Item 7. 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” refer to our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our subsidiary MBS Textbook Exchange, LLC.
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. “Fiscal 2022” means the 52 weeks ended April 30, 2022, “Fiscal 2021” means the 52 weeks ended May 1, 2021, and “Fiscal 2020” means the 53 weeks ended May 2, 2020.
Overview
Description of business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States. We are also one of the largest textbook wholesalers, inventory management hardware and software providers, and a leading provider of digital education solutions. We operate 1,427 physical, virtual, and custom bookstores and serve more than 6 million students, delivering essential educational content, tools and general merchandise within a dynamic omnichannel retail environment. Additionally, we offer direct-to-student products and services to help students study more effectively and improve academic performance.
The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands. We expect to continue to introduce scalable and advanced digital solutions focused largely on the student, expand our e-commerce capabilities and accelerate such capabilities through our 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 gross general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the FLC Partnership. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo and emblematic general merchandise business.
We believe the Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important to our relationship with leading publishers who rely on us as one of their primary distribution channels, and for being a trusted source for students in our direct-to-student digital solutions business.
For a discussion of our business, see Part I - Item 1. Business.
First Day Inclusive Access Programs
We provide product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes. We offer our BNC First Day® inclusive access programs, consisting of First Day and First Day Complete, in which course materials, including both physical and digital content, are offered at a reduced price through a course fee or included in tuition, and delivered to students on or before the first day of class.
•Through First Day, digital course materials are adopted by a faculty member for a single course, and students receive their materials through their learning management system.
•First Day Complete is adopted by an institution and includes all classes, providing students both physical and digital materials. The First Day Complete model drives substantially greater unit sell-through for the bookstore.
Offering courseware sales through our inclusive access First Day and First Day Complete models is a key, and increasingly important strategic initiative of ours to meet the market demands of substantially reduced pricing to students, as well as the opportunity to improve student outcomes, while, at the same time, increasing our market share, revenue and relative gross profits of courseware sales given the higher volumes of units sold in such models as compared to historical sales models that rely on individual student marketing and sales. We expect these programs to allow us to ultimately reverse historical long-
term trends in courseware revenue declines, which has occurred at those schools where such programs have been adopted. During Fiscal 2022, First Day total revenue increased 91% from the prior year period.
Partnership with Fanatics and FLC
In December 2020, we entered into the FLC Partnership. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our general merchandise business. Fanatics’ cutting-edge e-commerce and technology expertise offers our campus stores expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with Lids (FLC's parent company), the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.
We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We also work closely with our campus partners to ensure that each campus store 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 consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis prior to April 4, 2021. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies and Note 5. Equity and Earnings Per Share.
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 variants, on enrollments, campus activities, university budgets, athletics and other areas that directly affect our business operations. Although most four year schools returned to a traditional on-campus environment for learning in the Fall semester, as well as hosted traditional on campus sporting activities, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and its effect on our ability to source products, including textbooks and general merchandise offerings.
As we entered the Spring rush period in early January 2022, we continued to experience the ongoing effects of COVID-19 with the surge of the Omicron variant further impacting students return to campus and on-campus activities. In early January, while the majority of schools brought students back to campus, some schools chose to conduct classes virtually for the beginning of the semester, while other schools chose to delay their start dates (and some schools both delayed the start of the semester and started classes virtually), thus reducing and/or delaying sales later into the quarter or shifting some sales to our fourth quarter. 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.
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”. The following discussion provides information regarding the three segments.
Retail Segment
The Retail Segment operates 1,427 college, university, and K-12 school bookstores, comprised of 805 physical bookstores and 622 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 content and services to colleges and universities, including a variety of open educational 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 3,100 physical bookstores (including our Retail Segment's 805 physical bookstores) and sources and distributes new and used textbooks to our 622 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 350 college bookstores.
DSS Segment
The Digital Student Solutions ("DSS") Segment includes products and services to assist students to study more effectively and improve academic performance. The DSS Segment is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, and bartleby®, an institutional and direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, writing and tutoring.
Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources.
Seasonality
Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April.
For our retail operations, sales are generally highest in the second and third fiscal quarters, when students generally purchase and rent textbooks and other course materials, and lowest in the first and fourth fiscal quarters. Sales attributable to our wholesale business are generally highest in our first, second and third quarter, as it sells textbooks 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 year.
