2018 ANNUAL REPORT
B A R N E S & N O B L E E D U C AT I O N , I N C .
L E T T E R TO S H A R E H O L D E R S
Dear Fellow Shareholders,
Fiscal 2018 was a transformative year for Barnes & Noble Education. As a result of the hard work and agility
demonstrated by our talented people, we delivered solid results against a backdrop of significant change
within an evolving and highly fragmented industry. As the industry continues to evolve, we remain focused
on executing on our vision to build an educational services company that is a leader in serving students,
faculty and our institutional partners.
Barnes & Noble Education has always been, and continues to be, a company serving all who work to elevate
their lives through education. There is nothing more important to us than the students, educators and institutions
we serve, and it is their commitment to learning and passion for teaching that drives us to meet the evolving
needs of the education system and a new generation of students.
The success of our efforts is demonstrated by our Fiscal 2018 performance. We achieved full year consolidated
sales of $2.2 billion, a 17.6% increase from Fiscal 2017, and Adjusted EBITDA of $126.8 million, a 62.0% increase
from Fiscal 2017. These increases were primarily driven by our acquisitions of MBS Textbook Exchange (“MBS”)
and Student Brands, both of which have provided substantial cash flow for the organic investment required for
the accelerating digital transformation we are executing.
In Fiscal 2018 we acted decisively to ensure that we are offering the content, products and services our
changing market is demanding. We are investing and taking steps to be successful in the long term in order to
best serve this market and build value for our shareholders. Accomplishing this objective requires us to stabilize,
change and expand the offerings of our established businesses, while also allocating capital to our new direct-
to-student digital offerings.
We have been very pleased thus far with the performance from capital allocated to our most recent acquisitions,
MBS and Student Brands, and we will continue to consider similar acquisitions opportunistically. We also
invested significant capital in Fiscal 2018 developing exciting new digital services and products. As reflected
in our Fiscal 2019 outlook, we plan to continue such development work, including a significant investment
in adding proprietary content for our digital solutions.
In our Barnes & Noble College (“BNC”) segment, we have grown organically with the opening of new stores,
as well as with the expansion of offerings such as First Day™, our inclusive access program. Inclusive access
programs effectively address the needs of students, our institutional partners and publishers, offering digital
and other course materials at reduced prices through a course materials fee for participating programs. After
piloting our proprietary First Day system this past Spring, we expect First Day to be offered on approximately 100
campuses this Fall. In addition, in Fiscal 2018 we announced important new agreements with major publishers to
offer their digital content through inclusive access models at our stores nationwide. We are continuing to operate
as the “hub” in connecting educational content and services to students.
Within our MBS segment, we have proven our ability to adapt to changes in the course materials landscape.
This fiscal year, MBS announced agreements with major publishers to administer and distribute their new rental
programs, which will provide students, faculty and institutions with greater access to more affordable course materials.
We are uniquely qualified to help drive the success of these publisher rental programs through our large store
footprint and MBS’ centralized, advanced distribution center. Both MBS and BNC have insight into vast data they
aggregate regarding content adoptions, which will be invaluable to access and understand as we expand our
digital institutional and direct-to-student offerings.
As announced on June 20, 2018, we now operate a third reporting segment: Digital Student Solutions, or DSS.
DSS offers products and services that help students study more effectively, resulting in improved academic
performance and mastery of the skills needed to succeed in the classroom and their careers. Our August 2017
acquisition of Student Brands, which has enabled us to serve students directly with its leading subscription-
based writing services business, was an important step in establishing the foundation of our DSS segment and
furthering our development of scalable digital solutions for students. Student Brands was the main component
of DSS results for Fiscal 2018, serving approximately 100,000 subscribers in more than 15 countries, with more
than 20 million unique monthly visitors to its sites.
We continue to aggressively expand our ecosystem of products and services through our own internal
development, acquisitions and partnerships. Our objective is to provide a complete hub of products and services
designed to improve student affordability and success. As previously disclosed, we plan to significantly invest
in our DSS student success platform and related proprietary content in Fiscal 2019. Given changing industry
dynamics, such products and services are critical to maintaining our leadership and relevance in the learning
ecosystem. We believe that the student success platform we are developing and our Student Brands writing
products will drive additional revenue and cash flow as we continue to leverage our large footprint of physical
and virtual stores.
Our unique family of brands offers an unparalleled breadth of relationships, technology and educational content
that help elevate learning to the highest level. We believe we have an important role to play in improving the
access and affordability of educational opportunities for both students and educators.
It is through the tireless work of our team members that we continue to deliver exceptional service for those we
serve, and we are grateful to each and every one of them, as well as each of the Directors on our Board, for their
continued hard work and dedication to Barnes & Noble Education.
As we continue to innovate and grow in the coming fiscal year, we believe the market will begin to better
appreciate and reflect the value we are creating for our partners and shareholders. While we have much to be
proud of, our Board and management team recognize that there is still much to be achieved. Our actions to date
and plans for the future position us well for value creation, and we are energized by the substantial opportunities
that lie ahead. Our management team and Board will continue to execute our strategy to drive results, build
long-term value and be a true leader in delivering high value educational services and new products.
On behalf of our Board and our management team, thank you for your continued investment and ongoing
support of Barnes & Noble Education.
Sincerely,
Michael P. Huseby
Michael P Huseby
Chairman & Chief Executive Officer
Barnes & Noble Education, Inc.
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 28, 2018
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)
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
Delaware
46-0599018
120 Mountain View Blvd., Basking Ridge, NJ
(Address of Principal Executive Offices)
07920
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (908) 991-2665
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
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
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $301
million based upon the closing market price of $6.52 per share of Common Stock on the New York Stock Exchange as of October 28,
2017. As of June 8, 2018, 46,916,616 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 2018 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 28, 2018 compared with the 52 weeks ended April 29, 2017 . . . . . . . . . .
52 weeks ended April 29, 2017 compared with the 52 weeks ended April 30, 2016 . . . . . . . . . .
Adjusted Earnings (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page No.
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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 and content providers 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 physical and/or online 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;
• the strategic objectives, successful integration, anticipated synergies, and/or other expected potential benefits of various
acquisitions, including MBS Textbook Exchange, LLC and Student Brands, LLC, may not be fully realized or may take
longer than expected;
• the integration of MBS Textbook Exchange, LLC’s operations into our own may also increase the risk of our internal
controls being found ineffective;
• implementation 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
including new digital channels, and enhancements to 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, compete for and execute upon
additional acquisitions and strategic investments;
• risks associated with operation or performance of MBS Textbook Exchange, LLC’s point-of-sales systems that are sold to
college bookstore customers;
• changes to purchase or rental terms, payment terms, return policies, the discount or margin on products or other terms with
our suppliers;
• technological changes;
• risks associated with counterfeit and piracy of digital and print materials;
• our international operations could result in additional risks;
• our ability to attract and retain employees;
• the risk of price reduction or change in format of course materials by publishers, which could negatively impact revenues
and margin;
• 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 managed bookstore, physical and/or online store contracts and higher-than-anticipated store closings;
• disruptions to our information technology systems, infrastructure and data due to computer malware, viruses, hacking and
phishing attacks, resulting in harm to our business and results of operations;
3
• disruption of or interference with third party web service providers and our own proprietary technology;
• work stoppages or increases in labor costs;
• possible increases in shipping rates or interruptions in shipping service;
• product shortages, including risks associated with merchandise sourced indirectly from outside the United States;
• changes in domestic and international laws or regulations, including U.S. tax reform, changes in tax rates, laws and
regulations, as well as related guidance;
• enactment of laws which may restrict or prohibit our use of emails or similar marketing activities;
• 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, tax-related proceedings, or audits;
• 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.
4
EXPLANATORY NOTE
The consolidated financial statements for the 13 and 52 weeks ended April 28, 2018 include the financial results of MBS Textbook
Exchange, LLC ("MBS") for the entire period and include the financial results of Student Brands, LLC from the date of acquisition,
August 3, 2017. The consolidated financial statements for the 13 and 52 weeks ended April 29, 2017 include the financial results
of MBS from the acquisition date, February 27, 2017, and exclude the financial results of Student Brands, LLC. All material
intercompany accounts and transactions have been eliminated in consolidation.
Prior to the fourth quarter of fiscal year 2018, we had two reportable segments: BNC and MBS. In connection with our focus on
developing digital solutions, during the fourth quarter of fiscal year 2018, the Company realigned its business into the following
three reportable segments: BNC, MBS and DSS. Additionally, unallocated shared-service costs, which include various corporate
level expenses and other governance functions, are presented as “Corporate Services”.
• The BNC Segment is comprised of the operations of Barnes & Noble College Booksellers, LLC ("BNC") which operates 768
physical campus bookstores, the majority of which also have school-branded e-commerce sites operated by BNC and which
offer students access to affordable course materials and affinity products, including emblematic apparel and gifts. BNC also
offers its First Day™ inclusive access program, in which course materials, including e-content, are offered at a reduced price
through a course materials fee, and delivered to students digitally on or before the first day of class. Additionally, the BNC
segment offers a suite of digital content, software, and services to colleges and universities through our LoudCloud platform,
such as predictive analytics, a variety of open educational resources courseware, and a competency-based learning platform.
• The MBS Segment is comprised of MBS Textbook Exchange, LLC's ("MBS") two highly integrated businesses: MBS Direct
which operates 676 virtual bookstores for college and university campuses, and K-12 schools, and MBS Wholesale which is
one of the largest textbook wholesalers in the country. MBS Wholesale's business centrally sources and sells new and used
textbooks to more than 3,500 physical college bookstores, including BNC’s 768 campus bookstores. MBS Wholesale sells
hardware and a software suite of applications that provides inventory management and point-of-sale solutions to approximately
430 college bookstores.
• The Digital Student Solutions ("DSS") Segment includes direct-to-student product and service offerings to assist students to
study more effectively and improve academic performance, thus enabling them to gain the valuable skills necessary to succeed
after college. DSS is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based
writing services business, with approximately 100,000 subscribers across its digital properties, as well as tutoring and test
prep services offered through our partnership with The Princeton Review. We currently offer these online student services
directly to students, and increasingly will be leveraging our BNC and MBS physical and virtual bookstore footprint to market
directly to students where we serve as the campus bookstore. We continue to aggressively expand our ecosystem of products
and services through our own internal development, as well as by partnering with other companies to provide a complete hub
of products and services designed to improve student success and outcomes.
Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance
functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources.
Our consolidated financial statements reflect the following reclassifications for consistency with the current year presentation:
• Cost of Sales expenses primarily related to facility costs and insurance for the Corporate Services component have been
reclassified to Selling and Administrative Expenses.
• For our digital rental products, we have reclassified Rental Income to Product Sales and Other, and have reclassified Rental
Cost of Sales to Product and Other Cost of Sales, with no impact to Gross Margin. Digital rental revenue and digital rental
cost of sales are recognized at the time of delivery and are not deferred over the rental period.
Prior periods presented reflect the segment presentation and reclassifications noted above. For additional information, see Part II
- Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
5
Item 1. BUSINESS
PART I
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 College” or “BNC” refer to our college bookstore
business operated through our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our virtual
bookstore and wholesale textbook distribution business operated through our subsidiary MBS Textbook Exchange, LLC, a Delaware
corporation. References to "Student Brands" refer to our direct-to-student subscription-based writing services business operated
through our subsidiary Student Brands, LLC.
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. “Fiscal 2018” means
the 52 weeks ended April 28,2018, “Fiscal 2017” means the 52 weeks ended April 29,2017, “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.
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.
General
OVERVIEW
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for
college and university campuses and K-12 institutions across the United States, one of the largest textbook wholesalers and
inventory management hardware and software providers, and a leading provider of digital education solutions. Through our Barnes
& Noble College (“BNC”) and MBS Textbook Exchange (“MBS”) subsidiaries, we operate 1,444 physical and virtual bookstores
and serve more than 6 million students, delivering essential educational content and tools within a dynamic retail environment.
Additionally, through our Student Brands subsidiary and associated websites, a leading direct-to-student subscription-based writing
services business, we offer services to approximately 100,000 subscribers, by offering student assistance through the writing
process and journey.
The strengths of our business, as discussed below, includes our ability to compete by developing new products and solutions
to meet market needs, our large footprint with direct access to students and faculty, our well-established, deep relationships with
partners and stable, long-term contracts and our well-recognized brands. We expect to continue to grow our business by introducing
scalable and advanced digital solutions focused largely on the student, increasing market share with new accounts, and expanding
our strategic opportunities through acquisitions and partnerships.
As demand for new, enhanced, and more affordable products and services increase in the rapidly changing education landscape,
we strive to evolve our business model and enhance our solutions. We continue to aggressively innovate and collaborate with our
partners to provide solutions that extend well beyond course materials sourcing and sales, to include new digital services that
support successful student outcomes. We aim to be an even stronger partner for schools and meet customer needs by expanding
our physical and virtual bookstore service capabilities, courseware offerings and digital platform services.
Technology-enabled learning is a rapid growth area in the higher education industry, as a growing number of students are
enrolling in online services to complement print and digital course materials and classroom activities. We continue to enhance our
digital content and services in an efficient, low-cost/high-value manner to complement our course materials business. The
implementation of our core digital strategy relies on our direct access to students from our bookstore operations, where we can
attach our existing and future suite of digital products and services both online and in our stores.
We are ready to meet the digital demand with our virtual bookstore and e-commerce solutions. We focus on providing affordable
solutions, such as our First Day™ inclusive access program, in which course materials, including e-content, are offered at a reduced
price through a course materials fee, and delivered to students digitally on or before the first day of class. Additionally, LoudCloud
Courseware™, is a turnkey solution for colleges and universities that offers advanced, affordable learning materials built on a
high-quality foundation of OER or custom developed content from experts and faculty, as well as enhanced with digital content
that includes videos, activities and auto-graded practice assessments that faculty can easily customize to align with class objectives.
LoudCloud Courseware™ significantly reduces course material costs for students and enables easier implementation for faculty.
We offer our Student Brands solutions focused on providing students assistance through the writing process and journey. We
offer these online solutions to students via internet search engine optimization ("SEO"), as well as by marketing directly to students
in our BNC and MBS physical and virtual bookstore footprint.
We believe that our strategic actions over the past three years, including the acquisitions of LoudCloud Systems, Inc.
("LoudCloud"), MBS and Student Brands, respectively, and ongoing development of courseware, have substantially enhanced
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our competitive position. Fiscal 2018 was a transformational period in which we began to leverage our newly-expanded customer
base and distribution channels to broaden our reach to students and deepen our institutional partnerships. We continue to focus on
providing product and service offerings designed to address the most pressing issues in higher education, including affordable and
accessible course materials and products designed to drive and improve student outcomes.
Strengths of Our Businesses
The major strengths of our businesses are as follows:
• Ability to Compete by Developing New Products and Solutions to Meet Market Needs. We offer a comprehensive range of
cost-effective alternatives for course materials. As demand for new, enhanced, and more affordable products and services
increase in the rapidly changing education landscape, we strive to evolve our business model and enhance our solutions. We
continue to aggressively innovate and collaborate with our partners to provide solutions that extend well beyond course
materials to include new digital services that increase the likelihood of successful student outcomes.
First Day™. We offer our First Day™ inclusive access program, in which course materials, including e-content, are
offered at a reduced price through a course materials fee, and delivered to students digitally on or before the first day of
class. We have entered into several agreements with major publishers, including Cengage, McGraw-Hill Education and
Pearson, to distribute their e-content through First Day™.
Comprehensive Suite of Course Materials. Our physical and virtual bookstores and accompanying e-commerce sites offer
new and used, print and digital course materials, which are available to buy or rent. Through our MBS Wholesale business,
we possess a robust inventory comprised of approximately 300,000 textbook titles in stock and maintain a comprehensive
catalog of new and used textbooks and digital course material solutions.
Additionally, MBS was selected as a national distributor for rental textbooks offered through McGraw-Hill Education's
newly announced consignment rental program (which includes approximately 230 titles) and Pearson Education’s
expanded consignment rental program (which includes approximately 150 titles). Through its centrally located, advanced
distribution center, MBS will offer the seamless integration of these consignment rental programs and centralized
administration and distribution to more than 3,500 stores. These consignment rental programs will also be made available
to MBS Wholesale customers, including institutionally run and contract managed campus bookstores, as well as BNC
physical bookstores, and MBS Direct customers.
LoudCloud Courseware™. Our courseware, utilizing open educational resources ("OER") and other expert sources, is
a cost-effective solution enhanced with digital content that includes videos, activities and auto-graded practice assessments
that faculty can easily customize to align with class objectives. In Fiscal 2018, consistent with our LoudCloud
Courseware™ development road map, we expanded our courseware titles from 10 to 32 course titles, with sales to
approximately 21,000 students at 40 colleges and universities, including technical colleges and online programs.
LoudCloud Courseware™ significantly reduces course material costs for students and enables easier implementation for
faculty.
Student Solutions. Direct-to-student businesses focused on study tools, writing help, all centered around assisting students
with the writing process and journey. Student Brands addresses writing pain points; students can search for a topic,
develop an outline, and access authenticity technology. The content database allows students to leverage academic
resources and references, with over 26 million essays across 4 languages representing more than 15 different countries,
and receives more than 20 million unique monthly visitors to its sites. Student Brands has a substantial and growing
community of online learners, with approximately 100,000 subscribers across its digital properties. We continue to
aggressively expand our ecosystem of products and services through our own internal development, as well as by partnering
with other companies to provide a complete hub of products and services designed to improve student success and
outcomes.
• Large Footprint with Direct Access to Students and Faculty. We operate 1,444 physical and virtual bookstores and serve more
than 6 million students enrolled in higher education institutions and K-12 institutions. Through Student Brands and its affiliated
websites, we extend our footprint directly to students as we offer services focused on writing help to approximately 100,000
subscribers using our digital properties, across 4 languages representing more than 15 different countries.
Social Hub and Customer Connections. At our physical campus bookstores, we serve as social hubs for students and their
faculty, allowing us to forge deep customer relationships that help us drive awareness of our services and loyalty. For
our MBS Direct and MBS Wholesale businesses, we are connected with our customers’ students online and through our
proprietary systems. As a result of our proprietary data on students and textbook adoptions, we can develop prescriptive
content and services to help students.
System Integrations with Our Higher Education Partners. We are deeply ingrained in the course material adoption
processes of our customers and seamlessly integrate their systems with our technology. Both BNC and MBS have highly
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integrated technology that streamlines the adoption process for faculty, enabling them to research and submit textbook
adoptions online. Our technology solutions support informed decisions made by faculty on course material selection,
provide information regarding title and format availability and the cost to students.
Understanding Our Demographics. Our multi-channel strategies focus on building close relationships and one-to-one
connections with our students, faculty, administrators, and alumni, whether in-store, online, or mobile. We provide
connectivity to our services whether our customers are in the classroom, at the stadium, or at orientation. We leverage
and monetize our unique access to college students for third party brand partners looking to target the college demographic.
• Well-Established, Deep Relationships with Partners and Stable, Long-Term Contracts. We have strong partnerships with
college and university administrators, as well as with publishers, vendors, and suppliers. We strive to be the first stop for
students, educators, and administrators by offering existing and prospective clients the most comprehensive solutions available
with our flexible physical, virtual, and hybrid bookstore models.
Relationships with Colleges and Universities. BNC 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. BNC's management
contracts with colleges and universities typically include five year terms with renewal options and are typically cancelable
by either party without penalty with 90 to 120 days' notice. Our BNC campus bookstores have an average relationship
tenure of 15 years. From Fiscal 2015 through Fiscal 2018, over 90% of these contracts were renewed or extended, often
before their termination dates. Our BNC decentralized management structure empowers local teams to make decisions
based on the local campus needs and fosters collaborative working relationships with our partners.
Virtual bookstores offered through MBS Direct operate under a contract with the school as the exclusive online seller of
course materials. For the past three years, we have retained over 90% of our contracts annually, with the majority of the
contracts being automatically renewed as per the contract terms or renewed before their expiration dates. MBS has
developed deep relationships with its wholesale customer base as a result of its substantial inventory of used textbooks,
a comprehensive catalog of textbooks, and superior service and systems support. MBS Wholesale sells hardware and a
software suite of applications that provides inventory management and point-of-sale solutions to approximately 430
college bookstores.
Relationships with Publishers. We have long-term relationships with over 10,000 publishers, who partner with us to
access one of the largest distribution networks of college and K-12 educational materials in the United States.
• Well-Recognized Brands. The Barnes & Noble and MBS brands are virtually synonymous with bookselling, and we believe
are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the
marketplace not only support our marketing efforts to universities, students, and faculty, but are also important for leading
publishers who rely on us as one of their primary distribution channels.
Growth Drivers
The primary factors that we expect will enable us to grow our businesses and profitability are as follows:
• Scalable and Advanced Digital Solutions Focused Largely on the Student. The implementation of our digital strategy leverages
our significant bookstore management assets, both physical and virtual, our student relationships, and our well established
brands to help accelerate the adoption of our new digital products and services. Our physical and virtual bookstore footprint,
and associated student relationships, present a sizable addressable market for the Company’s new digital products and services.
By their nature, our new digital solutions are designed to be marketed and sold both inside and outside our physical and virtual
bookstore footprint. We continue to enhance and invest in our digital content and solutions to complement and leverage our
bookstore and wholesale businesses. The revenue from these services have higher margin rates due to the relatively fixed cost
structure of these operations.
Technology-enabled learning is a rapid growth area in the higher education industry, as a growing number of students are
enrolling in online services to complement print and digital course materials and classroom activities, and we are ready to
meet demand with our virtual bookstore and e-commerce solutions, our LoudCloud Courseware™ offerings, and our direct
to student writing and learning solutions. We plan to leverage our physical and virtual product offerings by bundling our
complementary digital solutions to improve student success and outcomes.
During Fiscal 2019, we will invest in our student success platform and proprietary content to drive our ecosystem of products
and services. In the future, our strategy is to aggressively grow the DSS segment via: (i) internally developed new products
and services; (ii) through acquisitions of companies, products and services; (iii) and by partnering with other leading service
providers, like The Princeton Review. Unlike other providers of digital services to students, our well-established, deep
relationships with college and university partners, as well as our physical presence on campus, provides us with a significant
competitive advantage as we roll out new products and services on the campuses and universities we serve. This integration
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with the products and services from our other operating segments allows us to offer students new products and services in an
increasingly relevant, cost effective, and targeted way. The addressable market outside our physical and virtual bookstore
footprint is an additional area where we plan to market these products and services to students.
• Increasing Market Share with New Accounts. New store openings are an important driver of growth. In Fiscal 2018, BNC
signed contracts for 33 new physical bookstores for estimated first year annual sales of $66 million. In Fiscal 2018, MBS
signed contracts for 21 new virtual bookstores for estimated first year annual sales of $6 million. Currently, over 50% of
college and university affiliated physical bookstores in the United States are operated by their respective institutions. We
anticipate the trend towards outsourcing in the campus bookstore market, and we intend to aggressively pursue these
opportunities to grow our BNC and MBS businesses. We evaluate each new contract based on established profitability measures
to ensure we maintain a portfolio of profitable accounts. Our ability to offer existing and prospective clients physical, virtual
and hybrid bookstore models is a key element of our competitive strategy.
• Expanding Our 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.
Acquisitions and partnerships, such as Student Brands, LoudCloud and MBS, helped us expand into new educational verticals
and markets, but other markets for expansion remain, including international markets. These will continue to be
opportunistically evaluated.
Segments
Prior to the fourth quarter of fiscal year 2018, we had two reportable segments: BNC and MBS. In connection with our focus
on developing digital solutions, during the fourth quarter of fiscal year 2018, the Company realigned its business into the following
three reportable segments: BNC, MBS and DSS. Additionally, unallocated shared-service costs, which include various corporate
level expenses and other governance functions, are presented as “Corporate Services”.
We identified our segments in accordance with the way our business is managed (focusing on the financial information
distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance.
The following summarizes the three segments, with additional information in each respective subsequent segment discussion.
BNC Segment
The BNC Segment is comprised of the operations of BNC which operates 768 physical campus bookstores, the majority of
which also have school-branded e-commerce sites operated by BNC and which offers students access to affordable course materials
and affinity products, including emblematic apparel and gifts. BNC also offers its First Day™ inclusive access program, in which
course materials, including e-content, are offered at a reduced price through a course materials fee, and delivered to students
digitally on or before the first day of class. Additionally, the BNC segment offers a suite of digital content, software, and services
to colleges and universities through our LoudCloud platform, such as predictive analytics, a variety of open educational resources
courseware, and a competency-based learning platform.
MBS Segment
The MBS Segment is comprised of MBS's two highly integrated businesses: MBS Direct which operates 676 virtual bookstores
for college and university campuses, and K-12 schools, and MBS Wholesale which is one of the largest textbook wholesalers in
the country. MBS Wholesale's business centrally sources and sells new and used textbooks to more than 3,500 physical college
bookstores, including BNC’s 768 campus bookstores. MBS Wholesale sells hardware and a software suite of applications that
provides inventory management and point-of-sale solutions to approximately 430 college bookstores.
DSS Segment
The Digital Student Solutions ("DSS") segment includes direct-to-student product and service offerings to assist students to
study more effectively and improve academic performance, thus enabling them to gain the valuable skills necessary to succeed
after college. DSS is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing
services business, with approximately 100,000 subscribers across its digital properties, as well as tutoring and test prep services
offered through our partnership with The Princeton Review. We currently offer these online student services directly to students,
and increasingly will be leveraging our BNC and MBS physical and virtual bookstore footprint to market directly to students
where we serve as the campus bookstore. We continue to aggressively expand our ecosystem of products and services through
our own internal development, as well as by partnering with other companies to provide a complete hub of products and services
designed to improve student success and outcomes.
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General
BNC SEGMENT
The BNC segment is comprised of the operations of BNC which operates physical college and university campus bookstores,
the majority of which also have school-branded e-commerce sites operated by BNC, offering students access to affordable course
materials and affinity products, including emblematic apparel and gifts. BNC physical bookstores, e-commerce sites and digital
platforms serve and interact with the key constituents in our business ecosystem and act as a key partner for students, universities
and publishers.
Contracts
BNC 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. BNC offers existing and prospective clients the flexibility of physical, virtual and hybrid
bookstore models.
Agreements are typically five years with renewal options and are typically cancelable by either party without penalty with 90
to 120 days' notice. BNC pays 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, BNC has the non-exclusive right to sell all items typically sold in a college bookstore both in-store and online. BNC
also has the ability to integrate its systems with the university’s systems in order to accept student financial aid, university debit
cards and other forms of payment. Over the past four years, BNC has renewed more than 90% of their agreements, with the majority
of the agreements being renewed before their expiration dates.
Customers and Distribution Network
As of April 28, 2018, BNC operates 768 physical college and university bookstores operations located in the United States,
in 43 states and the District of Columbia. During Fiscal 2018, BNC opened 33 stores with estimated first year annual sales of $66
million, and closed 34 stores with estimated first year annual sales of $47 million. As of June 11, 2018, BNC has signed additional
contracts for 21 new stores with estimated first year annual sales of $55 million, which are expected to open during Fiscal 2019
and expects to close 25 stores with estimated first year annual sales of $35 million. Closed stores are comprised of contracts that
may have been lost in a competitive bid process, satellite store locations that we elect to close but continue to operate the main
contract, and other contracts with low sales volume. We evaluate each new contract based on established profitability measures
to ensure we maintain a portfolio of profitable stores.
Product and Service Offerings
BNC's campus stores are social and academic hubs through which students can access affordable course materials and affinity
products, including new and used print, eTextbooks, and e-content, which are available for sale or rent; emblematic apparel and
gifts; trade books; technology; school and dorm supplies; café offerings; convenience food and beverages; and graduation products.
The majority of campus stores also have school-branded e-commerce sites operated by BNC which offer the same products as the
on campus stores. BNC offerings also include a variety of digital content, courseware and software and related services, such as
predictive analytics, and competency-based learning solutions. Product and service offerings include:
• Course Material Sales and Rentals. Sales and rentals of course materials are a core revenue driver and BNC's online platform
and registration solutions are deeply ingrained in their partner schools’ textbook selection process. BNC works directly with
faculty to ensure the textbooks they have chosen for their courses are available in all required formats before the start of
classes. MBS’s wholesale distribution channel enables BNC to optimize textbook sourcing so they are able to more efficiently
source and distribute a comprehensive inventory of affordable course materials to customers.
BNC offers its First Day™ inclusive access program, in which course materials, including e-content, are offered at a reduced
price through a course materials fee, and delivered to students digitally on or before the first day of class. We have entered
into several agreements with major publishers, including Cengage, McGraw-Hill Education and Pearson, to provide their e-
content through First Day™, or directly to BNC campus bookstores and MBS Direct virtual bookstores. The seamless delivery
is made possible by our First Day™ technology and publishers' technology integrations with campus systems. These initiatives
provide students, faculty and institutions greater access to more affordable course materials.
In Fiscal 2018, we signed an agreement with McGraw-Hill Education, in which MBS was selected as a national distributor
for rental textbooks offered through McGraw-Hill Education's newly announced consignment rental program. The program
includes approximately 230 titles. Through its centrally located, advanced distribution center, MBS will offer the seamless
integration of McGraw-Hill Education's consignment rental program and centralized administration and distribution to more
than 3,500 stores. McGraw-Hill Education's consignment rental program will also be made available to MBS Wholesale
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customers, including institutionally run and contract managed campus bookstores, as well as BNC physical bookstores, and
MBS Direct customers.
• LoudCloud Courseware™. LoudCloud Courseware™, a turnkey solution for colleges and universities, offers advanced,
affordable learning materials built on a high-quality foundation of open educational resources and enhanced with digital
content that includes videos, activities and auto-graded practice assessments that faculty can easily customize to align with
class objectives. LoudCloud Courseware™ significantly reduces course material costs for students and enables easier
implementation for faculty. LoudCloud Courseware™ is delivered digitally on BNC's LoudCloud platform, with analytics
integrated into the solution, and companion print versions available to students and educators to provide flexibility to learn
and teach in either format. Courseware offerings include general education courses, including sociology, psychology and
economics. In May 2018, as part of its ongoing mission to drive affordability and accessibility, BNC announced that it lowered
the price of its courseware and expanded its available subject offerings to 32 courses for the fall 2018 semester, which is
consistent with our LoudCloud Courseware™ development road map. In Fiscal 2018, we had LoudCloud Courseware™ sales
to approximately 21,000 students at 40 colleges and universities, including technical colleges and online programs.
• eTextbooks. BNC has partnered with VitalSource, a global leader in building, enhancing and delivering digital content, on our
digital reading platform and a broad digital catalog.
