What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-12-08 compared with 2020-09-03 · 240 added, 138 removed, 443 unchanged (46% of the section changed)

4 unchanged sentences

(In thousands, except per share data)

13 weeks ended

2020 July 27,

13 weeks ended 26 weeks ended

2020 October 26,

2019 October 31,

2020 October 26,

Product sales and other $ 551,832 $ 718,543 $ 745,042 $ 1,020,770

10 unchanged sentences

Restructuring and other charges 3,387 1,569 9,058 3,035

Operating loss ( 58,915 ) ( 43,812 )

Operating income (loss) 6,733 56,431 ( 52,182 ) 12,619

Interest expense, net 912 1,446 3,565 3,978

Loss before income taxes ( 61,568 ) ( 46,344 )

Income tax benefit ( 14,916 ) ( 14,189 )

Net loss $ ( 46,652 ) $ ( 32,155 )

Loss per share of common stock:

Income before income taxes 5,821 54,985 ( 55,747 ) 8,641

Income tax (benefit) expense ( 1,694 ) 19,054 ( 16,610 ) 4,865

Net income (loss) $ 7,515 $ 35,931 $ ( 39,137 ) $ 3,776

Income (Loss) per share of common stock:

Basic $ 0.15 $ 0.75 $ ( 0.81 ) $ 0.08

8 unchanged sentences

(In thousands, except per share data)

2020 July 27,

2020 October 26,

(unaudited) (unaudited) (audited)

20 unchanged sentences

Total current liabilities 569,741 692,645 406,669

Long-term deferred taxes, net — 598 —

Long-term operating lease liabilities 198,990 179,613 186,142

22 unchanged sentences

26 weeks ended

2020 July 27,

2020 October 26,

Cash flows from operating activities:

Net loss $ ( 46,652 ) $ ( 32,155 )

Adjustments to reconcile net loss to net cash flows from operating activities:

Net (loss) income $ ( 39,137 ) $ 3,776

Adjustments to reconcile net (loss) income to net cash flows from operating activities:

Depreciation and amortization expense 27,256 31,425

7 unchanged sentences

Changes in other operating assets and liabilities, net 86,452 129,317

Net cash flows used in operating activities ( 54,839 ) ( 40,243 )

Net cash flows provided by operating activities 88,143 161,449

Cash flows from investing activities:

6 unchanged sentences

Purchase of treasury shares ( 881 ) ( 1,265 )

Net cash flows provided by financing activities 59,518 40,560

Net decrease in cash, cash equivalents and restricted cash ( 771 ) ( 5,788 )

Net cash flows used in financing activities ( 76,081 ) ( 134,765 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 889 ) 10,588

Cash, cash equivalents and restricted cash at beginning of period 9,008 14,768

19 unchanged sentences

12 ( 40 ) ( 40 )

( 32,155 ) ( 32,155 )

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

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

Common Stock Paid-In Accumulated Treasury Stock Total

6 unchanged sentences

179 ( 342 ) ( 342 )

( 46,652 ) ( 46,652 )

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

Vested equity awards

662 7 ( 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

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

For the 26 weeks ended October 3, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

3 unchanged sentences

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).

Description of Business

2 unchanged sentences

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 1,442 physical, virtual, and custom bookstores and serve more than 6 million students, delivering essential educational content and tools within a dynamic omni channel retail environment.

We operate 1,439 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 general merchandise e-commerce capabilities, increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships.

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.

14 unchanged sentences

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 fourth quarter, we closed the majority of our physical campus stores to protect the health and safety of our customers and employees.

Beginning in March 2020, colleges and universities nationwide began to close their campuses in light of safety concerns and as

BARNES & NOBLE EDUCATION, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

a result of local and state issued stay-at-home orders.

By mid-March, during our fiscal 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 the upcoming fall term, with some implementing shortened semesters or choosing to remain fully virtual in order to best protect students and faculty.

The first quarter is historically a low revenue period and our first quarter results were significantly impacted by the COVID-19 pandemic.

As many schools shifted from an on-campus to a remote learning model, we were able to serve students through our Custom Store Solutions “CSS” model, virtual bookstores, individual school websites and digital offerings to ensure students were equipped with their course materials to continue their education, wherever they may be.

