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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________

FORM 10-Q

_______________________________________________

(Mark One)

x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 30, 2021

OR

¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission File Number: 1-37499

_______________________________________________

(a)    For the 26 weeks ended October 30, 2021, gross margin includes a merchandise inventory loss of $434 in the Retail Segment. See Note 2. Summary of Significant Accounting Policies - Merchandise Inventories.

Note 5. Equity and Earnings Per Share

Equity

During the 26 weeks ended October 30, 2021, our shareholders approved an amendment to the Equity Incentive Plan to increase the number of shares available for issuance by an additional 3,000,000 shares of our Common Stock, for an aggregate total of 13,409,345 shares.

Share Repurchases

On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50,000, in the aggregate, of our outstanding Common Stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. During the 26 weeks ended October 30, 2021, we did not repurchase shares of our Common Stock under the program and as of October 30, 2021, approximately $26,669 remains available under the stock repurchase program.

During the 26 weeks ended October 30, 2021, we repurchased 238,170 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

Earnings Per Share

Basic EPS is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the year. We include participating securities (unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of unvested restricted stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. During the 13 weeks ended October 30, 2021 and October 31, 2020, average shares of 523,447 and 1,932,628 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. During the 26 weeks ended October 30, 2021 and October 31, 2020, average shares of 3,771,594 and 2,849,291 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively.

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 26 weeks ended October 30, 2021 and October 31, 2020

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

(unaudited)

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

			13 weeks ended												26 weeks ended
(shares in thousands)			October 30, 2021						October 31, 2020						October 30, 2021						October 31, 2020
Numerator for basic earnings per share:
Net income (loss) available to common shareholders			$	22,528					$	7,515					$	(21,818)					$	(39,137)
Less allocation of earnings to participating securities			(64)						(6)						—						—
Net income (loss) available to common shareholders			$	22,464					$	7,509					$	(21,818)					$	(39,137)
Numerator for diluted earnings per share:
Net income (loss) available to common shareholders			$	22,464					$	7,509					$	(21,818)					$	(39,137)
Allocation of earnings to participating securities			64						6						—						—
Less diluted allocation of earnings to participating securities			(61)						(6)						—						—
Net income (loss) available to common shareholders			$	22,467					$	7,509					$	(21,818)					$	(39,137)
Denominator for basic earnings per share:
Basic weighted average shares of Common Stock			51,666						48,804						51,570						48,608
Denominator for diluted earnings per share:
Basic weighted average shares of Common Stock			51,666						48,804						51,570						48,608
Average dilutive restricted stock units			611						235						—						—
Average dilutive performance shares			—						—						—						—
Average dilutive restricted shares			126						18						—						—
Average dilutive performance share units			255						224						—						—
Average dilutive stock options			1,910						147						—						—
Diluted weighted average shares of Common Stock			54,568						49,428						51,570						48,608
Earnings (Loss) per share of Common Stock:
Basic			$	0.43					$	0.15					$	(0.42)					$	(0.81)
Diluted			$	0.41					$	0.15					$	(0.42)					$	(0.81)

 

Note 6. Fair Value Measurements

In accordance with ASC No. 820, Fair Value Measurements and Disclosures, the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1—Observable inputs that reflect quoted prices in active markets

Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable

Level 3—Unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions

Our financial instruments include cash and cash equivalents, receivables, accrued liabilities and accounts payable. The fair values of cash and cash equivalents, receivables, accrued liabilities and accounts payable approximates their carrying values because of the short-term nature of these instruments, which are all considered Level 1. The fair value of short-term and long-term debt approximates its carrying value.

Non-Financial Assets

Our non-financial assets include goodwill, property and equipment, operating lease right-of-use assets, and intangible assets. Such assets are reported at their carrying values and are not subject to recurring fair value measurements. We review our

long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets.

Non-Financial Liabilities

We granted phantom share units as long-term incentive awards which are settled in cash based on the fair market value of a share of common stock of the Company at each vesting date. The fair value of the liability for the cash-settled phantom share unit awards will be remeasured at the end of each reporting period through settlement to reflect current risk-free rate and volatility assumptions. As of October 30, 2021, we recorded a liability of $3,474 (Level 2 input) which is reflected in accrued liabilities ($2,345) and other long-term liabilities ($1,129) on the condensed consolidated balance sheet. As of October 31, 2020, we recorded a liability of $224 (Level 2 input) which is reflected in accrued liabilities $130 and other long-term liabilities $94 on the condensed consolidated balance sheet. For additional information, see Note 10. Long-Term Incentive Plan Compensation Expense.