• General Merchandise. BNC drives general merchandise sales through both its in-store and online channels and features
collegiate and athletic apparel, other custom-branded school spirit products, technology products, supplies and convenience
items. We continue to see significant growth in our general merchandise e-commerce sales, with year over year growth of
22.8% in Fiscal 2018. Additionally, BNC's Promoversity subsidiary's standalone e-commerce solution can serve any school,
corporation or group looking for customized apparel, corporate gifts and novelties, and other merchandise.
As of April 28, 2018, BNC operates 87 True Spirit e-commerce websites, which are dedicated virtual stores that appeal
specifically to the alumni and sports fan base. BNC also operates pop-up retail locations at major sporting events, such as
football and basketball games, for our partner colleges and universities. The True Spirit e-commerce websites for athletic
branded merchandise and the physical pop-up retail locations continue to build our partner schools’ brands through alumni
and athletics, fostering school spirit and capturing the excitement of collegiate sports. We utilize event driven direct marketing
strategies for events, such as tournament playoffs or homecoming events, to target an online population of students, alumni
and sports fans, with emails and search engine marketing.
• Cafes and Convenience Stores. BNC operates 86 customized cafés, featuring Starbucks Coffee®, and 18 stand-alone
convenience stores, as well as diverse grab-and-go options including organic, vegan, gluten-free and ethnic fare. These offerings
increase traffic and time spent in our physical stores.
•
LoudCloud Platform. Through our LoudCloud platform, we address the growing demand for alternative forms of educational
materials and learning tools. LoudCloud is a sophisticated digital platform comprised of learning analytics and competency
learning solutions. Our LoudSight predictive analytics solution captures and analyzes key demographic, behavioral and
performance metrics from students and provides real-time alerts, allowing educators to identify, monitor and support at-risk
students to improve student success. LoudCloud's analytics solution connects disparate systems on campus, builds predictive
models based upon data collected by institutions, and presents advisors with a unified view of the factors that drive student
success on their campus. LoudSight has the ability to capture and analyze over 200 parameters across demographic, performance
and participation data points.
Through our partnership with Instructure, a leading educational technology company and creator of the Canvas LMS,
LoudSight can be fully integrated in Canvas’s platform, providing higher education institutions with actionable insights
that provide a comprehensive view of the student journey. Instructure is a leading LMS provider at schools across the
country, and we believe the ability to integrate with a school’s Canvas system makes our analytics solution more efficient
and effective.
We entered into an agreement with Unizin, Ltd. ("Unizin") in Fiscal 2018 to provide its 22 member universities with
LoudSight. As a result, faculty and advisors will have access to a customized solution that helps educators identify,
monitor, and support at-risk students, with the goal of improving student success rates and retention.
We announced our strategic partnership with Portland State University ("PSU") to co-develop a degree planning solution.
Using insights generated by PSU's reTHINK initiative and leveraging our analytics platform, the solution will ultimately
help more students graduate on time with better pathways to employment and provide the university with long-term
demand planning tools.
• Brand Partnerships. Through BNC's unique relationship with students, colleges and universities, and our premier position
on campus, BNC operates as a media channel for brands looking to target the college demographic, and derives revenue from
these marketing share programs. BNC creates strategic, integrated campaigns which include research, email, social media,
display advertising, on-campus events, signage, and sampling. BNC's client list includes brands, such as Chase, Target,
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Masterpass, GEICO, DirecTV, Verizon, The New York Times and Tom's of Maine. Revenue from these services have higher
margin rates due to the relatively low incremental cost structure to provide these services.
Merchandising and Supply Chain Management
BNC's purchasing procedures vary by product type (i.e. textbooks, general merchandise or trade books). Purchases are made
at the store level with strategic corporate oversight, to determine purchase quantities and maintain appropriate inventory levels.
After titles are adopted for an upcoming term, the BNC store staff determine how much inventory to purchase based on several
factors, including student enrollment and the previous term’s textbook sales history. BNC uses an automated sourcing systems to
determine if its stores have the necessary new or used textbooks on hand and may transfer the inventory to the appropriate store.
Our acquisition of MBS significantly increased our textbook supply at competitive prices, as well as our ability to liquidate non-
returnable inventory. MBS’s broad wholesale distribution channel and warehousing systems also drive inventory efficiencies,
allowing BNC to optimize its textbook sourcing and purchasing processes.
After internal sourcing, BNC purchases books from outside suppliers. As part of its contracts with institutions, BNC generally
guarantees that it will order textbooks for all courses. BNC's primary suppliers of new textbooks include Pearson Education,
Cengage Learning, McGraw-Hill Education, MacMillan, and John Wiley & Sons. BNC's primary suppliers of used textbooks are
students, through returns of previously rented and purchased books. 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, BNC
utilizes sophisticated inventory management platforms to manage pricing and inventory across all its stores.
The larger stores feature an expanded selection of trade books (general reading) and use the Barnes & Noble, Inc. Book Master
system, a proprietary merchandising system licensed from Barnes & Noble, Inc. BNC home office merchants meet with publishers
on a regular basis to identify new titles and trends to support this changing business.
General merchandise vendors and products are initially selected by home office merchants using the analytics and insights
from BNC's planning and allocation systems. This data is used to establish benchmarks across school type, region and the
demographics of each of our partner institution’s student base to help local store management team forecast sales and trends.
Omni Channel Retailer and Customer Marketing Strategies
BNC obtains student and faculty email lists for direct communication which provides for seamless integration into the university
community and potential co-branded marketing opportunities. BNC's ability to support and promote our partner schools’ brands
strengthens and deepens our relationships with the administration, faculty, alumni, parents and students. BNC's omni channel
strategies focus on building close relationships and one-to-one connections where our customers need us to be - in-store, online,
mobile, at the stadium, at orientation, or wherever they are.
Faculty
BNC connects with approximately 390,000 faculty members who use FacultyEnlight®, our proprietary online platform which
enhances content search, discovery and adoption (i.e. textbook selection), enabling them to find and select the course materials
that are both relevant to their subject matter and affordable to their students.
Students and Parents
BNC's Campus Connect Technologies™ platform is customizable technology that delivers a seamless experience, providing
students and faculty with the ability to research, locate and purchase the most affordable course materials. The platform includes
registration integration, learning management system integration, real-time financial aid platform, point of sale platform and course
fee solution. Through BNC's fully integrated purchasing process, students can purchase their course materials in-store or online,
or buy them when registering for classes through our Registration Integration solution.
BNC has flexible research channels that help us stay ahead of the rapidly changing needs and behaviors of our customers,
and proactively respond with dynamic solutions. BNC's College InsightsTM platform connects with more than 8,000 college students,
and helps us to create the ideal customer experience. BNC's marketing efforts are centered around an active digital community of
over 6.8 million people, which includes engaged email subscribers and 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.
BNC's exclusive Student Point of View ("POV") online panel and our Parent POV online panel helps BNC to better understand
their attitudes, values and behaviors. Nationwide, during the current fiscal year, BNC has built approximately one million
connections with incoming students and their parents. Using a marketing automation platform, BNC segments students based on
demographics and purchasing behavior to ensure its audience receives the most relevant messages and experience. BNC's dynamic
email campaigns educate students on format and affordability options, as well as ongoing promotions from game day to graduation.
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Alumni
Additionally, BNC's access to alumni through university alumni offices, including over 1.3 million alumni with existing
customer accounts, allow BNC to leverage digital marketing strategies on its 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.
Seasonality
BNC’s 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.
General
MBS SEGMENT
The MBS segment is comprised of the operations of our MBS subsidiary, which we acquired in February 2017, and which
operates two highly integrated businesses: MBS Direct and MBS Wholesale, as described below. MBS enables the Company to
generate more value from the textbook marketplace through inventory and procurement synergies, increases our addressable
market for digital courseware solutions and services, and allows the Company to offer existing and prospective clients physical,
virtual and hybrid bookstore models, which is a key element of our competitive strategy.
Contracts
Virtual bookstores offered through MBS Direct operate under a contract with the school as the exclusive online seller of
course materials. Agreements typically have a term that ranges between 3-5 years, with automatic renewal periods. For the past
three years, MBS has annually retained over 90% of its contracts, with the majority of the contracts being automatically renewed
as per the contract or renewed before their expiration dates.
MBS Direct signed contracts for 21 new virtual stores in Fiscal 2018 with estimated first year annual sales of $6 million, and
closed 57 stores. As of June 8, 2018, MBS has signed additional contracts for 25 new relationships in Fiscal 2019 for estimated
first year annual sales of $9 million. Closed contracts are primarily comprised of contracts that may have been lost in a competitive
bid process, as well as contracts with low sales volume. We evaluate each new contract based on established profitability measures
to ensure we maintain a portfolio of profitable accounts.
Customers and Distribution Network
MBS Direct
The MBS Direct business is the largest contract operator of virtual bookstores for college and university campuses, and K-12
schools, operating 676 virtual bookstores. Through contracts with its clients, MBS Direct operates as the institution’s official
source of course materials with exclusive rights to booklists and access to online programs that link course materials to the courses
offered by the school. MBS also operates Textbooks.comSM which is one of the largest e-commerce sites for new and used textbooks.
This division is primarily for direct-to-student sales.
As of April 28, 2018, MBS Direct operated 448 K-12 virtual stores (66%) and 228 Higher Education virtual stores (34%) in
approximately 48 states, and District of Columbia and Puerto Rico. In Fiscal 2018, sales from K-12 virtual stores were approximately
25% of total sales and sales from Higher Education virtual stores were approximately 75% of total sales.
MBS Wholesale
MBS Wholesale is one of the largest textbook wholesalers in the country, providing a comprehensive selection of new and
used textbooks at a lower cost of supply to more than 3,500 physical bookstores, including BNC’s 768 campus bookstores. MBS
Wholesale sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to
approximately 430 college bookstores. MBS Wholesale has deep relationships with clients due to the large inventory of used
textbooks, a comprehensive catalog of textbooks, superior service and systems support.
Product and Service Offerings
Product and Service offerings include:
• Course Material Sales and Rentals. MBS Direct services virtual bookstores with a comprehensive e-commerce experience
and a broad suite of affordable course materials, including new and used print and digital textbooks, which are available for
sale or rent. MBS Direct offers a robust used textbook selection, unique guaranteed buyback program, dynamic pricing, and
marketplace offerings. Additionally, MBS Direct sells new, used and digital textbooks directly to students through
Textbooks.comSM, one of the largest e-commerce sites for new and used textbooks. MBS’s Wholesale distribution channel
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enables MBS Direct to optimize its textbook sourcing so it is able to more efficiently source and distribute a comprehensive
inventory of affordable course materials to customers. MBS Direct also digitally delivers cost-effective course materials via
inclusive access programs to ensure students have their course materials on the first day of class. Similar to the BNC segment,
MBS Direct partnered with McGraw-Hill Education and Pearson to offer their e-content through the inclusive access programs
through the MBS Direct virtual bookstores. For additional information, see the BNC Segment discussion.
• Wholesale Textbook Distribution. MBS Wholesale centrally sources and sells new and used textbooks to over 3,500 physical
college bookstores, including BNED’s 768 campus bookstores. MBS Wholesale's large inventory of used textbooks consists
of approximately 300,000 textbook titles in stock, and it has a highly automated distribution facility that processes more than
13 million textbooks annually.
Additionally, MBS was selected as a national distributor for rental textbooks offered through McGraw-Hill Education's newly
announced consignment rental program (which includes approximately 230 titles) and Pearson Education’s expanded
consignment rental program (which includes approximately 150 titles). Through its centrally located, advanced distribution
center, MBS will offer the seamless integration of these consignment rental programs and centralized administration and
distribution to more than 3,500 stores. These consignment rental programs will also be made available to MBS Wholesale
customers, including institutionally run and contract managed campus bookstores, as well as BNC physical bookstores, and
MBS Direct customers.
• Wholesale Inventory Management, Hardware and POS Software. MBS Wholesale sells hardware and a software suite of
applications that provides inventory management and point-of-sale solutions to approximately 430 college bookstores. MBS
Wholesale provides on-site installation for point-of-sale terminals and servers, and offers technical assistance through user
training and our support center facility. The cost savings and ease of deployment ensure clients get the most out of their
management systems and create strong customer loyalty.
• eTextbooks. MBS has partnered with VitalSource, a global leader with a broad digital catalog to build, enhance and deliver
digital content.
• LoudCloud Courseware™. LoudCloud Courseware™, a turnkey solution for colleges and universities, offers advanced,
affordable learning materials built on a high-quality foundation of open educational resources and enhanced with digital
content that includes videos, activities and auto-graded practice assessments that faculty can easily customize to align with
class objectives. LoudCloud Courseware™ significantly reduces course material costs for students and enables easier
implementation for faculty. MBS’s broad base of wholesale and virtual bookstore customers provides us with new sales
opportunities for BNC's digital suite of course materials and platforms as discussed above in the BNC Segment discussion.
Supply Chain Management
MBS Direct utilizes Course Director, a web-based product that allows faculty and/or staff to research, update, approve and
submit textbook adoptions online, as well as support informed decisions made by faculty on adoptions based on real-time
information regarding title availability, edition status and price. This real-time information is primarily sourced from the MBS
Wholesale used textbook inventory. Using the MBS Direct system ensures that the fulfillment order is directed first to MBS
Wholesale before other sources of inventory are utilized.
An extensive national sales force secures a steady supply of high demand used books, which is critical to the success of the
MBS Wholesale business. MBS’s primary suppliers of used textbooks are students, through returns of previously rented and
purchased books. MBS also purchases new and used textbooks from BNC, other bookstore operators, institutional bookstores,
book dealers, publishers, other distributors and other wholesalers. MBS offers 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.
MBS’s broad wholesale distribution channel and warehousing systems also drive inventory efficiencies, allowing us to optimize
our textbook sourcing, purchasing and liquidation processes. We can leverage MBS Wholesale’s distribution channel and
warehousing systems to more efficiently source and distribute a robust, comprehensive inventory of affordable course materials
to customers with the highest and greatest need. Through the proprietary MBS Database Buying Guide, we have access to the best
maintained, most accurate, and most complete source of college textbook information available - a key asset that allows us to
develop superior supply and demand insights and risk management capabilities.
Customer Marketing Strategies
Students
MBS student marketing programs promote the retail businesses of MBS Direct and Textbooks.comSM. MBS Direct marketing
efforts target the student population of contracted schools. MBS Direct emails students frequently throughout the year to promote
the online bookstore, offer purchasing incentives and encourage buyback, in addition to other communications. Textbooks.comSM
marketing strategies target an online population of students, lifelong learners, parents and general textbook shoppers through a
variety of channels including email, search engine marketing, affiliate marketing and display marketing.
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School Administrators
To market MBS Direct and Wholesale services, MBS maintains an active contact list of over 37,000 school management and
administrators. MBS produces and distributes print and digital marketing campaigns to this contact list several times throughout
the year. MBS employs a field sales and marketing force tasked with representing the entire MBS line of products and services
to schools across North America.
During Fiscal 2018, MBS built more than 56,000 connections with current and potential clients through its blog sites and
social media presence, and had over 2.2 million visits to its primary business websites, mbsbooks.com and mbsdirect.net. These
efforts have allowed MBS to capture market share and successfully engage administrators.
Seasonality
MBS’s business is highly seasonal. For MBS Direct retail operations (virtual bookstores), a major portion of sales and operating
profit are realized during the second and third quarters, when students generally purchase and rent textbooks for the upcoming
semesters. For MBS’s wholesale business, a major portion of sales and operating profit is realized during the first, second and
third fiscal quarters, as it sells textbooks for retail distribution.
DIGITAL STUDENT SOLUTIONS SEGMENT
General
The Digital Student Solutions ("DSS") Segment includes direct-to-student product and service offerings to assist students to
study more effectively and improve academic performance, thus enabling them to gain the valuable skills necessary to succeed
after college. DSS is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing
services business, with approximately 100,000 subscribers across its digital properties, as well as tutoring and test prep services
offered through our partnership with The Princeton Review. We currently offer these online student services directly to students,
and increasingly will be leveraging our BNC and MBS physical and virtual bookstore footprint to market directly to students
where we serve as the campus bookstore. We offer these online services to students via internet search engine optimization ("SEO"),
as well as by marketing directly to students in our BNC and MBS physical and virtual bookstore footprint.
With the acquisition of Student Brands, the Company expanded its product portfolio with a complementary educational
subscription-based product and gained access to a direct-to-student operation which can be leveraged to expand or introduce other
products and services beyond the footprint of the existing college bookstore operations. Our physical and virtual bookstore footprint,
and associated student relationships, present a sizable addressable market for the Company’s new digital products and services.
By their nature, our new digital solutions are designed to be marketed and sold both inside and outside our physical and virtual
bookstore footprint. We continue to enhance and invest in our digital content and solutions to complement and leverage our
bookstore and wholesale businesses. The revenue from these services have higher margin rates due to the relatively fixed cost
structure of these operations.
We continue to aggressively expand our ecosystem of products and services through our own internal development, as well
as by partnering with other companies to provide a complete hub of products and services designed to improve student success
and outcomes. We continue to innovate and collaborate with our partners to provide solutions and services in an efficient, low-
cost/high-value manner that extend well beyond sourcing course materials and sales to include new digital services that support
successful student outcomes. We plan to leverage our product offerings by bundling our products, with complementary solution
services.
During Fiscal 2019, we will invest in our student success platform and proprietary content to drive our ecosystem of products
and services. In the future, our strategy is to aggressively grow the DSS segment via: (i) internally developed new products and
services; (ii) through acquisitions of companies, products and services; (iii) and by partnering with other leading service providers,
like The Princeton Review. Unlike other providers of digital services to students, our well-established, deep relationships with
college and university partners, as well as our physical presence on campus, provides us with a significant competitive advantage
as we roll out new products and services on the campuses and universities we serve. This integration with the products and services
from our other operating segments allows us to offer students new products and services in an increasingly relevant, cost effective,
and targeted way. The addressable market outside our physical and virtual bookstore footprint is an additional area where we plan
to market these products and services to students.
Customers and Service Offerings
Student Brands provides writing services in a direct-to-student subscription-based model. The majority of subscriptions sold
are one month in duration. Subscription revenue is deferred and recognized over the service period. Student Brands also generates
revenue from digital advertisements. The revenue from these services have higher margin rates due to the relatively fixed cost
structure of these operations.
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Student Brands has a substantial and growing community of online learners, with approximately 100,000 subscribers across
its digital properties, which include Bartleby.com, 123HelpMe.com, and StudyMode.com in the United States and
TrabalhosFeitos.com, Etudier.com and Monografias.com in Brazil, France and Mexico, respectively.
Student Brands addresses writing pain points; students can search for a topic, develop an outline, and access authenticity
technology. The content database allows students to leverage academic resources and references, with over 26 million essays across
4 languages representing more than 15 different countries, and receives more than 20 million unique monthly visitors to its sites.
Student Brands utilizes deep data analytics and artificial intelligence to drive its content management system, the "Content Brain".
The study tools supplement the student’s learning ecosystem by assisting across multiple subjects and varied assignments on a
digital platform.
Customer Marketing Strategies
The implementation of our digital strategy initially relies on leveraging our bookstore relationships, both physical and virtual,
to help accelerate the adoption of our new digital products and services. By leveraging the BNC and MBS footprints among students
and faculty, K-12 schools and higher education institutions, as well with our SEO efforts, Student Brands has substantially more
opportunities to market the solutions students need to improve success in the classroom and beyond.
Seasonality
Student Brands' sales and operating profit are realized relatively consistently throughout the year, although quarterly results
may fluctuate depending on the timing of the start of the various schools' semesters.
TRENDS, COMPETITION AND OTHER BUSINESS CONDITIONS AFFECTING OUR BUSINESS
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. Current trends, competition and other factors affecting our business include:
• Increased Use of Online and Digital Platforms as Companions or Alternatives to Printed Course Materials. Students and
faculty can now choose from a wider variety of educational content and tools than ever before, delivered across both print
and digital platforms. 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. Importantly, we have the
ability to adjust and grow our digital offering efficiently to complement our printed textbook sales and rental business.
Technology-enabled learning is a rapid growth area in the higher education industry, as a growing number of students are
enrolling in online services to complement print and digital course materials and classroom activities, and we are ready to
meet demand with our virtual bookstore and e-commerce solutions, and our LoudCloud Courseware™ offering.
• Distribution Network Evolving. The way course materials are distributed and consumed is changing significantly, a trend that
is expected to continue. The market for course materials, including textbooks and supplemental materials, is intensely
competitive and subject to rapid change.
Disintermediation. We are experiencing growing competition from alternative media and alternative sources of textbooks
and course-related materials. Significant changes in the distribution of course materials are already underway as a result
of start-ups promoting free online textbooks, including OER, 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 official physical or virtual campus bookstore, course materials are
also sold through off-campus bookstores, e-commerce outlets, digital platform companies, publishers, including Cengage,
Pearson and McGraw Hill, bypassing the bookstore distribution channel by selling or renting directly to students and
educational institutions, and student-to-student transactions over the Internet.
Supply Chain and Inventory - Since the demand for used and new textbooks has historically been greater than the available
supply, our financial results are highly dependent upon MBS Wholesale’s ability to build its textbook inventory from
suppliers in advance of the selling season. Some textbook publishers have begun to supply textbooks on consignment or
rental programs which could impact used textbook supplies in the future. MBS was selected as a national distributor for
rental textbooks offered through McGraw-Hill Education's newly announced consignment rental program (which includes
approximately 230 titles) and Pearson Education’s expanded consignment rental program (which includes approximately
150 titles). Through its centrally located, advanced distribution center, MBS will offer the seamless integration of these
consignment rental programs and centralized administration and distribution to more than 3,500 stores. These consignment
rental programs will also be made available to MBS Wholesale customers, including institutionally run and contract
managed campus bookstores, as well as BNC physical bookstores, and MBS Direct customers.
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Price Competition. In addition to the competition in the services we provide to our customers, our textbook business
faces significant price competition. Students often purchase textbooks and course materials from multiple 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. In Fiscal 2018, our comparable store sales were impacted by lower average selling
prices of course materials driven by lower publisher prices resulting from a shift to lower cost options and more affordable
solutions, including digital.
• Competition. In addition to the competition we face from alternative distribution sources, we also have competition from other
college bookstore operators and educational content providers.
Competitors consist of other college bookstore operators and educational content providers. Competitors include BBA
Solutions, a college textbook retailer; bn.com, the e-commerce platform of Barnes & Noble, Inc.; Chegg.com, an online
textbook rental company and student learning platform; eCampus, an online provider of course materials; Follett
Corporation, a contract operator of campus bookstores; IndiCo, an entity created by National Association of College
Bookstores (“NACS”); Texas Book Company, bookstore management and operations; and Vital Source Technologies,
Inc., a digital course materials provider. We also have competition from providers of eTextbooks, such as Apple iTunes,
Blackboard, Google, and Redshelf, and various private textbook rental websites. At our institutions we serve, we face
competition for predictive analytics and competency-based learning platforms, such as Civitas Learning, a learning
analytics platform.
Competitors that provide online bookstore solutions to colleges and universities not only compete with our physical
bookstore operations, but also compete with MBS Direct's virtual stores. MBS Direct also faces competition from
Akademos, Ambassador Educational Solutions, Chegg.com; eCampus, edMap, EdTech, Follett Corporation, Texas Book
Company, Tree of Life, and VitalSource Technologies, Inc. MBS Wholesale competes with Amazon, BBA Solutions,
Follett Corporation, IndiCo, Nebraska Book Company, and Texas Book Company for new and used book inventory and
distribution.
Competitors that compete with our general merchandise and convenience offerings include Fanatics, Sodexo & Aramark,
online retailers, physical and online office supply stores, and local and national retailers that offer college themed and
other general merchandise.
Our DSS segment faces competition from other digital student solutions providers that include Chegg.com, CourseHero,
Grammarly, Quizlet, Noodle Tools, and Turnitin (iParadigms). As we develop a wider range of products and services,
our competitive landscape will change and include other competitors in the broader student services market.
• A Majority of Traditional Campus Bookstores Have Yet to be Outsourced.
Outsourcing Trends. 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. 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. We continue to work on evolving our business
model and enhance our solutions, as well as enforce our contract exclusivity, to combat increased competition.
New and Existing Bookstore Contracts. We expect awards of new accounts resulting in new physical and virtual store
openings will continue to be an important driver of future growth in our business. We expect to continue to successfully
renew our current contracts on favorable terms. 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. Our virtual bookstore capability expands our addressable market to include schools that cannot or prefer
not to have a physical campus bookstore. 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.
• Overall Economic Environment, College Enrollment and Consumer Spending Patterns. Our business is affected by the overall
economic environment, funding levels at colleges and universities, by changes in enrollments at colleges and universities,
and spending on course materials and general merchandise.
Economic Environment: BNC general merchandise sales are subject to short-term fluctuations driven by the broader retail
environment. We expect general merchandise sales to continue to increase over the long term, as our product assortments
continue to emphasize and reflect the changing consumer trends, and we evolve our presentation concepts and
merchandising of products in stores and online. Lighter store traffic and a continued reluctance by the consumer to make
discretionary purchases, along with a softer retail environment, has recently impacted our general merchandise sales. We
are confident that our product assortment reflects consumer trends and have received encouraging customer response to
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our promotional and digital marketing efforts, especially as it relates to web orders. We are encouraged by the growth in
our e-commerce sales and expect general merchandise sales to improve as the general retail environment rebounds, but
we are taking a cautious approach given the overall uncertainty in the market.
Enrollment Trends. The growth of our business depends on our ability to attract new students and to increase the level
of engagement by our current student customers. We continue to see downward enrollment trends and shrinking resources
from state and federal government for colleges and universities. Enrollment trends, specifically at community colleges,
continue to decline, led primarily by an improved economy and a dip in the United States birth rate resulting in fewer
students at the traditional 18-24 year old college age. Consistent with projections from the National Center for Education
Statistics, we expect undergraduate enrollment to increase in the long-term.
According to a Babson Survey Research Group report, over 30% of higher education students are taking at least one
distance education or online course. Online degree program enrollments continue to grow, even in the face of declining
overall higher education enrollment. Our comprehensive digital offerings, particularly with our LoudCloud Courseware™
program and the First Day™ inclusive access program, in which course materials, including e-content, are offered at a
reduced price through a course materials fee, and delivered to students digitally on or before the first day of class, make
us well positioned to capitalize on this trend.
EMPLOYEES
As of April 28, 2018, the Company had approximately 6,600 full time and regularly scheduled part-time employees. In
addition, we hired approximately 15,800 temporary employees during peak periods during Fiscal 2018. Our employees are not
represented by unions, with the exception of 26 employees. We believe that our relationship with our employees is good.
The following sets forth information regarding our executive officers, including their positions (ages as of June 21, 2018):
EXECUTIVE OFFICERS
Name
Michael P. Huseby. . . . . . . .
Patrick Maloney . . . . . . . . .
Barry Brover . . . . . . . . . . . .
Kanuj Malhotra . . . . . . . . . .
Michael C. Miller . . . . . . . .
Stephen Culver . . . . . . . . . .
JoAnn Magill. . . . . . . . . . . .
Seema C. Paul . . . . . . . . . . .
Age
63
62
57
51
46
53
64
54
Position
Chairman and Chief Executive Officer
Executive Vice President, Operations; President, Barnes & Noble
College
Executive Vice President, Chief Financial Officer
Executive Vice President, Corporate Development; President, Digital
Student Solutions
Executive Vice President, Corporate Strategy and General Counsel
Senior Vice President, Chief Information Officer
Senior Vice President, Human Resources
Senior Vice President, Chief Accounting Officer
Michael P. Huseby, age 63, serves as our Chairman of the Board of Directors and Chief Executive Officer. He was a member
of the Board of Directors of Barnes & Noble from January 2014 and served as the Chief Executive Officer of Barnes & Noble
until the complete legal and structural separation of the Company from Barnes & Noble on August 2, 2015. Mr. Huseby was
elected to the Board of Directors of the Company and was appointed Executive Chairman effective August 2, 2015. Effective
September 19, 2017, Mr. Huseby became Chief Executive Officer of the Company in addition to his role as Chairman of the Board
of Directors. Previously, Mr. Huseby was appointed President of Barnes & Noble in July 2013, and Chief Financial Officer of
Barnes & Noble 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, which was acquired by the Altice Group
in June 2016. He served on the Cablevision Systems Corporation Board of Directors in 2000 and 2001. Prior to joining Cablevision,
Mr. Huseby served as Executive Vice President and Chief Financial Officer of Charter Communications, Inc., a large cable operator
in the United States. Mr. Huseby served on the Board of Directors of Charter Communications from May 2013 through May 2016.
Mr. Huseby served as Executive Vice President, Finance and Administration, of AT&T Broadband, a leading provider of cable
television services from 1999 to 2002, when it was sold to Comcast Corporation. 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 serving a myriad of
clients, including a number of large publicly-traded companies. Mr. Huseby served on the Board of Directors of CommerceHub,
Inc., a cloud-based e-commerce fulfillment and marketing software platform company previously listed on Nasdaq, from July
2016 until May 2018 with his tenure ending upon the consummation of the sale of CommerceHub to financial sponsors. While
on the Board of CommerceHub, Mr. Huseby served as chair of the Audit Committee and as a member of the Compensation
Committee.
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Patrick Maloney, age 62, serves as our Executive Vice President, Operations and 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.
Barry Brover, age 57, serves as our Executive Vice President and Chief Financial Officer. In this role, he oversees all aspects
of accounting and finance, including treasury, investor relations, risk management, and tax, as well as provides strategic leadership
in areas related to operations and business development. 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.
Kanuj Malhotra, serves as our Executive Vice President, Corporate Development and President of our Digital Student Solutions
business. 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.
Michael C. Miller, age 46, serves as our Executive Vice President, Corporate Strategy and General Counsel. Mr. Miller joined
Barnes & Noble Education in April 2017 and also serves as Corporate Secretary. Before joining the Company, he served as
Executive Vice President, General Counsel and Secretary of Monster Worldwide, Inc. from December 2008 through December
2016, as Vice President and Deputy General Counsel from July 2008 to December 2008, and as Vice President and Associate
General Counsel from October 2007 to July 2008. Prior to Monster, Mr. Miller was Senior Counsel for Motorola, Inc. from
February 2007 to September 2007. From June 2002 to January 2007, he served in various capacities as Senior Corporate Counsel
for Symbol Technologies, Inc. Prior to joining Symbol, Mr. Miller was associated with both Sullivan & Cromwell, LLP and
Winthrop, Stimson, Putnam & Roberts in New York.
