BARNES & NOBLE EDUCATION, INC.
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders,
2016 was a year of remarkable achievements for Barnes & Noble Education, Inc. as we completed our
separation from Barnes & Noble, Inc. and began our journey as a standalone public company. The separation
has enabled us to focus solely on providing an unmatched retail and digital learning experience to higher
educational institutions in support of their initiatives to increase student recruitment, retention, success, and
outcomes.
TThis year, we made significant progress executing on our strategic goals. We successfully increased our
market share by winning new contracts with world renowned institutions, such as Georgetown University;
University of California, Irvine; University of Connecticut and University of North Carolina at Chapel Hill, where
we will open bookstores in fiscal 2017. Our team’s outstanding execution resulted in annual sales of more
than $1.8 billion, 2% growth. During the 2016 fiscal year, we opened 39 stores with estimated first year annual
sales of $64 million, bringing our total store locations to 751 stores. Based on the enduring trend among
hihigher education institutions to outsource their campus bookstores, we intend to continue to aggressively
pursue similar opportunities.
We are proud of the strong partnerships that we have developed with college and university administrators,
as well as with publishers, vendors and suppliers, which have cemented our position as the contractor of
choice for on-campus bookstore services. The pipeline for our services remains strong, with higher education
enrollments expected to increase by over 2 million students by 2023. This long-term projected growth will be
impacted by what we expect to be short-term fluctuations in enrollments at two-year community colleges,
which may continue to decrease for the next 12 to 24 months. In any enrollment environment, colleges and
ununiversities are seeking ways to manage the complexities of the course material landscape, and we are in an
excellent position to provide economic benefits to schools by offering affordable, accessible textbooks and
course materials – both in print and digital formats, with the option to rent or buy.
Even as traditional print textbooks remain the first choice of students, demand for alternative forms of
educational materials is growing. Following our acquisition of LoudCloud Systems, Inc. in March 2016, we are
uniquely positioned to provide schools, students and faculty with integrated print and digital solutions. With
LoudCloud’s cloud-based SaaS platform, we can provide more personalized assessment and analytical
capabilities, enabling educators to monitor and improve student success more efficiently and effectively.
Importantly, we also signed a long-term agreement to outsource the Yuzu® platform to VitalSource
TeTechnologies, Inc., thus significantly reducing our digital spend while also improving the user e-reading
experience. We now have the ability to adjust and grow our digital offering efficiently and at a lower cost to
complement our printed textbook sales and rental business.
Beyond the traditional four-wall bookstore, it has become increasingly evident that higher education
institutions need end-to-end solutions to drive student engagement and success both in and outside of the
classroom. Our strategy to expand our general merchandise offering in our bookstores, online through
school-branded e-commerce websites, as well as on campus at sporting and other events, has been a key
source of growth for Barnes & Noble Education, and we expect that to continue. In line with our goal to
increase general merchandise sales at our existing bookstores, our recent acquisition of Promoversity earlier
ththis summer now gives us the ability to customize Barnes & Noble College’s e-commerce solution to more
effectively promote our partners’ brands and drive on-campus merchandise sales.
We plan to continue to execute a balanced capital allocation strategy, as we pursue targeted growth
opportunities and manage our cost structure and capital expenditures to benefit shareholders. In December,
as part of this capital allocation strategy, our Board authorized a $50 million stock repurchase program, and
we repurchased $16.6 million of stock during the fiscal year.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-37499
BARNES & NOBLE EDUCATION, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
120 Mountain View Blvd., Basking Ridge, NJ
(Address of Principal Executive Offices)
46-0599018
(I.R.S. Employer
Identification No.)
07920
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s Telephone Number, Including Area Code: (908) 991-2665
Title of Class
Common Stock, $0.01 par value per share
Name of Exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.(Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $707
million based upon the closing market price of $14.75 per share of Common Stock on the New York Stock Exchange as of October
31, 2015. As of June 17, 2016, 46,308,085 shares of Common Stock, par value $0.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the 2016 Annual Meeting of Shareholders are incorporated by reference into Part III.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
INDEX TO FORM 10-K
Disclosure Regarding Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations . . . . . . .
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Results Of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52 weeks ended April 30, 2016 compared with the 52 weeks ended May 2, 2015. . . . . . . . . . . .
52 weeks ended May 2, 2015 compared with the 53 weeks ended May 3, 2014 . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Earnings (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity And Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical Accounting Policies And Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative And Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements And Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes In And Disagreements With Accountants On Accounting And Financial Disclosure . . . . . . .
Controls And Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Directors, Executive Officers And Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships And Related Transactions, And Director Independence . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees And Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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2
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains certain “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 and information relating to us and our business that are based on the beliefs of our management
as well as assumptions made by and information currently available to our management. When used in this communication, the
words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will,” “forecasts,” “projections,” and similar expressions,
as they relate to us or our management, identify forward-looking statements. Moreover, we operate in a very competitive and
rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor
can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks,
uncertainties and assumptions, the future events and trends discussed in this Form 10-K may not occur and actual results could
differ materially and adversely from those anticipated or implied in the forward-looking statements.
Such statements reflect our current views with respect to future events, the outcome of which is subject to certain risks,
including, among others:
• general competitive conditions, including actions our competitors may take to grow their businesses;
• a decline in college enrollment or decreased funding available for students;
• decisions by colleges and universities to outsource their bookstore operations or change the operation of their bookstores;
• the general economic environment and consumer spending patterns;
• decreased consumer demand for our products, low growth or declining sales;
• restructuring of our digital strategy may not result in the expected growth in our digital sales and/or profitability;
• risk that digital sales growth does not exceed the rate of investment spend;
• the performance of our online, digital and other initiatives, integration of and deployment of, additional products and
services, and further enhancements to Yuzu® and any future higher education digital products, and the inability to achieve
the expected cost savings;
• our ability to successfully implement our strategic initiatives including our ability to identify and execute upon additional
acquisitions and strategic investments;
• technological changes;
• our international expansion could result in additional risks;
• our ability to attract and retain employees;
• challenges to running our company independently from Barnes & Noble, Inc. following the Spin-Off;
• the potential adverse impact on our business resulting from the Spin-Off;
• changes to payment terms, return policies, the discount or margin on products or other terms with our suppliers;
• risks associated with data privacy, information security and intellectual property;
• trends and challenges to our business and in the locations in which we have stores;
• non-renewal of contracts and higher-than-anticipated store closings;
• disruptions to our computer systems, data lines, telephone systems or supply chain, including the loss of suppliers;
• work stoppages or increases in labor costs;
• possible increases in shipping rates or interruptions in shipping service, effects of competition;
• obsolete or excessive inventory;
• product shortages;
• changes in law or regulation;
• the amount of our indebtedness and ability to comply with covenants applicable to any future debt financing;
• our ability to satisfy future capital and liquidity requirements;
• our ability to access the credit and capital markets at the times and in the amounts needed and on acceptable terms;
• adverse results from litigation, governmental investigations or tax-related proceedings or audits;
3
• changes in accounting standards; and
• the other risks and uncertainties detailed in the section titled “Risk Factors” in Part I - Item 1A of this Form 10-K.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results
or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned.
Subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified
in their entirety by the cautionary statements in this paragraph. We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise after the date of this Form 10-K.
AVAILABILITY OF INFORMATION
You may read and copy any materials Barnes & Noble Education, Inc. files with the SEC at the SEC’s Public Reference Room
at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of such materials also can be obtained free of charge at the
SEC’s website, www.sec.gov, or by mail from the Public Reference Room of the SEC, at prescribed rates. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the Public Reference Room. Barnes & Noble Education, Inc.’s SEC
filings are also available to the public, free of charge, on its corporate website, www.bned.com, as soon as reasonably practicable
after Barnes & Noble Education, Inc. electronically files such material with, or furnishes it to, the SEC. You may also request a
copy of any of our filings with the SEC at no cost by writing us at Investor Relations, Barnes & Noble Education, Inc., 120 Mountain
View Blvd., Basking Ridge, N.J. 07920. Barnes & Noble Education, Inc.’s common stock is traded on the New York Stock
Exchange. Material filed by Barnes & Noble Education, Inc. can be inspected at the offices of the New York Stock Exchange at
20 Broad Street, New York, N.Y. 10005.
EXPLANATORY NOTE
On February 26, 2015, Barnes & Noble, Inc. (“Barnes & Noble”) announced plans for the complete legal and structural
separation of Barnes & Noble Education, Inc. (the “Company”, "us", "we") from Barnes & Noble (the “Spin-Off”). Under the
Separation and Distribution Agreement between Barnes & Noble and the Company (the “Separation and Distribution Agreement”),
Barnes & Noble planned to distribute all of its equity interest in us, consisting of all of the outstanding shares of our Common
Stock, to Barnes & Noble’s stockholders on a pro rata basis.
On July 14, 2015, Barnes & Noble approved the final distribution ratio and declared a pro rata dividend of the outstanding
shares of our common stock, par value $0.01 per share (“Common Stock”), to Barnes & Noble’s existing stockholders. The pro
rata dividend was made on August 2, 2015 to the Barnes & Noble stockholders of record (as of July 27, 2015). Each Barnes &
Noble stockholder of record received a distribution of 0.632 shares of our Common Stock for each share of Barnes & Noble
common stock held on the record date. Following the Spin-Off, Barnes & Noble does not own any equity interest in us.
On August 2, 2015, we completed the legal separation from Barnes & Noble, at which time we began to operate as an
independent publicly-traded company. Our Common Stock began to trade on a “when-issued” basis on the New York Stock
Exchange ("NYSE") under the symbol “BNED WI” beginning on July 23, 2015. On August 3, 2015, when-issued trading of our
Common Stock ended, and our Common Stock began “regular-way” trading under the symbol “BNED.”
The results of operations for the 13 weeks ended August 1, 2015, Fiscal 2015, Fiscal 2014 (periods presented prior to the
Spin-Off), reflected in our consolidated financial statements are presented on a stand-alone basis since we were still part of Barnes
& Noble, Inc. until the consummation of the Spin-Off on August 2, 2015, and the results of operations for the 39 weeks ended
April 30, 2016 reflected in our consolidated financial statements are presented on a consolidated basis as we became a separate
consolidated entity.
4
Item 1. BUSINESS
PART I
Unless the context otherwise indicates, references in these Notes to the accompanying consolidated financial statements to
“we,” “us,” “our” and “the Company” refer to Barnes & Noble Education, Inc., a Delaware corporation. References to “Barnes &
Noble” refer to Barnes & Noble, Inc., a Delaware corporation, and its consolidated subsidiaries (other than Barnes & Noble
Education, Inc. and its consolidated subsidiaries) unless the context otherwise requires. References to “Barnes & Noble College”
refer to our college bookstore business operated through our subsidiary Barnes & Noble College Booksellers, LLC. .
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. “Fiscal 2016” means
the 52 weeks ended April 30, 2016, “Fiscal 2015” means the 52 weeks ended May 2, 2015, “Fiscal 2014” means the 53 weeks
ended May 3, 2014, “Fiscal 2013” means the 52 weeks ended April 27, 2013, and “Fiscal 2012” means the 52 weeks ended
April 28, 2012.
Unless otherwise indicated, market and industry information contained in this Form 10-K is based on information provided
by the National Association of College Stores ("NACS") and management estimates of market shares.
OVERVIEW
Barnes & Noble Education, Inc., one of the largest contract operators of bookstores on college and university campuses across
the United States and a leading provider of digital education services, enhances the academic and social purpose of educational
institutions. As a strategic partner, we are committed to offering a complete support system and an unmatched retail and digital
learning experience to foster student success in higher education. Through our wholly-owned subsidiary, Barnes & Noble College,
we operate 751 campus bookstores and the school-branded e-commerce sites for each store, serving more than 5 million college
students and their faculty nationwide. On August 2, 2015, we completed the legal separation from Barnes & Noble, Inc., at which
time we began to operate as an independent publicly-traded company.
Overall educational spending in the United States continues to increase dramatically, and as tuition and other costs rise,
colleges and universities face pressure to attract and retain students and provide them with innovative, affordable educational
content and tools that support their educational development. While traditional print textbooks remain the first choice of students,
demand for alternative forms of educational materials is growing.
We offer a comprehensive set of products and services to help students, faculty and administrators achieve their shared
educational and social goals on college and university campuses across the United States. As one of the largest contract operators
of bookstores and a provider of digital education services, we operate as a focal point for college life and learning, advancing the
educational mission of our institution partners, enlivening campus culture and delivering an important revenue stream to our
partner schools.
For over 5 million students and their faculty, our campus stores are a social and academic hub through which students can
access affordable course materials and affinity products, including new and used print and digital textbooks, which are available
for sale or rent; emblematic apparel and gifts; trade books (general reading); computer products; school and dorm supplies; café;
convenience food and beverages; and graduation products. Through multi-year management service agreements with our schools,
we typically have the sole right to operate the official school bookstore on college campuses. In turn, we pay the school a percentage
of store sales and, in some cases, a minimum fixed guarantee. We create seamless retail experiences for our customers, both in
our dynamic physical stores and on our official school-branded e-commerce sites for each school.
As of April 30, 2016, we operated 751 stores nationwide, which reached 26% of the total number of students enrolled at
colleges and universities in the United States. Our stores are operated under 472 contracts, some of which cover multiple store
locations, and 165 of our college and university affiliated bookstores are co-branded with the Barnes & Noble name.
Fiscal 2016 was an excellent year for new store signings, and we have a strong pipeline of new business opportunities. During
the 2016 fiscal year, we opened 39 stores with estimated first year annual sales of $64 million. In addition, as of June 17, 2016,
we have signed additional contracts for 32 new stores with estimated first year annual sales of $109 million. We expect these new
stores to open during our fiscal year 2017.
We are well positioned to benefit from the continuing trend towards outsourcing across the campus bookstore market given
our brand, reputation with institutions, students and faculty for service and our full suite of products and services including:
bookstore management, textbook rental and digital delivery.
5
Strength of Our Business
We enhance the academic and social purpose of educational institutions by providing essential educational content and tools
within a dynamic retail environment. Our products and services improve academic outcomes, provide support to students, and
create loyalty and retention, while also supporting the financial goals of the colleges and universities we serve. We provide more
than course materials and merchandise - we work as a true partner with colleges and universities, aligned with their missions and
goals by acting as a valuable support system for students and faculty. We deliver an attractive retail and digital learning experience
driven by innovation, advanced technologies and a deep understanding of the evolving needs and behaviors of our students, faculty
and administrators. Our competitive strengths are:
• Large Footprint with Well-Recognized Brand: We are one of the largest operators of bookstores on college and university
campuses in the United States, with 751 stores in 43 states and the District of Columbia as of April 30, 2016, which reached
26% of the total number of students enrolled at colleges and universities in the United States. The Barnes & Noble brand is
virtually synonymous with bookselling, and we believe it is one of the most widely recognized and respected brands in the
United States. Our large footprint and our reputation and credibility in the marketplace not only support our marketing efforts
to universities, students and faculty, but are also important for leading publishers who rely on us as one of their primary
distribution channels.
• Stable, Long-Term Contracts: We operate our stores under management contracts with colleges and universities that are
typically for five year terms with renewal options, but can range from one to 15 years, and are typically cancelable by either
party without penalty with 90 to 120 days' notice. From Fiscal 2013 through Fiscal 2016, 94% of these contracts were renewed
or extended, often before their termination dates. In addition, these contracts are financially beneficial to us as we typically
pay the college or university a percentage of our sales, including certain contracts with minimum guarantee payments.
Therefore, the expense related to our college and university contracts is primarily a function of each stores' success. This
arrangement is also beneficial to the colleges and universities, providing them with an incentive to encourage their students
and faculty to shop at our affiliated stores.
• Well-Established Relationships: We have strong partnerships with college and university administrators, as well as with
publishers, vendors and suppliers.
With an average relationship tenure of 15 years, we generate value for our college and university partners, and our
relationships are supported by innovative engagement programs and educational initiatives. Our decentralized
management structure empowers local teams to make decisions based on the local campus needs and foster collaborative
working relationships with our partners.
We have long-term relationships with over 9,000 publishers, who can partner with us to access one of the largest distribution
networks of college education materials in the United States.
• Direct Access to Students and Faculty: We have a flexible business model with excellent visibility into the needs of our
customers, and the ability to achieve profitability typically within the first year of operation. Our stores serve as social hubs
for over 5 million students and their faculty, allowing us to forge deep customer relationships and seamlessly integrate their
systems with our technology. Our established position on campus as the official, contracted provider for bookstore services
gives us direct access to students and faculty and translates into relatively modest customer acquisition costs and high customer
conversion and retention rates. Our flexible research channels help us stay ahead of the rapidly changing needs and behaviors
of our customers, and proactively respond with dynamic solutions. The ReFuel Agency College Explorer Study 2015 estimates
$523 billion total annual spending for tuition, housing, etc. and $203 billion annual discretionary spending, such as for food,
clothing, etc., for the college demographic. Brand partners looking to reach the college audience are also exploring how to
leverage our unique position on campus to access the coveted demographic we serve.
• Highly Relevant Digital Products and Services: Our position as a strategic partner with our large footprint of existing and
prospective colleges and universities allows us to use our suite of digital products and services to best serve their diverse
needs and provides a broader scope of products and services beyond outsourcing of bookstore services. Digital products and
services range from those related to providing accessible and affordable course materials solutions more directly related to
our core business to analytic solutions designed to improve learning outcomes and retention rates.
• Seasoned Management Team: We have an experienced senior management team with a proven track record, and demonstrated
expertise in college bookstore outsourcing and content distribution, marketing and retail operations, and in scaling digital
educational products and services.
6
Growth Drivers
The primary factors that we expect will enable us to grow our business are as follows:
• Increasing Market Share with New Accounts: Historically, new store openings have been an important driver of growth. From
Fiscal 2012 to end of Fiscal 2016, we increased the number of stores we serve from 636 to 751, or 18%. Currently, approximately
52% of college and university affiliated bookstores in the United States are operated by their respective institutions. As of
the end of Fiscal 2016, we operated only 19% of all college and university affiliated bookstores in the United States. Based
on the anticipated continuing trend towards outsourcing in the campus bookstore market, we intend to aggressively pursue
these opportunities and bid on these contracts. We expect new store openings will be the most important driver of future
growth in our business.
• Adapting our Merchandising Strategy and Product and Service Offerings: We create on campus and online retail destinations
with services students want, and capture market share through new product offerings; enhanced marketing efforts using
mobile, search and other technologies; increased local social and promotional offerings; and a broad category assortment of
general merchandise, including school spirit apparel and gifts, school supplies, computer and technology products, dorm
furnishings, graduation products, and café, convenience food and beverage offerings, marketed to our growing student and
alumni base. We also are actively working with publishers by offering them access to FacultyEnlight®, our proprietary online
platform, to expedite and better coordinate textbook adoption.
• Scalable and Advanced Digital Product and Solution Set: We leverage our digital technology platform to provide product
and service offerings designed to address the most pressing issues in higher education, such as affordable and accessible
course materials, retention solutions driven by our analytics platform, and products designed to drive and improve student
outcomes.
• Expanding Strategic Opportunities through Acquisitions and Partnerships: We intend to pursue strategic relationships with
companies that enhance our educational services or distribution platform, or create compelling content offerings. In Fiscal
2016, we acquired LoudCloud Systems, Inc., a sophisticated digital platform and analytics provider. We may also expand our
current suite of digital content offerings and platform through acquisitions, internal or third-party software development and
strategic partnerships. Expansion into new educational verticals and markets, such as K-12, vocational and international
markets, will be opportunistically evaluated.
Product and Service Offering
Our full suite of product offerings includes:
• Textbook and Course Material Sales: Textbooks are a core product offering of our business. We work directly with faculty to
ensure the correct textbooks are available in required formats before the start of classes. We provide students with affordable
textbook solutions and educate them about each format through various means. During Fiscal 2016, we offered over 220,000
unique textbook titles for sale to support the course offerings on our campuses.
• Textbook and Course Material Rentals: Students are increasingly turning to renting as the most affordable way to obtain their
textbooks, and we are an industry leader in textbook rentals. The majority of our robust title list is available for rent, including
custom course packs and adaptive learning materials, along with traditional textbooks. We also offer a convenient buyout
option to allow the customer to purchase the rented book at the end of the semester, thereby enhancing our revenue and
improving our inventory management processes.
• General Merchandise: General merchandise sales are generated in-store, on campus at sporting and other events, as well as
online through school-branded e-commerce sites. Our stores feature collegiate and athletic apparel relating to a school and/
or its athletic programs and other custom-branded school spirit products, technology, supplies and convenience items. Other
merchandise, such as laptops and other technology products, notebooks, backpacks, school and dormitory supplies and related
items are also offered. In addition, as of April 30, 2016, we operated 80 customized cafés, featuring Starbucks Coffee®, and
18 stand-alone convenience stores, as well as diverse grab-and-go options including organic, vegan and gluten-free, and ethnic
fare for students on the move. These offerings increase traffic and time spent in our stores.
• Trade: In our stores located on larger campuses, we carry an extensive selection of trade, academic and reference books, along
with educational toys and games, and schedule store events, such as author signings, that extend beyond the academic
community. The majority of our stores carry the most popular campus bestsellers, along with academically relevant titles.
• Digital Education: Using our LoudCloud platform (as described below), we offer a suite of digital content and learning
materials to supplement our traditional products (textbooks and course materials) and help faculty provide a more robust
educational experience for students. We enable educators to mix and author many forms of content, including eTextbooks
and rich media, and provide them with adaptive analytics and assessment capabilities that, when combined, drive improved
outcomes and better experiences for students.
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• Brand Partnerships: United States college students spend billions on discretionary purchases each year in categories such as
technology, clothing, entertainment, and food. As the official partner to the colleges and universities we serve, we are in a
unique position to provide leading brands direct access to 5 million students who shop at our stores. We operate not just as a
retailer, but as a media channel for these brands looking to target the college demographic. We are experts in creating strategic
solutions and customer programs for brand partners, creating live touch points during the academic year through digital
marketing, custom content, store brand building product sampling and live engagement at our locations in the center of campus
life. We conduct business with a wide range of companies, including Adobe®, Verizon®, Nutella®, Visa Checkout®, West Elm®
and Kind®.
Platform Services
• FacultyEnlight®: Our proprietary online platform enhances content search, discovery and adoption (i.e. textbook selection)
by faculty on each campus. Thus far, approximately 245,000 faculty members use FacultyEnlight® to compare and contrast
key decision-making factors, such as cost savings to students and format availability (including rental and digital options);
read and write peer product reviews; and see what textbooks are being used by colleagues at other colleges and universities.
This wealth of available information enables faculty to find and select the course materials that are both relevant to their
subject matter and affordable to their students. FacultyEnlight® also provides us with a communication platform to connect
with faculty directly, allowing us to better understand their needs, preferences and challenges when it comes to the textbook
adoption process, and deliver our affordability message.
• Campus Connect Technologies™: We enhance the academic and social purpose of higher education institutions by integrating
our technology and systems with the school’s technology and organizational infrastructure to forge a bond with the school
with a particular emphasis on the needs of students and faculty. Our customizable technology delivers a seamless experience
that enables faculty to research and select, and enables students to find and purchase, the most affordable course materials,
maximizing savings and sales. Campus Connect Technologies™ platform includes:
Simple Registration Integration: By linking the online course registration process to the bookstore’s e-commerce site,
students can easily find their specific required course materials and purchase those materials immediately. They can view
the list of necessary course materials and select their preferred format, delivery and payment method.
Seamless LMS Integration: By tying directly into the school’s Learning Management System ("LMS"), faculty and
students can easily purchase their course materials and leverage our single-sign on functionality - enabling a stronger
connection between student, faculty and campus bookstore.
Real-Time Financial Aid Platform: To help simplify financial aid transactions, we provide a sophisticated, real-time
Student Financial Aid ("SFA") platform that is fully-integrated with any college or university’s financial aid systems and
point-of-sale technology. This integration provides a direct and simple way for students to use their financial aid dollars
in our stores and online, even before the start of classes.
Dynamic Point of Sale ("POS") Platform: We build a secure, highly customized checkout experience for each campus,
greatly expediting and simplifying a student’s shopping experience. Campus debit cards, financial aid and all major forms
of tender are fully integrated, allowing students to check out from any register.
Flexible Course Fee Solution: Through this model, all required course materials for a particular course or program are
included in the cost of tuition. Students are guaranteed the course materials they need in the format they prefer. Course
materials can be picked up at the campus store, shipped directly to the student or delivered digitally.
• LoudCloud Platform: Our LoudCloud platform is a sophisticated digital platform and analytics system that includes a
competency based courseware platform, a learning analytics platform, an eReading product, and a learning management
system. Its software captures and analyzes key behavioral and performance metrics from students, allowing educators to
monitor and improve student success. The core framework, rooted in the student-centric design, simplifies course and content
authoring using proprietary algorithms to inform and guide course progress. Our module-based architecture allows for
customization and the ability to support different educational models, and support additional capabilities, including
competency-based learning and courseware development. These tools enable teachers to provide, and students to experience,
a more personalized learning experience and improve student success rates. Additionally, our LMS platform helps institutions
handle all aspects of the learning process, including delivery and management of instructional content, learning goals,
assessment, course administration and reporting.
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Customers and Distribution Network
We leverage our physical bookstores, e-commerce sites and digital platform to serve and interact with the key constituents
in our business ecosystem and act as a key partner for students, universities and publishers.
We work with colleges and universities to transform the campus bookstore into a destination that enhances social and academic
experiences. We offer students a customized retail experience, including what we believe to be the largest inventory of used and
rental titles, as well as a number of other affordable textbook solutions, including digital textbooks and our Flexible Course Fee
Solution. For the colleges and universities that we support, we provide a customized school official website for course materials
and general merchandise, which includes emblematic apparel and gifts and school supplies. We provide faculty with valuable
tools, resources and insights that allow them to gain a deeper understanding of student needs and higher education trends. We also
offer approximately 5,000 publishers access to one of the largest distribution networks of college education materials in the United
States.
As of April 30, 2016, we managed 751 bookstores nationwide across 43 states and the District of Columbia, serving over 5
million students and their faculty. During the period of Fiscal 2012 through Fiscal 2016, the number of stores we operated increased
by 115, or approximately 18%, from 636 to 751, as a result of the increased demand for outsourcing in this market and the awarding
of contracts for stores previously run by our competitors. In addition, as of June 17, 2016, we have signed additional contracts
for 32 new stores, which we expect to open during our fiscal year 2017.
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The number of Barnes & Noble College stores located in each state and the District of Columbia as of April 30, 2016, is listed
below:
STATE
OF STORES
STATE
OF STORES
STATE
NUMBER
NUMBER
NUMBER
OF STORES
Alabama . . . . . . . . . . .
Arizona . . . . . . . . . . . .
Arkansas . . . . . . . . . . .
California . . . . . . . . . .
Colorado . . . . . . . . . . .
Connecticut . . . . . . . . .
Delaware . . . . . . . . . . .
District of Columbia . .
Florida. . . . . . . . . . . . .
Georgia . . . . . . . . . . . .
Hawaii. . . . . . . . . . . . .
Illinois . . . . . . . . . . . . .
Indiana . . . . . . . . . . . .
Iowa . . . . . . . . . . . . . .
Kansas. . . . . . . . . . . . .
Multichannel Retailer
18
8
7
44
5
5
2
4
46
14
3
20
14
6
2
Kentucky . . . . . . . . . .
Louisiana. . . . . . . . . .
Maryland . . . . . . . . . .
Massachusetts . . . . . .
Michigan . . . . . . . . . .
Minnesota . . . . . . . . .
Mississippi . . . . . . . .
Missouri . . . . . . . . . .
Nebraska . . . . . . . . . .
Nevada . . . . . . . . . . .
New Hampshire. . . . .
New Jersey . . . . . . . .
New Mexico . . . . . . .
New York . . . . . . . . .
North Carolina. . . . . .
32
14
20
29
36
7
9
8
1
2
4
21
6
66
25
North Dakota. . .
Ohio. . . . . . . . . .
Oklahoma . . . . .
Oregon. . . . . . . .
Pennsylvania . . .
Rhode Island . . .
South Carolina. .
South Dakota. . .
Tennessee . . . . .
Texas . . . . . . . . .
Virginia . . . . . . .
Washington . . . .
West Virginia. . .
Wisconsin . . . . .
1
41
5
5
63
2
19
2
12
67
20
19
11
6
As of April 30, 2016, we operated 751 bookstores in our dynamic, multichannel format on campuses of state universities,
private universities and community colleges of various sizes. Our typical bookstore is located on campus in a location convenient
to students and faculty. Of our 751 stores, 41 are academic superstores at select major campuses, including the Harvard Coop,
University of Pennsylvania, Yale University, the College of William and Mary, Boston University, The Ohio State University,
DePaul University, Vanderbilt University and Georgia Institute of Technology.
Our academic superstores include a café and carry a large selection of trade and reference books, as well as our campus
bookstore offerings of course-required textbooks, supplies, emblematic clothing and gifts. Our academic superstores often act as
an anchor to the local community; they are positioned in locations that attract customers from the neighborhood community, as
well as students and faculty from the college or university. They are open extended hours and have ongoing events, such as author
signings. These stores differ from our traditional-format stores because the majority has a customer base that includes the general
public and sales which are less dependent on course-required materials.
e-Commerce Platform: With an active digital community of over 6.5 million customers, our official online bookstores for
colleges or universities drove over $400 million of sales in Fiscal 2016, with transactions up over 8.5% over the prior fiscal year.