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 second quarter results were 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 returned to campus this fall, 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.

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 to our results of operations, financial condition and cash flows from operations.

Summary of Significant Accounting Policies

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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 weeks ended August 1, 2020 are not indicative of the results expected for the 52 weeks ending May 1, 2021 (Fiscal 2021).

Due to the seasonal nature of the business, the results of operations for the 13 and 26 weeks ended October 31, 2020 are not indicative of the results expected for the 52 weeks ending May 1, 2021 (Fiscal 2021).

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.

8 unchanged sentences

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.

BARNES & NOBLE EDUCATION, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

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

27 unchanged sentences

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.

Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

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.

4 unchanged sentences

Our payment terms are generally 30 days and do not extend beyond one year.

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

(Thousands of dollars, except share and per share data)

Service and other revenue

9 unchanged sentences

Our selling and administrative expenses consist primarily of store payroll and store operating expenses.

Selling and administrative expenses also include stock-based compensation and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our DSS segment subscription-based services business.

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 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 August 1, 2020, 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.

As of October 31, 2020, 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.

During the third quarter of Fiscal 2020, we completed our annual goodwill impairment test and concluded that 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.

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.

Our other long-lived assets include property and equipment and amortizable intangibles.

As of August 1, 2020, we had $ 94,102 and $ 170,466 of property and equipment and amortizable intangible assets, net of depreciation and amortization, respectively, on our condensed consolidated balance sheet.

As of October 31, 2020, we had $ 93,130 and $ 166,140 of property and equipment and amortizable intangible assets, net of depreciation and amortization, respectively, on our condensed consolidated balance sheet.

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 fourth quarter of Fiscal 2020, in conjunction with COVID-19 related campus store closures, we evaluated certain of our long-lived assets associated with our Retail and Wholesale segments for impairment.

Based on the results of the tests, for the Retail segment, we recognized an impairment loss of $587 during the fourth quarter of Fiscal 2020, related to store-level assets in restructuring and other charges.

These long-lived assets were not recoverable and had a de minimis fair value, as determined using an income approach (Level 3 input), resulting in a non-cash impairment charge for the full carrying value of those long-lived assets.

These long-lived

BARNES & NOBLE EDUCATION, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

During the 13 weeks ended August 1, 2020, COVID-19 related closed campus stores began to re-open with sales fulfilled either from the stores, from our Wholesale operations, or drop ship programs, as well as online direct-to-student services.

We believe indicators of impairment do not exist and the carrying amount of our long-lived assets and property and equipment are recoverable and the fair value of the DSS reporting unit continues to exceed the carrying value of the reporting unit resulting in no goodwill impairment during the quarter.

During the 13 weeks ended July 27, 2019, we recorded an impairment loss (non-cash) of $ 433 in the Retail segment related to net capitalized development costs for a project which are not recoverable.

As of August 1, 2020, other long-term liabilities includes $ 25,748 related to the long-term tax payable associated with the LIFO reserve.

assets were not recoverable and had a de minimis fair value, as determined using an income approach (Level 3 input), resulting in a non-cash impairment charge for the full carrying value of those long-lived assets.

During the 26 weeks ended October 31, 2020, COVID-19 related closed campus stores began to re-open with sales fulfilled either from the stores, from our Wholesale operations, or drop ship programs, as well as online direct-to-student services.

During the 26 weeks ended October 26, 2019, we recorded an impairment loss (non-cash) of $ 433 in the Retail segment related to net capitalized development costs for a project which are not recoverable.

As of October 31, 2020, 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.

21 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

4 unchanged sentences

The following table disaggregates the revenue associated with our major product and service offerings:

13 weeks ended

August 1, 2020 July 27, 2019

13 weeks ended 26 weeks ended

October 31, 2020 October 26, 2019 October 31, 2020 October 26, 2019

Product Sales $ 517,837 $ 674,042 $ 659,663 $ 920,417

1 unchanged sentence

Service and Other Revenue (a)

15,024 14,042 21,170 24,893

Retail Total Sales $ 576,514 $ 741,769 $ 735,290 $ 1,016,425

11 unchanged sentences

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 August 1, 2020, July 27, 2019 and May 2, 2020 on our condensed consolidated balance sheets.

