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 ~~January 27, 2018~~October 30, 2021



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

For the transition period fromto

Commission File Number: 1-37499

BARNES & NOBLE EDUCATION, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

46-0599018

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

120 Mountain View Blvd.,

Basking Ridge, NJ

07920

(Address of Principal Executive Offices)

(Zip Code)

(Registrant’s Telephone Number, Including Area Code): (908) 991-2665

~~(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)~~Securities registered pursuant to Section 12(b) of the Act:


Title of Class	Trading Symbol	Name of Exchange on which registered
Common Stock, $0.01 par value per share	BNED	New York Stock Exchange

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation 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 x No ¨

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 the definitions of “large accelerated filer,” “accelerated ~~filer” and~~filer,” “smaller reporting ~~company”~~company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer

Accelerated filer

~~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 x

As of ~~February 16, 2018, 46,914,466~~November 26, 2021, 51,993,048 shares of Common Stock, par value $0.01 per share, were outstanding.

~~EXPLANATORY NOTE~~

~~Effective with the acquisition~~Table of MBS Textbook Exchange, LLC ("MBS") on February 27, 2017, we determined that we have two reportable segments: Barnes & Noble College Booksellers, LLC ("BNC") and MBS, whereas BNC was previously our only reportable segment prior to the acquisition. The condensed consolidated financial statements for the 13 and 39 weeks ended January 27, 2018 include the financial results of MBS and all material intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of MBS.Contents

On August 3, 2017, we acquired Student Brands, LLC ("Student Brands"), a leading direct-to-student subscription-based writing services business. The condensed consolidated financial statements for the 13 and 39 weeks ended January 27, 2018 include the financial results of Student Brands in the BNC segment from the date of acquisition, August 3, 2017, and the condensed consolidated financial statements for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of Student Brands.

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Fiscal Quarter Ended ~~January 27, 2018~~October 30, 2021

Index to Form 10-Q

Page No.

PART I -

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations – For the 13 and 3926 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

Condensed Consolidated Balance Sheets – As of ~~January 27, 2018, January 28, 2017~~October 30, 2021, October 31, 2020, and ~~April 29, 2017~~May 1, 2021

Condensed Consolidated Statements of Cash Flows – For the 3913 and 26 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

Condensed Consolidated Statements of Equity – As of ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

Notes to Condensed Consolidated Financial Statements

Note 1.

Organization

Note 2.

Summary of Significant Accounting Policies

Note 3.

~~Recent Accounting Pronouncements~~Revenue

Note 4.

~~Acquisitions~~Segment Reporting

Note 5.

~~Segment Reporting~~

~~Note 6.~~

Equity and Earnings Per Share

1615

Note 6.

Fair Value Measurements

Note 7.

~~Fair Values of Financial Instruments~~Credit Facility

Note 8.

~~Credit Facility~~Leases

1817

Note 9.

Supplementary Information

Note 10.

~~Barnes & Noble, Inc. Transactions~~Long-Term Incentive Plan Compensation Expense

1819

Note 11.

~~Related Party Transactions~~

~~Note 12.~~

Employee Benefit Plans

~~Stock-Based Compensation~~Legal Proceedings

2021

~~Note 14.~~

~~Income Taxes~~

~~Note 15.~~

~~Legal Proceedings~~

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Results of Operations

Adjusted Earnings, ~~(Non-GAAP)~~Adjusted EBITDA, and Free Cash Flow (non-GAAP)

3435

~~Adjusted EBITDA (Non-GAAP)~~

Liquidity and Capital Resources

3539

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3842

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

~~EXHIBIT INDEX~~

PART I - FINANCIAL INFORMATION

Item 1: Financial Statements

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)


	13 weeks ended					39 weeks ended						13 weeks ended				26 weeks ended
	January 27, 2018			January 28, 2017		January 27, 2018			January 28, 2017			October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Sales:											Sales:
Product sales and other	$	540,903		$	457,147	$	1,693,230		$	1,372,810	Product sales and other	$	577,329	$	551,832	$	805,099	$	745,042
Rental income	62,488			64,477		152,733			158,722		Rental income	49,648		43,653		62,672		54,457
Total sales	603,391			521,624		1,845,963			1,531,532		Total sales	626,977		595,485		867,771		799,499
Cost of sales:											Cost of sales:
Product and other cost of sales	419,641			366,190		1,326,221			1,098,682		Product and other cost of sales	453,070		452,475		627,231		618,240
Rental cost of sales	37,215			39,509		91,936			97,998		Rental cost of sales	28,348		27,725		34,952		35,112
Total cost of sales	456,856			405,699		1,418,157			1,196,680		Total cost of sales	481,418		480,200		662,183		653,352
Gross profit	146,535			115,925		427,806			334,852		Gross profit	145,559		115,285		205,588		146,147
Selling and administrative expenses	111,974			97,111		326,532			282,171		Selling and administrative expenses	107,902		91,972		194,137		162,015
Depreciation and amortization expense	17,007			13,149		48,728			39,057		Depreciation and amortization expense	11,952		13,193		24,576		27,256
Impairment loss (non-cash)	313,130			—		313,130			—

Restructuring and other charges	—			—		5,429			1,790		Restructuring and other charges	1,116		3,387		3,739		9,058
Transaction costs	49			467		1,895			2,638
Operating (loss) income	(295,625		)	5,198		(267,908		)	9,196
Operating income (loss)											Operating income (loss)	24,589		6,733		(16,864)		(52,182)
Interest expense, net	2,954			679		7,828			1,975		Interest expense, net	2,264		912		4,758		3,565
(Loss) income before income taxes	(298,579		)	4,519		(275,736		)	7,221
Income (loss) before income taxes											Income (loss) before income taxes	22,325		5,821		(21,622)		(55,747)
Income tax (benefit) expense	(15,344		)	758		(6,113		)	2,087		Income tax (benefit) expense	(203)		(1,694)		196		(16,610)
Net (loss) income	$	(283,235	)	$	3,761	$	(269,623	)	$	5,134
Net income (loss)											Net income (loss)	$	22,528	$	7,515	$	(21,818)	$	(39,137)

(Loss) Earnings per share of common stock:

Earnings (Loss) per share of common stock:											Earnings (Loss) per share of common stock:
Basic	$	(6.04	)	$	0.08	$	(5.77	)	$	0.11	Basic	$	0.43	$	0.15	$	(0.42)	$	(0.81)
Diluted	$	(6.04	)	$	0.08	$	(5.77	)	$	0.11	Diluted	$	0.41	$	0.15	$	(0.42)	$	(0.81)
Weighted average shares of common stock outstanding:											Weighted average shares of common stock outstanding:
Basic	46,914			46,276		46,712			46,265		Basic	51,666		48,804		51,570		48,608
Diluted	46,914			46,844		46,712			46,716		Diluted	54,568		49,428		51,570		48,608

See accompanying notes to condensed consolidated financial statements.

Table of Contents

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except per share data)


	January 27, 2018			January 28, 2017			April 29, 2017				October 30, 2021		October 31, 2020		May 1, 2021
	(unaudited)			(unaudited)			(audited)				(unaudited)		(unaudited)		(audited)
ASSETS										ASSETS
Current assets:										Current assets:
Cash and cash equivalents	$	22,373		$	132,061		$	19,003		Cash and cash equivalents	$	10,996	$	7,353	$	8,024
Receivables, net	243,434			178,825			86,040			Receivables, net	218,053		167,493		121,072
Merchandise inventories, net	614,499			494,032			434,064			Merchandise inventories, net	370,529		457,677		281,112
Textbook rental inventories	61,427			67,372			52,826			Textbook rental inventories	50,642		50,736		28,692
Prepaid expenses and other current assets	12,274			8,134			10,698			Prepaid expenses and other current assets	68,965		23,762		61,933

Total current assets	954,007			880,424			602,631			Total current assets	719,185		707,021		500,833
Property and equipment, net	110,987			107,272			116,613			Property and equipment, net	91,875		93,130		89,172
Operating lease right-of-use assets										Operating lease right-of-use assets	252,650		286,038		240,456
Intangible assets, net	224,314			191,628			209,885			Intangible assets, net	141,847		166,140		150,904
Goodwill	49,282			281,346			329,467			Goodwill	4,700		4,700		4,700
Deferred tax assets, net										Deferred tax assets, net	23,248		8,231		23,248
Other noncurrent assets	41,990			39,233			41,236			Other noncurrent assets	26,010		31,734		29,105
Total assets	$	1,380,580		$	1,499,903		$	1,299,832		Total assets	$	1,259,515	$	1,296,994	$	1,038,418
LIABILITIES AND STOCKHOLDERS' EQUITY										LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:										Current liabilities:
Accounts payable	$	488,954		$	480,378		$	192,742		Accounts payable	$	333,099	$	314,042	$	137,578
Accrued liabilities	252,202			207,731			120,478			Accrued liabilities	122,734		134,181		92,871
Current operating lease liabilities										Current operating lease liabilities	118,434		121,518		92,513
Short-term borrowings	—			—			100,000			Short-term borrowings	—		—		50,000
Total current liabilities	741,156			688,109			413,220			Total current liabilities	574,267		569,741		372,962
Long-term deferred taxes, net	4,278			22,709			16,871

Long-term operating lease liabilities										Long-term operating lease liabilities	171,341		198,990		184,780
Other long-term liabilities	73,468			76,196			96,433			Other long-term liabilities	51,113		48,329		52,042
Long-term borrowings	113,000			—			59,600			Long-term borrowings	183,300		99,500		127,600
Total liabilities	931,902			787,014			586,124			Total liabilities	980,021		916,560		737,384
Commitments and contingencies	—			—			—			Commitments and contingencies	—		—		—
Stockholders' equity:										Stockholders' equity:
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, 50,028, 48,972 and 49,372 shares, respectively; outstanding, 46,914, 46,276 and 46,517 shares, respectively	500			490			494

Preferred stock, $0.01 par value; authorized, 5,000 shares; 0 shares issued and 0 shares outstanding										Preferred stock, $0.01 par value; authorized, 5,000 shares; 0 shares issued and 0 shares outstanding	—		—		—
Common stock, $0.01 par value; authorized, 200,000 shares; issued, 54,162, 53,316 and 53,327 shares, respectively; outstanding, 51,976, 49,064 and 51,379 shares, respectively										Common stock, $0.01 par value; authorized, 200,000 shares; issued, 54,162, 53,316 and 53,327 shares, respectively; outstanding, 51,976, 49,064 and 51,379 shares, respectively	541		533		533

Additional paid-in capital	715,088			706,736			708,871			Additional paid-in capital	736,886		735,647		734,257
(Accumulated deficit) Retained earnings	(237,260		)	32,136			32,363
Accumulated deficit										Accumulated deficit	(436,432)		(321,964)		(414,614)
Treasury stock, at cost	(29,650		)	(26,473		)	(28,020		)	Treasury stock, at cost	(21,501)		(33,782)		(19,142)
Total stockholders' equity	448,678			712,889			713,708			Total stockholders' equity	279,494		380,434		301,034
Total liabilities and stockholders' equity	$	1,380,580		$	1,499,903		$	1,299,832		Total liabilities and stockholders' equity	$	1,259,515	$	1,296,994	$	1,038,418

See accompanying notes to condensed consolidated financial statements.

Table of Contents

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	39 weeks ended							26 weeks ended
	January 27, 2018			January 28, 2017				October 30, 2021		October 31, 2020
Cash flows from operating activities:							Cash flows from operating activities:
Net (loss) income	$	(269,623	)	$	5,134
Adjustments to reconcile net (loss) income to net cash flows from operating activities:
Net loss							Net loss	$	(21,818)	$	(39,137)
Adjustments to reconcile net loss to net cash flows from operating activities:							Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization expense	48,728			39,057			Depreciation and amortization expense	24,576		27,256
Content amortization expense							Content amortization expense	2,586		2,386
Amortization of deferred financing costs	1,127			488			Amortization of deferred financing costs	725		541
Impairment loss (non-cash)	313,130			—
Merchandise inventory loss							Merchandise inventory loss	434		—
Deferred taxes	(12,594		)	(7,156		)	Deferred taxes	—		(426)
Stock-based compensation expense	6,223			7,227			Stock-based compensation expense	2,600		2,701
Change in other long-term liabilities	(23,252		)	815
Changes in other long-term assets and liabilities, net							Changes in other long-term assets and liabilities, net	1,462		5,016
Changes in operating lease right-of-use assets and liabilities							Changes in operating lease right-of-use assets and liabilities	286		6,597
Changes in other operating assets and liabilities, net	77,701			99,437			Changes in other operating assets and liabilities, net	13,291		86,452
Net cash flows provided by operating activities	141,440			145,002			Net cash flows provided by operating activities	24,142		91,386
Cash flows from investing activities:							Cash flows from investing activities:
Purchases of property and equipment	(30,101		)	(26,488		)	Purchases of property and equipment	(21,264)		(16,197)
Acquisition of business, net of cash acquired	(58,259		)	(917		)
Net increase in other noncurrent assets	(1,479		)	(6,246		)
Net change in other noncurrent assets							Net change in other noncurrent assets	460		3
Net cash flows used in investing activities	(89,839		)	(33,651		)	Net cash flows used in investing activities	(20,804)		(16,194)
Cash flows from financing activities:							Cash flows from financing activities:

Proceeds from borrowings under Credit Agreement	481,600			116,100			Proceeds from borrowings under Credit Agreement	259,720		330,800
Repayments of borrowings under Credit Agreement	(528,200		)	(116,100		)	Repayments of borrowings under Credit Agreement	(254,020)		(406,000)

Purchase of treasury shares	(1,630		)	(7,858		)	Purchase of treasury shares	(2,359)		(881)
Net cash flows used in financing activities	(48,230		)	(7,858		)
Net increase in cash, cash equivalents and restricted cash	3,371			103,493
Proceeds from the exercise of stock options, net							Proceeds from the exercise of stock options, net	37		—
Net cash flows provided by (used in) financing activities							Net cash flows provided by (used in) financing activities	3,378		(76,081)

Net increase (decrease) in cash, cash equivalents and restricted cash							Net increase (decrease) in cash, cash equivalents and restricted cash	6,716		(889)
Cash, cash equivalents and restricted cash at beginning of period	21,697			30,866			Cash, cash equivalents and restricted cash at beginning of period	16,814		9,008
Cash, cash equivalents and restricted cash at end of period	$	25,068		$	134,359		Cash, cash equivalents and restricted cash at end of period	$	23,530	$	8,119
Changes in other operating assets and liabilities, net:							Changes in other operating assets and liabilities, net:
Receivables, net	$	(157,043	)	$	(127,369	)	Receivables, net	$	(96,981)	$	(76,642)
Merchandise inventories	(180,434		)	(181,285		)	Merchandise inventories	(89,851)		(28,738)
Textbook rental inventories	(8,601		)	(19,612		)	Textbook rental inventories	(21,950)		(10,026)
Prepaid expenses and other current assets	(1,079		)	(1,583		)	Prepaid expenses and other current assets	(3,288)		(7,585)
Accounts payable and accrued liabilities	424,858			429,286			Accounts payable and accrued liabilities	225,361		209,443
Changes in other operating assets and liabilities, net	$	77,701		$	99,437		Changes in other operating assets and liabilities, net	$	13,291	$	86,452

See accompanying notes to condensed consolidated financial statements.

Table of Contents

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Equity

(In thousands)

(unaudited)


																					Additional
																		Common Stock			Paid-In		Accumulated		Treasury Stock			Total
																		Shares	Amount		Capital		Deficit		Shares	Amount		Equity
Balance at May 2, 2020																	Balance at May 2, 2020	52,140	$	521	$	732,958	$	(282,827)	3,842	$	(32,901)	$	417,751
Stock-based compensation expense																	Stock-based compensation expense				1,521							1,521
Vested equity awards																	Vested equity awards	514	5		(5)							—
Shares repurchased for tax withholdings for vested stock awards																	Shares repurchased for tax withholdings for vested stock awards								179	(342)		(342)
Net loss																	Net loss						(46,652)					(46,652)
Balance August 1, 2020																	Balance August 1, 2020	52,654	$	526	$	734,474	$	(329,479)	4,021	$	(33,243)	$	372,278
Stock-based compensation expense																	Stock-based compensation expense				1,180							1,180
Vested equity awards																	Vested equity awards	662	7		(7)							—
Shares repurchased for tax withholdings for vested stock awards																	Shares repurchased for tax withholdings for vested stock awards								231	(539)		(539)
Net income																	Net income						7,515					7,515
Balance at October 31, 2020																	Balance at October 31, 2020	53,316	$	533	$	735,647	$	(321,964)	4,252	$	(33,782)	$	380,434


				Additional
	Common Stock			Paid-In			Retained			Treasury Stock				Total
	Shares	Amount		Capital			Earnings			Shares	Amount			Equity
Balance at April 30, 2016	48,645	$	486	$	699,513		$	27,002		1,890	$	(18,615	)	$	708,386

																					Additional
																		Common Stock			Paid-In		Accumulated		Treasury Stock			Total
																		Shares	Amount		Capital		Deficit		Shares	Amount		Equity
Balance at May 1, 2021																	Balance at May 1, 2021	53,327	$	533	$	734,257	$	(414,614)	1,948	$	(19,142)	$	301,034
Stock-based compensation expense				7,227										7,227			Stock-based compensation expense				1,122							1,122
Vested equity awards	327	4		(4		)								—			Vested equity awards	338	3		(3)							—
Common stock repurchased										689	(6,718		)	(6,718		)
Shares repurchased for tax withholdings for vested stock awards										117	(1,140		)	(1,140		)	Shares repurchased for tax withholdings for vested stock awards								130	(1,215)		(1,215)
Net loss																	Net loss						(44,346)					(44,346)
Balance July 31, 2021																	Balance July 31, 2021	53,665	$	536	$	735,376	$	(458,960)	2,078	$	(20,357)	$	256,595
Stock-based compensation expense																	Stock-based compensation expense				1,478							1,478
Vested equity awards																	Vested equity awards	487	5		(5)							—
Shares repurchased for tax withholdings for vested stock awards																	Shares repurchased for tax withholdings for vested stock awards								108	(1,144)		(1,144)
Issuance of common stock upon exercise of stock options																	Issuance of common stock upon exercise of stock options	10	—		37							37
Net income							5,134							5,134			Net income						22,528					22,528
Balance at January 28, 2017	48,972	$	490	$	706,736		$	32,136		2,696	$	(26,473	)	$	712,889
Balance October 30, 2021																	Balance October 30, 2021	54,162	$	541	$	736,886	$	(436,432)	2,186	$	(21,501)	$	279,494


				Additional
	Common Stock			Paid-In			Accumulated			Treasury Stock				Total
	Shares	Amount		Capital			Deficit			Shares	Amount			Equity
Balance at April 29, 2017	49,372	$	494	$	708,871		$	32,363		2,855	$	(28,020	)	$	713,708
Stock-based compensation expense				6,223										6,223
Vested equity awards	656	6		(6		)								—
Shares repurchased for tax withholdings for vested stock awards										259	(1,630		)	(1,630		)
Net loss							(269,623		)					(269,623		)
Balance at January 27, 2018	50,028	$	500	$	715,088		$	(237,260	)	3,114	$	(29,650	)	$	448,678

See accompanying notes to condensed consolidated financial statements.

Table of Contents

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the ~~13 and 39~~26 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

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

(unaudited)

Unless the context otherwise indicates, references in these Notes to the accompanying condensed consolidated financial statements to “we,” “us,” “our”, and “the Company” refer to Barnes & Noble Education or "BNED", Inc., a Delaware corporation. References to “Barnes & Noble College” ~~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.~~LLC.

This Form 10-Q should be read in conjunction with our Audited Consolidated Financial Statements and accompanying Notes to consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended ~~April 29, 2017,~~May 1, 2021, which includes consolidated financial statements for the Company for each of the three fiscal years ended ~~April 29, 2017, April 30, 2016 and~~May 1, 2021, May 2, ~~2015~~2020 and April 27, 2019 (Fiscal ~~2017,~~2021, Fiscal ~~2016~~2020 and Fiscal ~~2015,~~2019, respectively) and the unaudited condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the 13 weeks ended July ~~29, 2017 and the unaudited condensed consolidated financial statements in our Form 10-Q for the 26 weeks ended October 28, 2017.~~31, 2021.

Note 1. Organization

Description of Business

Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for ~~higher education~~college and university campuses and K-12 institutions across the United ~~States,~~States. We are also one of the largest textbook wholesalers, inventory management hardware and software providers, and a leading provider of digital education ~~services. Through its Barnes & Noble College (“BNC”)~~solutions. We operate 1,445 physical, virtual, and ~~MBS Textbook Exchange (“MBS”) subsidiaries, Barnes & Noble Education operates 1,480 physical and virtual~~custom bookstores and ~~serves~~serve more than 6 million students, delivering essential educational content and tools within a dynamic omnichannel retail environment. ~~We have two reportable segments: BNC and MBS.~~

BNC operates 782 physical campus bookstores as of January 27, 2018, the majority of which also have school-branded e-commerce sites operated by BNC. Our campus stores are a social and academic hub through which students can access affordable course materials and affinity products, including new and used print and digital textbooks, which are available for sale or rent, emblematic apparel and gifts, trade books, computer products, school and dorm supplies, café offerings, convenience food and beverages, and graduation products. BNC product offerings also include a suite of digital content, software, and services through our LoudCloud platform, such as predictive analytics, a variety of open educational resources ("OER") courseware, and competency-based learning solutions and a learning management system. Additionally, ~~through Student Brands, LLC, a leading~~we offer direct-to-student ~~subscription-based writing services business, BNC offers services focused on study tools, writing help, and literary research, all centered on assisting students with the writing process.~~

Our MBS subsidiary operates two highly integrated businesses. The MBS Direct business is the largest contract operator of virtual bookstores for college and university campuses and private/parochial K-12 schools. MBS Direct operates 698 virtual bookstores as of January 27, 2018, offering new and used print and digital textbooks, which are available for sale or rent. Additionally, MBS Direct sells textbooks directly to students through textbooks.com^SM, one of the largest e-commerce sites for new and used textbooks. MBS Wholesale is one of the largest textbook wholesalers in the country, providing a comprehensive selection of new and used textbooks at a low cost of supply to more than 3,700 physical bookstores (as of April 29, 2017) including BNC’s 782 campus bookstores.

Educational institutions increasingly are outsourcing bookstore operations, investing in data-driven analytical tools, and offering students more affordable options for textbooks and other learning tools. Given these continuing trends, we are well-positioned to capture new market share and partner with an increasing number of schools across the country. As demand for new, improved, and more affordable products and services to help students study more effectively and improve academic performance.

The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands. We expect to continue to introduce scalable and advanced digital solutions focused largely on the student, expand our e-commerce capabilities and accelerate such capabilities through our recent merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc. (“Fanatics”) and Fanatics Lids College, Inc. (“FLC”) (collectively referred to herein as the “FLC Partnership”), increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships. We expect general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the “FLC Partnership”. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo and emblematic general merchandise business.

We believe the Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands in the ~~rapidly changing education landscape,~~United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important to our relationship with leading publishers who rely on us as one of their primary distribution channels, and for being a trusted source for students in our direct-to-student digital solutions business.

We have 3 reportable segments: Retail, Wholesale and DSS. For additional information related to our strategies, operations and segments, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021.

Partnership with Fanatics and FLC

In December 2020, we ~~are working~~entered into the FLC Partnership. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to ~~evolve~~drive increased value for customers and accelerate growth of our ~~business model~~general merchandise business. Fanatics’ cutting-edge e-commerce and ~~enhance~~technology expertise offers our ~~solutions.~~ campus stores expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with FLC, the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.

We ~~aim to be an even stronger partner~~maintain our relationships with campus partners and remain responsible for ~~schools~~staffing and ~~meet customer needs by expanding~~managing the day-to-day operations of our ~~physical and virtual bookstore service capabilities, courseware offerings and digital platform services.~~campus bookstores. We believe that our recent strategic actions, including the acquisition of LoudCloud, Promoversity, MBS, and Student Brands and development of courseware, have substantially enhanced our competitive position. We continue to aggressively innovate and collaboratealso work closely with our campus partners to ~~provide solutions~~ensure that ~~extend well beyond course materials sourcing and sales to include new digital services that support successful student outcomes.~~each campus store

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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the ~~13 and 39~~26 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

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

(unaudited)

maintains unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus’s brand. We leverage Fanatics’ e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. FLC manages in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores.

In December 2020, Fanatics, Inc. and Lids Holdings, Inc. jointly made a strategic equity investment in BNED. On ~~August 3, 2017,~~April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement, we ~~acquired Student Brands, LLC ("Student Brands"). Student Brands operates multiple direct-to-student businesses focused~~sold our logo and emblematic general merchandise inventory to FLC, which was finalized during the first quarter of Fiscal 2022. As contemplated by the FLC Partnership's e-commerce agreement, we began to transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products during the first quarter of Fiscal 2022. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on ~~study tools, writing help, and literary research, all centered on assisting students with the writing process. Student Brands has~~ a substantial and growing community of online learners, with over 20 million unique monthly users across its digital properties, which include123HelpMe.com, Bartleby.com and StudyMode.com in the United States and TrabalhosFeitos.com, Etudier.com and Monografias.com in Brazil, France and Mexico, respectively. Student Brands utilizes deep data analytics and artificial intelligence to drive its content management system, the Content Brain. The Content Brain sifts through millions of pieces of content and provides the best answer for virtually any assignment a student is tackling. Student Brands generates revenue predominantly through its subscription-based services and digital advertisements. See ~~Note 4. Acquisitions.~~

~~Growth Drivers~~

~~The primary factors that we expect will enable us to grow our business are as follows:~~

~~Increasing market share with new accounts.~~

~~Adapting our merchandising strategy and product and service offerings.~~

~~Providing a scalable and leading digital product and solution set.~~

~~Expanding strategic opportunities through acquisitions and partnerships.~~

net basis. For additional information, ~~related to the growth drivers for ourbusiness,~~ see Part III - Item 8. Financial Statements and Supplementary Data - Note 2. ~~Management Discussion~~Summary of Significant Accounting Policies - Merchandise Inventories and Note 6. Equity and ~~Analysis - Overview~~ ~~in this Form 10-Q and~~ ~~Part I - Item 1. Business - Overview - Growth Drivers~~ Earnings Per Share in our Annual Report on Form 10-K for the fiscal year ended ~~April 29, 2017.~~May 1, 2021.

COVID-19 Business Impact

Since the fourth quarter of Fiscal 2020, our business has been significantly negatively impacted by the COVID-19 pandemic, resulting in an unprecedented material decline in revenue. Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. We cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including the Delta variant, on enrollments, university budgets, athletics and other areas that directly affect our business operations. Although most four year schools have returned to a traditional on-campus environment for learning in the current Fall semester, as well as hosted traditional on campus sporting activities and events, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and its effect on our ability to source products, including textbooks and general merchandise offerings.

The COVID-19 impact on higher education remains a fluid situation, and we are committed to supporting our campus partners through our flexible offerings and our ability to quickly pivot to ensure uninterrupted service as institutions manage the safety of their campuses. If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our results of operations, financial condition and cash flows from operations. We will continue to assess our operations and will continue to consider the guidance of local governments and our campus partners to how to operate our bookstores in the safest manner for our employees and customers. Please see our Part II - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

Our condensed consolidated financial statements reflect our condensed consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position and the results of its operations and cash flows for the periods reported. These condensed consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by GAAP.

The condensed consolidated financial statements are presented on a consolidated basis for the 13 and 39 weeks ended January 27, 2018 and include the financial results of MBS (which was acquired on February 27, 2017) and Student Brands (which was acquired on August 3, 2017). All material intercompany accounts and transactions have been eliminated in consolidation. ~~The condensed consolidated financial statements for~~

Our business is highly seasonal. Our quarterly results also may fluctuate depending on the ~~13 and 39 weeks ended January 28, 2017 exclude~~timing of the ~~financial~~start of the various schools' semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results ~~of MBS and Student Brands.~~

across periods. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. Our retail business (BNC and MBS Direct) sales are 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, which somewhat offsets the decreased first quarter sales attributable to our retail business. MBS has significantly lower operating profit or operating loss realized during the fourth quarter. Due to the seasonal nature of the business, the results of operations for the ~~13 and 39~~26 weeks ended ~~January 27, 2018~~October 30, 2021 are not indicative of the results expected for the 52 weeks ending April ~~28, 2018~~30, 2022 (Fiscal ~~2018)~~2022).

For certain of our retail operations, sales are generally highest in the second and third fiscal quarters, when students purchase and rent textbooks and other course materials for the typical academic year, and lowest in the first and fourth fiscal quarters. Sales attributable to our wholesale business are generally highest in our first, second and third quarters, as MBS sells textbooks and other course materials for retail distribution. Our DSS segment sales and operating profit are realized relatively consistently throughout the year.

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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)

Use of Estimates

In preparing financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Restricted Cash

~~BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES~~

~~Notes~~As of October 30, 2021 and October 31, 2020, we had restricted cash of $12,534 and $766, respectively, comprised of $11,637 and $0, respectively, in prepaid and other current assets in the consolidated balance sheet related to ~~Condensed Consolidated Financial Statements~~

~~For~~segregated funds for commission due to FLC for logo merchandise sales as per the 13FLC Partnership's merchandising agreement and ~~39 weeks ended January 27, 2018~~$897 and ~~January 28, 2017~~

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

~~(unaudited)~~

$766, respectively, in other noncurrent assets in the condensed consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.

Merchandise Inventories

Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory are based on our history of liquidating non-returnable ~~inventory.~~inventory, which includes certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand.

Cost is determined primarily by the retail inventory method for our ~~BNC~~Retail segment and last-in first out, or “LIFO”, method for our ~~MBS~~Wholesale segment. Our textbook inventories, for ~~BNC~~Retail and ~~MBS,~~Wholesale, and trade book inventories are valued using the LIFO method and the related reserve was not material to the recorded amount of our inventories.

For our ~~BNC segment,~~physical bookstores, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends.

The Retail Segment fulfillment order is directed first to our wholesale business before other sources of inventory are utilized. The products that we sell originate from a wide variety of domestic and international vendors. After internal sourcing, the bookstore purchases textbooks from outside suppliers and publishers.

As contemplated by the FLC Partnership merchandising agreement, we sold our logo and emblematic general merchandise inventory to FLC and received proceeds of $41,773, and recognized a merchandise inventory loss on the sale of $10,262 in cost of goods sold during the 52 weeks ended May 1, 2021 for the Retail Segment. The final inventory sale price was determined during the first quarter of Fiscal 2022, at which time, we received additional proceeds of $1,906, and recognized a merchandise inventory loss on the sale of $434 in cost of goods sold for the Retail Segment.

Textbook Rental Inventories

Physical textbooks out on rent are categorized as textbook rental inventories. At the time a rental transaction is consummated, the book is removed from merchandise inventories and moved to textbook rental inventories at cost. The cost of the book is amortized down to its estimated residual value over the rental period. The related amortization expense is included in cost of goods sold. At the end of the rental period, upon return, the book is removed from textbook rental inventories and recorded in merchandise inventories at its amortized cost.

Leases

We recognize lease assets and lease liabilities on the condensed consolidated balance sheet for all operating lease arrangements based on the present value of future lease payments as required by Accounting Standards Codification ("ASC") Topic 842, Leases. We do not recognize lease assets or lease liabilities for short-term leases (i.e., those with a term of twelve months or less). We recognize lease expense on a straight-line basis over the lease term for contracts with fixed lease payments, including those with fixed annual minimums, or over a rolling twelve-month period for leases where the annual guarantee resets at the start of each contract year, in order to best reflect the pattern of usage of the underlying leased asset. For additional information, see Note 8. Leases.

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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)

Revenue Recognition and Deferred Revenue

Product sales and rentals

The majority of our revenue is derived from the sale of products through our bookstore locations, including virtual bookstores, and our bookstore affiliated e-commerce websites, and contains a single performance obligation. Revenue from sales of our products ~~at physical locations~~ is recognized at the point in time when control of ~~sale. Revenue from sales of~~the products ~~ordered through~~is transferred to our ~~websites~~customers in an amount that reflects the consideration we expect to be entitled to in exchange for the products. For additional information, see Note 3. Revenue.

Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our ~~customers. Revenue from the sale~~customers for products ordered through our websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks ~~from our wholesale~~at which point title passes and ~~virtual bookstores~~risk of loss is ~~recognized at~~transferred to the ~~time of shipment.~~customer. Additional revenue is recognized for shipping charges billed to ~~customers.~~customers and shipping costs are accounted for as fulfillment costs within cost of goods sold.

~~We rent both physical and digital textbooks.~~ Revenue from the rental of physical textbooks, which contains a single performance obligation, is deferred and recognized over the rental period based on the passage of time commencing at the point of ~~sale.~~sale, when control of the product transfers to the customer. Rental periods are typically for a single semester and are always less than one year in duration. We offer a buyout option to allow the purchase of a rented physical textbook at the end of the rental ~~period.~~period if the customer desires to do so. We record the buyout purchase when the customer exercises and pays the buyout option ~~price.~~price which is determined at the time of the buyout. In these instances, we ~~would~~ accelerate any remaining deferred rental revenue at the point of sale.

Revenue from the rental of digital textbooks, which contains a single performance obligation, is recognized at the ~~time~~point of sale. A software feature is embedded within the content of our digital textbooks, such that upon expiration of the rental term the customer is no longer able to access the content. While the digital rental allows the customer to access digital content for a fixed period of time, once the digital content is delivered to the customer, our performance obligation is complete.

We ~~primarily~~estimate returns based on an analysis of historical experience. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.

For sales and rentals involving third-party products, we evaluate whether we are acting as a principal or an agent. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where we are the principal, we record ~~digital textbook rental~~revenue on a gross basis, and for those transactions where we are an agent to a third-party, we record revenue on a net basis. Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement, logo and emblematic general merchandise sales were fulfilled by FLC. During the first quarter of Fiscal 2022, as contemplated by the FLC Partnership's e-commerce agreement, we began to transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in ~~accordance with~~ ~~ASC 605-45-45, Reporting Revenue Gross~~our condensed consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a ~~Principal versus Net as an Agent~~.gross basis in the prior year.

We ~~provide direct-to-student~~do not have gift card or customer loyalty programs. We do not treat any promotional offers as expenses. Sales tax collected from our customers is excluded from reported revenues. Our payment terms are generally 30 days and do not extend beyond one year.

Service and other revenue

Service and other revenue is primarily derived from DSS segment subscription-based ~~writing services. Subscription~~service revenues and partnership marketing services which includes promotional activities and advertisements within our physical bookstores and web properties performed on behalf of third-party customers.

Subscription-based revenue, which contains a single performance obligation, is deferred and recognized based on the passage of time over the subscription period commencing at the point of sale, when control of the service ~~period.~~transfers to the customer. The majority of subscriptions sold are one month in duration.

~~Sales taxes collected from~~

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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)

Partnership marketing agreements often include multiple performance obligations which are individually negotiated with our ~~customers are excluded from reported revenues. All~~customers. For these arrangements that contain distinct performance obligations, we allocate the transaction price based on the relative standalone selling price method by comparing the standalone selling price (“SSP”) of ~~our sales are~~each distinct performance obligation to the total value of the contract. The revenue is recognized as ~~revenue~~each performance obligation is satisfied, typically at a point in time for partnership marketing service and overtime for advertising efforts as measured based upon the passage of time for contracts that are based on a ~~“net” basis, including sales in connection~~stated period of time or the number of impressions delivered for contracts with ~~any periodic promotions offered to customers. We do not treat any promotional offers as expenses.~~a fixed number of impressions.

Cost of Sales

Our cost of sales primarily ~~include~~includes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.

Selling and Administrative Expenses

Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include ~~stock-based~~long-term incentive plan compensation expense and general office expenses, such as ~~executive oversight,~~ merchandising, procurement, field support, finance and accounting, and operating costs related to our DSS segment subscription-based services business. Shared-service costs such as human resources, ~~benefits, training,~~ legal, ~~and~~treasury, information technology, ~~as well as~~and various other corporate level expenses and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services.

Evaluation of Goodwill and Other Long-Lived Assets

As of October 30, 2021, we had $0, $0 and $4,700 of goodwill on our ~~investments in~~condensed consolidated balance sheet related to our ~~digital platform~~Retail, Wholesale and ~~subscription-based services.~~

~~BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~For the 13 and 39 weeks ended January 27, 2018 and January 28, 2017~~

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

~~(unaudited)~~

~~Goodwill~~

DSS reporting units, respectively. In ~~January 2017, the Financial Accounting Standards Board (“FASB”) issued~~ ~~Accounting Standard Update (“ASU”) No. 2017-04,~~accordance with ASC 350-10, Intangibles - Goodwill and Other, ~~(Topic 350)~~ ~~to simplify the test for goodwill impairment. The revised guidance eliminated the former Step 2 of the~~we complete our annual goodwill impairment test ~~which required an entity to compute the implied fair value of its goodwill at the testing date in order to measure the amount~~as of the ~~impairment charge when the fair value~~first day of the ~~reporting unit failed Step 1~~third quarter of ~~the goodwill impairment test. Under the revised guidance, an entity would recognize an impairment charge for the amount by which~~each fiscal year, or whenever events or changes in circumstances indicate that 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. The guidance will be applied on a prospective basis. We have early adopted this standard in the second quarter of Fiscal 2018.

value. 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. 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 decline of our stock price and the corresponding reduction in our market capitalization had a significant affect on the implied control premium. As a corroborative source of information, we reconcile the estimated aggregate fair values of its reporting units to within a reasonable range of its market capitalization, which includes an assumed control premium (an adjustment reflecting an estimated fair value on a control basis), to verify the reasonableness of the fair value of its reporting units obtained through the aforementioned methods.

2021. The fair value of the ~~MBS~~DSS reporting unit ~~exceeded its~~was determined to exceed the carrying ~~value;~~value of the reporting unit; therefore, no goodwill impairment was recognized for the MBS segment. The carrying value of the BNC reporting unit exceeded its fair value and we recorded a goodwill impairment (non-cash impairment loss) of $313,130. As of January 27, 2018, we had $49,282 and $0 of goodwill remaining related to our MBS and BNC reporting units, respectively.recognized.

~~Evaluation of Other Long-Lived Assets Impairment~~

Our other long-lived assets include property and equipment and amortizable intangibles. As of January 27, 2018, we had $110,987 and $224,314 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 in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. ~~During~~As of October 30, 2021, our other long-lived assets include property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets of $91,875, $252,650, $141,847, and $26,010, respectively, on our condensed consolidated balance sheet.

Our business has been significantly negatively impacted by the ~~third quarter~~ongoing COVID-19 pandemic, as many schools continued to adjust their learning models and on-campus activities. Some of ~~Fiscal 2018,~~the negative trends impacting our results, such as fewer students returning to campus and restrictions to attendance for athletic events, have been marginally reversed during the current Fall semester. Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. We cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including the Delta variant, on enrollments, university budgets, athletics and other areas that directly affect our business operations. Although most four year schools have returned to a traditional on-campus environment for learning in ~~conjunction with~~ the ~~goodwill~~current Fall semester, as well as hosted traditional on campus sporting activities and events, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and its effect on our ability to source products, including textbooks and general merchandise offerings. We believe indicators of impairment ~~test noted above, we evaluated certain~~do not exist and the carrying amount of our long-lived assets ~~for impairment.~~

and property and equipment are recoverable and the fair value of the DSS reporting unit continues to exceed the carrying value of the reporting unit resulting in no goodwill impairment during the quarter. We ~~evaluated~~will continue to evaluate our other 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~~indicators of the asset group to the estimated future undiscounted cash flows. If the estimated future cash flows were less than the carrying amount of the asset group, an impairment loss calculation is prepared. 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.

~~BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~For the 13 and 39 weeks ended January 27, 2018 and January 28, 2017~~

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

~~(unaudited)~~

impairment.

Income Taxes

As of ~~January 27, 2018,~~October 30, 2021, other long-term liabilities includes ~~$54,370~~$25,335 related to the long-term tax payable associated with the LIFO reserve. The LIFO reserve is impacted by changes in the consumer price index ~~("CPI"~~(“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.

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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)

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$13,754~~approximately $745 of the LIFO reserve becoming currently payable. Given recent trends relating to the pricing and rental of textbooks, management believes that an additional portion of the remaining long-term tax payable associated with the LIFO reserve could be payable within the next twelve months. We are unable to predict future trends for CPI and inventory levels, therefore it is difficult to project with reasonable certainty how much of this liability will become payable within the next twelve months.

Note 3. ~~Recent Accounting Pronouncements~~Revenue

~~In February 2016, the FASB issued~~ ~~ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-01")~~ to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. We are required to adopt this standard in the first quarter of Fiscal 2020 and early adoption is permitted. The guidance will be applied on a modified retrospective basis beginning with the earliest period presented. We are currently evaluating this standard to determine the impact of adoption on our condensed 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~~sales of our products and services is recognized either at the point in ~~accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle~~time when control of the ~~guidance~~products is ~~that an entity should recognize revenue~~transferred to ~~depict the transfer of promised goods~~our customers or over time as services ~~to customers~~are provided in an amount that reflects the consideration ~~to which the entity expects~~we expect to be entitled to in exchange for ~~those goods~~the products or services. ~~New disclosures about~~See Note 2. Summary of Significant Accounting Policies for additional information related to our revenue recognition policies and Note 4. Segment Reporting for a description of each segment's product and service offerings.

Disaggregation of Revenue

The following table disaggregates the ~~nature, amount, timing~~revenue associated with our major product and ~~uncertainty of revenue~~service offerings:


	13 weeks ended				26 weeks ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Retail
Product Sales (a)	$	546,358	$	517,837	$	735,416	$	659,663
Rental Income	49,648		43,653		62,672		54,457
Service and Other Revenue (b)	12,946		15,024		21,333		21,170
Retail Total Sales	$	608,952	$	576,514	$	819,421	$	735,290
Wholesale Sales	$	21,669	$	36,387	$	66,153	$	116,681
DSS Sales (c)	$	8,279	$	5,947	$	16,582	$	11,819
Eliminations (d)	$	(11,923)	$	(23,363)	$	(34,385)	$	(64,291)
Total Sales	$	626,977	$	595,485	$	867,771	$	799,499

(a)Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement, logo 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~~emblematic general merchandise sales were fulfilled by ~~one year. We are required to adopt ASU 2014-09 in~~FLC. During the first quarter of Fiscal ~~2019 and early adoption is permitted. The new standard is required~~2022, as contemplated by the FLC Partnership's e-commerce agreement, we began 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 are in the process of analyzing the impacts of the guidance across all~~transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission 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~~earned for these sales ~~of finished products, which will continue to be recognized when control is transferred to the customer. Our assessment includes an evaluation of the impact that the guidance will have~~ on our accounting for marketing revenue and other income streams. We are evaluating the guidance for our software license revenue, which is currently not material and is recognized over time, but may be recognized at a ~~point~~net basis in time under the new guidance. We are continuing to evaluate our revenue streams related to our digital product offerings and subscription-based services. We do not have loyalty programs or gift cards. While our assessment of the impacts of the guidance is still in process, we believe the adoption of the guidance is not expected to have a material impact on our condensed consolidated financial statements, ~~other than~~as compared to the ~~additional disclosure requirements. We plan to adopt the standard~~recognition of logo and emblematic general merchandise sales on a gross basis in the ~~first quarter~~prior year.

(b)Service and other revenue primarily relates to brand partnerships and other service revenues.

(c)DSS sales primarily relate to direct-to-student subscription-based revenue.

(d)The sales eliminations represent the elimination of ~~Fiscal 2019 using~~Wholesale sales and fulfillment service fees to Retail and the ~~modified retrospective method.~~elimination of Retail commissions earned from Wholesale.

Contract Assets and Contract Liabilities

Contract assets represent the sale of goods or services to a customer before we have the right to obtain consideration from the customer. Contract assets consist of unbilled amounts at the reporting date and are transferred to accounts receivable when the rights become unconditional. Contract assets (unbilled receivables) were $0 as of October 30, 2021, October 31, 2020 and May 1, 2021 on our condensed consolidated balance sheets.

