Barnes & Noble Education, Inc. 10-Q

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 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 Sales: Product sales and other $ 377,713 $ 373,502 $ 1,182,812 $ 1,118,544 Rental income 25,085 38,111 87,757 92,568 Total sales 402,798 411,613 1,270,569 1,211,112 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 297,693 315,607 924,924 933,847 Rental cost of sales 18,144 25,394 53,096 60,506 Total cost of sales 315,837 341,001 978,020 994,353 Gross profit 86,961 70,612 292,549 216,759 Selling and administrative expenses 101,460 92,708 295,597 254,723 Depreciation and amortization expense 12,179 13,307 36,755 40,563 Impairment loss (non-cash) 6,411 27,630 6,411 27,630 Restructuring and other charges 46 1,669 3,785 10,727 Operating loss ( 33,135 ) ( 64,702 ) ( 49,999 ) ( 116,884 ) Interest expense, net 3,051 2,311 7,809 5,876 Loss before income taxes ( 36,186 ) ( 67,013 ) ( 57,808 ) ( 122,760 ) Income tax expense (benefit) 615 ( 18,724 ) 811 ( 35,334 ) Net loss $ ( 36,801 ) $ ( 48,289 ) $ ( 58,619 ) $ ( 87,426 ) Loss per share of common stock: Basic $ ( 0.71 ) $ ( 0.96 ) $ ( 1.13 ) $ ( 1.78 ) Diluted $ ( 0.71 ) $ ( 0.96 ) $ ( 1.13 ) $ ( 1.78 ) Weighted average shares of common stock outstanding: Basic 52,003 50,082 51,714 49,099 Diluted 52,003 50,082 51,714 49,099 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except per share data) January 29, 2022 January 30, 2021 May 1, 2021 (unaudited) (unaudited) (audited) ASSETS Current assets: Cash and cash equivalents $ 9,967 $ 9,915 $ 8,024 Receivables, net 250,187 227,174 121,072 Merchandise inventories, net 403,646 452,611 281,112 Textbook rental inventories 40,976 40,720 28,692 Prepaid expenses and other current assets 60,615 25,281 61,933 Total current assets 765,391 755,701 500,833 Property and equipment, net 93,752 87,405 89,172 Operating lease right-of-use assets 229,259 242,937 240,456 Intangible assets, net 133,975 155,536 150,904 Goodwill 4,700 4,700 4,700 Deferred tax assets, net 22,918 14,984 23,248 Other noncurrent assets 24,040 27,195 29,105 Total assets $ 1,274,035 $ 1,288,458 $ 1,038,418 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 359,743 $ 318,795 $ 137,578 Accrued liabilities 150,754 125,815 92,871 Current operating lease liabilities 100,773 105,624 92,513 Short-term borrowings — — 50,000 Total current liabilities 611,270 550,234 372,962 Long-term operating lease liabilities 168,924 190,453 184,780 Other long-term liabilities 48,676 52,814 52,042 Long-term borrowings 200,400 150,800 127,600 Total liabilities 1,029,270 944,301 737,384 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, 54,234 , 53,327 and 53,327 shares, respectively; outstanding, 52,046 , 51,379 and 51,379 shares, respectively 542 533 533 Additional paid-in capital 738,968 733,019 734,257 Accumulated deficit ( 473,233 ) ( 370,253 ) ( 414,614 ) Treasury stock, at cost ( 21,512 ) ( 19,142 ) ( 19,142 ) Total stockholders' equity 244,765 344,157 301,034 Total liabilities and stockholders' equity $ 1,274,035 $ 1,288,458 $ 1,038,418 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (unaudited) 39 weeks ended January 29, 2022 January 30, 2021 Cash flows from operating activities: Net loss $ ( 58,619 ) $ ( 87,426 ) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization expense 36,755 40,563 Content amortization expense 3,984 3,700 Amortization of deferred financing costs 1,087 811 Impairment loss (non-cash) 6,411 27,630 Merchandise inventory loss 434 — Deferred taxes 330 ( 7,179 ) Stock-based compensation expense 4,463 3,857 Changes in other long-term assets and liabilities, net 260 10,878 Changes in operating lease right-of-use assets and liabilities 1,808 11,937 Changes in other operating assets and liabilities, net 10,988 36,402 Net cash flows provided by operating activities 7,901 41,173 Cash flows from investing activities: Purchases of property and equipment ( 33,393 ) ( 25,910 ) Net change in other noncurrent assets 734 335 Net cash flows used in investing activities ( 32,659 ) ( 25,575 ) Cash flows from financing activities: Proceeds from borrowings under Credit Agreement 463,220 547,600 Repayments of borrowings under Credit Agreement ( 440,420 ) ( 571,500 ) Sale of treasury shares — 10,869 Purchase of treasury shares ( 2,370 ) ( 894 ) Proceeds from the exercise of stock options, net 256 — Net cash flows provided by (used in) financing activities 20,686 ( 13,925 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 4,072 ) 1,673 Cash, cash equivalents and restricted cash at beginning of period 16,814 9,008 Cash, cash equivalents and restricted cash at end of period $ 12,742 $ 10,681 Changes in other operating assets and liabilities, net: Receivables, net $ ( 129,115 ) $ ( 136,323 ) Merchandise inventories ( 122,968 ) ( 23,672 ) Textbook rental inventories ( 12,284 ) ( 10 ) Prepaid expenses and other current assets ( 4,697 ) ( 9,104 ) Accounts payable and accrued liabilities 280,052 205,511 Changes in other operating assets and liabilities, net $ 10,988 $ 36,402 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents 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 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 ( 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 ( 7 ) — Shares repurchased for tax withholdings for vested stock awards 231 ( 539 ) ( 539 ) Net income 7,515 7,515 Balance at 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 4 ( 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 Additional Common Stock Paid-In Accumulated Treasury Stock Total Shares Amount Capital Deficit Shares Amount Equity Balance at May 1, 2021 53,327 $ 533 $ 734,257 $ ( 414,614 ) 1,948 $ ( 19,142 ) $ 301,034 Stock-based compensation expense 1,122 1,122 Vested equity awards 338 3 ( 3 ) — Shares repurchased for tax withholdings for vested stock awards 130 ( 1,215 ) ( 1,215 ) Net loss ( 44,346 ) ( 44,346 ) Balance July 31, 2021 53,665 $ 536 $ 735,376 $ ( 458,960 ) 2,078 $ ( 20,357 ) $ 256,595 Stock-based compensation expense 1,478 1,478 Vested equity awards 487 5 ( 5 ) — Shares repurchased for tax withholdings for vested stock awards 108 ( 1,144 ) ( 1,144 ) Issuance of common stock upon exercise of stock options 10 — 37 37 Net income 22,528 22,528 Balance October 30, 2021 54,162 $ 541 $ 736,886 $ ( 436,432 ) 2,186 $ ( 21,501 ) $ 279,494 Stock-based compensation expense 1,863 1,863 Vested equity awards 4 — — — Shares repurchased for tax withholdings for vested stock awards 2 ( 11 ) ( 11 ) Issuance of common stock upon exercise of stock options 68 1 219 220 Net loss ( 36,801 ) ( 36,801 ) Balance January 29, 2022 54,234 $ 542 $ 738,968 $ ( 473,233 ) 2,188 $ ( 21,512 ) $ 244,765 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (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. 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 1, 2021, which includes consolidated financial statements for the Company for each of the three fiscal years ended May 1, 2021, May 2, 2020 and April 27, 2019 (Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively) and the unaudited condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the 13 weeks ended July 31, 2021, and the unaudited condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the 26 weeks ended October 30, 2021. 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 and accelerate such capabilities through our recent merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc. (“Fanatics”) and Fanatics Lids College, Inc. (“FLC”) (collectively referred to herein as the “FLC Partnership”), increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships. We expect general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the “FLC Partnership”. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo and emblematic general merchandise business. We believe the Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, 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 to our relationship with 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 in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021 . Partnership with Fanatics and FLC In December 2020, we entered into the FLC Partnership. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our general merchandise business. Fanatics’ cutting-edge e-commerce and technology expertise offers our campus stores expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with Lids (FLC's parent company), the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments. We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We also work closely with our campus partners to ensure that each campus store 7 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) maintains unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus’s brand. We leverage Fanatics’ e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. FLC manages in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores. In December 2020, Fanatics, Inc. and Lids Holdings, Inc. jointly made a strategic equity investment in BNED. On April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement, we sold our logo and emblematic general merchandise inventory to FLC, which was finalized during the first quarter of Fiscal 2022. As contemplated by the FLC Partnership's e-commerce agreement, we began to transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products during the first quarter of Fiscal 2022. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies - Merchandise Inventories and Note 6. Equity and Earnings Per Share in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021. COVID-19 Business Impact Since the fourth quarter of Fiscal 2020, our business has been significantly negatively impacted by the COVID-19 pandemic, resulting in an unprecedented material decline in revenue. Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. We cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including variants, on enrollments, campus activities, university budgets, athletics and other areas that directly affect our business operations . Although most four year schools returned to a traditional on-campus environment for learning in the Fall semester, as well as hosted traditional on campus sporting activities, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and its effect on our ability to source products, including textbooks and general merchandise offerings. As we entered the Spring rush period in early January 2022, we continued to experience the ongoing effects of COVID-19 with the surge of the Omicron variant further impacting students return to campus and on-campus activities. In early January, while the majority of schools brought students back to campus, some schools chose to conduct classes virtually for the beginning of the semester, while other schools chose to delay their start dates (and some schools both delayed the start of the semester and started classes virtually), thus reducing and/or delaying sales later into the quarter or shifting some sales to our fourth quarter. The COVID-19 impact on higher education remains a fluid situation. 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. 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. We will continue to assess our operations and will continue to consider the guidance of local governments and our campus partners to how to operate our bookstores in the safest manner for our employees and customers. Please see our Part II - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion. 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. 8 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) Due to the seasonal nature of the business, the results of operations for the 39 weeks ended January 29, 2022 are not indicative of the results expected for the 52 weeks ending April 30, 2022 (Fiscal 2022). 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. Restricted Cash As of January 29, 2022 and January 30, 2021, we had restricted cash of $ 2,775 and $ 766 , respectively, comprised of $ 1,878 and $ 0 , respectively, in prepaid and other current assets in the condensed consolidated balance sheet related to segregated funds for commission due to FLC for logo merchandise sales as per the FLC Partnership's merchandising agreement, and $ 897 and $ 766 , respectively, in other noncurrent assets in the condensed consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans. 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, which includes certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand. 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. The Retail Segment fulfillment order is directed first to our wholesale business before other sources of inventory are utilized. The products that we sell originate from a wide variety of domestic and international vendors. After internal sourcing, the bookstore purchases textbooks from outside suppliers and publishers. As contemplated by the FLC Partnership merchandising agreement, we sold our logo and emblematic general merchandise inventory to FLC and received proceeds of $ 41,773 , and recognized a merchandise inventory loss on the sale of $ 10,262 in cost of goods sold in the condensed consolidated statement of operations during the 52 weeks ended May 1, 2021 for the Retail Segment. The final inventory sale price was determined during the first quarter of Fiscal 2022, at which time, we received additional proceeds of $ 1,906 , and recognized a merchandise inventory loss on the sale of $ 434 in cost of goods sold in the condensed consolidated statement of operations for the Retail Segment. 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. 9 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) 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 8. 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 3. 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 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. Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021. 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. 10 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) 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 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 29, 2022, 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 2022. 