Contract assets (unbilled receivables) were $ 0 as of October 31, 2020, October 26, 2019 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).

1 unchanged sentence

Deferred revenue is recognized ratably over the terms of the related rental or subscription periods, or when the contracted services are provided to our partnership marketing customers.

Deferred revenue of $ 16,270 , $ 14,188 , and $ 13,373 is recorded within Accrued Liabilities on our condensed consolidated balance sheets for the periods ended August 1, 2020, July 27, 2019 and May 2, 2020, respectively.

Deferred revenue of $ 32,844 , $ 48,994 , and $ 13,373 is recorded within Accrued Liabilities on our condensed consolidated balance sheets for the periods ended October 31, 2020, October 26, 2019 and May 2, 2020, respectively.

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

The following table presents changes in contract liabilities:

26 weeks ended

August 1, 2020 July 27, 2019

October 31, 2020 October 26, 2019

Deferred revenue at the beginning of period $ 13,373 $ 20,418

2 unchanged sentences

Deferred revenue balance at the end of period $ 32,844 $ 48,994

As of August 1, 2020, we expect to recognize $ 16,270 of the deferred revenue balance within the next 12 months.

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

(Thousands of dollars, except share and per share data)

As of October 31, 2020, we expect to recognize $ 32,844 of the deferred revenue balance within the next 12 months.

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).

13 unchanged sentences

The following table summarizes lease expense:

13 weeks ended

August 1, 2020 July 27, 2019

13 weeks ended 26 weeks ended

October 31, 2020 October 26, 2019 October 31, 2020 October 26, 2019

Variable lease expense $ 34,335 $ 24,140 $ 41,742 $ 31,010

2 unchanged sentences

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 August 1, 2020:

August 1, 2020

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

The following table summarizes our minimum fixed lease obligations, excluding variable commissions, as of October 31, 2020:

October 31, 2020

Remainder of Fiscal 2021 $ 110,668

7 unchanged sentences

Operating lease liabilities at period end $ 320,508

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

(Thousands of dollars, except share and per share data)

Future lease payment obligations related to leases that were entered into, but did not commence as of August 1, 2020, were not material.

Future lease payment obligations related to leases that were entered into, but did not commence as of October 31, 2020, were not material.

The following summarizes additional information related to our operating leases:

August 1, 2020

October 31, 2020

Weighted average remaining lease term (in years) 5.5 years

14 unchanged sentences

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, including e-content, are offered at a reduced price through a course materials fee, and delivered to students on or before the first day of class.

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.

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

The Wholesale Segment is comprised of our wholesale textbook business and is one of the largest textbook wholesalers in the country.

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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.

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

(Thousands of dollars, except share and per share data)

Intercompany Eliminations

3 unchanged sentences

Our international operations are not material and the majority of the revenue and total assets are within the United States.

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

Summarized financial information for our reportable segments is reported below:

13 weeks ended

2020 July 27,

13 weeks ended 26 weeks ended

2020 October 26,

2019 October 31,

2020 October 26,

Retail $ 576,514 $ 741,769 $ 735,290 $ 1,016,425

14 unchanged sentences

Total Depreciation and Amortization $ 13,193 $ 15,546 $ 27,256 $ 31,425

Operating Loss (Income)

Operating Income (Loss)

Retail $ 7,072 $ 50,267 $ ( 47,744 ) $ 15,225

3 unchanged sentences

Elimination 4,455 9,384 ( 2,308 ) ( 427 )

Total Operating Loss $ ( 58,915 ) $ ( 43,812 )

Total Operating Income (Loss) $ 6,733 $ 56,431 $ ( 52,182 ) $ 12,619

13 weeks ended 26 weeks ended

2020 October 26,

2019 October 31,

2020 October 26,

The following is a reconciliation of segment Operating Income (Loss) to consolidated Income (Loss) Before Income Taxes:

Total Operating Income (Loss) $ 6,733 $ 56,431 $ ( 52,182 ) $ 12,619

Interest Expense, net 912 1,446 3,565 3,978

Income (Loss) Before Income Taxes $ 5,821 $ 54,985 $ ( 55,747 ) $ 8,641

BARNES & NOBLE EDUCATION, INC.