Designed to appeal to students, parents and alumni, the school-branded sites offer simple and seamless textbook purchasing with
free in-store pick up or shipping to any location, general merchandise promotions and collections that are customized to the
individual user, as well as faculty course material adoption tools and customer service support. Our strategy has allowed us to
connect and personalize our promotions directly to new students, parents and alumni, helping drive our online general merchandise
sales. Additionally, our access to alumni through university alumni offices, including over 940,000 alumni with existing customer
accounts, allow us to leverage digital marketing strategies on our dedicated fan and alumni e-commerce sites focused on athletic
game day and other milestone events for further general merchandise sales growth in school-spirit apparel and related items.
Contracts
Our stores are typically operated under management agreements with the college or university to be the official university
bookstore and the exclusive seller of course materials and supplies, including physical and digital products sold in-store, online
or through learning management systems. Agreements are typically five years with renewal options, but can range from one to
15 years, and are typically cancelable by either party without penalty with 90 to120 days' notice. We pay the school a percentage
of sales for the right to be the official college or university bookstore and the use of the premises; more than half of our agreements
do not have any minimum guaranteed amount to be paid to our partners. In addition, we have the non-exclusive right to sell all
items typically sold in a college bookstore both in-store and on the web. We also have the ability to integrate our systems with the
university’s systems in order to accept student financial aid, university debit cards and other forms of payment. We are able to
10
obtain student and faculty email lists for direct communication which provide for seamless integration into the university community
and potential co-branded marketing opportunities.
Over the past four years, we have renewed more than 94% of our agreements, with the majority of the agreements being
renewed before their expiration dates and without going through a formal bid process.
Merchandising and Supply Chain Management
Our purchasing procedures vary by product type (i.e. textbooks, general merchandise or trade books). Purchases are made at
the store level based on the relationships our managers have with the faculty, with strategic corporate oversight, while maintaining
appropriate inventory levels. After titles are adopted for an upcoming term, we determine how much inventory we will need to
purchase based on several factors, including student enrollment and the previous term’s textbook sales history. We first use our
automated sourcing systems to determine if our stores have the necessary new or used books on hand and may transfer the inventory
to the appropriate store. After internal sourcing, we purchase books from outside suppliers. As part of our contracts with institutions,
we guarantee that we will order textbooks for all courses.
Our primary suppliers of new textbooks include Pearson Education, Cengage Learning, McGraw-Hill, MPS, MBS Textbook
Exchange, Inc. (“MBS”), and John Wiley & Sons. Our primary suppliers of used textbooks are students, through returns of
previously rented and purchased books, and MBS. The stores offer a "Cash for Books" program in which students can sell their
books back to the store at the end of the semester, typically in December and May. Students typically receive 50% of the price
they originally paid for the book if it has been adopted for a future class or the current wholesale price if it has not. Both unsold
textbooks and trade books are generally returnable to publishers for full credit. For textbook sales and rentals, we utilize our
sophisticated inventory management platforms to manage pricing and inventory across all our stores.
The larger stores feature an expanded selection of trade books and use the Barnes & Noble Book Master system, a proprietary
merchandising system licensed from Barnes & Noble. Our home office merchants meet with publishers on a regular basis to
identify new titles and trends to support this changing business. In the smaller stores, trade (general reading) book purchasing is
controlled at the store level.
General merchandise vendors and products are initially selected by our home office merchants using the analytics and insights
from our planning and allocation systems. This data is used to establish benchmarks across school type, region and the socio-
economics of each of our partner institution’s student base to help local store management team forecast sales and trends.
Recommended assortments are provided to the stores, and stores then make selections based on the perceived needs of each
campus, reaching back out to the home office merchants with their recommendations on any additional campus specific needs.
Customer Marketing Strategies
Students, Parents, Alumni
Our expertise in student marketing is supported by our active digital community of over 6.5 million people, which includes
engaged email subscribers and our continuous dialogue with customers on our school-customized social media channels, including
Facebook, Instagram and Twitter, as well as our student blog, The College Juice. Our exclusive Student POV ("Point of View")
online panel of over 8,000 students nationwide, as well as our Parent POV online panel of over 2,800 parents, helps us to better
understand their attitudes, values and behaviors. Using a marketing automation platform, we segment students based on
demographics and purchasing behavior to ensure our audience receives the most relevant messages and experience. Our dynamic
email campaigns educate students on format and affordability options as well as ongoing promotions from game day to graduation.
Through our search engine marketing strategies, we have been able to grow online textbook and apparel sales significantly.
One example of our commitment to turning our research insights into action is our Igniting the New Student Connection
initiative. We connect with new students starting with their acceptance letters, allowing us to capture textbook sales from day one
and building loyalty with new students and their parents, and this relationship continues over the lifecycle of their academic
experience.
As rewarding and helpful as our connections are for new students, they also drive revenue. Nationwide, during the current
fiscal year, we have built more than 440,000 connections with incoming students and their parents, resulting in increased revenues.
These efforts have allowed us to recapture market share and cement the college bookstore as the student's first choice for everything
they need for academic success. We also form the same personal connections with the alumni base, creating a customized loyalty
program that builds and enhances relationships with them while driving revenue for the bookstore.
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Business Conditions and Competition
The market for educational materials is undergoing unprecedented change. Overall spending on education, including tuition,
continues to increase dramatically. As tuition and other costs rise, colleges and universities face increasing pressure to attract and
retain students and provide them with innovative, affordable educational content and tools that support their educational
development. While traditional print textbooks remain the first choice of students, demand for alternative forms of educational
materials, including digital, media-rich content and study aids, is emerging. Current competitive dynamics in the market for
distribution of course materials include:
• A Majority of Traditional Campus Bookstores Have Yet to be Outsourced: Approximately 52% of college and university
affiliated bookstores in the United States are operated by their respective institutions. As the delivery of educational materials
continues to evolve, driven in large part by the growth of rentals and digital content, and the complexity of modern campus
bookstore operations increases, institutions are increasingly outsourcing bookstore operations to third parties such as us,
because we can offer a complete set of solutions to students and faculty. We believe that we will benefit from the continuing
trend towards outsourcing across the campus bookstore market.
• Direct Relationship with a Coveted Demographic: Due to the disproportionate impact on trend-setting and early adoption,
marketing to college students is important for many brands, as they seek more effective methods to engage with this audience.
The importance of this demographic provides a significant opportunity to further monetize our direct relationship with more
than 5 million students both during and beyond their college years.
• Increased Use of Online and Digital Platforms as Companions to Printed Course Materials: Students and faculty can now
choose from a wider variety of educational content and tools than ever before, delivered across both traditional and digital
platforms. Students and faculty are increasingly relying on online and digital platforms as a means to discover, consume and
share educational content and access affordable non-traditional educational content, including online coursework and
supplemental materials. Whereas some companies are creating digital delivery systems that would seek to make traditional
textbooks obsolete, others are developing new technologies to complement traditional offerings. However, today, traditional
print textbooks sold remain the first choice of students, according to the Student Monitor LLC, with 77% preferring a physical
textbook (whether new, used, purchased or rented) over other options. In addition, printed course materials are the primary
instructional resource for most courses and the highest revenue generator for most higher education publishers.
• Highly-Fragmented Educational Content Market Presents Opportunity for Consolidation: The evolving market for educational
content is increasingly competitive, with a broad array of content providers, digital content delivery platforms, educational
enterprise providers and campus store operators that compete to serve this approximately $13 billion market in educational
books alone. As the market for educational content evolves, we believe there will be a significant opportunity to increase our
market share. The traditional college bookstore market is very fragmented, with approximately 52% of college and university
affiliated bookstores owned and operated by the college or university (institutional stores). The campus store continues to be
the main source for books, course materials and general merchandise, such as school-branded apparel and gifts, computer
products, school and dormitory supplies, café and convenience items. According to NACS, college and university store sales
totaled approximately $10.3 billion during 2013.
• Distribution Network Evolving: The way course materials are distributed and consumed is changing significantly, a trend that
is expected to continue. It is clear that significant change in the distribution of course materials is already underway as a result
of start-ups promoting free online textbooks and generating revenue from related services, institutions licensing digital
materials and providing them to students for a fee, or the surge of textbook rental programs in campus bookstores and online
platforms. In addition to the campus bookstore, course materials are also sold through off-campus bookstores, e-commerce
outlets, digital platform companies, publishers’ direct sales to institutions and students and student-to-student marketplaces.
• Expanding E-Commerce Business Focused on Athletics/Alumni: By rapidly scaling our dedicated alumni and fan e-commerce
sites, we can leverage existing student and fan relationships, and exploit weak competition and grow market opportunities to
drive increased sales of higher margin general merchandise product.
The marketplace for course materials is highly competitive. The campus bookstore is no longer the sole provider of course
materials. Students have many choices and options, including e-commerce outlets, digital platform companies, and publishers’
direct sales to students.
The following companies compete directly with us: Akademos, a virtual bookstore and marketplace for academic institutions;
Amazon.com, an e-commerce operator and a provider of contract services to colleges and universities; BBA Solutions, a college
textbook retailer; bn.com, the e-commerce platform of Barnes & Noble; Chegg.com, an online textbook rental company;
CourseSmart, a digital course materials provider; eCampus, an online provider of course materials; Follett Corporation, a contract
operator of campus bookstores; MBS Direct, an online bookstore provider; and Rafter, a course materials management solution
for higher educational institutions.
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Publishers are increasing efforts to sell directly to students, and technology companies, such as Apple, Google and Blackboard,
are also increasing their digital offerings to students. In addition, student-to-student transactions are taking place on campuses and
over the Internet.
Trends and Other Factors Affecting Our Business
Our business is dependent on the overall economic environment, college enrollment and consumer spending patterns. Our
business is affected by funding levels at colleges and universities, by changes in enrollments at colleges and universities, and
spending on textbooks and general merchandise. The growth of our business depends on our ability to attract new students and to
increase the level of engagement by existing students.
Historically, increasing enrollment has been a significant driver of sales growth at campus bookstores, a trend that is expected
to continue. According to the National Center for Education Statistics of the U.S. Department of Education ("NCES"), total
enrollment in post-secondary degree-granting institutions is expected to increase 15.5%, from 20.6 million in 2012 to 23.8 million
in 2023 driven by increased demand for educational services.
We expect awards of new accounts resulting in new store openings will continue to be an important driver of future growth
in our business. We are awarded additional contracts for stores as colleges and universities decide to outsource their bookstore,
and we also obtain new contracts for stores that were previously operated by competitors. Sales trends are primarily impacted by
new store openings, increasing the students and faculty served, as well as changes in comparable store sales and store closings.
We close stores at the end of their contract terms due to low profitability or because the new contract has been awarded to a
competitor. Over the last four years, we have consistently opened new stores increasing our total number of stores open from 636
at the beginning of Fiscal 2012 to 751 at the end of Fiscal 2016.
We continue to see increasing trends towards outsourcing in the campus bookstore market, including virtual bookstores and
online marketplace websites. We also continue to see a variety of business models being pursued for the provision of textbooks,
course materials and general merchandise. In addition to the competition in the services we provide to our customers, our textbook
business faces significant price competition. Many students purchase from multiple textbook providers, are highly price sensitive
and can easily shift spending from one provider or format to another. Some of our competitors have adopted, and may continue
to adopt, aggressive pricing policies and devote substantial resources to marketing, website and systems development.
As we expanded our textbook rental offerings, students have been shifting away from higher priced textbook purchases to
lower priced rental options, which has resulted in lower textbook sales and increasing rental income. After several years of
comparable store sales declines, primarily due to lower textbook unit volume, during the 52 weeks ended May 2, 2015, our
comparable store sales trends improved for both textbooks and general merchandise. For the 52 weeks ended April 30, 2016, our
comparable store sales declined primarily due to lower community college enrollment.
General merchandise sales have continued to increase 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.
Contract costs, which are included in cost of sales, and primarily consist of the payments we make to the colleges and
universities to operate their official bookstores (management service agreement costs), including rent expense, have generally
increased as a percentage of sales as a result of increased competition for renewals and new store contracts.
Prior to the recent restructuring of our digital operation, selling and administrative expenses have generally increased primarily
as a result of our investments in Yuzu®, our eTextbook platform. Additionally, selling and administrative expenses have increased
due to infrastructure costs to support growth and costs associated with being an independent publicly-traded company. In an effort
to reduce and manage digital expenditures, while at the same time maintaining high quality digital products, we restructured our
digital operations in Fiscal 2016. We are closing our Yuzu® offices and eliminating staffing in California and Washington. The
total cost of severance, retention, and other restructuring costs (i.e. facility exit costs) related to our Yuzu® operations will be
approximately $11 million. We incurred approximately $8.8 million of restructuring costs in Fiscal 2016 and expect the restructuring
to be completed in the first quarter of Fiscal 2017.
Additionally, we have effectively outsourced the Yuzu® eTexbook reading platform and have acquired LoudCloud Systems,
Inc., a sophisticated digital platform and analytics provider. With the implementation of these initiatives, we expect to operate
with a lower digital cost structure in fiscal 2017, as compared to our historical Yuzu® digital spend in previous years.
13
Seasonality
Our business is highly seasonal, with the major portion of sales and operating profit realized during the second and third fiscal
quarters, when college students generally purchase and rent textbooks for the upcoming semesters. Revenue from the rental of
physical textbooks is deferred and recognized over the rental period commencing at point of sale. Revenue from the rental of
digital textbooks is recognized at time of sale. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to
the last day of April.
Segment
We have determined that we operate within a single reportable segment. We identified our single operating segment based
on 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.
Corporate History
On September 30, 2009, Barnes & Noble acquired Barnes & Noble College Booksellers, LLC from Leonard and Louise
Riggio. From that date until October 4, 2012, Barnes & Noble College Booksellers, LLC was wholly owned by Barnes & Noble
Booksellers, Inc., a wholly owned subsidiary of Barnes & Noble. We were initially incorporated under the name NOOK Media
Inc. in July 2012 to hold Barnes & Noble’s college and digital businesses. On October 4, 2012, Microsoft Corporation (“Microsoft”)
acquired a 17.6% non-controlling preferred membership interest in our subsidiary NOOK Media LLC (“NOOK Media”), and
through us, Barnes & Noble maintained an 82.4% controlling interest of the college and digital businesses.
On January 22, 2013, Pearson Education, Inc. (“Pearson”) acquired a 5% non-controlling preferred membership interest in
NOOK Media, received warrants to purchase an additional preferred membership interest in NOOK Media and entered into a
commercial agreement with NOOK Media relating to the college business.
On December 4, 2014, we re-acquired Microsoft’s interest in NOOK Media in exchange for cash and common stock of Barnes
& Noble. On December 22, 2014, we also re-acquired Pearson’s interest in NOOK Media and related warrants previously issued
to Pearson in exchange for cash and common stock of Barnes & Noble. As a result of these transactions, Barnes & Noble owned
100% of our Company prior to the Spin-Off.
In February 2015, we changed our name from NOOK Media Inc. to Barnes & Noble Education, Inc. and NOOK Media’s
name to B&N Education, LLC.
On May 1, 2015, we distributed to Barnes & Noble all of the membership interests in NOOK Digital LLC (formerly known
as barnesandnoble.com llc), which owns the NOOK digital business and which will continue to be owned by Barnes & Noble.
At such time, we ceased to own any interest in the NOOK digital business.
On February 26, 2015, Barnes & Noble announced plans to Spin-Off its 100% equity interest in our Company. At the time
of the Spin-Off on August 2, 2015, Barnes & Noble distributed all of its equity interest in us, consisting of all of the outstanding
shares of our Common Stock, to Barnes & Noble’s stockholders on a pro rata basis (the “Distribution”). Following the Spin-Off,
Barnes & Noble does not own any equity interest in us. On August 2, 2015, we completed the legal separation from Barnes &
Noble, at which time we began to operate as an independent publicly-traded company. For details related to the Distribution of
our Common Stock, see Item 8. Financial Statements and Supplementary Data - Note 6. Equity and Earnings Per Share.
In connection with the separation from Barnes & Noble, we entered into several agreements that govern the relationship
between the parties after the separation and allocate between the parties various assets, liabilities, rights and obligations following
the separation and also describe Barnes & Noble’s future commitments to provide us with certain transition services following
the Spin-Off. For information on our on-going agreements with Barnes & Noble, Inc. see Item 8. Financial Statements and
Supplementary Data - Note 10. Barnes & Noble, Inc. Transactions.
As of April 30, 2016, we had approximately 5,500 full time and regularly scheduled part-time employees. In addition, we
typically hire approximately 13,000 or more additional temporary employees during peak periods. Our employees are not
represented by unions, with the exception of 28 employees. We believe that our relationship with our employees is good.
EMPLOYEES
14
The following sets forth information regarding our executive officers, including their positions (ages as of June 25, 2016):
EXECUTIVE OFFICERS
Name
Michael P. Huseby. . . . . . . .
Max J. Roberts . . . . . . . . . .
Patrick Maloney . . . . . . . . .
William Maloney. . . . . . . . .
Barry Brover . . . . . . . . . . . .
Kanuj Malhotra . . . . . . . . . .
Suzanne E. Andrews . . . . . .
Jay Chakrapani . . . . . . . . . .
Stephen Culver . . . . . . . . . .
Thomas D. Donohue . . . . . .
Joel Friedman . . . . . . . . . . .
JoAnn Magill. . . . . . . . . . . .
Lisa Malat . . . . . . . . . . . . . .
Seema C. Paul . . . . . . . . . . .
Age
61
63
60
67
55
49
56
45
51
46
65
62
56
52
Position
Executive Chairman
Chief Executive Officer
Executive Vice President and Chief Operating Officer
Executive Vice President and President, Barnes & Noble College
Executive Vice President
Chief Financial Officer
Chief Strategy and Development Officer and Chief Operating Officer,
Digital Education
Vice President, General Counsel, and Corporate Secretary
Vice President, Chief Digital Officer
Vice President, Chief Information Officer
Vice President, Treasurer and Investor Relations
Vice President, Chief Merchandising Officer
Vice President, Chief Human Resources Officer
Vice President, Operations and Chief Marketing Officer
Vice President, Chief Accounting Officer
Barnes & Noble Education, Inc. (the “Company”) became an independent publicly-traded company effective August 2, 2015
in connection with its spin-off from Barnes & Noble, Inc. Barnes & Noble College, is a subsidiary of the Company through which
the college bookstore business is operated.
Michael P. Huseby, age 61, serves as our Executive Chairman, elected in August 2015, and a director, elected in July 2013.
He has served as the Chief Executive Officer and a member of the board of directors of Barnes & Noble, Inc. from January 2014
until the Spin-Off. Previously, Mr. Huseby was appointed Chief Executive Officer of NOOK Media LLC and President of Barnes
& Noble, Inc. in July 2013, and Chief Financial Officer of Barnes & Noble, Inc. in March 2012. From 2004 to 2011, Mr. Huseby
served as Executive Vice President and Chief Financial Officer of Cablevision Systems Corporation, a leading telecommunications
and media company. He served on the Cablevision Systems Corporation Board in 2000 and 2001. Prior to joining Cablevision,
Mr. Huseby served as Executive Vice President and Chief Financial Officer of Charter Communications, Inc., then the fourth
largest cable operator in the United States. Mr. Huseby served on the Board of Directors of Charter Communications from May
2013 to May 2016. From 1999 to 2002, Mr. Huseby served as Executive Vice President, Finance and Administration, of AT&T
Broadband, a provider of cable television services. In addition, Mr. Huseby spent over 20 years at Arthur Andersen, LLP and
Andersen Worldwide, S.C., where he held the position of Global Equity Partner.
Max J. Roberts, age 63, serves as our Chief Executive Officer. Mr. Roberts joined our company in 1996 as President, and has
served as Chief Executive Officer, of Barnes & Noble College since August of 2013. Prior to joining Barnes & Noble College in
1996, Mr. Roberts held senior executive positions at Petrie Retail, R.H. Macy & Company and May Department Stores. Mr. Roberts
started his professional career at the global public accounting firm of Touche Ross & Company (currently Deloitte).
Patrick Maloney, age 60, serves as our Executive Vice President and Chief Operating Officer. Mr. Maloney is also President
of Barnes & Noble College. In this role, he oversees operations at all bookstores nationwide, including bookstore e-commerce,
store design and construction, internal operations, learning and development, and book and general merchandising departments.
Mr. Maloney began his career at Barnes & Noble in 1974 as a student and assistant manager at SUNY Stony Brook University.
William Maloney, age 67, serves as our Executive Vice President. Mr. Maloney has served as Executive Vice President of
Barnes & Noble College since 2002. In this role, he oversees campus relations activities, builds partnerships and handles strategic
planning and corporate marketing activities. Mr. Maloney began his career at Barnes & Noble in 1971 as a Regional Manager and
Operations Director.
Barry Brover, age 55, serves as our Chief Financial Officer. In this role, he oversees all financial functions including treasury,
investor relations, risk management, accounting, financial reporting, inventory control, accounts payable, internal audit, tax,
financial planning and analysis. Mr. Brover has served as Chief Financial Officer of Barnes & Noble College since 2006. Mr. Brover
joined Barnes & Noble College in 1986 and has held various executive positions with increasing responsibility. Prior to joining
Barnes & Noble College, Mr. Brover started his career at KPMG where he earned his CPA.
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Kanuj Malhotra, age 49, serves as our Chief Strategy and Development Officer and Chief Operating Officer, Digital Education.
Mr. Malhotra was appointed Chief Financial Officer of NOOK Media LLC in July 2013. He joined Barnes & Noble as Vice
President of Corporate Development in May 2012. Prior to joining the Company, Mr. Malhotra was Vice President and Finance
Head for Kaplan Test Prep, a division of The Washington Post Company, from 2011 to 2012. At Kaplan, he led a business
transformation from physical test centers to a digital online learning platform. From 2008 to 2010, Mr. Malhotra was Chief Financial
Officer of Sloane Square Partners LLC. Between 2005 and 2007, he was the Chief Financial Officer for the International Division
of the Cendant Marketing Group and Affinion International, which was divested by Cendant Corporation to Apollo Management.
Mr. Malhotra began his career in Mergers and Acquisitions at Lehman Brothers.
Suzanne E. Andrews, age 56, joined the Company in September 2015 as Vice President, General Counsel, and Corporate
Secretary. She is responsible for all legal matters for Barnes & Noble Education, and its subsidiaries, including management of
outside counsel. She provides guidance to the Company and its Board of Directors on all corporate governance and Securities
and Exchange Commission matters, including public disclosures, mergers and acquisitions, compliance, intellectual property,
vendor management, e-commerce, litigation, and employment. Prior to joining Barnes & Noble Education, Ms. Andrews served
as General Counsel to Investors Bank from 2013 to 2015, and General Counsel to Healthcare Finance Group from 2004 to 2013.
Ms. Andrews has also held positions with several law firms in New York.
Jay Chakrapani, age 45, joined the Company in August 2015 as our Chief Digital Officer. In this role he leads the product
planning and development for the digital business and is responsible for development of digital content offerings and operations.
Prior to joining the Company, Mr. Chakrapani served as President of CK-12 Foundation, a digital learning company, from February
2013 to January 2015 and prior to that he was with McGraw-Hill Higher Education-Digital from 2007 to 2013.
Stephen Culver, age 51, serves as our Vice President, Chief Information Officer and is responsible for overseeing the
Company’s Information Technology operations and strategic development. Prior to joining Barnes & Noble College in 2005,
Mr. Culver held leadership positions in both the private and public sectors. He owned and presided over an Information Technology
consulting company, which specialized in the retail and wholesale industries. As CIO of Giorgio Armani Corporation, he led the
Information Technology operations during the development and expansion of their North American operations.
Thomas D. Donohue, age 46, serves as our Vice President, Investor Relations and Treasurer. Mr. Donohue served as Treasurer
of Barnes & Noble, Inc. since June 2012. In that role, he was responsible for the leadership and direction of all treasury activities
including corporate finance, capital structure, cash management, financial risk management, international finance, debt
management and relationships with financial institutions. Prior to joining Barnes & Noble Inc., he worked at The Interpublic
Group of Companies for 12 years, a global provider of advertising and marketing services, where he served as Vice President,
Assistant Treasurer, International from May 2004 to May 2012.
Joel Friedman, age 65, serves as our Vice President, Chief Merchandising Officer. In his time at Barnes & Noble College,
Mr. Friedman has managed the non-book sales, developed store concepts and directed the planning, design and interior build
outs of the Company’s many store renovations and new store projects. He joined Barnes & Noble College in 1998 after a 20 year
career in department store merchandising of menswear apparel in Boston with Federated based Filene’s and Jordan Marsh, a five
year term in product development and sourcing of menswear and children’s apparel with Fredrick Atkins and a one year term
with Capital Mercury, a wholesale importer, running their product development and design department.
JoAnn Magill, age 62, serves as our Vice President, Chief Human Resources Officer. In her time at Barnes & Noble College,
Ms. Magill has been responsible for the development, implementation, and coordination of policies, practices and programs to
include employee relations, recruitment, benefits, payroll and compensation for the bookstores and home office. She joined the
company in 2003 after a five year career as the Vice President of Human Resources for the AT&T Broadband Media Services
Team. Prior to that she had an extensive 25 year career with Pathmark Supermarkets, where she held a variety of field and
corporate leadership roles.
Lisa Malat, age 56, serves as our Vice President, Operations and Chief Consumer Marketing Officer. Ms. Malat provides
strategic direction and executive oversight to Barnes & Noble College’s campus stores in the areas of consumer and corporate
marketing, learning and development and in-store and e-commerce strategy and operational efficiencies. Prior to joining Barnes
& Noble College in 1996, Ms. Malat held several senior level management positions at Macy’s, including roles in store operations,
process re-engineering, distribution, customer service, and learning and development.
Seema C. Paul, age 52, joined the Company in July 2015 as our Vice President, Chief Accounting Officer. In this role she
manages the external reporting and technical accounting functions of the Company. Prior to joining the Company, Ms. Paul held
positions of increasing responsibility at Covanta Holding Corporation, including Corporate Controller from July 2014 to July
2015, Senior Director-External Reporting & Technical Accounting from June 2013 to July 2014, Director-External Reporting from
January 2011 to May 2013 and Manager-External Reporting from August 2005 to December 2010. Ms. Paul is a Certified Public
Accountant and has held various senior financial roles with several large companies, including Net2Phone, Sybase, Inc. and Liberty
Mutual Insurance Company.
16
Item 1A. RISK FACTORS
The risks and uncertainties described below are not the only ones faced by us. Additional risks and uncertainties not presently
known or that are currently deemed immaterial also may impair our business operations. If any of the following risks occur, our
business, financial condition, operating results and cash flows and the trading price of our Common Stock could be materially
adversely affected.
Risks Relating to Our Business
We face significant competition in our business, and we expect such competition to increase.
The market for course materials, including textbooks and supplemental materials, is intensely competitive and subject to rapid
change. We are experiencing growing competition from alternative media and alternative sources of textbooks and course-related
materials, such as websites that sell textbooks, eTextbooks, digital content and other merchandise directly to students; online
resources, including open educational resources; publishers bypassing the bookstore distribution channel by selling directly to
students and educational institutions; print-on-demand textbooks; textbook rental companies; and student-to-student transactions
over the Internet. We also have competition from other college bookstore operators and educational content providers, including
Akademos, a virtual bookstore and marketplace for academic institutions; Amazon.com, an e-commerce operator and a provider
of contract services to colleges and universities; BBA Solutions, a college textbook retailer; bn.com, the e-commerce platform of
Barnes & Noble; Chegg.com, an online textbook rental company; CourseSmart, a digital course materials provider; eCampus, an
online provider of course materials; Follett Corporation, a contract operator of campus bookstores; MBS Direct, an online bookstore
provider; and Rafter, a course materials management solution for higher educational institutions. We also have competition from
providers of eTextbooks, such as Apple iTunes, CourseSmart, Blackboard, Rafter and Google; and various private textbook rental
websites. In addition, Amazon, Akademos and Rafter have recently begun to develop relationships with colleges and universities
to provide online bookstore solutions. Many students purchase from multiple textbook providers, are highly price sensitive and
can easily shift spending from one provider or format to another. As a consequence, in addition to being competitive in the services
we provide to our customers, our textbook business faces significant price competition. Some of our competitors have adopted,
and may continue to adopt, aggressive pricing policies and devote substantial resources to marketing, website and systems
development. In addition, a variety of business models are being pursued for the provision of print textbooks, some of which may
be more profitable or successful than our business model.
We may not be able to enter into new contracts and contracts for existing or additional college and university affiliated bookstores
may not be profitable.
An important part of our business strategy is to expand sales for our college bookstore operations by being awarded additional
contracts to manage bookstores for colleges and universities. Our ability to obtain those additional contracts is subject to a number
of factors that we are not able to control. In addition, the anticipated strategic benefits of new and additional college and university
bookstores may not be realized at all or may not be realized within the time frames contemplated by management. In particular,
contracts for additional managed stores may involve a number of special risks, including adverse short-term effects on operating
results, diversion of management’s attention and other resources, standardization of accounting systems, dependence on retaining,
hiring and training key personnel, unanticipated problems or legal liabilities, and actions of our competitors and customers. Because
certain terms of any contract are generally fixed for the initial term of the contract and involve judgments and estimates that may
not be accurate, including for reasons outside of our control, we have contracts that are not profitable and may have such contracts
in the future. Even if we have the right to terminate a contract, we may be reluctant to do so even when a contract is unprofitable
due to, among other factors, the potential effect on our reputation.
We may not be able to successfully retain or renew our managed bookstore contracts on profitable terms.
We face significant competition in retaining existing store contracts and when renewing those contracts as they expire. Our
contracts are typically for five years with renewal options, but can range from one to 15 years, and most contracts are cancelable
by either party without penalty with 90 to 120 days' notice. We may not be successful in retaining our current contracts, renewing
our current contracts or renewing our current contracts on terms that provide us the opportunity to improve or maintain the
profitability of managing stores that are the subject matter of such contracts.
Our business is dependent on the overall economic environment, college enrollment and consumer spending patterns.
A deterioration of the current economic environment could have a material adverse effect on our financial condition and
operating results, as well as our ability to fund our growth and strategic business initiatives. Our business is affected by funding
levels at colleges and universities and by changes in enrollments at colleges and universities, changes in student enrollments and
lower spending on textbooks and general merchandise. The growth of our business depends on our ability to attract new students
and to increase the level of engagement by existing students. To the extent we are unable to attract new students or students spend
less generally, our business could be adversely affected.
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We face the risk of disruption of supplier relationships and/or supply chain and/or inventory surplus.
The products that we sell originate from a wide variety of domestic and international vendors. During Fiscal 2016, our four
largest suppliers accounted for approximately 46% of our merchandise purchased, with the largest supplier accounting for
approximately 19% of our merchandise purchased. While we believe that our relationships with our suppliers are good, suppliers
may modify the terms of these relationships due to general economic conditions or otherwise.
We do not have long-term arrangements with most of our suppliers to guarantee availability of merchandise, content or
services, particular payment terms or the extension of credit limits. If our current suppliers were to stop selling merchandise,
content or services to us on acceptable terms, including as a result of one or more supplier bankruptcies due to poor economic
conditions, we may be unable to procure the same merchandise, content or services from other suppliers in a timely and efficient
manner and on acceptable terms, or at all. In addition, our business is dependent on the continued supply of textbooks. The
publishing industry generally has suffered recently due to, among other things, changing consumer preferences away from the
print medium and the economic climate. A significant disruption in this industry generally or a significant unfavorable change in
our relationships with key suppliers could adversely impact our business. In addition, any significant change in the terms that we
have with our key suppliers including, payment terms, return policies, the discount or margin on products or changes to the
distribution model of textbooks, could adversely affect our financial condition and liquidity. Furthermore, certain of our
merchandise is sourced indirectly from outside the United States. Political or financial instability, merchandise quality issues,
product safety concerns, trade restrictions, work stoppages, tariffs, foreign currency exchange rates, transportation capacity and
costs, inflation, civil unrest, natural disasters, outbreaks of pandemics and other factors relating to foreign trade are beyond our
control and could disrupt our supply of foreign-sourced merchandise.
In addition, we have significantly increased our textbook rental business, offering students a lower cost alternative to purchasing
textbooks, which is also subject to certain inventory risks, such as textbooks not being resold or re-rented due to delayed returns
or poor condition, or faculty members not continuing to adopt or use certain textbooks.
We are dependent upon access to the capital markets, bank credit facilities, and short-term vendor financing for liquidity needs.
We must have sufficient sources of liquidity to fund working capital requirements. We believe that the combination of cash-
on-hand, cash flow received from operations, funds available under our revolving senior credit facility and short-term vendor
financing will be sufficient to meet our normal working capital and debt service requirements for at least the next twelve months.
If these sources of liquidity do not satisfy our requirements, we may need to seek additional financing. The future availability of
financing will depend on a variety of factors, such as economic and market conditions, and the availability of credit. These factors
could materially adversely affect our costs of borrowing, and our financial position and results of operations would be adversely
impacted.
Our business relies on certain key personnel.
Management believes that our continued success will depend to a significant extent upon the efforts and abilities of certain
of our key personnel. The loss of the services of any of these key personnel could have a material adverse effect on our business.
We do not maintain “key man” life insurance on any of our officers or other employees.
Our business is seasonal.
Our business is seasonal, with sales generally highest in the second and third fiscal quarters, when college students generally
purchase textbooks for the upcoming semesters, and lowest in the first and fourth fiscal quarters. Less than satisfactory net sales
during our peak fiscal quarters could have a material adverse effect on our financial condition or operating results for the year,
and our results of operations from those quarters may not be sufficient to cover any losses that may be incurred in the other fiscal
quarters of the year.
Our results also depend on the successful implementation of our strategic initiatives. We may not be able to implement these
strategies successfully, on a timely basis, or at all.
Our ability to grow depends upon a number of factors, including our ability to implement our strategic initiatives to retain
and expand existing customer relationships, acquire new accounts, expand sales channels and marketing efforts, develop and
market higher education digital products and adapt to changing industry trends. While we believe we have the capital resources,
experience, management resources and internal systems to successfully operate our business, we may not be successful in
implementing these strategies. Further, even if successfully implemented, our business strategy may not ultimately produce positive
results.
Our strategy includes pursuing strategic acquisitions and partnerships and we may not be able to identify and successfully
complete such transactions.
As part of our strategy, we have acquired, and, may in the future acquire, businesses or business operations, or enter into other
business transactions, such as our recent acquisition of LoudCloud Systems, Inc. and strategic commercial agreement with Vital
Source Technologies, Inc. We may not be able to identify suitable candidates for additional business combinations and strategic
18
investments, obtain financing on acceptable terms for such transactions, obtain necessary regulatory approvals, if any, or otherwise
consummate such transactions on acceptable terms, or at all. Any strategic acquisitions or investments that we are able to identify
and complete may also involve a number of risks, including our inability to successfully or profitably integrate, operate, maintain
and manage our newly acquired operations or employees; the diversion of our management’s attention from our existing business
to integrate operations and personnel; possible material adverse effects on our results of operations during the integration process;
becoming subject to contingent or other liabilities, including liabilities arising from events or conduct predating the acquisition
that were not known to us at the time of the acquisition; and our possible inability to achieve the intended objectives of the
transaction, including the inability to achieve cost savings and synergies. Acquisitions may also have unanticipated tax, legal,
regulatory and accounting ramifications, including recording goodwill and non-amortizable intangible assets that are subject to
impairment testing on a regular basis and potential periodic impairment charges and incurring amortization expenses related to
certain intangible assets.
Our international expansion could result in additional risks.
Historically, our operations have been limited to the United States; however, we contract with service providers outside the
United States and we recently have acquired operations in India (and we may continue to expand internationally). Such international
expansion may result in additional risks that are not present domestically and which could adversely affect our business or our
results of operations, including compliance with additional United States regulations and those of other nations applicable to
international operations; cultural and language differences; currency fluctuations between the U.S. dollar and foreign currencies,
which are harder to predict in the current adverse global economic climate; restrictions on the repatriation of earnings; potentially
adverse tax consequences and limitations on our ability to utilize losses generated in our foreign operations; different regulatory
requirements and other barriers to conducting business; and different or less stable political and economic environments. Further,
conducting business abroad subjects us to increased regulatory compliance and oversight. For example, in connection with our
international operations, we are subject to laws prohibiting certain payments to governmental officials, such as the Foreign Corrupt
Practices Act. A failure to comply with applicable regulations could result in regulatory enforcement actions as well as substantial
civil and criminal penalties assessed against us and our employees.
We face data security risks with respect to personal information.
Our business involves the receipt, storage, processing and transmission of personal information about customers and
employees. We may share information about such persons with vendors and third parties that assist with certain aspects of our
business. Also, in connection with our student financial aid platform and the processing of university debit cards, we secure and
have access to certain student personal information that has been provided to us by the universities we serve. Our handling and
use of personal information is regulated at the international, federal and state levels and by industry standards, such as the Payment
Card Industry Data Security Standard. As an entity that provides services to institutions of higher education, we are contractually
bound to handle certain personal information from student education records in accordance with the requirements of Family
Educational Rights and Privacy Act (“FERPA”). Privacy and information security laws, regulations, and industry standards change
from time to time, and compliance with them may result in cost increases due to necessary systems changes and the development
of new processes and may be difficult to achieve. If we fail to comply with these laws, regulations and standards, we could be
subjected to legal risk. In addition, even if we fully comply with all laws, regulations and standards, and even though we have
taken significant steps to protect personal information, we could experience a data security breach, and our reputation could be
damaged, possibly resulting in a material breach of contract with one or more of our clients, lost future sales or decreased usage
of credit and debit card products. Further, in the event that we disclose student information in violation of FERPA, the U.S.
Department of Education could require a client to suspend our access to their student information for at least five years. Because
the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often
are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures. A party that is able to circumvent our security measures could misappropriate our or our users’ proprietary
information and cause interruption in our operations. Any compromise of our data security could result in a violation of applicable
privacy and other laws or standards, significant legal and financial exposure beyond the scope or limits of insurance coverage,
increased operating costs associated with remediation, equipment acquisitions or disposal and added personnel, and a loss of
confidence in our security measures, which could harm our business or affect investor confidence. Data security breaches may
also result from non-technical means, for example, actions by an employee.
Our business could be impacted by changes in federal, state, local or international laws, rules or regulations.
We are subject to general business regulations and laws relating to all aspects of our business. These regulations and laws
may cover taxation, privacy, data protection, our access to student financial aid, pricing and availability of educational materials,
competition and/or antitrust, content, copyrights, distribution, college distribution, mobile communications, electronic contracts
and other communications, consumer protection, the provision of online payment services, unencumbered Internet access to our
services, the design and operation of websites, digital content (including governmental investigations and litigation relating to the
agency pricing model for digital content distribution), the characteristics and quality of products and services and employee benefits
19
(including the costs associated with complying with the Patient Protection and Affordable Care Act). Changes in federal, state,
local or international laws, rules or regulations relating to these matters could increase our costs of doing business or otherwise
impact our business.
Changes in tax laws and regulations might adversely impact our businesses or financial performance.
We collected sales tax on the majority of the products and services that we sold in our respective prior fiscal years that were
subject to sales tax, and we generally have continued the same policies for sales tax within the current fiscal year. While management
believes that the financial statements included elsewhere in this Form 10-K reflect management’s best current estimate of any
potential additional sales tax liability based on current discussions with taxing authorities, we cannot assure you that the outcome
of any discussions with any taxing authority will not result in the payment of sales taxes for prior periods or otherwise, or that the
amount of any such payments will not be materially in excess of any liability currently recorded. In the future, our businesses may
be subject to claims for not collecting sales tax on the products and services we currently sell for which sales tax is not collected.
In addition, our provision for income taxes and our obligation to pay income tax is based on existing federal, state and local tax
laws. Changes to these laws, in particular as they relate to depreciation, amortization and cost of goods sold, could have a significant
impact on our income tax provision, our projected cash tax liability, or both.
Our expansion into new products, services and technologies subjects us to additional business, legal, financial and competitive
risks.
We may require additional capital in the future to sustain or grow our business. Our gross profits and margins in our newer
activities may be lower than in our traditional activities, and we may not be successful enough in these newer activities to recoup
our investments in them. In addition, we may have limited or no experience in our newer products and services, and our customers
may not adopt our new product or service offerings. Some of these offerings may present new and difficult technological challenges,
and we may be subject to claims if customers of these offerings experience service disruptions or failures or other quality issues.
We may not be able to adequately protect our intellectual property rights or may be accused of infringing upon intellectual
property rights of third parties.
We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology and similar
intellectual property as important to our success, and we rely on trademark, copyright and patent law, domain name regulations,
trade secret protection and confidentiality or license agreements to protect our proprietary rights, including our use of the Barnes &
Noble trademark. Laws and regulations may not adequately protect our trademarks and similar proprietary rights. We may be
unable to prevent third parties from acquiring domain names that are similar to, infringe upon or diminish the value of our trademarks
and other proprietary or licensed rights.
We may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. The protection of
our intellectual property may require the expenditure of significant financial and managerial resources. Moreover, the steps we
take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or
misappropriating our proprietary rights. We also cannot be certain that others will not independently develop or otherwise acquire
equivalent or superior technology or other intellectual property rights.
Other parties also may claim that we infringe their proprietary rights. Because of the changes in Internet commerce and digital
content businesses, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible that certain
components of our products and business methods may unknowingly infringe existing patents or intellectual property rights of
others.
Our digital content offerings depend in part on effective digital rights management technology to control access to digital
content. If the digital rights management technology that we use is compromised or otherwise malfunctions, we could be subject
to claims, and content providers may be unwilling to include their content in our service.
We do not own the Barnes & Noble trademark and instead rely on a license of that trademark and certain other trademarks,
which license imposes limits on what those trademarks can be used to do.
In connection with the Spin-Off, Barnes & Noble granted us an exclusive, perpetual, fully paid up, non-transferable and non-
assignable license to use the trademarks “Barnes & Noble College,” “B&N College,” “Barnes & Noble Education” and “B&N
Education” and the non-exclusive, perpetual, fully paid up, non-transferable and non-assignable license to use the marks “Barnes &
Noble,” “B&N” and “BN,” solely in connection with the contract management of college and university bookstores and other
bookstores associated with academic institutions and related websites, as well as education products and services (including digital
education products and services) and related websites. These restrictions may materially limit our ability to use the licensed marks
in the expansion of our operations in the future. In addition, we are reliant on Barnes & Noble to maintain the licensed trademarks.
20
We rely on third-party digital content and applications, which may not be available to us on commercially reasonable terms or
at all.
We contract with certain third-parties to offer their digital content. Our licensing arrangements with these third-parties do not
guarantee the continuation or renewal of these arrangements on reasonable terms, if at all. Some third-party content providers
currently or in the future may offer competing products and services, and could take action to make it more difficult or impossible
for us to license our content in the future. Other content owners, providers or distributors may seek to limit our access to, or increase
the total cost of, such content. If we are unable to offer a wide variety of content at reasonable prices with acceptable usage rules,
our business may be materially adversely affected.
Risks Relating to Our Recent Spin-Off from Barnes & Noble
We could have an indemnification obligation to Barnes & Noble if the Spin-Off were determined not to qualify for non-
recognition treatment.
If, due to any of our covenants in the Tax Matters Agreement being breached, it were determined as a tax matter that the Spin-
Off did not qualify for non-recognition of gain and loss, we could be required to indemnify Barnes & Noble for the resulting taxes
and related expenses. In addition, Section 355(e) of the Internal Revenue Code of 1986, as amended (the “Code”), generally creates
a presumption that the Spin-Off would be taxable to Barnes & Noble, but not to holders, if we or our stockholders were to engage
in transactions that result in a 50% or greater change by vote or value in the ownership of our stock during the four-year period
beginning on the date that begins two years before the date of the Spin-Off, unless it were established that such transactions and
the Spin-Off were not part of a plan or series of related transactions giving effect to such a change in ownership. If the Spin-Off
were taxable to Barnes & Noble due to such 50% or greater change in the ownership of our stock, Barnes & Noble would have
to recognize gain in an amount up to the fair market value of our stock held by it immediately before the Spin-Off, and we generally
would be required to indemnify Barnes & Noble for the tax on such gain and related expenses. See “Certain Relationships and
Related Party Transactions—Agreements with Barnes & Noble—Tax Matters Agreement” in our Prospectus dated July 15, 2015
and filed with SEC on that date for more information.
We have agreed to numerous restrictions to preserve the non-recognition treatment of the Spin-Off, which may reduce our
strategic and operating flexibility.
We have agreed in the Tax Matters Agreement to covenants and indemnification obligations that address compliance with
Section 355(e) of the Code. These covenants and indemnification obligations may limit our ability to pursue strategic transactions
or engage in new businesses or other transactions that might maximize the value of our business, and could discourage or delay
a strategic transaction that our stockholders may consider favorable. See “Certain Relationships and Related Party Transactions
—Agreements with Barnes & Noble—Tax Matters Agreement” in our Prospectus dated July 15, 2015 and filed with SEC on that
date for more information.
We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.
We believe that, as an independent publicly-traded company, we will be able to, among other things, better focus our financial
and operational resources on our specific business, implement and maintain a capital structure designed to meet our specific needs,
design and implement corporate strategies and policies that are targeted to our business, more effectively respond to industry
dynamics and create effective incentives for our management and employees that are more closely tied to our business performance.
However, following our separation from Barnes & Noble, we may be more susceptible to market fluctuations and have less leverage
with suppliers, and we may experience other adverse events. In addition, we may be unable to achieve some or all of the benefits
that we expect to achieve as an independent company in the time we expect, if at all.
We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent publicly-
traded company, and we may experience increased costs after the Spin-Off.
In the past, Barnes & Noble provided us with various corporate services. Following the Spin-Off, Barnes & Noble has no
obligation to provide us with assistance other than the transition services described under “Certain Relationships and Related Party
Transactions—Agreements with Barnes & Noble” in our Prospectus dated July 15, 2015 and filed with SEC on that date. These
services do not include every service that we have received from Barnes & Noble in the past, and Barnes & Noble is only obligated
to provide these services for limited periods from the date of the Spin-Off. Accordingly, we now provide internally or obtain from
unaffiliated third parties, the services we previously received from Barnes & Noble prior to the Spin-Off. We may be unable to
replace these services in a timely manner or on terms and conditions as favorable as those we receive from Barnes & Noble. We
may be unable to successfully establish the infrastructure or implement the changes necessary to operate independently or may
incur additional costs. If we fail to obtain the services necessary to operate effectively or if we incur greater costs in obtaining
these services, our business, financial condition and results of operations may be adversely affected.
21
We have limited operating history as an independent publicly-traded company, and our historical financial information is not
necessarily representative of the results we would have achieved as an independent publicly-traded company and may not be
a reliable indicator of our future results.
We derived the historical financial information (prior to the Spin-Off) included in this Form 10-K from Barnes & Noble’s
consolidated financial statements, and this information does not necessarily reflect the results of operations and financial position
we would have achieved as an independent publicly-traded company during the periods presented (prior to the Spin-Off) or those
that we will achieve in the future. This is primarily because of the following factors:
• Prior to the Spin-Off, we operated as part of Barnes & Noble’s broader corporate organization, and Barnes & Noble
performed various corporate functions for us. Our historical financial information reflects allocations of corporate expenses
from Barnes & Noble for these and similar functions. These allocations may not reflect the costs we will incur for similar
services in the future as an independent publicly-traded company.
• We have entered into transactions with Barnes & Noble that did not exist prior to the Spin-Off and modified our existing
agreements with Barnes & Noble, such as Barnes & Noble’s provision of transition services, which will cause us to incur
new costs.
• Our historical financial information does not reflect changes that we expect to experience in the future as a result of our
separation from Barnes & Noble, including changes in our cost structure, personnel needs, tax structure, financing and
business operations. As part of Barnes & Noble, we enjoyed certain benefits from Barnes & Noble’s operating diversity,
size, purchasing power, borrowing leverage and available capital for investments, and we lost these benefits after the Spin-
Off. As an independent entity, we may be unable to purchase goods, services and technologies, such as insurance and health
care benefits and computer software licenses or access capital markets on terms as favorable to us as those we obtained as
part of Barnes & Noble prior to the Spin-Off.
Following the Spin-Off, we are now also responsible for the additional costs associated with being an independent publicly-
traded company, including costs related to corporate governance, investor and public relations and public reporting. In addition,
certain costs incurred by Barnes & Noble, including executive oversight, accounting, treasury, tax, legal, human resources,
procurement, information technology and other shared services, had historically been allocated to us by Barnes & Noble; but these
allocations may not reflect the future level of these costs to us as we provide these services ourselves. Therefore, our historical
financial statements (prior to the Spin-Off) may not be indicative of our future performance as an independent publicly-traded
company. We cannot assure you that our operating results will continue at a similar level when we are an independent publicly-
traded company. For additional information about our past financial performance and the basis of presentation of our financial
statements, see Part II - Item 8. Financial Statements and Supplementary Data and Part II - Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations in this Form 10-K.
We may not be able to access the credit and capital markets at the times and in the amounts needed on acceptable terms.
From time to time, we may need to access the long-term and short-term capital markets to obtain financing. Although we
believe our current sources of capital will permit us to finance our operations for the foreseeable future on acceptable terms and
conditions, we have not previously accessed the capital markets as an independent public company, and our access to, and the
availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including our financial
performance, our credit ratings or absence thereof, the liquidity of the overall capital markets and the state of the economy. We
cannot assure you that we will have access to the capital markets at the times and in the amounts needed or on terms acceptable
to us.
We may have been able to receive better terms from unaffiliated third parties than the terms we received in our agreements
with Barnes & Noble.
We entered into agreements with Barnes & Noble related to our separation from Barnes & Noble, including the Separation
Agreement, Transition Services Agreement, Tax Matters Agreement, the Trademark License Agreement and Employee Matters
Agreement, while we were still part of Barnes & Noble. Accordingly, these agreements may not reflect terms that would have
resulted from arms-length negotiations between unaffiliated parties. The terms of the agreements relate to, among other things,
allocations of assets, liabilities, rights, indemnifications and other obligations between Barnes & Noble and us. We may have
received better terms from third parties than we received from Barnes & Noble because third parties would have competed with
each other to win our business, but we are now bound by the terms of the agreements we entered into with Barnes & Noble. See
“Certain Relationships and Related Party Transactions” in our Prospectus dated July 15, 2015 and filed with SEC on that date for
more information.
22
Risks Relating to our Common Stock and the Securities Market
Our stock price may fluctuate significantly.
We cannot predict the prices at which our Common Stock may trade. The market price of our Common Stock may fluctuate
widely, depending on many factors, some of which may be beyond our control, including:
• actual or anticipated fluctuations in our operating results due to factors related to our businesses;
• success or failure of our business strategies, including our digital education initiative;
• our quarterly or annual earnings or those of other companies in our industries;
• our ability to obtain financing as needed;
• announcements by us or our competitors of significant acquisitions or dispositions;
• changes in accounting standards, policies, guidance, interpretations or principles;
• the failure of securities analysts to cover our Common Stock;
• changes in earnings estimates by securities analysts or our ability to meet those estimates;
• the operating and stock price performance of other comparable companies;
• investor perception of our Company and the college bookstore industry;
• overall market fluctuations;
• results from any material litigation or government investigation;
• changes in laws and regulations (including tax laws and regulations) affecting our business;
• changes in capital gains taxes and taxes on dividends affecting stockholders; and
• general economic conditions and other external factors.
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular
company. These broad market fluctuations could adversely affect the trading price of our Common Stock.
The concentration of our Common Stock ownership may limit our stockholders’ ability to influence corporate matters and may
involve other risks.
A portion of our Common Stock is controlled by a few stockholders. This control may limit the ability of the Company’s
other stockholders to influence corporate matters and, as a result, we may take actions with which our other stockholders do not
agree.
We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on your investment in our
Common Stock must come from increases in the fair market value and trading price of our Common Stock.
We do not intend to pay cash dividends on our Common Stock in the foreseeable future. We expect to retain future earnings,
if any, for reinvestment in our business. Also, our credit agreements may restrict our ability to pay dividends. Whether we pay
cash dividends in the future will be at the discretion of our Board and will be dependent upon our financial condition, results of
operations, cash requirements, future prospects and any other factors our Board deems relevant. Therefore, any return on your
investment in our Common Stock must come from increases in the fair market value and trading price of our Common Stock. For
more information, see Part II - Item 5. Market for Registrants - Dividends.
Your percentage ownership in the Company may be diluted in the future.
Your percentage ownership in the Company may be diluted in the future because of equity awards that we expect to grant to
our directors, officers and other employees. We have an incentive plan that provides for the grant of Common Stock-based equity
awards to our directors, officers and other employees. In addition, we may issue equity as all or part of the consideration paid for
acquisitions and strategic investments that we may make in the future or as necessary to finance our ongoing operations.
Provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws and of Delaware
law may prevent or delay an acquisition of the Company, which could affect the trading price of our Common Stock.
Our Amended and Restated Certificate of Incorporation and our Amended and Restated By-laws contain provisions which,
together with applicable Delaware law, may discourage, delay or prevent a merger or acquisition that our stockholders consider
favorable, including provisions that:
• divide our Board into three staggered classes of directors that are each elected to three-year terms;
• prohibit stockholder action by written consent;
23
• authorize the issuance of “blank check” preferred stock that could be issued by our Board to increase the number of
outstanding shares of capital stock, making a takeover more difficult and expensive;
• provide that special meetings of the stockholders may be called only by or at the direction of a majority of our Board or
the chairman of our Board; and
• require advance notice to be given by stockholders for any stockholder proposals or director nominations.
In addition, Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, may affect the ability of an
“interested stockholder” to engage in certain business combinations, for a period of three years following the time that the
stockholder becomes an “interested stockholder”.
These provisions may discourage, delay or prevent certain types of transactions involving an actual or a threatened acquisition
or change in control of the Company, including unsolicited takeover attempts, even though the transaction may offer our
stockholders the opportunity to sell their Common Stock at a price above the prevailing market price. See “Description of Our
Capital Stock—Certain Provisions of Delaware Law, Our Amended and Restated Certificate of Incorporation and Amended and
Restated By-laws” in our Prospectus dated July 15, 2015 and filed with SEC on that date for more information.
Our Amended and Restated By-laws designate courts in the State of Delaware as the sole and exclusive forum for certain types
of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us or our directors, officers or employees.
Our Amended and Restated By-laws provide that, subject to limited exceptions, the state and federal courts of the State of
Delaware are the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting
a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (c) any
action asserting a claim arising pursuant to any provision of the DGCL, our Amended and Restated Certificate of Incorporation
or our Amended and Restated By-laws or (d) any other action asserting a claim that is governed by the internal affairs doctrine.
Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be deemed to
have notice of and to have consented to these provisions. This provision may limit a stockholder’s ability to bring a claim in a
judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such
lawsuits against us and our directors, officers and employees.
Alternatively, if a court were to find this provision of our Amended and Restated By-laws inapplicable to, or unenforceable
in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving
such matters in other jurisdictions.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Facilities
We lease approximately 81,000 square feet of space for our corporate headquarters in Basking Ridge, New Jersey, pursuant
to a lease that expires in October 2023. We also lease approximately 12,000, 5,000 and 6,000 square feet of office space primarily
for our digital operations in New York, New York, Dallas, Texas, and Mumbai, India pursuant to leases that expire in 2020, 2017
and 2017, respectively.
Our contracts with colleges and universities are typically five years with renewal options, but can range from one to 15 years,
and are typically cancelable by either party without penalty with 90 to120 days' notice. The contracts for the 751 stores as of
April 30, 2016 expire as follows:
Contract Terms to Expire
During (12 months ending
on or about April 30)
Number of Stores
2017 . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . .
2022 and later . . . . . . .
49
42
33
76
61
490
24
Item 3. 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. We record a liability when we believe that it is both probable that a loss has been incurred and the amount of
loss can be reasonably estimated. Based on our current knowledge, we do not believe that there is a reasonable possibility that the
final outcome of any pending or threatened legal proceedings to which we or any of our subsidiaries are a party, either individually
or in the aggregate, will have a material adverse effect on our future financial results. However, legal matters are inherently
unpredictable and subject to significant uncertainties, some of which are beyond our control. As such, there can be no assurance
that the final outcome of these matters will not materially and adversely affect our business, financial condition, results of operations
or cash flows.
The litigation matter described below is the only material legal proceeding in which we are currently involved. Under the
Separation Agreement, Barnes & Noble, Inc. is obligated to indemnify us against any expenses and liabilities incurred in connection
with the matter; consequently, we do not expect an adverse outcome to this litigation to adversely impact our financial condition,
results of operations or cash flows.
Adrea LLC v. Barnes & Noble, Inc., NOOK Digital, LLC (formerly barnesandnoble.com llc) and B&N Education, LLC
(formerly Nook Media LLC):
On June 14, 2013, Adrea LLC (“Adrea”) filed a complaint against Barnes & Noble, Inc., NOOK Digital, LLC (formerly
barnesandnoble.com llc) and B&N Education, LLC (formerly NOOK Media LLC) (collectively, “B&N”) in the United States
District Court for the Southern District of New York alleging that various B&N NOOK products and related online services infringe
U.S. Patent Nos. 7,298,851 (the “’851 patent”), 7,299,501 (the “’501 patent”) and 7,620,703 (the “’703 patent”). B&N filed its
Answer on August 9, 2013, denying infringement and asserting several affirmative defenses. At the same time, B&N filed
counterclaims seeking declaratory judgments of non-infringement and invalidity with respect to each of the patents-in-suit.
Discovery was commenced and completed and summary judgment motions were filed. On July 1, 2014, the Court issued a decision
granting partial summary judgment in B&N’s favor, and in particular granting B&N’s motion to dismiss one of Adrea’s infringement
claims, and granting B&N’s motion to limit any damages award with respect to another of Adrea’s infringement claims. Beginning
October 7, 2014, through and including October 22, 2014, the case was tried before a jury in the Southern District of New York.
The jury returned its verdict on October 27, 2014. The jury found no infringement with respect to the ‘851 patent, and infringement
with respect to the ‘501 patent and ‘703 patent. It awarded damages in the amount of $1.3 million. The jury further found no willful
infringement with respect to any patent.
On July 24, 2015, the Court granted B&N’s post trial application to invalidate one of the two patents (the ‘501 patent) the
jury found to have been infringed. The Court heard oral argument on September 28, 2015 on the post-trial motions on the jury’s
infringement and validity determinations. On February 24, 2016, the Court issued a decision upholding the jury’s determination
of infringement and validity with respect to the ‘703 patent and ordered a new trial on damages with respect to ‘703 patent since
the original damages award was a total award for both the ‘501 patent and the ‘703 patent. The court commenced a trial on June
23, 2016 to determine the damage award related to the '703 patent. The trial continued the following day but was not completed.
The trial will be continued sometime this summer; however, a date has not yet been determined.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
25
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
On February 26, 2015, Barnes & Noble, Inc. (“Barnes & Noble”) announced plans for the complete legal and structural
separation of Barnes & Noble Education, Inc. (the “Company”, "us", "we") from Barnes & Noble (the “Spin-Off”). Under the
Separation and Distribution Agreement between Barnes & Noble and the Company (the “Separation and Distribution Agreement”),
Barnes & Noble planned to distribute all of its equity interest in us, consisting of all of the outstanding shares of our Common
Stock, to Barnes & Noble’s stockholders on a pro rata basis.
On July 14, 2015, Barnes & Noble approved the final distribution ratio and declared a pro rata dividend of the outstanding
shares of our common stock, par value $0.01 per share (“Common Stock”), to Barnes & Noble’s existing stockholders. The pro
rata dividend was made on August 2, 2015 to the Barnes & Noble stockholders of record (as of July 27, 2015). Each Barnes &
Noble stockholder of record received a distribution of 0.632 shares of our Common Stock for each share of Barnes & Noble
common stock held on the record date. Following the Spin-Off, Barnes & Noble does not own any equity interest in us.
On August 2, 2015, we completed the legal separation from Barnes & Noble, at which time we began to operate as an
independent publicly-traded company. Following the Spin-Off on August 2, 2015, our authorized capital stock consisted
of 200,000,000 shares of common stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per
share. Our Common Stock began to trade on a “when-issued” basis on the New York Stock Exchange ("NYSE") under the symbol
“BNED WI” beginning on July 23, 2015. On August 3, 2015, when-issued trading of our Common Stock ended, and our Common
Stock began “regular-way” trading under the symbol “BNED.”
As of April 30, 2016, 46,755,561 shares of our Common Stock and 0 shares of our preferred stock were outstanding. During
the second quarter, 2,409,345 shares of Common Stock were reserved for future grants, in accordance with the Barnes & Noble
Education Inc. Equity Incentive Plan. See Item 8. Financial Statements and Supplementary Information - Note 13. Stock-Based
Compensation.
The following table sets forth the high and low stock prices of our common stock for the quarterly periods indicated since
August 3, 3015:
Second Quarter. . . . .
Third Quarter . . . . . .
Fourth Quarter . . . . .
Fiscal 2016
High
$ 15.34
$ 15.49
$ 11.93
Low
$ 11.75
8.15
$
$
8.71
On June 17, 2016, there were approximately 845 holders of record of our common stock and the closing price of our common
stock on the New York Stock Exchange was $9.72 per share.
Dividends
We have not, and we do not intend to pay cash dividends on our Common Stock in the foreseeable future. We expect to retain
future earnings, if any, for reinvestment in our business. Any credit agreements which we may enter into, including the Credit
Facility entered into on August 3, 2016, may restrict our ability to pay dividends. The payment of dividends in the future will be
subject to the discretion of our Board of Directors and will depend, among other things, on our financial condition, results of
operations, cash requirements, future prospects and any other factors our Board of Directors deems relevant.
Issuer Purchases of Equity Securities
On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50 million, in the aggregate,
of our outstanding Common Stock. The stock repurchase program is carried out at the direction of management (which includes
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 Fiscal 2016, we repurchased 1,715,269 shares for approximately $16.6 million at a weighted average cost per share of
$9.95.
During the year ended April 30, 2016, we also repurchased 174,511 shares of our Common Stock in connection with employee
tax withholding obligations for vested stock awards.
26
The following table provides information as of April 30, 2016 with respect to shares of common stock we purchased during
the fourth quarter of fiscal 2016:
Period
January 31, 2016 - February 27, 2016 . . . . . . . . . . . .
February 28, 2016 - April 2, 2016 . . . . . . . . . . . . . . .
April 3, 2016 - April 30, 2016 . . . . . . . . . . . . . . . . . .
Total Number of
Shares Purchased
Average Price Paid
per Share (a)
177,620
302,021
385,786
865,427
$
$
$
$
10.34
10.14
9.54
10.01
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
177,620
302,021
385,786
865,427
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans or
Programs
$
$
$
40,068,343
37,065,337
33,387,825
(a) This amount represents the weighted average price paid per common share. This price includes a per share commission
paid for all repurchases.
Item 6. SELECTED FINANCIAL DATA
The selected financial information presented below should be read in conjunction with Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data.
(In thousands of dollars,
except for share and per share amounts)
STATEMENT OF OPERATIONS DATA:
Sales:
Fiscal Year (a)
2016
2015
2014
2013
2012
Product sales and other (b) . . . . . . . . . . . . . .
Rental income (c). . . . . . . . . . . . . . . . . . . . . .
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,579,617
228,412
1,808,029
$
1,544,975
228,023
1,772,998
$ 1,536,180
211,742
1,747,922
$ 1,631,454
131,793
1,763,247
$ 1,647,014
96,161
1,743,175
Cost of sales:
Product and other cost of sales. . . . . . . . . . .
Rental cost of sales. . . . . . . . . . . . . . . . . . . .
Total cost of sales . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . .
Selling and administrative expenses . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . .
Impairment loss (non-cash) (d) . . . . . . . . . . . . . . . .
Restructuring costs (d) . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before taxes . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per common share (e):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares (thousands)(e):
$
$
$
1,224,955
129,725
1,354,680
453,349
375,219
52,690
11,987
8,830
4,623
1,872
2,751
2,667
84
$
— $
— $
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,238
46,479
1,198,300
131,125
1,329,425
443,573
359,504
50,509
—
—
33,560
210
33,350
14,218
19,132
0.33
0.33
38,452
38,493
1,180,727
130,430
1,311,157
436,765
330,426
48,014
—
—
58,325
385
57,940
22,834
35,106
0.88
0.88
37,270
37,275
$
$
$
1,270,381
88,250
1,358,631
404,616
302,902
46,849
—
—
54,865
4,871
49,994
19,820
30,174
0.78
0.78
36,812
36,812
$
$
$
1,284,691
64,046
1,348,737
394,438
283,215
45,343
—
—
65,880
5,684
60,196
23,771
36,425
0.99
0.99
36,237
36,237
$
$
$
27
Fiscal Year (a)
2016
2015
2014
2013
2012
(In thousands of dollars,
except for share and per share amounts)
OTHER OPERATING DATA:
Adjusted EBITDA (non-GAAP) (f) . . . . . . . . . . . . .
Adjusted Earnings (non-GAAP) (f) . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . .
Comparable store sales (decrease) increase (g) . . . .
Number of stores at period end. . . . . . . . . . . . . . . .
BALANCE SHEET DATA
(at period end):
$
$
$
80,528
15,462
50,790
(1.9)%
751
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,071,683
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt (h) . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred membership interests . . . . . . . . . . . . . . .
Parent company equity . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
363,297
— $
— $
$
$
$
$
$
84,069
19,132
48,452
$
$
$
106,339
35,106
38,253
$
$
$
101,714
30,174
38,760
0.1%
724
(2.7)%
700
(1.2)%
686
1,090,668
$ 1,109,919
$ 1,006,237
363,999
$
360,282
$
358,208
$
$
$
$
$
— $
— $
— $
111,223
36,425
40,479
(0.3)%
647
954,067
336,295
—
—
617,772
— $
383,397
— $
726,669
$
366,240
$
$
381,627
266,402
$
$
708,386
$
— $
— $
— $
—
(a) Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. “Fiscal 2016” means
the 52 weeks ended April 30, 2016, “Fiscal 2015” means the 52 weeks ended May 2, 2015, “Fiscal 2014” means the 53 weeks
ended May 3, 2014, “Fiscal 2013” means the 52 weeks ended April 27, 2013, and “Fiscal 2012” means the 52 weeks ended
April 28, 2012.
(b) Product sales and other revenue include sales of new and used physical and digital textbooks, emblematic apparel and gifts,
trade books, computer products, school and dorm supplies, convenience and café items, graduation products and other.
(c) Rental income includes the rental of physical and digital textbooks.
(d) In Fiscal 2016, we implemented a plan to restructure our digital operations. As a result of this restructuring, we recorded a
non-cash impairment loss of $12.0 million related to all of the capitalized content costs for the Yuzu® eTextbook platform ($9
million), and recorded a non-recurring other than temporary loss related to an investment held at cost ($3 million). Additionally,
we announced a reduction in staff and closure of the facilities in Mountain View, California, and Redmond, Washington that
support the Yuzu® eTextbook platform. The cost of severance, retention, and other restructuring costs (i.e. facility exit costs)
of $8.8 million in fiscal 2016. We expect the restructuring to be completed in the first quarter of fiscal 2017.
(e) For periods prior to the Spin-Off from Barnes & Noble, Inc. on August 2, 2015, basic earnings per share and weighted-average
basic shares outstanding are based on the number of shares of Barnes & Noble, Inc. common stock outstanding as of the end
of the period, adjusted for the distribution ratio of 0.632 shares of our Common Stock for every one share of Barnes & Noble,
Inc. common stock held on the record date for the Spin-Off. Additionally, for period prior to the Spin-Off, diluted earnings
per share and weighted-average diluted shares outstanding reflect potential common shares from Barnes & Noble, Inc. equity
plans in which our employees participated. Certain of our employees held restricted stock units and stock options granted by
Barnes & Noble, Inc. which were considered participating securities.
(f) To supplement our results prepared in accordance with GAAP, we use the measure of Adjusted EBITDA and Adjusted Earnings,
which are non-GAAP financial measures as defined by the Securities and Exchange Commission (the “SEC”). See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Adjusted EBITDA (non-GAAP)
and - Adjusted Earnings (non-GAAP).
(g) Comparable store sales increase (decrease) is calculated on a 52-week basis, including sales from stores that have been open
for at least 15 months and does not include sales from closed stores for all periods presented. In Fiscal 2012 through Fiscal
2014, as we developed our textbook rental business, comparable store sales reflected the retail selling price of a new or used
textbook when rented, rather than solely the rental fees received, to provide a more representative comparable store sales
figure. Beginning with the 26 weeks ended November 1, 2014, as a result of the significant expansion of the textbook rental
business as compared to prior periods, our comparable store sales are determined based upon the actual revenue received
from textbook rentals and are no longer adjusted to reflect the equivalent textbook retail selling price.
(h) Prior to or at the time of the Spin-Off, we were party to an amended and restated credit facility with Barnes & Noble, Inc.
All outstanding debt under this Credit Facility was recorded on Barnes & Noble, Inc.’s balance sheet. On August 3, 2015, we
entered into a credit agreement under which the lenders committed to provide us with a five-year asset-backed revolving
credit facility in an aggregate committed principal amount of $400 million. As of April 30, 2016, we had no borrowings
outstanding under our Credit Facility.
28
Item 7. MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Unless the context otherwise indicates, references to “we,” “us,” “our” and “the Company” refer to Barnes & Noble
Education, Inc., a Delaware corporation. References to “Barnes & Noble” refer to Barnes & Noble, Inc., a Delaware corporation,
and its consolidated subsidiaries (other than Barnes & Noble Education, Inc. and its consolidated subsidiaries) unless the context
otherwise requires. References to “Barnes & Noble College” refer to our college bookstore business operated through our
subsidiary Barnes & Noble College Booksellers, LLC.
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. “Fiscal 2016” means
the 52 weeks ended April 30, 2016, “Fiscal 2015” means the 52 weeks ended May 2, 2015, and “Fiscal 2014” means the 53 weeks
ended May 3, 2014.
Overview
Description of business
Barnes & Noble Education, Inc., one of the largest contract operators of bookstores on college and university campuses across
the United States and a leading provider of digital education services, enhances the academic and social purpose of educational
institutions. As a strategic partner, we are committed to offering a complete support system and an unmatched retail and digital
learning experience to foster student success in higher education. Through our wholly-owned subsidiary, Barnes & Noble College,
we operate 751 campus bookstores and the school-branded e-commerce sites for each store, serving more than 5 million college
students and their faculty nationwide. On August 2, 2015, we completed the legal separation from Barnes & Noble, Inc., at which
time we began to operate as an independent publicly-traded company.
Overall educational spending in the United States continues to increase dramatically, and as tuition and other costs rise, colleges
and universities face pressure to attract and retain students and provide them with innovative, affordable educational content and
tools that support their educational development. While traditional print textbooks remain the first choice of students, demand
for alternative forms of educational materials is growing.
We offer a comprehensive set of products and services to help students, faculty and administrators achieve their shared
educational and social goals on college and university campuses across the United States. As one of the largest contract operators
of bookstores and a provider of digital education services, we operate as a focal point for college life and learning, advancing the
educational mission of our institution partners, enlivening campus culture and delivering an important revenue stream to our partner
schools.
For over 5 million students and their faculty, our campus stores are a social and academic hub through which students can
access affordable course materials and affinity products, including new and used print and digital textbooks, which are available
for sale or rent; emblematic apparel and gifts; trade books; computer products; school and dorm supplies; café; convenience food
and beverages; and graduation products. Through multi-year management service agreements with our schools, we typically have
the exclusive right to operate the official school bookstore on college campuses. In turn, we pay the school a percentage of store
sales and, in some cases, a minimum fixed guarantee. We create seamless retail experiences for our customers, both in our dynamic
physical stores and on our official school-branded e-commerce sites for each school.
As of April 30, 2016, we operated 751 stores nationwide, which reached 26% of the total number of students enrolled at
colleges and universities in the United States. Our stores are operated under 472 contracts, some of which cover multiple store
locations, and 165 of our college and university affiliated bookstores are co-branded with the Barnes & Noble name.
Fiscal 2016 was an excellent year for new store signings, and we have a strong pipeline of new business opportunities. During
the 2016 fiscal year, we opened 39 stores with estimated first year annual sales of $64 million. In addition, as of June 17, 2016,
we have signed additional contracts for 32 new stores with estimated first year annual sales of $109 million. We expect these new
stores to open during our fiscal year 2017.
We are well positioned to benefit from the continuing trend towards outsourcing across the campus bookstore market given
our brand, reputation with institutions, students and faculty for service and our full suite of products and services including:
bookstore management, textbook rental and digital delivery.
For additional information related to our comprehensive learning solutions, customer and distribution network, and business
conditions, see Part I - Item 1. Business.
29
Growth Drivers
The primary factors that we expect will enable us to grow our business are as follows:
• Increasing our Market Share with New Accounts.
• Adapting our Merchandising Strategy and Product and Service Offerings.
• Developing our Scalable and Leading Digital Product and Solution Set.
• Expanding Strategic Opportunities through Acquisitions and Partnerships.
For additional information related to our Strategies, see Part I - Item 1. Business - Overview - Offering - Comprehensive
Learning Solutions - Growth Drivers.
Segment
We have determined that we operate within a single reportable segment. We identified our single operating segment based on
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.
Seasonality
Our business is highly seasonal, with the major portion of sales and operating profit realized during the second and third fiscal
quarters, when college students generally purchase and rent textbooks for the upcoming semesters. We rent both physical and
digital textbooks. Revenue from the rental of physical textbooks is deferred and recognized over the rental period commencing at
point of sale. Revenue from the rental of digital textbooks is recognized at time of sale. Our fiscal year is comprised of 52 or 53
weeks, ending on the Saturday closest to the last day of April.
Trends and Other Factors Affecting Our Business
Our business is dependent on the overall economic environment, college enrollment and consumer spending patterns. Our
business is affected by funding levels at colleges and universities, by changes in enrollments at colleges and universities, and
spending on textbooks and general merchandise. The growth of our business depends on our ability to attract new students and to
increase the level of engagement by existing students.
For a discussion of our trends and other factors affecting our business, see Part I - Item 1. Business - Overview - Offering -
Comprehensive Learning Solutions - Trends and Other Factors Affecting Our Business.
Results of Operations
Elements of Results of Operations
Our consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States (“GAAP”).
Our sales are primarily derived from the sale of course materials (which include new and used textbooks and digital textbooks),
emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and café items and graduation
products. Our rental income is primarily derived from the rental of physical and digital textbooks.
Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization and management service
agreement costs, including rent expense, related to our college and university contracts and by other facility related expenses.
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 executive oversight,
merchandising, field support, finance, human resources, benefits, training, legal, and information technology, as well as our
investments in our digital platform.
Stand-alone financial statements (Prior to the Spin-Off)
The results of operations for the 13 weeks ended August 1, 2015, Fiscal 2015, Fiscal 2014 (periods presented prior to the
Spin-Off), (collectively referred to as the "stand-alone periods") reflected in our consolidated financial statements are presented
on a stand-alone basis since we were still part of Barnes & Noble, Inc. Our consolidated financial statements were derived from
the consolidated financial statements and accounting records of Barnes & Noble. Our consolidated financial statements include
certain assets and liabilities that have historically been held at the Barnes & Noble corporate level but are specifically identifiable
or otherwise attributable to us. For additional information, see Part II - Item 8. Financial Statements - Note 10. Barnes & Noble,
Inc. Transactions.
30
Consolidated financial statements (Subsequent to the Spin-Off)
The Spin-Off from Barnes & Noble, Inc. occurred on August 2, 2015 and therefore, the results of operations are presented
on a consolidated basis for the 39 weeks ended April 30, 2016 (i.e. second, third and fourth quarter of fiscal 2016) which includes
direct costs incurred with Barnes & Noble under various agreements. Certain corporate and shared service functions historically
provided by Barnes & Noble (as described above) will continue to be provided by Barnes & Noble under the Transition Services
Agreement. For additional information, see Part II - Item 8. Financial Statements - Note 10. Barnes & Noble, Inc. Transactions.
Results of Operations - Summary
Dollars in thousands
Sales:
2016
Fiscal Year (a)
2015
2014
Product sales and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,579,617
228,412
$ 1,544,975
228,023
$ 1,536,180
211,742
Total sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,808,029
$ 1,772,998
$ 1,747,922
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Earnings (non-GAAP) (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
84
80,528
15,462
$
$
$
19,132
84,069
19,132
$
$
$
35,106
106,339
35,106
Comparable store sales (decrease) increase (d) . . . . . . . . . . . . . . . . . . . . . . . . . .
Stores opened. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stores closed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of stores open at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.9)%
0.1%
(2.7)%
39
12
751
48
24
724
30
16
700
(a) Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. “Fiscal 2016” means
the 52 weeks ended April 30, 2016, “Fiscal 2015” means the 52 weeks ended May 2, 2015 and “Fiscal 2014” means the 53
weeks ended May 3, 2014.
(b) Adjusted EBITDA is a non-GAAP financial measure. See Adjusted EBITDA (non-GAAP) discussion below.
(c) Adjusted Earnings is a non-GAAP financial measure. See Adjusted Earnings (non-GAAP) discussion below.
(d) Comparable store sales increase (decrease) is calculated on a 52-week basis, including sales from stores that have been open
for at least 15 months and does not include sales from closed stores for all periods presented. In Fiscal 2012 through Fiscal
2014, as we developed our textbook rental business, comparable store sales reflected the retail selling price of a new or used
textbook when rented, rather than solely the rental fees received, to provide a more representative comparable store sales
figure. Beginning with the 26 weeks ended November 1, 2014, as a result of the significant expansion of the textbook rental
business as compared to prior periods, our comparable store sales are determined based upon the actual revenue received
from textbook rentals, and are no longer adjusted to reflect the equivalent textbook retail selling price.
31
The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales of
the Company:
Sales:
Fiscal 2016
Fiscal 2015
Fiscal 2014
Product sales and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87.4%
12.6
100.0
87.1%
12.9%
100.0
87.9%
12.1
100.0
Cost of sales:
Product and other cost of sales (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental cost of sales (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77.5
56.8
74.9
25.1
20.8
2.9
0.7
0.5
0.2
0.1
0.1
0.1
77.6
57.5
75.0
25.0
20.3
2.8
—
—
1.9
—
1.9
0.8
76.9
61.6
75.0
25.0
18.9
2.7
—
—
3.3
—
3.3
1.3
—%
1.1%
2.0%
(a) Represents the percentage these costs bear to the related sales, instead of total sales.
Results of Operations - 52 weeks ended April 30, 2016 compared with the 52 weeks ended May 2, 2015
Sales
The following table summarizes our sales for the 52 weeks ended April 30, 2016 and May 2, 2015:
Dollars in thousands
Product sales and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
52 weeks ended
April 30,
2016
1,579,617
228,412
1,808,029
$
$
May 2,
2015
1,544,975
228,023
1,772,998
Our sales increased $35.0 million, or 2.0%, to $1,808.0 million during the 52 weeks ended April 30, 2016 from $1,773.0
million during the 52 weeks ended May 2, 2015. New store openings over the past year increased sales by $77.2 million, partially
offset by closed stores, which decreased sales by $9.4 million.
Comparable store sales decreased 1.9%, or $31.7 million, for the comparable 52 week sales period. Comparable store sales
were negatively impacted by student enrollment, specifically in two-year community colleges. Textbook revenue decreased $43.9
million, primarily due to lower new and used textbook sales. This decrease was partially offset by a $13.3 million, or 2.6%, increase
in general merchandise sales, primarily due to higher emblematic apparel, gift and graduation product sales, which were partially
offset by lower technology product sales.
We added 39 new stores and closed 12 stores during the 52 weeks ended April 30, 2016, ending the period with a total of 751
stores.
32
Cost of Sales and Gross Margin
The following table summarizes our cost of sales for the 52 weeks ended April 30, 2016 and May 2, 2015:
Dollars in thousands
Product and other cost of sales . . . . . . . . . . . . . . . . . .
Rental cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Cost of Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
52 weeks ended
52 weeks ended
April 30,
2016
1,224,955
129,725
1,354,680
% of
Related Sales
77.5%
56.8%
74.9%
May 2,
2015
1,198,300
131,125
1,329,425
$
$
% of
Related Sales
77.6%
57.5%
75.0%
The following table summarizes our gross margin for the 52 weeks ended April 30, 2016 and May 2, 2015:
Dollars in thousands
Product and other gross margin. . . . . . . . . . . . . . . . . .
Rental gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52 weeks ended
52 weeks ended
April 30,
2016
% of
Related Sales
May 2,
2015
% of
Related Sales
$
$
354,662
98,687
453,349
22.5%
43.2%
25.1%
$
$
346,675
96,898
443,573
22.4%
42.5%
25.0%
Our cost of sales decreased as a percentage of sales to 74.9% during the 52 weeks ended April 30, 2016 compared to 75.0%
during the 52 weeks ended May 2, 2015. The decrease was due to the matters discussed below.
Our gross margin increased $9.8 million, or 2.2%, to $453.3 million, or 25.1% of sales, during the 52 weeks ended April 30,
2016 from $443.6 million, or 25.0% of sales, during the 52 weeks ended May 2, 2015. Gross margin as a percentage of sales
increased due to margin improvements and a favorable sales mix, partially offset by higher costs related to our college and university
contracts resulting from contract renewals and new store contracts as discussed below:
• Product and other gross margin increased (10 basis points), driven primarily by margin improvements (20 basis points),
predominately as a result of improved inventory management strategies for textbooks, and a favorable sales mix (20 basis
points) resulting from an increase in higher margin general merchandise as a percentage of sales, partially offset by increased
costs related to our college and university contracts (30 basis points) resulting from contract renewals and new store contracts.
• Rental gross margin increased (70 basis points), driven primarily by margin improvements (150 basis points) and a favorable
rental mix (10 basis points), partially offset by increased costs related to our college and university contracts (90 basis
points) resulting from contract renewals and new store contracts.
Selling and Administrative Expenses
Dollars in thousands
Total Selling and Administrative Expenses. . . . . . . . .
52 weeks ended
52 weeks ended
April 30,
2016
$
375,219
% of
Sales
20.8%
May 2,
2015
$
359,504
% of
Sales
20.3%
During the 52 weeks ended April 30, 2016, selling and administrative expenses increased $15.7 million, or 4.4%, to $375.2
million from $359.5 million during the 52 weeks ended May 2, 2015. The increase was due primarily to an $8.8 million increase
in new store payroll and operating expenses (net of closed stores) as a result of a $67.8 million increase in new store sales (net of
closed stores). Also contributing to the increase was a $5.0 million increase in corporate payroll and infrastructure costs to support
business growth including incremental costs associated with our separation from Barnes & Noble, Inc., a $2.1 million increase in
comparable store payroll and operating expenses (including a $1.9 million increase in employee benefit costs primarily due to
higher medical claims costs), and $2.4 million of transaction costs incurred for business development and acquisitions. These
increases were partially offset by a $2.4 million decrease in digital expenses related to Yuzu® and LoudCloud. See Impairment
Loss (Non-cash) and Restructuring Costs discussion below.
Depreciation and Amortization Expense
Dollars in thousands
Total Depreciation and Amortization Expense . . . . . .
52 weeks ended
52 weeks ended
April 30,
2016
$
52,690
% of
Sales
2.9%
May 2,
2015
$
50,509
% of
Sales
2.8%
33
Depreciation and amortization expense increased $2.2 million, or 4.3%, to $52.7 million during the 52 weeks ended April 30,
2016 from $50.5 million during the 52 weeks ended May 2, 2015. This increase was primarily attributable to additional capital
expenditures.
Impairment Loss (non-cash) and Restructuring Costs
In Fiscal 2016, we implemented a plan to restructure our digital operations. As a result of this restructuring, we recorded a
non-cash impairment loss of $12.0 million related to all of the capitalized content costs for the Yuzu® eTextbook platform ($9
million), and recorded a non-recurring other than temporary loss related to an investment held at cost ($3 million).
Additionally, we announced a reduction in staff and closure of the facilities in Mountain View, California, and Redmond,
Washington that support the Yuzu® eTextbook platform. The cost of severance, retention, and other restructuring costs (i.e. facility
exit costs) is $8.8 million in fiscal 2016. We expect the restructuring to be completed in the first quarter of fiscal 2017.
Operating Income
Dollars in thousands
Total Operating Income . . . . . . . . . . . . . . . . . . . . . . .
$
52 weeks ended
52 weeks ended
April 30,
2016
4,623
% of
Sales
0.2%
May 2,
2015
$
33,560
% of
Sales
1.9%
Our operating income was $4.6 million during the 52 weeks ended April 30, 2016 compared to $33.6 million during the 52
weeks ended May 2, 2015. This decrease was due to the matters discussed above. Excluding the impairment loss of $12.0 million,
restructuring costs of $8.8 million, and transaction costs (included in selling and administrative expenses) of $2.4 million, we
reported operating income of $27.8 million (or 1.5% of sales) during the 52 weeks ended April 30, 2016, compared with operating
income of $33.6 million (1.9% of sales) during the 52 weeks ended May 2, 2015.
Interest Expense, Net
Dollars in thousands
Interest Expense, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
April 30, 2016
May 2, 2015
1,872
$
210
52 weeks ended
Net interest expense increased $1.7 million to $1.9 million during the 52 weeks ended April 30, 2016 from $0.2 million during
the 52 weeks ended May 2, 2015 primarily due to increased borrowings under the Credit Facility entered into during fiscal 2016.
Income Tax Expense
Dollars in thousands
Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . .
$
52 weeks ended
52 weeks ended
April 30,
2016
2,667
Effective Rate
96.9%
May 2,
2015
$
14,218
Effective Rate
42.6%
We recorded an income tax expense of $2.7 million on pre-tax income of $2.8 million during the 52 weeks ended April 30,
2016, which represented an effective income tax rate of 96.9% and an income tax expense of $14.2 million on pre-tax income of
$33.4 million during the 52 weeks ended May 2, 2015, which represented an effective income tax rate of 42.6%.
The income tax provision for the 52 weeks ended April 30, 2016 reflects the impact of nondeductible expenses, including
certain restructuring costs, partially offset by beneficial rate changes and income tax credits.
Net Income
Dollars in thousands
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
52 weeks ended
April 30, 2016
May 2, 2015
84
$
19,132
As a result of the factors discussed above, we reported net income of $0.1 million during the 52 weeks ended April 30, 2016,
compared with net income of $19.1 million during the 52 weeks ended May 2, 2015. Adjusted Earnings (non-GAAP) is $15.5
million during the 52 weeks ended April 30, 2016, compared with $19.1 million during the 52 weeks ended May 2, 2015. See
Adjusted Earnings (non-GAAP) discussion below.
34
Results of Operations - 52 weeks ended May 2, 2015 compared with the 53 weeks ended May 3, 2014
Sales
The following table summarizes our sales for the 52 weeks ended May 2, 2015 and the 53 weeks ended May 3, 2014:
Dollars in thousands
Product sales and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
52 weeks ended
May 2,
2015
53 weeks ended
May 3,
2014
1,544,975
228,023
1,772,998
$
$
1,536,180
211,742
1,747,922
Our sales increased $25.1 million, or 1.4%, to $1,773.0 million during the 52 weeks ended May 2, 2015 from $1,748.0 million
during the 53 weeks ended May 3, 2014. The inclusion of the 53rd week in the prior year contributed $14.6 million of additional
sales in Fiscal 2014. Excluding the 53rd week, sales increased $39.7 million, or 2.3%, for the year. New store openings over the
past year increased sales by $71.0 million, partially offset by closed stores, which decreased sales by $22.9 million.
Comparable store sales increased 0.1% for the comparable sales period with a decrease in comparable store sales dollars by
$13.9 million, impacted by the 53rd week. General merchandise sales increased $22.2 million, or 4.7%, primarily due to strong
emblematic apparel sales, partially offset by $17.9 million in decreased textbook sales as students continued to shift to lower priced
rentals. General merchandise sales have continued to increase as our product assortments continue to emphasize and reflect the
changing consumer trends and we evolve our presentation concepts and merchandising of product in stores and online.
We added 48 new stores and closed 24 stores during the 52 weeks ended May 2, 2015, ending the period with a total of 724
stores.
Cost of Sales and Gross Margin
The following table summarizes our cost of sales for the 52 weeks ended May 2, 2015 and 53 weeks ended May 3, 2014:
Dollars in thousands
Product and other cost of sales . . . . . . . . . . . . .
Rental cost of sales . . . . . . . . . . . . . . . . . . . . . .
Total Cost of Sales . . . . . . . . . . . . . . . . . . .