Stephen Culver, age 53, serves as our Senior 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.
JoAnn Magill, age 64, serves as Senior Vice President, Human Resources of Barnes & Noble Education. Since joining the
Company in 2003, Ms. Magill has played an integral role in the development and implementation of policies, practices and
programs for thousands of full and part time employees at the Company’s corporate office and its campus bookstores nationwide.
In her role as Vice President, Chief Human Resources Officer, Ms. Magill oversees employee relations, recruitment, benefits,
payroll and compensation. Prior to joining Barnes & Noble Education, she served as the Vice President of Human Resources at
AT&T Broadband Media Services for five years. Ms. Magill also had an extensive 25-year career with Pathmark Supermarkets,
where she held a variety of field and corporate leadership roles.
Seema C. Paul, age 54, joined the Company in July 2015 and serves as our Senior Vice President, Chief Accounting Officer.
In this role she manages external reporting and technical accounting, corporate accounting, and financial reporting 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.
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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 for our products and services, and we expect such competition to increase.
We operate within a competitive and rapidly changing business environment, in general, and each of our lines of business
faces significant competition for the products and services they offer. The market for course materials, including textbooks and
supplemental materials, is experiencing significant changes relating to the offering of alternative media and alternative sources
of textbooks and course-related materials, such as websites that sell or rent textbooks, eTextbooks, digital content and other
merchandise directly to students; online resources, including open educational resources; publishers including Cengage, Pearson
and McGraw Hill, 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; BBA Solutions, a college textbook retailer; bn.com, the e-commerce platform of Barnes & Noble, Inc.;
Chegg.com, an online textbook rental company; Civitas Learning, a learning analytics platform; eCampus, an online provider of
course materials; Follett Corporation, a contract operator of campus bookstores; IndiCo, an entity created by National Association
of College Bookstores (“NACS”); Texas Book Company, bookstore management and operations; and Vital Source Technologies,
Inc., a digital course materials provider. We also have competition from providers of eTextbooks, such as Apple iTunes, Blackboard,
Google, and Redshelf; Vital Source Technologies, Inc., and various private textbook rental websites. In addition, Akademos has
begun to develop relationships with colleges and universities to provide online bookstore solutions which not only competes with
our physical bookstore operations but also competes with our subsidiary MBS’ Direct virtual solution. MBS Direct also faces
competition from Ambassador Educational Solutions, eCampus, edMap, EdTech, Follett Corporation, Texas Book Company, Tree
of Life, and VitalSource Technologies, Inc. MBS Wholesale competes with Amazon, BBA Solutions, Follett Corporation, IndiCo,
Nebraska Book Company, and Texas Book Company. Competitors that compete with our general merchandise offerings include
Fanatics, Sodexo & Aramark, online retailers, physical and online office supply stores and local and national retailers that offer
college themed and other general merchandise. Students often 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 and digital textbooks, some of
which may be more profitable or successful than our business model. Furthermore, the market for course materials is diluted from
counterfeiting and piracy of digital and print copies or illegal copies of selected chapters made by students or others; user and
faculty created content; and sharing or non-purchase of required course materials by students.
Our Digital Student Solutions business faces competition from other providers of online instruction platforms and other direct-
to-student writing skills, study tools and tutor services, such as Chegg.com, CourseHero, Grammarly, Quizlet, Noodle Tools, and
Turnitin (iParadigms). As we develop a wider range of products and services, our competitive landscape will change and include
other competitors in the broader student services market. Since 2017, we have been focused on expanding these offerings, in many
instances through the acquisition of other companies, like Student Brands, LLC, or through commercial arrangements. For example,
in November 2017, we entered into a partnership with The Princeton Review to provide their test preparation courses and tutoring
services through our websites. Our newer products and services, or any other products and services we may introduce or acquire,
may not be integrated effectively into our business, achieve or sustain profitability or achieve market acceptance at levels sufficient
to justify our investment.
Our ability to fully integrate new products and services into our platforms or achieve satisfactory financial results from them
is unproven. Because we have a limited history in operating a fully digital platform, and the market for our products and services,
including newly acquired or developed products and services, is rapidly evolving, it is difficult for us to predict our operating
results, particularly with respect to our newer offerings, and the ultimate size of the market for our products and services. If the
market for a learning platform does not develop as we expect, or if we fail to address the needs of this market, our business will
be harmed.
We have encountered and will continue to encounter these risks and if we do not manage them successfully, our business,
financial condition, results of operations and prospects may be materially and adversely affected.
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We may not be able to enter into new managed bookstore contracts or successfully retain or renew our managed bookstore
contracts on profitable terms.
An important part of our business strategy for both BNC and MBS Direct is to expand sales for our college bookstore operations
by being awarded additional contracts to manage physical and/or virtual bookstores for colleges and universities, and K-12 schools,
across the United States. 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 for BNC’s operation of physical
bookstores, 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. The retail price charged to the consumer for textbooks is set by our contracts with colleges and
universities to be a maximum markup based on the publishers’ costs and as colleges continue to focus on affordability those prices
have been reduced, which negatively impacted our revenue and margin for Fiscal 2018 and further reductions could continue to
have a negative impact. 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.
In addition, we may face significant competition in retaining existing physical and virtual store contracts and when renewing
those contracts as they expire. Our BNC contracts are typically for five years with renewal options, and most contracts are cancelable
by either party without penalty with 90 to 120 days' notice. Our MBS Direct contracts are typically for three to five years and
most are cancelable without penalty with notice. Despite the lower startup and ongoing operating expense associated with virtual
stores, the loss of such contracts could impact revenue and profitability. 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.
We face the risk of disruption of supplier relationships.
The retail products that we sell and products for the MBS wholesale business originate from a wide variety of domestic and
international vendors. During Fiscal 2018, BNC’s four largest retail suppliers, including MBS, accounted for approximately 42%
of our merchandise purchased, with the largest supplier accounting for approximately 17% of our merchandise purchased. MBS
Wholesale sources over 80% of its inventory from two primary channels, approximately 55% from retail bookstores (including
BNC) and approximately 29% from third party suppliers. 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 or, especially with respect
to wholesale inventory, and publishers could terminate distribution to wholesalers such as MBS.
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. 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.
We face the risk of fluctuating inventory supplies as a consequence of changes in the way publishers distribute course materials.
Our traditional retail and wholesale businesses are 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, purchase or rental terms, 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. For example, some textbook publishers
have proposed to supply textbooks on consignment terms, instead of selling to us, which would eliminate those titles from the
used textbook inventory supply. With respect to the business of MBS Wholesale, the demand for used and new textbooks is
typically greater than the available supply, and MBS is highly dependent upon its ability to build its textbook inventory from
publishers and suppliers in advance of the selling season. These relationships are not generally governed by long-term contracts
and publishers and suppliers could choose not to sell to MBS. Any negative impact on MBS's ability to build its textbook inventory
could have an adverse impact on financial results.
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In response to changes in the market, over the last few years, we have also 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 textbooks being returned late or in poor condition, faculty members not continuing to adopt
or use certain textbooks, or, as discussed below, changes in the way publishers supply textbooks to us.
Some textbook publishers have recently proposed to rent textbooks on consignment terms directly to students. Accordingly,
we have entered into agreements with a number of textbook publishers to administer their consignment rental programs with
distributors and their direct to student textbook consignment rental programs. These programs, if successful, will result in a
substantial decrease in the supply of those titles from the used textbook inventory supply, which impacts MBS Wholesale.
MBS was selected as a national distributor for rental textbooks offered through McGraw-Hill Education's newly announced
consignment rental program (which includes approximately 230 titles) and Pearson Education’s expanded consignment rental
program (which includes approximately 150 titles). Through its centrally located, advanced distribution center, MBS will offer
the seamless integration of these consignment rental programs and centralized administration and distribution to more than 3,500
stores. These consignment rental programs will also be made available to MBS Wholesale customers, including institutionally
run and contract managed campus bookstores, as well as BNC physical bookstores, and MBS Direct customers. We expect the
fees earned by MBS as a national distributor for consignment rental programs will offset the negative impact on MBS's ability to
build its textbook inventory.
In addition, the profit margins associated with the traditional distribution model are fairly predictable and constant, but the
move to a model of increased consignment rental programs combined with pressure to provide more affordable course materials
to students could result in lower profit margins for a substantial part of our wholesale and retail business.
MBS Wholesale may not be able to manage its inventory levels effectively which may lead to excess inventory or inventory
obsolescence.
MBS Wholesale sources new textbooks from publishers and new and used textbooks from other suppliers to resell to its
customers. If it is unable to appropriately manage its inventory and anticipate the release of new editions of titles, faculty’s change
in choice of titles, return rate, or use of alternative educational material, MBS Wholesale could be exposed to risks of excess
inventory and less marketable or obsolete inventory. This may lead to excess or obsolete inventory which might have to be sold
at a deep discount impacting its revenues and profit margin and may have a negative impact on our financial condition and results
of operations.
Our results also depend on the successful implementation of our strategic initiative to grow our digital products and services.
We may not be able to implement this strategy successfully, on a timely basis, or at all.
In response to our changing business environment and to adopt to industry trends, we are focused on our digital initiatives to
retain and expand existing customer relationships, acquire new accounts, expand sales channels and marketing efforts, integrate
and develop direct to student digital solutions, develop and market higher education digital products. While we believe we have
the capital resources, experience, management resources and internal systems to successfully operate our digital business, we may
not be successful in implementing this strategy. The implementation of our digital strategy is a complex process and relies on
leveraging our core products, services and relationships to help accelerate the adoption of our new digital products and services.
Success of our future operating results will be dependent upon rapid customer adoption of our new digital products and services
and our ability to scale our business to meet customer demand appropriately. If colleges and universities, faculty and students are
not receptive to our new products and services or our new products and services do not meet the expectations of these constituencies,
there could be a negative impact on the implementation of our strategy. To successfully execute on this strategy, we need to continue
to further evolve the focus of our organization towards the delivery of cost effective and unique solutions for our customers. Any
failure to successfully execute this strategy could adversely affect our operating results. Further, even if successfully implemented,
our business strategy may not ultimately produce positive results.
Part of our strategy includes pursuing strategic acquisitions and partnerships and we may not be able to identify and successfully
complete such transactions.
In addition to significant acquisitions, such as MBS, Student Brands and LoudCloud, as part of our strategy, we will continue
to seek, and, may in the future acquire, businesses or business operations, or enter into other business transactions to grow our
business and expand our product and service offerings. We may not be able to identify suitable candidates for additional business
combinations and strategic 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. In addition, we compete for acquisitions
with other potential acquirers, some of which may have greater financial or operational resources than we do. This competition
may increase costs of acquiring desirable businesses, and, as a result, we may be unable to make acquisitions or be forced to pay
more or agree to less advantageous acquisition terms for the businesses that we are able to acquire. 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
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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 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 course materials and general merchandise. The growth of our business depends on our ability to attract new
students and to increase the level of engagement by current student customers. To the extent we are unable to attract new students
or students spend less generally, our business could be adversely affected.
We intend to offer new products and solutions to students to grow our business. If our efforts are not successful, our business
and financial results would be adversely affected.
Our ability to attract and retain students and increase their engagement with our learning platform depends on our ability to
connect them with the product, person or service they need to save time, save money, and get smarter. For example, in Fiscal 2018,
we acquired the Student Brands family of websites, including Bartleby.com. We also recently partnered with The Princeton Review
in November 2017, to provide their test preparation courses and tutoring services through our websites. The markets for these new
products and services may be unproven, and these products may include technologies and business models with which we have
little or no prior development or operating experience or may significantly change our existing products and services. In addition,
we may be unable to obtain long-term licenses from third-party content providers necessary to allow a product or service, including
a new or planned product or service, to function. If our new or enhanced products and services fail to engage our students or attract
new students, or if we are unable to obtain content from third parties that students want, we may fail to grow our student base or
generate sufficient revenues, operating margin or other value to justify our investments, and our business would be adversely
affected.
In the future, we may invest in new products and services and other initiatives to generate revenues, but there is no guarantee
these approaches will be successful. Acquisitions of new companies, products and services create integration risk, while
development of new products and services and enhancements to existing products and services involve significant time, labor and
expense and are subject to risks and challenges, including managing the length of the development cycle, entry into new markets,
integration into our existing business, regulatory compliance, evolution in sales and marketing methods and maintenance and
protection of intellectual property and proprietary rights. If we are not successful with our new products and services, we may not
be able to maintain or increase our revenues as anticipated or recover any associated acquisition or development costs, and our
financial results could be adversely affected.
Our business depends on our ability to attract and retain talented employees, including senior management.
Management believes that our continued success will depend to a significant extent upon the efforts and abilities of certain
of our executive officers and senior management, many of whom have significant experience and strong commercial relationships
in our industry and capital market relationships. The loss of any of these individuals could harm our business, financial condition
and results of operations. We do not maintain “key man” life insurance on any of our officers or other employees. Experienced
management and technical, marketing and support personnel in our industry are in high demand, and competition for their talents
is intense. If we are less successful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop and
deliver successful products and services may be adversely affected.
Our business is seasonal.
Our business is seasonal, particularly with respect to textbook sales and rentals, with sales and rentals attributable to our retail
businesses (BNC physical and MBS virtual bookstores) 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. Sales attributable
to the MBS wholesale business are generally highest in our first, second and third quarter as it sells textbooks for retail distribution.
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.
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Our international operations could result in additional risks.
Our operations are substantially limited to the United States; however, we have operations in India, offer services and products
to students and other customers internationally, contract with service providers outside the United States and 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 is subject to a variety of domestic and international laws, rules, policies and other obligations regarding data
protection.
Although most of our operations are in the United States, we do have some operations and offer services and products
internationally. Our international operations subject us to a complex array of federal, state and international laws relating to the
collection, use, retention, disclosure, security and transfer of personally identifiable data. Many jurisdictions have passed laws in
this area, and other jurisdictions are considering imposing additional restrictions. The interpretation and application of data
protection laws in the United States, Europe, including but not limited to the General Data Protection Regulation (the “GDPR”),
and elsewhere are uncertain and evolving. It is possible that these laws may be interpreted and applied in a manner that is inconsistent
with our data practices. Complying with these various laws is difficult and could cause us to incur substantial costs or require us
to change our business practices in a manner adverse to our business.
Further, although we are implementing internal controls and procedures designed to protect sensitive information and
confidential and personal data and comply with the GDPR and other privacy-related laws, rules and regulations, our facilities, and
systems may be vulnerable to security breaches and other data loss, including cyber-attacks. Such a security breach or data loss
could lead to negative publicity, damage to our reputation, exposure to litigation and liability, theft, modification or destruction
of proprietary information or key information, damage to or inaccessibility of critical systems, manufacture of defective products,
production downtimes, operational disruptions and remediation and other significant costs, which could adversely affect our
reputation, financial condition and results of operations.
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Computer malware, viruses, hacking and phishing attacks could harm our business and results of operations.
We are increasingly dependent upon information technology systems, infrastructure and data. Our computer systems may be
vulnerable to service interruption or destruction, malicious intrusion, ransomware and random attack. Cyber-attacks are increasing
in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could include the
deployment of harmful malware, denial-of service, social engineering, ransomware and other means to affect service reliability
and threaten data confidentiality, integrity and availability. Our key business partners face similar risks, and a security breach of
their systems could adversely affect our security posture. While we continue to invest data protection and information technology,
there can be no assurance that our efforts will prevent service interruptions, or identify breaches in our systems, that could adversely
affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal,
business or reputational harm.
Laws or regulations may be enacted which restrict or prohibit use of emails or similar marketing activities that we currently
rely on.
Our marketing efforts are centered around an active digital community, which includes engaged email subscribers and our
continuous dialogue with customers on our school-customized social media channels. For example, the following laws and
regulations may apply:
• the CAN-SPAM Act of 2003 and similar laws adopted by a number of states regulate unsolicited commercial emails,
create civil and criminal penalties for emails containing fraudulent headers and control other abusive online marketing practices;
and
• the U.S. Federal Trade Commission (the "FTC") has guidelines that impose responsibilities on companies with respect
to communications with consumers and impose fines and liability for failure to comply with rules with respect to advertising
or marketing practices they may deem misleading or deceptive.
Even if no relevant law or regulation is enacted, we may discontinue use or support of these activities if we become concerned
that students or potential students deem them intrusive or they otherwise adversely affect our goodwill and brand. If our marketing
activities are curtailed, our ability to attract new students may be adversely affected.
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 (including complying with GDPR), 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 and mobile application (including complying
with the Americans with Disabilities Act), 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 labor and
employee benefits (including the costs associated with complying with the Patient Protection and Affordable Care Act or any
legislation enacted in connection with repeal of the Affordable Care Act). Changes in federal, state, local or international laws,
rules or regulations relating to these matters could increase regulatory compliance requirements in addition to increasing our costs
of doing business or otherwise impact our business. For example, changes in federal and state minimum wage laws could raise
the wage requirements for certain of our employees at our retail locations, which would increase our selling costs and may cause
us to reexamine our wage structure for such employees.
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.
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Changes in U.S. tax laws could have a material adverse effect on our business, cash flow, results of operations or financial
conditions.
Legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) was enacted in December 2017, and contains
many significant changes to the U.S. federal income tax laws, the consequences of which have not yet been determined. Changes
in corporate tax rates, the realizability of net deferred tax assets, and the deductibility of expenses contained in the Act or other
tax reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time
charges in the current or future taxable years, and could increase our future U.S. tax expense. The foregoing items could have a
material adverse effect on our business, cash flow, results of operations or financial conditions.
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.
In addition, as we expand our digital offerings and services, we may be exposed to more intellectual property infringement claims.
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 credit agreements 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. Volatility
in global financial markets may also limit our ability to access the capital markets at a time when we would like, or need, to raise
capital, which could have an impact on our ability to react to changing economic and business conditions. Accordingly, if the
economy worsens, our business, results of operations and financial condition could be materially and adversely affected.
We rely upon third party web service providers to operate certain aspects of our service and any disruption of or interference
with such services would impact our operations and our business would be materially and adversely impacted.
Amazon Web Services (“AWS”) and other third-party web service providers provide a distributed computing infrastructure
platform for business operations, or what is commonly referred to as a “cloud” computing service. We have architected our software
and computer systems so as to utilize data processing, storage capabilities, and other services provided by AWS and other providers.
Any disruption of or interference with our use of AWS or other third-party service providers would impact our operations and our
business would be materially and adversely impacted.
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.
We rely heavily on proprietary technology and sophisticated equipment to manage certain aspects of our business, including
to manage textbook inventory, process deliveries and returns of the textbooks and manage warehousing and distribution.
We, primarily through our MBS subsidiary, use a proprietary system to source, distribute and manage inventory of textbooks
and to manage other aspects of our operations, including systems to consider the market pricing for textbooks, general availability
of textbook titles and other factors to determine how to buy textbooks and set prices for textbooks and other content in real time.
MBS has invested significant amounts of resources in the hardware and software to develop this system. We rely on the expertise
of our engineering and software development teams to maintain and enhance the equipment and software used for our distribution
operations. We cannot be sure that the maintenance and enhancements we make to our distribution operations will achieve the
intended results or otherwise be of value to students. If we are unable to maintain and enhance our technology to manage textbook
sourcing, distribution and inventory, it could disrupt our business operations and have a material adverse impact on our results.
MBS is also dependent on sophisticated equipment and related software technology for the warehousing and distribution of
the vast majority of textbooks supplied to BNC and others, which is located at MBS’ facility in Columbia, Missouri. MBS’ ability
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to efficiently manage its business depends significantly on the reliability and capacity of these systems. The failure of these systems
to operate effectively, problems with maintenance, upgrading or transitioning to replacement systems, especially if such events
were to occur during peak periods, could adversely affect our operations, the ability to serve our customers and our results of
operations. In addition, substantially all of MBS’ inventory is located in the Columbia warehouse facility. We could experience
significant interruption in the operation of this facility or damage or destruction of our inventory due to physical damage to the
facility caused by natural disasters, accidents or otherwise. If a material portion of our inventory were to be damaged or destroyed,
we would likely incur significant financial loss, including loss of revenue and harm to our customer relationships.
Defects, errors, installation difficulties or performance issues with our point-of-sales and other systems could expose us to
potential liability, harm our reputation and negatively impact our business.
MBS sells and services point-of-sales systems to its college bookstore customers. These systems are complex and incorporate
third-party hardware and software. Despite testing and quality control, we cannot be certain that defects or errors will not be found
in these systems. In addition, because these systems are installed in different environments, we may experience difficulty or delay
in installation. Our products may be integrated with other components or software, and, in the event that there are defects or errors,
it may be difficult to determine the origin of defects or errors. Additionally, any difficulty or failure in the operation of these
systems could cause business disruption for MBS’ customers. If any of these risks materialize, they could result in additional costs
and expenses, exposure to liability claims, diversion of technical and other resources to engage in remediation efforts, loss of
customers or negative publicity, each of which could impact our business and operating results.
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 of
our products, content and business methods may unknowingly infringe existing patents or intellectual property rights of others.
Successful intellectual property infringement claims against us could result in monetary liability or a material disruption in the
conduct of our business. We cannot be certain that our products, content and business methods do not or will not infringe valid
patents, trademarks, copyrights or other intellectual property rights held by third parties. We expect that infringement claims in
our markets will increase in number. We may be subject to legal proceedings and claims from time to time relating to the intellectual
property of others in the ordinary course of our business. If we were found to have infringed the intellectual property rights of a
third party, we could be liable to that party for license fees, royalty payments, lost profits or other damages, and the owner of the
intellectual property might be able to obtain injunctive relief to prevent us from using the technology or software in the future. If
the amounts of these payments were significant or we were prevented from incorporating certain technology or software into our
products, our business could be significantly harmed.
We may incur substantial expenses in defending against these third-party infringement claims, regardless of their merit. As
a result, due to the diversion of management time, the expense required to defend against any claim and the potential liability
associated with any lawsuit, any significant litigation could significantly harm our business, financial condition and results of
operations.
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.
In addition, the publishing industry has been, and we expect in the future will continue to be, the target of counterfeiting and
piracy. We have entered into agreements with major textbook publishers to implement the textbook industry’s Anti-Counterfeit
Best Practices. These best practices were developed as a mechanism to assist publishers and distributors in the eradication of
counterfeit copies of textbooks in the marketplace. While we have agreed to implement the Anti-Counterfeit Best Practices and
have in place our anti-counterfeit policies and procedures (which include removing from distribution suspected counterfeit titles)
27
for preventing the proliferation of counterfeit textbooks, we may inadvertently purchase counterfeit textbooks which may
unknowingly be included in the textbooks we offer for sale or rent to students or we may purchase such textbooks through our
buyback program. As such, we may be subject to allegations of selling counterfeit books. We have in the past and may continue
to receive communications from publishers alleging that certain textbooks sold or rented by us are counterfeit. When receiving
such communications, we cooperate, and will continue to cooperate in the future, with such publishers in identifying fraudulent
textbooks and removing them from our inventory. We may implement measures in an effort to protect against these potential
liabilities that could require us to spend substantial resources. Any costs incurred as a result of liability or asserted liability relating
to sales of counterfeit textbooks could harm our business, reputation and financial condition.
Legal proceedings may significantly harm our business.
From time to time, we may become involved in litigation or other proceedings in the ordinary course of business. It is possible
that such litigation or proceedings may significantly harm our future results of operations or financial condition due to expenses
we may incur to defend ourselves or the ramifications of an adverse decision.
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, Inc. 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, Inc. to maintain the licensed
trademarks.
We remain subject to continuing contingent liabilities of Barnes & Noble, Inc. following the spinoff.
The separation and distribution, tax matters and employee matters agreement allocated certain liabilities as between us and
our previous parent, Barnes & Noble, Inc. whether incurred prior to or after the spinoff on August 2, 2015. In addition, under the
Internal Revenue Code ("Code") and the related rules and regulations, each corporation that was a member of the Barnes & Noble
consolidated tax reporting group during any taxable period or portion of any taxable period ending on or before the completion
of the spinoff is jointly and severally liable for the federal income tax liability of the entire consolidated tax reporting group for
that taxable period. In connection with the spinoff, we entered into a tax matters agreement with Barnes & Noble, Inc. that allocated
the responsibility for prior period taxes of the consolidated tax reporting group between us and Barnes & Noble, Inc. However, if
Barnes & Noble, Inc.is unable to pay any prior period taxes for which it is responsible, we could be required to pay the entire
amount of such taxes.
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 higher education 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.
28
We have recorded significant goodwill impairment charges and may be required to record additional charges to future earnings
if our goodwill or intangible assets become impaired.
We are required under generally accepted accounting principles to review our intangible assets for impairment when events
or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment
at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible
assets and/or goodwill may not be recoverable include a decline in stock price and market capitalization, slower growth rates in
our industry or our own operations, and/or other materially adverse events that have implications on the profitability of our business.
In the third quarter of Fiscal 2018, primarily due to the reduction in our market capitalization, we recorded a pre-tax goodwill
impairment charge of $313.1 million in our BNC segment, as defined prior to the fourth quarter of Fiscal 2018, or $302.9 million
on a net of tax basis. See Note 2. Summary of Significant Accounting Policies and Note 9. Supplementary Information of the
Company’s financial statements included in Part II - Item 8 Financial Statement and Supplementary Data of this Annual Report
on Form 10-K for details. We may be required to record additional charges to earnings during the period in which any impairment
of our goodwill or other intangible assets is determined which could adversely impact our results of operations. As of April 28,
2018, our goodwill balance was $49.3 million, which represented 4.8% of total consolidated assets.
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 of Directors and will be dependent upon our financial condition,
results of operations, cash requirements, future prospects and any other factors our Board of Directors 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:
• authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors 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 of Directors; 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.
29
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 90,500 square feet of space for our corporate headquarters in Basking Ridge, New Jersey, and 340,000
square feet of office and warehouse space for our MBS operations in Columbia, Missouri pursuant to leases that expire in October
2023 and September 2023, respectively. In addition, we also lease approximately 77,000 square feet, in aggregate, of office space
located in Crystal Lake, Illinois, Los Angeles, California, New York, New York, Bangalore, India and Mumbai, India to support
our operations pursuant to leases that expire between 2018 and 2023.
For BNC, we typically have the exclusive right to operate the official physical school bookstore on college campuses, the
majority of which also have school-branded e-commerce sites operated by BNC, through multi-year management service
agreements with our schools. In turn, we pay the school a percentage of store sales and, in some cases, a minimum fixed guarantee.
These 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. As of April 28, 2018, these BNC contracts
for the 768 stores that we operate expire as follows:
Contract Terms to Expire During (12
months ending on or about April 30)
2019. . . . . . . . . . . . . . . . . . . . . . .
2020. . . . . . . . . . . . . . . . . . . . . . .
2021. . . . . . . . . . . . . . . . . . . . . . .
2022. . . . . . . . . . . . . . . . . . . . . . .
2023. . . . . . . . . . . . . . . . . . . . . . .
2024 and later . . . . . . . . . . . . . . .
BNC
Number of Stores
51
47
64
50
50
506
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.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
30
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our authorized capital stock consists 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 trades on the New York Stock Exchange ("NYSE") under the
symbol “BNED.”
As of April 28, 2018, 46,916,616 shares of our Common Stock and 0 shares of our preferred stock were outstanding. We had
reserved 2,409,345 shares and 4,000,000 shares of Common Stock for future grants during the second quarter of Fiscal 2016 and
second quarter of Fiscal 2017, respectively, in accordance with the Barnes & Noble Education Inc. Equity Incentive Plan. See
Item 8. Financial Statements and Supplementary Data - 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:
First Quarter . . . . . . .
Second Quarter. . . . .
Third Quarter . . . . . .
Fourth Quarter . . . . .
Fiscal 2018
Fiscal 2017
High
Low
$ 11.12
$ 10.75
$
$
$
7.56
9.10
8.20
$
$
$
7.23
8.39
7.47
High
$ 11.88
$ 12.31
$ 13.15
$ 11.30
Low
$
$
$
$
8.50
9.15
8.75
9.09
On June 8, 2018, there were approximately 816 holders of record of our Common Stock and the closing price of our Common
Stock on the New York Stock Exchange was $6.57 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 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 may include
a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated,
or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.
During Fiscal 2016, we repurchased 1,715,269 shares for approximately $16.6 million at a weighted average cost per share of
$9.95. During Fiscal 2017, we repurchased 688,948 shares for approximately $6.7 million at a weighted average cost per share
of $10.10. During Fiscal 2018, we did not purchase shares under the stock repurchase program. As of April 28, 2018, approximately
$26.7 million remains available under the stock repurchase program.
During the year ended April 28, 2018, we also repurchased 260,531 shares of our Common Stock in connection with employee
tax withholding obligations for vested stock awards.
31
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)
2018 (b)
2017 (b)
2016 (b)
2015
2014
Product sales and other. . . . . . . . . . . . . . . . .
Rental income. . . . . . . . . . . . . . . . . . . . . . . .
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,984,472
219,145
2,203,617
$
1,641,881
232,481
1,874,362
$ 1,581,104
226,925
1,808,029
$ 1,549,005
223,993
1,772,998
$ 1,542,551
205,371
1,747,922
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) (c)(d) . . . . . . . . . . . . . . .
Restructuring and other charges (d)(e). . . . . . . . . . . .
Transaction costs (f) . . . . . . . . . . . . . . . . . . . . . . . . .
Operating (loss) income . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) Earnings before taxes . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . .
(Loss) Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares (thousands)(g):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,522,687
123,697
1,646,384
557,233
433,746
65,586
313,130
5,429
2,045
(262,703)
10,306
(273,009)
(20,443)
(252,566)
(5.40)
(5.40)
46,763
46,763
$
$
$
1,281,043
134,258
1,415,301
459,061
380,793
53,318
—
1,790
9,605
13,555
3,464
10,091
4,730
5,361
0.12
0.11
46,317
46,763
$
$
$
1,224,927
128,403
1,353,330
454,699
374,171
52,690
11,987
8,830
2,398
4,623
1,872
2,751
2,667
84
1,200,304
127,980
1,328,284
444,714
360,645
50,509
—
—
—
33,560
210
33,350
14,218
19,132
$
— $
— $
0.33
0.33
46,238
46,479
38,452
38,493
$
$
$
Fiscal Year (a)
1,185,393
124,767
1,310,160
437,762
331,423
48,014
—
—
—
58,325
385
57,940
22,834
35,106
0.88
0.88
37,270
37,275
$
$
$
(In thousands of dollars,
except for share and per share amounts)
OTHER OPERATING DATA:
Adjusted EBITDA (non-GAAP) (h) . . . . . . . . . . . .