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Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

13 weeks ended

2020 July 27,

The following is a reconciliation of segment Operating Loss to consolidated Loss Before Income Taxes:

Total Operating Loss $ ( 58,915 ) $ ( 43,812 )

Interest Expense, net 2,653 2,532

Loss Before Income Taxes $ ( 61,568 ) $ ( 46,344 )

Equity and Earnings Per Share

4 unchanged sentences

Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

During the 13 weeks ended August 1, 2020, we did not repurchase shares of our Common Stock under the program and as of August 1, 2020, approximately $ 26,669 remains available under the stock repurchase program.

During the 13 weeks ended August 1, 2020, we repurchased 178,669 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

During the 26 weeks ended October 31, 2020, we did not repurchase shares of our Common Stock under the program and as of October 31, 2020, approximately $ 26,669 remains available under the stock repurchase program.

During the 26 weeks ended October 31, 2020, we repurchased 410,560 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

Earnings Per Share

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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 August 1, 2020 and July 27, 2019 average shares of 2,665,779 and 3,746,663 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively.

The following is a reconciliation of the basic and diluted earnings (loss) per share calculation:

13 weeks ended

(shares in thousands) August 1,

2020 July 27,

Numerator for basic and diluted earnings per share:

Net loss available to common shareholders $ ( 46,652 ) $ ( 32,155 )

Denominator for basic and diluted earnings per share:

Basic and diluted weighted average shares of Common Stock 48,411 47,582

Loss per share of Common Stock:

Basic $ ( 0.96 ) $ ( 0.68 )

Diluted $ ( 0.96 ) $ ( 0.68 )

During the 13 weeks ended October 31, 2020 and October 26, 2019, average shares of 1,932,628 and 1,218,994 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively.

During the 26 weeks ended October 31, 2020 and October 26, 2019, average shares of 2,849,291 and 1,529,877 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively.

BARNES & NOBLE EDUCATION, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

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

13 weeks ended 26 weeks ended

(shares in thousands) October 31,

2020 October 26,

2019 October 31,

2020 October 26,

Numerator for basic earnings per share:

Net income (loss) available to common shareholders $ 7,515 $ 35,931 $ ( 39,137 ) $ 3,776

Less allocation of earnings to participating securities ( 6 ) ( 21 ) — ( 2 )

Net income (loss) available to common shareholders $ 7,509 $ 35,910 $ ( 39,137 ) $ 3,774

Numerator for diluted earnings per share:

Net income (loss) available to common shareholders $ 7,509 $ 35,910 $ ( 39,137 ) $ 3,774

Allocation of earnings to participating securities 6 21 — 2

Less diluted allocation of earnings to participating securities ( 6 ) ( 20 ) — ( 2 )

Net income (loss) available to common shareholders $ 7,509 $ 35,911 $ ( 39,137 ) $ 3,774

Denominator for basic earnings per share:

Basic weighted average shares of Common Stock 48,804 47,853 48,608 47,717

Denominator for diluted earnings per share:

Basic weighted average shares of Common Stock 48,804 47,853 48,608 47,717

Average dilutive restricted stock units 235 444 — 334

Average dilutive performance shares — — — 14

Average dilutive restricted shares 18 12 — 11

Average dilutive performance share units 224 449 — 336

Average dilutive stock options 147 — — —

Diluted weighted average shares of Common Stock 49,428 48,758 48,608 48,412

Earnings (Loss) per share of Common Stock:

Basic $ 0.15 $ 0.75 $ ( 0.81 ) $ 0.08

Diluted $ 0.15 $ 0.74 $ ( 0.81 ) $ 0.08

Fair Values of Financial Instruments

10 unchanged sentences

The fair value of short-term and long-term debt approximates its carrying value.