Contract liabilities represent an obligation to transfer goods or services to a customer for which we have received consideration and consists of our deferred revenue liability (deferred revenue). Deferred revenue consists of the following:

•advanced payments from customers related to textbook rental and subscription-based performance obligations, which are recognized ratably over the terms of the related rental or subscription periods;

Table of Contents

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the ~~13 and 39~~26 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

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

(unaudited)

•unsatisfied performance obligations associated with partnership marketing services, which are recognized when the contracted services are provided to our partnership marketing customers; and

~~Note 4.~~ ~~Acquisitions~~

~~Student Brands, LLC~~

~~On August 3, 2017, we acquired 100%~~•unsatisfied performance obligations associated with the premium paid for the sale of treasury shares, which are expected to be recognized over the term of the ~~equity interests~~e-commerce and merchandising contracts for Fanatics and FLC, respectively.

Deferred revenue of ~~Student Brands. Student Brands operates multiple direct-to-student businesses focused on study tools, writing help,~~$29,820, $32,844, and ~~literary research, 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,~~$13,469 is recorded in accrued liabilities and ~~the transaction was funded from cash on-hand~~$4,470, $0, and availability under our existing Credit Agreement. The Student Brands operations are part of the BNC segment. The final purchase price allocation was as follows: $28,300 intangible assets, $1,593 acquired working capital and $31,782 goodwill. This acquisition$4,670 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. Identified intangible assets include the following:

Type of Intangible Amount Estimated Useful Life
Content $ 14,500
5
Technology 8,000
5
Non-Compete Agreements 4,000
3
Subscriber List 1,800
2
Total Intangibles: $ 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, Wholesale and Direct. Refer to~~ ~~Note 1. Organization~~ of this Form 10-Q 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 13 weeks ended October 28, 2017, 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.~~

liabilities on our condensed consolidated balance sheets for the periods ended October 30, 2021, October 31, 2020 and May 1, 2021, respectively. As of October 30, 2021, we expect to recognize $29,820 of the deferred revenue balance within the next 12 months. The following ~~is a summary of consideration paid for the acquisition:~~table presents changes in deferred revenue associated with our contract liabilities:


	26 weeks ended
	October 30, 2021		October 31, 2020
Deferred revenue at the beginning of period	$	18,139	$	13,373
Additions to deferred revenue during the period	82,515		91,051
Reductions to deferred revenue for revenue recognized during the period	(66,364)		(71,580)
Deferred revenue balance at the end of period	$	34,290	$	32,844

Cash paid to Seller or escrow $ 165,499
Consideration to Seller for pre-closing costs 4,657
Cash paid for Seller closing costs 4,044
Contract purchase price $ 174,200
Consideration for payment to settle Seller's outstanding short-term borrowings 24,437
Consideration for reimbursement of pre-acquisition tax liability to Seller 15,556
Less: Consideration to Seller for pre-closing costs (4,657 )
Less: Consideration for settlement of pre-existing payable to Seller (21,674 )
Total value of consideration transferred $ 187,862

~~BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~For the 13 and 39 weeks ended January 27, 2018 and January 28, 2017~~

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

~~(unaudited)~~

~~The following is a summary of the fair values of the net assets acquired:~~

Total consideration transferred $ 187,862
Cash and cash equivalents $ 472
Accounts receivable, net 28,177
Merchandise inventory 128,431
Property and equipment 12,403
Intangible assets 21,576
Prepaid and other assets 4,748
Total assets $ 195,807
Accounts payable $ 35,383
Accrued expenses 8,799
Other long-term liabilities 13,044
Total liabilities $ 57,226
Net assets acquired $ 138,581
Goodwill $ 49,281

~~Identified intangible assets include the following:~~

Type of Intangible Amount Estimated Useful Life
Favorable Lease $ 1,076
6.5
Trade Name 3,500
10
Technology 1,500
3
Book Store Relationship 13,000
13
Direct Customer Relationship 2,000
15
Non-Compete Agreements 500
3
Total Intangibles: $ 21,576

Note 5. 4. Segment Reporting

We ~~identified~~have 3 reportable segments: Retail, Wholesale and DSS. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as “Corporate Services”.

We identify our segments ~~based on~~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. ~~Effective~~The following summarizes the three segments. For additional information about each segment's operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021.

Retail

The Retail Segment operates 1,445 college, university, and K-12 school bookstores, comprised of 794 physical bookstores and 651 virtual bookstores. Our bookstores typically operate under agreements with the ~~acquisition~~college, university, or K-12 schools to be the official bookstore and the exclusive seller of ~~MBS on February 27, 2017, we~~course materials and supplies, including physical and digital products. The majority of the physical campus bookstores have ~~determined that~~school-branded e-commerce sites which we operate ~~two reportable segments: BNC~~independently or along with our merchant partners, and ~~MBS. Prior~~which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts. The Retail Segment also offers inclusive access programs, in which course materials are offered at a reduced price through a fee charged by the ~~acquisition~~institution or included in tuition, and delivered to students on or before the first day of ~~MBS, BNC was our only reportable segment. Our international operations are not material~~class. Additionally, the Retail Segment offers a suite of digital content and ~~the majority~~services to colleges and universities, including a variety of open educational resource-based courseware.

Wholesale

The Wholesale Segment is comprised of our ~~revenue~~wholesale textbook business and ~~total assets are within the United States. For a description~~is one of the ~~BNC~~largest textbook wholesalers in the country. The Wholesale Segment centrally sources, sells, and ~~MBS businesses, refer to~~ ~~Note 1. Organization~~ ~~of this Form 10-Q.~~

The condensed consolidated financial statements for the 13 and 39 weeks ended January 27, 2018 include the financial results of MBS and all material intercompany accounts and transactions have been eliminated in consolidation. The eliminations are primarily related to the following intercompany activities:

~~BNC purchases~~distributes new and used textbooks ~~from MBS for distribution at BNC's~~to approximately 3,200 physical bookstores (including our Retail Segment's 794 physical bookstores) and sources and distributes new and used textbooks to our 651 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to approximately 400 college bookstores. ~~We eliminate~~

DSS

The Digital Student Solutions (“DSS”) Segment includes direct-to-student products and services to assist students to study more effectively and improve academic performance. The DSS Segment is comprised of the ~~net sales from MBS~~operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, and ~~the intercompany profit in ending inventory,~~bartleby®, a direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, writing and tutoring.

~~MBS pays commissions to BNC for certain textbooks it sells to MBS that cannot be returned to suppliers or used in their stores. The commission is based on the volume~~

Table of ~~textbooks sold to MBS and with respect to the textbook requirements of certain distance learning programs that MBS fulfills on BNC's behalf.~~Contents

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the ~~13 and 39~~26 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

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

(unaudited)

Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources.

Intercompany Eliminations

~~Sales~~The eliminations are primarily related to the following intercompany activities:

•The sales eliminations represent the elimination of ~~MBS~~Wholesale sales and fulfillment service fees to ~~BNC~~Retail and the elimination of ~~BNC~~Retail commissions earned from ~~MBS. Cost~~Wholesale, and

•These cost of sales eliminations represent (i) the recognition of intercompany profit for ~~BNC~~Retail inventory that was purchased from ~~MBS~~Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual store sales, net of (ii) the elimination of intercompany profit for ~~MBS~~Wholesale inventory purchases by ~~BNC~~Retail that remain in ending inventory at the end of the current period. ~~Gross margin eliminations reflect~~

Our international operations are not material and the ~~net impact~~majority of the ~~sales eliminations~~revenue and ~~cost of sales eliminations.~~total assets are within the United States.

Summarized financial information for our reportable segments is reported below:


	13 weeks ended				26 weeks ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Sales:
Retail	$	608,952	$	576,514	$	819,421	$	735,290
Wholesale	21,669		36,387		66,153		116,681
DSS	8,279		5,947		16,582		11,819
Elimination	(11,923)		(23,363)		(34,385)		(64,291)
Total Sales	$	626,977	$	595,485	$	867,771	$	799,499

Gross Profit
Retail (a)	$	128,825	$	95,512	$	176,968	$	111,647
Wholesale	5,620		10,714		16,025		27,471
DSS	6,906		4,662		13,936		9,408
Elimination	4,208		4,397		(1,341)		(2,379)
Total Gross Profit	$	145,559	$	115,285	$	205,588	$	146,147

Depreciation and Amortization
Retail	$	8,669	$	9,985	$	18,076	$	20,555
Wholesale	1,364		1,322		2,664		2,617
DSS	1,902		1,855		3,801		4,020
Corporate Services	17		31		35		64
Total Depreciation and Amortization	$	11,952	$	13,193	$	24,576	$	27,256

Operating Income (Loss)
Retail	$	29,596	$	7,072	$	(1,760)	$	(47,744)
Wholesale	(131)		5,246		4,983		16,917
DSS	(2,301)		(2,196)		(3,617)		(3,651)
Corporate Services	(6,868)		(7,844)		(15,226)		(15,396)
Elimination	4,293		4,455		(1,244)		(2,308)
Total Operating Income (Loss)	$	24,589	$	6,733	$	(16,864)	$	(52,182)

13 weeks ended 39 weeks ended
January 27,
2018 January 28,
2017 January 27, 2018 January 28, 2017
Sales:
BNC $ 506,460
$ 521,624
$ 1,518,224
$ 1,531,532
MBS 138,927
—
413,579
—
Elimination (41,996 ) —
(85,840 ) —
Total Sales $ 603,391
$ 521,624
$ 1,845,963
$ 1,531,532

Gross Profit
BNC $ 117,413
$ 115,925
$ 337,875
$ 334,852
MBS 34,949
—
95,713
—
Elimination (5,827 ) —
(5,782 ) —
Total Gross Profit $ 146,535
$ 115,925
$ 427,806
$ 334,852

Depreciation and Amortization
BNC $ 15,411
$ 13,149
$ 43,879
$ 39,057
MBS 1,596
—
4,849
—
Total Depreciation and Amortization $ 17,007
$ 13,149
$ 48,728
$ 39,057

Operating (Loss) Income
BNC ^(a),(b),(c)
$ (308,954 ) $ 5,198
$ (310,004 ) $ 9,196
MBS 19,156
—
47,878
—
Elimination (5,827 ) —
(5,782 ) —
Total Operating (Loss) Income $ (295,625 ) $ 5,198
$ (267,908 ) $ 9,196

The following is a reconciliation of segment Operating (Loss) Income to consolidated (Loss) Income Before Income Taxes:
Total Operating (Loss) Income $ (295,625 ) $ 5,198
$ (267,908 ) $ 9,196
Interest Expense, net (2,954 ) (679 ) (7,828 ) (1,975 )
Total (Loss) Income Before Income Taxes $ (298,579 ) $ 4,519
$ (275,736 ) $ 7,221

Table of Contents

~~(a)~~ During the 39 weeks ended January 27, 2018, we recognized expenses totaling approximately $5,361 related to the resignation of Mr. Max J. Roberts as Chief Executive Officer of the Company and the appointment of Mr. Michael P. Huseby to the position of Chief Executive Officer and Chairman of the Board, both effective as of September 19, 2017. For additional information, refer to ~~Note 9. Supplemental Information - Restructuring and Other Charges~~ ~~in this Form 10-Q~~.

(b) On August 3, 2017, we acquired Student Brands, LLC, a leading direct-to-student subscription-based writing services business. The condensed consolidated financial statements for the 13 and 39 weeks ended January 27, 2018 include the financial results of Student Brands in the BNC segment from the date of acquisition, August 3, 2017, and the condensed consolidated financial statements for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of Student Brands.

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the ~~13 and 39~~26 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

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

(unaudited)


	13 weeks ended				26 weeks ended
Reconciliation of segment Operating Income (Loss) to consolidated Income (Loss) Before Income Taxes:	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Total Operating Income (Loss)	$	24,589	$	6,733	$	(16,864)	$	(52,182)
Interest Expense, net	2,264		912		4,758		3,565
Income (Loss) Before Income Taxes	$	22,325	$	5,821	$	(21,622)	$	(55,747)

~~(c)~~

(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.

During the 13 weeks ended January 27, 2018, we completed our annual goodwill impairment test. Based on the results of the impairment test, the carrying value of the BNC reporting unit exceeded its fair value and we recorded a goodwill impairment (non-cash impairment loss) of $313,130 for the BNC segment. For additional information, see ~~Note 2. Summary of Significant Accounting Policies~~ ~~in this Form 10-Q.~~

Note 6. 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 3926 weeks ended ~~January 27, 2018,~~October 30, 2021, we did not repurchase shares of our ~~common stock. As~~Common Stock under the program and as of ~~January 27, 2018,~~October 30, 2021, approximately $26,669 remains available under the stock repurchase program.

During the 3926 weeks ended ~~January 27, 2018,~~October 30, 2021, we ~~also~~ repurchased ~~259~~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 ~~and 39~~ weeks ended ~~January 27, 2018,~~October 30, 2021 and October 31, 2020, average shares of ~~2,844~~523,447 and ~~2,477~~1,932,628 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. During the ~~13 and 39~~26 weeks ended ~~January 28, 2017,~~October 30, 2021 and October 31, 2020, average shares of ~~339~~3,771,594 and ~~395~~2,849,291 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively.

Table of Contents

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the ~~13 and 39~~26 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

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

(unaudited)

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


														13 weeks ended				26 weeks ended
	13 weeks ended						39 weeks ended
	January 27, 2018			January 28, 2017			January 27, 2018			January 28, 2017
Numerator for basic and diluted earnings per share:
Net (loss) income	$	(283,235	)	$	3,761		$	(269,623	)	$	5,134
(shares in thousands)													(shares in thousands)	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Numerator for basic earnings per share:													Numerator for basic earnings per share:
Net income (loss) available to common shareholders													Net income (loss) available to common shareholders	$	22,528	$	7,515	$	(21,818)	$	(39,137)
Less allocation of earnings to participating securities	—			(1		)	—			(3		)	Less allocation of earnings to participating securities	(64)		(6)		—		—
Net (loss) income available to common shareholders	$	(283,235	)	$	3,760		$	(269,623	)	$	5,131
Net income (loss) available to common shareholders													Net income (loss) available to common shareholders	$	22,464	$	7,509	$	(21,818)	$	(39,137)

Numerator for diluted earnings per share:													Numerator for diluted earnings per share:
Net (loss) income available to common shareholders	$	(283,235	)	$	3,760		$	(269,623	)	$	5,131
Net income (loss) available to common shareholders													Net income (loss) available to common shareholders	$	22,464	$	7,509	$	(21,818)	$	(39,137)
Allocation of earnings to participating securities	—			1			—			3			Allocation of earnings to participating securities	64		6		—		—
Less diluted allocation of earnings to participating securities	—			(1		)	—			(3		)	Less diluted allocation of earnings to participating securities	(61)		(6)		—		—
Net (loss) income available to common shareholders	$	(283,235	)	$	3,760		$	(269,623	)	$	5,131
Net income (loss) available to common shareholders													Net income (loss) available to common shareholders	$	22,467	$	7,509	$	(21,818)	$	(39,137)

Denominator for basic earnings per share:													Denominator for basic earnings per share:
Basic weighted average shares of Common Stock	46,914			46,276			46,712			46,265			Basic weighted average shares of Common Stock	51,666		48,804		51,570		48,608

Denominator for diluted earnings per share:													Denominator for diluted earnings per share:
Basic weighted average shares of Common Stock	46,914			46,276			46,712			46,265			Basic weighted average shares of Common Stock	51,666		48,804		51,570		48,608
Average dilutive restricted stock units	—			512			—			397			Average dilutive restricted stock units	611		235		—		—
Average dilutive performance shares	—			52			—			33			Average dilutive performance shares	—		—		—		—
Average dilutive restricted shares	—			4			—			21			Average dilutive restricted shares	126		18		—		—
Average dilutive performance share units	—			—			—			—			Average dilutive performance share units	255		224		—		—
Average dilutive options	—			—			—			—
Average dilutive stock options													Average dilutive stock options	1,910		147		—		—
Diluted weighted average shares of Common Stock	46,914			46,844			46,712			46,716			Diluted weighted average shares of Common Stock	54,568		49,428		51,570		48,608

(Loss) Earnings per share of Common Stock:
Earnings (Loss) per share of Common Stock:													Earnings (Loss) per share of Common Stock:
Basic	$	(6.04	)	$	0.08		$	(5.77	)	$	0.11		Basic	$	0.43	$	0.15	$	(0.42)	$	(0.81)
Diluted	$	(6.04	)	$	0.08		$	(5.77	)	$	0.11		Diluted	$	0.41	$	0.15	$	(0.42)	$	(0.81)

Note 7. 6. Fair ~~Values of Financial Instruments~~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

~~BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~For the 13 and 39 weeks ended January 27, 2018 and January 28, 2017~~

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

~~(unaudited)~~

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

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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)

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.

0Non-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 8. 10. Long-Term Incentive Plan Compensation Expense.

Note 7. Credit Facility

~~On August 3, 2015, we and certain of our subsidiaries, entered into~~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 ~~five-year~~5 year asset-backed revolving credit facility in an aggregate committed principal amount of $400,000 (the “Credit Facility”)~~. The Company has~~ 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.

~~On February 27, 2017, in connection with the acquisition of MBS, we amended~~ Proceeds from the Credit ~~Agreement with our current lenders to add a new $100,000~~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”) ~~increasing~~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 ~~$500,000.~~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 ~~April 29, 2017.~~May 1, 2021.

During the 3926 weeks ended ~~January 27, 2018,~~October 30, 2021, we borrowed ~~$481,600~~$259,720 and repaid ~~$528,200~~$254,020 under the Credit ~~Agreement. The net total~~Agreement, with $183,300 of outstanding borrowings ~~of $113,000~~ as of ~~January 27, 2018 is~~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 ~~January 27, 2018,~~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.

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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)

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

The following table summarizes lease expense:


	13 weeks ended				26 weeks ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Variable lease expense	$	30,738	$	27,275	$	42,440	$	34,682
Operating lease expense	48,990		49,635		65,363		59,431
Net lease expense	$	79,728	$	76,910	$	107,803	$	94,113

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:


	As of
	October 30, 2021
Remainder of Fiscal 2022	$	91,979
Fiscal 2023	53,262
Fiscal 2024	43,624
Fiscal 2025	39,912
Fiscal 2026	28,939
Thereafter	72,832
Total lease payments	330,548
Less: imputed interest	(40,773)
Operating lease liabilities at period end	$	289,775

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:


	As of
	October 30, 2021			October 31, 2020
Weighted average remaining lease term (in years)	5.3 years			5.5 years
Weighted average discount rate	4.6		%	4.5		%

Supplemental cash flow information:
Cash payments for lease liabilities within operating activities	$	64,103		$	53,667
ROU assets obtained in exchange for lease liabilities from initial recognition	$	77,811		$	110,834

Note 9. Supplementary Information

Restructuring and other charges

~~Restructuring~~

In Fiscal 2016, we implemented a plan to restructure our digital education operations which was completed in the first quarter of Fiscal 2017, and was primarily comprised of costs related to employee matters. We recorded restructuring costs of $68 and $1,790 during the 39 weeks ended January 27, 2018 and January 28, 2017, respectively.

~~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 39 weeks ended January 27, 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.

~~Note 10.~~ ~~Barnes & Noble, Inc. Transactions~~

~~Our History with Barnes & Noble, Inc.~~

On August 2, 2015, we completed the legal separation from Barnes & Noble, Inc. ("Spin-Off") at which time we began to operate as an independent publicly-traded company. In connection with the separation from Barnes & Noble, we entered into a Separation and Distribution Agreement with Barnes & Noble which governs the relationship between the parties after the separation and allocates between the parties various assets, liabilities, rights and obligations following the separation, including inventory purchases, employee benefits, intellectual property, information technology, insurance and tax-related assets and liabilities. The agreements also describe Barnes & Noble’s future commitments to provide us with certain transition services following the Spin-Off. For information about our history with Barnes & Noble, Inc., see ~~Part II - Item 8. Financial Statements and Supplementary Data - Note 10. Barnes & Noble, Inc. Transactions~~ ~~in our Annual Report on Form 10-K for the year ended April 29, 2017.~~

~~Summary of Transactions with Barnes & Noble, Inc.~~

During the 13 and 26 weeks ended ~~January 27, 2018~~October 30, 2021, we recognized restructuring and ~~January 28, 2017, we were billed $5,465~~other charges totaling $1,116 and ~~$7,356,~~$3,739, respectively, comprised primarily of $418 and $1,968, respectively, for ~~purchases~~severance and other employee termination and benefit costs associated with elimination of ~~inventory and direct costs incurred under the agreements discussed above which are~~various positions as part of cost reduction objectives ($754 is included ~~as cost of sales, and selling and administrative expenses~~in accrued liabilities in the condensed consolidated ~~statement~~balance sheet as of ~~operations.~~October 30, 2021), $698 and $1,771, respectively, for costs

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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the ~~13 and 39~~26 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

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

(unaudited)

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 3913 and 26 weeks ended ~~January 27, 2018~~October 31, 2020, we recognized restructuring and ~~January 28, 2017, we were billed $20,488~~other charges totaling $3,387 and ~~$23,497,~~$9,058, respectively, comprised primarily of $1,075 and $4,471, respectively, for ~~purchases~~severance and other employee termination and benefit costs associated with elimination of ~~inventory and direct costs incurred under the agreements discussed above which are included~~various positions as part of cost ~~of sales, and selling and administrative expenses in the condensed consolidated statement of operations.~~

~~As of January 27, 2018 and January 28, 2017, amounts due to Barnes & Noble, Inc. for book purchases and direct costs incurred under the agreements discussed above of $6,723 and $7,445 were~~reduction objectives, ($7,092 is included in ~~accounts payable~~accrued liabilities in the condensed consolidated balance ~~sheets, respectively.~~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 ~~11.~~ ~~Related Party Transactions~~10. Long-Term Incentive Plan Compensation Expense

~~Prior to~~We recognize compensation expense for restricted stock awards and performance share awards ratably over 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 a substantial percentage of shares of our Common Stock, and other membersrequisite service period of the ~~Riggio family.~~

~~Prior to the acquisition (as discussed in~~ ~~Note 4. Acquisitions~~ ~~of this Form 10Q), we had a long-term supply agreement (“Supply Agreement”) with MBS, under~~award, which ~~and subject to availability and competitive terms and conditions, we purchased new and used printed textbooks~~is generally three years. We recognize compensation expense for a given academic term from MBS prior to buying them from other suppliers, other than in connection with student buy-back programs. During the 13 and 39 weeks ended January 28, 2017, total net purchases from MBS were $22,044 and $92,083, 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 commissionsthese awards based on the ~~volume~~number of awards expected to vest, which includes an estimated average forfeiture rate. We calculate the fair value of these ~~textbooks sold to MBS each~~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 ~~and with respect~~vesting period to the ~~textbook requirements~~Board of ~~certain distance learning programs~~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:


	Stock Option Grant #1			Stock Option Grant #2
Exercise Price	$	10.80		$	13.30
Valuation method utilized	Black-Scholes			Monte Carlo
Risk-free interest rate	0.94		%	0.94		%
Expected option term	6.2 years			10.0 years
Company volatility	74		%	74		%
Dividend yield	—		%	—		%
Grant date fair value per award	$	7.10		$	6.73

The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for periods corresponding to the expected stock option term. For Stock Option Grant #1, we are permitted to use the simplified approach to estimate the expected term of the stock options, which typically assumes exercise occurs at the mid-point between the end of the vesting period and the expiration date. The simplified approach is not allowed for premium-priced options (Stock Option Grant #2), which were estimated using a stock price multiple, as there is no option exercise history which to base an early exercise option. The expected stock option term represents the weighted average period of time that ~~MBS fulfilled~~stock options granted are expected to be outstanding, based on ~~our behalf. During~~vesting schedules and the ~~13 and 39~~

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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the 26 weeks ended ~~January 28, 2017, MBS paid us $2,152~~October 30, 2021 and ~~$6,077, respectively,~~October 31, 2020

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

(unaudited)

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 ~~these commissions. In addition, the Supply Agreement contained restrictive covenants that limited our ability to become a used textbook wholesaler~~phantom share units grants which is reflected in accrued liabilities and ~~placed certain limitations~~other long-term liabilities on MBS’s business activities. We also previously entered into an agreement with MBS pursuant to which MBS purchased books, which have no resale value for a flat rate per box, from us. During the 13 and 39 weeks ended January 28, 2017, total sales to MBS under this program were $88 and $253, respectively. Total outstanding amounts payable to MBS for all arrangements net of any amounts due was $45,581 as of January 28, 2017.

~~Subsequent to the acquisition,~~ the condensed consolidated ~~financial statements include the accounts of MBS~~balance sheet.

We recognized compensation expense for long-term incentive plan awards in selling and ~~all material intercompany accounts and transactions have been eliminated in consolidation.~~administrative expenses as follows:

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


	13 weeks ended				26 weeks ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Stock-based awards
Restricted stock expense	$	119	$	20	$	207	$	50
Restricted stock units expense	931		976		1,661		2,335

Performance share units expense	29		73		63		205
Stock option expense	399		111		669		111
Sub-total stock-based awards:	$	1,478	$	1,180	$	2,600	$	2,701
Cash settled awards
Phantom share units expense	$	2,452	$	224	$	4,924	$	224
Total compensation expense for long-term incentive awards	$	3,930	$	1,404	$	7,524	$	2,925

Total unrecognized compensation cost related to unvested awards as of ~~the acquisition date, the lease~~October 30, 2021 was ~~determined~~$21,487 and is expected to be ~~favorable from~~recognized over a ~~lessee perspective with below market rent. For additional information, see~~ ~~Note 4. Acquisitions~~weighted-average period of ~~this Form 10Q. Rent payments to MBS Realty Partners L.P. were approximately $345 and $1,035 during the 13 and 39 weeks ended January 27, 2018, respectively.~~2.8 years.

Note ~~12.~~ 11. Employee Benefit Plans

~~BNC~~

~~BNC has a~~We sponsor defined contribution ~~plan~~plans for ~~its~~the benefit of substantially all of the employees ~~("Savings Plan").~~of BNC ~~is responsible for employer contributions to the Savings Plan~~ and to fund the contributions directly. Total contributions charged to employee benefit expenses for this plan was $887 and $919 during the 13 weeks ended January 27, 2018 and January 28, 2017, respectively, and $3,096 and $3,159 during the 39 weeks ended January 27, 2018 and January 28, 2017, respectively.

~~MBS~~

DSS. MBS maintains a ~~defined contribution and~~ profit sharing plan ~~("Profit Sharing Plan")~~ covering substantially all full-time employees of MBS. ~~MBS transfers employee contributions to the account balances of their employees and is~~For all plans, we are responsible to fund the employer contributions directly. Total employee benefit ~~expenses~~expense for ~~the Profit Sharing Plan~~these plans was ~~$638~~$1,004 and ~~$2,193~~$0 during the 13 ~~and 39~~ weeks ended ~~January 27, 2018,~~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%.

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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the ~~13 and 39~~26 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017~~October 31, 2020

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

(unaudited)

~~Note 13.~~ ~~Stock-Based Compensation~~

~~We recognize compensation expense for awards ratably over~~In assessing the ~~requisite service period~~realizability of the ~~award, which~~deferred tax assets, management considered whether it 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.

~~During the 39 weeks ended January 27, 2018, we granted the following awards:~~

~~537,756 performance share units ("PSU") awards to employees~~more likely than not that 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 PSU awards will vest based on company performance during Fiscal 2018 - Fiscal 2019 with one additional year of time-based vesting. The number of PSU awards that will vest range from 0%-150%some or all of the ~~target award based on actual performance.~~

~~1,562,110 restricted stock units ("RSU") awards were granted to employees with a three year vesting period in accordance with the Equity Incentive Plan;~~

~~78,816 RSU awards~~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 ~~19,704 restricted stock ("RS") awards were granted to~~our tax rate for the current ~~Board of Directors ("BOD") members for annual compensation with a one~~fiscal year ~~vesting period in accordance with the Equity Incentive Plan.~~

reflects this determination. We ~~recognized stock-based compensation expense for equity-based awards in selling and administrative expenses as follows:~~

�� 13 weeks ended 39 weeks ended
January 27,
2018 January 28,
2017 January 27,
2018 January 28,
2017
Restricted stock expense $ 30
$ 30
$ 90
$ 250
Restricted stock units expense ^(a)
2,237
2,622
6,277
6,500
Performance shares expense^(b)
58
117
(275 ) 477
Performance share units expense ^(b)
(255 ) —
131
—
Stock-based compensation expense $ 2,070
$ 2,769
$ 6,223
$ 7,227

~~(a) The stock-based compensation expense for the RSUs reflect the forfeiture adjustment for unvested shares related~~will continue to ~~the CEO transition. See~~ ~~Note 9. Supplementary Information - Restructuring and Other Charges~~ ofevaluate this ~~Form 10-Q for additional information.~~

~~(b) The performance shares and PSUs expenses reflect a cumulative adjustment to reflect changes to the expected level of achievement of the respective grants.~~

Total unrecognized compensation cost related to unvested awards as of January 27, 2018 was $15,180 and is expected to be recognized over a weighted-average period of 2.1 years. Approximately $847 of the unrecognized compensation cost is related to performance shares and performance share units, which is subject to attaining the stated performance metrics.

~~Note 14.~~ ~~Income Taxes~~

We recorded an income tax benefit of $(15,344) on a pre-tax loss of $(298,579) during the 13 weeks ended January 27, 2018, which represented an effective income tax rate of 5.1% and an income tax expense of $758 on pre-tax income of $4,519 during the 13 weeks ended January 28, 2017, which represented an effective income tax rate of 16.8%.

We recorded an income tax benefit of $(6,113) on a pre-tax loss of $(275,736) during the 39 weeks ended January 27, 2018, which represented an effective income tax rate of 2.2% and an income tax expense of $2,087 on pre-tax income of $7,221 during the 39 weeks ended January 28, 2017, which represented an effective income tax rate of 28.9%. position.

The effective tax ~~rates~~rate for the ~~13 and 39~~26 weeks ended ~~January 27, 2018 are significantly~~October 30, 2021 is lower as compared to the ~~comparable~~ prior year ~~periods~~comparable period due to the ~~tax benefit of U.S. Tax Reform, partially offset by permanent differences, which in this quarter includes the nondeductible portion~~assessment of the ~~goodwill impairment.~~

~~BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~For the 13 and 39 weeks ended January 27, 2018 and January 28, 2017~~

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

~~(unaudited)~~

tax benefits arising from the Spin-Off. Management does not expect any similar non-recurring tax benefits associated with the Spin-Off to impact our effective tax rate either in the current fiscal year or in future fiscal year.

~~Impact of U.S. Tax Reform~~

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reduces the US 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 January 27, 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 $21,126 reduction of the value of the 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.

Note ~~15.~~ 13. Legal Proceedings

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Item 2: Management’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. or “BNED”, a Delaware corporation. References to “Barnes & Noble College” or ~~"BNC"~~“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.~~LLC.

Overview

Description of ~~business~~Business

We expect general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the FLC Partnership. Through ~~LoudCloud, its~~this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital ~~education platform,~~ marketing tools to drive increased value for customers and accelerate growth of our logo and emblematic general merchandise business.

We believe the Barnes & Noble ~~Education~~ brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important to our relationship with leading publishers who rely on us as one of their primary distribution channels, and for being a trusted source for students in our direct-to-student digital solutions business.

For additional information related to our business, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021.

Partnership with Fanatics and FLC

In December 2020, we entered into the FLC Partnership. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our general merchandise business. Fanatics’ cutting-edge e-commerce and technology expertise offers our campus stores expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with FLC, the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.

We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We also work closely with our campus partners to ensure that each campus store maintains unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus’s brand. We leverage Fanatics’ e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. FLC manages in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores.

In December 2020, Fanatics, Inc. and Lids Holdings, Inc. jointly made a strategic equity investment in BNED. On April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement, we sold our logo and emblematic general merchandise inventory to FLC, which was finalized during the first quarter of Fiscal 2022. As contemplated by the FLC Partnership's e-commerce agreement, we began to transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products during the first quarter of Fiscal 2022. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed

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consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis in the prior year. For additional information, see Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies - Merchandise Inventories.

COVID-19 Business Impact

Our business experienced an unprecedented and significant negative impact as a result of COVID-19 related campus store closures. Beginning in March 2020, colleges and universities nationwide began to close their campuses in light of safety concerns and as a result of local and state issued stay-at-home orders. By mid-March, during our Fiscal 2020 fourth quarter, we closed the majority of our physical campus stores to protect the health and safety of our customers and employees.

While our campus stores were closed, we continued to serve institutions and students through our campus websites, providing free shipping on all orders and an expanded digital content offering to provide immediate access to course materials to students at our campuses that closed due to COVID-19. We developed and implemented plans to safely reopen our campus stores based on national, state and local guidelines, as well as the campus policies set by the school administration.

Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. We cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including the Delta variant, on enrollments, university budgets, athletics and other areas that directly affect our business operations. Although most four year schools have returned to a traditional on-campus environment for learning in the current Fall semester, as well as hosted traditional on campus sporting activities and events, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and the effect on our ability to source products, including textbooks and general merchandise offerings. We will continue to assess our operations and will continue to consider the guidance of local governments and our campus partners to determine how to operate our bookstores in the safest manner for our employees and customers. If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our results of operations, financial condition and cash flows from operations. For additional information, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021.

Segments

We have three reportable segments: Retail, Wholesale and DSS. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as “Corporate Services”.

We identify our segments in accordance with the way our business is managed (focusing on the financial information distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance. The following summarizes the three segments. For additional information about each segment's operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021.

Retail Segment

The Retail Segment operates 1,445 college, university, and K-12 school bookstores, comprised of 794 physical bookstores and 651 virtual bookstores. Our bookstores typically operate under agreements with the college, university, or K-12 schools to be the official bookstore and the exclusive seller of course materials and supplies, including physical and digital products. The majority of the physical campus bookstores have school-branded e-commerce sites which we operate independently or along with our merchant partners, and which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts. The Retail Segment also offers inclusive access programs, in which course materials are offered at a reduced price through a fee charged by the institution or included in tuition, and delivered to students on or before the first day of class. Additionally, the Retail Segment offers a suite of digital ~~software,~~ content and services ~~that include predictive analytics,~~to colleges and universities, including a variety of open educational ~~resources ("OER") courseware, competency-based solutions,~~resource-based courseware.

Wholesale Segment

The Wholesale Segment is comprised of our wholesale textbook business and is one of the largest textbook wholesalers in the country. The Wholesale Segment centrally sources, sells, and distributes new and used textbooks to approximately 3,200 physical bookstores (including our Retail Segment's 794 physical bookstores) and sources and distributes new and used textbooks to our 651 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a ~~learning~~software suite of applications that provides inventory management ~~system. Additionally, through~~and point-of-sale solutions to approximately 400 college bookstores.

DSS Segment

The Digital Student Solutions (“DSS”) Segment includes direct-to-student products and services to assist students to study more effectively and improve academic performance. The DSS Segment is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, ~~BNC offers services focused~~and bartleby®, a direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, writing and tutoring.

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Seasonality

Our business is highly seasonal. Our quarterly results also may fluctuate depending on ~~study tools, writing help, and literary research, all centered on assisting students with~~ the ~~writing process.~~

~~We believe~~timing of the start of the various schools' semesters, as well as shifts in our ~~product offerings and services for students, faculty and administrators enable a more personalized learning experience, which improves student success rates and retention. We strive to be~~fiscal calendar dates. These shifts in timing may affect the ~~first stop for students, educators and administrators by offering the most comprehensive resources available with our flexible physical and/or virtual bookstore options. The strengths~~comparability of our ~~business include~~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 large footprint with well-recognized brand; our ability to meet students’ affordability needs; our comprehensive suite of course materials; our well-established, deep relationships with partners; direct access toretail operations, sales are generally highest in the second and third fiscal quarters, when students generally purchase and faculty; integrated systems with our customers; and stable, long-term contracts. We expect to continue to grow our business by increasing market share with new accounts, introducing scalable and advanced digital solutions and expanding our strategic opportunities through acquisitions and partnerships.

~~Educational institutions increasingly are outsourcing bookstore operations, investing in data-driven analytical tools, and offering students more affordable options for~~rent textbooks and other learning tools. Given these continuing trends, we are well-positioned to capture new market share and partner with an increasing number of schools across the country. As demand for new, improved, and more affordable products and services increase in the rapidly changing education landscape, we are working to evolve our business model and enhance our solutions. 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. We have begun to offer the distribution of e-content via our First Day™, our inclusive access program, in which course materials are included in the cost of tuition and delivered to students digitally or through their Barnes & Noble College campus bookstore. We believe that our strategic actions, including the acquisition of LoudCloud, Promoversity, MBS, and Student Brands (discussed below) and development of courseware, have substantially enhanced our competitive position. 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. See ~~Fiscal Year 2018 Highlights~~ ~~below for a discussion of recent activities to enhance our product offerings and services.~~

~~For additional information related to our business, see~~ ~~Part I - Item 1. Business~~ ~~in our Annual Report on Form 10-K for the year ended April 29, 2017.~~

~~Fiscal Year 2018 Highlights~~

~~McGraw-Hill Education -~~ In February 2018, we expanded our relationship with McGraw-Hill Education with two new initiatives to provide students, faculty and institutions greater access to more affordable course materials. The companies will partner on two initiatives: the distribution of McGraw-Hill Education e-content through our First Day™, our inclusive access program, in which course materials are included in the cost of tuition and delivered to students digitally or through their Barnes & Noble College campus bookstore, and the distribution of McGraw-Hill Education's new rental titles through our channels. MBS will act as a distributor for rental textbooks offered through McGraw-Hill Education's newly announced rental program. The program includes more than 250 titles, with plans for all future titles. Through its centrally located, advanced distribution center, MBS will offer a seamless integration of McGraw-Hill Education's rental program, providing a single point of entry for the rental titles and centralized administration and distribution to more than 3,700 stores.

~~Pearson -~~ In February 2018, we announcement that we entered an agreement with Pearson to offer Pearson content through our inclusive access models at our 1,480 physical and virtual campus bookstores nationwide, serving more than 6 million students and their faculty. This collaboration provides students with affordable access to high-quality course materials, including MyLab™

and Mastering™, Revel™ and eTexts, on the first day of class. The seamless delivery is made possible by BNED’s First Day™ inclusive access program and Pearson’s technology integrations with campus systems.

~~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 First Day program, offered to the entire KCTCS system, ensures students have their course materials on the first day of class.

~~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, writing help, and literary research, 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 over 20 million unique monthly users across its digital properties, which include123HelpMe.com, Bartleby.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 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.

~~Integration of MBS Textbook Exchange, LLC. ("MBS")~~ - Prior to the end of Fiscal 2017, in February 2017, we completed the purchase of all issued and outstanding units 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.

~~Segments~~

~~We have two reportable segments: BNC and MBS.~~

BNC operates 782 physical campus bookstores as of January 27, 2018, the majority of which also have school-branded e-commerce sites operated by BNC, and BNC also includes our digital education operations and subscription-based writing services business. Our campus stores are a social and academic hub through which students can access affordable course materials, and ~~affinity products, including new~~lowest in the first and ~~used print~~fourth fiscal quarters. Sales attributable to our wholesale business are generally highest in our first, second and digital textbooks, which are available for sale or rent, emblematic apparel and gifts, trade books, computer products, school and dorm supplies, café offerings, convenience food and beverages, and graduation products. BNC product offerings also include a suite of digital content, software, and services through our LoudCloud platform, suchthird quarter, as predictive analytics, a variety of open educational resources ("OER") courseware, and competency-based learning solutions and a learning management system. Additionally, through Student Brands, BNC offers services focused on study tools, writing help, and literary research, all centered on assisting students with the writing process. During the 39 weeks ended January 27, 2018, BNC opened 30 stores, with estimated annual first year sales of $61.0 million.

Our MBS subsidiary operates two highly integrated businesses. The MBS Direct business is the largest contract operator of virtual bookstores for college and university campuses and private/parochial K-12 schools. MBS Direct operates 698 virtual bookstores as of January 27, 2018, offering new and used print and digital textbooks, which are available for sale or rent. Additionally, MBS Directit sells textbooks ~~directly to students through textbooks.com~~^SM~~, one of~~and other course materials for retail distribution. For our DSS segment, or direct-to-student business, sales and operating profit are realized relatively consistently throughout the largest e-commerce sites for new and used textbooks. MBS Wholesale is one of the largest textbook wholesalers in the country, providing a comprehensive selection of new and used textbooks at a low cost of supply to more than 3,700 physical bookstores (as of April 29, 2017), including BNC’s 782 campus bookstores. During the 39 weeks ended January 27, 2018, MBS Direct opened 19 stores, with estimated annual first year sales of $5.7 million.

~~For additional information related to product and platform offerings for BNC and MBS, see~~ ~~Part I - Item 1. Business~~ ~~in our Annual Report on Form 10-K for the year ended April 29, 2017.~~

year.

Trends, Competition and Other ~~Factors~~Business Conditions Affecting Our Business

The market for educational materials is undergoing unprecedented change. 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:

•Overall Economic Environment, College Enrollment and Consumer Spending ~~Patterns:~~ Patterns.Our business is affected by the impact of the COVID-19 pandemic, the overall economic environment, funding levels at colleges and universities, by changes in enrollments at colleges and universities, and spending on ~~textbooks~~course materials and general merchandise.

•Impact of the COVID-19 Pandemic: The COVID-19 pandemic has materially and adversely impacted certain segments of the U.S. economy, with legislative and regulatory responses including unprecedented monetary and fiscal policy actions across all sectors, and there is significant uncertainty as to timing of stabilization and recovery, including the ability to gain adequate herd-immunity levels through vaccine programs and their resilience to future virus variants. Many colleges and K-12 schools were required to cease in-person classes in an attempt to limit the spread of the COVID-19 virus and ensure the safety of their students. Although many academic institutions have reopened, some are providing alternatives to traditional in-person instruction, including online and hybrid learning options and significantly reduced classroom sizes. Additionally, our business, like many others has been affected by the challenging labor market and the ability to recruit employees.

•Economic Environment: Retail general merchandise sales are subject to short-term fluctuations driven by the broader retail environment. The broader macro-economic global supply chain issues may also impact our ability to source school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing.

•Enrollment Trends: The growth of our business depends on our ability to attract new ~~students~~customers and to increase the level of engagement by ~~existing students. For~~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, generally correlate with changes in the ~~39 weeks ended January 27, 2018, our comparable store sales were~~economy and unemployment factors, e.g. low unemployment tends to lead to low enrollment and higher unemployment rates tend to lead to higher enrollment trends, as students generally enroll to obtain skills that are in demand in the workforce. Enrollment trends have been negatively impacted overall by COVID-19 concerns at physical campuses. A significant reduction in U.S. economic activity and increased unemployment could lead to decreased enrollment and consumer spending. Additionally, enrollment trends are impacted by ~~lower average selling prices~~the dip in the United States birth rate resulting in fewer students at the traditional 18-24 year-old college age. Online degree program enrollments continue to grow, even in the face of declining overall higher education enrollment.

•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.

•Increasing Costs Associated with Defending Against Security Breaches and Other Data Loss, Including Cyber-Attacks. We are increasingly dependent upon information technology systems, infrastructure and data. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. We continue to invest in data protection and information technology to prevent or minimize these risks and, to date, we have not experienced any material service interruptions and are not aware of any material breaches.

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•Distribution Network Evolving. The way course materials ~~driven by lower publisher prices resulting~~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 ~~a shift to lower cost options~~alternative media and ~~more affordable solutions, including digital. Additionally, comparable store sales declined for~~alternative sources of textbooks ~~due to lower community college enrollment, increased consumer purchases directly from publishers~~ and other ~~online providers,~~course materials. 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 ~~general weakness in~~McGraw Hill, bypassing the ~~retail environment.~~

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:~~ 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. Recently, the impact of fewer students on campus due to COVID-19 has significantly impacted our on-campus buyback programs which supplies Wholesale’s used textbook inventory for future selling periods. Some textbook publishers have begun to supply textbooks onpursuant to consignment or rental programs which could impact used textbook supplies in the future. ~~In February 2018, BNED signed an agreement with McGraw-Hill Education, in which MBS would act as~~Additionally, Wholesale is a national distributor for rental textbooks offered through McGraw-Hill Education's ~~newly announced~~and Pearson Education’s consignment rental ~~program.~~program, both of which are relatively nascent. The ~~program includes more than 250 titles, with plans for all future titles. See~~ ~~Fiscal Year 2018 Highlights~~ ~~above for additional information.~~

broader macro-economic global supply chain issues may also impact our ability to source school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing.

~~Demand for Digital Offerings:~~ Over the longer-term, we anticipate significant new opportunities for our digital product offerings. Through our LoudCloud platform, we address the growing demand for alternative forms of educational materials and learning tools.•Price Competition. In addition to the competition in the services we provide to our ~~acquisition~~customers, our textbook and other course materials business faces significant price competition. Students purchase textbooks and other course materials from multiple providers, are highly price sensitive, and can easily shift spending from one provider or format to another.

•A Large Number of ~~Student Brands offers additional digital direct-to-student services, centered on assisting students with~~Traditional Campus Bookstores Have Yet to be Outsourced.

•Outsourcing Trends. We continue to see the ~~writing process. See~~ ~~Fiscal Year 2018 Highlights~~ ~~above~~trend towards outsourcing in the campus bookstore market and also continue to see a variety of business models being pursued for ~~additional information.~~

the provision of course materials (such as inclusive access programs and publisher subscription models) and general merchandise.

•New and Existing Bookstore ~~Contracts:~~ 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 also expect ~~to continue to successfully renew our current contracts on favorable terms.~~

~~Campus Bookstore Outsourcing:~~ ~~We continue to see increasing trends towards outsourcing in the campus bookstore market, including virtual~~that certain less profitable or essential 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~~we operate may close. Such stores could be included in ~~cost~~contracts for stores we operate that may be deemed non-essential; and such stores could be operated by others or independently by schools. The scope of ~~sales, and primarily consist~~any such store closures remains uncertain, although we are not aware, at this time, of ~~the payments~~any significant volume of stores which we ~~make~~operate that are likely to ~~the colleges and universities to operate their official bookstores (management service agreement costs), including rent expense,~~close or have ~~generally increased as a percentage~~informed us 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.

upcoming closures.

~~Course Materials Market:~~ In addition to the competition in the services we provide to our customers, our textbook business faces significant price competition. Many students purchase from multiple textbook providers, are highly price sensitive and can easily shift spending from one provider or format to another. SomeFor additional discussion of our competitors have adopted, and may continue to adopt, aggressive pricing policies and devote substantial resources to marketing, website and systems development. As we expand our textbook rental offerings, students have been shifting away from higher priced textbook purchases to lower priced rental options, which has resulted in lower textbook sales and increasing rental income.

~~Retail Environment:~~ BNC general merchandise sales, which are subject to short-term fluctuations driven by the broader retail environment, 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.~~

~~For additional information related to~~other factors affecting our business,seePart I - Item 1. Business ~~- Trends and Other Factors Affecting Our Business~~ in our Annual Report on Form 10-K for the year ended ~~April 29, 2017.~~May 1, 2021.

Elements of Results of Operations

Our condensed consolidated financial statements reflect our ~~condensed~~ consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). ~~On February 27, 2017, we acquired MBS Textbook Exchange, LLC and on August 3, 2017 we acquired Student Brands, LLC.~~ The results of operations ~~for the 13 and 39 weeks ended January 27, 2018 include the~~reflected in our consolidated financial ~~results of both MBS and Student Brands and all~~statements are presented on a consolidated basis. All material intercompany accounts and transactions have been eliminated in consolidation. ~~The results of operations for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of MBS and Student Brands.~~

Our sales are primarily derived from the sale of course materials, which include new, used and ~~used~~digital textbooks, and ~~digital textbooks. Our rental income is primarily derived from the rental of physical and digital textbooks. At~~at college and university bookstores which we operate, we sell high margin general merchandise, including 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 ~~related to~~of inventory management, hardware and point-of-sale software, ~~and~~ direct-to-student subscription-based ~~writing~~services, and other services.

Our cost of sales primarily ~~include~~includes costs such as merchandise costs, textbook rental amortization, ~~payroll costs, as well as~~content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.

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merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based services business. Shared-service costs such as human resources, ~~benefits, training,~~ legal, ~~and~~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 ~~well as our investments~~discussed in ~~our digital platform and subscription-based writing services.~~

the Overview - Segments discussion above.

Results of Operations - Summary


	13 weeks ended				26 weeks ended
Dollars in thousands	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Sales:
Product sales and other	$	577,329	$	551,832	$	805,099	$	745,042
Rental income	49,648		43,653		62,672		54,457
Total sales	$	626,977	$	595,485	$	867,771	$	799,499

Net income (loss)	$	22,528	$	7,515	$	(21,818)	$	(39,137)

Adjusted Earnings (non-GAAP) (a)	$	24,955	$	11,075	$	(15,059)	$	(30,641)

Adjusted EBITDA (non-GAAP) (a)
Retail	$	39,444	$	18,324	$	19,822	$	(22,316)
Wholesale	1,233		6,568		7,647		19,534
DSS	807		689		2,499		2,353
Corporate Services	(6,809)		(5,501)		(14,253)		(10,745)
Elimination	4,293		4,455		(1,244)		(2,308)
Total Adjusted EBITDA (non-GAAP)	$	38,968	$	24,535	$	14,471	$	(13,482)

13 weeks ended 39 weeks ended
Dollars in thousands January 27, 2018 January 28, 2017 January 27, 2018 January 28, 2017
Sales:
Product sales and other $ 540,903
$ 457,147
$ 1,693,230
$ 1,372,810
Rental income 62,488
64,477
152,733
158,722
Total sales $ 603,391
$ 521,624
$ 1,845,963
$ 1,531,532

Net (loss) income $ (283,235 ) $ 3,761
$ (269,623 ) $ 5,134

Adjusted Earnings (non-GAAP) ^(a)
$ 19,644
$ 4,047
$ 39,781
$ 7,848

Adjusted EBITDA (non-GAAP) ^(a)

BNC $ 19,636
$ 18,814
$ 54,329
$ 52,681
MBS 20,752
—
56,000
—
Elimination (5,827 ) —
(5,782 ) —
Total Adjusted EBITDA (non-GAAP) $ 34,561
$ 18,814
$ 104,547
$ 52,681

(a)Adjusted Earnings and Adjusted EBITDA are non-GAAP financial measures. See Adjusted Earnings (non-GAAP) and Adjusted EBITDA (non-GAAP) discussion below.


~~(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~~

The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales:


	13 weeks ended				26 weeks ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Sales:
Product sales and other	92.1	%	92.7	%	92.8	%	93.2	%
Rental income	7.9		7.3		7.2		6.8
Total sales	100.0		100.0		100.0		100.0
Cost of sales:
Product and other cost of sales (a)	78.5		82.0		77.9		83.0
Rental cost of sales (a)	57.1		63.5		55.8		64.5
Total cost of sales	76.8		80.6		76.3		81.7
Gross margin	23.2		19.4		23.7		18.3
Selling and administrative expenses	17.2		15.4		22.4		20.3
Depreciation and amortization expense	1.9		2.2		2.8		3.4

Restructuring and other charges	0.2		0.6		0.4		1.1

Operating income (loss)	3.9	%	1.2	%	(1.9)	%	(6.5)	%

(a)Represents the percentage these costs bear to the related sales, instead of total sales.

13 weeks ended January 27, 2018 13 weeks ended January 28, 2017
Number of Stores: BNC Stores MBS Direct Stores BNC Stores
Opened 6
5
2
Closed 1
13
3
Opened at end of period 782
698
770

Comparable store sales ^(a)
(6.2 )% N/A
(5.3 )%

39 weeks ended January 27, 2018 39 weeks ended January 28, 2017
Number of Stores: BNC Stores MBS Direct Stores BNC Stores
Opened 30
19
36
Closed 17
33
17
Opened at end of period 782
698
770

Comparable store sales ^(a)
(4.7 )% N/A
(4.0 )%

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~~(a)~~	For BNC, effective for the first quarter of 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

Results of Operations - 13 and 26 weeks ended October 30, 2021 compared with the 13 and 26 weeks ended October 31, 2020


	13 weeks ended October 30, 2021
Dollars in thousands	Retail		Wholesale		DSS		Corporate Services		Eliminations		Total
Sales:
Product sales and other	$	559,304	$	21,669	$	8,279	$	—	$	(11,923)	$	577,329
Rental income	49,648		—		—		—		—		49,648
Total sales	608,952		21,669		8,279		—		(11,923)		626,977
Cost of sales:
Product and other cost of sales	451,779		16,049		1,373		—		(16,131)		453,070
Rental cost of sales	28,348		—		—		—		—		28,348
Total cost of sales	480,127		16,049		1,373		—		(16,131)		481,418
Gross profit	128,825		5,620		6,906		—		4,208		145,559
Selling and administrative expenses	89,486		4,387		7,305		6,809		(85)		107,902
Depreciation and amortization expense	8,669		1,364		1,902		17		—		11,952
Sub-Total:	$	30,670	$	(131)	$	(2,301)	$	(6,826)	$	4,293	25,705

Restructuring and other charges											1,116

Operating income											$	24,589


	13 weeks ended October 31, 2020
Dollars in thousands	Retail		Wholesale		DSS		Corporate Services		Eliminations		Total
Sales:
Product sales and other	$	532,861	$	36,387	$	5,947	$	—	$	(23,363)	$	551,832
Rental income	43,653		—		—		—		—		43,653
Total sales	576,514		36,387		5,947		—		(23,363)		595,485
Cost of sales:
Product and other cost of sales	453,277		25,673		1,285		—		(27,760)		452,475
Rental cost of sales	27,725		—		—		—		—		27,725
Total cost of sales	481,002		25,673		1,285		—		(27,760)		480,200
Gross profit	95,512		10,714		4,662		—		4,397		115,285
Selling and administrative expenses	77,380		4,146		5,003		5,501		(58)		91,972
Depreciation and amortization expense	9,985		1,322		1,855		31		—		13,193
Sub-Total:	$	8,147	$	5,246	$	(2,196)	$	(5,532)	$	4,455	10,120

Restructuring and other charges											3,387

Operating income											$	6,733

Table of Contents


	26 weeks ended October 30, 2021
Dollars in thousands	Retail		Wholesale		DSS		Corporate Services		Eliminations		Total
Sales:
Product sales and other	$	756,749	$	66,153	$	16,582	$	—	$	(34,385)	$	805,099
Rental income	62,672		—		—		—		—		62,672
Total sales	819,421		66,153		16,582		—		(34,385)		867,771
Cost of sales:
Product and other cost of sales	607,501		50,128		2,646		—		(33,044)		627,231
Rental cost of sales	34,952		—		—		—		—		34,952
Total cost of sales	642,453		50,128		2,646		—		(33,044)		662,183
Gross profit	176,968		16,025		13,936		—		(1,341)		205,588
Selling and administrative expenses	157,851		8,378		13,752		14,253		(97)		194,137
Depreciation and amortization expense	18,076		2,664		3,801		35		—		24,576
Sub-Total:	$	1,041	$	4,983	$	(3,617)	$	(14,288)	$	(1,244)	(13,125)

Restructuring and other charges											3,739

Operating loss											$	(16,864)


	26 weeks ended, October 31, 2020
Dollars in thousands	Retail		Wholesale		DSS		Corporate Services		Eliminations		Total
Sales:
Product sales and other	$	680,833	$	116,681	$	11,819	$	—	$	(64,291)	$	745,042
Rental income	54,457		—		—		—		—		54,457
Total sales	735,290		116,681		11,819		—		(64,291)		799,499
Cost of sales:
Product and other cost of sales	588,531		89,210		2,411		—		(61,912)		618,240
Rental cost of sales	35,112		—		—		—		—		35,112
Total cost of sales	623,643		89,210		2,411		—		(61,912)		653,352
Gross profit	111,647		27,471		9,408		—		(2,379)		146,147
Selling and administrative expenses	134,365		7,937		9,039		10,745		(71)		162,015
Depreciation and amortization expense	20,555		2,617		4,020		64		—		27,256
Sub-Total:	$	(43,273)	$	16,917	$	(3,651)	$	(10,809)	$	(2,308)	(43,124)

Restructuring and other charges											9,058

Operating loss											$	(52,182)

Sales

The following table summarizes our sales for the 13 and 26 weeks ended October 30, 2021 and October 31, 2020:


	13 weeks ended					26 weeks ended
Dollars in thousands	October 30, 2021		October 31, 2020		%	October 30, 2021		October 31, 2020		%
Product sales and other	$	577,329	$	551,832	4.6%	$	805,099	$	745,042	8.1%
Rental income	49,648		43,653		13.7%	62,672		54,457		15.1%
Total Sales	$	626,977	$	595,485	5.3%	$	867,771	$	799,499	8.5%

Table of Contents

Sales increased by $31.5 million, or 5.3%, to $627.0 million during the 13 weeks ended October 30, 2021 from $595.5 million during the 13 weeks ended October 31, 2020. Sales increased by $68.3 million, or 8.5%, to $867.8 million during the 26 weeks ended October 30, 2021 from $799.5 million during the 26 weeks ended October 31, 2020. The sales increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year. The components of the variances for the 13 and 26 week periods are reflected in the table below.


Sales variances	13 weeks ended				26 weeks ended
Dollars in millions	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Retail Sales
New stores	$	26.3	$	27.6	$	36.6	$	35.4
Closed stores	(7.9)		(16.4)		(12.5)		(21.9)
Comparable stores (a)	14.0		(196.5)		58.6		(302.7)
Textbook rental deferral	3.2		16.4		3.4		10.1
Service revenue (b)	(2.1)		1.0		0.1		(3.7)
Other (c)	(1.1)		2.7		(2.1)		1.7
Retail sales subtotal:	$	32.4	$	(165.2)	$	84.1	$	(281.1)



Wholesale Sales	$	(14.7)	$	(3.8)	$	(50.5)	$	4.2
DSS Sales	$	2.3	$	0.7	$	4.8	$	1.2
Eliminations (d)	$	11.5	$	(8.4)	$	29.9	$	(16.7)
Total sales variance:	$	31.5	$	(176.7)	$	68.3	$	(292.4)

(a) Effective April 2021, as contemplated by the FLC Partnership's merchandising agreement, logo and emblematic general merchandise sales were fulfilled by FLC. During the first quarter of Fiscal 2022, as contemplated by the FLC Partnership's e-commerce agreement, we began to transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis in the prior year period. For Comparable Store Sales details, see below.

(b) Service revenue includes brand partnerships, shipping and handling, and revenue from other programs.

(c) Other includes inventory liquidation sales to third parties, marketplace sales and certain accounting adjusting items related to return reserves, and other deferred items.

(d) Eliminates Wholesale sales and service fees to Retail and Retail commissions earned from Wholesale. See discussion of intercompany activities and eliminations below.

Retail

Retail sales increased by $32.4 million, or 5.6%, to $608.9 million during the 13 weeks ended October 30, 2021 from $576.5 million during the 13 weeks ended October 31, 2020. Retail sales increased by $84.1 million, or 11.4%, to $819.4 million during the 26 weeks ended October 30, 2021 from $735.3 million during the 26 weeks ended October 31, 2020. Retail added 76new stores and closed 48 stores during the 26 weeks ended October 30, 2021, ending the period with a total of 1,445 stores.


	13 weeks ended				26 weeks ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Number of Stores:	Physical	Virtual	Physical	Virtual	Physical	Virtual	Physical	Virtual
Number of stores at beginning of period	784	645	772	670	769	648	772	647
Opened	11	12	5	11	41	35	29	51
Closed	1	6	9	10	16	32	33	27
Number of stores at end of period	794	651	768	671	794	651	768	671

Product and other sales for Retail for the 13 weeks ended October 30, 2021 increased by $26.4 million, or 5.0% to $559.3 million from $532.9 million during the 13 weeks ended October 31, 2020. Product and other sales for Retail for the 26 weeks ended October 30, 2021 increased by $75.9 million, or 11.2% to $756.7 million from $680.8 million during the 26 weeks ended October 31, 2020. The sales increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

Table of Contents

Product and other sales are impacted by comparable store sales (as noted in the chart below), new store openings and store closings, as well as the impact from the COVID-19 pandemic. Comparable textbook sales remained essentially flat, as compared to a 19% decline a year ago, as enrollment declines were mitigated by the growth of First Day (our inclusive access program). Revenue for First Day programs grew 80% to $96 million during the quarter. Comparable general merchandise sales increased 78.3%, as compared to a 52.0% decline a year ago, benefiting greatly from the return to an on campus learning experience and the resumption of many activities and events. Sales for general merchandise, including on-campus cafe and convenience products, and trade merchandise have increased compared to the prior year, when sales were impacted by the temporary store closings due to the COVID-19 pandemic, as well as the impact of fewer students returning to campus, as many schools implemented a remote learning model and curtailed on-campus classes and activities.

Sales were impacted by overall enrollment declines in higher education. Although most four year schools have returned to a traditional on-campus environment for learning in the current Fall semester, as well as hosted traditional on campus sporting activities and events, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings. While many big-conferences resumed their sport activities, other on campus events, such as Parent's Weekends or Alumni events, continue to be either eliminated or severely restricted, which further impacted the company’s general merchandise business. First Day (our inclusive access program), digital and eTextbook revenue increased, due to a shift to lower cost options and more affordable solutions, including digital offerings.

To supplement the Total Sales table presented above in accordance with generally accepted accounting principles (“GAAP”), the Company uses the non-GAAP financial measure of Retail Gross Comparable Store Sales. Retail Gross Comparable Store Sales (non-GAAP) includes sales from physical and virtual stores that have been open for an entire fiscal year period and does not include sales from closed stores for all periods presented. As contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the prior year period. For Retail Gross Comparable Store Sales (non-GAAP), sales for logo and emblematic general merchandise fulfilled by FLC, Fanatics and digital agency sales are included on a gross basis. We believe the current ~~comparable store sales~~Retail Gross Comparable Store Sales (non-GAAP) 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.~~

~~The following table sets forth,~~Retail Gross Comparable Store Sales (non-GAAP) variances for ~~the periods indicated, the percentage relationship that certain items bear to total sales:~~

13 weeks ended 39 weeks ended
January 27, 2018 January 28, 2017 January 27, 2018 January 28, 2017
Sales:
Product sales and other 89.6 % 87.6 % 91.7 % 89.6 %
Rental income 10.4
12.4
8.3
10.4
Total sales 100.0
100.0
100.0
100.0
Cost of sales:
Product and other cost of sales ^(a)
77.6
80.1
78.3
80.0
Rental cost of sales ^(a)
59.6
61.3
60.2
61.7
Total cost of sales 75.7
77.8
76.8
78.1
Gross margin 24.3
22.2
23.2
21.9
Selling and administrative expenses 18.6
18.6
17.7
18.4
Depreciation and amortization expense 2.8
2.5
2.6
2.6
Impairment loss (non-cash) 51.9
—
17.0
—
Restructuring and other charges —
—
0.3
0.1
Transaction costs —
0.1
0.1
0.2
Operating (loss) income (49.0 )% 1.0 % (14.5 )% 0.6 %


~~(a)~~	~~Represents the percentage these costs bear to the related sales, instead of total sales.~~

~~Results of Operations - 13 and 39 weeks ended January 27, 2018 compared with the 13 and 39 weeks ended January 28, 2017~~

13 weeks ended, January 27, 2018 13 weeks ended
Dollars in thousands
BNC^(a)

MBS ^(b)
Eliminations
January 27,
2018 ^(a),(b)
January 28, 2017
Sales:
Product sales and other $ 445,642
$ 137,257
$ (41,996 ) $ 540,903
$ 457,147
Rental income 60,818
1,670
62,488
64,477
Total sales 506,460
138,927
(41,996 ) 603,391
521,624
Cost of sales:
Product and other cost of sales 352,742
103,068
(36,169 ) 419,641
366,190
Rental cost of sales 36,305
910
—
37,215
39,509
Total cost of sales 389,047
103,978
(36,169 ) 456,856
405,699
Gross profit 117,413
34,949
(5,827 ) 146,535
115,925
Selling and administrative expenses 97,777
14,197
—
111,974
97,111
Depreciation and amortization expense 15,411
1,596
—
17,007
13,149
Impairment loss (non-cash) 313,130
—
—
313,130

Restructuring and other charges —
—
—
—
—
Transaction costs 49
—
—
49
467
Operating (loss) income $ (308,954 ) $ 19,156
$ (5,827 ) $ (295,625 ) $ 5,198

39 weeks ended, January 27, 2018 39 weeks ended
Dollars in thousands BNC(a) MBS (b) Eliminations January 27,
2018 (a),(b) January 28, 2017
Sales:
Product sales and other $ 1,369,770
$ 409,300
$ (85,840 ) $ 1,693,230
$ 1,372,810
Rental income 148,454
4,279
—
152,733
158,722
Total sales 1,518,224
413,579
(85,840 ) 1,845,963
1,531,532
Cost of sales:
Product and other cost of sales 1,090,756
315,523
(80,058 ) 1,326,221
1,098,682
Rental cost of sales 89,593
2,343
—
91,936
97,998
Total cost of sales 1,180,349
317,866
(80,058 ) 1,418,157
1,196,680
Gross profit 337,875
95,713
(5,782 ) 427,806
334,852
Selling and administrative expenses 283,546
42,986
—
326,532
282,171
Depreciation and amortization expense 43,879
4,849
—
48,728
39,057
Impairment loss (non-cash) 313,130
—
—
313,130
—
Restructuring and other charges 5,429
—
—
5,429
1,790
Transaction costs 1,895
—
—
1,895
2,638
Operating (loss) income $ (310,004 ) $ 47,878
$ (5,782 ) $ (267,908 ) $ 9,196

~~(a)~~

On August 3, 2017, we acquired Student Brands, LLC. The condensed consolidated financial statements for the 13 and 39 weeks ended January 27, 2018 include the financial results of Student Brands in the BNC segment from the date of acquisition, August 3, 2017, and the condensed cons~~olidated financial statements for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of Student Brands.~~


~~(b)~~	On February 27, 2017, we acquired MBS. The results of operations for the 13 and 39 weeks ended January 27, 2018 include the financial results of MBS and all material intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of MBS.

~~Sales~~

~~The following table summarizes our sales~~Retail by category for the 13 and 3926 week periods are as follows:


Retail Gross Comparable Store Sales (non-GAAP) variances
	13 weeks ended								26 weeks ended
Dollars in millions	October 30, 2021				October 31, 2020				October 30, 2021				October 31, 2020
Textbooks (Course Materials)	$	(0.5)	(0.1)	%	$	(101.6)	(19.0)	%	$	22.9	4.1	%	$	(112.5)	(17.5)	%
General Merchandise	72.7		78.3	%	(97.2)		(52.0)	%	121.5		90.6	%	(184.8)		(58.6)	%
Trade Books	1.3		33.8	%	(6.3)		(62.3)	%	3.2		60.7	%	(14.0)		(73.2)	%
Total Retail Gross Comparable Store Sales (non-GAAP)	$	73.5	13.2	%	$	(205.1)	(28.1)	%	$	147.6	21.0	%	$	(311.3)	(31.8)	%

Rental income for Retail for the 13 weeks ended ~~January 27, 2018 and January 28, 2017:~~

13 weeks ended 39 weeks ended
Dollars in thousands January 27, 2018 January 28, 2017 % January 27, 2018 January 28, 2017 %
Product sales and other $ 540,903
$ 457,147
18.3% $ 1,693,230
$ 1,372,810
23.3%
Rental income 62,488
64,477
(3.1)% 152,733
158,722
(3.8)%
Total Sales $ 603,391
$ 521,624
15.7% $ 1,845,963
$ 1,531,532
20.5%

~~Our sales~~October 30, 2021 increased ~~$81.7~~by $6.0 million, or ~~15.7%,~~13.7% to ~~$603.4~~$49.6 million from $43.7 million during the 13 weeks ended ~~January 27, 2018~~October 31, 2020. Rental income for Retail for the 26 weeks ended October 30, 2021 increased by $8.2 million, or 15.1% to $62.7 million from ~~$521.6~~$54.5 million during the 26 weeks ended October 31, 2020. Rental income is impacted by comparable store sales, new store openings and store closings. The increase in rental income is primarily due to increased rental activity due to the temporary store closings due the COVID-19 pandemic in the prior year discussed above.

Wholesale

Wholesale sales decreased by $14.7 million, or 40.5% to $21.7 million during the 13 weeks ended ~~January 28, 2017. Our sales increased $314.4 million, or 20.5%, to $1,846.0~~October 30, 2021 from $36.4 million during the 3913 weeks ended ~~January 27, 2018 from $1,531.5~~October 31, 2020. Wholesale sales decreased by $50.5 million, or 43.3% to $66.2 million during the 3926 weeks ended ~~January 28, 2017.~~October 30, 2021 from $116.7 million during the 26 weeks ended October 31, 2020. The decrease is primarily due to lower gross sales impacted by the COVID-19 pandemic, including supply constraints resulting from the lack of on campus textbook buyback opportunities during the prior fiscal year, a decrease in customer demand resulting from a shift in buying patterns from physical textbooks to digital products, and lower demand from other third-party clients, partially offset by a lower returns and allowances. During the prior year period, the Wholesale operations assumed direct-to-student fulfillment of course material orders for the Retail Segment campus bookstores that were not fully operational due to COVID-19 campus store closures, whereas the sales shifted back to the physical bookstores in the current period.

Table of Contents

DSS

DSS total sales increased by $2.3 million, or 39.2% to $8.3 million during the 13 weeks ended October 30, 2021 from $6.0 million during the 13 weeks ended October 31, 2020. DSS total sales increased by $4.8 million, or 40.3% to $16.6 million during the 26 weeks ended October 30, 2021 from $11.8 million during the 26 weeks ended October 31, 2020. Sales increased primarily due to the acquisition of MBS and Student Brands, partially offset by BNC comparable sales declines primarily due to lower student enrollment, specifically in two-year community colleges, increased consumer purchases directly from publishers and other online providers, and general weakness in the retail environment. The components of the variances for the 13 and 39 week periods are reflected in the table below.

Sales variances 13 weeks ended 39 weeks ended
Dollars in millions January 27, 2018 January 28, 2017 January 27, 2018 January 28, 2017
MBS Sales ^(a)

Wholesale $ 92.2
$ —
$ 232.2
$ —
Direct 46.7
—
181.4
—
MBS Sales subtotal: $ 138.9
$ —
$ 413.6
$ —
BNC Sales
New stores $ 14.1
$ 34.2
$ 55.8
$ 92.7
Closed stores (2.2 ) (8.0 ) (9.7 ) (20.6 )
Comparable stores (31.3 ) (27.3 ) (69.9 ) (59.8 )
Textbook rental deferral 2.6
2.3
6.2
0.1
Service revenue ^(b)
6.7
0.9
13.1
3.3
Other ^(c)
(5.1 ) 1.1
(8.8 ) 2.5
BNC Sales subtotal: $ (15.2 ) $ 3.2
$ (13.3 ) $ 18.2
Eliminations ^(d)
$ (42.0 ) $ —
$ (85.9 ) $ —
Total sales variance $ 81.7
$ 3.2
$ 314.4
$ 18.2

~~(a)~~

Represents sales for MBS for the 13 and 39 weeks ended January 27, 2018. 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, which somewhat offsets the decreased first quarter sales attributable to our retail business. MBS has significantly lower operating profit or operating loss realized during the fourth quarter.


~~(b)~~	~~Service revenue includes Student Brands, brand partnerships, Promoversity, LoudCloud, shipping and handling and revenue from other programs.~~


~~(c)~~	~~Other includes certain adjusting items related to return reserves and other deferred items.~~


~~(d)~~	~~Eliminates MBS sales to BNC and BNC commissions earned from MBS. See~~ ~~Part I - Item 1. Financial Statements - Note 5. Segment Reporting~~ ~~of this Form 10-Q for a discussion of intercompany activities and eliminations.~~

Rental income for BNC for the 13 and 39 weeks ended January 27, 2018 decreased by $3.7 million, or 5.7%, and $10.3 million, or 6.5%, respectively. For the 13 and 39 weeks ended January 27, 2018, rental income for BNC was impacted by an increase in the recognition of our previously deferred rental revenue of $2.6 million and $6.2 million, respectively, and decreased rental activity. Excluding the impact of the deferred revenue, rental income decreased by $6.3 million, or 7.5% and $16.5 million, or 7.5%, respectively.

~~BNC added 30 new stores and closed 17 stores during the 39 weeks ended January 27, 2018, ending the period with a total of 782 stores.~~

~~Comparable store sales variances for BNC by category for the 13 and 39 week periods are as follows:~~

Comparable Store Sales variances-BNC 13 weeks ended 39 weeks ended
Dollars in millions January 27, 2018 January 28, 2017 January 27, 2018 January 28, 2017
Textbooks $ (26.3 ) (7.2 )% $ (25.4 ) (6.7 )% $ (62.8 ) (6.1 )% $ (55.3 ) (5.3 )%
General Merchandise (3.5 ) (2.8 )% (0.5 ) (0.5 )% (3.3 ) (0.8 )% (1.2 ) (0.3 )%
Trade Books (1.5 ) (11.9 )% (1.2 ) (8.3 )% (3.8 ) (9.5 )% (2.7 ) (6.2 )%
Other —
— % (0.2 ) (86.7 )% —
— % (0.6 ) (88.3 )%
Total Comparable Store Sales $ (31.3 ) (6.2 )% $ (27.3 ) (5.3 )% $ (69.9 ) (4.7 )% $ (59.8 ) (4.0 )%

Comparable store sales for BNC decreased for the 13 and 39 week sales periods. Comparable store sales 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 the timing of the spring back-to-school rush season which extended past the close of our fiscal third quarter and 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 13 and 39 weeks ended January 27, 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 decreased for the 13 weeks ended January 27, 2018 primarily due to a decrease in school supplies, computer and convenience product sales, and emblematic apparel, partially offset by higher graduation products sales. General merchandise sales for BNC decreased for the 39 weeks ended January 27, 2018 primarily due to a decrease in school supplies, and computer and convenience product sales, partially offset by higher emblematic apparel and graduation productssubscription sales.

Cost of Sales and Gross Margin

Our cost of sales decreased as a percentage of sales to ~~75.7%~~76.8% during the 13 weeks ended ~~January 27, 2018~~October 30, 2021 compared to ~~77.8%~~80.6% during the 13 weeks ended ~~January 28, 2017.~~October 31, 2020. Our gross margin increased by ~~$30.6~~$30.3 million, or ~~26.4%~~26.3%, to ~~$146.5~~$145.6 million, or ~~24.3%~~23.2% of sales, during the 13 weeks ended ~~January 27, 2018~~October 30, 2021 from ~~$115.9~~$115.3 million, or ~~22.2%~~19.4% of sales during the 13 weeks ended ~~January 28, 2017.~~October 31, 2020.

Our cost of sales decreased as a percentage of sales to ~~76.8%~~76.3% during the 3926 weeks ended ~~January 27, 2018~~October 30, 2021 compared to ~~78.1%~~81.7% during the 3926 weeks ended ~~January 28, 2017.~~October 31, 2020. Our gross margin increased by ~~$93.0~~$59.4 million, or ~~27.8%~~40.7%, to ~~$427.8~~$205.6 million, or ~~23.2%~~23.7% of sales, during the 3926 weeks ended ~~January 27, 2018~~October 30, 2021 from ~~$334.9~~$146.1 million, or ~~21.9%~~18.3% of sales during the 3926 weeks ended ~~January 28, 2017.~~

~~Intercompany Eliminations~~

October 31, 2020. During the ~~13 and 39~~26 weeks ended ~~January 27, 2018, our sales eliminations were $42.0~~October 30, 2021, we recognized a merchandise inventory loss of $0.4 million ~~and $85.9 million, respectively. These sales eliminations represent the elimination of MBS sales to BNC and the elimination of BNC commissions earned from MBS.~~

~~During the 13 and 39 weeks ended January 27, 2018, the~~in cost of ~~sales eliminations were $36.2 million and $80.1 million, respectively. These cost~~goods sold in the Retail Segment discussed below. For additional information, see Item 1. Financial Statements - Note 2. Summary 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.Significant Accounting Policies - Merchandise Inventories.

~~The $5.8 million of gross margin elimination reflects the net impact of the sales eliminations and cost of sales eliminations during both the 13 and 39 weeks ended January 27, 2018.~~

~~MBS~~

The cost of sales and gross margin for MBS was $104.0 million or 74.8% of sales and $35.0 million or 25.2% of sales, respectively, during the 13 weeks ended January 27, 2018. The cost of sales and gross margin for MBS was $317.9 million or 76.9% of sales and $95.7 million or 23.1% of sales, respectively, during the 39 weeks ended January 27, 2018. The MBS gross margin as a percentage of sales is impacted by the seasonality of their business. 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, which somewhat offsets the decreased first quarter sales attributable to our retail business. For the 13 and 39 weeks ended January 27, 2018, the margin impact was primarily due to certain fixed warehouse facility and operation costs. For the 39 weeks ended January 27, 2018, the margin was also 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 $3.7 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 $314.6 million or 76.1% of sales and $99.0 million or 23.9% of sales, respectively, during the 39 weeks ended January 27, 2018.

~~BNC~~Retail

The following table summarizes the ~~BNC~~Retail cost of sales for the 13 and 3926 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017:~~October 31, 2020:


	13 weeks ended						39 weeks ended							13 weeks ended						26 weeks ended
Dollars in thousands	January 27, 2018		% of Related Sales	January 28, 2017		% of Related Sales	January 27, 2018		% of Related Sales	January 28, 2017		% of Related Sales	Dollars in thousands	October 30, 2021		% of Related Sales	October 31, 2020		% of Related Sales	October 30, 2021		% of Related Sales	October 31, 2020		% of Related Sales
Product and other cost of sales	$	352,742	79.2%	$	366,190	80.1%	$	1,090,756	79.6%	$	1,098,682	80.0%	Product and other cost of sales	$	451,779	80.8%	$	453,277	85.1%	$	607,501	80.3%	$	588,531	86.4%
Rental cost of sales	36,305		59.7%	39,509		61.3%	89,593		60.4%	97,998		61.7%	Rental cost of sales	28,348		57.1%	27,725		63.5%	34,952		55.8%	35,112		64.5%
Total Cost of Sales	$	389,047	76.8%	$	405,699	77.8%	$	1,180,349	77.7%	$	1,196,680	78.1%	Total Cost of Sales	$	480,127	78.8%	$	481,002	83.4%	$	642,453	78.4%	$	623,643	84.8%

The following table summarizes the ~~BNC~~Retail gross margin for the 13 and 3926 weeks ended ~~January 27, 2018~~October 30, 2021 and ~~January 28, 2017:~~October 31, 2020:


	13 weeks ended						39 weeks ended							13 weeks ended						26 weeks ended
Dollars in thousands	January 27, 2018		% of Related Sales	January 28, 2017		% of Related Sales	January 27, 2018		% of Related Sales	January 28, 2017		% of Related Sales	Dollars in thousands	October 30, 2021		% of Related Sales	October 31, 2020		% of Related Sales	October 30, 2021		% of Related Sales	October 31, 2020		% of Related Sales
Product and other gross margin	$	92,900	20.8%	$	90,957	19.9%	$	279,014	20.4%	$	274,128	20.0%	Product and other gross margin	$	107,525	19.2%	$	79,584	14.9%	$	149,248	19.7%	$	92,302	13.6%
Rental gross margin	24,513		40.3%	24,968		38.7%	58,861		39.6%	60,724		38.3%	Rental gross margin	21,300		42.9%	15,928		36.5%	27,720		44.2%	19,345		35.5%
Gross Margin	$	117,413	23.2%	$	115,925	22.2%	$	337,875	22.3%	$	334,852	21.9%	Gross Margin	$	128,825	21.2%	$	95,512	16.6%	$	176,968	21.6%	$	111,647	15.2%

For the 13 weeks ended ~~January 27, 2018,~~October 30, 2021, the ~~BNC~~Retail gross margin as a percentage of sales increased as discussed below:

•Product and other gross margin increased ~~(90~~(430 basis points), driven primarily by ~~high~~a favorable sales mix (400 basis points) due to higher general merchandise sales, lower contract costs as a percentage of sales related to our college and university contracts (25 basis points) resulting from contract renewals and new store contracts, and higher margin ~~Student Brands subscription service revenue earned (125~~rates (5 basis points) due to lower inventory reserves and lower markdowns.

•Rental gross margin increased (640 basis points), driven primarily by higher rental margin rates (595 basis points) and lower contract costs as a percentage of sales related to our college and university contracts (285 basis points), partially offset by an unfavorable rental mix (240 basis points).

For the 26 weeks ended October 30, 2021, the Retail gross margin as a percentage of sales increased as discussed below:

•Product and other gross margin increased (610 basis points), driven primarily by a favorable sales mix (475 basis points) due to higher general merchandise sales, higher margin rates ~~(20~~(130 basis points) ~~related~~due to ~~decreased markdowns on textbooks,~~lower inventory reserves and lower markdowns, and lower contract costs as a percentage of sales related to our college and university contracts (5 basis points) resulting from contract renewals and new store ~~contracts. This increase was~~contracts, partially offset by an ~~unfavorable sales mix (60~~inventory merchandise loss of $0.4 million (5 basis points) ~~resulting from a decrease in higher margin used textbooks~~related to the final sale of our logo and emblematic general merchandise ~~as a percentage~~inventory below

Table of ~~sales.~~Contents

cost to FLC.

•Rental gross margin increased ~~(160~~(870 basis points), driven primarily by higher rental margin rates ~~(185~~(590 basis points) and lower contract costs as a percentage of sales related to our college and university contracts ~~(15~~(470 basis points) ~~resulting from contract renewals and new store contracts,~~, partially offset by an unfavorable rental mix ~~(40~~(190 basis points).

~~For~~Wholesale

The cost of sales and gross margin for Wholesale were $16.1 million, or 74.1% of sales, and $5.6 million, or 25.9% of sales, respectively, during the 3913 weeks ended ~~January 27, 2018, the BNC~~October 30, 2021. The cost of sales and gross margin ~~as a percentage~~for Wholesale was $25.7 million or 70.6% of sales ~~increased as discussed below:~~

~~Product~~ and ~~other~~$10.7 million or 29.4% of sales, respectively, during the 13 weeks ended October 31, 2020. The gross margin rate decreased during the 13 weeks ended October 30, 2021 primarily due to higher markdowns, partially offset by a favorable sales mix.

The cost of sales and gross margin for Wholesale were $50.1 million, or 75.8% of sales, and $16.0 million, or 24.2% of sales, respectively, during the 26 weeks ended October 30, 2021. The cost of sales and gross margin for Wholesale was $89.2 million or 76.5% of sales and $27.5 million or 23.5% of sales, respectively, during the 26 weeks ended October 31, 2020. The gross margin rate increased ~~(40 basis points),~~during the 26 weeks ended October 30, 2021 primarily due to a favorable sales mix and lower markdowns, partially offset by the unfavorable impact of returns and allowances.

DSS

The gross margin for the DSS segment was $6.9 million, or 83.4% of sales, during the 13 weeks ended October 30, 2021 and $4.7 million, or 78.4% of sales, during the 13 weeks ended October 31, 2020. The gross margin for the DSS segment was $13.9 million, or 84.0% of sales, during the 26 weeks ended October 30, 2021 and $9.4 million, or 79.6% of sales, during the 26 weeks ended October 31, 2020. The high gross margins are driven primarily by ~~Student Brands~~high margin subscription service revenue earned (75 basis points) and higher margin rates (15 basis points) related to decreased markdowns on textbooks. This increase was partially offset by an unfavorable sales mix (30 basis points) resulting from a decrease in higher margin used textbooks as a percentage of sales and lower costs related to our college and university contracts (15 basis points) resulting from contract renewals and new store contracts.earned.

Rental gross margin increased (130 basis points), driven primarily by higher rental margin rates (190 basis points), partially offset by higher costs related to our college and university contracts (15 basis points) resulting from contract renewals and new store contracts and an unfavorable rental mix (35 basis points).

~~Selling and Administrative Expenses~~

13 weeks ended 39 weeks ended
Dollars in thousands January 27, 2018 % of
Sales January 28, 2017 % of
Sales January 27, 2018 % of
Sales January 28, 2017 % of
Sales
Total Selling and Administrative Expenses $ 111,974
18.6% $ 97,111
18.6% $ 326,532
17.7 % $ 282,171
18.4 %
Intercompany Eliminations

During the 13 weeks ended ~~January 27, 2018,~~October 30, 2021 and October 31, 2020, our sales eliminations were $(11.9) million and $(23.4) million, respectively. During the 26 weeks ended October 30, 2021 and October 31, 2020, our sales eliminations were $(34.4) million and $(64.3) million, respectively. These sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale.

During the 13 weeks ended October 30, 2021 and October 31, 2020, the cost of sales eliminations were $(16.1) million and $(27.8) million, respectively. During the 26 weeks ended October 30, 2021 and October 31, 2020, the cost of sales eliminations were $(33.0) million and $(61.9) million, respectively. These cost of sales eliminations represent (i) the recognition of intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the current period.

During the 13 weeks ended October 30, 2021 and October 31, 2020, the gross margin eliminations were $4.2 million and $4.4 million, respectively. During the 26 weeks ended October 30, 2021 and October 31, 2020, the gross margin eliminations were $(1.3) million and $(2.4) million, respectively. The gross margin eliminations reflect the net impact of the sales eliminations and cost of sales eliminations during the above mentioned reporting periods.

Selling and Administrative Expenses


	13 weeks ended						26 weeks ended
Dollars in thousands	October 30, 2021		% of Sales	October 31, 2020		% of Sales	October 30, 2021		% of Sales	October 31, 2020		% of Sales
Total Selling and Administrative Expenses	$	107,902	17.2%	$	91,972	15.4%	$	194,137	22.4%	$	162,015	20.3%

During the 13 weeks ended October 30, 2021, selling and administrative expenses increased by ~~$14.9~~$15.9 million, or ~~15.3%~~17.3%, to ~~$112.0~~$107.9 million from ~~$97.1~~$92.0 million during the 13 weeks ended ~~January 28, 2017.~~October 31, 2020. During the 3926 weeks ended ~~January 27, 2018,~~October 30, 2021, selling and administrative expenses increased by ~~$44.4~~$32.1 million, or ~~15.7%~~19.8%, to ~~$326.5~~$194.1 million from ~~$282.2~~$162.0 million during the 39

26 weeks ended ~~January 28, 2017.~~ October 31, 2020. The variances by segment are discussed by segment below.

The increase ~~for the 13 and 39 weeks was primarily due to the~~in selling and administrative expenses ~~for MBS of $14.2 million and $43.0 million, respectively (which includes a $1.7 million and $5.1 million selling and administrative expense allocation~~is primarily related to the impact from ~~BNC for shared corporate overhead,~~re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year. Additionally, during the 13 and 3926 weeks ended ~~January 27, 2018, respectively).~~October 30, 2021, long-term incentive compensation expense increased by $2.5 million and $4.6 million, respectively, primarily related to cash-settled phantom share unit awards which are remeasured at the end of each reporting period to reflect current assumptions, including changes in the our common stock price.

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Retail

During the 13 weeks ended ~~January 27, 2018, BNC's~~October 30, 2021, Retail selling and administrative expenses increased by ~~$0.7~~$12.1 million, or ~~0.7%~~15.6%, to ~~$97.8~~$89.5 million from ~~$97.1 million.~~$77.4 million during the 13 weeks ended October 31, 2020. This increase was primarily due to a $10.2 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, a $1.3 million increase in corporate payroll, infrastructure and product development costs and $0.6 million increase in incentive plan compensation expense related to phantom share awards as discussed above. The payroll increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

During the 26 weeks ended October 30, 2021, Retail selling and administrative expenses increased by $23.5 million, or 17.5%, to $157.9 million from $134.4 million during the 26 weeks ended October 31, 2020. This increase was primarily due to a $22.3 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, a $1.1 million increase in incentive plan compensation expense related to phantom share awards as discussed above, and a $0.1 million increase in corporate payroll, infrastructure and product development costs. The payroll increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

Wholesale

Wholesale selling and administrative expenses increased by $0.3 million, or 5.8%, to $4.4 million from $4.1 million during the 13 weeks ended October 31, 2020. Wholesale selling and administrative expenses increased by $0.5 million, or 5.6%, to $8.4 million from $7.9 million during the 26 weeks ended October 31, 2020. The increase in selling and administrative expenses was primarily driven by higher incentive plan compensation expense related to phantom share awards, as discussed above.

DSS

During the 13 weeks ended October 30, 2021, DSS selling and administrative expenses increased by $2.3 million, or 46.0%, to $7.3 million from $5.0 million during the 13 weeks ended October 31, 2020. During the 26 weeks ended October 30, 2021, DSS selling and administrative expenses increased by $4.7 million, or 52.1%, to $13.8 million from $9.0 million during the 26 weeks ended October 31, 2020. The increase in costs was primarily driven by higher operating costs invested in the business associated with higher product development and sales costs aimed at increasing revenue, and higher incentive plan compensation expense related to phantom share awards, as discussed above.