$
$
52 weeks ended
53 weeks ended
May 2,
2015
1,198,300
131,125
1,329,425
% of
Related Sales
77.6%
57.5%
75.0%
May 3,
2014
1,180,727
130,430
1,311,157
$
$
% of
Related Sales
76.9%
61.6%
75.0%
The following table summarizes our gross margin for the 52 weeks ended May 2, 2015 and 53 weeks ended May 3, 2014:
Dollars in thousands
Product and other gross margin . . . . . . . . . . . . . . . . .
Rental gross margin . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52 weeks ended
53 weeks ended
May 2,
2015
$
$
346,675
96,898
443,573
% of
Sales
22.4%
42.5%
25.0%
May 3,
2014
$
$
355,453
81,312
436,765
% of
Sales
23.1%
38.4%
25.0%
Our cost of sales as a percentage of sales remained flat at 75.0% during the 52 weeks ended May 2, 2015 compared to the 53
weeks ended May 3, 2014. This was due to the matters discussed below.
Our gross margin increased $6.8 million, or 1.6%, to $443.6 million, or 25.0% of sales, during the 52 weeks ended May 2,
2015 from $436.8 million, or 25.0% of sales, during the 53 weeks ended May 3, 2014. Gross margin as a percentage of sales was
unchanged as higher costs related to our college and university contracts resulting from contract renewals and new store contracts
and comparison to prior year’s favorable LIFO adjustment of $7.7 million were offset by a favorable sales mix and margin
improvements as discussed below:
• Product and other gross margin decreased (70 basis points), primarily driven by comparison to prior year’s favorable LIFO
adjustment (50 basis points) and increased costs related to our college and university contracts (15 basis points) resulting
from contract renewals and new store contracts.
• Rental gross margin increased (410 basis points), primarily driven by margin improvements (660 basis points) and a favorable
rental mix (80 basis points), partially offset by increased costs related to our college and university contracts (330 basis
points) resulting from contract renewals and new store contracts.
35
Selling and Administrative Expenses
Dollars in thousands
Total Selling and Administrative Expenses. . . . . . . . . .
52 weeks ended
53 weeks ended
May 2,
2015
$
359,504
% of
Sales
20.3%
May 3,
2014
$
330,426
% of
Sales
18.9%
Selling and administrative expenses increased $29.1 million, or 8.8%, to $359.5 million during the 52 weeks ended May 2,
2015 from $330.4 million during the 53 weeks ended May 3, 2014. The increase was primarily due to a $12.8 million increase in
corporate payroll and infrastructure costs to support business growth, an $8.1 million increase in comparable store payroll and
operating expenses, a $6.2 million increase in new store payroll and operating expenses (net of closed stores) and a $3.0 million
increase in Yuzu® expenses.
Depreciation and Amortization Expense
Dollars in thousands
Total Depreciation and Amortization Expense . . . . . . . .
52 weeks ended
53 weeks ended
May 2,
2015
$
50,509
% of
Sales
2.8%
May 3,
2014
$
48,014
% of
Sales
2.7%
Depreciation and amortization expense increased $2.5 million, or 5.2%, to $50.5 million during the 52 weeks ended May 2,
2015 from $48.0 million during the 53 weeks ended May 3, 2014. This increase was primarily attributable to additional capital
expenditures.
Operating Income
Dollars in thousands
Total Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . .
52 weeks ended
53 weeks ended
May 2,
2015
$
33,560
% of
Sales
1.9%
May 3,
2014
$
58,325
% of
Sales
3.3%
Our operating income decreased $24.8 million, or 42.2%, to $33.6 million during the 52 weeks ended May 2, 2015 from
$58.3 million during the 53 weeks ended May 3, 2014. This decrease was due to the matters discussed above.
Interest Expense, Net
Dollars in thousands
Interest Expense, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
52 weeks ended
May 2,
2015
53 weeks ended
May 3,
2014
210
$
385
Net interest expense decreased $0.2 million, or 45.5%, to $0.2 million during the 52 weeks ended May 2, 2015 from $0.4 million
during the 53 weeks ended May 3, 2014.
Income Tax Expense
Dollars in thousands
Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . .
$
52 weeks ended
53 weeks ended
May 2,
2015
Effective
Rate
May 3,
2014
Effective
Rate
14,218
42.6% $
22,834
39.4%
We recorded an income tax provision of $14.2 million during the 52 weeks ended May 2, 2015 compared with an income tax
provision of $22.8 million during the 53 weeks ended May 3, 2014. Our effective tax rate was 42.6% for the 52 weeks ended
May 2, 2015 compared with an effective tax rate of 39.4% during the 53 weeks ended May 3, 2014.
Net Income
Dollars in thousands
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
52 weeks ended
May 2,
2015
53 weeks ended
May 3,
2014
19,132
$
35,106
As a result of the factors discussed above, we reported net income of $19.1 million during the 52 weeks ended May 2, 2015,
compared with net income of $35.1 million during the 53 weeks ended May 3, 2014.
36
Adjusted EBITDA (non-GAAP)
To supplement our results prepared in accordance with GAAP, we use the measure of Adjusted EBITDA, which is a non-
GAAP financial measure under Securities and Exchange Commission (the “SEC”) regulations. We define Adjusted EBITDA as
net income plus (1) depreciation and amortization; (2) interest expense and (3) income taxes, (4) as adjusted for additional items
and subtracted from or added to net income.
To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included
elsewhere in this Form 10-K and the reconciliation from Adjusted EBITDA to net income, the most directly comparable financial
measure presented in accordance with GAAP, set forth in the table below. All of the items included in the reconciliation from
Adjusted EBITDA to net income are either (i) non-cash items or (ii) items that management does not consider in assessing our
on-going operating performance.
This non-GAAP financial measure is not intended as a substitute for and should not be considered superior to measures of
financial performance prepared in accordance with GAAP. In addition, our use of this non-GAAP financial measure may be
different from an Adjusted EBITDA measure used by other companies, limiting its usefulness for comparison purposes. Adjusted
EBITDA should not be considered as an alternative to net income as an indicator of our performance or any other measures of
performance derived in accordance with GAAP. As noted above, Adjusted EBITDA has limitations as an analytical tool and should
not be considered in isolation or as a substitute for analysis of our results reported under GAAP. The limitations of Adjusted
EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual
commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income
tax payments we may be required to make; and (iv) although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any requirements
for such replacements.
We believe that Adjusted EBITDA is a useful performance measure, and it is used by us to facilitate a comparison of our
operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors
and trends affecting our business than measures under GAAP can provide alone. Our Board of Directors and management also
use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating
on a quarterly and annual basis actual results against such expectations. We review this non-GAAP measure internally to evaluate
our performance and manage our operations. We believe that the inclusion of Adjusted EBITDA results provides investors useful
and important information regarding our operating results.
Dollars in thousands
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016
Fiscal 2015
Fiscal 2014
$
84
$
19,132
$
35,106
Add:
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss (non-cash) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,690
1,872
2,667
11,987
8,830
2,398
50,509
210
14,218
—
—
—
48,014
385
22,834
—
—
—
$
80,528
$
84,069
$
106,339
(a) See Management Discussion and Analysis - Results of Operations discussion above.
(b) Transaction costs are costs incurred for business development and acquisitions, and are included in selling and
administrative expenses in the consolidated statements of operations.
Adjusted Earnings (non-GAAP)
To supplement our results prepared in accordance with GAAP, we use the measure of Adjusted Earnings, which is a non-
GAAP financial measure under SEC regulations. We define Adjusted Earnings as net income as adjusted for additional items and
subtracted from or added to net income.
To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included
elsewhere in this Form 10-K and the reconciliation from Adjusted Earnings to net income, the most directly comparable financial
measure presented in accordance with GAAP, set forth in the table below. All of the items included in the reconciliation from
Adjusted Earnings to net income are either (i) non-cash items or (ii) items that management does not consider in assessing our
on-going operating performance.
37
This non-GAAP financial measure is not intended as a substitute for and should not be considered superior to measures of
financial performance prepared in accordance with GAAP. In addition, our use of this non-GAAP financial measure may be
different from an Adjusted Earnings measure used by other companies, limiting its usefulness for comparison purposes. Adjusted
Earnings should not be considered as an alternative to net income as an indicator of our performance or any other measures of
performance derived in accordance with GAAP. As noted above, Adjusted Earnings has limitations as an analytical tool and should
not be considered in isolation or as a substitute for analysis of our results reported under GAAP. The limitations of Adjusted
Earnings include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual
commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; and (iii) it does not reflect
income tax payments we may be required to make.
We believe that Adjusted Earnings is a useful performance measure, and it is used by us to facilitate a comparison of our
operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors
and trends affecting our business than measures under GAAP can provide alone. Our Board of Directors and management also
use Adjusted Earnings as one of the primary methods for planning and forecasting overall expected performance and for evaluating
on a quarterly and annual basis actual results against such expectations. We review this non-GAAP measure internally to evaluate
our performance and manage our operations. We believe that the inclusion of Adjusted Earnings results provides investors useful
and important information regarding our operating results.
Dollars in thousands
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items, after-tax (below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Earnings (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items, pre-tax
Impairment loss (non-cash) (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items, pre-tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Pro forma income tax impact (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items, after-tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016
Fiscal 2015
Fiscal 2014
$
$
$
$
84
15,378
15,462
11,987
8,830
2,398
23,215
7,837
15,378
$
$
$
$
19,132
—
19,132
$
$
35,106
—
35,106
— $
—
—
—
—
— $
—
—
—
—
—
—
(a) See Management Discussion and Analysis - Results of Operations discussion above.
(b) Transaction costs are costs incurred for business development and acquisitions, and are included in selling and
administrative expenses in the consolidated statements of operations.
(c) Represents the projected reduction in income tax expense based on our current combined federal and state aggregate
income tax rate.
Liquidity and Capital Resources
Our primary sources of cash are net cash flows from operating activities, funds available under a credit facility and short-
term vendor financing.
Prior to the Spin-Off on August 2, 2015, we were party to the Credit Facility held by Barnes & Noble, Inc. ("B&N Credit
Facility"). The B&N Credit Facility provided for up to $1 billion in aggregate commitments under a five-year asset-backed revolving
credit facility expiring on April 29, 2016. The B&N Credit Facility was secured by eligible inventory and accounts receivable
with the ability to include eligible real estate and related assets. We were a borrower and co-guarantor of all amounts owing under
the B&N Credit Facility. All outstanding debt under the B&N Credit Facility was recorded on Barnes & Noble’s balance sheet
prior to the Spin-Off on August 2, 2015.
On August 3, 2015, in connection with the Spin-Off, we entered into a new five-year $400 million asset-backed revolving
credit facility (the “BNED Credit Facility”), the proceeds of which will be used for general corporate purposes, including seasonal
working capital needs. See Financing Arrangements discussion below. As of April 30, 2016, we had no outstanding borrowings
under the BNED Credit Facility.
As of April 30, 2016, Other long-term liabilities includes $69.3 million related to the long-term tax payable associated with
the LIFO reserve. Management believes it is remote that the long-term tax payable associated with the LIFO reserve will be payable
or will result in a cash tax payment in the foreseeable future, assuming that LIFO will continue to be an acceptable inventory
method for tax purposes.
38
Share Repurchases
On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50 million, in the aggregate,
of our outstanding Common Stock. The stock repurchase program is carried out at the direction of management (which includes
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 Fiscal 2016, we repurchased 1,715,269 shares for approximately $16.6 million at a weighted average cost per share of
$9.95. As of April 30, 2016, approximately $33.4 million remains available under the stock repurchase program.
During Fiscal 2016, we also repurchased 174,511 shares of our Common Stock in connection with employee tax withholding
obligations for vested stock awards.
Sources and Uses of Cash Flow
Dollars in thousands
Fiscal 2016
Fiscal 2015
Fiscal 2014
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . . . . . . . .
$
44,816
$
132,117
$
54,697
Net cash flows provided by operating activities . . . . . . . . . . . . . . . . . . . . . . .
82,781
17,725
50,736
Net cash flows used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(70,740)
(58,185)
(37,445)
Net cash flows (used in) provided by financing activities . . . . . . . . . . . . . . .
(28,289)
(46,841)
64,129
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . .
$
28,568
$
44,816
$
132,117
Cash Flow from Operating Activities
Our business is highly seasonal. Cash flows from operating activities are typically a source of cash in the second and third
fiscal quarters, when students generally purchase and rent textbooks for the upcoming semesters. Cash flows from operating
activities are typically a use of cash in the first and fourth fiscal quarters, when sales volumes are materially lower than the other
quarters. Our quarterly cash flows also may fluctuate depending on the timing of the start of the various school’s semesters, as
well as shifts in fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods.
Cash flows provided by operating activities during Fiscal 2016 were $82.8 million compared to $17.7 million during Fiscal
2015. This net change of $65.1 million was primarily due changes in working capital, including receipts of a $38.2 million receivable
from Barnes & Noble, Inc., which was paid at the time of the Spin-Off, and changes in deferred taxes.
Cash flows provided by operating activities during Fiscal 2015 were $17.7 million compared to $50.7 million during Fiscal
2014. This decrease of $33.0 million was primarily due to a $38.2 million receivable from Barnes & Noble, Inc. which was paid
at the time of the Spin-Off.
Cash Flow from Investing Activities
Our investing activities consist principally of capital expenditures for contractual capital investments associated with renewing
existing contracts, new store construction, digital initiatives and enhancements to internal systems and our website.
Cash flows used in investing activities during Fiscal 2016 were $(70.7) million compared to $(58.2) million during Fiscal
2015. The increase is primarily due to the acquisition of LoudCloud Systems, Inc. for $17.9 million in Fiscal 2016. Capital
expenditures totaled $50.8 million and $48.5 million during Fiscal 2016 and Fiscal 2015, respectively.
Cash flows used in investing activities during Fiscal 2015 were $(58.2) million compared to $(37.4) million during Fiscal
2014. Capital expenditures totaled $48.5 million and $38.3 million during Fiscal 2015 and Fiscal 2014, respectively.
Cash Flow from Financing Activities
Cash flows used in financing activities during Fiscal 2016 decreased by $18.6 million compared to Fiscal 2015 primarily due
to the acquisition of Preferred Membership Interests of $76.2 million in the prior year, offset by the net change in the Barnes &
Noble, Inc. investment of $35.8 million, and increased payments for common stock repurchased of $18.6 million and deferred
financing costs of $3.3 million.
Cash flows used in financing activities during Fiscal 2015 were $(46.8) million compared to inflows of $64.1 million during
Fiscal 2014. During Fiscal 2015, we acquired the preferred membership interests from Microsoft and Pearson, resulting in a $76.2
million payment. The receipts in Fiscal 2014 represent net transfers from Barnes & Noble, including NOOK Media partnership
activities.
39
Financing Arrangements
Until August 3, 2015, we were party to the B&N Credit Facility. All outstanding debt under the B&N Credit Facility was
recorded on Barnes & Noble’s balance sheet prior to the Spin-Off on August 2, 2015.
On August 3, 2015, we, and certain of our subsidiaries from time to time party thereto, entered into the Credit Agreement
with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders from time to time
party thereto, under which the lenders committed to provide us with a five-year asset-backed revolving credit facility in an aggregate
committed principal amount of $400 million under the BNED Credit Facility. Proceeds from the Credit Facility are used for general
corporate purposes, including seasonal working capital needs. Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Wells
Fargo Bank, N.A. and SunTrust Robinson Humphrey, Inc. are the joint lead arrangers for the BNED Credit Facility.
The Company and certain of its subsidiaries (collectively, the “Loan Parties”) will be permitted to borrow under the BNED
Credit Facility. The BNED Credit Facility is secured by substantially all of the inventory, accounts receivable and related assets
of the borrowers under the BNED Credit Facility, but excluding the equity interests in the Company and its subsidiaries, intellectual
property, equipment and certain other property. The Company has the option to request an increase in commitments under the
BNED Credit Facility of up to $100 million, subject to certain restrictions.
As of April 30, 2016, we had no outstanding borrowings under the BNED Credit Facility. During Fiscal 2016, we borrowed
and repaid $60.6 million under the BNED Credit Facility. As of April 30, 2016, we have issued $3.6 million in letters of credit
under the facility.
During Fiscal 2016, we incurred debt issuance costs totaling $3.3 million related to the BNED Credit Facility. The debt
issuance costs have been deferred and are presented as an asset which is subsequently amortized ratably over the term of the credit
agreement.
Interest under the BNED Credit Facility accrues, at the election of the Company, at a LIBOR or alternate base rate, plus, in
each case, an applicable interest rate margin, which is determined by reference to the level of excess availability under the BNED
Credit Facility. Loans will initially bear interest at LIBOR plus 2.000% per annum, in the case of LIBOR borrowings, or at the
alternate base rate plus 1.000% per annum, in the alternative, and thereafter the interest rate will fluctuate between LIBOR plus
2.000% per annum and LIBOR plus 1.750% per annum (or between the alternate base rate plus 1.000% per annum and the alternate
base rate plus 0.750% per annum), based upon the excess availability under the BNED Credit Facility at such time.
The Credit Agreement contains customary negative covenants, which limit the Company’s ability to incur additional
indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets, among
other things. In addition, if excess availability under the BNED Credit Facility were to fall below certain specified levels, certain
additional covenants (including fixed charge coverage ratio requirements) would be triggered, and the lenders would have the
right to assume dominion and control over the Loan Parties’ cash.
The Credit Agreement contains customary events of default, including payment defaults, material breaches of representations
and warranties, covenant defaults, default on other material indebtedness, customary ERISA events of default, bankruptcy and
insolvency, material judgments, invalidity of liens on collateral, change of control or cessation of business. The Credit Agreement
also contains customary affirmative covenants and representations and warranties. We are in compliance with all covenants,
representations and warranties under the Credit Agreement as of April 30, 2016.
We believe that our future cash from operations, access to borrowings under the BNED Credit Facility and short-term vendor
financing will provide adequate resources to fund our operating and financing needs for the foreseeable future. Our access to, and
the availability of, financing in the future will be impacted by many factors, including the liquidity of the overall capital markets
and the current state of the economy. There can be no assurances that we will have access to capital markets on acceptable terms.
40
Contractual Obligations
The following table sets forth our contractual obligations as of April 30, 2016 (in millions):
BNED Credit Facility (a) . . . . . . . . . . . . . . . . .
School management contract and other lease
obligations (b). . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations (c) . . . . . . . . . . . . . . . . . .
Other long-term liabilities reflected on the
balance sheet under GAAP (d) . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments Due by Period
1-3
Years
Less Than
1 Year
3-5
Years
More Than
5 Years
Total
$
— $
— $
— $
— $
—
748.9
7.7
—
130.9
2.9
—
232.6
4.8
—
196.4
—
—
$
756.6
$
133.8
$
237.4
$
196.4
$
189.0
—
—
189.0
(a) As of April 30, 2016, we had no outstanding borrowings under the BNED Credit Facility.
(b) Our contracts with colleges and universities are typically five years with renewal options, but can range from one to 15 years,
and are typically cancelable by either party without penalty with 90 to120 days' notice. Annual projections are based on current
minimum guarantee amounts. In 60% of our contracts with colleges and universities, the minimum guaranteed amounts adjust
annually to equal less than the prior year's commission earned. Excludes obligations under store leases for property insurance
and real estate taxes, which totaled approximately 2.1% of the minimum rent payments under those leases.
(c) Includes information technology contracts.
(d) Other long-term liabilities exclude $69.3 million of tax liabilities related to the long-term tax payable associated with the
LIFO reserve and $0.02 million of unrecognized tax benefits, for which we cannot make a reasonably reliable estimate of the
amount and period of payment. Management believes it is remote that the long-term tax payable associated with the LIFO
reserve will be payable or will result in a cash tax payment in the foreseeable future, assuming that LIFO will continue to be
an acceptable inventory method for tax purposes. See Item 8. Financial Statements and Supplementary Information — Note
5. Supplementary Data and Note 14. Income Taxes.
Off-Balance Sheet Arrangements
As of April 30, 2016, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
Certain Relationships and Related Party Transactions
See Item 8. Financial Statements and Supplementary Data — Note 10. Barnes & Noble, Inc. Transactions and Note 11.
Related Party Transactions.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in accordance with GAAP, we are required to use judgment in making
estimates and assumptions that affect the amounts reported in our consolidated financial statements and related notes. In preparing
these financial statements, management has made its best estimates and judgments with respect to certain amounts included in the
financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different
amounts would be reported related to the accounting policies described below. However, application of these accounting policies
involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from
these estimates.
Revenue Recognition and Deferred Revenue
Revenue from sales of our products at physical locations is recognized at the time of sale. Revenue from sales of products
ordered through our websites is recognized upon delivery and receipt of the shipment by our customers. Sales taxes collected from
our customers are excluded from reported revenues. All of our sales are recognized as revenue on a “net” basis, including sales in
connection with any periodic promotions offered to customers. We do not treat any promotional offers as expenses.
We rent both physical and digital textbooks. Revenue from the rental of physical textbooks is deferred and recognized over
the rental period commencing at point of sale. Revenue from the rental of digital textbooks is recognized at time 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 offer a buyout option to allow
the purchase of a rented book at the end of the rental period. We record the buyout purchase when the customer exercises and pays
the buyout option price. In these instances, we would accelerate any remaining deferred rental revenue at the point of sale.
41
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Cost is determined primarily
by the retail inventory method. Our textbook and trade book inventories are valued using the last-in first out, or “LIFO”, method
and the related reserve was not material to the recorded amount of our inventories. There were no LIFO adjustments in Fiscal 2016
and Fiscal 2015 compared to a favorable LIFO adjustment of $7.7 million through cost of goods sold in Fiscal 2014.
Market value of our inventory is determined based on its estimated net realizable value, which is generally the selling price.
Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory. We do not believe there
is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the non-
returnable inventory reserve. However, if assumptions based on our history of liquidating non-returnable inventory are incorrect,
we may be exposed to losses or gains that could be material. A 10% change in actual non-returnable inventory would have affected
pre-tax earnings by approximately $5.4 million in Fiscal 2016.
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. We do not believe there is a reasonable likelihood that there will be a material change in the future
estimates or assumptions used to calculate shortage rates. However, if our estimates regarding shortage rates are incorrect, we may
be exposed to losses or gains that could be material. A 10 basis point change in actual shortage rates would have affected pre-tax
earnings by approximately $0.8 million in Fiscal 2016.
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. We do not believe there is a reasonable likelihood that there will be a material change in the future
estimates or assumptions used to calculate rental cost of goods sold. However, if our estimates regarding residual value are incorrect,
we may be exposed to losses or gains that could be material. A 1% change in rental cost of goods sold would have affected pre-
tax earnings by approximately $0.7 million in Fiscal 2016.
Purchase Accounting
We assign values to identified tangible and intangible assets acquired and liabilities assumed based on their estimated fair
values at the dates of acquisition, with any residual amounts recorded as goodwill. The fair value estimates used reflect our best
estimates for the highest and best use by market participants. These estimates are subject to uncertainties and contingencies. For
example, we used the discounted cash flow method to estimate the value of many of our assets, which entailed developing projections
of future cash flows. If the cash flows from the acquired net assets differ significantly from our estimates, the amounts recorded
could be subject to impairments. Furthermore, to the extent we change our initial estimates of the remaining useful life of the
assets or liabilities, future depreciation and amortization expense could be impacted.
Stock-Based Compensation
The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates,
but these estimates involve inherent uncertainties and the application of management’s judgment. See Item 8. Financial Statements
and Supplementary Data — Note 13. Stock-Based Compensation for a further discussion of our stock-based incentive plan. We
are required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If their actual
forfeiture rate is materially different from their estimate, our stock-based compensation expense could be significantly different
from what we recorded in the current period. We do not believe there is a reasonable likelihood that there will be a material change
in the future estimates or assumptions used to determine stock-based compensation expense. If actual results are not consistent
with the assumptions used, the stock-based compensation expense reported in our financial statements may not be representative
of the actual economic cost of the stock-based compensation. A 10% change in our stock-based compensation expense would have
affected pre-tax earnings by approximately $0.7 million in Fiscal 2016.
Evaluation of Other Long-Lived Assets Impairment
Our other long-lived assets include property and equipment and amortizable intangibles. As of April 30, 2016, we had $111.2
million and $199.7 million of property and equipment and amortizable intangible assets, net of depreciation and amortization,
respectively.
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 and consider market participants in accordance with ASC 360-10, Accounting for the Impairment
or Disposal of Long-Lived Assets. We evaluate long-lived assets for impairment at the school contract combined store level, which
is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment,
42
we first compare the carrying amount of the assets to the school contract combined store level’s estimated future undiscounted
cash flows. If the estimated future cash flows are less than the carrying amount of the assets, an impairment loss calculation is
prepared. The impairment loss calculation compares the carrying amount of the assets to the school contract combined store level’s
fair value based on its estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the
asset’s carrying value in excess of fair value. Impairment losses related to school contracts are included in selling and administrative
expenses totaled $0.06 million, $0.01 million, and $0.01 million during Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively.
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to
calculate long-lived asset impairment losses. However, if actual results are not consistent with estimates and assumptions used in
estimating future cash flows and asset fair values, we may be exposed to losses that could be material. A 10% decrease in our
estimated discounted cash flows would not have materially affected the results of our operations in Fiscal 2016.
In Fiscal 2016, we implemented a plan to restructure our digital operations. As a result of this restructuring, we recorded a
non-cash impairment loss of $12 million. For additional information, see Item 8. Financial Statements and Supplementary Data —
Note 9. Supplementary Information.
Evaluation of Goodwill Impairment
Goodwill is tested for impairment at least annually or earlier if there are impairment indicators. We perform a two-step process
for impairment testing of goodwill as required by ASC 350-30, Goodwill and Other Intangible Assets. The first step of this test,
used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount. The second step (if
necessary) measures the amount of the impairment.
Application of the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of
assets and liabilities to reporting units; assignment of goodwill to reporting units; and the determination of the fair value of each
reporting unit. We have determined that we have one single reporting unit.
We estimate the fair value of our reporting unit using an income approach based on the present value of estimated future cash
flows. Inherent in our preparation of cash flow projections are assumptions and estimates derived from a review of our operating
results, business plans, expected growth rates, cost of capital and tax rates. We also make certain forecasts about future economic
conditions, interest rates and other market data. Many of the factors used in assessing fair value are outside the control of
management, and these assumptions and estimates may change in future periods. Changes in assumptions or estimates could
materially affect the estimate of the fair value, and therefore could affect the likelihood and amount of potential impairment. The
following assumptions are significant to our income approach:
Business Projections- We make assumptions about the level of revenues, gross profit, operating expenses, as well as capital
expenditures and net working capital requirements. These assumptions drive our planning assumptions and represent key inputs
for developing our cash flow projections. These projections are developed using our internal business plans over a five-year
planning period that are updated at least annually;
Long-term Growth Rates- We also utilize an assumed long-term growth rate representing the expected rate at which our cash
flow stream is projected to grow. These rates are used to calculate the terminal value and are added to the cash flows projected
during our five-year planning period; and
Discount Rates- The estimated future cash flows are then discounted at a rate that is consistent with a weighted-average cost
of capital that is likely to be expected by market participants. The weighted-average cost of capital is an estimate of the overall
after-tax rate of return required by equity and debt holders of a business enterprise.
Based on the results of the step one testing, fair value of the Company exceeded its carrying value by approximately 9%.
Given the margin by which the estimated fair value exceeded its carrying amount, we also performed a sensitivity analysis
related to the long-term growth rate and discount rate used in the November 1, 2015 test. Specifically, the estimated fair value
would exceed its carrying amount if we independently either reduced the long-term growth rate by 100 basis points or increased
the discount rate by 50 basis points. The fair value would not exceed its carrying value if we simultaneously reduced the long-
term growth rate by either 50 or 100 basis points, while also increasing the discount rate by 50 basis points; or we simultaneously
reduced the long-term growth rate by 100 basis points, while also increasing the discount rate by 25 basis points. Under these
scenarios, step two testing would have been required to determine the potential goodwill impairment.
The November 1, 2015 impairment test assumed earnings growth, primarily from our digital revenues. Should this growth
not occur, if the reporting unit otherwise fails to meet its current financial plans, or if there were changes to any other key assumption
used in the test, the reporting unit could fail step one of the goodwill impairment test in a future period. We will continue to monitor
the reporting unit for impairment.
43
Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities
and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. FASB
guidance on accounting for income taxes requires that deferred tax assets be evaluated for future realization and reduced by a
valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood
of future realization of our deferred tax assets, including our recent earnings experience and expectations of future taxable income
by taxing jurisdiction, the carryforward periods available to us for tax reporting purposes and other relevant factors. The actual
realization of deferred tax assets may differ significantly from the amounts we have recorded.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination
is uncertain. Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax positions. The
first step is to evaluate the tax position for recognition by determining if available evidence indicates it is more likely than not that
the tax position will be fully sustained upon review by taxing authorities, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount with a greater than 50 percent likelihood of
being realized upon ultimate settlement. For tax positions that are 50 percent or less likely of being sustained upon audit, we do
not recognize any portion of that benefit in the financial statements. We consider many factors when evaluating and estimating
our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
Our actual results could differ materially from our current estimates.
Recent Accounting Pronouncements
See Item 8. Financial Statements and Supplementary Data — Note 3. Recent Accounting Pronouncements for information
related to new accounting pronouncements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We limit our interest rate risk by investing certain of our excess cash balances in short-term, highly-liquid instruments with
an original maturity of one year or less. We do not expect any material losses from our invested cash balances and we believe that
our interest rate exposure is modest. As of April 30, 2016, our cash and cash equivalents totaled approximately $28.6 million. A
25 basis point increase in interest rates or 25 basis point decrease in interest rates would not have materially affected interest
income in Fiscal 2016.