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 29, 2022, our other long-lived assets include property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets of $ 93,752 , $ 229,259 , $ 133,975 , and $ 24,040 , respectively, on our condensed consolidated balance sheet. Our business has been significantly negatively impacted by the ongoing COVID-19 pandemic, as many schools continued to adjust their learning models and on-campus activities. Many of the trends observed during the Fall 2021 semester continued into the Spring 2022 semester, as fewer students have returned to campus for the Spring semester. As we entered the Spring rush period in early January 2022, we continued to experience the ongoing effects of COVID-19 with the surge of the Omicron variant further impacting students return to campus and on-campus activities. In early January, while the majority of schools brought students back to campus, some schools chose to conduct classes virtually for the beginning of the semester, while other schools chose to delay their start dates (and some schools both delayed the start of the semester and started classes virtually), 11 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) thus reducing and/or delaying sales later into the quarter or shifting some sales to our fourth quarter. These combined events continue to impact the Company’s course materials and general merchandise business. During the 13 weeks ended January 29, 2022, 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 $ 6,411 (both pre-tax and after-tax), comprised of $ 739 , $ 1,793 , $ 3,668 and $ 211 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the condensed consolidated statement of operations. 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 6. Fair Value Measurements . Income Taxes As of January 29, 2022, other long-term liabilities includes $ 25,335 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 $ 745 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. 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 4. 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 36 weeks ended January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 Retail Product Sales (a) $ 340,706 $ 338,495 $ 1,076,122 $ 998,158 Rental Income 25,085 38,111 87,757 92,568 Service and Other Revenue (b) 8,949 11,063 30,282 32,233 Retail Total Sales $ 374,740 $ 387,669 $ 1,194,161 $ 1,122,959 Wholesale Sales $ 37,039 $ 39,465 $ 103,192 $ 156,146 DSS Sales (c) $ 9,430 $ 7,206 $ 26,012 $ 19,025 Eliminations (d) $ ( 18,411 ) $ ( 22,727 ) $ ( 52,796 ) $ ( 87,018 ) Total Sales $ 402,798 $ 411,613 $ 1,270,569 $ 1,211,112 (a) Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for 12 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021. (b) Service and other revenue primarily relates to brand partnerships and other service revenues. (c) DSS sales primarily relate to direct-to-student subscription-based revenue. (d) The sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale. 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 29, 2022, January 30, 2021 and May 1, 2021 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 e-commerce and merchandising contracts for Fanatics and FLC, respectively . Deferred revenue of $ 51,125 , $ 47,166 , and $ 13,469 is recorded in accrued liabilities and $ 4,466 , $ 3,956 , and $ 4,670 is recorded in other long-term liabilities on our condensed consolidated balance sheets for the periods ended January 29, 2022, January 30, 2021 and May 1, 2021, respectively. As of January 29, 2022, we expect to recognize $ 51,125 of the deferred revenue balance within the next 12 months. The following table presents changes in deferred revenue associated with our contract liabilities: 39 weeks ended January 29, 2022 January 30, 2021 Deferred revenue at the beginning of period $ 18,139 $ 13,373 Additions to deferred revenue during the period 141,071 148,777 Reductions to deferred revenue for revenue recognized during the period ( 103,619 ) ( 111,028 ) Deferred revenue balance at the end of period $ 55,591 $ 51,122 Note 4. 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 1, 2021 . Retail The Retail Segment operates 1,441 college, university, and K-12 school bookstores, comprised of 799 physical bookstores and 642 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 independently or along with our merchant partners, 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 13 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) 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 3,100 physical bookstores (including our Retail Segment's 799 physical bookstores) and sources and distributes new and used textbooks to our 642 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. 