Adjusted Earnings (non-GAAP) (h) . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . .
OTHER OPERATING DATA - BNC:
Comparable store sales (decrease) increase (i) . . . .
Number of stores at period end . . . . . . . . . . . . . . .
OTHER OPERATING DATA - MBS:
2018 (b)
2017 (b)
2016 (b)
2015
2014
$
$
$
126,760
56,949
42,809
$
$
$
78,268
12,347
34,670
$
$
$
80,528
15,462
50,790
$
$
$
84,069
19,132
48,452
$
$
$
106,339
35,106
38,253
(4.1)%
768
(3.5)%
769
(1.9)%
751
0.1%
724
(2.7)%
700
Number of stores at period end . . . . . . . . . . . . . . .
676
712
N/A
N/A
N/A
32
(In thousands of dollars,
except for share and per share amounts)
BALANCE SHEET DATA
(at period end):
Fiscal Year (a)
2018 (b)
2017 (b)
2016 (b)
2015
2014
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,039,211
$ 1,299,832
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt (j) . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt (j) . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred membership interests . . . . . . . . . . . . . . .
Parent company equity . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
571,248
100,000
96,400
$
$
$
586,124
100,000
59,600
— $
— $
— $
— $
$
$
$
$
1,071,683
$ 1,090,668
$ 1,109,919
363,297
$
363,999
$
360,282
— $
— $
— $
— $
— $
—
—
— $
383,397
— $
726,669
$
366,240
467,963
$
713,708
$
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 2018” means
the 52 weeks ended April 28, 2018, “Fiscal 2017” means the 52 weeks ended April 29, 2017, “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.
Our consolidated financial statements reflect the following reclassifications for consistency with the current year presentation:
1) Cost of Sales expenses primarily related to facility costs and insurance related to corporate services have been reclassified
to Selling and Administrative Expenses; and 2) For our digital rental products, we have reclassified Rental Income to Product
Sales and Other, and have reclassified Rental Cost of Sales to Product and Other Cost of Sales, with no impact to Gross
Margin. Digital rental revenue and digital rental cost of sales are recognized at the time of delivery and are not deferred over
the rental period. Prior periods presented reflect the segment presentation and reclassifications. For additional information,
see Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
(b) We acquired Student Brands, LLC on August 3, 2017. The consolidated financial statements for the 52 weeks ended April
28, 2018 include the financial results of Student Brands from the acquisition date, August 3, 2017, to April 28, 2018.
We acquired MBS Textbook Exchange, LLC on February 27, 2017. The consolidated financial statements for the 52 weeks
ended April 29, 2017 include the financial results of MBS from the acquisition date, February 27, 2017, to April 29, 2017.
We completed the legal separation ("Spin-Off") from Barnes & Noble, Inc. on August 2, 2015 (the beginning of our second
quarter of Fiscal 2016), at which time we began to operate as an independent publicly-traded company.
(c) In Fiscal 2018, we completed our annual goodwill impairment test. Based on the results of the impairment test, the carrying
value of goodwill exceeded its fair value for our BNC segment, as defined prior to the segment change in the fourth quarter
of Fiscal 2018, and we recorded a goodwill impairment (non-cash impairment loss) of $313.1 million. For additional
information, see Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
(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) was $8.8 million and $1.8 million in Fiscal 2016 and Fiscal 2017, respectively. For additional information,
see Item 8. Financial Statements and Supplementary Data - Note 9. Supplementary Information.
(e) In Fiscal 2018, we recognized restructuring and other charges of approximately $5.4 million, which is comprised of the
termination and transition payments related to the transition of the Chief Executive Officer. For additional information, see
Item 8. Financial Statements and Supplementary Data - Note 9. Supplementary Information.
(f) Transaction costs are costs incurred for business development and acquisitions.
(g) 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.
(h) 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.
33
Management's Discussion and Analysis of Financial Condition and Results of Operations - Adjusted EBITDA (non-GAAP)
and - Adjusted Earnings (non-GAAP).
(i) Effective Fiscal 2017, comparable store sales includes sales from stores that have been open for an entire fiscal year period,
does not include sales from closed stores for all periods presented, and digital agency sales are included on a gross basis. We
believe the current comparable store sales calculation method better reflects the manner in which management views
comparable store sales, as well as the seasonal nature of our business.
For Fiscal 2015 through Fiscal 2016, comparable store sales included sales from stores that were open for at least 15 months,
excluded sales from closed stores for all periods presented, and included digital agency sales on a net basis.
For 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 were determined based upon the actual
revenue received from textbook rentals and were no longer adjusted to reflect the equivalent textbook retail selling price.
(j) 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. On February 27, 2017, we amended the credit
agreement to add a new $100 million incremental first in, last out seasonal loan facility.
34
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 College” refer to our college bookstore business operated
through our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our virtual bookstore and
wholesale textbook distribution business operated through our subsidiary MBS Textbook Exchange, LLC, a Delaware corporation.
References to “Student Brands” refer to our direct-to-student subscription-based writing services business operated through our
subsidiary Student Brands, LLC.
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. “Fiscal 2018” means
the 52 weeks ended April 28, 2018, “Fiscal 2017” means the 52 weeks ended April 29, 2017, and “Fiscal 2016” means the 52
weeks ended April 30, 2016.
Overview
Description of business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for
college and university campuses and K-12 institutions across the United States, one of the largest textbook wholesalers and inventory
management hardware and software providers, and a leading provider of digital education solutions. Through our Barnes & Noble
College (“BNC”) and MBS Textbook Exchange (“MBS”) subsidiaries, we operate 1,444 physical and virtual bookstores and serve
more than 6 million students, delivering essential educational content and tools within a dynamic retail environment. Additionally,
through our Student Brands subsidiary and associated websites, a leading direct-to-student subscription-based writing services
business, we offer services to approximately 100,000 subscribers, by offering student assistance through the writing process and
journey.
The strengths of our business, as discussed below, includes our ability to compete by developing new products and solutions
to meet market needs, our large footprint with direct access to students and faculty, our well-established, deep relationships with
partners and stable, long-term contracts and our well-recognized brands. We expect to continue to grow our business by introducing
scalable and advanced digital solutions focused largely on the student, increasing market share with new accounts, and expanding
our strategic opportunities through acquisitions and partnerships.
As demand for new, enhanced, and more affordable products and services increase in the rapidly changing education landscape,
we strive to evolve our business model and enhance our solutions. We continue to aggressively innovate and collaborate with our
partners to provide solutions that extend well beyond course materials sourcing and sales, to include new digital services that
support successful student outcomes. We aim to be an even stronger partner for schools and meet customer needs by expanding
our physical and virtual bookstore service capabilities, courseware offerings and digital platform services.
Technology-enabled learning is a rapid growth area in the higher education industry, as a growing number of students are
enrolling in online services to complement print and digital course materials and classroom activities. We continue to enhance our
digital content and services in an efficient, low-cost/high-value manner to complement our course materials business. The
implementation of our core digital strategy relies on our direct access to students from our bookstore operations, where we can
attach our existing and future suite of digital products and services both online and in our stores.
We are ready to meet the digital demand with our virtual bookstore and e-commerce solutions. We focus on providing affordable
solutions, such as our First Day™ inclusive access program, in which course materials, including e-content, are offered at a reduced
price through a course materials fee, and delivered to students digitally on or before the first day of class. Additionally, our open
educational resources ("OER") courseware, is a turnkey solution for colleges and universities that offers advanced, affordable
learning materials built on a high-quality foundation of OER and enhanced with digital content that includes videos, activities and
auto-graded practice assessments that faculty can easily customize to align with class objectives. LoudCloud Courseware™
significantly reduces course material costs for students and enables easier implementation for faculty.
We offer our Student Brands solutions focused on providing students assistance through the writing process and journey. We
offer these online solutions to students via internet search engine optimization ("SEO"), as well as by marketing directly to students
in our BNC and MBS physical and virtual bookstore footprint.
We believe that our strategic actions over the last three years, including the acquisitions of LoudCloud Systems, Inc.
("LoudCloud"), MBS and Student Brands, respectively, and ongoing development of courseware, have substantially enhanced our
competitive position. Fiscal 2018 was a transformational period in which we began to leverage our newly-expanded customer base
and distribution channels to broaden our reach to students and deepen our institutional partnerships. We continue to focus on
providing product and service offerings designed to address the most pressing issues in higher education, including affordable and
accessible course materials and products designed to drive and improve student outcomes.
See Fiscal Year 2018 Summary below for a discussion of recent activities to enhance our product offerings and services. For
35
additional information related to our segments, customers, distribution network, and business conditions, see Part I - Item 1.
Business.
Fiscal Year 2018 Summary
The following summarizes some of the accomplishments of Fiscal Year 2018 as the company continues to build the foundation
to execute its strategy.
New Store Growth - New store openings are an important driver of growth. In Fiscal 2018, BNC signed contracts for 33 new
stores for estimated first year annual sales of $66 million. In Fiscal 2018, MBS signed contracts for 21 new stores for estimated
first year annual sales of $6 million. We evaluate each new contract based on established profitability measures to ensure we
maintain a portfolio of profitable stores. Our ability to offer existing and prospective clients physical, virtual and hybrid bookstore
models is a key element of our competitive strategy.
LoudCloud Courseware™ - In Fiscal 2018, consistent with our LoudCloud Courseware™ development road map, we expanded
our courseware titles from 10 to 32 course titles, with sales to approximately 21,000 students at 40 colleges and universities,
including technical colleges and online programs.
First Day™ Key Publisher Distribution Agreements - We offer our First Day™ inclusive access program, in which course
materials, including e-content, are offered at a reduced price through a course materials fee, and delivered to students digitally on
or before the first day of class. We have entered into several agreements with major publishers, including Cengage, McGraw-Hill
Education and Pearson, to provide their e-content through First Day™, or directly to BNC campus bookstores and MBS Direct
virtual bookstores. The seamless delivery is made possible by our First Day™ technology and publishers' technology integrations
with campus systems. These initiatives provide students, faculty and institutions greater access to more affordable course materials.
Consignment Rental Distribution Agreements - MBS was selected as a national distributor for rental textbooks offered through
McGraw-Hill Education's newly announced consignment rental program (which includes approximately 230 titles) and Pearson
Education’s expanded consignment rental program (which includes approximately 150 titles). Through its centrally located,
advanced distribution center, MBS will offer the seamless integration of these consignment rental programs and centralized
administration and distribution to more than 3,500 stores. These consignment rental programs will also be made available to MBS
Wholesale customers, including institutionally run and contract managed campus bookstores, as well as BNC physical bookstores,
and MBS Direct customers.
Kentucky Community and Technical College System ("KCTCS") - This Fall, more than 1,000 KCTCS students used BNED
Courseware in their classes. Three colleges in the KCTCS took part in our digital courseware program, as part of an ongoing
KCTCS effort to provide students with more affordable course materials. BNED Courseware is digital course content that includes
videos, activities and auto-graded practice assessments that faculty can easily personalize to align with class objectives. BNED
Courseware was offered through First Day™.
The Princeton Review - In November 2017, we entered into a strategic partnership with The Princeton Review. The partnership
allows us to further expand our end-to-end offerings and fulfill the full breadth of student education needs by offering The Princeton
Review's products and services to our network of more than 6 million students.
Portland State University ("PSU") - In October 2017, we announced our strategic partnership with PSU to co-develop a degree
planning solution. Using insights generated by PSU's reTHINK initiative and leveraging our analytics platform, the solution will
ultimately help more students graduate on time with better pathways to employment and provide the university with long-term
demand planning tools.
Eastern Gateway Community College ("EGCC") - In August 2017, we announced that we signed a multi-year contract with
EGCC to provide a full suite of solutions, including bookstore operations, an institution-wide learning management system (LMS),
LoudSight, our predictive analytics offering, and digital courseware to the students, faculty and advisors of EGCC.
Acquisition of Student Brands, LLC - On August 3, 2017, we acquired Student Brands. Student Brands is an education technology
company that operates multiple direct-to-student businesses focused on study tools and writing help, all centered on assisting
students with the writing process. Student Brands generates revenue predominantly through its subscription-based services and
digital advertisements. Student Brands has approximately 100,000 subscribers across its digital properties, which include
Bartleby.com, 123HelpMe.com, and StudyMode.com in the United States and TrabalhosFeitos.com, Etudier.com and
Monografias.com in Brazil, France and Mexico, respectively.
Unizin, Ltd. ("Unizin") - In May 2017, we entered into an agreement with Unizin to provide its 22 member universities with
LoudCloud's predictive analytics solution, LoudSight. As a result, faculty and advisors have access to a customized solution that
helps educators identify, monitor, and support at-risk students, with the goal of improving student success rates and retention.
Integration of MBS Textbook Exchange, LLC. ("MBS") - In February 2017, we completed the purchase of MBS, which operates
two highly integrated businesses, Wholesale and Direct. We continue our efforts to integrate the operations of MBS to achieve our
strategic objectives and anticipated synergies.
36
Segments
Prior to the fourth quarter of fiscal year 2018, we had two reportable segments: BNC and MBS. In connection with our focus
on developing digital solutions, during the fourth quarter of fiscal year 2018, the Company realigned its business into the following
three reportable segments: BNC, MBS and DSS. Additionally, unallocated shared-service costs, which include various corporate
level expenses and other governance functions, are presented as “Corporate Services”.
BNC Segment
The BNC Segment is comprised of the operations of BNC which operates 768 physical campus bookstores, the majority of
which also have school-branded e-commerce sites operated by BNC and which offers students access to affordable course materials
and affinity products, including emblematic apparel and gifts. BNC also offers its First Day™ inclusive access program, in which
course materials, including e-content, are offered at a reduced price through a course materials fee, and delivered to students
digitally on or before the first day of class. Additionally, the BNC segment offers a suite of digital content, software, and services
to colleges and universities through our LoudCloud platform, such as predictive analytics, a variety of open educational resources
courseware, and a competency-based learning platform.
MBS Segment
The MBS Segment is comprised of MBS's two highly integrated businesses: MBS Direct which operates 676 virtual bookstores
for college and university campuses, and K-12 schools, and MBS Wholesale which is one of the largest textbook wholesalers in
the country. MBS Wholesale's business centrally sources and sells new and used textbooks to more than 3,500 physical college
bookstores, including BNC’s 768 campus bookstores. MBS Wholesale sells hardware and a software suite of applications that
provides inventory management and point-of-sale solutions to approximately 430 college bookstores.
DSS Segment
The Digital Student Solutions ("DSS") segment includes direct-to-student product and service offerings to assist students to
study more effectively and improve academic performance, thus enabling them to gain the valuable skills necessary to succeed
after college. DSS is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing
services business, with approximately 100,000 subscribers across its digital properties, as well as tutoring and test prep services
offered through our partnership with The Princeton Review. We currently offer these online student services directly to students,
and increasingly will be leveraging our BNC and MBS physical and virtual bookstore footprint to market directly to students
where we serve as the campus bookstore. We continue to aggressively expand our ecosystem of products and services through our
own internal development, as well as by partnering with other companies to provide a complete hub of products and services
designed to improve student success and outcomes.
Corporate Services represent unallocated shared-service costs which include corporate level expenses and other governance
functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources.
Seasonality
Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various
schools' semesters, as well as shifts in fiscal calendar dates. These shifts in timing may affect the comparability of our results
across periods. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April.
For our retail operations (BNC and MBS Direct), sales are generally highest in the second and third fiscal quarters, when
students generally purchase and rent textbooks, and lowest in the first and fourth fiscal quarters. Sales attributable to our MBS
Wholesale business are generally highest in our first, second and third quarter, as it sells textbooks for retail distribution. Student
Brands' sales and operating profit are realized relatively consistently throughout the year.
Trends and Other Factors Affecting Our Business
For a discussion of our trends and other factors affecting our business, see Part I - Item 1. Business - Overview - Trends,
Competition and Other Business Conditions Affecting Our Business.
37
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, used and digital textbooks, and at college
and university bookstores which we operate, we sell emblematic apparel and gifts, trade books, computer products, school and
dorm supplies, convenience and café items and graduation products. Our rental income is primarily derived from the rental of
physical textbooks. We also derive revenue from other sources, such as sales of inventory management, hardware and point-of-
sale software, direct-to-student subscription-based writing services, and other services.
Our cost of sales primarily include costs such as merchandise costs, textbook rental amortization, payroll costs, as well as
warehouse costs related to inventory management and order fulfillment, and management service agreement costs, including rent
expense, related to our college and university contracts and 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 merchandising, procurement,
field support, finance and accounting, and costs related to our direct-to-student subscription-based writing services business.
Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses
and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services as
discussed in the Overview - Segment discussion above.
Reclassifications
Prior to the fourth quarter of fiscal year 2018, we had two reportable segments: BNC and MBS. In connection with our focus
on developing digital solutions, during the fourth quarter of fiscal year 2018, the Company realigned its business into the following
three reportable segments: BNC, MBS and DSS. Additionally, unallocated shared-service costs, which include various corporate
level expenses and other governance functions, are presented as “Corporate Services”. Shared corporate overhead costs previously
allocated to MBS prior to the fourth quarter of fiscal year 2018 have been reclassified and are included in selling and administrative
expenses in the BNC segment or Corporate Services.
Our consolidated financial statements reflect the following reclassifications for consistency with the current year presentation:
1) Cost of Sales expenses primarily related to facility costs and insurance related to corporate services have been reclassified to
Selling and Administrative Expenses; and 2) For our digital rental products, we have reclassified Rental Income to Product Sales
and Other, and have reclassified Rental Cost of Sales to Product and Other Cost of Sales, with no impact to Gross Margin. Digital
rental revenue and digital rental cost of sales are recognized at the time of delivery and are not deferred over the rental period.
Prior periods presented reflect the segment presentation and reclassifications. For additional information, see Item 8. Financial
Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
Basis of Consolidation
Fiscal 2018
For our Fiscal 2018 (52 weeks ended April 28, 2018), the results of operations for the entire 52 weeks ended April 28, 2018
reflected in our consolidated financial statements are presented on a consolidated basis. On August 3, 2017, we acquired Student
Brands ("Student Brands"). The consolidated financial statements for the 52 weeks ended April 28, 2018 include the financial
results of Student Brands from the acquisition date, August 3, 2017, to April 28, 2018. Subsequent to the acquisition date, the
consolidated financial statements include the accounts of Student Brands and all material intercompany accounts and transactions
have been eliminated in consolidation.
Fiscal 2017
For our Fiscal 2017 (52 weeks ended April 29, 2017), the results of operations for the entire 52 weeks ended April 29, 2017
reflected in our consolidated financial statements are presented on a consolidated basis. On February 27, 2017, we acquired MBS
Textbook Exchange, LLC ("MBS"). The consolidated financial statements for the 52 weeks ended April 29, 2017 include the
financial results of MBS from the acquisition date, February 27, 2017, to April 29, 2017. Subsequent to the acquisition date, the
consolidated financial statements include the accounts of MBS and all material intercompany accounts and transactions have been
eliminated in consolidation.
38
Fiscal 2016
On August 2, 2015, we completed the legal separation ("Spin-Off") from Barnes & Noble, Inc., at which time we began to
operate as an independent publicly-traded company. For the results of operations for the 13 weeks ended August 1, 2015 (first
quarter of Fiscal 2016), 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, Inc. Subsequent to the Spin-Off, 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, Inc. under various agreements. For additional information, see Part II - Item 8. Financial Statements and
Supplementary Data - Note 10. Barnes & Noble, Inc. Transactions.
Results of Operations - Summary
Dollars in thousands
Sales:
2018
Fiscal Year
2017
2016
Product sales and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,984,472
$ 1,641,881
$ 1,581,104
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
219,145
232,481
226,925
Total sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,203,617
$ 1,874,362
$ 1,808,029
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(252,566)
Adjusted Earnings (non-GAAP) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
56,949
Adjusted EBITDA (non-GAAP) (a)
BNC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
87,493
54,598
7,559
(22,166)
(724)
126,760
$
$
$
$
5,361
12,347
107,847
(3,569)
—
(25,373)
(637)
78,268
$
$
$
$
84
15,462
108,252
—
—
(27,724)
—
80,528
(a) Adjusted Earnings and Adjusted EBITDA are a non-GAAP financial measures. See Adjusted Earnings (non-GAAP) and
Adjusted EBITDA (non-GAAP) discussion below.
Store Count
Fiscal 2018
Fiscal 2017
BNC Stores
MBS Direct
Stores
BNC Stores
MBS Direct
Stores
Fiscal 2016
BNC
Stores
Opened at beginning of period . .
Opened . . . . . . . . . . . . . . . . . . . .
Closed . . . . . . . . . . . . . . . . . . . . .
Opened at end of period . . . . . . .
Comparable store sales (a) . . . . . . .
769
33
34
768
(4.1)%
712
21
57
676
N/A
751
38
20
769
(3.5)%
700
15
3
712
N/A
724
39
12
751
(1.9)%
(a) Effective Fiscal 2017, BNC comparable store sales includes sales from stores that have been open for an entire fiscal year
period, does not include sales from closed stores for all periods presented, and digital agency sales are included on a gross
basis. We believe the current comparable store sales calculation method better reflects the manner in which management
views comparable sales, as well as the seasonal nature of our business. Prior year comparable store sales have been updated
to exclude store inventory sales to MBS, which are reflected as intercompany inventory transfers since the acquisition. For
Fiscal 2016, BNC comparable store sales included sales from stores that were open for at least 15 months, excluded sales
from closed stores for all periods presented, and included digital agency sales on a net basis.
39
The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales:
Sales:
Product sales and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90.1 %
9.9
100.0
87.6%
12.4
100.0
87.4%
12.6
100.0
Fiscal 2018
Fiscal 2017
Fiscal 2016
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 (non-cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transactions costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76.7
56.4
74.7
25.3
19.7
3.0
14.2
0.2
0.1
78.0
57.8
75.5
24.5
20.3
2.8
—
0.1
0.5
77.5
56.6
74.9
25.1
20.7
2.9
0.7
0.5
0.1
Operating (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11.9)%
0.7%
0.2%
(a) Represents the percentage these costs bear to the related sales, instead of total sales.
40
Results of Operations - 52 weeks ended April 28, 2018 compared with the 52 weeks ended April 29, 2017
Dollars in thousands
Sales:
Product sales and other . . . $
Rental income . . . . . . . . . .
Total sales . . . . . . . . . .
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 . . . . .
BNC
MBS (a)
DSS (b)
Corporate
Services
Eliminations (c)
Total
52 weeks ended, April 28, 2018
1,602,887
$
453,580
$
15,762
$
— $
(87,757) $
1,984,472
213,196
1,816,083
1,254,392
120,482
1,374,874
441,209
5,949
459,529
354,969
3,215
358,184
101,345
353,716
50,020
53,737
6,406
—
15,762
359
—
359
15,403
7,844
5,253
—
—
—
—
—
—
—
219,145
(87,757)
2,203,617
(87,033)
1,522,687
—
123,697
(87,033)
1,646,384
(724)
557,233
22,166
190
—
—
(724)
44,919
Impairment loss (non-cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(22,356) $
33,756
2,306
$
$
$
Sub-Total: $
Restructuring and other
charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
433,746
65,586
57,901
313,130
5,429
2,045
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(262,703)
BNC
MBS (a)
DSS (b)
Corporate
Services
Eliminations (c)
Total
52 weeks ended, April 29, 2017
1,614,002
$
33,169
$
— $
— $
(5,290) $
1,641,881
Dollars in thousands
Sales:
Product sales and other . . . $
Rental income . . . . . . . . . .
Total sales . . . . . . . . . .
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 . . . . .
231,559
1,845,561
1,256,673
133,938
1,390,611
454,950
347,103
52,067
922
34,091
29,023
320
29,343
4,748
8,317
1,059
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25,373
192
(637)
Impairment loss (non-cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25,565) $
(4,628) $
55,780
— $
$
Sub-Total: $
Restructuring and other
charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(a) On February 27, 2017, we acquired MBS. The consolidated financial statements for the 52 weeks ended April 29, 2017 include
the financial results of MBS from the acquisition date, February 27, 2017, to April 29, 2017.
41
—
232,481
(5,290)
1,874,362
(4,653)
1,281,043
—
(4,653)
(637)
—
—
134,258
1,415,301
459,061
380,793
53,318
24,950
—
1,790
9,605
13,555
(b) We acquired Student Brands, LLC on August 3, 2017. The consolidated financial statements for the 52 weeks ended April
28, 2018 include the financial results of Student Brands from the acquisition date, August 3, 2017, to April 28, 2018.
(c) For additional information related to the intercompany activities and eliminations, see Part II - Item 8. Financial Statements
and Supplementary Data - Note 4. Acquisitions and Note 5. Segment Reporting.
Sales
The following table summarizes our sales for the 52 weeks ended April 28, 2018 and April 29, 2017:
Dollars in thousands
Product sales and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 28,
2018
52 weeks ended
April 29,
2017
$
$
1,984,472
219,145
2,203,617
$
$
1,641,881
232,481
1,874,362
%
20.9%
(5.7)%
17.6%
Our total sales increased $329.3 million, or 17.6%, to $2,203.6 million during the 52 weeks ended April 28, 2018 from $1,874.4
million during the 52 weeks ended April 29, 2017. Sales increased primarily due to the acquisition of MBS ($425.4 million) and
Student Brands ($15.8), partially offset by BNC comparable sales declines primarily due to primarily by lower average selling
prices of course materials driven by lower publisher prices resulting from a shift to lower cost options and more affordable solutions,
including digital, lower student enrollment, specifically in two-year community colleges, increased consumer purchases directly
from publishers and other online providers, and the general weakness in the retail environment.
The components of the variances are reflected in the table below.
Sales variances
Dollars in millions
MBS Sales (a)
Wholesale . . . . . . . . . . . . . . . . . . . .
Direct . . . . . . . . . . . . . . . . . . . . . . .
MBS Sales subtotal:
BNC Sales
New stores. . . . . . . . . . . . . . . . . . . .
Closed stores . . . . . . . . . . . . . . . . . .
Comparable stores. . . . . . . . . . . . . .
Textbook rental deferral . . . . . . . . .
Service revenue (b). . . . . . . . . . . . . .
Other (c) . . . . . . . . . . . . . . . . . . . . . .
BNC Sales subtotal:
DSS Sales (d). . . . . . . . . . . . . . . . . .
Eliminations (e) . . . . . . . . . . . . . . . . . . .
Total sales variance . . . . . . . . . . .
$
$
$
$
$
$
$
52 weeks ended
April 28,
2018
April 29,
2017
236.9
$
188.5
425.4
$
64.4
$
(12.1)
(69.8)
1.3
2.9
(16.2)
(29.5) $
15.8
$
(82.4) $
329.3
$
14.1
20.0
34.1
109.5
(23.8)
(60.2)
0.6
5.8
5.6
37.5
—
(5.3)
66.3
(a) Represents sales for MBS for the 52 weeks ended April 28, 2018.
(b) Service revenue includes Promoversity, brand partnerships, shipping and handling, LoudCloud digital content, software, and
services, and revenue from other programs.
(c) Other includes inventory liquidation sales to third parties, and certain accounting adjusting items related to return reserves,
agency sales and other deferred items.
(d) DSS revenue includes Student Brands, LLC subscription-based writing services business. The consolidated financial
statements for the 52 weeks ended April 28, 2018 include the financial results of Student Brands, LLC from the date of
acquisition, August 3, 2017. All material intercompany accounts and transactions have been eliminated in consolidation.
(e) Eliminates MBS sales to BNC and BNC commissions earned from MBS. See Part II - Item 8. Financial Statements and
Supplementary Data - Note 5. Segment Reporting for a discussion of intercompany activities and eliminations.
42
BNC
BNC total sales decreased $29.5 million, or 1.6%, to $1,816.1 million during the 52 weeks ended April 28, 2018 from $1,845.6
million during the 52 weeks ended April 29, 2017. BNC added 33 new stores and closed 34 stores during the 52 weeks ended
April 28, 2018, ending the period with a total of 768 stores.
Comparable store sales variances for BNC by category for the 52 week periods are as follows:
Comparable Store Sales variances for BNC
52 weeks ended
Dollars in millions
Textbooks (Course Materials) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Comparable Store Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
April 28, 2018
April 29, 2017
(65.6)
1.2
(5.3)
(0.1)
(69.8)
(5.9)% $
(55.7)
0.2 %
(10.2)%
(78.3)%
(0.7)
(3.2)
(0.6)
(4.1)% $
(60.2)
(4.9)%
(0.1)%
(5.8)%
(88.9)%
(3.5)%
Comparable store sales for BNC decreased for the 52 weeks ended April 28, 2018 and were impacted primarily by lower
average selling prices of course materials driven by lower publisher prices resulting from a shift to lower cost options and more
affordable solutions, including digital. Comparable store sales were also impacted by lower student enrollment, specifically in
two-year community colleges, increased consumer purchases directly from publishers and other online providers, and other recent
negative retail trends. The components of the variances are reflected in the table above.
Textbook revenue for BNC for the 52 weeks ended April 28, 2018 decreased primarily due to lower new and used textbook
sales and rentals as discussed above, while eTextbook revenue increased. General merchandise sales for BNC increased for the
52 weeks ended April 28, 2018 primarily due to higher emblematic apparel and graduation products sales, partially offset by a
decrease in school supplies, computer and convenience product sales.
Rental income for BNC for the 52 weeks ended April 28, 2018 decreased by $18.4 million, or 7.9%. The decrease in rental
income for the 52 weeks ended April 28, 2018 is due to decreased rental activity and increased digital offerings.
MBS
MBS total sales increased by $425.4 million to $459.5 million during the 52 weeks ended April 28, 2018 from $34.1 million
which represents sales for MBS from the acquisition date, February 27, 2017, to April 29, 2017.
Cost of Sales and Gross Margin
Our cost of sales decreased as a percentage of sales to 74.7% during the 52 weeks ended April 28, 2018 compared to 75.5%
during the 52 weeks ended April 29, 2017. Our gross margin increased $98.2 million, or 21.4%, to $557.2 million, or 25.3% of
sales, during the 52 weeks ended April 28, 2018 from $459.1 million, or 24.5% of sales, during the 52 weeks ended April 29,
2017.
BNC
The following table summarizes the BNC cost of sales for the 52 weeks ended April 28, 2018 and April 29, 2017:
Dollars in thousands
Product and other cost of sales . . . . . . . . . . . . . . . . . .
Rental cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
52 weeks ended
52 weeks ended
April 28,
2018
1,254,392
120,482
1,374,874
% of
Related Sales
78.3%
56.5%
75.7%
April 29,
2017
1,256,673
133,938
1,390,611
$
$
% of
Related Sales
77.9%
57.8%
75.3%
The following table summarizes the BNC gross margin for the 52 weeks ended April 28, 2018 and April 29, 2017:
Dollars in thousands
Product and other gross margin . . . . . . . . . . . . . . . . .
Rental gross margin . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52 weeks ended
52 weeks ended
April 28,
2018
% of
Related Sales
April 29,
2017
% of
Related Sales
$
$
348,495
92,714
441,209
21.7%
43.5%
24.3%
$
$
357,329
97,621
454,950
22.1%
42.2%
24.7%
43
For the 52 weeks ended April 28, 2018, the BNC gross margin as a percentage of sales decreased as discussed below:
• Product and other gross margin decreased (40 basis points) due to lower margin rates (35 bps), specifically for general
merchandise and used textbooks, which were impacted by publisher price decreases and lower sales of underutilized
inventory to third parties compared to the prior year due to inventory transfers to MBS, and an unfavorable sales mix (5
basis points).
• Rental gross margin increased (130 basis points), driven primarily by higher rental margin rates (140 basis points) and
favorable sales mix (10 basis points), partially offset by increased costs related to our college and university contracts (15
basis points) resulting from contract renewals and new store contracts.
MBS
The cost of sales and gross margin for MBS was $358.2 million or 77.9% of sales and $101.3 million or 22.1% of sales,
respectively, during the 52 weeks ended April 28, 2018. The cost of sales and gross margin for MBS was $29.3 million or 86.1%
of sales and $4.7 million or 13.9% of sales, respectively, during the 52 weeks ended April 29, 2017. The consolidated financial
statements for the 52 weeks ended April 29, 2017 include the financial results of MBS from the acquisition date, February 27,
2017, to April 29, 2017.
The margin was impacted by the incremental cost of sales of $3.3 million related to recording MBS inventory at fair value
as of the acquisition date. The non-cash fair value inventory adjustment of $3.3 million for MBS was recognized over six months
from the date of acquisition and was allocated based on monthly sales. Excluding the $3.3 million inventory fair value amortization,
cost of sales and gross margin for MBS was $354.9 million or 77.2% of sales and $104.6 million or 22.8% of sales, respectively,
during the 52 weeks ended April 28, 2018.
DSS
Gross margin for the DSS segment was $15.4 million driven primarily by high margin Student Brands subscription service
revenue earned from Student Brands acquisition date, August 3, 2017 to April 28, 2018. Operating costs for the Student Brands
are recorded as selling and administrative expenses.
Intercompany Eliminations
During the 52 weeks ended April 28, 2018 and April 29, 2017, our sales eliminations were $87.7 million and $5.3 million,
respectively. These sales eliminations represent the elimination of MBS sales to BNC and the elimination of BNC commissions
earned from MBS.
During the 52 weeks ended April 28, 2018 and April 29, 2017, the cost of sales eliminations were $87.0 million and $4.7
million, respectively. These cost of sales eliminations represent (i) the recognition of intercompany profit for BNC inventory that
was purchased from MBS in a prior period that was subsequently sold to external customers during the current period, net of (ii)
the elimination of intercompany profit for MBS inventory purchases by BNC that remain in ending inventory at the end of the
current period.
The $0.7 million and $0.6 million of gross margin elimination reflects the net impact of the sales eliminations and cost of
sales eliminations during the 52 weeks ended April 28, 2018 and April 29, 2017, respectively.
Selling and Administrative Expenses
Dollars in thousands
Selling and Administrative Expenses . . . . . . . . . . . . .
52 weeks ended
52 weeks ended
April 28,
2018
$
433,746
% of
Sales
19.7%
April 29,
2017
$
380,793
% of
Sales
20.3%
During the 52 weeks ended April 28, 2018, selling and administrative expenses increased by $53.0 million, or 13.9%, to
$433.7 million from $380.8 million during the 52 weeks ended April 29, 2017. This increase was primarily due to the acquisition
of MBS ($41.7 million increase) and DSS ($7.8 million increase). Shared corporate overhead costs previously allocated to MBS
prior to the fourth quarter of fiscal year 2018 have been reclassified and are included in selling and administrative expenses in the
BNC segment or Corporate Services.
For the BNC segment, selling and administrative expenses increased by $6.6 million, or 1.9%, to $353.7 million from $347.1
million during the 52 weeks ended April 29, 2017. The increase was primarily due a $5.7 million increase in new store payroll
and operating expenses (net of closed stores), as a result of a $52.3 million increase in new store sales (net of closed stores), and
an increase of $6.6 million in corporate payroll and infrastructure costs, including increased costs associated with Promoversity
and LoudCloud digital operations. These increases were partially offset by a $5.7 million decrease in comparable store payroll
and operating expenses.
44
For the MBS segment, selling and administrative expenses were $50.0 million, or 10.9% of related sales, compared to $8.3
million, or 24.4% of related sales, during the 52 weeks ended April 29, 2017, which includes the financial results of MBS from
the acquisition date, February 27, 2017 to April 29, 2017, their lowest selling period during the fiscal year.
For the DSS segment, selling and administrative expenses were $7.8 million, or 49.8% of sales during the 52 weeks ended
April 28, 2018, which includes the financial results of Student Brands from the acquisition date, August 3, 2017 to April 28, 2018.
Corporate Services' selling and administrative expenses decreased by $3.2 million, or 12.6%, to $22.2 million during the 52
weeks ended April 28, 2018 from $25.4 million during the 52 weeks ended April 29, 2017. The decrease was primarily due to
savings related to the combining the Chairman and CEO position effective in the second quarter of fiscal year 2018, lower stock-
based compensation and bonus expense.
Depreciation and Amortization Expense
Dollars in thousands
Depreciation and Amortization Expense . . . . . . . . . .
52 weeks ended
52 weeks ended
April 28,
2018
$
65,586
% of
Sales
3.0%
April 29,
2017
$
53,318
% of
Sales
2.8%
Depreciation and amortization expense increased $12.3 million, or 23.0%, to $65.6 million during the 52 weeks ended April 28,
2018 from $53.3 million during the 52 weeks ended April 29, 2017. This increase was primarily attributable to incremental
depreciation and amortization expense resulting from the acquisitions of MBS and Student Brands associated with the property
and equipment and identified intangibles recorded at fair value as of the respective acquisition dates and additional capital
expenditures for BNC.
Impairment loss (non-cash)
We completed our annual goodwill impairment test as of the first day of the third quarter of Fiscal 2018. 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. We estimated the fair value of our reporting units using a weighting of fair values derived from
the income approach and the market approach. Based on the results of the test, we recorded a goodwill impairment (non-cash
impairment loss) of $313.1 million. For information, see Part II - Item 8. Financial Statements and Supplementary Data - Note
2. Summary of Significant Accounting Policies.
Restructuring and other charges
Restructuring
In Fiscal 2016, we implemented a plan to restructure our digital education operations and we announced a reduction in staff
and closure of the facilities in Mountain View, California, and Redmond, Washington, which was completed during the first quarter
of Fiscal 2017. We recorded restructuring costs of $1.8 million during the 52 weeks ended April 29, 2017.
Other Charges
On July 19, 2017, Mr. Max J. Roberts resigned as Chief Executive Officer of the Company and Mr. Michael P. Huseby was
appointed to the position of Chief Executive Officer and Chairman of the Board, both effective as of September 19, 2017. During
the 52 weeks ended April 28, 2018, we recognized expenses totaling approximately $5.4 million, which is comprised of the
severance and transition payments as well as related expenses. For additional information, see Part II - Item 8. Financial Statements
and Supplementary Data - Note 9. Supplementary Information or the Form 8-K dated July 19, 2017, filed with the SEC on July
20, 2017.
Transaction Costs
Transaction costs were $2.0 million during the 52 weeks ended April 28, 2018 compared to $9.6 million during the 52 weeks
ended April 29, 2017. We incur transaction costs for business development and acquisitions. For additional information related to
our recent acquisitions, see Part II - Item 8. Financial Statements and Supplementary Data - Note 4. Acquisitions.
Operating (Loss) Income
Dollars in thousands
Operating (Loss) Income . . . . . . . . . . . . . . . . . . . . . .
52 weeks ended
52 weeks ended
April 28,
2018
$
(262,703)
% of
Sales
(11.9)%
April 29,
2017
$
13,555
% of
Sales
0.7%
Our operating loss was $262.7 million during the 52 weeks ended April 28, 2018 compared to operating income of $13.6 million
during the 52 weeks ended April 29, 2017. This decrease was due to the matters discussed above. For the 52 weeks ended April
28, 2018, excluding the $313.1 million of goodwill impairment, the $3.3 million of incremental cost of sales related to amortization
45
of the MBS inventory fair value adjustment, the restructuring and other charges of $5.4 million and transaction costs of $2.0
million, all discussed above, operating income was $61.2 million (or 2.8% of sales). For the 52 weeks ended April 29, 2017,
excluding the restructuring costs and other charges of $1.8 million and the transaction costs of $9.6 million, discussed above,
operating income was $25.0 million (or 1.3% of sales).
Interest Expense, Net
Dollars in thousands
Interest Expense, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
April 28, 2018
April 29, 2017
10,306
$
3,464
Net interest expense increased by $6.8 million to $10.3 million during the 52 weeks ended April 28, 2018 from $3.5 million
during the 52 weeks ended April 29, 2017 primarily due to increased borrowings as a result of acquisitions, as well as higher
commitment fees for the fully year in Fiscal 2018 under the Credit Facility and FILO Facility which was entered into during Fiscal
2017.
52 weeks ended
Income Tax Expense
Dollars in thousands
Income Tax (Benefit) Expense. . . . . . . . . . . . . . . . . .
52 weeks ended
52 weeks ended
April 28,
2018
$
(20,443)
Effective Rate
7.5%
April 29,
2017
$
4,730
Effective Rate
46.9%
We recorded an income tax benefit of $(20.4) million on a pre-tax loss of $(273.0) million during the 52 weeks ended April 28,
2018, which represented an effective income tax rate of 7.5% and an income tax expense of $4.7 million on pre-tax income of
$10.1 million during the 52 weeks ended April 29, 2017, which represented an effective income tax rate of 46.9%.
The effective tax rate for Fiscal 2018 is significantly lower as compared to the comparable prior year periods due to the tax
benefit of the Tax Cuts and Jobs Act (the "Tax Legislation"), which lowered the U.S. statutory tax rate from 35% to 21% effective
January 1, 2018. The combined benefit of our pre-tax book loss, plus the reduced U.S. income tax rate was partially offset by
permanent differences, which includes the nondeductible portion of the goodwill impairment.
As expected, nondeductible compensation expense for Fiscal 2018 was significantly lower compared to the prior fiscal year
as components of our executive compensation program qualified as deductible under Section 162(m) of the Internal Revenue
Code. In addition, our income tax provision for the preceding two fiscal years reflected certain non-recurring tax benefits arising
from the Spin-Off. These benefits did not impact the current fiscal year and the Company does not expect any similar non-recurring
tax benefits associated with the Spin-Off to impact our effective tax rate in future fiscal years and nondeductible compensation
expense may increase because of changes to Section 162(m) of the Internal Revenue Code.
Impact of U.S. Tax Reform
The Tax Legislation was enacted on December 22, 2017. The Tax Legislation reduces the U.S. federal corporate tax rate from
35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously
tax deferred, among other provisions. As of April 28, 2018, we had not completed the accounting for the tax effects of enactment
of the Act; however, as described below, we have made a reasonable estimate of the effects on existing deferred tax balances and
the one-time transition tax in accordance with SAB 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB
118). These amounts are provisional and subject to change within the measurement period proscribed by SAB 118 which is not
to extend beyond one year from the enactment date. The most significant impact of the legislation for the Company was a $20.4
million reduction of the value of our net deferred (which represents future tax liabilities) and long-term tax liabilities as a result
of lowering the U.S. corporate income tax rate from 35% to 21%. We have provisionally recorded a liability associated with the
one-time transition tax, however, such amount is not material.
Net (Loss) Income
Dollars in thousands
Net (Loss) Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
April 28, 2018
April 29, 2017
(252,566) $
5,361
As a result of the factors discussed above, we reported net loss of $(252.6) million during the 52 weeks ended April 28, 2018,
compared with net income of $5.4 million during the 52 weeks ended April 29, 2017. Adjusted Earnings (non-GAAP) is $56.9
million during the 52 weeks ended April 28, 2018, compared with $12.3 million during the 52 weeks ended April 29, 2017. See
Adjusted Earnings (non-GAAP) discussion below.
52 weeks ended
46
Results of Operations - 52 weeks ended April 29, 2017 compared with the 52 weeks ended April 30, 2016
Dollars in thousands
Sales:
Product sales and other . . . $
Rental income . . . . . . . . . .
Total sales . . . . . . . . . .
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 . . . . .
BNC
MBS (a)
DSS
Corporate
Services
Eliminations (b)
Total
52 weeks ended, April 29, 2017
1,614,002
$
33,169
$
— $
— $
(5,290) $
1,641,881
231,559
1,845,561
1,256,673
133,938
1,390,611
454,950
347,103
52,067
922
34,091
29,023
320
29,343
4,748
8,317
1,059
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25,373
192
—
232,481
(5,290)
1,874,362
(4,653)
1,281,043
—
(4,653)
(637)
—
—
(637)
Impairment loss (non-cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25,565) $
(4,628) $
55,780
— $
$
Sub-Total: $
Restructuring and other
charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Dollars in thousands
Sales:
Product sales and other . . . $
Rental income . . . . . . . . . .
Total sales . . . . . . . . . .
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 . . . . .
BNC
MBS (a)
DSS
Corporate
Services
Eliminations (b)
Total
52 weeks ended, April 30, 2016
1,581,104
$
— $
— $
— $
— $
1,581,104
226,925
1,808,029
1,224,927
128,403
1,353,330
454,699
346,447
52,564
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
27,724
126
—
—
—
—
—
—
—
—
—
Impairment loss (non-cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27,850) $
55,688
— $
— $
$
Sub-Total: $
Restructuring and other
charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(a) On February 27, 2017, we acquired MBS. The consolidated financial statements for the 52 weeks ended April 29, 2017 include
the financial results of MBS from the acquisition date, February 27, 2017, to April 29, 2017.
47
134,258
1,415,301
459,061
380,793
53,318
24,950
—
1,790
9,605
13,555
226,925
1,808,029
1,224,927
128,403
1,353,330
454,699
374,171
52,690
27,838
11,987
8,830
2,398
4,623
(b) For additional information related to the intercompany activities and eliminations, see Part II - Item 8. Financial Statements
and Supplementary Data - Note 4. Acquisitions and Note 5. Segment Reporting.
Sales
The following table summarizes our sales for the 52 weeks ended April 29, 2017 and April 30, 2016:
Dollars in thousands
Product sales and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 29,
2017
52 weeks ended
April 30,
2016
$
$
1,641,881
232,481
1,874,362
$
$
1,581,104
226,925
1,808,029
%
3.8%
2.4%
3.7%
Our total sales increased $66.3 million, or 3.7%, to $1,874.4 million during the 52 weeks ended April 29, 2017 from $1,808.0
million during the 52 weeks ended April 30, 2016.
The components of the variances are reflected in the table below.
Sales variances
Dollars in millions
MBS Sales (a)
Wholesale . . . . . . . . . . . . . . . . . . . .
Direct . . . . . . . . . . . . . . . . . . . . . . .
MBS Sales subtotal:
BNC Sales
New stores. . . . . . . . . . . . . . . . . . . .
Closed stores . . . . . . . . . . . . . . . . . .
Comparable stores. . . . . . . . . . . . . .
Textbook rental deferral . . . . . . . . .
Service revenue (b). . . . . . . . . . . . . .
Other (c) . . . . . . . . . . . . . . . . . . . . . .
BNC Sales subtotal:
Eliminations (d) . . . . . . . . . . . . . . . . . . .
Total sales variance . . . . . . . . . . .
$
$
$
$
$
$
52 weeks ended
14.1
20.0
34.1
109.5
(23.8)
(60.2)
0.6
5.8
5.6
37.5
(5.3)
66.3
(a) Represents sales for MBS from the acquisition date, February 27, 2017, to April 29, 2017. See MBS discussion below.
(b) Service revenue includes Promoversity, brand partnerships, shipping and handling, LoudCloud digital content, software, and
services, and revenue from other programs.
(c) Other includes inventory liquidation sales to third parties, and certain accounting adjusting items related to return reserves,
agency sales and other deferred items.
(d) Eliminates MBS sales to BNC and BNC commissions earned from MBS. See Part II - Item 8. Financial Statements and
Supplementary Data - Note 5. Segment Reporting for a discussion of intercompany activities and eliminations.
BNC
BNC total sales increased $37.5 million, or 2.1%, to $1,845.6 million during the 52 weeks ended April 29, 2017 from $1,808.0
million during the 52 weeks ended April 30, 2016.
BNC added 38 new stores and closed 20 stores during the 52 weeks ended April 29, 2017, ending the period with a total of
769 stores.
48
Comparable store sales variances for BNC by category for the 52 week periods are as follows:
Comparable Store Sales variances for BNC
Dollars in millions
Textbooks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Comparable Store Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52 weeks ended
April 29, 2017
$
$
(55.7)
(0.7)
(3.2)
(0.6)
(60.2)
(4.9)%
(0.1)%
(5.8)%
(88.9)%
(3.5)%
Comparable store sales for BNC decreased for the 52 weeks ended April 29, 2017 and were negatively impacted primarily
by lower student enrollment, specifically in two-year community colleges, increased consumer purchases directly from publishers
and other online providers, and other recent negative retail trends. The components of the variances are reflected in the table above.
New and used textbook revenue for BNC for the 52 weeks ended April 29, 2017 decreased primarily due to lower new and
used textbook sales, while eTextbook revenue increased due to expanded eTextbook title offerings. General merchandise sales for
BNC decreased for the 52 weeks ended April 29, 2017 primarily due to lower computer product, school supplies and convenience
sales, partially offset by higher emblematic apparel sales.
Rental income for BNC for the 52 weeks ended April 29, 2017 increased $4.6 million, or 2.0%. The increase in rental income
for the 52 weeks ended April 29, 2017 was primarily due to increased rental activity.
MBS
MBS sales were $34.1 million and represents sales for MBS from the acquisition date, February 27, 2017 to April 29, 2017.
MBS’s business is highly seasonal. For MBS’s retail operations (virtual bookstores), a major portion of sales and operating profit
are realized during the second and third quarters, when students generally purchase and rent textbooks for the upcoming semesters.
For MBS’s wholesale business, a major portion of sales and operating profit is realized during the first, second and third fiscal
quarters, as it sells textbooks for retail distribution. MBS has significantly lower operating profit or operating loss realized during
the fourth quarter.
Cost of Sales and Gross Margin
Our cost of sales increased as a percentage of sales to 75.5% during the 52 weeks ended April 29, 2017 compared to 74.9%
during the 52 weeks ended April 30, 2016. Our gross margin increased $4.4 million, or 1.0%, to $459.1 million, or 24.5% of sales,
during the 52 weeks ended April 29, 2017 from $454.7 million, or 25.1% of sales, during the 52 weeks ended April 30, 2016.
BNC
The following table summarizes the BNC cost of sales for the 52 weeks ended April 29, 2017 and April 30, 2016:
Dollars in thousands
Product and other cost of sales . . . . . . . . . . . . . . . . . .
Rental cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
52 weeks ended
52 weeks ended
April 29,
2017
1,256,673
133,938
1,390,611
% of
Related Sales
77.9%
57.8%
75.3%
April 30,
2016
1,224,927
128,403
1,353,330
$
$
% of
Related Sales
77.5%
56.6%
74.9%
The following table summarizes the BNC gross margin for the 52 weeks ended April 29, 2017 and April 30, 2016:
Dollars in thousands
Product and other gross margin . . . . . . . . . . . . . . . . .
Rental gross margin . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52 weeks ended
52 weeks ended
April 29,
2017
% of
Related Sales
April 30,
2016
% of
Related Sales
$
$
357,329
97,621
454,950
22.1%
42.2%
24.7%
$
$
356,177
98,522
454,699
22.5%
43.4%
25.1%
49
For the 52 weeks ended April 29, 2017, the BNC gross margin as a percentage of sales decreased due to lower margin rate
and higher costs related to our college and university contracts resulting from contract renewals and new store contracts, partially
offset by a favorable sales mix as discussed below:
• Product and other gross margin decreased (40 basis points), driven primarily by lower margin rates (50 basis points),
primarily related to increased markdowns on textbooks, including the impact of our price-matching program (15 basis
points), and increased costs related to our college and university contracts (25 basis points) resulting from contract renewals
and new store contracts. These decreases were partially offset by improved shrink results (20 basis points) and a favorable
sales mix (15 basis points) resulting from an increase in sales of higher margin general merchandise.
• Rental gross margin decreased (120 basis points), driven primarily by lower rental margin rates (145 basis points), including
the impact of our price-matching program (40 basis points) and increased costs related to our college and university contracts
(20 basis points) resulting from contract renewals and new store contracts. This decrease was partially offset by a favorable
rental mix (40 basis points).
MBS
The cost of sales and gross margin for MBS was $29.3 million or 86.1% and $4.7 million or 13.9%, respectively, from the
acquisition date, February 27, 2017 to April 29, 2017. The MBS gross margin as a percentage of sales is impacted by significantly
lower sales for MBS realized during the fourth quarter (generally February through April) as the majority of the quarter is focused
on purchasing inventory for the upcoming Fall semester, fixed warehouse facility and operation costs, as well as the incremental
cost of sales related to recording MBS inventory at fair value as of the acquisition date.
Intercompany Eliminations
During the 52 weeks ended April 29, 2017, our sales eliminations were $5.3 million. These sales eliminations represent the
elimination of MBS sales to BNC and the elimination of BNC commissions earned from MBS.
During the 52 weeks ended April 29, 2017, the cost of sales eliminations were $4.7 million. These cost of sales eliminations
represent (i) the recognition of intercompany profit for BNC inventory that was purchased from MBS in a prior period that was
subsequently sold to external customers during the current period, net of (ii) the elimination of intercompany profit for MBS
inventory purchases by BNC that remain in ending inventory at the end of the current period.
The $0.6 million of gross margin elimination reflects the net impact of the sales eliminations and cost of sales eliminations
during the 52 weeks ended April 29, 2017.
Selling and Administrative Expenses
Dollars in thousands
Selling and Administrative Expenses . . . . . . . . . . . . .
52 weeks ended
52 weeks ended
April 29,
2017
$
380,793
% of
Sales
20.3%
April 30,
2016
$
374,171
% of
Sales
20.7%
During the 52 weeks ended April 29, 2017, selling and administrative expenses increased $6.6 million, or 1.8%, to $380.8
million from $374.2 million during the 52 weeks ended April 30, 2016. The increase was primarily due to the selling and
administrative expenses for MBS of $8.3 from the acquisition date, February 27, 2017, to April 29, 2017.
BNC's selling and administrative expenses increased by $0.7 million, or 0.2%, to $347.1 million during the 52 weeks ended
April 29, 2017 from $346.4 million during the 52 weeks ended April 30, 2016. The increase was due primarily to a $14.6 million
increase in new store payroll and operating expenses (net of closed stores), as a result of a $85.7 million increase in new store
sales (net of closed stores), and a $3.7 million increase in corporate payroll and infrastructure costs, including increased costs
associated with Promoversity. These increases were partially offset by an $11.2 million net decrease in digital expenses related to
the restructuring of our digital operations (as discussed below), net of increased costs related to our LoudCloud digital operations,
and a $6.4 million decrease in comparable store payroll and operating expenses.
Corporate Services' selling and administrative expenses decreased by $2.4 million, or 8.5%, to $25.4 million during the 52
weeks ended April 29, 2017 from $27.7 million during the 52 weeks ended April 30, 2016. The decrease was primarily due to
lower corporate costs incurred to perform certain corporate service functions that were historically provided by Barnes & Noble,
Inc. prior to the Barnes & Noble, Inc. spin-off in April 2015, partially offset by increased stock-based compensation expense. For
additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 10. Barnes & Noble, Inc.
Transactions.
50
Depreciation and Amortization Expense
Dollars in thousands
Depreciation and Amortization Expense . . . . . . . . . .
52 weeks ended
52 weeks ended
April 29,
2017
$
53,318
% of
Sales
2.8%
April 30,
2016
$
52,690
% of
Sales
2.9%
Depreciation and amortization expense increased $0.6 million, or 1.2%, to $53.3 million during the 52 weeks ended April 29,
2017 from $52.7 million during the 52 weeks ended April 30, 2016. This increase was primarily attributable to incremental
depreciation resulting from recording MBS property and equipment and identified intangibles at fair value as of the acquisition
date and additional capital expenditures for BNC.
Transaction Costs
Transaction costs were $9.6 million during the 52 weeks ended April 29, 2017 compared to $2.4 million during the 52 weeks
ended April 30, 2016. We incur transaction costs for business development and acquisitions. For additional information related to
our recent acquisitions, see Part II - Item 8. Financial Statements and Supplementary Data - Note 4. Acquisitions.
Impairment Loss (non-cash) and Restructuring and Other Charges
In Fiscal 2016, we implemented a plan to restructure our digital operations in our BNC segment. 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, in our BNC segment, we announced a reduction in staff and closure of the facilities in Mountain View, California,
and Redmond, Washington that supported the Yuzu® eTextbook platform. The cost of severance, retention, and other restructuring
costs (i.e. facility exit costs) was $8.8 million and $1.8 million in Fiscal 2016 and Fiscal 2017, respectively. The restructuring was
completed during Fiscal 2017.
Operating Income
Dollars in thousands
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
52 weeks ended
52 weeks ended
April 29,
2017
13,555
% of
Sales
0.7%
April 30,
2016
$
4,623
% of
Sales
0.2%
In Fiscal 2017, our operating income was $13.6 million during the 52 weeks ended April 29, 2017. The increase compared
to Fiscal 2016 was due to the matters discussed above. Excluding the restructuring and other charges of $1.8 million and the
transaction costs of $9.6 million, discussed above, operating income was $25.0 million (or 1.3% of sales). In Fiscal 2016, our
operating income was $4.6 million due to the matters discussed above. Excluding the impairment loss of $12.0 million, restructuring
and other charges of $8.8 million, and transaction costs 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.
Interest Expense, Net
Dollars in thousands
Interest Expense, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
April 29, 2017
April 30, 2016
3,464
$
1,872
Net interest expense increased by $1.6 million to $3.5 million during the 52 weeks ended April 29, 2017 from $1.9 million
during the 52 weeks ended April 30, 2016 primarily due to increased borrowings under the Credit Facility and FILO Facility
entered into during Fiscal 2017. On February 27, 2017, in connection with the acquisition of MBS, we amended our existing credit
agreement to add a new $100 million incremental first in, last out seasonal loan facility, and borrowed approximately $55 million
under the credit facility to fund the acquisition at February 27, 2017.
52 weeks ended
Income Tax Expense
Dollars in thousands
Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . .
$
52 weeks ended
52 weeks ended
April 29,
2017
4,730
Effective Rate
46.9%
April 30,
2016
$
2,667
Effective Rate
96.9%
We recorded an income tax expense of $4.7 million on pre-tax income of $10.1 million during the 52 weeks ended April 29,
2017, which represented an effective income tax rate of 46.9% and 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%.
51
The income tax provision for the 52 weeks ended April 29, 2017 reflects the impact of nondeductible expenses, principally
nondeductible compensation expense, partially offset by state net operating losses benefiting the Company as a result of the Spin-
Off, as well as certain income tax credits. As compared to the 52 weeks ended April 29, 2017, the income tax provision for the
52 weeks ended April 30, 2016 also reflected the non-deductibility of certain impairment amounts referred to in Part II - Item 8.
Financial Statements and Supplementary Data - Note 9. Supplementary Information - Impairment Loss (non-cash) and
Restructuring and Other Charges.
Net Income
Dollars in thousands
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
April 29, 2017
April 30, 2016
5,361
$
84
As a result of the factors discussed above, we reported net income of $5.4 million during the 52 weeks ended April 29, 2017,
compared with net income of $0.1 million during the 52 weeks ended April 30, 2016. Adjusted Earnings (non-GAAP) is $12.3
million during the 52 weeks ended April 29, 2017, compared with $15.5 million during the 52 weeks ended April 30, 2016. See
Adjusted Earnings (non-GAAP) discussion below.
52 weeks ended
Use of Non-GAAP Measures - Adjusted Earnings and Adjusted EBITDA
To supplement our results prepared in accordance with GAAP, we use the measure of Adjusted Earnings and Adjusted EBITDA,
which are non-GAAP financial measures under Securities and Exchange Commission (the “SEC”) regulations. We define Adjusted
Earnings as net income as adjusted for items that are subtracted from or added to net income. We define Adjusted EBITDA as net
income plus (1) depreciation and amortization; (2) interest expense and (3) income taxes, (4) as adjusted for items that are 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, the reconciliation of Adjusted Earnings to net income and the reconciliation of Adjusted EBITDA
to net income, the most directly comparable financial measure presented in accordance with GAAP, set forth in the tables below.
All of the items included in the reconciliations below are either (i) non-cash items or (ii) items that management does not consider
in assessing our on-going operating performance.
These non-GAAP financial measures are not intended as substitutes for and should not be considered superior to measures
of financial performance prepared in accordance with GAAP. In addition, our use of these non-GAAP financial measures may be
different from similarly named measures used by other companies, limiting their usefulness for comparison purposes. These non-
GAAP financial measures should not be considered as alternatives to net income as an indicator of our performance or any other
measures of performance derived in accordance with GAAP.
We review these Non-GAAP financial measures as internal measures to evaluate our performance and manage our operations.
We believe that these measures are useful performance measures which are used by us to facilitate a comparison of our on-going
operating performance on a consistent basis from period-to-period. We believe that these Non-GAAP financial measures provide
for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone, as
they exclude certain items that do not reflect the ordinary earnings of our operations. Our Board of Directors and management
also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance, for evaluating
on a quarterly and annual basis actual results against such expectations, and as a measure for performance incentive plans. We
believe that the inclusion of Adjusted Earnings and Adjusted EBITDA results provides investors useful and important information
regarding our operating results.
52
Adjusted Earnings (non-GAAP)
Dollars in thousands
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Reconciling items, after-tax (below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018
Fiscal 2017
Fiscal 2016
(252,566) $
309,515
5,361
6,986
$
$
84
15,378
15,462
Adjusted Earnings (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
56,949
$
12,347
Reconciling items, pre-tax
Impairment loss (non-cash) (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory valuation amortization (MBS) (non-cash) (a) . . . . . . . . . . . . . .
Restructuring and other charges (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items, pre-tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Pro forma income tax impact (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items, after-tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
313,130
$
— $
11,987
3,273
5,429
2,045
323,877
14,362
—
1,790
9,605
11,395
4,409
309,515
$
6,986
$
—
8,830
2,398
23,215
7,837
15,378
(a) See Management Discussion and Analysis - Results of Operations discussion above.
(b) Represents the income tax effects of the non-GAAP items.
Adjusted EBITDA (non-GAAP)
Dollars in thousands
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018
Fiscal 2017
Fiscal 2016
$
(252,566) $
5,361
$
84
Add:
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss (non-cash) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory valuation amortization (MBS) (non-cash) (a) . . . . . . . . . . . . . .
Restructuring and other charges (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65,586
10,306
(20,443)
313,130
3,273
5,429
2,045
53,318
3,464
4,730
—
—
1,790
9,605
52,690
1,872
2,667
11,987
—
8,830
2,398
$
126,760
$
78,268
$
80,528
(a) See Management Discussion and Analysis - Results of Operations discussion above.
The following is Adjusted EBITDA by segment for Fiscal 2018, Fiscal 2017 and Fiscal 2016.
Adjusted EBITDA - by Segment
Dollars in thousands
Sales . . . . . . . . . . . . . . . . . . . . . .
Cost of sales (a) . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . .
Selling and administrative
expenses. . . . . . . . . . . . . . . . . .
BNC
MBS
$ 1,816,083
$
459,529
$
(1,374,874)
(354,911)
441,209
104,618
FISCAL YEAR 2018
Corporate
Services
DSS
Elimination (a)
Total
15,762
(359)
15,403
$
— $
—
—
(87,757) $ 2,203,617
(1,643,111)
87,033
(724)
560,506
353,716
50,020
7,844
22,166
(22,166) $
—
(724) $
433,746
126,760
Adjusted EBITDA (non-GAAP) .
$
87,493
$
54,598
$
7,559
$
53
—
—
—
—
Adjusted EBITDA - by Segment
Dollars in thousands
Sales . . . . . . . . . . . . . . . . . . . . . .
BNC
MBS
FISCAL YEAR 2017
Corporate
Services
DSS
$ 1,845,561
$
34,091
$
— $
— $
Cost of sales . . . . . . . . . . . . . . . .
(1,390,611)
(29,343)
Gross profit . . . . . . . . . . . . . . . . .
454,950
Selling and administrative
expenses. . . . . . . . . . . . . . . . . .
347,103
4,748
8,317
—
—
—
Adjusted EBITDA (non-GAAP) .
$
107,847
$
(3,569) $
— $
Elimination (a)
Total
Fiscal 2017
(5,290) $ 1,874,362
(1,415,301)
4,653
(637)
459,061
25,373
(25,373) $
—
(637) $
380,793
78,268
Adjusted EBITDA - by Segment
FISCAL YEAR 2016
Dollars in thousands
Sales . . . . . . . . . . . . . . . . . . . . . .
BNC
MBS
DSS
Corporate
Services
Elimination (a)
Total
Fiscal 2016
$ 1,808,029
$
— $
— $
— $
Cost of sales . . . . . . . . . . . . . . . .
(1,353,330)
Gross profit . . . . . . . . . . . . . . . . .
454,699
Selling and administrative
expenses. . . . . . . . . . . . . . . . . .
346,447
—
—
—
—
—
—
Adjusted EBITDA (non-GAAP) .
$
108,252
$
— $
— $
— $ 1,808,029
— (1,353,330)
454,699
—
27,724
(27,724) $
—
374,171
— $
80,528
(a) For the 52 weeks ended April 28, 2018, gross margin excludes $3.3 million of incremental cost of sales related to amortization
of the MBS inventory fair value adjustment recorded as of the acquisition date, February 27, 2017. See Management Discussion
and Analysis - Results of Operations discussion above.
Liquidity and Capital Resources
Our primary sources of cash are net cash flows from operating activities, funds available under a credit agreement and short-
term vendor financing. As of April 28, 2018, we had a total of $196.4 million of outstanding borrowings under the BNED Credit
Facility and FILO Facility. See Financing Arrangements discussion below.
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. During Fiscal 2017, we repurchased 688,948 shares for approximately $6.7 million at a weighted average cost per share
of $10.10. During Fiscal 2018, we did not purchase shares under the stock repurchase program. As of April 28, 2018, approximately
$26.7 million remains available under the stock repurchase program.
During Fiscal 2018, Fiscal 2017 and Fiscal 2016, we also repurchased 260,531 shares, 276,292 shares and 174,511 shares of
our common stock, respectively, in connection with employee tax withholding obligations for vested stock awards.
Sources and Uses of Cash Flow
Dollars in thousands
Fiscal 2018
Fiscal 2017
Fiscal 2016
Cash, cash equivalents, and restricted cash at beginning of period . . . . . . . . . . . . .
$
21,697
$
30,866
$
44,816
Net cash flows provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,042
67,986
83,083
Net cash flows used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(100,032)
(224,438)
(68,744)
Net cash flows provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . .
35,162
147,283
(28,289)
Cash, cash equivalents, and restricted cash at end of period . . . . . . . . . . . . . . . . . .
$
16,869
$
21,697
$
30,866
54
Cash Flow from Operating Activities
Our business is highly seasonal. For our retail operations (BNC and MBS Direct), 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. For MBS Wholesale, cash flows from operating activities are typically a source of cash in the second and
fourth fiscal quarters, as payments are received from the summer and winter selling season when they sell textbooks for retail
distribution. For both BNC and MBS, cash flows from operating activities are typically a use of cash in the fourth fiscal quarter,
when sales volumes are materially lower than the other quarters. For our DSS segment, cash flows are not seasonal as cash flows
from operating activities are typically consistent throughout the year. 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 our fiscal calendar dates. These shifts in timing may
affect the comparability of our results across periods.
Cash flows provided by operating activities during Fiscal 2018 were $60.0 million compared to $68.0 million during Fiscal
2017. This decrease of $8.0 million was primarily due to changes in working capital (primarily due to the inclusion of MBS
operating activities for the entire Fiscal 2018 period and due to an increase in cash income tax payments), and changes in other
long-term liabilities and deferred tax balances (primarily driven by the December 22, 2017 enactment of the U.S. Tax Cuts and
Jobs Act).
Cash flows provided by operating activities during Fiscal 2017 were $68.0 million compared to $83.1 million during Fiscal
2016. This decrease of $15.1 million was primarily due to the inclusion of MBS operating activities from the date of acquisition,
February 27, 2017, to April 29, 2017, changes in working capital and changes in deferred tax balances.
Cash Flow from Investing Activities
Cash flows used in investing activities during Fiscal 2018 were $(100.0) million compared to $(224.4) million during Fiscal
2017. The decrease is primarily due to the acquisition of Student Brands for $57.4 million (cash consideration of $62.0 million,
including cash acquired of $4.6 million) during Fiscal 2018 compared to cash consideration for the acquisition of MBS of $187.0
million during Fiscal 2017, higher capital expenditures primarily for MBS and contractual capital investments associated with
renewing existing contracts, and new store construction for BNC, offset by lower deferred contract costs related to our bookstore
contracts.
Cash flows used in investing activities during Fiscal 2017 were $(224.4) million compared to $(68.7) million during Fiscal
2016. The increase is primarily due to cash consideration for the acquisition of MBS of $187.0 million, net of cash and restricted
cash acquired of $1.2 million, in Fiscal 2017, and lower capital expenditures primarily for contractual capital investments associated
with renewing existing contracts, and new store construction.
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. Capital
expenditures totaled $42.8 million and $34.7 million, $50.8 million during Fiscal 2018, Fiscal 2017 and Fiscal 2016, respectively.
Cash Flow from Financing Activities
Cash flows provided by financing activities during Fiscal 2018 were $35.2 million compared to cash flows provided by
financing activities of $147.3 million during Fiscal 2017. This net change of $112.1 is primarily due to increased net borrowings
under the credit agreement of $122.8 million (primarily to fund recent acquisitions), offset by decreased payments for Common
Stock repurchased of $7.8 million during Fiscal 2018, and decreased payments for financing costs of $3.0 million.
Cash flows provided by financing activities during Fiscal 2017 were $147.3 million compared to cash flows used in financing
activities of $28.3 million during Fiscal 2016. This net change of $119.0 is primarily due to increased net borrowings under the
credit agreement of $159.6 million, the net change in the Barnes & Noble, Inc. investment of $6.4 million, and decreased payments
for common stock repurchased of $9.2 million in Fiscal 2017.
Financing Arrangements
On August 3, 2015, we, and certain of our subsidiaries from time to time party thereto, entered into a 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 (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
55
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.
On February 27, 2017, in connection with the acquisition of MBS, we amended our existing credit agreement to add a new
$100 million incremental first in, last out seasonal loan facility (the “FILO Facility”), and borrowed approximately $55 million
under the BNED Credit Facility to fund the acquisition at February 27, 2017.
During the 52 weeks ended April 28, 2018, we had borrowed $674.5 million and repaid $637.7 million under the BNED
Credit Facility and FILO Facility, and a net total of $196.4 million of outstanding borrowings as of April 28, 2018. As of April 28,
2018, we have issued $4.8 million in letters of credit under the facility. During the 52 weeks ended April 29, 2017, we had borrowed
$312.7 million and repaid $153.1 million under the BNED Credit Facility and FILO Facility, and had a net total of $159.6 million
of outstanding borrowings as of April 29, 2017. During the 52 weeks ended April 30, 2016, we borrowed and repaid $60.6 million
under the BNED Credit Facility.
During Fiscal 2017, we incurred debt issuance costs totaling $2.9 million related to the FILO 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.
Loans under the FILO Facility will bear interest at a rate equal to the LIBOR rate, plus 3.000%. The FILO Facility will be
available solely during the draw period each year, from April 1 through July 31. We are required to borrow 100% of the aggregate
commitments under the FILO Facility on April 1 of each year, and the loans must be repaid in full (including interest and fees)
on July 31 of each year. The Commitments under the FILO Facility will decrease from $100 million to $75 million on August 1,
2018, from $75 million to $50 million on August 1, 2019 and from $50 million to $25 million on August 1, 2020. We will pay a
commitment fee of 0.375% on the daily unused portion of the FILO Facility.
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 28, 2018.
We believe that our future cash from operations, access to borrowings under the BNED Credit Facility, FILO Facility and
short-term vendor financing will provide adequate resources to fund our operating and financing needs for the foreseeable future.
Our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for and
pace of sustainable growth in our markets, the levels at which we maintain inventory, the number and timing of new store openings,
and any potential acquisitions of other brands or companies including digital properties. To the extent that available funds are
insufficient to fund our future activities, we may need to raise additional funds through public or private financing of debt or
equity. 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.
Income Tax Implications on Liquidity
As of April 28, 2018, other long-term liabilities includes $40.4 million related to the long-term tax payable associated with
the LIFO reserve. The LIFO reserve is impacted by changes in the consumer price index ("CPI") and is dependent on the inventory
levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling cycle. At the end
of the most recent tax year, inventory levels within our BNC segment declined as compared to the prior year resulting in
approximately $13.4 million of the LIFO reserve becoming currently payable. Given recent trends relating to the pricing and rental
of textbooks, management believes that an additional portion of the remaining long-term tax payable associated with the LIFO
reserve could be payable within the next twelve months. We are unable to predict future trends for CPI and inventory levels,
therefore it is difficult to project with reasonable certainty how much of this liability will become payable within the next twelve
months.
56
Contractual Obligations
The following table sets forth our contractual obligations as of April 28, 2018 (in millions):
Payments Due by Period
1-3
Years
Less Than
1 Year
3-5
Years
More Than
5 Years
Total
Credit Facility (a) . . . . . . . . . . . . . . . . . . . . . . .
FILO 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) (e) . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
96.4
$
96.4
$
— $
250.0
806.4
7.3
—
100.0
140.0
5.2
—
150.0
255.2
2.0
—
1,160.1
$
341.6
$
407.2
$
218.6
$
— $
—
218.5
0.1
—
—
—
192.7
—
—
192.7
(a) As of April 28, 2018, we had a total of $196.4 million of outstanding borrowings under the BNED Credit Facility and FILO
Facility. Excludes interest which is generally at a base rate of LIBOR, plus a variable rate. See Financing Arrangements
discussion above for information about future borrowings and payments under the BNED FILO 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 approximately 69% of our contracts with colleges and universities that include minimum
guarantees, 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 excludes $40.4 million of tax liabilities related to the long-term tax payable associated with the
LIFO reserve and $0.1 million of unrecognized tax benefits, for which we cannot make a reasonably reliable estimate of the
amount and period of payment. The LIFO reserve is impacted by changes in the consumer price index ("CPI") and is dependent
on the inventory levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling
cycle. At the end of the most recent tax year, inventory levels within our BNC segment declined as compared to the prior
year resulting in approximately $13.4 million of the LIFO reserve becoming currently payable. Given recent trends relating
to the pricing and rental of textbooks, management believes that an additional portion of the remaining long-term tax payable
associated with the LIFO reserve could be payable within the next twelve months. We are unable to predict future trends for
CPI and inventory levels, therefore it is difficult to project with reasonable certainty how much of this liability will become
payable within the next twelve months. See Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary
of Significant Policies and Note 14. Income Taxes.
(e) Other long-term liabilities excludes expected payments related to employee benefit plans. See Item 8. Financial Statements
and Supplementary Data — Note 12. Employee Benefit Plans.
Off-Balance Sheet Arrangements
As of April 28, 2018, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
Certain Relationships and Related Party Transactions
See Part II - 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.
57
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 and virtual bookstores is recognized upon receipt of our products by our customers. Revenue from
the sale of physical textbooks from our wholesale is recognized at the time of shipment. Additional revenue is recognized for
shipping charges billed to customers.
We rent both physical and digital textbooks. Revenue from the rental of physical textbooks is deferred and recognized over
the rental period commencing at the start of the rental period. We offer a buyout option to allow the purchase of a rented physical
textbook 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.
Revenue from the rental of digital textbooks is recognized at the 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 primarily record digital textbook rental sales on a net basis in accordance
with ASC 605-45-45, Reporting Revenue Gross as a Principal versus Net as an Agent.
Other revenue includes revenue from direct-to-student subscription-based writing services. Subscription revenue is deferred
and recognized over the service period. The majority of subscriptions sold are one month in duration.
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.
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our
inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the
selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory are based on
our history of liquidating non-returnable inventory.
Cost is determined primarily by the retail inventory method for our BNC segment and last-in first out, or “LIFO”, method for
our MBS segment. Our textbook inventories, for BNC and MBS, and trade book inventories are valued using the LIFO method
and the related reserve was not material to the recorded amount of our inventories. There were no LIFO adjustments in Fiscal
2018, Fiscal 2017 and Fiscal 2016.
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 $5.5 million in Fiscal 2018.
For our BNC segment, 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 $0.7 million in Fiscal 2018.
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 2018.
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
58
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 Part II - 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 $0.8 million in Fiscal 2018.
Evaluation of Other Long-Lived Assets Impairment
Our other long-lived assets include property and equipment and amortizable intangibles. As of April 28, 2018, we had $111.3
million and $219.1 million of property and equipment and amortizable intangible assets, net of depreciation and amortization,
respectively, on our consolidated balance sheet.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable and consider market participants in accordance with ASC 360-10, Accounting for the Impairment
or Disposal of Long-Lived Assets. During the third quarter of Fiscal 2018, in conjunction with the goodwill impairment test noted
below, we evaluated certain of our long-lived assets for impairment.
We evaluated long-lived assets for impairment at the lowest asset group level at which individual cash flows can be identified.
When evaluating long-lived assets for potential impairment, we first compared the carrying amount of the asset group to the
estimated future undiscounted cash flows. 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. Based on the results of the tests, an impairment
loss calculation was not required as the estimated future undiscounted cash flows of the asset group exceeded the carrying amount
of the asset group.
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 2018.
Impairment losses related to school contracts are included in selling and administrative expenses totaled $0, $0.02 million,
and $0.06 million during Fiscal 2018, Fiscal 2017 and Fiscal 2016, 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 $12.0 million. For additional information, see Item 8. Financial Statements and Supplementary
Data — Note 9. Supplementary Information.
Evaluation of Goodwill Impairment
In the second quarter of Fiscal 2018, we adopted Accounting Standard Update (“ASU”) No. 2017-04, Intangibles - Goodwill
and Other (Topic 350) to simplify the test for goodwill impairment. Under the revised guidance, an entity would recognize an
impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value; however, the loss
recognized would not exceed the total amount of goodwill allocated to the reporting unit.
We completed our annual goodwill impairment test with the assistance of a third-party valuation firm, as of the first day of
the third quarter of Fiscal 2018. We completed the impairment evaluation process to compare the fair value of our reporting units
to their respective carrying values. The fair value of the MBS reporting unit exceeded its carrying value; therefore, no goodwill
impairment was recognized for the MBS segment. The carrying value of the BNC reporting unit, as defined prior to the segment
changes in the fourth quarter of Fiscal 2018, exceeded its fair value and we recorded a goodwill impairment (non-cash impairment
loss) of $313.1 million. As of April 28, 2018, we had $49.3 million, $0 and $0 of goodwill on our consolidated balance sheet
remaining related to our MBS, DSS and BNC reporting units, respectively.
59
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. 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.
We estimated the fair value of our reporting units using a weighting of fair values derived from the income approach and the
market approach. Under the income approach, we calculate the fair value of the reporting unit 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, market data, and other observable trends, such as comparable store sales trends,
recent changes in publisher relationships, and development of innovative digital products and services in the rapidly changing
education landscape. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated
with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows.
Under the market approach, we estimate the fair value based on market multiples of cash flows and earnings derived from comparable
publicly-traded companies with similar operating and investment characteristics as the reporting unit and considering a reasonable
control premium.
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 evaluation
process:
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.
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.
The Tax Cuts and Jobs Act, which was enacted in December 2017, had a substantial impact on our income tax benefit for the
fiscal year ended April 28, 2018. We have made a reasonable estimate of the effects on existing deferred tax balances and the one-
time transition tax in accordance with SAB 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act.” We expect
to meaningfully benefit from its enactment in future periods. See Item 8. Financial Statements and Supplementary Data — Note 14.
Income Taxes to the consolidated financial statements for further detail.
60
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 28, 2018, our cash and cash equivalents totaled approximately $16.1 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 2018.
We may from time to time borrow money under the BNED Credit Facility and FILO 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 and FILO Facility. We had $196.4 million borrowings
under BNED Credit Facility and FILO Facility at April 28, 2018. A 25 basis point increase in interest rates or 25 basis point
decrease in interest rates would affect interest expense by approximately less than $0.1 million in Fiscal 2018.
Foreign Currency Risk
We do not have any material foreign currency exposure as nearly all of our business is transacted in United States currency.
61
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 28, 2018, April 29, 2017, and April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended April 28, 2018, April 29, 2017, and
April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of April 28, 2018 and April 29, 2017 . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended April 28, 2018, April 29, 2017, and
April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Equity for the years ended April 28, 2018, April 29, 2017 and
April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements
Note 1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 2.
Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 3. Recent Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4. Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 5.
Equity and Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 6.
Note 7.
Fair Values of Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 8. Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9.
Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10. Barnes & Noble, Inc. Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12. Employees Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63
64
65
66
67
68
69
74
74
77
79
81
81
82
84
85
86
86
88
91
91
92
93
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Barnes & Noble Education, Inc. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Barnes & Noble Education, Inc. and subsidiaries (the
Company) as of April 28, 2018 and April 29, 2017, the related consolidated statements of operations, equity and cash flows for
each of the three years in the period ended April 28, 2018 and the related notes and financial statement schedule listed in the Index
at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at April 28, 2018 and April 29, 2017, and
the results of its operations and its cash flows for each of the three years in the period ended April 28, 2018, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of April 28, 2018, 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 20, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2015.
Iselin, New Jersey
June 20, 2018
63
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
52 weeks
ended
52 weeks
ended
52 weeks
ended
April 28, 2018
April 29, 2017
April 30, 2016
Sales:
Product sales and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,984,472
$
1,641,881
$
1,581,104
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
219,145
232,481
226,925
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,203,617
1,874,362
1,808,029
Cost of sales:
Product and other cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,522,687
1,281,043
1,224,927
Rental cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123,697
134,258
128,403
Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,646,384
1,415,301
1,353,330
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss (non-cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
557,233
433,746
65,586
313,130
5,429
2,045
(262,703)
10,306
(273,009)
(20,443)
(252,566) $
459,061
380,793
53,318
—
1,790
9,605
13,555
3,464
10,091
4,730
5,361
$
Earnings (Loss) per share of Common Stock:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(5.40) $
(5.40) $
0.12
0.11
$
$
Weighted average shares of Common Stock outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,763
46,763
46,317
46,763
454,699
374,171
52,690
11,987
8,830
2,398
4,623
1,872
2,751
2,667
84
—
—
46,238
46,479
See accompanying notes to consolidated financial statements.
64
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
As of
April 28, 2018 April 29, 2017
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
16,126
$
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,060
446,169
47,779
9,237
619,371
111,287
219,129
49,282
40,142
19,003
86,040
434,064
52,826
10,698
602,631
116,613
209,885
329,467
41,236
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,039,211
$
1,299,832
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders' equity:
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, 50,032 and 49,372
shares, respectively; outstanding, 46,917 and 46,517 shares, respectively . . . . . . . . . .
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Accumulated deficit) Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
See accompanying notes to consolidated financial statements.
187,909
$
125,556
100,000
413,465
2,106
59,277
96,400
571,248
—
—
501
717,323
(220,203)
(29,658)
467,963
192,742
120,478
100,000
413,220
16,871
96,433
59,600
586,124
—
—
494
708,871
32,363
(28,020)
713,708
1,039,211
$
1,299,832
65
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
52 weeks
ended
52 weeks
ended
52 weeks
ended
April 28, 2018 April 29, 2017 April 30, 2016
(252,566) $
5,361
$
84
Cash flows from operating activities:
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net (loss) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in other long-term liabilities and other . . . . . . . . . . . . . . . . . . . .
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 and restricted cash acquired . . . . . . .
Changes in other noncurrent assets and other . . . . . . . . . . . . . . . . . . . . . .
Net cash flows used in investing activities . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Net changes in Barnes & Noble, Inc. Investment . . . . . . . . . . . . . . . . . . .
Proceeds from borrowings under Credit Agreement . . . . . . . . . . . . . . . . .
Repayments of borrowings under Credit Agreement. . . . . . . . . . . . . . . . .
Payment of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows provided by (used in) financing activities . . . . . . . .
Net decrease in cash, cash equivalents, and restricted cash. . . . . . . . . . . . . . . . .
Cash, cash equivalents, and restricted cash at beginning of period . . . . . . . . . . .
Cash, cash equivalents, and restricted cash at end of period . . . . . . . . . . . . . . . . $
Changes in other operating assets and liabilities, net:
65,586
1,502
313,130
(14,765)
8,459
(36,823)
(24,481)
60,042
(42,809)
(58,259)
1,036
(100,032)
—
674,500
(637,700)
—
(1,638)
35,162
(4,828)
21,697
16,869
$
53,318
792
—
(11,961)
9,366
14,235
(3,125)
67,986
(34,670)
(186,720)
(3,048)
(224,438)
—
312,700
(153,100)
(2,912)
(9,405)
147,283
(9,169)
30,866
21,697
$
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 . . . . . . . . . . . . $
(13,670) $
(12,105)
5,047
(38)
(3,715)
(24,481) $
(6,407) $
6,197
(4,150)
(2,093)
3,328
(3,125) $
52,690
488
11,987
(11,868)
6,670
5,892
17,140
83,083
(50,790)
(17,843)
(111)
(68,744)
(6,423)
60,600
(60,600)
(3,251)
(18,615)
(28,289)
(13,950)
44,816
30,866
25,732
(15,323)
(210)
(2,206)
9,147
17,140
Supplemental cash flow information:
Cash paid during the period for:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid (net of refunds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
8,035
25,549
$
$
2,082
1,473
$
$
1,145
13,934
See accompanying notes to consolidated financial statements.
66
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
(In thousands)
Balance at April 30, 2016. . . .
Stock-based compensation
expense. . . . . . . . . . . . . . . . .
Vested equity awards . . . . . . .
Common stock repurchased. .
Shares repurchased for tax
withholdings for vested
stock awards. . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . .
Balance at April 29, 2017. . . .
Stock-based compensation
expense. . . . . . . . . . . . . . . . .
Vested equity awards . . . . . . .
Shares repurchased for tax
withholdings for vested
stock awards. . . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . .
Balance at April 28, 2018. . . .
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury Stock
Shares
Amount
Total
Equity
48,645 $
486
$
699,513
$
27,002
1,890 $
(18,615) $
708,386
727
8
9,366
(8)
49,372 $
494
$
708,871
$
660
7
8,459
(7)
689
(6,718)
276
(2,687)
5,361
32,363
2,855 $
(28,020) $
50,032 $
501
$
717,323
$
(252,566)
(220,203)
260
(1,638)
3,115 $
(29,658) $
9,366
—
(6,718)
(2,687)
5,361
713,708
8,459
—
(1,638)
(252,566)
467,963
See accompanying notes to consolidated financial statements.
67
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 College” refer to our college bookstore business operated through our subsidiary Barnes & Noble College Booksellers,
LLC. References to “MBS” refer to our virtual bookstore and wholesale textbook distribution business operated through our
subsidiary MBS Textbook Exchange, LLC, a Delaware corporation. References to “Student Brands” refer to our direct-to-student
subscription-based writing services business operated through our subsidiary Student Brands, LLC.
Note 1. Organization
Description of Business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for
college and university campuses and K-12 institutions across the United States, one of the largest textbook wholesalers and inventory
management hardware and software providers, and a leading provider of digital education services. Through our Barnes & Noble
College (“BNC”) and MBS Textbook Exchange (“MBS”) subsidiaries, we operate 1,444 physical and virtual bookstores and serve
more than 6 million students, delivering essential educational content and tools within a dynamic retail environment. Additionally,
through our Student Brands subsidiary and associated websites, a leading direct-to-student subscription-based writing services
business, we offer services to approximately 100,000 subscribers, by offering student assistance through the writing process and
journey.
The strengths of our business, as discussed below, includes our ability to compete by developing new products and solutions
to meet market needs, our large footprint with direct access to students and faculty, our well-established, deep relationships with
partners and stable, long-term contracts and our well-recognized brands. We expect to continue to grow our business by introducing
scalable and advanced digital solutions focused largely on the student, increasing market share with new accounts, and expanding
our strategic opportunities through acquisitions and partnerships.
As demand for new, enhanced, and more affordable products and services increase in the rapidly changing education landscape,
we strive to evolve our business model and enhance our solutions. We continue to aggressively innovate and collaborate with our
partners to provide solutions that extend well beyond course materials sourcing and sales, to include new digital services that
support successful student outcomes. We aim to be an even stronger partner for schools and meet customer needs by expanding
our physical and virtual bookstore service capabilities, courseware offerings and digital platform services.
Technology-enabled learning is a rapid growth area in the higher education industry, as a growing number of students are
enrolling in online services to complement print and digital course materials and classroom activities. We continue to enhance our
digital content and services in an efficient, low-cost/high-value manner to complement our course materials business. The
implementation of our core digital strategy relies on our direct access to students from our bookstore operations, where we can
attach our existing and future suite of digital products and services both online and in our stores.
We are ready to meet the digital demand with our virtual bookstore and e-commerce solutions. We focus on providing affordable
solutions, such as our First Day™ inclusive access program, in which course materials, including e-content, are offered at a reduced
price through a course materials fee, and delivered to students digitally on or before the first day of class. Additionally, our
LoudCloud Courseware™, is a turnkey solution for colleges and universities that offers advanced, affordable learning materials
built on a high-quality foundation of OER and enhanced with digital content that includes videos, activities and auto-graded practice
assessments that faculty can easily customize to align with class objectives. LoudCloud Courseware™ significantly reduces course
material costs for students and enables easier implementation for faculty.
We offer our Student Brands solutions focused on providing students assistance through the writing process and journey. We
offer these online solutions to students via internet search engine optimization ("SEO"), as well as by marketing directly to students
in our BNC and MBS physical and virtual bookstore footprint.
We believe that our strategic actions over the last three years, including the acquisitions of LoudCloud Systems, Inc.
("LoudCloud"), MBS and Student Brands, respectively, and ongoing development of courseware, have substantially enhanced our
competitive position. Fiscal 2018 was a transformational period in which we began to leverage our newly-expanded customer base
and distribution channels to broaden our reach to students and deepen our institutional partnerships. We continue to focus on
providing product and service offerings designed to address the most pressing issues in higher education, including affordable and
accessible course materials and products designed to drive and improve student outcomes.
68
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Effective in the fourth quarter of Fiscal year 2018, we have three reportable segments: BNC, MBS, and Digital Student
Solutions ("DSS"), as described below. Prior to the fourth quarter of Fiscal year 2018, BNC and MBS were previously our only
reportable segments. For additional information related to our strategies, operations and segments, see Part I - Item 1. Business
and Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Segment Reporting.
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. The fiscal year periods
for each of the last three fiscal years consisted of the 52 weeks ended April 28, 2018 ("Fiscal 2018"), 52 weeks ended April 29,
2017 ("Fiscal 2017"), and 52 weeks ended April 30, 2016 ("Fiscal 2016").
For our retail operations (BNC and MBS Direct), sales are generally highest in the second and third fiscal quarters, when
students generally purchase and rent textbooks, and lowest in the first and fourth fiscal quarters. Sales attributable to our MBS
Wholesale business are generally highest in our first, second and third quarter, as it sells textbooks for retail distribution. Student
Brands' sale and operating profit are realized relatively consistently throughout the year.
Our quarterly results 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.
Consolidation
Fiscal 2018
For our Fiscal 2018 (52 weeks ended April 28, 2018), the results of operations for the entire 52 weeks ended April 28, 2018
reflected in our consolidated financial statements are presented on a consolidated basis. On August 3, 2017, we acquired Student
Brands ("Student Brands"). The consolidated financial statements for the 52 weeks ended April 28, 2018 include the financial
results of Student Brands from the acquisition date, August 3, 2017, to April 28, 2018. Subsequent to the acquisition, the consolidated
financial statements include the accounts of Student Brands and all material intercompany accounts and transactions have been
eliminated in consolidation.
Fiscal 2017
For our Fiscal 2017 (52 weeks ended April 29, 2017), the results of operations for the entire 52 weeks ended April 29, 2017
reflected in our consolidated financial statements are presented on a consolidated basis. On February 27, 2017, we acquired MBS.