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

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 October 31, 2020, we recorded a liability of $ 224 (Level 2 input) which is reflected in accrued liabilities ($ 130 ) and other long-term liabilities ($ 94 ) on the condensed consolidated balance sheet.

For additional information, see Note 12.

Long-Term Incentive Plan Compensation Expense .

Credit Facility

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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 13 weeks ended August 1, 2020, we borrowed $ 186,700 and repaid $ 126,840 under the Credit Agreement, with $ 234,560 of outstanding borrowings as of August 1, 2020, comprised entirely of borrowings under the Credit Facility.

During the 13 weeks ended July 27, 2019, we borrowed $ 120,300 and repaid $ 79,700 under the Credit Agreement, with $ 174,100 of outstanding borrowings as of July 27, 2019, comprised of $ 74,100 and $ 100,000 under the Credit Facility and FILO Facility, respectively.

As of both August 1, 2020 and July 27, 2019, we have issued $ 4,759 in letters of credit under the Credit Facility.

During the 26 weeks ended October 31, 2020, we borrowed $ 330,800 and repaid $ 406,000 under the Credit Agreement, with $ 99,500 of outstanding borrowings as of October 31, 2020, comprised entirely of borrowings under the Credit Facility.

During the 26 weeks ended October 26, 2019, we borrowed $ 150,000 and repaid $ 283,500 under the Credit Agreement, with no outstanding borrowings as of October 26, 2019.

As of both October 31, 2020 and October 26, 2019, we have issued $ 4,759 in letters of credit under the Credit Facility.

Supplementary Information

1 unchanged sentence

During the 13 weeks ended July 27, 2019, we recognized an impairment loss (non-cash) of $ 433 in the Retail segment related to net capitalized development costs for a project which are not recoverable.

During the 26 weeks ended October 26, 2019, we recognized an impairment loss (non-cash) of $ 433 in the Retail segment related to net capitalized development costs for a project which are not recoverable.

Restructuring and other charges

During the 13 weeks ended August 1, 2020, we recognized restructuring and other charges totaling $ 5,671 comprised of $ 3,396 for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($ 10,562 is included in accrued liabilities in the consolidated balance sheet as of August 1, 2020), $ 2,103 for professional service costs related to restructuring, process improvements, and shareholder activist activities, and $ 172 related to liabilities for a facility closure.

During the 13 weeks ended July 27, 2019, we recognized restructuring and other charges totaling $ 1,466 comprised of $ 631 for severance and other employee termination and benefit costs associated with several management changes and the

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

(Thousands of dollars, except share and per share data)

elimination of various positions as part of cost reduction objectives, and $ 735 related to professional service costs related to restructuring and process improvements.

During the 13 and 26 weeks ended October 31, 2020, we recognized restructuring and other charges totaling $ 3,387 and $ 9,058 , respectively, comprised primarily of $ 1,075 and $ 4,471 , respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($ 7,092 is included in accrued liabilities in the consolidated balance sheet as of October 31, 2020), $ 2,255 and $ 4,472 , respectively, for professional service costs related to restructuring, process improvements, the financial advisor strategic review process, and shareholder activist activities, and $ 57 and $ 114 , respectively, related to liabilities for a facility closure.

During the 13 and 26 weeks ended October 26, 2019, we recognized restructuring and other charges totaling $ 1,569 and $ 3,035 , respectively, comprised primarily of $ 88 and $ 819 , 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 $ 1,481 and $ 2,216 , respectively, for professional service costs related to restructuring and process improvements.

Employee Benefit Plans

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For all plans, we are responsible to fund the employer contributions directly.

Total employee benefit expense for these plans was $ 0 and $ 1,538 during the 13 weeks ended August 1, 2020 and July 27, 2019, respectively.

Total employee benefit expense for these plans was $ 0 and $ 1,301 during the 13 weeks

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

ended October 31, 2020 and October 26, 2019, respectively.

Total employee benefit expense for these plans was $ 0 and $ 2,839 during the 26 weeks ended October 31, 2020 and October 26, 2019, 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 December 2020 (the first 9 months of Fiscal 2021).

Stock-Based Compensation

We recognize compensation expense for awards ratably over the requisite service period of the award, which is generally three years.