14 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (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 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 Sales: Retail $ 374,740 $ 387,669 $ 1,194,161 $ 1,122,959 Wholesale 37,039 39,465 103,192 156,146 DSS 9,430 7,206 26,012 19,025 Elimination ( 18,411 ) ( 22,727 ) ( 52,796 ) ( 87,018 ) Total Sales $ 402,798 $ 411,613 $ 1,270,569 $ 1,211,112 Gross Profit Retail (a) $ 69,161 $ 53,523 $ 246,129 $ 165,170 Wholesale 8,104 10,658 24,129 38,129 DSS 7,932 5,882 21,868 15,290 Elimination 1,764 549 423 ( 1,830 ) Total Gross Profit $ 86,961 $ 70,612 $ 292,549 $ 216,759 Depreciation and Amortization Retail $ 8,939 $ 9,806 $ 27,015 $ 30,361 Wholesale 1,396 1,614 4,060 4,231 DSS 1,826 1,863 5,627 5,883 Corporate Services 18 24 53 88 Total Depreciation and Amortization $ 12,179 $ 13,307 $ 36,755 $ 40,563 Operating (Loss) Income Retail $ ( 30,845 ) $ ( 59,996 ) $ ( 32,605 ) $ ( 107,740 ) Wholesale 2,767 4,708 7,750 21,625 DSS ( 1,669 ) ( 2,567 ) ( 5,286 ) ( 6,218 ) Corporate Services ( 5,188 ) ( 7,451 ) ( 20,414 ) ( 22,847 ) Elimination 1,800 604 556 ( 1,704 ) Total Operating Loss $ ( 33,135 ) $ ( 64,702 ) $ ( 49,999 ) $ ( 116,884 ) 13 weeks ended 39 weeks ended Reconciliation of segment Operating Loss to consolidated Loss Before Income Taxes: January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 Total Operating Loss $ ( 33,135 ) $ ( 64,702 ) $ ( 49,999 ) $ ( 116,884 ) Interest Expense, net 3,051 2,311 7,809 5,876 Loss Before Income Taxes $ ( 36,186 ) $ ( 67,013 ) $ ( 57,808 ) $ ( 122,760 ) (a) For the 39 weeks ended January 29, 2022, gross margin includes a merchandise inventory loss of $ 434 in the Retail Segment. See Note 2. Summary of Significant Accounting Policies - Merchandise Inventories . 15 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) Note 5. Equity and Earnings Per Share Equity During the 39 weeks ended January 29, 2022, our shareholders approved an amendment to the Equity Incentive Plan to increase the number of shares available for issuance by an additional 3,000,000 shares of our Common Stock, for an aggregate total of 13,409,345 shares . 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 29, 2022, we did not repurchase shares of our Common Stock under the program and as of January 29, 2022, approximately $ 26,669 remains available under the stock repurchase program. During the 39 weeks ended January 29, 2022, we repurchased 239,751 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 During the 39 weeks ended January 30, 2021, we entered into a 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 which is recognized over the term of the merchandising contracts for Fanatics and FLC ($ 211 and $ 175 , respectively, in accrued liabilities, and $ 3,762 and $ 3,956 , respectively, as of January 29, 2022 and January 30, 2021, in other long-term liabilities our condensed consolidated balance sheet), as discussed in Note 1. Organization - Partnership with Fanatics and FLC . 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 29, 2022 and January 30, 2021, average shares of 4,233,063 and 4,005,236 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. During the 39 weeks ended January 29, 2022 and January 30, 2021, average shares of 3,295,417 and 3,234,606 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. 16 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (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 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 Numerator for basic and diluted earnings per share: Net loss available to common shareholders $ ( 36,801 ) $ ( 48,289 ) $ ( 58,619 ) $ ( 87,426 ) Denominator for basic and diluted earnings per share: Basic and diluted weighted average shares of Common Stock 52,003 50,082 51,714 49,099 Loss per share of Common Stock: Basic $ ( 0.71 ) $ ( 0.96 ) $ ( 1.13 ) $ ( 1.78 ) Diluted $ ( 0.71 ) $ ( 0.96 ) $ ( 1.13 ) $ ( 1.78 ) Note 6. 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. 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 29, 2022 and January 30, 2021, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment and based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $ 6,411 (both pre-tax and after-tax), and $ 27,630 ($ 20,506 after-tax), 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 our 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 2. Summary of Significant Accounting Policies. 17 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) 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 for each respective period and the total impairments recorded as a result of the remeasurement process: 13 and 39 weeks ended January 29, 2022 13 and 39 weeks ended January 30, 2021 Carrying Value Prior to Impairment Fair Value Impairment Loss (non-cash) Carrying Value Prior to Impairment Fair Value Impairment Loss (non-cash) Property and equipment, net $ 742 $ 3 $ 739 $ 5,505 $ 420 $ 5,085 Operating lease right-of-use assets 3,299 1,506 1,793 26,427 13,099 13,328 Intangible assets, net 3,745 77 3,668 7,723 1,445 6,278 Other noncurrent assets 211 — 211 3,539 600 2,939 Total $ 7,997 $ 1,586 $ 6,411 $ 43,194 $ 15,564 $ 27,630 Other 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 29, 2022, we recorded a liability of $ 3,666 (Level 2 input) which is reflected in accrued liabilities ($ 2,397 ) and other long-term liabilities ($ 1,269 ) on the condensed consolidated balance sheet. 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 10. Long-Term Incentive Plan Compensation Expense . Note 7. Credit Facility We have a credit agreement (the “Credit Agreement”), amended March 31, 2021 and 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 . As of January 29, 2022, we were in compliance with all debt covenants under the Credit Agreement. On March 4, 2022, we were granted a waiver to the condition to the upcoming draw under the FILO Facility, scheduled for April 2022, that Consolidated EBITDA (as defined in the Credit Agreement) minus Restricted Payments (as defined in the Credit Agreement) equal at least $110,000. Under the waiver amendment, the commitment under the FILO Facility of $25,000 was increased to $40,000, with all remaining terms unchanged. 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 1, 2021. During the 39 weeks ended January 29, 2022, we borrowed $ 463,220 and repaid $ 440,420 under the Credit Agreement, with $ 200,400 of outstanding borrowings as of January 29, 2022, comprised entirely of borrowings under the Credit Facility. 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, 2021, comprised entirely of borrowings under the Credit Facility. As of both January 29, 2022 and January 30, 2021, we have issued $ 4,759 in letters of credit under the Credit Facility. 18 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) Note 8. 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. 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 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 Variable lease expense $ 18,306 $ 27,399 $ 60,746 $ 62,081 Operating lease expense 33,838 28,127 99,201 87,558 Net lease expense $ 52,144 $ 55,526 $ 159,947 $ 149,639 The increase in lease expense during the 39 weeks ended January 29, 2022 is primarily due to higher sales for contracts based on a percentage of revenue and the impact of the timing and reduction of minimum contractual guarantees due to temporary store closings due to the COVID pandemic during the 39 weeks ended January 30, 2021. The following table summarizes our minimum fixed lease obligations, excluding variable commissions, as of January 29, 2022: As of January 29, 2022 Remainder of Fiscal 2022 $ 65,338 Fiscal 2023 55,784 Fiscal 2024 44,086 Fiscal 2025 40,366 Fiscal 2026 29,228 Thereafter 72,943 Total lease payments 307,745 Less: imputed interest ( 38,048 ) Operating lease liabilities at period end $ 269,697 Future lease payment obligations related to leases that were entered into, but did not commence as of January 29, 2022, were not material. 19 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (Thousands of dollars, except share and per share data) (unaudited) The following summarizes additional information related to our operating leases: As of January 29, 2022 January 30, 2021 Weighted average remaining lease term (in years) 5.2 years 5.5 years Weighted average discount rate 4.6 % 4.7 % Supplemental cash flow information: Cash payments for lease liabilities within operating activities $ 95,042 $ 75,851 ROU assets obtained in exchange for lease liabilities from initial recognition $ 86,900 $ 108,873 Note 9. 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 29, 2022, 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 $ 6,411 (both pre-tax and after-tax), comprised of $ 739 , $ 1,793 , $ 3,668 and $ 211 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the condensed consolidated statement of operations. 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 6. Fair Value Measurements . Restructuring and other charges During the 13 and 39 weeks ended January 29, 2022, we recognized restructuring and other charges totaling $ 46 and $ 3,785 , comprised primarily of $ 0 and $ 1,968 for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($ 202 is included in accrued liabilities in the condensed consolidated balance sheet as of January 29, 2022), and $ 46 and $ 1,817 for costs associated with professional service costs for restructuring, process improvements, development and integration associated with the FLC Partnership, shareholder activist activities, and liabilities for a facility closure. 