Note 7. Credit Facility

We have a credit agreement (the “Credit Agreement”), amended March 31, 2021 and March 1, 2019, under which the lenders committed to provide us with a 5 year asset-backed revolving credit facility in an aggregate committed principal amount of $400,000 (the “Credit Facility”) effective from the date of the amendment. We have the option to request an increase in commitments under the Credit Facility of up to $100,000, subject to certain restrictions. Proceeds from the Credit Facility are used for general corporate purposes, including seasonal working capital needs. The agreement includes an incremental first in, last out seasonal loan facility (the “FILO Facility”) for a $100,000 incremental facility maintaining the maximum availability under the Credit Agreement at $500,000. On March 31, 2021, we were granted a waiver to the condition to the current draw under the FILO Facility.

For additional information including interest terms and covenant requirements related to the Credit Facility, refer to Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021.

During the 26 weeks ended October 30, 2021, we borrowed $259,720 and repaid $254,020 under the Credit Agreement, with $183,300 of outstanding borrowings as of October 30, 2021, comprised entirely of borrowings under the Credit Facility. During the 26 weeks ended October 31, 2020, we borrowed $330,800 and repaid $406,000 under the Credit Agreement, with $99,500 of outstanding borrowings as of October 31, 2020, comprised entirely of borrowings under the Credit Facility. As of both October 30, 2021 and October 31, 2020, we have issued $4,759 in letters of credit under the Credit Facility.

Note 8. Leases

We recognize lease assets and lease liabilities on the condensed consolidated balance sheets for substantially all lease arrangements as required by FASB ASC 842, Leases (Topic 842). Our portfolio of leases consists of operating leases comprised of operations agreements which grant us the right to operate on-campus bookstores at colleges and universities; real estate leases for office and warehouse operations; and vehicle leases. We do not have finance leases or short-term leases (i.e., those with a term of twelve months or less).

We recognize a right of use ("ROU") asset and lease liability in our condensed consolidated balance sheets for leases with a term greater than twelve months. Options to extend or terminate a lease are included in the determination of the ROU asset and lease liability when it is reasonably certain that such options will be exercised. Our lease terms generally range from one year to fifteen years and a number of agreements contain minimum annual guarantees, many of which are adjusted at the start of each contract year based on the actual sales activity of the leased premises for the most recently completed contract year.

Payment terms are based on the fixed rates explicit in the lease, including minimum annual guarantees, and/or variable rates based on: i) a percentage of revenues or sales arising at the relevant premises ("variable commissions"), and/or ii) operating expenses, such as common area charges, real estate taxes and insurance. For contracts with fixed lease payments, including those with minimum annual guarantees, we recognize lease expense on a straight-line basis over the lease term or over the contract year in order to best reflect the pattern of usage of the underlying leased asset and our minimum obligations arising from these types of leases. Our lease agreements do not contain any material residual value guarantees, material restrictions or covenants.

We used our incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable. We utilized an estimated collateralized incremental borrowing rate as of the effective date or the commencement date of the lease, whichever is later.

The following table summarizes lease expense:

The increase in lease expense is primarily due to higher sales for contracts based on a percentage of revenue during the 26 weeks ended October 30, 2021 and the impact of the timing and reduction of minimum contractual guarantees due to temporary store closings due to the COVID pandemic during the 26 weeks ended October 31, 2020.

The following table summarizes our minimum fixed lease obligations, excluding variable commissions, as of October 30, 2021:

Future lease payment obligations related to leases that were entered into, but did not commence as of October 30, 2021, were not material.

The following summarizes additional information related to our operating leases:

Note 9. Supplementary Information

Restructuring and other charges

During the 13 and 26 weeks ended October 30, 2021, we recognized restructuring and other charges totaling $1,116 and $3,739, respectively, comprised primarily of $418 and $1,968, respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($754 is included in accrued liabilities in the condensed consolidated balance sheet as of October 30, 2021), $698 and $1,771, respectively, for costs

associated with professional service costs for restructuring, process improvements, development and integration associated with the FLC Partnership, shareholder activist activities, and liabilities for a facility closure.

During the 13 and 26 weeks ended October 31, 2020, we recognized restructuring and other charges totaling $3,387 and $9,058, respectively, comprised primarily of $1,075 and $4,471, respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, ($7,092 is included in accrued liabilities in the condensed consolidated balance sheet as of October 31, 2020), $2,312 and $4,587, respectively, for costs associated with professional service costs for restructuring, process improvements, the financial advisor strategic review process, shareholder activist activities, and liabilities for a facility closure.

Note 10. Long-Term Incentive Plan Compensation Expense

We recognize compensation expense for restricted stock awards and performance share awards ratably over the requisite service period of the award, which is generally three years. We recognize compensation expense for these awards based on the number of awards expected to vest, which includes an estimated average forfeiture rate. We calculate the fair value of these awards based on the closing stock price on the date the award was granted. For those awards with market conditions, we have determined the grant date fair value using the Monte Carlo simulation model and compensation expense is recognized ratably over the requisite service period regardless of whether the market condition is satisfied.