Trends and Other Factors Affecting Our Business
For a discussion of our trends and other factors affecting our business, see Part I - Item 1. Business.
Results of Operations
Elements of Results of Operations
Our consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”).
Our sales are primarily derived from the sale of course materials, which include new, used and digital textbooks, and at college and university bookstores which we operate, we sell 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 of inventory management, hardware and point-of-sale software, direct-to-student subscription-based services, and other services.
Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.
Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based services business. Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services as discussed in the Overview - Segments discussion above.
Basis of Consolidation
The results of operations reflected in our consolidated financial statements are presented on a consolidated basis. All material intercompany accounts and transactions have been eliminated in consolidation.
Results of Operations - Summary
Our Fiscal 2022, Fiscal 2021 and Fiscal 2020 results have been significantly impacted by the ongoing COVID-19 pandemic, as many schools continued to adjust their learning model and on-campus activities in response to the pandemic. See "Overview" for more information.
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Dollars in thousands | | | | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
| | | | | | | Restated (a) | | |
Sales: (b)(c) | | | | | | | | | |
Product sales and other | | | | | $ | 1,398,046 | | | $ | 1,299,740 | | | $ | 1,671,200 | |
Rental income | | | | | 133,354 | | | 134,150 | | | 179,863 | |
Total sales | | | | | $ | 1,531,400 | | | $ | 1,433,890 | | | $ | 1,851,063 | |
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Net loss | | | | | $ | (68,857) | | | $ | (139,810) | | | $ | (38,250) | |
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Adjusted Earnings (non-GAAP) (d) | | | | | $ | (55,614) | | | $ | (96,523) | | | $ | (21,126) | |
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Adjusted EBITDA (non-GAAP) (d) | | | | | | | | | |
Retail | | | | | $ | 8,679 | | | $ | (66,827) | | | $ | 36,227 | |
Wholesale | | | | | 3,782 | | | 18,598 | | | 21,567 | |
DSS | | | | | 5,524 | | | 4,491 | | | 3,409 | |
Corporate Services | | | | | (23,002) | | | (22,079) | | | (19,403) | |
Eliminations | | | | | 225 | | | 192 | | | 359 | |
Total Adjusted EBITDA (non-GAAP) | | | | | $ | (4,792) | | | $ | (65,625) | | | $ | 42,159 | |
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(a)We identified certain out of period adjustments related primarily to Income tax benefit, as well as Restructuring and other charges, for the 52 weeks ended May 1, 2021. The adjustments increased our fiscal year 2021 reported net loss by $8.0 million but did not have an impact on Adjusted EBITDA (non-GAAP), cash flows or liquidity. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
(b)In Fiscal 2022, Fiscal 2021 and Fiscal 2020, our business experienced an unprecedented and significant impact as a result of the COVID-19 pandemic. The impact of which affects the comparability of our results of operations and cash flows.
(c)Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021. For Retail Gross Comparable Store Sales details, see below.
(d)Adjusted Earnings and Adjusted EBITDA are a non-GAAP financial measures. See Adjusted Earnings (non-GAAP) and Adjusted EBITDA (non-GAAP) discussion below.
The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales:
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| | | | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
Sales: | | | | | | | | | |
Product sales and other | | | | | 91.3 | % | | 90.6 | % | | 90.3 | % |
Rental income | | | | | 8.7 | | | 9.4 | | | 9.7 | |
Total sales | | | | | 100.0 | | | 100.0 | | | 100.0 | |
Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | |
Product and other cost of sales (a) | | | | | 77.4 | | | 84.2 | | | 78.0 | |
Rental cost of sales (a) | | | | | 57.5 | | | 65.0 | | | 58.3 | |
Total cost of sales | | | | | 75.7 | | | 82.4 | | | 76.1 | |
Gross margin | | | | | 24.3 | | | 17.6 | | | 23.9 | |
Selling and administrative expenses | | | | | 25.0 | | | 23.6 | | | 21.9 | |
Depreciation and amortization expense | | | | | 3.2 | | | 3.7 | | | 3.3 | |
Impairment loss (non-cash) | | | | | 0.4 | | | 1.9 | | | — | |
Restructuring and other charges | | | | | 0.1 | | | 0.7 | | | 1.0 | |
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Operating loss | | | | | (4.4) | % | | (12.3) | % | | (2.3) | % |
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(a) Represents the percentage these costs bear to the related sales, instead of total sales.