The consolidated financial statements for the 52 weeks ended April 29, 2017 include the financial results of MBS from the
acquisition date, February 27, 2017, to April 29, 2017. Subsequent to the acquisition, the consolidated financial statements include
the accounts of MBS and all material intercompany accounts and transactions have been eliminated in consolidation.
Fiscal 2016
On August 2, 2015, we completed the legal separation ("Spin-Off") from Barnes & Noble, Inc., at which time we began to
operate as an independent publicly-traded company. For the results of operations for the 13 weeks ended August 1, 2015 (first
quarter of Fiscal 2016), 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, Inc. Subsequent to the Spin-Off from Barnes & Noble, Inc. on August 2, 2015, 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, Inc. under various agreements. For additional information, see Part II
- Item 8. Financial Statements and Supplementary Data - Note 10. Barnes & Noble, Inc. Transactions.
69
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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.
Reclassifications
Effective in the fourth quarter of fiscal year 2018, we have three reportable segments: BNC, MBS, and DSS, as described in
Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Segment Reporting. Prior to the fourth quarter of fiscal
year 2018, BNC and MBS were previously our only reportable segments.
Our consolidated financial statements reflect the following reclassifications for consistency with the current year presentation:
1) Cost of Sales expenses primarily related to facility costs and insurance related to corporate services have been reclassified to
Selling and Administrative Expenses; and 2) For our digital rental products, we have reclassified Rental Income to Product Sales
and Other, and have reclassified Rental Cost of Sales to Product and Other Cost of Sales, with no impact to Gross Margin. Digital
rental revenue and digital rental cost of sales are recognized at the time of delivery and are not deferred over the rental period.
Prior periods presented reflect the segment presentation and reclassifications.
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
Restricted cash of $742 is included in other noncurrent assets in the consolidated balance sheets as of April 28, 2018. Restricted
cash of $1,996 and $698 is included in prepaid and other current assets and other noncurrent assets, respectively, in the consolidated
balance sheet as of April 29, 2017. 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 receivables, advances for book buybacks, advertising and other receivables due within
one year. Components of accounts receivables are as follows:
As of
April 28, 2018
April 29, 2017
Trade accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances for book buybacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit/debit card receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
67,634
9,554
3,824
19,048
100,060
$
$
58,460
12,779
3,737
11,064
86,040
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 $2,083, and $2,259 for Fiscal 2018 and
Fiscal 2017, respectively.
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our
inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the
selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory are based on
our history of liquidating non-returnable inventory.
70
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Cost is determined primarily by the retail inventory method for our BNC segment and last-in first out, or “LIFO”, method for
our MBS segment. Our textbook inventories, for BNC and MBS, and trade book inventories are valued using the LIFO method
and the related reserve was not material to the recorded amount of our inventories. There were no LIFO adjustments in Fiscal
2018, Fiscal 2017 and Fiscal 2016.
For the BNC segment, 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. BNC's four largest suppliers,
excluding MBS, accounted for approximately 40.5% of our merchandise purchased during the twelve month period ended April
28, 2018. For MBS, the four largest suppliers, excluding BNC, accounted for approximately 39.9% of merchandise purchases
during the twelve month period ended April 28, 2018.
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.
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 $46,531, $41,224, and$42,213 of depreciation expense for
Fiscal 2018 and Fiscal 2017 and Fiscal 2016, respectively. Components of property and equipment are as follows:
Useful Life
April 28, 2018 April 29, 2017
As of
Property and equipment:
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery, equipment and display fixtures . . . . . . . . . . . . . . . . . . . . .
Computer hardware and capitalized software costs . . . . . . . . . . . . . . .
Office furniture and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a)
3 - 5
(b)
2 - 7
Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization. . . . . . . . . . . . . . . . .
$
148,413
$
237,823
123,575
54,991
6,546
571,348
460,061
Total property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
111,287
$
144,260
235,153
100,749
52,339
18,551
551,052
434,439
116,613
(a) Leasehold improvements are capitalized and depreciated over the shorter of lease term or the useful life of the improvements,
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 a period of between 2 - 5 years.
Other Long-Lived Assets
Our other long-lived assets include property and equipment and amortizable intangibles. We had $219,129 and $209,885 of
amortizable intangible assets, net of amortization, as of April 28, 2018 and April 29, 2017, respectively. These amortizable
intangible assets relate primarily to our customer and bookstore 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. During the third quarter of Fiscal 2018, in conjunction
with the annual goodwill impairment test noted below, we evaluated certain of our long-lived assets for impairment.
71
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
We evaluated long-lived assets for impairment at the lowest asset group level at which individual cash flows can be identified.
When evaluating long-lived assets for potential impairment, we first compared the carrying amount of the asset group to the
estimated future undiscounted cash flows. 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. Based on the results of the tests, an impairment
loss calculation was not required as the estimated future undiscounted cash flows of the asset group exceeded the carrying amount
of the asset group. Impairment losses related to school contracts included in selling and administrative expenses totaled $0, $23,
and $59 during Fiscal 2018, Fiscal 2017 and Fiscal 2016, 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 Part II - Item 8. Financial Statements and Supplementary
Data - Note 9. Supplementary Information - Impairment Loss (non-cash) and Restructuring and Other Charges.
Goodwill
The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance
sheets. In the second quarter of Fiscal 2018, we adopted Accounting Standard Update (“ASU”) No. 2017-04, Intangibles - Goodwill
and Other (Topic 350) to simplify the test for goodwill impairment. Under the revised guidance, an entity would recognize an
impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value; however, the loss
recognized would not exceed the total amount of goodwill allocated to the reporting unit.
We completed our annual goodwill impairment test with the assistance of a third-party valuation firm, as of the first day of
the third quarter of Fiscal 2018. We completed the impairment evaluation process to compare the fair value of our reporting units
to their respective carrying values.
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. 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.
We estimated the fair value of our reporting units using a weighting of fair values derived from the income approach and the
market approach. Under the income approach, we calculate the fair value of the reporting unit 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, market data, and other observable trends, such as comparable store sales trends,
recent changes in publisher relationships, and development of innovative digital products and services in the rapidly changing
education landscape. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated
with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows.
Under the market approach, we estimate the fair value based on market multiples of cash flows and earnings derived from comparable
publicly-traded companies with similar operating and investment characteristics as the reporting unit and considering a reasonable
control premium.
The fair value of the MBS reporting unit exceeded its carrying value; therefore, no goodwill impairment was recognized for
the MBS reporting unit. The carrying value of the BNC reporting unit, as defined prior to our segment reporting changes in the
fourth quarter of Fiscal 2018, exceeded its fair value and we recorded a goodwill impairment (non-cash impairment loss) of
$313,130, representing the full goodwill within the BNC reporting unit. As of April 28, 2018, we had $49,282, $0 and $0 of
goodwill on our consolidated balance sheet remaining related to our MBS, BNC, and DSS reporting units, respectively. As of
April 29, 2017, we had $48,118 and $281,349 of goodwill on our consolidated balance sheet remaining related to our MBS and
BNC reporting units, respectively.
For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 9. Supplementary
Information - 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 and virtual bookstores is recognized upon receipt of our products by our customers. Revenue from
the sale of physical textbooks from our wholesale is recognized at the time of shipment. Additional revenue is recognized for
shipping charges billed to customers.
72
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
We rent both physical and digital textbooks. Revenue from the rental of physical textbooks is deferred and recognized over
the rental period commencing at the start of the rental period. We offer a buyout option to allow the purchase of a rented physical
textbook 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.
Revenue from the rental of digital textbooks is recognized at the 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 primarily record digital textbook rental sales on a net basis in accordance
with ASC 605-45-45, Reporting Revenue Gross as a Principal versus Net as an Agent.
Other revenue includes revenue from direct-to-student subscription-based writing services. Subscription revenue is deferred
and recognized over the service period. The majority of subscriptions sold are one month in duration.
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.
Cost of Sales
Our cost of sales primarily include costs such as merchandise costs, textbook rental amortization, warehouse costs related to
inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including
rent expense, related to our college and university contracts and other facility related expenses.
Selling and Administrative Expenses
Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and
administrative expenses also include stock-based compensation and general office expenses, such as merchandising, field support,
finance, employee relations, benefits, training, and information technology for store operations, as well as operating costs related
to our subscription-based services.
Stock-Based Compensation
During the second quarter of Fiscal 2017 and Fiscal 2018, we granted 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"), performance shares ("PS") and performance share
units ("PSU"). We have not granted options under the Equity Incentive Plan. See Part II - Item 8. Financial Statements and
Supplementary Data - Note 13. Stock-Based Compensation for a further discussion of our stock-based incentive plan.
We recognize compensation expense for awards ratably over the requisite service period of the award, which is generally three
years. We recognize compensation expense based on the number of awards expected to vest using an estimated average forfeiture
rate. We calculate the fair value of stock-based awards based on the closing price on the date the award was granted.
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 $10,635, $7,437, and $8,614 during Fiscal 2018, Fiscal 2017 and Fiscal
2016, respectively.
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 Part II - Item 8. Financial Statements and Supplementary Data - Note 14. Income Taxes.
As of April 28, 2018, other long-term liabilities includes $40,425 related to the long-term tax payable associated with the
LIFO reserve. The LIFO reserve is impacted by changes in the consumer price index ("CPI") and is dependent on the inventory
levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling cycle. At the end
of the most recent tax year, inventory levels within our BNC segment declined as compared to the prior year resulting in
approximately $13,369 of the LIFO reserve becoming currently payable. Given recent trends relating to the pricing and rental of
73
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
textbooks, management believes that an additional portion of the remaining long-term tax payable associated with the LIFO reserve
could be payable within the next twelve months. We are unable to predict future trends for CPI and inventory levels, therefore it
is difficult to project with reasonable certainty how much of this liability will become payable within the next twelve months.
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 Part II - Item 8. Financial Statements and Supplementary Data - Note 6. Equity and Earnings
Per Share for further information regarding the calculation of basic and diluted earnings per common share.
Note 3. Recent Accounting Pronouncements
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. The Company has begun to identify and collect relevant data for its leases and is evaluating the changes needed to its
processes and internal controls as a result of the new guidance. 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 guidance is that an
entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature,
amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. 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 new
standard is required to be applied retrospectively to each prior reporting period (full retrospective method) or retrospectively with
the cumulative effect of initially applying the standard recognized as an adjustment to opening retained earnings at the date of
initial adoption (modified retrospective method).
We have completed the process of analyzing the impacts of the guidance across all of our revenue streams. This includes
reviewing current accounting policies and practices to identify potential differences that would result from applying the guidance.
The majority of our revenue is generated from sales of finished products, which will continue to be recognized when control is
transferred to the customer. Our assessment included an evaluation of the impact that the guidance will have on our accounting
for marketing revenue and other income streams. We evaluated the guidance for our software license revenue, digital product
offerings and subscription-based services. We do not have loyalty programs or gift cards. We plan to adopt the standard using the
modified retrospective method in the first quarter of Fiscal 2019. We believe the adoption of the guidance will not have a material
impact on our consolidated financial statements, other than the additional disclosure requirements.
Note 4. Acquisitions
Acquisitions
Student Brands, LLC
On August 3, 2017, we acquired 100% of the equity interests of Student Brands. Student Brands operates multiple direct-to-
student businesses focused on study tools and writing help, all centered on assisting students with the writing process. We completed
the purchase for cash consideration of $61,997, including cash acquired of $4,626, and the transaction was funded from cash on-
hand and availability under our existing Credit Agreement. The Student Brands operations were included in the BNC segment
until the segment change effective the fourth quarter of fiscal year 2018, and are now included in the DSS reporting segment. The
final purchase price allocation was as follows: $28,300 intangible assets, $1,593 acquired working capital and $31,782 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.
74
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Identified intangible assets include the following:
Type of Intangible
Content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Compete Agreements . . . . . . . . . . . . . . . . . . . . . .
Subscriber List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Intangibles: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Amount
Estimated Useful Life
5
5
3
2
14,500
8,000
4,000
1,800
28,300
MBS Textbook Exchange, LLC
On February 27, 2017, we completed the purchase of all issued and outstanding units of MBS Textbook Exchange, LLC.
MBS operates two highly integrated businesses. Refer to Note 1. Organization for additional information about MBS. We acquired
100% of the equity interests of MBS for cash consideration of $187,862, including cash and restricted cash acquired of $1,171,
and the acquisition was financed with cash from operations, as well as proceeds from our existing credit facility. During the third
quarter of Fiscal 2018, we finalized the valuation and recorded adjustments to the acquired liabilities which resulted in an increase
to goodwill of $1,163. These adjustments were related to a final reconciliation of the pre-acquisition tax liability due to the seller
of $888 under the purchase agreement, as well as a net $275 increase in other long-term liabilities. The following is a summary
of consideration paid for the acquisition:
Cash paid to Seller or escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Consideration to Seller for pre-closing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for Seller closing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract purchase price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Consideration for payment to settle Seller's outstanding short-term borrowings . . . . . . .
Consideration for reimbursement of pre-acquisition tax liability to Seller . . . . . . . . . . .
Less: Consideration to Seller for pre-closing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Consideration for settlement of pre-existing payable to Seller . . . . . . . . . . . . . . . .
Total value of consideration transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
The following is a summary of the fair values of the net assets acquired:
Total estimated consideration transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets to be acquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
75
165,499
4,657
4,044
174,200
24,437
15,556
(4,657)
(21,674)
187,862
187,862
472
28,177
128,431
12,403
21,576
4,748
195,807
35,383
8,799
13,045
57,227
138,580
49,282
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Identified intangible assets include the following:
Type of Intangible
Amount
Estimated Useful Life
Favorable Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book Store Relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct Customer Relationship . . . . . . . . . . . . . . . . . . . . . . . .
Non-Compete Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Intangibles:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,076
3,500
1,500
13,000
2,000
500
21,576
6.5
10
3
13
15
3
The consolidated financial statements for the 52 weeks ended April 29, 2017 include the financial results of MBS from the
acquisition date, February 27, 2017, to April 29, 2017, including sales of $34,091 and net loss of $(2,630). As the acquisition was
material to our consolidated financial statements, the following represents the pro forma consolidated income statement as if MBS
had been included in the consolidated results for the entire fiscal year for Fiscal 2017 and Fiscal 2016:
Pro forma consolidated income statement
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,247,825
32,055
$
$
2,216,628
25,022
52 weeks ended
April 29, 2017
April 30, 2016
These amounts have been calculated after applying our accounting policies and adjusting the results of MBS to reflect the
additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and
equipment and intangible assets had been applied on May 3, 2015, and includes the elimination of all significant intercompany
accounts and transactions, together with the consequential tax effects.
Promoversity
In June 2016, we completed the purchase of substantially all of the assets of Promoversity, a custom merchandise supplier
and e-commerce storefront solution serving the collegiate bookstore business and its customers. The acquisition enables us to
customize our e-commerce offerings and drive on-campus apparel sales. The acquisition purchase price was $1,417, including
working capital, and was financed with cash from operations. The purchase price was allocated primarily as follows: $741 intangible
assets (with a 5 year amortization period), $441 goodwill, $221 net current assets, and $500 future performance-based obligations.
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.
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 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.
76
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 5. Segment Reporting
Prior to the fourth quarter of Fiscal 2018, we had two reportable segments: BNC and MBS. In connection with our focus on
developing digital solutions, during the fourth quarter of Fiscal 2018, the Company realigned its business into the following three
reportable segments: BNC, MBS and DSS. Additionally, unallocated shared-service costs, which include various corporate level
expenses and other governance functions, are presented as “Corporate Services”.
We identified our segments in accordance with the way our business is managed (focusing on the financial information
distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance.
The following summarizes the three segments, with additional information in each respective subsequent segment discussion.
BNC
The BNC Segment is comprised of the operations of BNC which operates 768 physical campus bookstores, the majority of
which also have school-branded e-commerce sites operated by BNC and which offers students access to affordable course materials
and affinity products, including emblematic apparel and gifts. BNC also offers its First Day™ inclusive access program, in which
course materials, including e-content, are offered at a reduced price through a course materials fee, and delivered to students
digitally on or before the first day of class. Additionally, the BNC segment offers a suite of digital content, software, and services
to colleges and universities, through our LoudCloud platform, such as predictive analytics, a variety of open educational resources
courseware, and a competency-based learning platform. For additional information about this segments operations, see Part I -
Item 1. Business - BNC Segment.
MBS
The MBS Segment is comprised of MBS's two highly integrated businesses: MBS Direct which operates 676 virtual bookstores
for college and university campuses, and K-12 schools, and MBS Wholesale which is one of the largest textbook wholesalers in
the country. MBS Wholesale's business centrally sources and sells new and used textbooks to more than 3,500 physical college
bookstores, including BNC’s 768 campus bookstores. MBS Wholesale sells hardware and a software suite of applications that
provides inventory management and point-of-sale solutions to approximately 430 college bookstores. For additional information
about this segments operations, see Part I - Item 1. Business Segment - MBS Segment.
DSS
The Digital Student Solutions ("DSS") segment includes direct-to-student product and service offerings to assist students to
study more effectively and improve academic performance, thus enabling them to gain the valuable skills necessary to succeed
after college. DSS is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing
services business, with approximately 100,000 subscribers across its digital properties, as well as tutoring and test prep services
offered through our partnership with The Princeton Review. We currently offer these online student services directly to students,
and increasingly will be leveraging our BNC and MBS physical and virtual bookstore footprint to market directly to students
where we serve as the campus bookstore. We continue to aggressively expand our ecosystem of products and services through our
own internal development, as well as by partnering with other companies to provide a complete hub of products and services
designed to improve student success and outcomes. For additional information about this segments operations, see Part I - Item
1. Business Segment - Digital Student Solutions Segment.
Corporate Services
Corporate Services represent unallocated shared-service costs which include corporate level expenses and other governance
functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources.
Eliminations
Subsequent to the acquisition of MBS on February 27, 2017, the consolidated financial statements include the accounts of
MBS and all material intercompany accounts and transactions have been eliminated in consolidation. The eliminations are primarily
related to the following intercompany activities:
• The sales eliminations represent the elimination of MBS sales to BNC and the elimination of BNC commissions earned
from MBS, and
• The cost of sales eliminations represent (i) the recognition of intercompany profit for BNC inventory that was purchased
from MBS in a prior period that was subsequently sold to external customers during the current period, net of (ii) the
elimination of intercompany profit for MBS inventory purchases by BNC that remain in ending inventory at the end of the
current period.
77
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Summarized financial information for our reportable segments is reported below:
52 weeks ended
52 weeks ended
52 weeks ended
April 28, 2018 (a)
April 29, 2017 (b)
April 30, 2016
Sales:
BNC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elimination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit
BNC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elimination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and Amortization
BNC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating (Loss) Income
BNC (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elimination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Operating (Loss) Income (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The following is a reconciliation of segment Operating Income to
consolidated Income Before Income Taxes
Total Operating (Loss) Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total (Loss) Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
$
$
$
1,816,083
$
1,845,561
$
1,808,029
459,529
15,762
(87,757)
34,091
—
(5,290)
—
—
—
2,203,617
$
1,874,362
$
1,808,029
441,209
$
454,950
$
454,699
101,345
15,403
(724)
4,748
—
(637)
—
—
—
557,233
$
459,061
$
454,699
53,737
$
52,067
$
52,564
6,406
5,253
190
1,059
—
192
—
—
126
65,586
$
53,318
$
52,690
(279,375) $
53,674
$
45,042
44,920
226
(27,750)
(724)
(11,595)
—
(27,887)
(637)
(262,703) $
13,555
$
(262,703) $
(10,306)
(273,009) $
13,555
(3,464)
10,091
$
$
—
—
(40,419)
—
4,623
4,623
(1,872)
2,751
(a) We acquired Student Brands, LLC on August 3, 2017. The consolidated financial statements for the 52 weeks ended April 28,
2018 include the financial results of Student Brands from the acquisition date, August 3, 2017, to April 28, 2018.
(b) We acquired MBS Textbook Exchange, LLC on February 27, 2017. The consolidated financial statements for the 52 weeks
ended April 29, 2017 include the financial results of MBS from the acquisition date, February 27, 2017, to April 29, 2017.
(c) In Fiscal 2018, we recorded a goodwill impairment (non-cash impairment loss) of $313,100 based on the results of our annual
goodwill impairment test. For additional information, see Part I - Item 1. Business and Part II - Item 8. Financial Statements
and Supplementary Data - Note 9. Supplementary Information - Goodwill.
Our international operations are not material and the majority of the revenue and total assets are within the United States.
78
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Total Assets
BNC (includes goodwill of $0 and $281,349, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . .
$
443,541
$
MBS (includes goodwill of $49,282 and $48,118, respectively). . . . . . . . . . . . . . . . . . . . . . .
DSS (includes goodwill of $0 for both periods) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
287,507
36,743
271,420
838,680
251,028
—
210,124
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,039,211
$
1,299,832
As of
April 28, 2018
April 29, 2017
52 weeks ended
52 weeks ended
52 weeks ended
April 28, 2018
April 29, 2017
April 30, 2016
Capital Expenditures
BNC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
37,476
$
34,435
$
50,324
2,681
2,620
32
218
—
17
—
—
466
42,809
$
34,670
$
50,790
Note 6. Equity and Earnings Per Share
Equity
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. Following the Spin-Off, Barnes & Noble, Inc. does not own any equity interest in us.
Our authorized capital stock consists 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 April 28, 2018, 46,916,616 shares of our Common Stock and 0 shares of our
preferred stock were issued and outstanding. Our Common Stock trades on the NYSE 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.
In Fiscal 2016, 2,409,345 shares of Common Stock were reserved for future grants, in accordance with the Barnes & Noble
Education Inc. Equity Incentive Plan (the "Equity Incentive Plan"). In Fiscal 2017, shareholders approved an amendment to the
Equity Incentive Plan to increase the number of shares available for issuance by an additional 4,000,000 shares of our Common
Stock, for an aggregate total of 6,409,345 shares. 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 28, 2018, we did not purchase shares under the stock repurchase program. During the 52 weeks
ended April 29, 2017, we repurchased 688,948 shares for approximately $6,718 at a weighted average cost per share of $10.10.
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. As of April 28, 2018, approximately $26,669 remains available under the stock repurchase program.
79
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 28, 2018, April 29, 2017 and April 30, 2016, we also repurchased 260,531 shares, 276,292
shares and 174,511 shares of our Common Stock in connection with employee tax withholding obligations for vested stock awards,
respectively.
Dividends
We paid no dividends to common stockholders during Fiscal 2018, Fiscal 2017 and Fiscal 2016. We do not intend to pay
dividends on our Common Stock in the foreseeable future.
Earnings Per Share
Basic EPS is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is
computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common
stock equivalents using the treasury stock method and the average market price of our common stock for the year. We include
participating securities (unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend
equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of unvested
restricted stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common
stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common
stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not
share in the losses of the Company. During the Fiscal 2018, Fiscal 2017 and Fiscal 2016, average shares of 2,494,799, 375,457
and 411,274 were excluded from the diluted earnings per share calculation using the two-class method as their inclusion would
have been antidilutive, respectively.
The following is a reconciliation of the basic and diluted earnings per share calculation:
(shares in thousands)
Numerator for basic earnings per share:
Fiscal 2018
Fiscal 2017
Fiscal 2016
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less allocation of earnings to participating securities . . . . . . . . . . . . . . . . . .
Net (loss) income available to common shareholders . . . . . . . . . . . . . . . . . . . . . $
(252,566) $
—
(252,566) $
5,361
(3)
5,358
$
$
Numerator for diluted earnings per share:
Net (loss) income available to common shareholders. . . . . . . . . . . . . . . . . . . . . . $
Allocation of earnings to participating securities. . . . . . . . . . . . . . . . . . . . . .
Less diluted allocation of earnings to participating securities . . . . . . . . . . . .
Net (loss) income available to common shareholders. . . . . . . . . . . . . . . . . . . . . . $
(252,566) $
5,358
$
—
—
(252,566) $
3
(3)
5,358
$
84
—
84
84
—
—
84
Denominator for basic earnings per share:
Basic weighted average shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . .
46,763
46,317
46,238
Denominator for diluted earnings per share:
Basic weighted average shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . .
Average dilutive restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average dilutive performance shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average dilutive restricted shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average dilutive performance share units . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average dilutive options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,763
—
—
—
—
—
46,317
389
46,238
227
40
17
—
—
—
—
—
14
Diluted weighted average shares of Common Stock. . . . . . . . . . . . . . . . . . . . . . .
46,763
46,763
46,479
(Loss) Earnings per share of Common Stock:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(5.40) $
(5.40) $
0.12
0.11
$
$
—
—
80
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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
Our financial instruments include cash and cash equivalents, receivables, accrued liabilities and accounts payable. The fair
values of cash and cash equivalents, receivables, accrued liabilities and accounts payable approximates their carrying values
because of the short-term nature of these instruments, which are all considered Level 1. The fair value of short-term and long-term
debt approximates its carrying value.
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”). 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 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.
We and certain of our 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.
On February 27, 2017, in connection with the acquisition of MBS, we amended the Credit Agreement with our current lenders
to add a new $100,000 incremental first in, last out seasonal loan facility (the “FILO Facility”) increasing the maximum availability
under the Credit Agreement to $500,000.
As of April 28, 2018 we had outstanding borrowings of $96,400 and $100,000 under the BNED Credit Facility and FILO
Facility, respectively. As of April 29, 2017, we had outstanding borrowings of $59,600 and $100,000 under the BNED Credit
Facility and FILO Facility, respectively.
During the 52 weeks ended April 28, 2018, we borrowed $674,500 and repaid $637,700 under the BNED Credit Facility and
FILO Facility, and had a net total of $196,400 of outstanding borrowings as of April 28, 2018. As of April 28, 2018 and April 29,
2017, we issued $4,759 and $4,298 in letters of credit under the BNED Credit Facility, respectively. During Fiscal 2017, we
borrowed $312,700 and repaid $153,100 under the BNED Credit Facility. During Fiscal 2016, we borrowed and repaid $60,600
under the BNED Credit Facility.
During Fiscal 2017 we incurred debt issuance costs totaling $2,912 related to the FILO Facility. During Fiscal 2016, we
incurred debt issuance costs totaling $3,251 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 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
81
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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.
Loans under the FILO Facility will bear interest at a rate equal to the LIBOR rate, plus 3.000%. The FILO Facility will be
available solely during the draw period each year, from April 1 through July 31. We are required to borrow 100% of the aggregate
commitments under the FILO Facility on April 1 of each year, and the loans must be repaid in full (including interest and fees) on
July 31 of each year. The Commitments under the FILO Facility will decrease from $100,000 to $75,000 on August 1, 2018, from
$75,000 to $50,000 on August 1, 2019 and from $50,000 to $25,000 on August 1, 2020. We will pay a commitment fee of 0.375%
on the daily unused portion of the FILO Facility.
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 28, 2018.
We believe that our future cash from operations, access to borrowings under the BNED Credit Facility, FILO Facility and
short-term vendor financing will provide adequate resources to fund our operating and financing needs for the foreseeable future.
Our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for and
pace of sustainable growth in our markets, the levels at which we maintain inventory, the number and timing of new store openings,
and any potential acquisitions of other brands or companies including digital properties. To the extent that available funds are
insufficient to fund our future activities, we may need to raise additional funds through public or private financing of debt or equity.
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.
Note 9. Supplementary Information
Impairment Loss (non-cash)
We completed our annual goodwill impairment test as of the first day of the third quarter of Fiscal 2018. 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. We estimated the fair value of our reporting units using a weighting of fair values derived from
the income approach and the market approach. Based on the results of the test, the carrying value of the BNC reporting unit, as
defined before the segment change in the fourth quarter of Fiscal 2018, exceeded its fair value and we recorded a goodwill
impairment (non-cash impairment loss) of $313,130. For information, see Part I - Item 1. Business and Part II - Item 8. Financial
Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies and Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates.
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.
Restructuring and Other Charges
Restructuring
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 recorded restructuring costs of $1,790 in Fiscal 2017 primarily comprised of employee related costs (including
severance and retention). We completed the restructuring in Fiscal 2017.
82
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Other Charges
On July 19, 2017, Mr. Max J. Roberts resigned as Chief Executive Officer of the Company and Mr. Michael P. Huseby was
appointed to the position of Chief Executive Officer and Chairman of the Board, both effective as of September 19, 2017. Pursuant
to the terms of the Retirement Letter Agreement, Mr. Roberts received an aggregate payment of approximately $4,424, comprised
of salary, bonus and benefits. In addition, the Company paid Mr. Roberts and Mr. Huseby a one-time cash transition payment of
approximately $562 and $250, respectively, at the time of the transition. During the 52 weeks ended April 28, 2018, we recognized
expenses totaling approximately $5,361, which is comprised of the severance and transition payments. For additional information,
see the Form 8-K dated July 19, 2017, filed with the SEC on July 20, 2017.
Intangible Assets
For information about additions to the gross carrying amounts of intangible assets, see Part I - Item 1. Business and Part II -
Item 8. Financial Statements and Supplementary Data - Note 4. Acquisitions. Amortizable intangible assets as of April 28, 2018
and April 29, 2017 are as follows:
Amortizable intangible assets
Customer relationships . . . . . . . . . . . . . . . . . . . . .
Content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining
Life
1 - 16
4
2 - 8
1 - 9
As of April 28, 2018
Gross
Carrying
Amount
$
$
272,419
14,500
20,100
10,853
317,872
$
$
Accumulated
Amortization
Total
(89,767) $
(2,175)
(4,080)
(2,721)
(98,743) $
182,652
12,325
16,020
8,132
219,129
a) Other consists of recognized intangibles for non-compete agreements, trade names, subscriber lists and favorable leasehold
interests.
Amortizable intangible assets
Customer relationships . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining
Life
4 - 17
3 - 9
1 - 10
As of April 29, 2017
Gross
Carrying
Amount
Accumulated
Amortization
$
$
270,619
12,100
6,853
289,572
$
$
(77,640) $
(1,320)
(727)
(79,687) $
Total
192,979
10,780
6,126
209,885
a) Other consists of recognized intangibles for non-compete agreements, trade names and favorable leasehold interests.
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 28, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
For the 52 weeks ended April 29, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
For the 52 weeks ended April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Estimated Amortization Expense: (Fiscal Year)
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
After 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
19,056
12,095
10,477
20,731
19,917
18,098
17,449
14,047
128,887
83
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 (including foreign currency translation):
Balance at April 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at April 29, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill related to Student Brands acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill related to MBS measurement period adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss (non-cash) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at April 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
280,911
48,556
329,467
31,782
1,163
(313,130)
49,282
(a) See Impairment Loss (non-cash) discussion above.