For stock options granted with an "at market" exercise price, we determined the grant fair value using the Black-Scholes model and for stock options granted with "a premium" exercise price, we determined the grant date fair value using the Monte Carlo simulation model. The fair value models for stock options use assumptions that include the risk-free interest rate, expected volatility, expected dividend yield and expected term of the options.

During the 26 weeks ended October 30, 2021, we granted the following awards:

•47,216 restricted stock units ("RSU") awards and 35,412 restricted stock ("RS") awards with a one year vesting period to the Board of Directors ("BOD") members for annual compensation.

•809,282 restricted stock units ("RSU") awards to employees with a three year vesting period.

•322,495 stock options with an exercise price of $10.80 per stock option, which was the fair market value on the date of grant (Stock Option Grant #1) and 348,723 stock options with an exercise price of $13.30 per stock option, which was above the fair market value on the date of grant, (Stock Option Grant #2) granted to employees. The stock options are exercisable in four equal annual installments commencing one year after the date of grant and have a ten year term. Holders are not entitled to receive dividends (if any) prior to vesting and exercise of the options. The following summarizes the stock option fair value assumptions:

The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for periods corresponding to the expected stock option term. For Stock Option Grant #1, we are permitted to use the simplified approach to estimate the expected term of the stock options, which typically assumes exercise occurs at the mid-point between the end of the vesting period and the expiration date. The simplified approach is not allowed for premium-priced options (Stock Option Grant #2), which were estimated using a stock price multiple, as there is no option exercise history which to base an early exercise option. The expected stock option term represents the weighted average period of time that stock options granted are expected to be outstanding, based on vesting schedules and the

contractual term of the stock options. Volatility is based on the historical volatility of the Company’s common stock over a period of time corresponding to the expected stock option term.

•183,348 phantom share units granted to employees. Each phantom share represents the economic equivalent to one share of the Company's common stock and will be settled in cash based on the fair market value of a share of common stock at each vesting date in an amount not to exceed $32.40 per share. The phantom shares vest and will be settled in three equal installments commencing one year after the date of grant. The fair value of the phantom shares was determined using the closing stock price on the date of the award less the fair value of the call option which was estimated using the Black-Scholes model. The average fair value on the date of grant was $8.50 per phantom share using risk-free rates ranging from 0.08%-0.53% for the three tranches and annual volatility ranging from 78%-92% for the three tranches. The fair value of the liability for the cash-settled phantom share unit awards will be remeasured at the end of each reporting period through settlement to reflect current risk-free rate and volatility assumptions. As of October 30, 2021, we recorded a liability of $3,474 (Level 2 input) related to phantom share units grants which is reflected in accrued liabilities and other long-term liabilities on the condensed consolidated balance sheet.

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

Total unrecognized compensation cost related to unvested awards as of October 30, 2021 was $21,487 and is expected to be recognized over a weighted-average period of 2.8 years.

Note 11. Employee Benefit Plans

We sponsor defined contribution plans for the benefit of substantially all of the employees of BNC and DSS. MBS maintains a profit sharing plan covering substantially all full-time employees of MBS. For all plans, we are responsible to fund the employer contributions directly. Total employee benefit expense for these plans was $1,004 and $0 during the 13 weeks ended October 30, 2021 and October 31, 2020, respectively. Total employee benefit expense for these plans was $1,048 and $0 during the 26 weeks ended October 30, 2021 and October 31, 2020, respectively.

Effective April 2020, due to the significant impact as a result of COVID-19 related campus store closures, we temporarily suspended employer matching contributions into our 401(k) plans. The matching contributions were reinstated effective July 25, 2021.

Note 12. Income Taxes

We recorded an income tax benefit of $(203) on pre-tax income of $22,325 during the 13 weeks ended October 30, 2021, which represented an effective income tax rate of (0.9)% and an income tax benefit of $(1,694) on pre-tax income of $5,821 during the 13 weeks ended October 31, 2020, which represented an effective income tax rate of (29.1)%.

We recorded income tax expense of $196 on a pre-tax loss of $(21,622) during the 26 weeks ended October 30, 2021, which represented an effective income tax rate of (0.9)%% and an income tax benefit of $(16,610) on a pre-tax loss of $(55,747) during the 26 weeks ended October 31, 2020, which represented an effective income tax rate of 29.8%.

In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets would be realized. As of October 30, 2021, we determined that it was more likely than not that we would not realize certain deferred tax assets and our tax rate for the current fiscal year reflects this determination. We will continue to evaluate this position.

The effective tax rate for the 26 weeks ended October 30, 2021 is lower as compared to the prior year comparable period due to the assessment of the realization of deferred tax assets and loss carrybacks recorded in the prior year.

Note 13. Legal Proceedings

We are involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of our business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on our condensed consolidated financial position, results of operations, or cash flows.