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 condensed consolidated balance sheet as of January 30, 2021), $ 384 and $ 4,971 , respectively, for costs associated with professional service costs for restructuring, process improvements, development and integration associated with the FLC Partnership, shareholder activist activities, and liabilities for a facility closure. Note 10. 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. 20 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (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 29, 2022, we granted the following awards: • 47,216 restricted stock units ("RSU") awards and 35,412 restricted stock ("RS") awards with a one year vesting period to the Board of Directors ("BOD") members for annual compensation. • 849,366 restricted stock units ("RSU") awards to employees with a three year vesting period. • 322,495 stock options with an exercise price of $ 10.80 per stock option, which was the fair market value on the date of grant (Stock Option Grant #1) and 348,723 stock options with an exercise price of $ 13.30 per stock option, which was above the fair market value on the date of grant, (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 $ 10.80 $ 13.30 Valuation method utilized Black-Scholes Monte Carlo Risk-free interest rate 0.94 % 0.94 % Expected option term 6.2 years 10.0 years Company volatility 74 % 74 % Dividend yield — % — % Grant date fair value per award $ 7.10 $ 6.73 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. • 183,348 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 $ 32.40 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 $ 8.50 per phantom share using risk-free rates ranging from 0.08%-0.53% for the three tranches and annual volatility ranging from 78%-92% 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 29, 2022, we recorded a liability of $ 3,666 (Level 2 input) related to phantom share units grants which is reflected in accrued liabilities and other long-term liabilities on the condensed consolidated balance sheet. 21 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the 39 weeks ended January 29, 2022 and January 30, 2021 (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 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 Stock-based awards Restricted stock expense $ 94 $ 88 $ 301 $ 138 Restricted stock units expense 1,106 786 2,767 3,121 Performance share units expense 28 12 91 217 Stock option expense 635 270 1,304 381 Sub-total stock-based awards: $ 1,863 $ 1,156 $ 4,463 $ 3,857 Cash settled awards Phantom share units expense $ 192 $ 1,505 $ 5,116 $ 1,729 Total compensation expense for long-term incentive awards $ 2,055 $ 2,661 $ 9,579 $ 5,586 Total unrecognized compensation cost related to unvested awards as of January 29, 2022 was $ 18,042 and is expected to be recognized over a weighted-average period of 2.6 years. 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 $ 1,155 and $ 0 during the 13 weeks ended January 29, 2022 and January 30, 2021, respectively. Total employee benefit expense for these plans was $ 2,203 and $ 0 during the 39 weeks ended January 29, 2022 and January 30, 2021, respectively. Effective April 2020, due to the significant impact as a result of COVID-19 related campus store closures, we temporarily suspended employer matching contributions into our 401(k) plans. The matching contributions were reinstated effective July 25, 2021. Note 12. Income Taxes We recorded an income tax expense of $ 615 on pre-tax loss of $( 36,186 ) during the 13 weeks ended January 29, 2022, which represented an effective income tax rate of ( 1.7 )% and an income tax benefit of $( 18,724 ) on pre-tax loss of $( 67,013 ) during the 13 weeks ended January 30, 2021, which represented an effective income tax rate of 27.9 %. We recorded income tax expense of $ 811 on a pre-tax loss of $( 57,808 ) during the 39 weeks ended January 29, 2022, which represented an effective income tax rate of ( 1.4 )%% and 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 %. In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets would be realized. As of January 29, 2022, we determined that it was more likely than not that we would not realize certain deferred tax assets and our tax rate for the current fiscal year reflects this determination. We will continue to evaluate this position. The effective tax rate for the 13 and 39 weeks ended January 29, 2022 is lower as compared to the prior year comparable period due to the assessment of the realization of deferred tax assets and loss carrybacks recorded in the prior year. Note 13. 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. 22 Table of Contents