For additional information of goodwill by acquisition, see Part I - Item 1. Business and Part II - Item 8. Financial Statements
and Supplementary Data - Note 4. Acquisitions. As of April 28, 2018, goodwill of approximately $80,629 was deductible for
federal income tax purposes.
Note 10. Barnes & Noble, Inc. Transactions
Our History with Barnes & Noble, Inc.
We completed the Spin-Off from Barnes & Noble, Inc. on August 2, 2015, at which time 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, Inc. (Prior to Spin-Off)
The results of operations for the 13 weeks ended August 1, 2015 (first quarter of Fiscal 2016) (period presented prior to the
Spin-Off referred to as the "stand-alone period") reflected in our consolidated financial statements is 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 period 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, Inc. 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 Fiscal 2018, Fiscal 2017 and the 39 weeks ended April 30, 2016 (i.e. the second, third and fourth
quarter of Fiscal 2016, periods after the Spin-Off) which includes direct costs incurred with Barnes & Noble, Inc. under various
agreements.
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 majority of the ancillary agreements related to certain transition services, employee
matters and tax matters have expired or we no longer require such services.
84
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
These perpetual 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; 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.
Summary of Transactions with Barnes & Noble
During Fiscal 2018, Fiscal 2017 and the 39 weeks ended April 30, 2016 (i.e. the second, third and fourth quarter of Fiscal
2016, periods after the Spin-Off), we were billed $25,936, $29,173 and $22,673, respectively, 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 (i.e. the first quarter of Fiscal 2016, period presented prior to the Spin-Off), we
were allocated $13,321 of general corporate expenses incurred by Barnes & Noble, Inc. 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 28, 2018 and April 29, 2017, amounts due to Barnes & Noble, Inc. for book purchases and direct costs incurred
under the agreements discussed above were $7,759 and $8,041 and is included in accounts payable and accrued liabilities in the
consolidated balance sheets, respectively.
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.”
Note 11. Related Party Transactions
MBS Textbook Exchange, LLC
Prior to the acquisition of MBS on February 27, 2017, MBS was considered a related-party as it was majority-owned by
Leonard Riggio, who is a principal owner holding substantial shares of our common stock, and other members of the Riggio family.
See Note 4. Acquisitions.
Prior to the acquisition, we had a long-term supply agreement (“Supply Agreement”) with MBS, under which and subject to
availability and competitive terms and conditions, we purchased 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. Prior to the acquisition
on February 27, 2017, total purchases from MBS were $92,956 (amount prior to returns which occurred subsequent to the February
27, 2017 acquisition date) and $57,981 for Fiscal 2017 and Fiscal 2016, respectively. Additionally, the Supply Agreement provided
that we could sell to MBS certain textbooks that we could not return to suppliers or use in our stores. MBS paid 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 fulfilled on our behalf. Prior to the acquisition on February 27, 2017, MBS paid us $7,376 and $5,009
related to these commissions in Fiscal 2017 and Fiscal 2016, respectively. In addition, the Supply Agreement contains restrictive
covenants that limited our ability to become a used textbook wholesaler and that place certain limitations on MBS’s business
activities. We also previously entered into an agreement with MBS pursuant to which MBS purchased books from us, which have
no resale value for a flat rate per box. Prior to the acquisition on February 27, 2017, total sales to MBS under this program were
$339 and $574, for Fiscal 2017 and Fiscal 2016, respectively.
Subsequent to the acquisition, the consolidated financial statements include the accounts of MBS and all material intercompany
accounts and transactions have been eliminated in consolidation.
MBS leases its main warehouse and distribution facility located in Columbia, Missouri from MBS Realty Partners L.P. which
is majority-owned by Leonard Riggio, with the remaining ownership by other sellers of MBS. The lease was originally entered
into in 1991 and included a renewal option which extended the lease through September 1, 2023. Based upon a valuation performed
as of the acquisition date, the lease was determined to be favorable from a lessee perspective with below market rent. Rent payments
to MBS Realty Partners L.P. were approximately $1,380 in Fiscal 2018 and $230 from the acquisition date, February 27, 2017, to
April 29, 2017. See Note 4. Acquisitions.
85
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 12. Employee Benefit Plans
We sponsor defined contribution plans for the benefit of substantially all of the employees of BNC and DSS. MBS maintains
a profit sharing plan covering substantially all full-time employees of MBS. For all plans, we are responsible to fund the employer
contributions directly. Total employee benefit expense for these plans was $7,196, $4,828, and $4,375 during Fiscal 2018, Fiscal
2017 and Fiscal 2016, respectively.
Note 13. Stock-Based Compensation
During the second quarter of Fiscal 2016, 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"). Additionally, during the second
quarter of Fiscal 2017 shareholders approved an amendment to the Equity Incentive Plan to increase the number of shares available
for issuance by an additional 4,000,000 shares of our Common Stock, for an aggregate total of 6,409,345 shares.
Types of equity awards that can be granted under the Equity Incentive Plan include options, restricted stock ("RS"), restricted
stock units ("RSU"), performance shares ("PS") and performance share units ("PSU"). We have not granted options under the
Equity Incentive Plan.
A RS 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
stock, are entitled to receive dividends and other distributions thereon (although payment may be deferred until the shares have
vested) and are considered to be currently issued and outstanding. Restricted stock awards will have a minimum vesting period
of one year.
A RSU 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 associated with unvested restricted stock units have
no voting rights but are entitled to receive dividends and other distributions thereon (although payment may be deferred until the
units have vested). Restricted stock units generally vest over a period of three years, but will have a minimum vesting period of
one year.
PS awards and PSU awards were granted to employees. Each PS and PSU may be redeemed for one share of our common
stock once vested and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The
grantee cannot transfer the PS or PSU awards except in very limited circumstances and with the consent of the compensation
committee. Shares of unvested PSU awards have no voting rights but are entitled to receive dividends and other distributions
thereon (although payment may be deferred until the shares or units, as the case may be, have vested). The PS and PSU awards
will only vest based upon the achievement of pre-established performance goals related to Adjusted EBITDA and new business
achieved measured over a period of time. The PS will vest based on company performance during Fiscal 2017 - Fiscal 2018 with
one additional year of time-based vesting. The PSU awards will vest based on company performance during Fiscal 2018 - Fiscal
2019 with one additional year of time-based vesting. The number of PS and PSU awards that will vest range from 0%-150% of
the target award based on actual performance.
We recognize compensation expense for awards ratably over the requisite service period of the award, which is generally three
years. We recognize compensation expense based on the number of awards expected to vest using an estimated average forfeiture
rate. We calculate the fair value of stock-based awards based on the closing price on the date the award was granted.
86
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Stock-Based Compensation Activity
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
Performance Shares
Performance Share Units
Weighted
Average
Grant Date
Fair Value
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Grant Date
Fair Value
Number of
Shares
Number of
Shares
Balance,
August 2, 2015 . .
Granted (a). . . .
Vested . . . . . . .
Forfeited . . . . .
Balance,
April 30, 2016. . . .
Granted . . . . . .
Vested . . . . . . .
Forfeited . . . . .
Balance,
April 29, 2017. . . .
Granted . . . . . .
Vested . . . . . . .
Forfeited (b). . .
Balance,
April 28, 2018. . . .
—
73,352
(27,272)
—
46,080
12,371
(46,080)
—
12,371
19,704
(12,371)
—
$ —
$ 13.08
$ 13.19
$ —
$ 13.02
$ 9.70
$ 13.02
$ —
$ 9.70
$ 6.09
$ 9.70
$ —
—
1,681,552
(431,106)
(8,979)
1,241,467
1,207,070
(680,489)
(36,425)
1,731,623
1,640,926
(697,370)
(355,055)
$ —
$ 10.12
$ 7.29
$ 9.92
$ 11.10
$ 9.70
$ 9.72
$ 9.69
$ 10.70
$ 5.88
$ 10.93
$ 9.04
—
—
—
—
—
406,078
—
—
406,078
—
—
(120,142)
$ —
$ —
$ —
$ —
$ —
$ 9.52
$ —
$ —
$ 9.52
$ —
$ —
$ 9.52
—
—
—
—
—
—
—
—
—
537,756
—
—
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 7.90
$ —
$ —
19,704
$ 6.09
2,320,124
$ 7.47
285,936
$ 9.52
537,756
$ 7.90
(a) Restricted Stock Units include the 877,426 converted RSU shares issued during Fiscal 2016 related to our spin-off from Barnes
& Noble, Inc.
(b) The PS and PSUs forfeitures reflect a cumulative adjustment to reflect changes to the expected level of achievement of the
respective grants.
Total fair value of shares of restricted stock awards and restricted stock units that vested since the inception of Equity Incentive
Plan was $1,080 and $17,384, respectively.
Stock-Based Compensation Expense
We recognized stock-based compensation expense for equity-based awards in selling and administrative expenses as follows:
Fiscal 2018
Fiscal 2017
Fiscal 2016
Restricted Stock Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted Stock Units Expense(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Shares Expense(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Share Units Expense(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Option Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120
$
280
$
8,370
(218)
187
—
8,431
655
—
—
Stock-Based Compensation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . $
8,459
$
9,366
$
840
5,710
—
—
120
6,670
(a) The stock-based compensation expense for the RSUs reflect the forfeiture adjustment for unvested shares related to the CEO
transition. See Part I - Item 1. Business and Part II - Item 8. Financial Statements and Supplementary Data - Note 9.
Supplementary Information - Restructuring and Other Charges of this Form 10-K for additional information.
(b) The PS and PSUs expenses reflect a cumulative adjustment to reflect changes to the expected level of achievement of the
respective grants.
87
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 (periods presented prior to the Spin-Off), Barnes & Noble allocated stock compensation
expense to us, including stock option expense related to stock options, 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 28, 2018 was $12,284 and is expected to be
recognized over a weighted-average period of 1.87 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 2018, Fiscal 2017 and Fiscal 2016, we had no material revenue or expense in jurisdictions outside the United States.
Impact of U.S. Tax Reform
The Tax Cuts and Jobs Act (the "Tax Legislation") was enacted on December 22, 2017. The Tax Legislation reduces the U.S.
federal corporate tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign
subsidiaries that were previously tax deferred, among other provisions. As of April 28, 2018, we had not completed the accounting
for the tax effects of enactment of the Act; however, as described below, we have made a reasonable estimate of the effects on
existing deferred tax balances and the one-time transition tax in accordance with SAB 118, “Income Tax Accounting Implications
of the Tax Cuts and Jobs Act” (SAB 118). These amounts are provisional and subject to change within the measurement period
proscribed by SAB 118 which is not to extend beyond one year from the enactment date. The most significant impact of the
legislation for the Company was a $20,425 reduction of the value of our net deferred (which represents future tax liabilities) and
long-term tax liabilities as a result of lowering the U.S. corporate income tax rate from 35% to 21%. We have provisionally recorded
a liability associated with the one-time transition tax, however, such amount is not material.
Income tax (benefits) provisions for Fiscal 2018, Fiscal 2017 and Fiscal 2016 are as follows:
Fiscal 2018
Fiscal 2017
Fiscal 2016
Current:
Federal (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(8,089) $
2,410
(5,679)
(13,250)
(1,514)
(14,764)
(20,443) $
14,872
1,819
16,691
(9,238)
(2,723)
(11,961)
4,730
$
$
13,019
1,783
14,802
(9,922)
(2,213)
(12,135)
2,667
(a) Income tax benefit caused largely by the revaluation due to the change in the U.S. corporate income tax rate from 35% to
21% as described above.
88
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Reconciliation between the effective income tax rate and the federal statutory income tax rate is as follows:
Federal statutory income tax rate (a) . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal income tax benefit . . . . . . . . .
Valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent book / tax differences. . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisional remeasurement due to Tax Legislation . . . . . . . . . . .
Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018
Fiscal 2017
Fiscal 2016
34.1%
(0.3)
—
(0.7)
(34.2)
7.5
0.2
0.9
7.5%
35.0%
(5.8)
—
25.5
—
—
(5.5)
(2.3)
46.9%
35.0%
(15.2)
50.6
31.1
—
—
(5.4)
0.8
96.9%
(a) Due to the Tax Legislation, we applied a U.S. statutory federal income tax rate of 33.9% for earnings between April 30, 2017
and January 27, 2018, and 21% for earnings between January 28, 2018 and April 28, 2018. The result is an effective statutory
rate of 34.1%.
The effective tax rate for Fiscal 2018 is significantly lower as compared to the comparable prior year periods due to the tax
benefit of Tax Legislation, which lowered the U.S. statutory tax rate from 35% to 21% effective January 1, 2018. The combined
benefit of our pre-tax book loss, plus the reduced U.S. income tax rate was partially offset by permanent differences, which includes
the nondeductible portion of the goodwill impairment.
As expected, nondeductible compensation expense for Fiscal 2018 was significantly lower compared to the prior fiscal year
as components of our executive compensation program qualified as deductible under Section 162(m) of the Internal Revenue
Code. In addition, our income tax provision for the preceding two fiscal years reflected certain non-recurring tax benefits arising
from the Spin-Off. These benefits did not impact the current fiscal year and the Company does not expect any similar non-recurring
tax benefits associated with the Spin-Off to impact our effective tax rate in future fiscal years and nondeductible compensation
expense may increase because of changes to Section 162(m) of the Internal Revenue Code.
One percentage point on our Fiscal 2018 effective tax rate is approximately $2,700. The permanent book / tax differences are
principally comprised of non-deductible compensation, non-deductible meals and entertainment costs, and federal income tax
credits.
In March 2016, the FASB issued ASU No. 2016-09 to provide guidance that changed the accounting for certain aspects of
share-based payments to employees. The guidance required, 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 early adopted
this standard during the fourth quarter of Fiscal 2016 as permitted. Prior to Fiscal 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.
89
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:
As of
April 28, 2018
April 29, 2017
Deferred tax assets:
$
Estimated accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
$
9,375
8,256
1,374
474
1,095
2,803
220
9,105
5,834
4,356
42,892
(932)
41,960
Intangible asset amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(44,066)
(44,066)
(2,106) $
13,047
16,969
1,780
881
1,826
8,728
206
—
4,916
5,106
53,459
(1,392)
52,067
(68,938)
(68,938)
(16,871)
As of April 28, 2018, we had $97 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 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
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 29, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
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 28, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
215
21
—
—
(215)
21
40
25
—
—
86
25
2
—
(16)
97
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 28, 2018
and April 29, 2017, we had accrued $5 and $3, respectively, for net interest and penalties. The change in the amount accrued for
net interest and penalties includes $2 in additions for net interest and penalties recognized in income tax expense in our Fiscal
2018 consolidated statement of operations.
90
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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
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 $932 and $1,392 for April 28, 2018 and April 29, 2017, respectively. The decrease
in the valuation allowance during Fiscal 2018 is due to the reduction of the U.S. income tax rate.
At April 28, 2018, and based on its tax year ended January 2018, the Company had state net operating loss carryforwards
(NOLs) of approximately $99,604 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 $278, which expire
beginning in 2021.
As of April 28, 2018, the Company has recorded $200 of foreign withholding tax related to repatriations of earnings from
certain foreign subsidiaries. If additional earnings in these foreign subsidiaries were repatriated in the future, additional income
and withholding tax expense would be incurred. Additional income and withholding tax expense on any future repatriated earnings
is estimated to be less than $100.
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 Part I - Item 1. Business and Part II - Item 8. Financial
Statements and Supplementary Data - Note 10. Barnes & Noble, Inc. Transactions, 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 2018
Fiscal 2017
Fiscal 2016
$
$
170,351
80,630
250,981
$
$
165,980
87,843
253,823
$
$
140,743
101,552
242,295
Our contracts with colleges and universities are typically five years with renewal options 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
approximately 69% of our contracts with colleges and universities that include minimum guarantees, the minimum guaranteed
amounts adjust annually to equal less than the prior year's commission earned.
91
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
As of April 28, 2018, future minimum annual obligations required under our contracts with colleges and universities and other
facility costs are as follows:
Fiscal Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
139,994
130,794
124,379
113,419
105,034
192,741
806,361
Purchase obligations, which includes information technology contracts and inventory purchase commitments, as of April 28,
2018 are as follows:
Less Than 1 Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1-3 Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3-5 Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,201
1,979
107
7,287
Note 17. Selected Quarterly Financial Information (Unaudited)
A summary of quarterly financial information for Fiscal 2018 and Fiscal 2017 is as follows:
July 29,
2017
October 28,
2017 (a)
January 27,
2018 (b)
April 28,
2018 (b)
Fiscal 2018 Quarterly Period Ended
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . $
Net (loss) income . . . . . . . . . . . . . . . . . . . . $
Basic (loss) earnings per common share:
355,711
65,200
$
$
(34,783) $
886,861
216,700
48,395
Net (loss) income. . . . . . . . . . . . . . . . . . $
(0.75) $
1.04
Diluted (loss) earnings per common share:
Net (loss) income. . . . . . . . . . . . . . . . . . $
(0.75) $
1.03
Fiscal 2017 Quarterly Period Ended
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . $
Net (loss) income . . . . . . . . . . . . . . . . . . . . $
Basic (loss) earnings per common share:
July 30,
2016
October 29,
2016
239,237
47,833
$
$
(27,916) $
770,671
171,954
29,289
Net (loss) income. . . . . . . . . . . . . . . . . . $
(0.60) $
0.63
Diluted (loss) earnings per common share:
Net (loss) income. . . . . . . . . . . . . . . . . . $
(0.60) $
0.63
$
$
$
$
$
$
$
$
$
$
603,391
$
$
146,999
(283,235) $
357,654
128,334
17,057
(6.04) $
0.36
(6.04) $
0.36
January 28,
2017
April 29,
2017 (c)
342,830
123,025
227
521,624
116,249
3,761
0.08
0.08
$
$
$
$
$
Fiscal Year
2018
2,203,617
557,233
(252,566)
(5.40)
(5.40)
Fiscal Year
2017
1,874,362
459,061
5,361
$
$
$
$
$
$
$
$
— $
0.12
— $
0.11
(a) We acquired Student Brands, LLC on August 3, 2017. The consolidated financial statements for the 52 weeks ended April 28,
2018 include the financial results of Student Brands from the acquisition date, August 3, 2017, to April 28, 2018.
(b) The net (loss) income for the 13 weeks ended April 28, 2018 reflects a 14,100 income tax benefit that should have been
recorded during the 13 weeks ended January 27, 2018 in connection with the tax deductible portion of the $313,130 goodwill
impairment. This amount is deemed an immaterial error correction as it relates to our interim condensed consolidated financial
statements and amounts recorded as of and for the 52 weeks ended April 28, 2018 appropriately reflect this item.
(c) We acquired MBS Textbook Exchange, LLC on February 27, 2017. The consolidated financial statements for the 52 weeks
ended April 29, 2017 include the financial results of MBS from the acquisition date, February 27, 2017, to April 29, 2017.
92
Schedule II—Valuation and Qualifying Accounts
Barnes & Noble Education, Inc.
Receivables Valuation and Qualifying Accounts
(In thousands)
For the 52 week periods ended April 28, 2018, April 29, 2017, and April 30, 2016:
Allowance for Doubtful Accounts
April 28, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 29, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales Returns Reserves
April 28, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 29, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at
beginning
of period
Charge
(recovery) to
costs and
expenses
Write-offs
Balance at
end
of period
$
$
$
$
$
$
2,259
2,320
2,313
Balance at
beginning
of period
6,817
757
679
$
$
$
$
$
$
3,518
3,459
4,000
Addition
Charged to
Costs
170,469
155,486
130,421
$
$
$
$
$
$
(3,694) $
(3,520) $
(3,993) $
2,083
2,259
2,320
Deductions
Balance at
end
of period
(172,057) $
(149,426) $
(130,343) $
5,229
6,817
757
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.
93
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
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. 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), excluding Student Brands, LLC ("Student Brands") as noted below, 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, and considering the items noted below, 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 (iii) that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and directors of the Company; and (iv) 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.
On August 3, 2017, the Company completed its acquisition of Student Brands. Management is in the process of evaluating
the existing controls and procedures of Student Brands, and integrating Student Brands into the Company's internal control over
financial reporting. In accordance with SEC staff guidance permitting a company to exclude an acquired business from
management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is
completed, management has excluded Student Brands from its assessment of the effectiveness of internal control over financial
reporting as of April 28, 2018. Student Brands represented 3.4% of the Company’s total assets as of April 28, 2018, 6.8% of the
Company's net assets as of April 28, 2018 and 0.7% of the Company’s total revenues for the 52 weeks ended April 28, 2018.
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 28, 2018.
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 96.
(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 28, 2018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over
financial reporting.
94
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.
On August 3, 2017, the Company completed its acquisition of Student Brands, LLC ("Student Brands"). Management is in the
process of evaluating the existing controls and procedures of Student Brands and integrating Student Brands into the Company’s
internal control over financial reporting. In accordance with SEC guidance permitting a company to exclude an acquired business
from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition
is completed, management has excluded Student Brands from its assessment of the effectiveness of internal control over financial
reporting as of April 28, 2018. The scope of management’s assessment of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures as of April 28, 2018 includes all of the Company’s consolidated operations except
for those disclosure controls and procedures of Student Brands that are subsumed by internal control over financial reporting.
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 96 of this report on Form 10-K for the year ended April 28, 2018.
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 2018 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.
95
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Barnes & Noble Education, Inc. and subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Barnes & Noble Education, Inc. and subsidiaries’ internal control over financial reporting as of April 28,
2018, 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). In our opinion, Barnes & Noble Education, Inc. and
subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of April 28,
2018, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls
of Student Brands, which is included in the fiscal 2018 consolidated financial statements of the Company and constituted 3.4%,
6.8% and 0.7% of total assets, net assets and revenues, respectively, as of April 28, 2018 and for the year then ended. Our audit
of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial
reporting of Student Brands.
We also have audited, in accordance with the standards of the Public company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of April 28, 2018 and April 29, 2017, the related consolidated
statements of operations, equity and cash flows for each of the three years in the period ended April 28, 2018, and the related notes
and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated June 20, 2018 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s 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 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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Iselin, New Jersey
June 20, 2018
96
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 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the
Company’s fiscal year ended April 28, 2018 (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 28, 2018:
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)
3,163,520
$
N/A
3,163,520
$
7.72
N/A
7.72
1,351,137
N/A
1,351,137
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.
97
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 for the years ended April 28, 2018, April 29, 2017, and April 30, 2016
Consolidated Balance Sheets as of April 28, 2018 and April 29, 2017
Consolidated Statements of Cash Flows for the years ended April 28, 2018, April 29, 2017, and April 30, 2016
Consolidated Statements of Equity for the years ended April 28, 2018 and April 29, 2017
Notes to Consolidated Financial Statements, for the years ended April 28, 2018, April 29, 2017, and April 30, 2016
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 28, 2018, April 29, 2017, and April 30, 2016
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.
2.2. . . . . . . .
Purchase Agreement, dated as of February 27, 2017, by and among Barnes & Noble Education, Inc., Ellar LLC,
Leonard Riggio and the other unitholders party thereto, and Ellar LLC, as the Designated Representative, filed
as Exhibit 2.1 to Report on Form 8-K filed with the SEC on February 28, 2017, and incorporated herein by
reference.
Articles of Incorporation and By-Laws.
3.1. . . . . . . .
3.2. . . . . . . .
Certificate of Amendment of 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 September 25, 2017, and incorporated
herein by reference.
Amended and Restated By-Laws, as Amended, Effective as of September 21, 2017, of Barnes & Noble Education,
Inc., filed as Exhibit 3.2 to the Report on Form 8-K filed with the SEC on September 25, 2017, and incorporated
herein by reference.
Material contracts.
10.1. . . . . . .
10.2. . . . . . .
10.3. . . . . . .
10.4. . . . . . .
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 10.5 to Report on Form 8-K filed with the SEC on August 3, 2015, and incorporated herein by
reference.
First Amendment to Credit Agreement, dated as of February 27, 2017, by and among the Company, the Lenders
and the Agent, filed as Exhibit 10.1 to Report on Form 8-K filed with the SEC on February 28, 2017, 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.
98
10.5. . . . . . .
10.6. . . . . . .
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.
10.7. . . . . . .
Barnes & Noble Education, Inc. Equity Incentive Plan, as amended September 16, 2017, filed as Appendix A
to the Proxy Statement for Annual Meeting filed with the SEC on August 17, 2016, and incorporated herein by
reference.
10.8. . . . . . .
Barnes & Noble Education, Inc. Form of Performance Unit Award Agreement, filed as Exhibit 10.5 to Report
on Form S-1/A filed with the SEC on June 29, 2015, and incorporated herein by reference.
10.9. . . . . . .
Barnes & Noble Education, Inc. Form of Performance-Based Stock Unit Award Agreement, filed as Exhibit
10.6 to Report on Form S-1/A filed with the SEC on June 29, 2015, and incorporated herein by reference.
10.10. . . . . .
Barnes & Noble Education, Inc. Form of Restricted Stock Unit Award Agreement, filed as Exhibit 10.7 to Report
on Form S-1/A filed with the SEC on June 29, 2015, and incorporated herein by reference.
10.11. . . . . .
Barnes & Noble Education, Inc. Form of Restricted Stock Award Agreement, filed as Exhibit 10.8 to Report on
Form S-1/A filed with the SEC on June 29, 2015, and incorporated herein by reference.
10.12. . . . . .
Barnes & Noble Education, Inc. Performance Share Award Agreement, filed as Exhibit Form 10.1 to Report on
Form 10-Q filed with the SEC on September 8, 2016, and incorporated herein by reference.
10.13. . . . . .
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.
10.14. . . . . .
Retirement Letter Agreement, dated July 19, 2017, between Barnes & Noble Education, Inc., Barnes & Noble
College Booksellers, LLC and Max J. Roberts, filed as Exhibit 10.1 to the Report on Form 8-K filed with the
SEC on July 20, 2017, and incorporated herein by reference.
10.15. . . . . .
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.
10.16. . . . . .
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.
10.17. . . . . .
Amended and Restated Employment Agreement, dated July 19, 2017, between Barnes & Noble Education, Inc.
and Michael P. Huseby filed as Exhibit 10.2 to the Report on Form 8-K filed with the SEC on July 20, 2017,
and incorporated herein by reference.
10.18. . . . . .
Form of Director Indemnification Agreement
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
99
101.DEF . . .
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB. . .
XBRL Taxonomy Extension Label Linkbase Document
101.PRE . . .
XBRL Taxonomy Extension Presentation Linkbase Document
100
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 20, 2018
/s/ Michael P. Huseby
Michael P. Huseby
Chairman and 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/ 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 20, 2018
June 20, 2018
June 20, 2018
June 20, 2018
June 20, 2018
June 20, 2018
June 20, 2018
June 20, 2018
Chairman and 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
101
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, Michael P. Huseby, 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 20, 2018
By:
/s/ Michael P. Huseby
Michael P. Huseby
Chairman & 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 20, 2018
By:
/s/ Barry Brover
Barry Brover
Executive Vice President, 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 28, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael P.
Huseby, Chairman & 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/ Michael P. Huseby
Michael P. Huseby
Chairman & Chief Executive Officer
Barnes & Noble Education, Inc.
June 20, 2018
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 28, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry Brover,
Executive Vice President, 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
Executive Vice President, Chief Financial Officer
Barnes & Noble Education, Inc.
June 20, 2018
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.
CORPORATE
INFORMATION
Barnes & Noble Education, Inc.
• LEADERSHIP TEAM •
Michael P. Huseby
Chairman and Chief Executive Officer
Patrick Maloney
Executive Vice President, Operations;
President, Barnes & Noble College
Barry Brover
Executive Vice President, Chief Financial Officer
Kanuj Malhotra
Executive Vice President, Corporate Development;
President, Digital Student Solutions
Michael C. Miller
Executive Vice President,
Corporate Strategy and General Counsel
Stephen H. Culver
Senior Vice President, Chief Information Officer
JoAnn Magill
Senior Vice President, Human Resources
Seema C. Paul
Senior Vice President, Chief Accounting Officer
Barnes & Noble Education, Inc.
• BOARD OF DIRECTORS •
Michael P. Huseby
Chairman and Chief Executive Officer,
Barnes & Noble Education, Inc.
Emily C. Chiu
Principal, Square, Inc.
Daniel A. DeMatteo
Executive Chairman, GameStop Corp.
David G. Golden
Managing Partner, Revolution Ventures
John R. Ryan
President and Chief Executive Officer,
Center for Creative Leadership
Jerry Sue Thornton
Chief Executive Officer,
Dream Catcher Educational Consulting
STOCKHOLDER
INFORMATION
• STOCK PERFORMANCE •
The Stock Price Performance Chart below compares the
cumulative stockholder return of the Company with that of
the S&P 500 Index and the Dow Jones US Specialty Retailers
Index since the date of the Spin-off from Barnes & Noble,
Inc. on August 2, 2015. The comparison assumes $100 was
invested on August 2, 2015 in shares of our common stock
and in each of the indices show, and assumes that all of the
dividends were reinvested.
COMPARISON OF 33 MONTH
CUMULATIVE TOTAL RETURN*
Among Barnes & Noble Education, the S&P 500 Index
and the Dow Jones US Specialty Retailers Index
*$100 invested on 8/3/15 in stock or 7/31/15 in index, including reinvestment of dividends.
Fiscal year ending April 30.
Copyright© 2018 Standard & Poor’s, a division of S&P Global. All rights reserved.
Copyright© 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
Corporate Headquarters
Barnes & Noble Education, Inc.
120 Mountain View Blvd., Basking Ridge, NJ 07920
Common Stock
New York Stock Exchange, Symbol: BNED
Stock Transfer & Registrar
Computershare
PO Box 505000, Louisville, KY 40233-5000
Stockholder Inquiries: (866) 484-7158
Independent Registered Public Accountants
Ernst & Young LLP
99 Wood Avenue South, Iselin, NJ 08830
Investor Relations
Investor Relations Department
Inquiries: (908) 991-2966
Stockholder Services
General financial information, as well as copies of our
Annual Reports, Form 10-K and Form 10-Q documents and other
financial information, can be obtained free of charge on the
“Investor Relations” section of the Company’s corporate
website: www.bned.com.
David A. Wilson
Former President and Chief Executive Officer,
Graduate Management Admission Council
Annual Stockholder Meeting
Embassy Suites by Hilton
250 Connell Drive, Berkeley Heights, NJ 07922
September 25, 2018 – 9:00 a.m. ET
Serving all who work to elevate
their lives through education