Corporate Services

During the 13 weeks ended October 30, 2021, Corporate Services' selling and administrative expenses increased by $1.3 million, or 23.8%, to $6.8 million from $5.5 million during the 13 weeks ended October 31, 2020. The increase was primarily due to ~~a $0.7~~higher incentive plan compensation expense related to phantom share awards of $1.6 million, ~~increase in new store payroll and operating expenses (net of closed stores),~~ as a result of a $11.9 million increase in new store sales (net of closed stores), a $2.1 million increase in Student Brands expenses, and a $0.9 million increase in corporate overhead, including digital expenses. These increases werediscussed above, partially offset by ~~a $1.7 million~~lower operating costs of ~~shared corporate overhead costs allocated to MBS and a $1.3 million decrease in comparable store payroll and operating expenses.~~$0.3 million.

During the 3926 weeks ended ~~January 27, 2018, BNC's~~October 30, 2021, Corporate Services' selling and administrative expenses increased by ~~$1.4~~$3.5 million, or ~~0.5%~~32.6%, to ~~$283.5~~$14.3 million from ~~$282.2 million.~~$10.8 million during the 26 weeks ended October 31, 2020. The increase was primarily due ~~a $4.3~~to higher incentive plan compensation expense related to phantom share awards of $3.0 million, ~~increase in new store payroll~~as discussed above, and higher operating expenses ~~(net~~ of closed stores), as a result of a $46.1 million increase in new store sales (net of closed stores), a $4.1 million increase in Student Brands expenses, and a $2.8 million increase in corporate overhead, including digital expenses. These increases were partially offset by a $5.1 million of shared corporate overhead costs allocated to MBS and a $4.7 million decrease in comparable store payroll and operating expenses.$0.5 million.

Depreciation and Amortization Expense


	13 weeks ended						39 weeks ended									13 weeks ended						26 weeks ended
Dollars in thousands	January 27, 2018		% of Sales	January 28, 2017		% of Sales	January 27, 2018		% of Sales		January 28, 2017		% of Sales		Dollars in thousands	October 30, 2021		% of Sales	October 31, 2020		% of Sales	October 30, 2021		% of Sales	October 31, 2020		% of Sales
Total Depreciation and Amortization Expense	$	17,007	2.8%	$	13,149	2.5%	$	48,728	2.6	%	$	39,057	2.6	%	Total Depreciation and Amortization Expense	$	11,952	1.9%	$	13,193	2.2%	$	24,576	2.8%	$	27,256	3.4%

Depreciation and amortization expense ~~increased~~decreased by ~~$3.9~~$1.2 million, or ~~29.3%~~9.4%, to ~~$17.0~~$12.0 million during the 13 weeks ended ~~January 27, 2018~~October 30, 2021 from ~~$13.1~~$13.2 million during the 13 weeks ended ~~January 28, 2017.~~October 31, 2020. Depreciation and amortization expense ~~increased~~decreased by ~~$9.7~~$2.7 million, or ~~24.8%~~9.8%, to ~~$48.7~~$24.6 million during the 3926 weeks ended ~~January 27, 2018~~October 30, 2021 from ~~$39.1~~$27.3 million during the 3926 weeks ended ~~January 28, 2017. This increase~~October 31, 2020.The decrease was primarily attributable to ~~incremental depreciation~~lower depreciable assets and ~~amortization expense resulting from~~intangibles due to 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~~store impairment loss ~~(non-cash)~~

~~We completed our annual goodwill impairment test as of the first day of~~recognized during 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 exceeded its fair value and we recorded a goodwill impairment (non-cash impairment loss) of $313.1 million. For information, see ~~Part I - Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies~~ ~~in this Form 10-Q.~~2021.

Restructuring and other charges

~~Restructuring~~

In Fiscal 2016, in our BNC segment, 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 $0.07 million and $1.8 million during the 39 weeks ended January 27, 2018 and January 28, 2017, respectively.

~~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 39 weeks ended January 27, 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 I - Item 1. Financial Statements - Note 9. Supplementary Information~~ ~~in this Form 10-Q or the Form 8-K dated July 19, 2017, filed with the SEC on July 20, 2017.~~

~~Transaction Costs~~

~~Transaction costs were $0.05 million and $1.9 million during~~ the 13 and 3926 weeks ended ~~January 27, 2018 compared to $0.5~~October 30, 2021, we recognized restructuring and other charges totaling $1.1 million and ~~$2.6~~$3.7 million, ~~during~~respectively, comprised primarily of $0.4 million and $2.0 million, respectively, for severance and other

Table of Contents

employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, $0.7 million and $1.7 million, 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 3926 weeks ended ~~January 28, 2017, respectively. We incur transaction~~October 31, 2020, we recognized restructuring and other charges totaling $3.4 million and $9.1 million, respectively, comprised primarily of $1.1 million and $4.5 million, respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, $2.3 million and $4.6 million, respectively, for costs associated with professional service costs for ~~business development~~restructuring, process improvements, shareholder activist activities, and ~~acquisitions as discussed above. For additional information related to our recent acquisitions, see~~ ~~Part I - Item 1. Financial Statements - Note 4. Acquisitions~~ ~~in this Form 10-Q.~~

liabilities for a facility closure.

Operating Income (Loss) ~~Income~~


	13 weeks ended							39 weeks ended										13 weeks ended						26 weeks ended
Dollars in thousands	January 27, 2018			% of Sales	January 28, 2017		% of Sales	January 27, 2018			% of Sales		January 28, 2017		% of Sales		Dollars in thousands	October 30, 2021		% of Sales	October 31, 2020		% of Sales	October 30, 2021		% of Sales	October 31, 2020		% of Sales
Total Operating (Loss) Income	$	(295,625	)	(49.0)%	$	5,198	1.0%	$	(267,908	)	(14.5	)%	$	9,196	0.6	%
Total Operating Income (Loss)																	Total Operating Income (Loss)	$	24,589	3.9%	$	6,733	1.2%	$	(16,864)	(1.9)%	$	(52,182)	(6.5)%

Our operating ~~loss~~income was ~~$295.6~~$24.6 million during the 13 weeks ended ~~January 27, 2018~~October 30, 2021, compared to operating income of ~~$5.2~~$6.7 million during the 13 weeks ended ~~January 28, 2017. This~~October 31, 2020. The increase ~~was~~in operating income is due to the matters discussed above. For the 13 weeks ended ~~January 27, 2018,~~October 30, 2021, excluding the ~~$313.1~~$1.1 million of ~~goodwill impairment~~restructuring and ~~transaction costs of $0.05 million,~~other charges discussed above, operating income was ~~$17.6~~$25.7 million (or ~~2.9%~~4.1% of sales). For the 13 weeks ended ~~January 28, 2017,~~October 31, 2020, excluding the ~~transaction costs~~$3.4 million of ~~$0.5 million,~~restructuring and other charges, discussed above, operating income was ~~$5.7~~$10.1 million (or ~~1.1%~~1.7% of sales) ~~during the 13 weeks ended January 28, 2017.~~.

Our operating loss was ~~$268.0~~$(16.9) million during the 3926 weeks ended ~~January 27, 2018~~October 30, 2021, compared to an operating ~~income~~loss of ~~$9.2~~$(52.2) million during the 3926 weeks ended ~~January 28, 2017. This increase was~~October 31, 2020. The decrease in operating loss is due to the matters discussed above. For the 3926 weeks ended ~~January 27, 2018,~~October 30, 2021, excluding the ~~$313.1~~$0.4 million of ~~goodwill impairment,~~merchandise inventory loss and the ~~$3.3~~$3.7 million of ~~incremental cost of sales related to amortization of the MBS inventory fair value adjustment, the~~ restructuring and other charges ~~of $5.4 million and transaction costs of $1.9 million, all~~ discussed above, operating loss was ~~$55.8~~$(12.7) million (or ~~3.0%~~(1.5)% of sales). For the 3926 weeks ended ~~January 28, 2017,~~October 31, 2020, excluding the ~~transaction costs~~$9.1 million of ~~$2.6 million and~~ restructuring ~~costs~~ and other charges, ~~of $1.8 million,~~ discussed above, operating ~~income~~loss was ~~$13.6~~$(43.1) million (or ~~0.9%~~(5.4)% of sales) ~~during the 39 weeks ended January 28, 2017.~~.

Interest Expense, Net


	13 weeks ended				39 weeks ended					13 weeks ended				26 weeks ended
Dollars in thousands	January 27, 2018		January 28, 2017		January 27, 2018		January 28, 2017		Dollars in thousands	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Interest Expense, Net	$	2,954	$	679	$	7,828	$	1,975	Interest Expense, Net	$	2,264	$	912	$	4,758	$	3,565

Net interest expense increased by ~~$2.3~~$1.4 million, or 148.4%, to ~~$3.0~~$2.3 million during the 13 weeks ended ~~January 27, 2018~~October 30, 2021 from ~~$0.7~~$0.9 million during the 13 weeks ended ~~January 28, 2017.~~October 31, 2020. Net interest expense increased by ~~$5.9~~$1.2 million, or 33.5%, to ~~$7.8~~$4.8 million during the 3913 weeks ended ~~January 27, 2018~~October 30, 2021 from ~~$2.0~~$3.6 million during the 3913 weeks ended ~~January 28, 2017.~~October 31, 2020. The increase was primarily due to ~~increased~~higher borrowings ~~under~~compared to the ~~Credit Facility and the FILO Facility (which was entered into during Fiscal 2017).~~prior year.

Income Tax (Benefit) Expense


	13 weeks ended							39 weeks ended										13 weeks ended						26 weeks ended
Dollars in thousands	January 27, 2018			Effective Rate	January 28, 2017		Effective Rate	January 27, 2018			Effective Rate		January 28, 2017		Effective Rate		Dollars in thousands	October 30, 2021		Effective Rate	October 31, 2020		Effective Rate	October 30, 2021		Effective Rate	October 31, 2020		Effective Rate
Income Tax (Benefit) Expense	$	(15,344	)	5.1%	$	758	16.8%	$	(6,113	)	2.2	%	$	2,087	28.9	%	Income Tax (Benefit) Expense	$	(203)	(0.9)%	$	(1,694)	(29.1)%	$	196	(0.9)%	$	(16,610)	29.8%

We recorded an income tax benefit of ~~$(15.3)~~$(0.2) million on a pre-tax ~~loss~~income of ~~$(298.6)~~$22.3 million of during the 13 weeks ended ~~January 27, 2018,~~October 30, 2021, which represented an effective income tax rate of ~~5.1%~~(0.9)% and we recorded an income tax ~~expense~~benefit of ~~$0.7~~$(1.7) million on a pre-tax income of ~~$4.5~~$5.8 million during the 13 weeks ended ~~January 28, 2017,~~October 31, 2020, which represented an effective income tax rate of ~~16.8%~~(29.1)%.

We recorded an income tax ~~benefit~~expense of ~~$(6.1)~~$0.2 million on a pre-tax loss of ~~$(275.7)~~$(21.6) million of during the 3926 weeks ended ~~January 27, 2018,~~October 30, 2021, which represented an effective income tax rate of ~~2.2%~~(0.9)% and we recorded an income tax ~~expense~~benefit of ~~$2.1~~$(16.6) million on a pre-tax ~~income~~loss of ~~$7.2~~$(55.7) million during the 3926 weeks ended ~~January 28, 2017,~~October 31, 2020, which represented an effective income tax rate of ~~28.9%~~29.8%.

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The effective tax ~~rates~~rate for the ~~13 and 39~~26 weeks ended ~~January 27, 2018 are significantly~~October 30, 2021 is lower as compared to the comparable prior year ~~periods~~ due to the ~~tax benefit of U.S. Tax Reform, partially offset by permanent differences, which in this quarter includes the nondeductible portion~~assessment of the ~~goodwill impairment.~~

~~Management expects nondeductible compensation expense for the current fiscal year to be significantly lower compared to~~realization of deferred tax assets and loss carrybacks recorded in the prior fiscal year as components of our executive compensation program now qualify 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. Management does not expect any similar non-recurring tax benefits associated with the Spin-Off to impact our effective tax rate either in the current fiscal year or in future fiscal year.

~~Impact of U.S. Tax Reform~~Net Income (Loss)


	13 weeks ended				26 weeks ended
Dollars in thousands	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Net income (loss)	$	22,528	$	7,515	$	(21,818)	$	(39,137)

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 $21.1 million reduction of the value of the 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~~

13 weeks ended 39 weeks ended
Dollars in thousands January 27, 2018 January 28, 2017 January 27, 2018 January 28, 2017
Net (Loss) Income $ (283,235 ) $ 3,761
$ (269,623 ) $ 5,134

As a result of the factors discussed above, ~~we reported~~ net ~~loss of $(283.2)~~income was $22.5 million during the 13 weeks ended ~~January 27, 2018,~~October 30, 2021, compared with a net income of ~~$3.8~~$7.5 million during the 13 weeks ended ~~January 28, 2017. Adjusted Earnings (non-GAAP) is $19.6 million during the 13 weeks ended January 27, 2018, compared with $4.0 million during the 13 weeks ended January 28, 2017. See~~ ~~Adjusted Earnings (non-GAAP)~~ ~~discussion below.~~

October 31, 2020. As a result of the factors discussed above, ~~we reported~~net loss was $(21.8) million during the 26 weeks ended October 30, 2021, compared with net loss of ~~$(269.6)~~$(39.1) million during the 3926 weeks ended ~~January 27, 2018, compared with a net income of $5.1 million during the 39 weeks ended January 28, 2017.~~ October 31, 2020.

Adjusted Earnings (non-GAAP) is ~~$39.8~~$25.0 million during the 3913 weeks ended ~~January 27, 2018,~~October 30, 2021, compared with ~~$7.8~~$11.1 million during the 3913 weeks ended ~~January 28, 2017. See~~ October 31, 2020. Adjusted Earnings (non-GAAP) is $(15.1) million during the 26 weeks ended October 30, 2021, compared with $(30.6) million during the 26 weeks ended October 31, 2020. See Adjusted Earnings (non-GAAP) discussion below.

Use of Non-GAAP Measures - Adjusted Earnings, ~~and~~ Adjusted EBITDA and Free Cash Flow

To supplement our results prepared in accordance with ~~GAAP,~~generally accepted accounting principles (“GAAP”), we use the measure of Adjusted Earnings, Adjusted EBITDA, and ~~Adjusted Earnings,~~Free Cash Flow, which are non-GAAP financial measures under Securities and Exchange Commission (the “SEC”) regulations. We define Adjusted Earnings as net income adjusted for certain reconciling 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 ~~additional~~ items that are subtracted from or added to net income. We define Free Cash Flow as Adjusted ~~Earnings as net income as adjusted for additional items that are subtracted from or added to net income.~~EBITDA less capital expenditures, cash interest and cash taxes.

To properly and prudently evaluate our business, we encourage you to review our condensed consolidated financial statements included elsewhere in this Form ~~10-Q,~~10-K, the reconciliation of Adjusted ~~EBITDA~~Earnings to net income and the reconciliation of Adjusted ~~Earnings~~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~~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~~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 ~~it excludes~~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 ~~EBITDA~~Earnings and Adjusted ~~Earnings~~EBITDA results provides investors useful and important information regarding our operating results. We believe that Free Cash Flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements and assists investors in their understanding of our operating profitability and liquidity as we manage the business to maximize margin and cash flow.

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Adjusted Earnings (non-GAAP)


	13 weeks ended				26 weeks ended
Dollars in thousands	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Net income (loss)	$	22,528	$	7,515	$	(21,818)	$	(39,137)
Reconciling items, after-tax (below)	2,427		3,560		6,759		8,496
Adjusted Earnings (non-GAAP)	$	24,955	$	11,075	$	(15,059)	$	(30,641)

Reconciling items, pre-tax

Merchandise inventory loss (a)	$	—	$	—	434		—
Content amortization (non-cash)	1,311		1,222		2,586		2,386
Restructuring and other charges (a)	1,116		3,387		3,739		9,058

Reconciling items, pre-tax	2,427		4,609		6,759		11,444
Less: Pro forma income tax impact (a)(b)	—		1,049		—		2,948
Reconciling items, after-tax	$	2,427	$	3,560	$	6,759	$	8,496

13 weeks ended 39 weeks ended
Dollars in thousands January 27, 2018 January 28, 2017 January 27, 2018 January 28, 2017
Net (loss) income $ (283,235 ) $ 3,761
$ (269,623 ) $ 5,134
Reconciling items, after-tax (below)
302,879
286
309,404
2,714
Adjusted Earnings (non-GAAP) ^(a)
$ 19,644
$ 4,047
$ 39,781
$ 7,848

Reconciling items, pre-tax
Impairment loss (non-cash) ^(a)
$ 313,130
$ —
$ 313,130
$ —
Inventory valuation amortization (MBS) (non-cash) ^(a)
—
—
3,273
—
Restructuring and other charges ^(a)
—
—
5,429
1,790
Transaction costs ^(a)
49
467
1,895
2,638
Reconciling items, pre-tax 313,179
467
323,727
4,428
Less: Pro forma income tax impact ^(b)
10,300
181
14,323
1,714
Reconciling items, after-tax $ 302,879
$ 286
$ 309,404
$ 2,714


~~(a)~~	~~See~~ ~~Management Discussion and Analysis - Results of Operations~~ ~~discussion above.~~


~~(b)~~	~~Represents the income tax effects of the non-GAAP items.~~

(a) See Management Discussion and Analysis and Results of Operations discussion above.

(b) Represents the income tax effects of the non-GAAP items.

Adjusted EBITDA (non-GAAP)


	13 weeks ended				26 weeks ended
Dollars in thousands	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Net income (loss)	$	22,528	$	7,515	$	(21,818)	$	(39,137)
Add:
Depreciation and amortization expense	11,952		13,193		24,576		27,256
Interest expense, net	2,264		912		4,758		3,565
Income tax (benefit) expense	(203)		(1,694)		196		(16,610)

Merchandise inventory loss (a)	—		—		434		—
Content amortization (non-cash)	1,311		1,222		2,586		2,386
Restructuring and other charges (a)	1,116		3,387		3,739		9,058

Adjusted EBITDA (non-GAAP) (a)	$	38,968	$	24,535	$	14,471	$	(13,482)

13 weeks ended 39 weeks ended
Dollars in thousands January 27, 2018 January 28, 2017 January 27, 2018 January 28, 2017
Net (loss) income $ (283,235 ) $ 3,761
$ (269,623 ) $ 5,134
Add:
Depreciation and amortization expense 17,007
13,149
48,728
39,057
Interest expense, net 2,954
679
7,828
1,975
Income tax expense (15,344 ) 758
(6,113 ) 2,087
Impairment loss (non-cash) ^(a)
313,130
—
313,130
—
Inventory valuation amortization (MBS) (non-cash) ^(a)
—
—
3,273
—
Restructuring and other charges ^(a)
—
—
5,429
1,790
Transaction costs ^(a)
49
467
1,895
2,638
Adjusted EBITDA (non-GAAP) ^(a)
$ 34,561
$ 18,814
$ 104,547
$ 52,681
(a) See Management Discussion and Analysis and Results of Operations discussion above.


~~(a)~~	~~See~~ ~~Management Discussion and Analysis - Results of Operations~~ ~~discussion above.~~

The following is Adjusted EBITDA by segment for the 13 and 3926 weeks ended ~~January 27, 2018. Prior~~October 30, 2021 and October 31, 2020.


Adjusted EBITDA - by Segment	13 weeks ended October 30, 2021
Dollars in thousands	Retail		Wholesale		DSS		Corporate Services		Elimination(b)		Total
Sales	$	608,952	$	21,669	$	8,279	$	—	$	(11,923)	$	626,977
Cost of sales (a)	480,022		16,049		167		—		(16,131)		480,107
Gross profit	128,930		5,620		8,112		—		4,208		$	146,870
Selling and administrative expenses	89,486		4,387		7,305		6,809		(85)		107,902
Adjusted EBITDA (non-GAAP)	$	39,444	$	1,233	$	807	$	(6,809)	$	4,293	$	38,968

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Adjusted EBITDA - by Segment	13 weeks ended October 31, 2020
Dollars in thousands	Retail		Wholesale		DSS		Corporate Services		Elimination(b)		Total
Sales	$	576,514	$	36,387	$	5,947	$	—	$	(23,363)	$	595,485
Cost of sales (a)	480,810		25,673		255		—		(27,760)		478,978
Gross profit	95,704		10,714		5,692		—		4,397		116,507
Selling and administrative expenses	77,380		4,146		5,003		5,501		(58)		91,972
Adjusted EBITDA (non-GAAP)	$	18,324	$	6,568	$	689	$	(5,501)	$	4,455	$	24,535


Adjusted EBITDA - by Segment	26 weeks ended October 30, 2021
Dollars in thousands	Retail		Wholesale		DSS		Corporate Services		Elimination(b)		Total
Sales	$	819,421	$	66,153	$	16,582	$	—	$	(34,385)	$	867,771
Cost of sales (a)	641,748		50,128		331		—		(33,044)		659,163
Gross profit	177,673		16,025		16,251		—		(1,341)		$	208,608
Selling and administrative expenses	157,851		8,378		13,752		14,253		(97)		194,137
Adjusted EBITDA (non-GAAP)	$	19,822	$	7,647	$	2,499	$	(14,253)	$	(1,244)	$	14,471


Adjusted EBITDA - by Segment	26 weeks ended October 31, 2020
Dollars in thousands	Retail		Wholesale		DSS		Corporate Services		Elimination(b)		Total
Sales	$	735,290	$	116,681	$	11,819	$	—	$	(64,291)	$	799,499
Cost of sales (a)	623,241		89,210		427		—		61,912		774,790
Gross profit	112,049		27,471		11,392		—		(2,379)		$	148,533
Selling and administrative expenses	134,365		7,937		9,039		10,745		(71)		162,015
Adjusted EBITDA (non-GAAP)	$	(22,316)	$	19,534	$	2,353	$	(10,745)	$	(2,308)	$	(13,482)

(a) For the 13 and 26 weeks ended October 30, 2021, the Retail Segment gross margin excludes $0.1 million and $0.3 million, respectively, of amortization expense (non-cash) related to content development costs. Additionally, for the 26 weeks ended October 30, 2021, gross margin excludes a merchandise inventory loss of $0.4 million in the Retail Segment related to the ~~acquisition~~sale of ~~MBS on February 27, 2017, we had only one reportable segment.~~our logo and emblematic general merchandise inventory below cost to FLC. For the 13 and 26 weeks ended October 31, 2020, the Retail Segment gross margin excludes $0.2 million and $0.4 million, respectively, of amortization expense (non-cash) related to content development costs.