We may from time to time borrow money under the BNED Credit Facility at various interest rate options based on LIBOR
or alternate base rate (each term as defined therein) depending upon certain financial tests. Accordingly, we may be exposed to
interest rate risk on borrowings under the BNED Credit Facility. We had no borrowings under BNED Credit Facility at April 30,
2016. To the extent we continue to have no outstanding debt under the BNED Credit Facility, a 25 basis point increase in interest
rates or 25 basis point decrease in interest rates would not have materially affected interest expense in Fiscal 2016.
Foreign Currency Risk
We do not have any material foreign currency exposure as nearly all of our business is transacted in United States currency.
44
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT INDEX
Page No.
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on the
consolidated financial statements of Barnes & Noble Education, Inc. for the years ended
April 30, 2016, May 2, 2015, and May 3, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Income for the years ended April 30,
2016, May 2, 2015, and May 3, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of April 30, 2016 and May 2, 2015 . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended April 30, 2016, May 2, 2015, and
May 3, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Equity for the years ended April 30, 2016 and May 2, 2015 . . . . . . . .
Notes to Consolidated Financial Statements
Note 1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 2.
Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 3. Recent Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4. Acquisitions and Strategic Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 5.
Equity and Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 6.
Fair Values of Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 7.
Note 8. Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9.
Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10. Barnes & Noble, Inc. Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12. Employees’ Defined Contribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13. Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14.
Note 15. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 16. Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 17. Selected Quarterly Financial Information (Unaudited). . . . . . . . . . . . . . . . . . . . . .
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
47
48
49
50
51
52
56
58
59
59
61
62
63
64
67
67
67
69
71
71
72
73
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Barnes & Noble Education, Inc.
We have audited the accompanying consolidated balance sheets of Barnes & Noble Education, Inc. and subsidiaries as of
April 30, 2016 and May 2, 2015, and the related consolidated statements of operations and comprehensive income, equity and
cash flows for each of the three years in the period ended April 30, 2016. Our audits also included the financial statement schedule
listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Barnes & Noble Education, Inc. and subsidiaries at April 30, 2016 and May 2, 2015, and the consolidated results of
its operations and its cash flows for each of the three years in the period ended April 30, 2016, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Barnes & Noble, Inc.’s internal control over financial reporting as of April 30, 2016, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated June 29, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
MetroPark, NJ
June 29, 2016
46
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
(In thousands, except per share data)
52 weeks
ended
52 weeks
ended
53 weeks
ended
April 30, 2016
May 2, 2015
May 3, 2014
Sales:
Product sales and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,579,617
$
1,544,975
$
1,536,180
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
228,412
228,023
211,742
1,808,029
1,772,998
1,747,922
Cost of sales:
Product and other cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,224,955
1,198,300
1,180,727
Rental cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
129,725
131,125
130,430
1,354,680
1,329,425
1,311,157
443,573
359,504
50,509
—
—
33,560
210
33,350
14,218
19,132
—
19,132
0.33
0.33
38,452
38,493
$
$
$
$
436,765
330,426
48,014
—
—
58,325
385
57,940
22,834
35,106
—
35,106
0.88
0.88
37,270
37,275
Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss (non-cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive earnings, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share of Common Stock:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares of Common Stock outstanding:
453,349
375,219
52,690
11,987
8,830
4,623
1,872
2,751
2,667
$
$
$
$
84
—
84
$
$
— $
— $
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,238
46,479
See accompanying notes to consolidated financial statements.
47
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
As of
April 30, 2016 May 2, 2015
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
28,568
$
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Textbook rental inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,924
312,747
47,760
6,453
446,452
111,185
199,663
280,911
33,472
44,816
76,551
297,424
47,550
4,625
470,966
107,557
198,190
274,070
39,885
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,071,683
$
1,090,668
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders' equity:
Preferred membership interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent company investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock, $0.01 par value; authorized, 5,000 shares; issued and outstanding,
none. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.01 par value; authorized, 200,000 shares; issued, 48,645 and 0
shares, respectively; outstanding, 46,755 and 0 shares, respectively . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes to consolidated financial statements.
$
152,175
$
155,203
105,877
258,052
29,865
75,380
363,297
—
—
—
—
486
1
699,512
27,002
(18,615)
708,386
97,575
252,778
41,733
69,488
363,999
—
—
726,669
—
—
—
—
—
—
726,669
$
1,071,683
$
1,090,668
48
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
84
$
19,132
$
35,106
52 weeks
ended
52 weeks
ended
53 weeks
ended
April 30, 2016 May 2, 2015
May 3, 2014
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs. . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss (non-cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in other operating assets and liabilities, net. . . . . . . . . . . . . . . . .
Net cash flows provided by operating activities. . . . . . . . . . . . . . . .
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . .
Net increase in other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows used in investing activities . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Net changes in Barnes & Noble, Inc. Investment . . . . . . . . . . . . . . . . . . .
Acquisition of Preferred Membership Interests . . . . . . . . . . . . . . . . . . . . .
Proceeds from borrowings on Credit Facility . . . . . . . . . . . . . . . . . . . . . .
Repayments of borrowings on Credit Facility . . . . . . . . . . . . . . . . . . . . . .
Payment of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows (used in) provided by financing activities . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in other operating assets and liabilities, net:
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Textbook rental inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in other operating assets and liabilities, net . . . . . . . . . . . .
Supplemental cash flow information:
Cash paid during the period for:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid (net of refunds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash financing activities:
Acquisition of Preferred Membership Interests for 2,737,290 shares of
common stock of Barnes & Noble. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes to consolidated financial statements.
49
$
$
$
$
$
$
52,690
488
11,987
(11,868)
6,670
5,892
16,838
82,781
(50,790)
(17,843)
(2,107)
(70,740)
(6,423)
—
60,600
(60,600)
(3,251)
(18,615)
(28,289)
(16,248)
44,816
28,568
25,732
(15,323)
(210)
(2,508)
9,147
16,838
56
13,934
$
$
$
$
$
50,509
—
—
(11,332)
4,741
8,335
(53,660)
17,725
(48,452)
—
(9,733)
(58,185)
29,334
(76,175)
—
—
—
—
(46,841)
(87,301)
132,117
44,816
$
(37,550) $
(22,078)
(487)
(504)
6,959
(53,660) $
48,014
—
—
(9,962)
2,373
(6,226)
(18,569)
50,736
(38,253)
—
808
(37,445)
64,129
—
—
—
—
—
64,129
77,420
54,697
132,117
(2,707)
(29,988)
(3,003)
(1,481)
18,610
(18,569)
210
25,171
$
$
385
32,796
— $
76,175
$
—
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
(In thousands)
Accum.
Additional
Other
Preferred
Parent
Common Stock
Shares Amount
Paid-In
Capital
Comp.
Retained Membership
Company
Treasury Stock
Total
Income
Earnings
Interests
Investment
Shares Amount
Equity
Balance at May 3, 2014. . .
— $
— $
— $ — $
— $
383,397
$
366,240
— $
— $ 749,637
Net income . . . . . . . . . . . .
Net change in Barnes &
Noble, Inc. Investment . .
Stock-based compensation
expense . . . . . . . . . . . . . .
Accretive dividend on
preferred stockholders. . .
Acquisition of preferred
membership interests. . . .
19,132
29,334
4,741
6,077
(6,077)
19,132
29,334
4,741
—
(389,474)
313,299
(76,175)
Balance at May 2, 2015. . .
— $
— $
— $ — $
— $
— $
726,669
— $
— $ 726,669
Accum.
Additional
Other
Preferred
Parent
Common Stock
Shares Amount
Paid-In
Capital
Comp.
Retained Membership
Company
Treasury Stock
Total
Income
Earnings
Interests
Investment
Shares Amount
Equity
Balance at May 2, 2015. . .
— $
— $
— $ — $
— $
— $
726,669
— $
— $ 726,669
—
—
—
—
—
—
671,836
—
— 671,836
(26,918)
953
(28,868)
(26,918)
953
(28,868)
Net loss . . . . . . . . . . . . . . .
Stock-based compensation
expense . . . . . . . . . . . . . .
Net change in Barnes &
Noble, Inc. Investment . .
Balance at August 2, 2015
(Spin-Off) . . . . . . . . . . . .
Net change in Barnes &
Noble, Inc. Investment . .
Capitalization at Spin-Off .
48,187
482
693,799
Stock-based compensation
expense . . . . . . . . . . . . . .
Vested equity awards. . . . .
458
4
5,717
(4)
Common stock
repurchased . . . . . . . . . . .
Shares repurchased for tax
withholdings for vested
stock awards . . . . . . . . . .
Comprehensive income . . .
Net income . . . . . . . . . . . .
Balance at April 30, 2016 .
48,645 $
486
$
699,512
$
1
1
See accompanying notes to consolidated financial statements.
22,445
(694,281)
22,445
—
5,717
—
1,715
(16,612)
(16,612)
175
(2,003)
(2,003)
1
27,002
27,002
$ 27,002
$
— $
—
1,890 $ (18,615) $ 708,386
50
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Thousands of dollars, except share and per share data)
Unless the context otherwise indicates, references in these Notes to the accompanying consolidated financial statements to
“we,” “us,” “our” and “the Company” refer to Barnes & Noble Education, Inc., a Delaware corporation. References to “Barnes &
Noble” refer to Barnes & Noble, Inc., a Delaware corporation, and its consolidated subsidiaries (other than Barnes & Noble
Education, Inc. and its consolidated subsidiaries) unless the context otherwise requires. References to “Barnes & Noble College”
refer to our college bookstore business operated through our subsidiary Barnes & Noble College Booksellers, LLC.
Note 1. Organization
Description of Business
Barnes & Noble Education, Inc., one of the largest contract operators of bookstores on college and university campuses across
the United States and a leading provider of digital education services, enhances the academic and social purpose of educational
institutions. As a strategic partner, we are committed to offering a complete support system and an unmatched retail and digital
learning experience to foster student success in higher education. Through our wholly-owned subsidiary, Barnes & Noble College,
we operate 751 campus bookstores and the school-branded e-commerce sites for each store, serving more than 5 million college
students and their faculty nationwide. On August 2, 2015, we completed the legal separation from Barnes & Noble, Inc., at which
time we began to operate as an independent publicly-traded company.
Overall educational spending in the United States continues to increase dramatically, and as tuition and other costs rise, colleges
and universities face pressure to attract and retain students and provide them with innovative, affordable educational content and
tools that support their educational development. While traditional print textbooks remain the first choice of students, demand for
alternative forms of educational materials is growing.
We offer a complete set of products and services to help students, faculty and administrators achieve their shared educational
and social goals on college and university campuses across the United States. As one of the largest contract operators of bookstores
and provider of digital education services, we operate as a focal point for college life and learning, advancing the educational
mission of our institution partners, enlivening campus culture and delivering an important revenue stream to our partner schools.
For over 5 million students and their faculty, our campus stores are a social and academic hub through which students can
access affordable course materials and affinity products, including new and used print and digital textbooks, which are available
for sale or rent; emblematic apparel and gifts; trade books; computer products; school and dorm supplies; café; convenience food
and beverages; and graduation products. Through multi-year management service agreements with our schools, we typically have
the exclusive right to operate the official school bookstore on college campuses. In turn, we pay the school a percentage of store
sales and, in some cases, a minimum fixed guarantee. We create seamless retail experiences for our customers, both in our dynamic
physical stores or our official school-branded e-commerce sites for each school.
As of April 30, 2016, we operated 751 stores nationwide, which reached 26% of the total number of students enrolled at
colleges and universities in the United States. Our stores are operated under 472 contracts, some of which cover multiple store
locations, and 165 of our college and university affiliated bookstores are co-branded with the Barnes & Noble name.
Fiscal 2016 was an excellent year for new store signings, and we have a strong pipeline of new business opportunities. During
the 2016 fiscal year, we opened 39 stores with estimated first year annual sales of $64,000.
We are well positioned to benefit from the continuing trend towards outsourcing across the campus bookstore market given
our brand, reputation with institutions, students and faculty for service and our full suite of products and services including:
bookstore management, textbook rental and digital delivery.
Growth Drivers
The primary factors that we expect will enable us to grow our business are as follows:
• Increase Market Share with New Accounts.
• Adapting our Merchandising Strategy and Product and Service Offerings.
• Scalable and Leading Digital Product and Solution Set.
• Expand Strategic Opportunities through Acquisitions and Partnerships.
For additional information related to our Strategies, see Part I - Item 1. Business - Overview - Offering - Comprehensive
Learning Solutions - Growth Drivers.
51
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Separation from Barnes & Noble, Inc.
On February 26, 2015, Barnes & Noble announced plans to Spin-Off its 100% equity interest in our Company. At the time of
the Spin-Off on August 2, 2015, Barnes & Noble distributed all of its equity interest in us, consisting of all of the outstanding
shares of our Common Stock, to Barnes & Noble’s stockholders on a pro rata basis (the “Distribution”). Following the Spin-Off,
Barnes & Noble did not own any equity interest in us. On August 2, 2015, we completed the legal separation from Barnes & Noble,
at which time we began to operate as an independent publicly-traded company. For details related to the Distribution of our Common
Stock, see Note 6. Equity and Earnings Per Share.
In connection with the separation from Barnes & Noble, we entered into several agreements that govern the relationship
between the parties after the separation and allocate between the parties various assets, liabilities, rights and obligations following
the separation and also describe Barnes & Noble’s future commitments to provide us with certain transition services following the
Spin-Off. For additional information related to these agreements, see Note 10. Barnes & Noble, Inc. Transactions.
The results of operations for the 13 weeks ended August 1, 2015, Fiscal 2015, Fiscal 2014 (periods presented prior to the
Spin-Off), reflected in our consolidated financial statements are presented on a stand-alone basis since we were still part of Barnes
& Noble, Inc. until the consummation of the Spin-Off on August 2, 2015 and the results of operations for the 39 weeks ended
April 30, 2016 reflected in our consolidated financial statements are presented on a consolidated basis as we became a separate
consolidated entity (as discussed in Note 2. Summary of Significant Accounting Policies).
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
Our consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States (“GAAP”). In the opinion of the Company’s
management, the accompanying 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.
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. Our business is highly
seasonal, with the major portion of sales and operating profit realized during the second and third fiscal quarters, when college
students generally purchase and rent textbooks for the upcoming semesters. The fiscal year periods for each of the last three fiscal
years consisted of the 52 weeks ended April 30, 2016 (Fiscal 2016), 52 weeks ended May 2, 2015 (Fiscal 2015), and 53 weeks
ended May 3, 2014 (Fiscal 2014).
Stand-alone basis financial statements
The results of operations for the 13 weeks ended August 1, 2015, Fiscal 2015, Fiscal 2014 (periods presented prior to the
Spin-Off), (collectively referred to as the "stand-alone periods") reflected in our consolidated financial statements are presented
on a stand-alone basis since we were still part of Barnes & Noble, Inc. Our consolidated financial statements were derived from
the consolidated financial statements and accounting records of Barnes & Noble. Our consolidated financial statements include
certain assets and liabilities that have historically been held at the Barnes & Noble corporate level but are specifically identifiable
or otherwise attributable to us. For additional information, see Note 10. Barnes & Noble, Inc. Transactions.
Consolidated basis financial statements
The Spin-Off from Barnes & Noble, Inc. occurred on August 2, 2015 and therefore, the results of operations are presented on
a consolidated basis for the 39 weeks ended April 30, 2016 (i.e. second, third and fourth quarter of fiscal 2016) which includes
direct costs incurred with Barnes & Noble under various agreements. Certain corporate and shared service functions historically
provided by Barnes & Noble (as described above) will continue to be provided by Barnes & Noble under the Transition Services
Agreement. For additional information, see Note 10. Barnes & Noble, Inc. Transactions.
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 consolidated financial statements and accompanying notes. Actual results could differ from those
estimates.
52
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Cash and Cash Equivalents
We consider all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash
equivalents.
Restricted Cash
As of April 30, 2016, restricted cash of $301 and $1,996 is included in prepaid and other current assets and other noncurrent
assets, respectively, in the consolidated balance sheet. We generally do not control these accounts and these funds are amounts
held for future scheduled distributions related to acquisitions. Such funds are invested principally in money market funds.
Accounts Receivable
Receivables represent customer, private and public institutional and government billings (colleges, universities and other
financial aid providers), credit/debit card, advertising and other receivables due within one year as follows:
As of
April 30, 2016
May 2, 2015
Trade accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due from affiliate (see Note 10). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit/debit card receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
35,578
—
3,253
12,093
50,924
$
$
26,423
38,241
2,818
9,069
76,551
Accounts receivable are presented on our consolidated balance sheets net of allowances. An allowance for doubtful accounts
is determined through an analysis of the aging of accounts receivable and assessments of collectability based on historical trends,
the financial condition of our customers and an evaluation of economic conditions. We write-off uncollectible trade receivables
once collection efforts have been exhausted and record bad debt expenses related to textbook rentals that are not returned and we
are unable to successfully charge the customer. Allowance for doubtful accounts were $2,320 and $2,313 as of Fiscal 2016 and
Fiscal 2015, respectively.
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Cost is determined primarily
by the retail inventory method. Our textbook and trade book inventories are valued using the last-in first out, or “LIFO”, method
and the related reserve was not material to the recorded amount of our inventories. There were no LIFO adjustments in Fiscal 2016
and Fiscal 2015 compared to a favorable LIFO adjustment of $7,692 through cost of goods sold in Fiscal 2014.
Market value of our inventory is determined based on its estimated net realizable value, which is generally the selling price.
Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory.
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 products that we sell originate from a wide variety of domestic and international vendors. During Fiscal 2016, our four
largest suppliers accounted for approximately 46% of our merchandise purchased.
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.
53
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line
method over estimated useful lives. Maintenance and repairs are expensed as incurred, however major maintenance and remodeling
costs are capitalized if they extend the useful life of the asset. We had $42,213, $40,257, and $37,720 of depreciation expense for
Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively.
Components of property and equipment are as follows:
Useful Life
April 30, 2016 May 2, 2015
As of
Property and equipment:
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Display fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office furniture and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a)
3-5
(b)
5-7
Construction in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization. . . . . . . . . . . . . . . . .
Total property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
142,595
$
219,289
88,937
46,856
17,302
514,979
403,794
111,185
$
138,307
206,705
83,958
44,740
10,758
484,468
376,911
107,557
(a) Leasehold improvements are capitalized and depreciated over the terms of the respective leases, ranging from one to 15 years.
(b) System costs are capitalized and amortized over their estimated useful lives, from the date the systems become operational.
Purchased software is generally amortized over 3 years.
Other Long-Lived Assets
Our other long-lived assets include property and equipment and amortizable intangibles. We had $199,663 and $198,190 of
amortizable intangible assets, net of amortization, as of April 30, 2016 and May 2, 2015, respectively. These amortizable intangible
assets relate primarily to our customer relationships with our colleges and university clients, and technology acquired. For additional
information related to amortizable intangibles, see Note 9. Supplementary Information - Intangible Assets.
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 and consider market participants in accordance with Accounting Standards Codification ("ASC")
360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. We evaluate long-lived assets for impairment at the
school contract combined store level, which is the lowest level at which individual cash flows can be identified. When evaluating
long-lived assets for potential impairment, we first compare the carrying amount of the assets to the school contract combined
store level’s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying amount of the
assets, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the assets to
the school contract combined store level’s fair value based on its estimated discounted future cash flows. If required, an impairment
loss is recorded for that portion of the asset’s carrying value in excess of fair value. Impairment losses related to school contracts
included in selling and administrative expenses totaled $59, $7, and $11 during Fiscal 2016, Fiscal 2015 and Fiscal 2014,
respectively.
In Fiscal 2016, we implemented a plan to restructure our digital operations. As a result of this restructuring, we recorded a
non-cash impairment loss of $11,987. For additional information, see Item 8. Financial Statements and Supplementary Data —
Note 9. Supplementary Information.
Goodwill
The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance
sheets. As of April 30, 2016 and May 2, 2015, we had $280,911 and $274,070 of goodwill, respectively. For additional information,
see Note 9. Supplementary Information.
ASC No. 350-30, Goodwill and Other Intangible Assets ("ASC 350-30"), requires that goodwill be tested for impairment at
least annually or earlier if there are impairment indicators. We perform a two-step process for impairment testing of goodwill as
54
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
required by ASC 350-30. The first step of this test, used to identify potential impairment, compares the fair value of a reporting
unit with its carrying amount. The second step (if necessary) measures the amount of the impairment.
We completed our annual goodwill impairment test as of the first day of the third quarter of fiscal 2016. 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. Based on the results of the step one testing, fair value of the one reporting unit exceeded its
carrying value; therefore, the second step of the impairment test was not required to be performed and no goodwill impairment
was recognized.
As of the date of our annual goodwill impairment test, the excess fair value over carrying value was approximately 9%.
Goodwill is subject to further risk of impairment if comparable store sales decline, store closings accelerate or digital projections
fall short of expectations. Additionally, changes in the structure of our business as a result of future reorganizations, acquisitions
or divestitures of assets or businesses could result in future impairments of goodwill. Refer to Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates for a discussion of
key assumptions used in our testing.
Revenue Recognition and Deferred Revenue
Revenue from sales of our products at physical locations is recognized at the time of sale. Revenue from sales of products
ordered through our websites is recognized upon receipt of our products by our customers. Sales taxes collected from our customers
are excluded from reported revenues. All of our sales are recognized as revenue on a “net” basis, including sales in connection
with any periodic promotions offered to customers. We do not treat any promotional offers as expenses.
We rent both physical and digital textbooks. Revenue from the rental of physical textbooks is deferred and recognized over
the rental period commencing at point of sale. Revenue from the rental of digital textbooks is recognized at time 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 offer a buyout option to allow
the purchase of a rented book at the end of the rental period. We record the buyout purchase when the customer exercises and pays
the buyout option price. In these instances, we would accelerate any remaining deferred rental revenue at the point of sale.
Cost of Sales
Our cost of sales primarily include costs such as merchandise costs, textbook rental amortization and management service
agreement costs, including rent expense, related to our college and university contracts and by 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 stock-based compensation and general office expenses, such as executive oversight,
merchandising, field support, finance, human resources, benefits, training, legal, and information technology, as well as our
investments in digital.
Stock-Based Compensation
Prior to the Spin-Off on August 2, 2015, certain of our employees were eligible to participate in Barnes & Noble, Inc. equity
plans pursuant to which they were granted awards of Barnes & Noble, Inc. common stock. During the second quarter of Fiscal
2016, post Spin-Off, we began to grant awards in accordance with the Barnes & Noble Education Inc. Equity Incentive Plan (the
"Equity Incentive Plan"). Types of equity awards that can be granted under the Equity Incentive Plan include options, restricted
stock ("RS"), restricted stock units ("RSU") and performance awards. We have not granted options under the Equity Incentive
Plan. See Note 13. Stock-Based Compensation for a further discussion of our stock-based incentive plan.
Currently, outstanding awards are not based on performance and are based solely on continued service. We recognize
compensation expense for awards ratably over the requisite service period of the award. We calculate the fair value of stock-based
awards based on the closing price on the date the award was granted. We recognize compensation expense based on the number
of awards expected to vest using an estimated average forfeiture rate.
Advertising Costs
The costs of advertising are expensed as incurred during the year pursuant to ASC No. 720-35, Advertising Costs. Advertising
costs charged to selling and administrative expenses were $8,193, $8,614, and $8,421 during Fiscal 2016, Fiscal 2015 and Fiscal
2014, respectively.
55
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Income Taxes
The provision for income taxes includes federal, state and local income taxes currently payable and those deferred because
of temporary differences between the financial statement and tax basis of assets and liabilities. The deferred tax assets and liabilities
are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We regularly
review deferred tax assets for recoverability and establish a valuation allowance, if determined to be necessary. For additional
information, see Note 14. Income Taxes.
Earnings Per Common Share
Basic earnings per share represent net earnings to common stockholders divided by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of
our stock based compensation. See Note 6. Equity and Earnings Per Share for further information regarding the calculation of
basic and diluted earnings per common share.
Change in Accounting Principle and Error Corrections
As more fully described in Note 3. Recent Accounting Policies, during the fourth quarter of fiscal 2016, we adopted Accounting
Standard Update (“ASU”) No. 2015-17, Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes ("ASU
2015-17") retrospectively to simplify the presentation of deferred income taxes. The amendments in this update require that deferred
tax liabilities and assets be classified as noncurrent in a classified statement of financial position. We early adopted this standard
during the fourth quarter of 2016 on a retrospective basis, which resulted in a reclassification of our net current deferred tax asset
of $24,358 to the net non-current deferred tax liability in our consolidated balance sheet as of May 2, 2015.
During the fourth quarter of fiscal 2016, we decreased cash and accounts payable by $14,898 for the period ended as of May 2,
2015 as a result of an immaterial balance sheet error correction. This correction was to record outstanding payments and overdraft
cash concentration balances as part of cash and cash equivalents account from the previously recorded accounts payable account.
Management has assessed both quantitative and qualitative factors discussed in ASC No. 250, Accounting Changes and Error
Corrections and Staff Accounting Bulletin 1.M, Materiality (SAB Topic 1.M) to determine that this misstatement qualifies as an
immaterial balance sheet error correction. We concluded that this balance sheet misstatement is not material to an investor as it
did not affect pre-tax income, net income, or earnings per share reported in the financial statements for any prior period financial
statements. Additionally, this balance sheet misstatement did not affect the debt covenants under our Credit Facility.
As more fully described in Note 9. Supplementary Information, during the first quarter of fiscal 2016, we increased other long-
term liabilities and decreased Parent company investment by $63,459 for the period ended as of May 2, 2015, as a result of an
immaterial balance sheet error correction.
Note 3. Recent Accounting Pronouncements
Pronouncements Adopted in Fiscal 2016
In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-09, Compensation-Stock
Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting to provide guidance that changes the
accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax
effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid-in capital pools.
The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without
triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather
than on an estimated basis. We are required to adopt this standard in the first quarter of fiscal 2018, but have early adopted this
standard during the fourth quarter of fiscal 2016 as permitted. There was no impact upon adoption of this guidance since the
recognition of income tax effects of awards was not materially different than amounts that had previously been recorded in our
financial statements and we currently use an estimated average forfeiture rate to compute stock-based compensation expense.
In March 2016, the FASB issued ASU No. 2016-04, Liabilities-Extinguishments of Liabilities (Subtopic 405-20): Recognition
of Breakage for Certain Prepaid Stored-Value Products (a consensus of the Emerging Issues Task Force) to specify how prepaid
stored-value product liabilities should be derecognized. We are required to adopt this standard in the first quarter of fiscal 2018,
but have early adopted this standard during the fourth quarter of fiscal 2016 as permitted. This standard does not have an impact
on our consolidated financial statements since we sell prepaid cards for vendors and the liability for the prepaid cards is not reflected
on our consolidated balance sheets.
56
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) - Balance Sheet Classification of Deferred
Taxes ("ASU 2015-17") to simplify the presentation of deferred income taxes. The amendments in this update require that deferred
tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that
deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected
by the amendments in this update. We are required to adopt this standard in the first quarter of fiscal 2018, but have early adopted
this standard retrospectively during the fourth quarter of fiscal 2016 as permitted. This standard impacts the classification of current
deferred income taxes presented on our consolidated financial statements for Fiscal 2015 and Fiscal 2016.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805) - Simplifying the Accounting for
Measurement-Period Adjustments ("ASU 2015-16") to simplify the accounting for measurement-period adjustments resulting
from business combinations. The amendments in this update eliminate the requirement to retrospectively account for measurement-
period adjustments. Instead, these adjustments will be recognized in the period the adjustment amount is determined. We are
required to adopt this standard in the first quarter of fiscal 2017, but have early adopted this standard during the second quarter of
fiscal 2016 as permitted. Adoption of this standard will impact our consolidated financial statements to the extent adjustments to
provisional amounts recorded for future acquisitions are determined subsequent to the period the acquisition is originally reported.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330) – Simplifying the Measurement of Inventory (“ASU
2015-11”). The amendments in this update state that inventory should be measured at the lower of cost and net realizable value.
Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. The update does not apply to inventory that is measured using last-in, first-out (“LIFO”) or the retail
inventory method. The update applies to all other inventory, which includes inventory that is measured using first-in, first-out
(“FIFO”) or average cost. We are required to adopt this standard in the first quarter of fiscal 2018, but have early adopted this
standard during the first quarter of fiscal 2016 as permitted. This standard does not have an impact on our consolidated financial
statements.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”) to simplify the accounting for cloud
computing arrangements. The amendments in this update requires that if a cloud computing arrangement includes a software
license, then a customer should account for the software license element of the arrangement consistent with the acquisition of other
software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the
arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. We are
required to adopt this standard in the first quarter of fiscal 2017, but have early adopted this standard during the fourth quarter of
fiscal 2016 as permitted. This standard does not have an impact on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs (“ASU 2015-03”) to simplify the presentation of debt issuance costs. The amendments in the
update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction
of the carrying amount of the debt. Recognition and measurement of debt issuance costs were not affected by this amendment. In
August 2015, FASB issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated
With Line-of-Credit Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF
Meeting” which clarified that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and
subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. We are required
to adopt ASU 2015-03 in the first quarter of fiscal 2017, but have early adopted this standard during the first quarter of fiscal 2016
as permitted. As discussed in Note 8. Credit Facility, debt issuance costs related to the Credit Facility entered into on August 3,
2015 have been deferred and are presented as an asset which is subsequently amortized ratably over the term of the Credit Facility.
Pronouncements Pending Adoption
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-01") to increase transparency and
comparability by providing additional information to users of financial statements regarding an entity's leasing activities. The
revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the
balance sheet for substantially all lease arrangements. We are required to adopt this standard in the first quarter of fiscal 2020 and
early adoption is permitted. The guidance will be applied on a modified retrospective basis beginning with the earliest period
presented. We are currently evaluating this standard to determine the impact of adoption on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The standard
provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes
current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize
57
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and
rewards transfer to the customer under the existing revenue guidance. In 2016, the FASB issued final amendments to clarify the
implementation guidance for principal versus agent considerations, identifying performance obligations and the accounting for
licenses of intellectual property. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic
606): Deferral of the Effective Date, which effectively delayed the adoption date by one year. We are required to adopt ASU
2014-09 in the first quarter of fiscal 2019 and early adoption is permitted. The guidance permits companies to either apply the
requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative
adjustment. We have not yet selected a transition method nor have we determined the impact of adoption on our consolidated
financial statements.
Note 4. Acquisitions and Strategic Agreements
Acquisitions
LoudCloud Systems, Inc.
In March 2016, we completed the purchase of substantially all of the assets of LoudCloud Systems, Inc. (“LoudCloud”).
LoudCloud will be a foundational asset for our digital and learning services. LoudCloud is a sophisticated digital platform and
analytics provider with a proven product and existing clients in higher education, the for-profit sector and K-12 markets. LoudCloud
currently has product capabilities that include a competency based courseware platform, a learning analytics platform and services,
an eReading product, and a learning management system ("LMS"). Its software captures and analyzes key behavioral and
performance metrics from students, allowing educators to monitor and improve student success.
The acquisition of LoudCloud closed on March 4, 2016 for a purchase price of $17,843, including working capital, and was
financed completely with cash from operations. The preliminary allocation of the purchase price was based upon a preliminary
valuation and our estimates and assumptions are subject to change within the purchase price allocation period (generally one year
from the acquisition date). The preliminary purchase price was allocated primarily as follows: $10,600 intellectual property, $1,300
other intangible assets, $1,003 deferred revenue and $6,838 goodwill. This acquisition is not material to our consolidated financial
statements and therefore, disclosure of pro forma financial information has not been presented. The results of operations reflect
the period of ownership of the acquired business.
Strategic Agreements
Vital Source Technologies, Inc.
In March 2016, we entered into a strategic commercial agreement with Vital Source Technologies, Inc. ("VitalSource"), a part
of the Ingram Content Group, and effectively outsourced the Yuzu® eTexbook reading platform. See Note 9. Supplementary
Information for additional information. VitalSource has existing relationships with publishers and a very competitive product from
a feature and technology perspective. VitalSource will continue to provide an eTextbook experience for Yuzu® users leveraging
and utilizing a broad digital library and the product is branded and marketed to the students and universities as Yuzu®. The transition
from Yuzu® to the VitalSource platform was seamless for students and faculty.
Microsoft Corporation
On April 27, 2012, Barnes & Noble entered into an investment agreement pursuant to which Barnes & Noble transferred to
NOOK Media its digital device, digital content and college bookstore businesses. On October 4, 2012, Morrison Investment
Holdings, Inc. (“Morrison”), a subsidiary of Microsoft Corporation (“Microsoft”), acquired a 17.6% non-controlling preferred
membership interest in NOOK Media. Concurrently with its entry into this agreement, Barnes & Noble also entered into a
commercial agreement with Microsoft relating to the digital and college businesses investment. See Note 10. Barnes & Noble,
Inc. Transactions.
On December 3, 2014, the Microsoft commercial agreement was terminated. On December 4, 2014, we re-acquired Morrison’s
interest in NOOK Media in exchange for cash and common stock of Barnes & Noble.
In connection with the closing, Morrison, Barnes & Noble and Barnes & Noble Education entered into a Digital Business
Contingent Payment Agreement related to Barnes & Noble’s digital business (“DBCPA”). Effective as of August 2, 2015, all of
Barnes & Noble Education’s obligations under the DBCPA were either assigned to Barnes & Noble or terminated.
58
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Pearson Education, Inc.
On December 21, 2012, NOOK Media entered into an agreement with Pearson Education, Inc. a subsidiary of Pearson plc,
to make a strategic investment in NOOK Media whereby Pearson acquired a 5% non-controlling preferred membership interest
in NOOK Media and received warrants to purchase up to an additional 5% of NOOK Media under certain conditions. That
transaction closed on January 22, 2013. See Note 10. Barnes & Noble, Inc. Transactions.
At closing, NOOK Media and Pearson entered into a commercial agreement relating to the college business with respect to
distributing Pearson content in connection with this strategic investment. On December 27, 2013, NOOK Media entered into an
amendment to the commercial agreement that extended the term of the agreement and the timing of the measurement period to
meet certain revenue share milestones.
On December 22, 2014, we re-acquired Pearson’s interest in NOOK Media and related warrants previously issued to Pearson
in exchange for cash and common stock of Barnes & Noble. We remain a party to the commercial agreement with Pearson relating
to the college business.
Note 5. Segment Reporting
We have determined that we operate within one reportable segment. We identified our single operating segment based on 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. Our international operations are not material and the
majority of the revenue and total assets are within the United States.
Note 6. Equity and Earnings Per Share
Equity
On February 26, 2015, Barnes & Noble announced plans to Spin-Off its 100% equity interest in our Company by distributing
all of its equity interest in us, consisting of all of the outstanding shares of our Common Stock, to Barnes & Noble’s stockholders
on a pro rata basis (the “Distribution”).
On July 14, 2015, Barnes & Noble approved the final distribution ratio and declared a pro rata dividend of the outstanding
shares of our common stock to Barnes & Noble’s existing stockholders. The pro-rata dividend was made on August 2, 2015 to the
Barnes & Noble stockholders of record (as of July 27, 2015). Each Barnes & Noble stockholder of record received a distribution
of 0.632 shares of our common stock for each share of Barnes & Noble common stock held on the record date. On August 2, 2015,
we completed the legal separation from Barnes & Noble, at which time we began to operate as an independent publicly-traded
company. Following the Spin-Off, Barnes & Noble does not own any equity interest in us.
Following the Spin-Off on August 2, 2015, our authorized capital stock consisted of 200,000,000 shares of common stock,
par value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share. As of August 3, 2015, 48,186,900
shares of our Common Stock and 0 shares of our preferred stock were issued and outstanding. Our Common Stock began to trade
on a “when-issued” basis on the NYSE under the symbol “BNED WI” beginning on July 23, 2015. On August 3, 2015, when-
issued trading of our Common Stock ended, and our Common Stock began “regular-way” trading under the symbol “BNED.”
The holders of our Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of
the stockholders. Holders of shares of our Common Stock do not have cumulative voting rights in the election of directors. The
holders of our Common Stock will be entitled to share ratably in our assets legally available for distribution to our stockholders,
subject to the prior distribution rights of preferred stock, if any, then outstanding. The holders of our Common Stock do not have
preemptive rights or preferential rights to subscribe for shares of our capital stock.
During the second quarter, 2,409,345 shares of Common Stock were reserved for future grants, in accordance with the Barnes
& Noble Education Inc. Equity Incentive Plan. See Note 13. Stock-Based Compensation.
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 includes 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 52 weeks ended April 30, 2016, we repurchased 1,715,269 shares for approximately $16,612 at a weighted average
cost per share of $9.95.
59
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
During the 52 weeks ended April 30, 2016, we also repurchased 174,511 shares of our Common Stock in connection with
employee tax withholding obligations for vested stock awards.
Dividends
We paid no dividends to common stockholders during Fiscal 2016, Fiscal 2015 and Fiscal 2014. We do not intend to pay
dividends on our Common Stock in the foreseeable future.
Earnings Per Share
For periods prior to the Spin-Off from Barnes & Noble on August 2, 2015, basic earnings per share and weighted-average
basic shares outstanding are based on the number of shares of Barnes & Noble, Inc. common stock outstanding as of the end of
the period, adjusted for the distribution ratio of 0.632 shares of our Common Stock for every one share of Barnes & Noble, Inc.
common stock held on the record date for the Spin-Off.
For periods prior to the Spin-Off, diluted earnings per share and weighted-average diluted shares outstanding reflect potential
common shares from Barnes & Noble equity plans in which our employees participated. Certain of our employees held restricted
stock units and stock options granted by Barnes & Noble, Inc. which were considered participating securities.
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 Fiscal 2016, Fiscal 2015 and Fiscal 2014, no shares were excluded from the diluted
earnings per share calculation using the two-class method as they were not antidilutive.
60
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
The following is a reconciliation of the basic and diluted earnings per share calculation:
Fiscal 2016
Fiscal 2015
Fiscal 2014
Numerator for basic earnings per share:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accretion of dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allocation of earnings to participating securities . . . . . . . . . . . . . . . . . .
Net income available to common shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . $
Numerator for diluted earnings per share:
Net income available to common shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accretion of dividends on preferred stock (a) . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation of earnings to participating securities. . . . . . . . . . . . . . . . . . . . . .
Less diluted allocation of earnings to participating securities . . . . . . . . . . . .
Net income available to common shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . $
Denominator for basic earnings per share: (b)
84
—
—
84
84
—
—
—
84
$
$
$
$
19,132
(6,076)
(313)
12,743
$
$
35,106
(1,770)
(663)
32,673
12,743
$
32,673
—
313
(313)
12,743
$
—
663
(663)
32,673
Basic weighted average shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . .
46,238
38,452
37,270
Denominator for diluted earnings per share: (c)
Basic weighted average shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . .
Average dilutive restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average dilutive options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted average shares of Common Stock. . . . . . . . . . . . . . . . . . . . . . .
46,238
227
14
46,479
38,452
—
41
38,493
37,270
—
5
37,275
Earnings per share of Common Stock:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
0.33
0.33
$
$
0.88
0.88
(a) Although the Company was in a net income position during Fiscal 2016, Fiscal 2015 and Fiscal 2014, the dilutive effect of
the accretion of preferred membership interests were excluded from the calculation of income per share using the two-class
method because the effect would be antidilutive.
(b) For periods prior to the Spin-Off from Barnes & Noble, Inc. on August 2, 2015, basic earnings per share and weighted-average
basic shares outstanding are based on the number of shares of Barnes & Noble, Inc. common stock outstanding as of the end
of the period, adjusted for the distribution ratio of 0.632 shares of our Common Stock for every one share of Barnes & Noble,
Inc. common stock held on the record date for the Spin-Off.
(c) For periods prior to the Spin-Off, diluted earnings per share and weighted-average diluted shares outstanding reflect potential
common shares from Barnes & Noble, Inc. equity plans in which our employees participated. Certain of our employees held
restricted stock units and stock options granted by Barnes & Noble, Inc. which were considered participating securities.
Note 7. Fair Values of Financial Instruments
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
61
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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.
Note 8. Credit Facility
Until August 3, 2015, we were party to an amended and restated credit facility with Barnes & Noble, Inc., as the lead borrower,
and Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders, dated as of April 29,
2011 (as amended and modified to date, the “B&N Credit Facility”). The B&N Credit Facility provided for up to $1,000,000 in
aggregate commitments under a five-year asset-backed revolving credit facility expiring on April 29, 2016. The B&N Credit
Facility was secured by eligible inventory and accounts receivable with the ability to include eligible real estate and related
assets. We were a borrower and co-guarantor of all amounts owing under the B&N Credit Facility. All outstanding debt under the
B&N Credit Facility was recorded on Barnes & Noble, Inc.'s balance sheet as of August 1, 2015.
On August 3, 2015, we and certain of our subsidiaries, from time to time party thereto, entered into a credit agreement (the
“Credit Agreement”) with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders,
from time to time party thereto, under which the lenders committed to provide us with a five-year asset-backed revolving credit
facility in an aggregate committed principal amount of $400,000 (the “BNED Credit Facility”). Proceeds from the BNED Credit
Facility will be used for general corporate purposes, including seasonal working capital needs. Bank of America Merrill Lynch,
J.P. Morgan Securities LLC, Wells Fargo Bank, N.A. and SunTrust Robinson Humphrey, Inc. are the joint lead arrangers for the
BNED Credit Facility.
We and certain of its subsidiaries (collectively, the “Loan Parties”) will be permitted to borrow under the BNED Credit Facility.
The BNED Credit Facility is secured by substantially all of the inventory, accounts receivable and related assets of the borrowers
under the BNED Credit Facility, but excluding the equity interests in us and our subsidiaries, intellectual property, equipment and
certain other property. We have the option to request an increase in commitments under the BNED Credit Facility of up to $100,000,
subject to certain restrictions.
As of April 30, 2016, we had no outstanding borrowings under the BNED Credit Facility. During the 52 weeks ended April 30,
2016, we borrowed and repaid $60,600 under the BNED Credit Facility. As of April 30, 2016, we have issued $3,567 in letters of
credit under the facility.
We incurred debt issuance costs totaling $3,251 related to the BNED Credit Facility. As permitted under ASU No. 2015-15,
the debt issuance costs have been deferred and are presented as an asset which is subsequently amortized ratably over the term of
the credit agreement.
Interest under the BNED Credit Facility accrues, at our election, at a LIBOR or alternate base rate, plus, in each case, an
applicable interest rate margin, which is determined by reference to the level of excess availability under the BNED Credit Facility.
Loans will initially bear interest at LIBOR plus 2.000% per annum, in the case of LIBOR borrowings, or at the alternate base rate
plus 1.000% per annum, in the alternative, and thereafter the interest rate will fluctuate between LIBOR plus 2.000% per annum
and LIBOR plus 1.750% per annum (or between the alternate base rate plus 1.000% per annum and the alternate base rate plus
0.750% per annum), based upon the excess availability under the BNED Credit Facility at such time.
The Credit Agreement contains customary negative covenants, which limit our ability to incur additional indebtedness, create
liens, make investments, make restricted payments or specified payments and merge or acquire assets, among other things. In
addition, if excess availability under the BNED Credit Facility were to fall below certain specified levels, certain additional
covenants (including fixed charge coverage ratio requirements) would be triggered, and the lenders would have the right to assume
dominion and control over the Loan Parties’ cash.
The Credit Agreement contains customary events of default, including payment defaults, material breaches of representations
and warranties, covenant defaults, default on other material indebtedness, customary ERISA events of default, bankruptcy and
insolvency, material judgments, invalidity of liens on collateral, change of control or cessation of business. The Credit Agreement
also contains customary affirmative covenants and representations and warranties. We are in compliance with all covenants,
representations and warranties under the Credit Agreement as of April 30, 2016.
We believe that our future cash from operations, access to borrowings under the BNED Credit Facility and short-term vendor
financing will provide adequate resources to fund our operating and financing needs for the foreseeable future. Our access to, and
the availability of, financing in the future will be impacted by many factors, including our credit rating, the liquidity of the overall
capital markets and the current state of the economy. There can be no assurances that we will have access to capital markets on
acceptable terms.
62
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 9. Supplementary Information
Impairment Loss (non-cash) and Restructuring Costs
In Fiscal 2016, we implemented a plan to restructure our digital operations. As a result of this restructuring, we recorded a
non-cash impairment loss of $11,987 related to all of the capitalized content costs for the Yuzu® eTextbook platform ($8,987) based
on the probability of recoverability of the capitalized content costs, and recorded a non-recurring other than temporary loss related
to an investment held at cost ($3,000), whose fair value has been reduced to $0 based on the financial projections of the investment.
Additionally, we announced a reduction in staff and closure of the facilities in Mountain View, California, and Redmond,
Washington that support the Yuzu® eTextbook platform. We recorded restructuring costs of $8,830 in fiscal 2016 comprised of
$3,216 in employee related costs (including severance and retention), facility exit costs of $5,046 and $568 related to specific
contracts. We expect the restructuring to be completed in the first quarter of fiscal 2017.
Intangible Assets
Amortizable intangible assets as of April 30, 2016 and May 2, 2015 are as follows:
Amortizable intangible assets
Customer relationships . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizable intangible assets
Customer relationships . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining
Life
10 - 18
10
1 - 9
Remaining
Life
19
2 - 10
As of April 30, 2016
Gross
Carrying
Amount
Accumulated
Amortization
255,050
10,600
1,605
267,255
$
$
(67,151) $
(177)
(264)
(67,592) $
Gross
Carrying
Amount
As of May 2, 2015
Accumulated
Amortization
255,000
305
255,305
$
$
(56,950) $
(165)
(57,115) $
$
$
$
$
All amortizable intangible assets are being amortized over their useful life on a straight-line basis.
Aggregate Amortization Expense:
For the 52 weeks ended April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
For the 52 weeks ended May 2, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
For the 53 weeks ended May 3, 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Estimated Amortization Expense: (Fiscal Year)
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
After 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total
187,899
10,423
1,341
199,663
Total
198,050
140
198,190
10,477
10,252
10,294
11,585
11,542
11,534
11,506
11,468
142,028
63
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Goodwill
The following table details the changes in carrying value of goodwill (in millions):
Balance at May 3, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at May 2, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill related to acquisitions, including foreign currency translation (see Note 4). . . . . . . . . . . . . . . .
Balance at April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
274,070
—
274,070
6,841
280,911
As of April 30, 2016, goodwill of approximately $6,575 was deductible for federal income tax purposes.
Other Long-Term Liabilities
Other long-term liabilities consist primarily of tax liabilities related to the long-term tax payable associated with the LIFO
reserve and deferred management service agreement costs related to college and university contracts. We provide for minimum
contract expense over the contract terms on a straight-line basis. The excess of such minimum contract expense over actual contract
payments (net of school allowances) is reflected in other long-term liabilities and accrued liabilities in the consolidated balance
sheets.
We had the following long-term liabilities at April 30, 2016 and May 2, 2015:
April 30,
2016
May 2,
2015
Tax liabilities and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred contract obligations (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
69,345
$
4,164
1,871
75,380
$
63,673
4,082
1,733
69,488
(a) Contract obligations primarily consist of the payments we make to the colleges and universities to operate their official
bookstores (management service agreement costs), including rent expense.
As a result of an immaterial balance sheet error correction, during the first quarter of fiscal 2016, we increased other long-
term liabilities and decreased Parent company investment by $63,459 for the period ended as of May 2, 2015. This correction
related to the long-term tax payable associated with the LIFO reserve which was previously deemed contributed to Parent company
capital as an intercompany liability, along with other income tax liabilities associated with our operations. The liability should not
have been deemed contributed as the long-term obligation to the tax authority is required to stay with Barnes & Noble Education,
Inc. as that entity would be legally obligated to pay that amount if required. Management believes it is remote that the long-term
tax payable associated with the LIFO reserve will be payable or will result in a cash tax payment in the foreseeable future, assuming
that LIFO will continue to be an acceptable inventory method for tax purposes. Management has assessed both quantitative and
qualitative factors discussed in ASC No. 250, Accounting Changes and Error Corrections and Staff Accounting Bulletin 1.M,
Materiality (SAB Topic 1.M) to determine that this misstatement qualifies as an immaterial balance sheet error correction. We
concluded that this balance sheet misstatement is not material to an investor as it did not affect pre-tax income, net income, earnings
per share or amounts reported in the statement of cash flows for any prior period financial statements.
Note 10. Barnes & Noble, Inc. Transactions
Our History with Barnes & Noble, Inc.
On September 30, 2009, Barnes & Noble acquired Barnes & Noble College Booksellers, LLC from Leonard and Louise
Riggio. From that date until October 4, 2012, Barnes & Noble College Booksellers, LLC was wholly owned by Barnes & Noble
Booksellers, Inc., a wholly owned subsidiary of Barnes & Noble. We were initially incorporated under the name NOOK Media
Inc. in July 2012 to hold Barnes & Noble’s college and digital businesses. On October 4, 2012, Microsoft Corporation (“Microsoft”)
acquired a 17.6% non-controlling preferred membership interest in our subsidiary NOOK Media LLC (“NOOK Media”), and
through us, Barnes & Noble maintained an 82.4% controlling interest of the college and digital businesses.
On January 22, 2013, Pearson Education, Inc. (“Pearson”) acquired a 5% non-controlling preferred membership interest in
NOOK Media, received warrants to purchase an additional preferred membership interest in NOOK Media and entered into a
commercial agreement with NOOK Media relating to the college business. See Note 4. Acquisitions and Strategic Agreements.
64
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
On December 4, 2014, we re-acquired Microsoft’s interest in NOOK Media in exchange for cash and common stock of
Barnes & Noble. On December 22, 2014, we also re-acquired Pearson’s interest in NOOK Media and related warrants previously
issued to Pearson in exchange for cash and common stock of Barnes & Noble. As a result of these transactions, Barnes & Noble
owned 100% of our Company prior to the Spin-Off. See Note 4. Acquisitions and Strategic Agreements.
In February 2015, we changed our name from NOOK Media Inc. to Barnes & Noble Education, Inc. and NOOK Media’s
name to B&N Education, LLC. On February 26, 2015, Barnes & Noble announced plans to Spin-Off its 100% equity interest in
our Company.
On May 1, 2015, we distributed to Barnes & Noble all of the membership interests in NOOK Digital LLC (formerly known
as barnesandnoble.com llc), which owns the NOOK digital business and which will continue to be owned by Barnes & Noble. At
such time, we ceased to own any interest in the NOOK digital business. These consolidated financial statements retroactively
reflect the reorganization of NOOK Media Inc. as described above.
On June 5, 2015, Barnes & Noble entered into conversion agreements with certain beneficial owners of the Series J Preferred
Stock, pursuant to which such beneficial owners agreed to convert an aggregate of 103,995 shares of Series J Preferred Stock into
6,117,342 shares of Barnes & Noble common stock (the “Voluntary Conversion”). The Voluntary Conversion took place on July 9,
2015, at which time the 103,995 shares of Series Preferred Stock subject to the Voluntary Conversion were retired by Barnes &
Noble.
On July 10, 2015, Barnes & Noble gave notice of its exercise of the right to force the conversion of all 100,005 remaining
outstanding shares of Series J Preferred Stock into approximately 6.0 million shares of Barnes & Noble common stock (the “Forced
Conversion”). The Forced Conversion occurred on July 24, 2015, at which time such remaining 100,005 shares of Series J Preferred
Stock subject to the Forced Conversion were retired.
At the time of the Spin-Off on August 2, 2015, Barnes & Noble distributed all of its equity interest in us, consisting of all of
the outstanding shares of our Common Stock, to Barnes & Noble’s stockholders on a pro rata basis (the “Distribution”). Following
the Spin-Off, Barnes & Noble does not own any equity interest in us. On August 2, 2015, we completed the legal separation from
Barnes & Noble, at which time we began to operate as an independent publicly-traded company.
Allocation of General Corporate Expenses from Barnes & Noble (Prior to Spin-Off)
The results of operations for the 13 weeks ended August 1, 2015, Fiscal 2015, Fiscal 2014 (periods presented prior to the
Spin-Off collectively referred to as the "stand-alone periods") reflected in our consolidated financial statements are presented on
a stand-alone basis since we were still part of Barnes & Noble, Inc.
Our consolidated financial statements were derived from the consolidated financial statements and accounting records of
Barnes & Noble. Our consolidated financial statements include certain assets and liabilities that have historically been held at the
Barnes & Noble corporate level but are specifically identifiable or otherwise attributable to us.
All intercompany transactions between us and Barnes & Noble have been included in our consolidated financial statements
and are considered to be effectively settled for cash in our consolidated financial statements at the time the Spin-Off became
effective. The total net effect of the settlement of these intercompany transactions was reflected in our consolidated statements of
cash flow as a financing activity and in our consolidated balance sheets as “Parent company investment.”
The consolidated financial statements for the stand-alone periods include an allocation for certain corporate and shared service
functions historically provided by Barnes & Noble, including, but not limited to, executive oversight, accounting, treasury, tax,
legal, human resources, procurement, information technology and other shared services. These expenses have been allocated to
us on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of consolidated sales, headcount,
tangible assets or other measures considered to be a reasonable reflection of the historical utilization levels of these services.
Following the Spin-Off on August 2, 2015, we began to perform these functions using our own resources or contracted services,
certain of which may be provided by Barnes & Noble during a transitional period pursuant to the Transition Services Agreement.
Direct Costs Incurred Related to On-going Agreements with Barnes & Noble (Subsequent to the Spin-Off)
The Spin-Off from Barnes & Noble, Inc. occurred on August 2, 2015 and therefore, the results of operations are presented
on a consolidated basis for the 39 weeks ended April 30, 2016 (i.e. second, third and fourth quarter of fiscal 2016, period after
the Spin-Off) which includes direct costs incurred with Barnes & Noble under various agreements.
65
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
In connection with the separation from Barnes & Noble, we entered into a Separation and Distribution Agreement with
Barnes & Noble on July 14, 2015 and several other ancillary agreements on August 2, 2015. These agreements govern the
relationship between the parties after the separation and allocate between the parties various assets, liabilities, rights and obligations
following the separation, including inventory purchases, employee benefits, intellectual property, information technology, insurance
and tax-related assets and liabilities. The agreements also describe Barnes & Noble’s future commitments to provide us with certain
transition services following the Spin-Off. These agreements include the following:
• a Separation and Distribution Agreement that set forth Barnes & Noble’s and our agreements regarding the principal actions
that both parties took in connection with the Spin-Off and aspects of our relationship following the Spin-Off. The term of
the agreement is perpetual after the Distribution date;
• a Transition Services Agreement pursuant to which Barnes & Noble agreed to provide us with specified services for a limited
time to help ensure an orderly transition following the Distribution. The Transition Services Agreement specifies the
calculation of our costs for these services. The agreement will expire and services under it will cease no later than two years
following the Distribution date or sooner in the event we no longer require such services;
• a Tax Matters Agreement governs the respective rights, responsibilities and obligations of Barnes & Noble and us after the
Spin-Off with respect to all tax matters (including tax liabilities, tax attributes, tax returns and tax contests). The agreement
will expire after two years following the Distribution date;
• an Employee Matters Agreement with Barnes & Noble addressing employment, compensation and benefits matters including
the allocation and treatment of assets and liabilities arising out of employee compensation and benefits programs in which
our employees participated prior to the Spin-Off. The agreement will expire and services under it will cease when we no
longer require such services; and
• a Trademark License Agreement pursuant to which Barnes & Noble grants us an exclusive license in certain licensed
trademarks and a non-exclusive license in other licensed trademarks. The term of the agreement is perpetual after the
Distribution date.
A description of the material terms and conditions of these agreements can be found in the Prospectus dated July 15, 2015
and filed with the SEC on that date. The descriptions of the Transition Services Agreement, Tax Matters Agreement, Employee
Matters Agreement and Trademark License Agreement are qualified in their entirety by reference to the full text of the Transition
Services Agreement, Tax Matters Agreement, Employee Matters Agreement and Trademark License Agreement, which are attached
as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to the Current Report on Form 8-K dated August 2, 2015 and filed with the
SEC on August 3, 2015. The description of the Separation and Distribution Agreement is qualified in its entirety by reference to
the full text of the Separation and Distribution Agreement, which is attached as Exhibit 2.1 to the Quarterly Report on Form 10-
Q dated August 1, 2015 and filed with the SEC on September 10, 2015.
Summary of Transactions with Barnes & Noble
During the 39 weeks ended April 30, 2016 (i.e. second, third and fourth quarter of fiscal 2016, periods presented after the
Spin-Off), we were billed $22,673 for purchases of inventory and direct costs incurred under the agreements discussed above
which are included as cost of sales and selling, general and administrative expense in the consolidated statements of operations.
During the 13 weeks ended August 1, 2015, Fiscal 2015, Fiscal 2014 (periods presented prior to the Spin-Off), we were
allocated $13,321, $43,523, and $56,481, respectively, of general corporate expenses incurred by Barnes & Noble and purchases
of inventory which are included as cost of sales and selling, general and administrative expense in the consolidated statements of
operations. For information related to allocated stock-based compensation expense, see Note 13. Stock-Based Compensation.
As of April 30, 2016, amounts due to Barnes & Noble, Inc. for book purchases and direct costs incurred under the agreements
discussed above was $5,246 and is included in accounts payable and accrued liabilities in the consolidated balance sheets.
All intercompany transactions between us and Barnes & Noble have been included in our consolidated financial statements
and are considered to be effectively settled for cash in our consolidated financial statements at the time the Spin-Off is recorded.
The total net effect of the settlement of these intercompany transactions is reflected in our consolidated statements of cash flow
as a financing activity and in the consolidated balance sheets as “Parent company investment.” As of May 2, 2015, amounts due
from Barnes & Noble, Inc. related to intercompany loans, net of corporate allocations, income taxes, and purchases of inventory
was $38,241 and is included in Parent Company Investment in the consolidated balance sheets.
66
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 11. Related Party Transactions
MBS Textbook Exchange, Inc.
We have a long-term supply agreement (“Supply Agreement”) with MBS Textbook Exchange, Inc. (“MBS”), which is majority
owned by Leonard Riggio, who is a principal owner holding substantial shares of our common stock, and other members of the
Riggio family. MBS is a new and used textbook wholesaler, which also sells textbooks online and provides bookstore systems and
distant learning distribution services. Pursuant to the Supply Agreement, which terminates by its terms in 2019, subject to automatic
renewals thereafter if a party does not object 180 days prior to each annual renewal date, and subject to availability and competitive
terms and conditions, we will continue to purchase new and used printed textbooks for a given academic term from MBS prior to
buying them from other suppliers, other than in connection with student buy-back programs. Total purchases from MBS were
$57,981, $54,353, and $70,127 for Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively. Additionally, the Supply Agreement
provides that we may sell to MBS certain textbooks that we cannot return to suppliers or use in our stores. MBS pays us commissions
based on the volume of these textbooks sold to MBS each year and with respect to the textbook requirements of certain distance
learning programs that MBS fulfills on our behalf. MBS paid us $5,009, $5,512, and $7,097 related to these commissions in Fiscal
2016, Fiscal 2015 and Fiscal 2014, respectively. In addition, the Supply Agreement contains restrictive covenants that limit our
ability to become a used textbook wholesaler and that place certain limitations on MBS’s business activities. We also entered into
an agreement with MBS in Fiscal 2011 pursuant to which MBS purchases books from us, which have no resale value for a flat
rate per box. Total sales to MBS under this program were $574, $419, and $602 for Fiscal 2016, Fiscal 2015 and Fiscal 2014,
respectively. Total outstanding amounts payable to MBS for all arrangements net of any amounts due were $21,543 and $26,354
for Fiscal 2016 and Fiscal 2015, respectively.