Results of Operations - 52 weeks ended April 30, 2022 compared with the 52 weeks ended May 1, 2021
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| 52 weeks ended, April 30, 2022 (a) |
Dollars in thousands | Retail | | Wholesale | | DSS | | Corporate Services | | Eliminations (b) | | Total |
Sales: | | | | | | | | | | | |
Product sales and other | $ | 1,306,310 | | | $ | 112,246 | | | $ | 35,666 | | | $ | — | | | $ | (56,176) | | | $ | 1,398,046 | |
Rental income | 133,354 | | | — | | | — | | | — | | | — | | | 133,354 | |
Total sales | 1,439,664 | | | 112,246 | | | 35,666 | | | — | | | (56,176) | | | 1,531,400 | |
Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | | | |
Product and other cost of sales | 1,040,022 | | | 92,464 | | | 5,738 | | | — | | | (56,243) | | | 1,081,981 | |
Rental cost of sales | 76,659 | | | — | | | — | | | — | | | — | | | 76,659 | |
Total cost of sales | 1,116,681 | | | 92,464 | | | 5,738 | | | — | | | (56,243) | | | 1,158,640 | |
Gross profit | 322,983 | | | 19,782 | | | 29,928 | | | — | | | 67 | | | 372,760 | |
Selling and administrative expenses | 315,124 | | | 16,000 | | | 29,472 | | | 23,002 | | | (158) | | | 383,440 | |
Depreciation and amortization expense | 36,635 | | | 5,418 | | | 7,257 | | | 71 | | | — | | | 49,381 | |
Sub-Total: | $ | (28,776) | | | $ | (1,636) | | | $ | (6,801) | | | $ | (23,073) | | | $ | 225 | | | (60,061) | |
Impairment loss (non-cash) | 6,411 | | | — | | | — | | | — | | | — | | | 6,411 | |
Restructuring and other charges | 2,118 | | | (2,131) | | | — | | | 957 | | | — | | | 944 | |
Operating loss | $ | (37,305) | | | $ | 495 | | | $ | (6,801) | | | $ | (24,030) | | | $ | 225 | | | $ | (67,416) | |
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| 52 weeks ended, May 1, 2021 (a) - Restated (c) |
Dollars in thousands | Retail | | Wholesale | | DSS | | Corporate Services | | Eliminations (b) | | Total |
Sales: | | | | | | | | | | | |
Product sales and other | $ | 1,196,320 | | | $ | 165,825 | | | $ | 27,374 | | | $ | — | | | $ | (89,779) | | | 1,299,740 | |
Rental income | 134,150 | | | — | | | — | | | — | | | — | | | 134,150 | |
Total sales | 1,330,470 | | | 165,825 | | | 27,374 | | | — | | | (89,779) | | | 1,433,890 | |
Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | | | |
Product and other cost of sales | 1,047,613 | | | 131,142 | | | 5,056 | | | — | | | (89,822) | | | 1,093,989 | |
Rental cost of sales | 87,240 | | | — | | | — | | | — | | | — | | | 87,240 | |
Total cost of sales | 1,134,853 | | | 131,142 | | | 5,056 | | | — | | | (89,822) | | | 1,181,229 | |
Gross profit | 195,617 | | | 34,683 | | | 22,318 | | | — | | | 43 | | | 252,661 | |
Selling and administrative expenses | 278,149 | | | 16,085 | | | 22,116 | | | 22,079 | | | (149) | | | 338,280 | |
Depreciation and amortization expense | 39,634 | | | 5,461 | | | 7,763 | | | 109 | | | — | | | 52,967 | |
Sub-Total: | $ | (122,166) | | | $ | 13,137 | | | $ | (7,561) | | | $ | (22,188) | | | $ | 192 | | | (138,586) | |
Impairment loss (non-cash) | 27,630 | | | — | | | — | | | — | | | — | | | 27,630 | |
Restructuring and other charges | 5,514 | | | (1,595) | | | 571 | | | 6,188 | | | — | | | 10,678 | |
Operating loss | $ | (155,310) | | | $ | 14,732 | | | $ | (8,132) | | | $ | (28,376) | | | $ | 192 | | | $ | (176,894) | |
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(a) In Fiscal 2022 and Fiscal 2021, our business experienced an unprecedented and significant impact as a result of the COVID-19 pandemic. The impact of which affects the comparability of our results of operations and cash flows.