We recognize compensation expense based on the number of awards expected to vest using an estimated average forfeiture rate.

We calculate the fair value of stock-based awards based on the closing price on the date the award was granted for those awards with only service or performance conditions.

For those awards with market conditions, we have determined the grant date fair value using the Monte Carlo simulation model.

During the 13 weeks ended August 1, 2020, no awards were granted under the Equity Incentive Plan.

We recognized stock-based compensation expense for equity-based awards in selling and administrative expenses as follows:

13 weeks ended

2020 July 27,

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.

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 26 weeks ended October 31, 2020, 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

BARNES & NOBLE EDUCATION, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

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.

As of October 31, 2020, we recorded a liability of $ 224 (Level 2 input) which is reflected in accrued liabilities and other long-term liabilities on the condensed consolidated balance sheet.

We recognized compensation expense for long-term incentive plan awards in selling and administrative expenses as follows:

13 weeks ended 26 weeks ended

2020 October 26,

2019 October 31,

2020 October 26,

Stock-based awards

Restricted stock expense $ 20 $ 30 $ 50 $ 60

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Performance share units expense 73 108 205 397

Stock-based compensation expense $ 1,521 $ 2,321

Total unrecognized compensation cost related to unvested awards as of August 1, 2020 was $ 4,884 and is expected to be recognized over a weighted-average period of 1.5 years.

We recorded income tax benefit of $( 14,916 ) on a pre-tax loss of $( 61,568 ) during the 13 weeks ended August 1, 2020, which represented an effective income tax rate of 24.2 % and income tax benefit of $( 14,189 ) on pre-tax loss of $( 46,344 ) during the 13 weeks ended July 27, 2019, which represented an effective income tax rate of 30.6 %.

The effective tax rate for the 13 weeks ended August 1, 2020 is lower as compared to the prior year comparable period due to permanent differences.

Stock option expense 111 — 111 —

Sub-total stock-based awards:

$ 1,180 $ 1,860 $ 2,701 $ 4,181

Cash settled awards

Phantom share units expense $ 224 $ — $ 224 $ —

Total compensation expense for long-term incentive awards $ 1,404 $ 1,860 $ 2,925 $ 4,181

Total unrecognized compensation cost related to unvested awards as of October 31, 2020 was $ 12,261 and is expected to be recognized over a weighted-average period of 2.5 years.

We recorded an income tax benefit of $( 1,694 ) on pre-tax income of $ 5,821 during the 13 weeks ended October 31, 2020, which represented an effective income tax rate of ( 29.1 )% and income tax expense of $ 19,054 on pre-tax income of $ 54,985 during the 13 weeks ended October 26, 2019, which represented an effective income tax rate of 34.7 %.

We recorded an income tax benefit of $( 16,610 ) on pre-tax loss of $( 55,747 ) during the 26 weeks ended October 31, 2020, which represented an effective income tax rate of 29.8 % and income tax expense of $ 4,865 on pre-tax income of $ 8,641 during the 26 weeks ended October 26, 2019, which represented an effective income tax rate of 56.3 %.

The effective tax rate for the 13 and 26 weeks ended October 31, 2020 is lower as compared to the prior year comparable period due to permanent differences and the impact of benefits available to the Company as a result of the CARES Act in the current year.

Legal Proceedings

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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 July 23, 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, they claim, on their own behalf and on behalf of the purported classes,

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

BARNES & NOBLE EDUCATION, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the 13 weeks ended August 1, 2020 and July 27, 2019

For the 26 weeks ended October 31, 2020 and October 26, 2019

(Thousands of dollars, except share and per share data)

that the Company and the other defendants violated Section 1 of the Sherman Act (15 U.S.C.

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.

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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.

Subsequent Event

On November 9, 2020, the Company's Executive Vice President, Corporate Development and President, Digital Student Solutions resigned as an officer of the Company, effective as of November 30, 2020, in conjunction with the consolidation and elimination of the role.

In connection with the resignation and resignation letter agreement, the former officer will receive a lump sum payment totaling $ 1,142 .

For additional information, see the Form 8-K filed with the SEC on November 12, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements