $90.7 million, or 18.1%, to $411.6 million during the 13 weeks ended January 30, 2021 from $502.3 million during the 13 weeks ended January 25, 2020.
Sales decreased by $383.1 million, or 24.0%, to $1,211.1 million during the 39 weeks ended January 30, 2021 from $1,594.2 million during the 39 weeks ended January 25, 2020.
The sales decrease is primarily related to the impact from temporary store closings related to COVID-19, as well as lower in store foot traffic, lower enrollments and fewer on-campus events due to COVID-19.
The components of the variances for the 13 and 39 week periods are reflected in the table below.
Sales variances 13 weeks ended 39 weeks ended
Dollars in millions January 30, 2021 January 25, 2020 January 30, 2021 January 25, 2020
Retail Sales
New stores $ 17.3  $ 16.3  $ 52.7  $ 61.9 
Closed stores (8.3) (18.1) (32.2) (50.8)
Comparable stores (a)
(83.3) (37.9)