(b) For additional information related to the intercompany activities and eliminations, see Part II - Item 8. Financial Statements and Supplementary Data - Note 4. Segment Reporting.
(c) We identified certain out of period adjustments related to Restructuring and other charges for the 52 weeks ended May 1, 2021. The adjustments increased our fiscal year 2021 reported net loss by $8.0 million but did not have an impact on Adjusted EBITDA (non-GAAP), cash flows or liquidity. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
Sales
The following table summarizes our sales:
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| | | | | 52 weeks ended | | |
Dollars in thousands | | | | | April 30, 2022 | | May 1, 2021 | | % |
Product sales and other | | | | | 1,398,046 | | | 1,299,740 | | | 7.6% |
Rental income | | | | | 133,354 | | | 134,150 | | | (0.6)% |
Total Sales | | | | | $ | 1,531,400 | | | $ | 1,433,890 | | | 6.8% |
Our total sales increased by $97.5 million, or 6.8%, to $1,531.4 million during the 52 weeks ended April 30, 2022 from $1,433.9 million during the 52 weeks ended May 1, 2021. The sales increase is primarily related to re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year. The increase is offset by the negative impact on sales primarily due to lower enrollments, primarily at community colleges and by international students, the continuation of remote and hybrid class offerings and lower logo and emblematic sales as they are reflected in sales on a net basis in our consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021. For additional information, see Retail Sales discussion below.
The components of the sales variances for the 52 week period are reflected in the table below.
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Sales variances | | 52 weeks ended |
Dollars in millions | | April 30, 2022 | | May 1, 2021 |
Retail Sales | | | | |
New stores | | $ | 67.2 | | | $ | 64.2 | |
Closed stores | | (42.3) | | | (35.4) | |
Comparable stores (a) | | 83.5 | | | (409.2) | |
Textbook rental deferral | | (1.8) | | | (3.3) | |
Service revenue (b) | | (2.4) | | | (0.7) | |
Other (c) | | 5.0 | | | 2.0 | |
Retail Sales subtotal: | | $ | 109.2 | | | $ | (382.4) | |
Wholesale Sales | | $ | (53.6) | | | $ | (32.5) | |
DSS Sales | | $ | 8.3 | | | $ | 3.7 | |
Eliminations (d) | | $ | 33.6 | | | $ | (6.0) | |
Total sales variance: | | $ | 97.5 | | | $ | (417.2) | |
(a) In December 2020, we entered into merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc. (“Fanatics”) and Fanatics Lids College, Inc. (“FLC”) (collectively referred to herein as the “FLC Partnership”). Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021. For Retail Gross 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 total sales increased by $109.2 million, or 8.2%, to $1,439.7 million during the 52 weeks ended April 30, 2022 from $1,330.5 million during the 52 weeks ended May 1, 2021. Retail added 92 new stores and closed 82 stores during the 52 weeks ended April 30, 2022, ending the period with a total of 1,427 stores.
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| | Fiscal 2022 | | Fiscal 2021 | | |
| | Physical | | Virtual | | Physical | | Virtual | | | | |
Number of stores at beginning of period | | 769 | | | 648 | | | 772 | | | 647 | | | | | |
Opened | | 57 | | | 35 | | | 40 | | | 58 | | | | | |
Closed | | 21 | | | 61 | | | 43 | | | 57 | | | | | |
Number of stores at end of period | | 805 | | | 622 | | | 769 | | | 648 | | | | | |
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The comparability of Products and other sales, specifically logo and emblematic sales, is impacted by the recognition of logo and emblematic sales on a net basis in our consolidated financial statements during the 52 weeks ended April 30, 2022, as compared to on a gross basis prior to April 4, 2021. See the Retail Gross Comparable Store Sales discussion below.