Note 12. Employees’ Defined Contribution Plan
Prior to the Spin-Off on August 2, 2015, Barnes & Noble, Inc. sponsored the defined contribution plan (the “Savings Plan”)
for the benefit of substantially all of our employees. Total contributions charged to employee benefit expenses for the Savings
Plan prior to the Spin-Off were based on amounts allocated to us on the basis of direct usage. See Note 10. Barnes & Noble, Inc.
Transactions.
Subsequent to the Spin-Off, we established a 401(k) plan and Barnes & Noble, Inc. transferred to it the 401(k) plan assets
relating to the account balances of our employees. Additionally, we are responsible for employer contributions to the Savings Plan
and fund the contributions directly.
Total contributions charged to employee benefit expenses for the Savings Plan were $4,375, $3,907, and $3,475 during Fiscal
2016, Fiscal 2015 and Fiscal 2014, respectively.
Note 13. Stock-Based Compensation
Barnes & Noble’s Equity Plans Prior to Spin-Off
Prior to the Spin-Off, certain of our employees were eligible to participate in Barnes & Noble, Inc. equity plans pursuant to
which they were granted awards of Barnes & Noble, Inc. common stock. Under these equity plans, our employees were granted
restricted stock units, restricted stock and stock options.
Barnes & Noble, Inc. recognized stock-based compensation costs, net of estimated forfeitures, for only those shares expected
to vest on a straight-line basis over the requisite service period of the award. Barnes & Noble, Inc. estimated the forfeiture rates
based on its historical experience. The fair market value of restricted stock was determined based on the closing price of Barnes &
Noble, Inc.’s common stock on the grant date. Barnes & Noble, Inc. used the Black-Scholes option-pricing model to value Barnes &
Noble, Inc.’s stock options for each stock option award.
The equity-based payments recorded by us prior to the Spin-Off included the expense associated with our employees.
Current Equity Plans
During the second quarter of Fiscal 2016, post Spin-Off, we reserved 2,409,345 shares of our Common Stock for future grants
in accordance with the Barnes & Noble Education Inc. Equity Incentive Plan (the "Equity Incentive Plan"). Types of equity awards
that can be granted under the Equity Incentive Plan include options, restricted stock ("RS"), restricted stock units ("RSU") and
performance awards. We have not granted options under the Equity Incentive Plan.
A restricted stock award is an award of common stock that is subject to certain restrictions during a specified period. Restricted
stock awards are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot
transfer the shares before the restricted shares vest. Shares of unvested restricted stock have the same voting rights as common
67
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding.
Restricted stock awards vest over a period of one year.
A restricted stock unit is a grant valued in terms of our common stock, but no stock is issued at the time of grant. Each restricted
stock unit may be redeemed for one share of our common stock once vested. Restricted stock units are generally subject to forfeiture
if employment terminates prior to the release of the restrictions. The grantee cannot transfer the units except in very limited
circumstances and with the consent of the compensation committee. Shares of unvested restricted stock units have no voting rights
but are entitled to receive dividends and other distributions thereon. Restricted stock units vest over a period of three years.
Currently, outstanding awards are not based on performance and are based solely on continued service. We recognize
compensation expense for awards ratably over the requisite service period of the award. 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.
Stock-Based Compensation Activity
Since the Spin-Off on August 2, 2015, we have granted the following awards:
• Barnes & Noble RSU awards held by our employees (or transferred employees) were converted to 877,426 shares of our
RSUs with substantially the same vesting schedule as the forfeited awards. Compensation expense for these awards will
continue to be recognized ratably over the remaining term of the unvested awards of approximately two years;
• 27,272 BNED RS awards were granted to former Barnes & Noble BOD members involved in the Spin-Off transaction.
The awards vested during the 13 weeks ended October 31, 2015;
• 804,126 BNED RSU awards were granted to employees in accordance with Equity Incentive Plan;
• 46,080 BNED RS awards were granted to the current BOD members for annual director compensation with a one year
vesting period in accordance with Equity Incentive Plan.
The following table presents a summary of restricted stock awards and restricted stock units activity related to our current
Equity Incentive Plan:
Restricted Stock Awards
Restricted Stock Units
Weighted Average
Balance, August 2, 2015. . . . .
Granted (a) . . . . . . . . . . .
Vested . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . .
Balance, April 30, 2016 . . . . .
Number of Shares
—
73,352
(27,272)
—
46,080
Grant Date Fair Value Number of Shares
—
1,681,552
(431,106)
(8,979)
1,241,467
—
13.08
13.19
—
13.02
$
$
$
$
$
Weighted Average
Grant Date Fair Value
$
$
$
$
$
—
10.12
7.29
9.92
11.10
(a) Restricted Stock Units include the 877,426 converted RSU shares discussed above.
Total fair value of shares of restricted stock awards and restricted stock units that vested since the inception of Equity Incentive
Plan was $360 and $3,143, respectively.
Stock-Based Compensation Expense
We recognized stock-based compensation expense for equity-based awards in selling and administrative expenses as follows:
Restricted Stock Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted Stock Units Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Option Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
840
$
306
$
5,710
120
3,757
678
Stock-Based Compensation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,670
$
4,741
$
—
1,943
430
2,373
Fiscal 2016
Fiscal 2015
Fiscal 2014
68
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
In the 13 weeks ended August 1, 2015, Fiscal 2015, Fiscal 2014 (periods presented prior to the Spin-Off), Barnes & Noble
allocated stock compensation expense to us, which includes stock compensation expense related to our employees, as well as an
allocation from Barnes & Noble for our pro-rated share of corporate employees.
Total unrecognized compensation cost related to unvested awards as of April 30, 2016 was $10,795 and is expected to be
recognized over a weighted-average period of 2 years.
Note 14. Income Taxes
Our operating results have been included in the consolidated U.S. federal and state income tax returns of Barnes & Noble for
all periods ending on or before the consummation of the Spin-Off on August 2, 2015. Amounts presented in these consolidated
financial statements related to income taxes have been determined on a separate tax return basis as it relates to those periods.
Amounts presented in these consolidated financial statements related to income taxes for periods ending after the consummation
of the Spin-Off are presented on a consolidated basis as we became a separate consolidated entity
For Fiscal 2016, Fiscal 2015 and Fiscal 2014, we had no material revenue or expense in jurisdictions outside the United States.
Income tax provisions (benefits) for Fiscal 2016, Fiscal 2015 and Fiscal 2014 are as follows:
Fiscal 2016
Fiscal 2015
Fiscal 2014
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
13,019
1,783
14,802
(9,922)
(2,213)
(12,135)
2,667
$
$
22,061
3,489
25,550
(10,247)
(1,085)
(11,332)
14,218
$
$
27,574
5,222
32,796
(8,493)
(1,469)
(9,962)
22,834
Reconciliation between the effective income tax rate and the federal statutory income tax rate is as follows:
Fiscal 2016
Fiscal 2015
Fiscal 2014
Federal statutory income tax rate. . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal income tax benefit . . . . . . . . .
Valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent book / tax differences. . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0%
(15.2)
50.6
31.1
(4.6)
96.9%
35.0%
4.7
—
—
2.9
42.6%
35.0%
4.3
—
—
0.1
39.4%
One percentage point on our effective tax rate is approximately $28. State income taxes benefited from certain state and local
income tax credits as well as a change in applicable income tax rates and apportionment factors. The valuation allowance relates
to deferred tax assets associated with certain restructuring charges. The permanent book / tax differences are principally comprised
of non-deductible compensation and meals and entertainment costs.
In March 2016, the FASB issued ASU No. 2016-09 to provide guidance that changes the accounting for certain aspects of
share-based payments to employees. The guidance requires, among other things, the recognition of the income tax effects of awards
in the income statement when the awards vest or are settled, thus eliminating additional paid-in capital pools. We are required to
adopt this standard in the first quarter of fiscal 2018, but have early adopted this standard during the fourth quarter of fiscal 2016
as permitted. Prior to Fiscal Year 2016, we had no windfall benefits. There was no material impact upon adoption of this guidance
since the recognition of income tax effects of awards was not materially different than amounts that had previously been recorded
in our financial statements.
We account for income taxes using the asset and liability method. Deferred taxes are recorded based on differences between
the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards.
69
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
The significant components of our deferred taxes consisted of the following:
Deferred tax assets:
$
Estimated accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Intangible asset amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
As of
April 30, 2016
May 2, 2015
$
13,859
12,926
1,648
1,050
2,138
6,802
112
3,477
1,499
43,511
(1,394)
42,117
(71,982)
—
(71,982)
(29,865) $
13,241
12,941
1,351
921
1,580
4,075
—
—
840
34,949
—
34,949
(76,682)
—
(76,682)
(41,733)
As of April 30, 2016, we had $21 of unrecognized tax benefits, all of which, if recognized, would affect our effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at April 27, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions for tax positions of the current period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other reductions for tax positions of prior periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at May 3, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions for tax positions of the current period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other reductions for tax positions of prior periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at May 2, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions for tax positions of the current period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other reductions for tax positions of prior periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at April 30, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
96
84
—
—
—
180
35
—
—
—
215
21
—
—
(215)
21
We do not believe that it is reasonably possible that these unrecognized tax benefits will decrease in the next twelve months.
Our policy is to recognize interest and penalties related to income tax matters in income tax expense. As of April 30, 2016
and May 2, 2015, we had accrued $137 and $1, respectively, for net interest and penalties. The change in the amount accrued for
net interest and penalties includes $136 in additions for net interest and penalties recognized in income tax expense in our Fiscal
2016 consolidated statement of operations.
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. In evaluating the Company’s ability to utilize its deferred tax assets, it considered
70
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
all available evidence, both positive and negative, in determining future taxable income on a jurisdiction by jurisdiction basis. The
Company has recorded a valuation allowance of $1,394 and $0 at April 30, 2016 and May 2, 2015, respectively. The $1,394 increase
in the valuation allowance during Fiscal 2016 is due principally to costs incurred in connection with restructuring during Fiscal
2016 that are not more likely than not to be deductible for tax purposes.
At April 30, 2016, and based on its tax year ended January 2016, the Company had state net operating loss carryforwards
(NOLs) of approximately $17,467 that are available to offset taxable income in its respective taxing jurisdiction beginning in the
current period and that expire beginning in 2030. The Company had net state tax credit carryforwards totaling $172, which expire
beginning in 2021.
As of May 2, 2015, the Company has not provided for deferred taxes on the excess of financial reporting over the tax basis
of investments in certain foreign subsidiaries because, as of Fiscal 2016, any such amounts are immaterial. If these earnings were
repatriated in the future, additional income and withholding tax expense would be incurred.
We are subject to U.S. federal income tax as well as income tax in jurisdictions of each state having an income tax. The tax
years that remain subject to examination are primarily from Fiscal 2013 and forward. Some earlier years remain open for a small
minority of states. Pursuant to the Tax Matters Agreements referenced in Note 10. Income Taxes, we retain income tax liability for
periods prior to the Spin-Off only for returns filed on a stand-alone basis.
Note 15. 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 consolidated financial position, results of operations, or cash flows.
Note 16. Commitments and Contingencies
We generally operate our stores pursuant to multi-year school management contracts under which a school designates us to
operate the official school bookstore on campus and we provide the school with regular payments that represent a percentage of
store sales and, in some cases, include a minimum fixed guaranteed payment. We account for these service agreements under lease
accounting. We provide for minimum contract expense over the contract terms on a straight-line basis. The excess of such minimum
contract expense over actual contract payments (net of school allowances) is reflected in other long-term liabilities and accrued
liabilities in the consolidated balance sheets. The expense related to our college and university contracts, including rent expense,
and other facility costs in the consolidated statements of operations are as follows:
Minimum contract expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage contract expense. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016
Fiscal 2015
Fiscal 2014
$
$
140,743
101,552
242,295
$
$
125,388
106,011
231,399
$
$
118,873
99,025
217,898
Our contracts with colleges and universities are typically five years with renewal options, but can range from one to 15 years,
and are typically cancelable by either party without penalty with 90 to120 days' notice. Annual projections below are based on
current minimum guarantee amounts. In 60% of our contracts with colleges and universities, the minimum guaranteed amounts
adjust annually to equal less than the prior year's commission earned.
As of April 30, 2016, future minimum annual obligations required under our contracts with colleges and universities and other
facility costs are as follows:
Fiscal Year
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
130,927
120,071
112,547
102,325
94,006
188,989
748,865
71
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Purchase obligations, which includes information technology contracts and inventory purchase commitments, as of April 30,
2016 are as follows:
Less Than 1 Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1-3 Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,867
4,800
7,667
Note 17. Selected Quarterly Financial Information (Unaudited)
A summary of quarterly financial information for Fiscal 2016 and Fiscal 2015 is as follows:
Fiscal 2016 Quarterly Period Ended
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . .
Basic (loss) earnings per common share:
Net (loss) income. . . . . . . . . . . . . . . . . .
Diluted (loss) earnings per common share:
Net (loss) income. . . . . . . . . . . . . . . . . .
Fiscal 2015 Quarterly Period Ended
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . .
Basic (loss) earnings per common share:
Net (loss) income (a) . . . . . . . . . . . . . . .
Diluted (loss) earnings per common share:
Net (loss) income (b) . . . . . . . . . . . . . . .
August 1,
2015 (a)(b)
October 31,
2015
January 30,
2016
April 30,
2016
$
$
$
$
$
$
$
$
$
$
238,983
51,544
$
$
(26,918) $
755,864
175,121
33,401
(0.65) $
0.69
(0.65) $
0.69
August 2,
2014
November 1,
2014
225,741
$
47,310
$
(26,213) $
751,702
173,511
36,951
(0.71) $
0.95
(0.71) $
0.95
$
$
$
$
$
$
$
$
$
$
518,423
$
294,759
$
120,640
$
(3,603) $
106,044
$
(2,796) $
(0.07) $
(0.06) $
(0.07) $
(0.06) $
January 31,
2015
May 2,
2015
274,001
101,130
$
$
(256) $
521,554
121,622
8,650
0.09
0.09
$
$
$
$
$
Fiscal Year
2016
1,808,029
453,349
84
—
—
Fiscal Year
2015
1,772,998
443,573
19,132
(0.01) $
0.33
(0.01) $
0.33
(a) Basic earnings per share and weighted-average basic shares outstanding are based on the number of shares of Barnes & Noble,
Inc. common stock outstanding on May 2, 2015, adjusted for an assumed distribution ratio of 0.632 shares of our Common
Stock for every one share of Barnes & Noble, Inc. common stock held on the record date for the Spin-Off.
(b) Diluted earnings per share and weighted-average diluted shares outstanding reflect potential common shares from Barnes &
Noble, Inc. equity plans in which our employees participate based on the distribution ratio. While the actual future impact
will depend on various factors, including employees who may change employment from one company to another, we believe
the estimate yields a reasonable approximation of the future dilutive impact of our equity plans.
72
Schedule II—Valuation and Qualifying Accounts
Barnes & Noble Education, Inc.
Receivables Valuation and Qualifying Accounts
(In thousands)
For the 52 week period ended April 30, 2016, 52 week period ended May 2, 2015, and the 53 week period ended May 3, 2014:
Allowance for Doubtful Accounts
April 30, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 2, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 3, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales Returns Reserves
April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 2, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 3, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at
beginning
of period
Charge
(recovery) to
costs and
expenses
Write-offs
Balance at
end
of period
2,313
2,233
2,425
$
$
$
4,000
3,544
2,666
$
$
$
(3,993) $
(3,464) $
(2,858) $
2,320
2,313
2,233
Balance at
beginning
of period
Addition
Charged to
Costs
Deductions
Balance at
end
of period
162
153
123
$
$
$
47
9
30
$
$
$
— $
— $
— $
209
162
153
$
$
$
$
$
$
All other schedules are omitted because the conditions requiring their filing do not exist, or because the required information
is provided in the consolidated financial statements, including the notes thereto.
73
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There were no disagreements with accountants on accounting and financial disclosure.
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The management of the Company established and maintains disclosure controls and procedures that are designed to ensure
that material information relating to the Company and its subsidiaries required to be disclosed in the reports that are filed or
submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As
of the end of the period covered by this report, the Company’s management conducted an evaluation (as required under Rules
13a-15(b) and 15d-15(b) under the Exchange Act), under the supervision and with the participation of the principal executive
officer and principal financial officer, of the Company’s “disclosure controls and procedures” (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act). A control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information
otherwise required to be set forth in the Company’s periodic reports. Based on management’s evaluation, the principal executive
officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure
controls and procedures are effective at the reasonable assurance level.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in
Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the
principal executive and principal financial officer and effected by the board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets
of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial
Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting
based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO 2013 framework). Based upon the Company’s evaluation under this framework, management
concluded that the Company’s internal control over financial reporting was effective as of April 30, 2016.
The effectiveness of internal control over financial reporting was audited by Ernst & Young LLP, an independent registered
public accounting firm, as stated in their report included on page 76.
(c) Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the most recent quarter ended
April 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over
financial reporting.
74
MANAGEMENT’S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
The management of Barnes & Noble Education, Inc. is responsible for the contents of the Consolidated Financial Statements,
which are prepared in conformity with accounting principles generally accepted in the United States of America. The Consolidated
Financial Statements necessarily include amounts based on judgments and estimates. Financial information elsewhere in the
Annual Report is consistent with that in the Consolidated Financial Statements.
The Company maintains a comprehensive accounting system, which includes controls designed to provide reasonable assurance
as to the integrity and reliability of the financial records and the protection of assets. An internal audit staff is employed to regularly
test and evaluate both internal accounting controls and operating procedures, including compliance with the Company’s Code of
Business Conduct and Ethics. The Audit Committee of the Board of Directors composed of directors who are not members of
management, meets regularly with management, the independent registered public accountants and the internal auditors to ensure
that their respective responsibilities are properly discharged. Ernst & Young LLP and the internal auditors have full and free
independent access to the Audit Committee. The role of Ernst & Young LLP, an independent registered public accounting firm,
is to provide an objective examination of the Consolidated Financial Statements and the underlying transactions in accordance
with the standards of the Public Company Accounting Oversight Board. The report of Ernst & Young LLP appears on page 76 of
this report on Form 10-K for the year ended April 30, 2016.
OTHER INFORMATION
The Company has included the Section 302 certifications of the Chief Executive Officer and the Chief Financial Officer of the
Company as Exhibits 31.1 and 31.2 to its Annual Report on Form 10-K for fiscal 2016 filed with the Securities and Exchange
Commission, and the Company will submit to the New York Stock Exchange a certificate of the Chief Executive Officer of the
Company certifying that he is not aware of any violation by the Company of New York Stock Exchange corporate governance
listing standards.
75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Barnes & Noble Education, Inc.
We have audited Barnes & Noble Education, Inc. and subsidiaries' internal control over financial reporting as of April 30,
2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) (the COSO criteria). Barnes & Noble Education, Inc. and subsidiaries' management
is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Barnes & Noble Education, Inc. and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of April 30, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Barnes & Noble Education, Inc. and subsidiaries as of April 30, 2016 and May 2, 2015, and
the related consolidated statements of operations and comprehensive income, equity and cash flows for each of the three years in
the period ended April 30, 2016 and our report dated June 29, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
MetroPark, NJ
June 29, 2016
76
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our executive officers is incorporated by reference herein from the discussion under Item 1. Business —
Executive Officers of this Annual Report on Form 10-K. The remaining information with respect to directors, executive officers,
the code of ethics and corporate governance of the Company is incorporated herein by reference to the Company’s definitive Proxy
Statement relating to the Company’s 2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the
Company’s fiscal year ended April 30, 2016 (the "Proxy Statement").
The information with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the
Proxy Statement.
Item 11. EXECUTIVE COMPENSATION
The information with respect to executive compensation is incorporated herein by reference to the Proxy Statement.
The information with respect to compensation of directors is incorporated herein by reference to the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table sets forth equity compensation plan information as of April 30, 2016:
Number of
securities to be
issued upon
exercise
of outstanding
options, warrants
and rights
Weighted-average
exercise price of
outstanding
options,
warrants and
rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
in column (a))
(a)
(b)
(c)
1,287,547
$
N/A
1,287,547
$
11.17
N/A
11.17
1,287,547
N/A
1,287,547
Plan Category
Equity compensation plans
approved by security holders. . . .
Equity compensation plans not
approved by security holders. . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . .
The information with respect to security ownership of certain beneficial owners and management is incorporated herein by
reference to the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information with respect to certain relationships and related transactions and director independence is incorporated herein
by reference to the Proxy Statement.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information with respect to principal accountant fees and services is incorporated herein by reference to the Proxy
Statement.
77
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
1. Consolidated Financial Statements of Barnes & Noble Education, Inc.:
Included in Part II of this Report:
Consolidated Statements of Operations and Comprehensive Income for the years ended April 30, 2016, May 2, 2015,
and May 3, 2014
Consolidated Balance Sheets as of April 30, 2016 and May 2, 2015
Consolidated Statements of Cash Flows for the years ended April 30, 2016, May 2, 2015, and May 3, 2014
Consolidated Statements of Equity for the years ended April 30, 2016 and May 2, 2015
Notes to Consolidated Financial Statements, for the years ended April 30, 2016, May 2, 2015, and May 3, 2014
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on the consolidated financial statements
of Barnes & Noble Education, Inc. for the years ended April 30, 2016, May 2, 2015, and May 3, 2014
2. Financial Statement Schedules of Barnes & Noble Education, Inc.:
Included in Part II of this report: Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not significant or not required, or because the required
information is included in the financial statement notes thereto.
3. Exhibits:
Exhibit
Number
EXHIBIT INDEX
Exhibit Description
Plan of acquisition, reorganization, arrangement, liquidation or succession.
2. 1† . . . . . .
Separation and Distribution Agreement, dated as of July 14, 2015, between Barnes & Noble, Inc. and Barnes
& Noble Education, Inc., filed as Exhibit 2.1 to Report on Form 10-Q filed with the SEC on September 10,
2015, and incorporated herein by reference.
Articles of Incorporation and By-Laws.
3.1†. . . . . . .
Amended and Restated Certificate of Incorporation of Barnes & Noble Education, Inc., filed as Exhibit 3.1 to
the Report on Form 8-K filed with the SEC on August 3, 2015, and incorporated herein by reference.
3.2†. . . . . . .
Amended and Restated By-Laws of Barnes & Noble Education, Inc., filed as Exhibit 3.2 to the Report on Form
8-K filed with the SEC on August 3, 2015, and incorporated herein by reference.
Material contracts.
10. 1† . . . . .
10.2†. . . . . .
10.3†. . . . . .
10.4†. . . . . .
10.5†. . . . . .
Credit Agreement, dated as of August 3, 2015, by and among Barnes & Noble Education, Inc., as borrower, the
lenders party thereto, Bank of America, N.A., as administrative agent, and the other agents party thereto, filed
as Exhibit 10.4 to Report on Form 8-K filed with the SEC on August 3, 2015, and incorporated herein by
reference.
Transition Services Agreement, dated as of August 2, 2015, between Barnes & Noble Education, Inc. and Barnes
& Noble, Inc., filed as Exhibit 10.1 to Report on Form 8-K filed with the SEC on August 3, 2015, and incorporated
herein by reference.
Tax Matters Agreement, dated as of August 2, 2015, between Barnes & Noble Education, Inc. and Barnes &
Noble, Inc., filed as Exhibit 10.2 to Report on Form 8-K filed with the SEC on August 3, 2015, and incorporated
herein by reference.
Employee Matters Agreement, dated as of August 2, 2015, between Barnes & Noble Education, Inc. and Barnes
& Noble, Inc., filed as Exhibit 10.3 to Report on Form 8-K filed with the SEC on August 3, 2015, and incorporated
herein by reference.
Trademark License Agreement, dated as of August 2, 2015, between Barnes & Noble Education, Inc. and Barnes
& Noble, Inc., filed as Exhibit 10.4 to Report on Form 8-K filed with the SEC on August 3, 2015, and incorporated
herein by reference.
10.6†. . . . . .
Barnes & Noble Education, Inc. Equity Incentive Plan
78
10.7†. . . . . .
Barnes & Noble Education, Inc. Form of Performance Unit Award Agreement
10.8†. . . . . .
Barnes & Noble Education, Inc. Form of Performance-Based Stock Unit Award Agreement
10.9†. . . . . .
Barnes & Noble Education, Inc. Form of Restricted Stock Unit Award Agreement
10.10†. . . . .
Barnes & Noble Education, Inc. Form of Restricted Stock Award Agreement
10.11†. . . . .
10.12†. . . . .
10.13†. . . . .
10.14†. . . . .
10.15†. . . . .
Amended and Restated Employment Agreement, dated June 25, 2015, between Barnes & Noble Education,
Inc. and Max J. Roberts filed as Exhibit 10.9 to Report on Form S-1/A filed with the SEC on July 13, 2015,
and incorporated herein by reference.
Amended and Restated Employment Agreement, dated June 24, 2015, between Barnes & Noble Education,
Inc. and Barry Brover filed as Exhibit 10.10 to Report on Form S-1/A filed with the SEC on July 13, 2015,
and incorporated herein by reference.
Amended and Restated Employment Agreement, dated June 24, 2015, between Barnes & Noble Education,
Inc. and Patrick Maloney filed as Exhibit 10.11 to Report on Form S-1/A filed with the SEC on July 13,
2015, and incorporated herein by reference.
Amended and Restated Employment Agreement, dated June 24, 2015, between Barnes & Noble Education,
Inc. and William Maloney filed as Exhibit 10.12 to Report on Form S-1/A filed with the SEC on July 13,
2015, and incorporated herein by reference.
Employment Agreement, dated June 26, 2015, between Barnes & Noble Education, Inc. and Michael P.
Huseby filed as Exhibit 10.13 to Report on Form S-1/A filed with the SEC on July 13, 2015, and
incorporated herein by reference.
10.16†. . . . .
Form of Director Indemnification Agreement
10.17†. . . . .
Retention Bonus Agreement, dated February 7, 2014, between Barnes & Noble Education, Inc. and Barry
Brover
10.18†. . . . .
Retention Bonus Agreement, dated February 7, 2014, between Barnes & Noble Education, Inc. and Patrick
Maloney
10.19†. . . . .
Retention Bonus Agreement, dated February 7, 2014, between Barnes & Noble Education, Inc. and Joel
Friedman
Other.
21.1. . . . . . .
List of subsidiaries of Barnes & Noble Education, Inc.
23.1. . . . . . .
Consent of Ernst & Young LLP
31.1. . . . . . .
Certification by the Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2. . . . . . .
Certification by the Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1. . . . . . .
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2. . . . . . .
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS . . .
XBRL Instance Document
101.SCH. . .
XBRL Taxonomy Extension Schema Document
101.CAL. . .
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF . . .
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB. . .
XBRL Taxonomy Extension Label Linkbase Document
101.PRE . . .
XBRL Taxonomy Extension Presentation Linkbase Document
†
Previously filed.
79
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Barnes & Noble Education,
Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BARNES & NOBLE EDUCATION, INC.
(Registrant)
By:
Date: June 29, 2016
/s/ Max J. Roberts
Max J. Roberts
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Michael P. Huseby
Michael P. Huseby
/s/ Max J. Roberts
Max J. Roberts
/s/ Barry Brover
Barry Brover
/s/ Seema C. Paul
Seema C. Paul
/s/ Daniel A. DeMatteo
Daniel A. DeMatteo
/s/ David G. Golden
David G. Golden
/s/ John R. Ryan
John R. Ryan
/s/ Jerry Sue Thornton
Jerry Sue Thornton
/s/ David A. Wilson
David A. Wilson
June 29, 2016
June 29, 2016
June 29, 2016
June 29, 2016
June 29, 2016
June 29, 2016
June 29, 2016
June 29, 2016
June 29, 2016
Executive Chairman and Director
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
80
CERTIFICATION BY THE
CHIEF EXECUTIVE OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Max J. Roberts, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Barnes & Noble Education, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: June 29, 2016
By:
/s/ Max J. Roberts
Max J. Roberts
Chief Executive Officer
Barnes & Noble Education, Inc.
CERTIFICATION BY THE
CHIEF FINANCIAL OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Barry Brover, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Barnes & Noble Education, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: June 29, 2016
By:
/s/ Barry Brover
Barry Brover
Chief Financial Officer
Barnes & Noble Education, Inc.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the annual report of Barnes & Noble Education, Inc. (the “Company”) on Form 10-K for the period
ended April 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Max J.
Roberts, Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Max J. Roberts
Max J. Roberts
Chief Executive Officer
Barnes & Noble Education, Inc.
June 29, 2016
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the annual report of Barnes & Noble Education, Inc. (the “Company”) on Form 10-K for the period
ended April 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry Brover,
Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) under the Securities
Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Barry Brover
Barry Brover
Chief Financial Officer
Barnes & Noble Education, Inc.
June 29, 2016
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
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