For the 13 and 26 weeks ended October 30, 2021, the DSS Segment gross margin excludes $1.2 million and $2.3 million, respectively, of amortization expense (non-cash) related to content development costs. For the 13 and 26 weeks ended October 31, 2020, the DSS Segment gross margin excludes $1.0 million and $2.0 million, respectively of amortization expense (non-cash) related to content development costs.

Adjusted EBITDA - by Segment 13 weeks ended, January 27, 2018
Dollars in thousands BNC MBS
Elimination ^(a)
Total
Sales $ 506,460
$ 138,927
$ (41,996 ) $ 603,391
Cost of sales 389,047
103,978
(36,169 ) 456,856
Gross profit 117,413
34,949
(5,827 ) 146,535
Selling and administrative expenses 97,777
14,197
—
111,974
Adjusted EBITDA (non-GAAP) $ 19,636
$ 20,752
$ (5,827 ) $ 34,561

Adjusted EBITDA - by Segment 39 weeks ended, January 27, 2018
Dollars in thousands BNC MBS
Elimination ^(a)
Total
Sales $ 1,518,224
$ 413,579
$ (85,840 ) $ 1,845,963
Cost of sales (MBS excludes $3,273 related to inventory fair value amortization) ^(a)
1,180,349
314,593
(80,058 ) 1,414,884
Gross profit 337,875
98,986
(5,782 ) 431,079
Selling and administrative expenses 283,546
42,986
—
326,532
Adjusted EBITDA (non-GAAP) $ 54,329
$ 56,000
$ (5,782 ) $ 104,547

~~(a)~~(b) See Management Discussion and Analysis -and Results of Operations discussion above.

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~~Liquidity and Capital Resources~~

Our primary sources of cash are net cash flows from operating activities, funds available under our credit agreement and short-term vendor financing. As of January 27, 2018, we had a total of $113.0 million of outstanding borrowings under the Credit Agreement. See ~~Financing Arrangements~~ ~~discussion below.~~

~~Sources and Uses of~~Free Cash Flow (non-GAAP)


	13 weeks ended				26 weeks ended
Dollars in thousands	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Adjusted EBITDA (non-GAAP)	$	38,968	$	24,535	$	14,471	$	(13,482)
Less:
Capital expenditures (a)	9,894		9,142		21,264		16,197
Cash interest	1,980		1,240		3,662		3,200
Cash taxes	(8,032)		85		(7,778)		6,022
Free Cash Flow (non-GAAP)	$	35,126	$	14,068	$	(2,677)	$	(38,901)

39 weeks ended
Dollars in thousands January 27, 2018 January 28, 2017
Cash, cash equivalents, and restricted cash at beginning of period $ 21,697
$ 30,866
Net cash flows provided by operating activities 141,440
145,002
Net cash flows used in investing activities (89,839 ) (33,651 )
Net cash flows used in financing activities (48,230 ) (7,858 )
Cash, cash equivalents, and restricted cash at end of period $ 25,068
$ 134,359

~~Cash Flow from Operating Activities~~

~~Our business is highly seasonal. For our retail operations (BNC~~(a) Purchases of property and ~~MBS Direct), cash flows from operating activities~~equipment 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,also referred to 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. Our quarterly cash flows also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods.

Cash flows provided by operating activities during the 39 weeks ended January 27, 2018 were $141.4 million compared to $145.0 million during the 39 weeks ended January 28, 2017. This decrease of $3.6 million was primarily due to changes in working capital ~~(including cash income tax payment), 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 Flow from Investing Activities~~

expenditures. 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. The following table provides the components of total purchases of property and equipment:

~~Cash~~


Capital Expenditures	13 weeks ended				26 weeks ended
Dollars in thousands	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Physical store capital expenditures	$	3,587	$	2,825	$	7,480	$	5,962
Product and system development	3,856		2,901		7,480		5,226
Content development costs	1,865		1,752		4,712		2,828
Other	586		1,664		1,592		2,181
Total Capital Expenditures	$	9,894	$	9,142	$	21,264	$	16,197

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Liquidity and Capital Resources

Our primary sources of cash are net cash flows ~~used in investing~~from operating activities, during the 39 weeks ended January 27, 2018 were $(89.8) million compared to $(33.7) million during the 39 weeks ended January 28, 2017. The increase 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 the 39 weeks ended January 27, 2018, 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 tofunds available under our ~~bookstore contracts. Capital expenditures totaled $30.1 million and $26.5 million during the 39 weeks ended January 27, 2018 and January 28, 2017, respectively.~~

~~Cash Flow from Financing Activities~~

Cash flows used in financing activities during the 39 weeks ended January 27, 2018 were $(48.2) million compared $(7.9) million during the 39 weeks ended January 28, 2017. This net change of $40.3 is primarily due to increased net borrowings under the credit agreement and short-term vendor financing. As of ~~$46.6~~October 30, 2021, we had $183.3 million ~~(primarily to fund recent acquisitions), and decreased payments for Common Stock repurchased of $6.2 million during the 39 weeks ended January 27, 2018.~~

~~Financing Arrangements~~

On August 3, 2015, we and certain of our subsidiaries, entered into a credit agreement (the “Credit Agreement”) under which the lenders committed to provide a five-year asset-backed revolving credit facility in an aggregate committed principal amount of $400.0 million (the “Credit Facility”). The Company has the option to request an increase in commitments under the Credit Facility of up to $100.0 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”).

During the 39 weeks ended January 27, 2018, we borrowed $481.6 million and repaid $528.2 million under the Credit Agreement. Net total outstanding borrowings of $113.0 million as of January 27, 2018 is comprised entirely of outstanding borrowings under the Credit ~~Facility. As~~Agreement. See Financing Arrangements discussion below.

COVID-19 Business Impact

Our business experienced an unprecedented and significant negative impact as a result of ~~January 27, 2018,~~COVID-19 related campus store closures. Beginning in March 2020, colleges and universities nationwide began to close their campuses in light of safety concerns and as a result of local and state issued stay-at-home orders. By mid-March, during our Fiscal 2020 fourth quarter, we closed the majority of our physical campus stores to protect the health and safety of our customers and employees.

continuation of remote and hybrid class offerings, and the effect on our ability to source products, including textbooks and general merchandise offerings. We will continue to assess our operations and will continue to consider the guidance of local governments and our campus partners to determine how to operate our bookstores in the safest manner for our employees and customers. If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our results of operations, financial condition and cash flows from operations. For additional information, ~~including interest terms and covenant requirements related to the Credit Facility and FILO Facility, refer to~~ see Part III - Item ~~7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources~~1. Business in our Annual Report on Form 10-K for the fiscal year ended ~~April 29, 2017.~~May 1, 2021.

We believe that our future cash from operations, access to borrowings under the Credit ~~Agreement~~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.

Sources and Uses of Cash Flow


	26 weeks ended
Dollars in thousands	October 30, 2021		October 31, 2020
Cash, cash equivalents, and restricted cash at beginning of period	$	16,814	$	9,008
Net cash flows provided by operating activities	24,142		91,386
Net cash flows used in investing activities	(20,804)		(16,194)
Net cash flows provided by (used in) financing activities	3,378		(76,081)

Cash, cash equivalents, and restricted cash at end of period	$	23,530	$	8,119

As of October 30, 2021 and October 31, 2020, we had restricted cash of $12.5 million and $0.8 million, respectively, comprised of $11.6 million and $0, respectively, in prepaid and other current assets in the consolidated balance sheet related to segregated funds for commission due to FLC for logo merchandise sales as per the FLC Partnership's merchandising agreement and $0.9 million and $0.8 million, respectively, in other noncurrent assets in the condensed consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.

Cash Flow from Operating Activities

Our business is highly seasonal. For our retail operations, 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 and other course materials for the upcoming semesters based on the typical academic semester. For our wholesale operations, cash flows from operating activities

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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 and other course materials for retail distribution. For both retail and wholesale, 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 the 26 weeks ended October 30, 2021 were $24.1 million compared to $91.4 million during the 26 weeks ended October 31, 2020. This decrease in cash used in operating activities of $67.3 million was primarily due to changes in working capital, including higher accounts receivables and higher inventory purchases, partially offset by higher earnings of $17.3 million in the current year period compared to the prior year period and lower tax payments of $13.8 million compared to the prior year period as discussed below. Our operations were highly impacted by COVID-19 related campus store closures in the prior year period, resulting in lower operating costs and lower inventory purchases.

Cash Flow from Investing Activities

Cash flows used in investing activities during the 26 weeks ended October 30, 2021 were $(20.8) million compared to $(16.2) million during the 26 weeks ended October 31, 2020. The increase in cash used in investing activities is primarily due to higher capital expenditures and contractual capital investments associated with content development, digital initiatives, enhancements to internal systems and websites, renewing existing contracts and new store construction. Capital expenditures totaled $21.3 million and $16.2 million during the 26 weeks ended October 30, 2021 and October 31, 2020, respectively.

Cash Flow from Financing Activities

Cash flows provided by financing activities during the 26 weeks ended October 30, 2021 were $3.4 million compared to cash flows used in financing activities of $(76.1) million during the 26 weeks ended October 31, 2020. This net change of $79.5 million is primarily due to higher net borrowings under the credit agreement.

Financing Arrangements

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 million (the “Credit Facility”). We have the option to request an increase in commitments under the Credit Facility of up to $100 million, 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 million incremental facility maintaining the maximum availability under the Credit Agreement at $500 million. On March 31, 2021, we were granted a waiver to the availability test condition to the current draw under the FILO Facility.

During the 26 weeks ended October 30, 2021, we borrowed $259.7 million and repaid $254.0 million under the Credit Agreement, with $183.3 million 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 $330.8 million and repaid $406.0 million under the Credit Agreement, with $99.5 million of outstanding borrowings as of October 31, 2020, comprised entirely of outstanding borrowings under the Credit Facility. As of both October 30, 2021 and October 31, 2020, we have issued $4.8 million in letters of credit under the Credit Facility.

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

Income Tax Implications on Liquidity

As of ~~January 27, 2018,~~October 30, 2021, other long-term liabilities includes ~~$54.4~~$25.3 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 ~~$13.8~~$0.7 million of the income taxes associated with 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 bebecome 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.

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We have filed our federal income tax returns for the tax year ended January 2021, as well claims for refunds for cash taxes paid in prior years. We received a $7.8 million refund in the second quarter of Fiscal 2022 and expect to receive an additional refunds of approximately $22.6 million.

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 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 3913 weeks ended ~~January 27, 2018,~~October 30, 2021, we did not repurchase any of our Common ~~Stock.~~Stock under the stock repurchase program. As of ~~January 27, 2018,~~October 30, 2021, approximately $26.7 million 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.

Contractual Obligations

Our projected contractual obligations are consistent with amounts disclosed in Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the fiscal year ended ~~April 29, 2017.~~May 1, 2021.

Off-Balance Sheet Arrangements

As of ~~January 27, 2018,~~October 30, 2021, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

Critical Accounting Policies

~~With the exception of the~~ ~~Evaluation of Goodwill Impairment~~ ~~discussion, our~~Our policies regarding the use of estimates and other critical accounting policies are consistent with the disclosures in Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the fiscal year ended ~~April 29, 2017. For current information related to our~~ ~~Evaluation of Goodwill Impairment, see~~ ~~Part I - Item~~May 1, 2021.

~~1. Financial Statements - Note 2. Summary of Significant Accounting Policies~~ ~~in this Form 10-Q.~~

~~Recent Accounting Pronouncements~~

~~See~~ ~~Item 1. Financial Statements — Note 3. Recent Accounting Pronouncements~~ ~~of this Form 10-Q for information related to new accounting pronouncements.~~

Disclosure Regarding Forward-Looking Statements

This quarterly report on Form 10-Q 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-Q 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:

•risks associated with COVID-19 and the governmental responses to it, including its impacts across our businesses on demand and operations, as well as on the operations of our suppliers and other business partners, and the effectiveness of our actions taken in response to these risks;

•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;

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•the risk of price reduction or change in format of course materials by publishers, which could negatively impact revenues and margin;

•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, may not be fully realized or may take longer than expected;

•the integration of the operations of various acquisitions into our own may also increase the risk of our internal controls being found ineffective;

•changes to purchase or rental terms, payment terms, return policies, the discount or margin on products or other terms with our suppliers;

•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 general 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;

•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 decreases in the used textbook inventory supply associated with the implementation of publishers’ digital offerings and direct to student textbook consignment rental programs, as well as the risks associated with ~~merchandise sourced indirectly~~the impacts that public health crises may have on the ability of our suppliers to manufacture or source products, particularly from outside of 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 or changes in enforcement practices which may restrict or prohibit our use of texts, emails, interest based online advertising, recurring billing or similar marketing and sales 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 in our Annual Report on Form 10-K for the fiscal year ended ~~April 29, 2017.~~

May 1, 2021.

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-Q.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the items discussed in Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the fiscal year ended ~~April 29, 2017.~~May 1, 2021.

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Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation (as required under Rules 13a-15(b) and 15d-15(b) under the Exchange Act) was performed under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation 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) as of the end of the period covered by this report. 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 upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Management has not identified any changes in the Company’s internal control over financial reporting that occurred during the second quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial ~~reporting other than changes in controls that may be required as a result of the integration of MBS Textbook Exchange, LLC into the Company's internal controls.~~reporting.

PART II - OTHER INFORMATION

Item 1. 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 1A. Risk Factors

There have been no material changes during the 3926 weeks ended ~~January 27, 2018~~October 30, 2021 to the risk factors discussed in Part I - Item1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended ~~April 29, 2017.~~May 1, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information as of ~~January 27, 2018~~October 30, 2021 with respect to shares of Common Stock we purchased during the ~~third~~second quarter of Fiscal ~~2018:~~2022:

Period Total Number of Shares Purchased Average Price Paid per Share (a) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
October 29, 2017 - November 25, 2017 —
$ —
—
$ 26,669,324
November 26, 2017 - December 30, 2017 —
$ —
—
$ 26,669,324
December 31, 2017 - January 27, 2018 —
$ —
—
$ 26,669,324
—
$ —
—


~~(a)~~Period	~~This amount represents~~Total Number of Shares Purchased	Average Price Paid per Share (a)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the ~~average price paid per common share. This price includes a per share commission paid for all repurchases.~~Plans or Programs
August 1, 2021 - August 28, 2021	—	$	—	—	$	26,669,324
August 29, 2021 - October 2, 2021	—	$	—	—	$	26,669,324
October 3, 2021 - October 30, 2021	—	$	—	—	$	26,669,324
	—	$	—	—

(a) This amount represents the average price paid per common share. This price includes a per share commission paid for all 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 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 3926 weeks ended ~~January 27, 2018,~~October 30, 2021, we did not repurchase any shares of our Common ~~Stock.~~Stock under the program.

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During the 3926 weeks ended ~~January 27, 2018,~~October 30, 2021, we ~~also~~ repurchased ~~259,348~~238,170 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

Item 5. Other Information

None

Item 6. Exhibits


10.1						Barnes & Noble Education, Inc. Amended and Restated Equity Incentive Plan, amended and restated as of September 23, 2021.

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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



BARNES & NOBLE EDUCATION, INC.
(Registrant)

~~By:~~		/S~~/ BARRY BROVER~~
		~~Barry Brover~~
		~~Chief Financial Officer~~
		~~(principal financial officer)~~

~~By:~~		/S~~/ SEEMA PAUL~~
		~~Seema Paul~~
		~~Chief Accounting Officer~~
		~~(principal accounting officer)~~

~~March 1, 2018~~

~~EXHIBIT INDEX~~

By:

~~31.1~~/S/ THOMAS D. DONOHUE

~~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.~~

Thomas D. Donohue

~~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.~~

(principal financial officer)

~~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.

By:

/S/ SEEMA C. PAUL

~~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.

Seema C. Paul

Chief Accounting Officer

~~101.INS~~

~~XBRL Instance Document~~

(principal accounting officer)

~~101.SCH~~

~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~

~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~

~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~

~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~

~~XBRL Taxonomy Extension Presentation Linkbase Document~~

November 30, 2021



Type of Intangible	Amount		Estimated Useful Life
Content	$	14,500	5
Technology	8,000		5
Non-Compete Agreements	4,000		3
Subscriber List	1,800		2
Total Intangibles:	$	28,300



Cash paid to Seller or escrow	$	165,499
Consideration to Seller for pre-closing costs	4,657
Cash paid for Seller closing costs	4,044
Contract purchase price	$	174,200
Consideration for payment to settle Seller's outstanding short-term borrowings	24,437
Consideration for reimbursement of pre-acquisition tax liability to Seller	15,556
Less: Consideration to Seller for pre-closing costs	(4,657		)
Less: Consideration for settlement of pre-existing payable to Seller	(21,674		)
Total value of consideration transferred	$	187,862



Total consideration transferred	$	187,862
Cash and cash equivalents	$	472
Accounts receivable, net	28,177
Merchandise inventory	128,431
Property and equipment	12,403
Intangible assets	21,576
Prepaid and other assets	4,748
Total assets	$	195,807
Accounts payable	$	35,383
Accrued expenses	8,799
Other long-term liabilities	13,044
Total liabilities	$	57,226
Net assets acquired	$	138,581
Goodwill	$	49,281



��	13 weeks ended					39 weeks ended
	January 27, 2018			January 28, 2017		January 27, 2018			January 28, 2017
Restricted stock expense	$	30		$	30	$	90		$	250
Restricted stock units expense ^(a)	2,237			2,622		6,277			6,500
Performance shares expense^(b)	58			117		(275		)	477
Performance share units expense ^(b)	(255		)	—		131			—
Stock-based compensation expense	$	2,070		$	2,769	$	6,223		$	7,227



	13 weeks ended January 27, 2018			13 weeks ended January 28, 2017
Number of Stores:	BNC Stores		MBS Direct Stores	BNC Stores
Opened	6		5	2
Closed	1		13	3
Opened at end of period	782		698	770

Comparable store sales ^(a)	(6.2	)%	N/A	(5.3	)%



	39 weeks ended January 27, 2018			39 weeks ended January 28, 2017
Number of Stores:	BNC Stores		MBS Direct Stores	BNC Stores
Opened	30		19	36
Closed	17		33	17
Opened at end of period	782		698	770

Comparable store sales ^(a)	(4.7	)%	N/A	(4.0	)%



	13 weeks ended, January 27, 2018											13 weeks ended
Dollars in thousands	BNC^(a)			MBS ^(b)		Eliminations			January 27, 2018 ^(a),(b)			January 28, 2017
Sales:
Product sales and other	$	445,642		$	137,257	$	(41,996	)	$	540,903		$	457,147
Rental income	60,818			1,670					62,488			64,477
Total sales	506,460			138,927		(41,996		)	603,391			521,624
Cost of sales:
Product and other cost of sales	352,742			103,068		(36,169		)	419,641			366,190
Rental cost of sales	36,305			910		—			37,215			39,509
Total cost of sales	389,047			103,978		(36,169		)	456,856			405,699
Gross profit	117,413			34,949		(5,827		)	146,535			115,925
Selling and administrative expenses	97,777			14,197		—			111,974			97,111
Depreciation and amortization expense	15,411			1,596		—			17,007			13,149
Impairment loss (non-cash)	313,130			—		—			313,130
Restructuring and other charges	—			—		—			—			—
Transaction costs	49			—		—			49			467
Operating (loss) income	$	(308,954	)	$	19,156	$	(5,827	)	$	(295,625	)	$	5,198



	39 weeks ended, January 27, 2018											39 weeks ended
Dollars in thousands	BNC(a)			MBS (b)		Eliminations			January 27, 2018 (a),(b)			January 28, 2017
Sales:
Product sales and other	$	1,369,770		$	409,300	$	(85,840	)	$	1,693,230		$	1,372,810
Rental income	148,454			4,279		—			152,733			158,722
Total sales	1,518,224			413,579		(85,840		)	1,845,963			1,531,532
Cost of sales:
Product and other cost of sales	1,090,756			315,523		(80,058		)	1,326,221			1,098,682
Rental cost of sales	89,593			2,343		—			91,936			97,998
Total cost of sales	1,180,349			317,866		(80,058		)	1,418,157			1,196,680
Gross profit	337,875			95,713		(5,782		)	427,806			334,852
Selling and administrative expenses	283,546			42,986		—			326,532			282,171
Depreciation and amortization expense	43,879			4,849		—			48,728			39,057
Impairment loss (non-cash)	313,130			—		—			313,130			—
Restructuring and other charges	5,429			—		—			5,429			1,790
Transaction costs	1,895			—		—			1,895			2,638
Operating (loss) income	$	(310,004	)	$	47,878	$	(5,782	)	$	(267,908	)	$	9,196



Comparable Store Sales variances-BNC	13 weeks ended										39 weeks ended
Dollars in millions	January 27, 2018					January 28, 2017					January 27, 2018					January 28, 2017
Textbooks	$	(26.3	)	(7.2	)%	$	(25.4	)	(6.7	)%	$	(62.8	)	(6.1	)%	$	(55.3	)	(5.3	)%
General Merchandise	(3.5		)	(2.8	)%	(0.5		)	(0.5	)%	(3.3		)	(0.8	)%	(1.2		)	(0.3	)%
Trade Books	(1.5		)	(11.9	)%	(1.2		)	(8.3	)%	(3.8		)	(9.5	)%	(2.7		)	(6.2	)%
Other	—			—	%	(0.2		)	(86.7	)%	—			—	%	(0.6		)	(88.3	)%
Total Comparable Store Sales	$	(31.3	)	(6.2	)%	$	(27.3	)	(5.3	)%	$	(69.9	)	(4.7	)%	$	(59.8	)	(4.0	)%



Period	Total Number of Shares Purchased	Average Price Paid per Share (a)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
October 29, 2017 - November 25, 2017	—	$	—	—	$	26,669,324
November 26, 2017 - December 30, 2017	—	$	—	—	$	26,669,324
December 31, 2017 - January 27, 2018	—	$	—	—	$	26,669,324
	—	$	—	—