Additionally, Product and other sales and Rental income are impacted by the growth of First Day Complete, comparable store sales, new store openings and store closings, as well as the impact from the COVID-19 pandemic. Sales were impacted by overall enrollment declines in higher education. Although most four year schools returned to a traditional on-campus environment for learning in the Fall 2021 semester, as well as hosted traditional on campus sporting activities, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, and the continuation of remote and hybrid class offerings. While many college athletic 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 our general merchandise business. As we entered the Spring rush period in early January 2022, we continued to experience the ongoing effects of COVID-19 with the surge of the Omicron variant further impacting students return to campus and on-campus activities. In early January, while the majority of schools brought students back to campus, some schools chose to conduct classes virtually for the beginning of the semester, while other schools chose to delay their start dates (and some schools both delayed the start of the semester and started classes virtually), thus reducing and/or delaying sales.
Product and other sales for Retail increased by $110.0 million, or 9.2%, to $1,306.3 million during the 52 weeks ended April 30, 2022 from $1,196.3 million during the 52 weeks ended May 1, 2021. During the 52 weeks ended April 30, 2022, course material sales increased by $54.4 million or 8.1% to $710.7 million, and general merchandise sales increased by $59.0 million or 11.8% to $558.8 million, offset by a decrease in service and other revenue of $2.4 million or 6.1% to $36.8 million. Course material rental income for Retail decreased by $0.8 million, or 0.6%, to $133.4 million during the 52 weeks ended April 30, 2022 from $134.2 million during the 52 weeks ended May 1, 2021. The overall Retail sales increase is primarily related to re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year. Course material sales were also impacted by lower enrollments, primarily at community colleges and by international students, and the continuation of remote and hybrid class offerings.
During the 52 weeks ended April 30, 2022, Retail Gross Comparable Store course material sales increased by 2.3%, as compared to a 15.2% decline a year ago, when the majority of our stores had temporarily closed due to the COVID-19 pandemic. See Retail Gross Comparable Store Sales discussion below. The increase in course material sales was reflective of the growth of First Day inclusive access programs, digital and eTextbook revenue increases, due to a shift to lower cost options and more affordable solutions, including digital offerings. For the 2022 Spring term, First Day Complete was offered through 76 campus bookstores compared to 14 campus bookstores in the prior year, at schools with over 380,000 in total undergraduate enrollment, up from approximately 62,000 in total undergraduate enrollment in the 2021 Spring term. Revenue for both of our First Day models increased to $234.2 million during Fiscal 2022, as compared to $122.7 million in the prior year period.
During the 52 weeks ended April 30, 2022, logo and emblematic sales are reflected in sales on a net basis in our consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis prior to April 4, 2021. See Retail Gross Comparable Store Sales discussion below. During the 52 weeks ended April 30, 2022, Retail Gross Comparable Store general merchandise sales increased by 76.1%, as compared to a 45.9% decline a year ago. Both results during both periods benefited 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. However, general merchandise sales are still impacted by fewer students returning to campus, as many schools implemented a remote or hybrid learning model and curtailed on-campus classes and activities.
Retail Gross Comparable Store Sales
To supplement the Total Sales table presented above, the Company uses Retail Gross Comparable Store Sales as a key performance indicator. Retail Gross Comparable Store Sales includes sales from physical and virtual stores that have been open for an entire fiscal year period and does not include sales from permanently closed stores for all periods presented. For Retail Gross Comparable Store Sales, sales for logo and emblematic general merchandise fulfilled by FLC, Fanatics and digital agency sales are included on a gross basis for consistent year-over-year comparison.
Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021.
We believe the current Retail Gross Comparable Store Sales calculation method reflects management’s view that such comparable store sales are an important measure of the growth in sales when evaluating how established stores have performed over time. We present this metric as additional useful information about the Company’s operational and financial performance and to allow greater transparency with respect to important metrics used by management for operating and financial decision-making. Retail Gross Comparable Store Sales are also referred to as "same-store" sales by others within the retail industry and the method of calculating comparable store sales varies across the retail industry. As a result, our calculation of comparable store sales is not necessarily comparable to similarly titled measures reported by other companies and is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.
Retail Gross Comparable Store Sales variances for Retail by category for the 52 week period are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Dollars in millions | | 52 weeks ended |
| | April 30, 2022 | | May 1, 2021 |
Textbooks (Course Materials) | | $ | 21.2 | | | 2.3 | % | | $ | (158.4) | | | (15.2) | % |
General Merchandise | | 212.5 | | | 76.1 | % | | (235.3) | | | (45.9) | % |
Trade Books | | 7.0 | | | 63.0 | % | | (20.9) | | | (64.3) | % |
Total Retail Gross Comparable Store Sales | | $ | 240.7 | | | 19.6 | % | | $ | (414.6) | | | (26.1) | % |
Wholesale
Wholesale sales decreased by $53.6 million, or 32.3%, to $112.2 million during the 52 weeks ended April 30, 2022 from $165.8 million during the 52 weeks ended May 1, 2021. 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 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.
DSS
DSS total sales increased by $8.3 million, or 30.3%, to $35.7 million during the 52 weeks ended April 30, 20221 from $27.4 million during the 52 weeks ended May 1, 2021. Sales increased primarily due to an increase in subscription sales.
Cost of Sales and Gross Margin
Our cost of sales decreased as a percentage of sales to 75.7% during the 52 weeks ended April 30, 2022 compared to 82.4% during the 52 weeks ended May 1, 2021. Our gross margin increased by $120.1 million, or 47.5%, to $372.8 million, or 24.3% of sales, during the 52 weeks ended April 30, 2022 from $252.7 million, or 17.6% of sales, during the 52 weeks ended May 1, 2021.
During the 52 weeks ended April 30, 2022 and May 1, 2021, we recognized a merchandise inventory loss and write-off of $0.4 million and $15.0 million, respectively, in cost of goods sold in the Retail Segment discussed below. Excluding the merchandise inventory loss and write-off, cost of goods sold and gross margin was 75.6% and 24.4%, respectively, of sales during the 52 weeks ended April 30, 2022 compared to 81.3% and 18.7%, respectively, of sales during the 52 weeks ended May 1, 2021. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Organization and Note 2. Summary of Significant Accounting Policies - Merchandise Inventories.
Retail
The following table summarizes the Retail cost of sales:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 52 weeks ended |
Dollars in thousands | | | | | | | | | April 30, 2022 | | % of Related Sales | | May 1, 2021 | | % of Related Sales |
Product and other cost of sales | | | | | | | | | $ | 1,040,022 | | | 79.6% | | $ | 1,047,613 | | | 87.6% |
Rental cost of sales | | | | | | | | | 76,659 | | | 57.5% | | 87,240 | | | 65.0% |
Total Cost of Sales | | | | | | | | | $ | 1,116,681 | | | 77.6% | | $ | 1,134,853 | | | 85.3% |
The following table summarizes the Retail gross margin:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 52 weeks ended |
Dollars in thousands | | | | | | | | | April 30, 2022 | | % of Related Sales | | May 1, 2021 | | % of Related Sales |
Product and other gross margin | | | | | | | | | $ | 266,288 | | | 20.4% | | $ | 148,707 | | | 12.4% |
Rental gross margin | | | | | | | | | 56,695 | | | 42.5% | | 46,910 | | | 35.0% |
Gross Margin | | | | | | | | | $ | 322,983 | | | 22.4% | | $ | 195,617 | | | 14.7% |
For the 52 weeks ended April 30, 2022, the Retail gross margin as a percentage of sales increased as discussed below:
•Product and other gross margin increased (800 basis points), driven primarily by a favorable sales mix (410 basis points) due to higher general merchandise sales and higher margin rates (445 basis points) due to lower inventory reserves and lower markdowns, partially offset by an inventory merchandise loss of $0.4 million related to the finalization of the sale of our logo and emblematic general merchandise inventory below cost to FLC which occurred in the fourth quarter in Fiscal 2021. The increase in margin was also partially offset by higher contract costs as a percentage of sales related to our college and university contracts (60 basis points) resulting from contract renewals and new store contracts.
•Rental gross margin increased (750 basis points), driven primarily by lower contract costs as a percentage of sales related to our college and university contracts (750 basis points) and a favorable rental mix (50 basis points), partially offset by lower rental margin rates (50 basis points).
Wholesale
The cost of sales and gross margin for Wholesale were $92.5 million, or 82.4% of sales, and $19.8 million, or 17.6% of sales, respectively, during the 52 weeks ended April 30, 2022. The cost of sales and gross margin for Wholesale were $131.1 million, or 79.1% of sales, and $34.7 million, or 20.9% of sales, respectively, during the 52 weeks ended May 1, 2021. The gross margin decreased to 17.6% during the 52 weeks ended April 30, 2022 from 20.9% during the 52 weeks ended May 1, 2021. The decrease was primarily due to the unfavorable impact of returns and allowances and higher markdowns, partially offset by a favorable sales mix.
DSS
Gross margin for the DSS segment was $29.9 million, or 83.9% of sales, during the 52 weeks ended April 30, 2022 and $22.3 million, or 81.5% of sales, during the 52 weeks ended May 1, 2021. The gross margins are driven primarily by high margin subscription service revenue earned.
Intercompany Eliminations
During the 52 weeks ended April 30, 2022 and 52 weeks ended May 1, 2021, sales eliminations were $56.2 million and $89.8 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 52 weeks ended April 30, 2022 and 52 weeks ended May 1, 2021, the cost of sales eliminations were $56.2 million and $89.8 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 both 52 weeks periods ended April 30, 2022 and 52 weeks ended May 1, 2021, the gross margin eliminations was $0.1 million. 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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 52 weeks ended |
Dollars in thousands | | | | | | | | | April 30, 2022 | | % of Sales | | May 1, 2021 | | % of Sales |
Selling and Administrative Expenses | | | | | | | | | $ | 383,440 | | | 25.0% | | $ | 338,280 | | | 23.6% |
During the 52 weeks ended April 30, 2022, selling and administrative expenses increased by $45.2 million, or 13.4%, to $383.4 million from $338.3 million during the 52 weeks ended May 1, 2021. The variances by segment are discussed by segment below. The increase in selling and administrative expenses is primarily related to re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.
Retail
For Retail, selling and administrative expenses increased by $37.0 million, or 13.3%, to $315.1 million during the 52 weeks ended April 30, 2022 from $278.1 million during the 52 weeks ended May 1, 2021. This increase was primarily due to a $34.5 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, and a $2.5 million increase in corporate payroll, infrastructure and product development costs. The payroll increase is primarily related to re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.
Wholesale
For Wholesale, selling and administrative expenses decreased by $0.1 million, or 0.5%, to $16.0 million during the 52 weeks ended April 30, 2022 from $16.1 million during the 52 weeks ended May 1, 2021. The decrease in selling and administrative expenses was primarily driven by lower compensation expense and lower operating costs.
DSS
For DSS, selling and administrative expenses increased by $7.4 million to $29.5 million during the 52 weeks ended April 30, 2022 from $22.1 million during the 52 weeks ended May 1, 2021. The increase in costs was primarily driven by higher compensation expense, higher operating costs invested in the business associated with product development and sales infrastructure costs aimed at increasing revenue.
Corporate Services
Corporate Services' selling and administrative expenses increased by $0.9 million, or 4.2%, to $23.0 million during the 52 weeks ended April 30, 2022 from $22.1 million during the 52 weeks ended May 1, 2021. The increase was primarily due to higher professional services costs.
Depreciation and Amortization Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 52 weeks ended |
Dollars in thousands | | | | | | | | | April 30, 2022 | | % of Sales | | May 1, 2021 | | % of Sales |
Depreciation and Amortization Expense | | | | | | | | | $ | 49,381 | | | 3.2% | | $ | 52,967 | | | 3.7% |
Depreciation and amortization expense decreased by $3.6 million, or 6.8%, to $49.4 million during the 52 weeks ended April 30, 2022 from $53.0 million during the 52 weeks ended May 1, 2021. The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during Fiscal 2022 and Fiscal 2021. See impairment loss discuss below.
Impairment loss (non-cash)
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. For information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies and Note 6. Fair Value Measurements.
During the 52 weeks ended April 30, 2022, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6.4 million (both pre-tax and after-tax), comprised of $0.7 million, $1.8 million, $3.7 million and $0.2 million of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively.
During the 52 weeks ended May 1, 2021, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $27.6 million, $20.5 million after-tax, comprised of $5.1 million, $13.3 million, $6.3 million and $2.9 million of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively.
Restructuring and other charges
During the 52 weeks ended April 30, 2022, we recognized restructuring and other charges totaling $1.0 million, comprised primarily of $1.3 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives and $1.8 million 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, partially offset by a $2.1 million in an actuarial gain related to a frozen retirement benefit plan (non-cash).
During the 52 weeks ended May 1, 2021, we recognized restructuring and other charges totaling $10.7 million (Restated), comprised primarily of $6.6 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, $5.7 million for professional service costs related to restructuring, process improvements, the financial advisor strategic review process, costs related to development and integration associated with Fanatics and FLC partnership agreements and shareholder activist activities, and liabilities for a facility closure, partially offset by a $1.6 million in an actuarial gain related to a frozen retirement benefit plan (non-cash).
Operating Loss
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 52 weeks ended - Restated (a) |
Dollars in thousands | | | | | | | | | April 30, 2022 | | % of Sales | | May 1, 2021 | | % of Sales |
Operating Loss | | | | | | | | | $ | (67,416) | | | (4.4)% | | $ | (176,894) | | | (12.3)% |
(a) We identified certain out of period adjustments related to Restructuring and other charges for the 52 weeks ended May 1, 2021. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
Our operating loss was $(67.4) million during the 52 weeks ended April 30, 2022 compared to operating loss of $(176.9) million during the 52 weeks ended May 1, 2021. This operating loss increase was due to the matters discussed above.
For the 52 weeks ended April 30, 2022, excluding the $0.4 million of merchandise inventory loss and write-off, $1.0 million of restructuring and other charges and the $6.4 million impairment loss (non-cash), all discussed above, operating loss was $(59.6) million (or (3.9)% of sales).
For the 52 weeks ended May 1, 2021, excluding the $15.0 million of merchandise inventory loss and write-off, $10.7 million of restructuring and other charges and the $27.6 million impairment loss (non-cash), all discussed above, operating loss was $(123.6) million (or (8.6)% of sales).
Interest Expense, Net
| | | | | | | | | | | | | | |
| | 52 weeks ended |
Dollars in thousands | | April 30, 2022 | | May 1, 2021 |
Interest Expense, Net | | $ | 10,096 | | | $ | 8,087 | |
Net interest expense increased by $2.0 million to $10.1 million during the 52 weeks ended April 30, 2022 from $8.1 million during the 52 weeks ended May 1, 2021 primarily due to higher borrowings compared to the prior year.
Income Tax Benefit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 52 weeks ended - Restated (a) |
Dollars in thousands | | | | | | | | | April 30, 2022 | | Effective Rate | | May 1, 2021 | | Effective Rate |
Income Tax Benefit | | | | | | | | | $ | (8,655) | | | 11.2% | | $ | (45,171) | | | 24.4% |
(a) We identified certain out of period adjustments related primarily to Income tax benefit for the 52 weeks ended May 1, 2021. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
We recorded an income tax benefit of $(8.7) million on a pre-tax loss of $(77.5) million during the 52 weeks ended April 30, 2022, which represented an effective income tax rate of 11.2% and an income tax benefit of $(45.2) million on a pre-tax loss of $(185.0) million during the 52 weeks ended May 1, 2021, which represented an effective income tax rate of 24.4%.
The effective tax rate for the 52 weeks ended April 30, 2022 is significantly lower as compared to the prior year comparable period due to the change in pre-tax loss and the change in the assessment of the realization of deferred tax assets as compared to prior year loss carrybacks.
Impact of U.S. Tax Reform
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (The “CARES Act”) was enacted. We have analyzed the provisions, which provide for a technical correction to allow for full expensing of qualified leasehold improvements, modifications to charitable contribution and net operating loss limitations (“NOLs”), modifications to the deductibility of business interest expense, as well as Alternative Minimum Tax (“AMT”) credit acceleration. The most significant impact of the legislation for the Company was an income tax benefit of $7.2 million for the carryback of NOLs to higher tax rate years, recorded in Fiscal 2021. As of May 1, 2021, we recognized a current income tax receivable for NOL carrybacks of $30.5 million in prepaid and other current assets on the consolidated balance sheet. We received a $7.8 million refund in the second quarter of Fiscal 2022 and expect to receive additional refunds of approximately $22.7 million.
Net Loss
| | | | | | | | | | | | | | | | | |
| | | | | 52 weeks ended |
Dollars in thousands | | | | | April 30, 2022 | | May 1, 2021 |
| | | | | | | Restated (a) |
Net Loss | | | | | $ | (68,857) | | | $ | (139,810) | |
(a) We identified certain out of period adjustments related primarily to Income tax benefit, as well as Restructuring and other charges, for the 52 weeks ended May 1, 2021.The adjustments increased our fiscal year 2021 reported net loss by $8.0 million but did not have an impact on Adjusted EBITDA (non-GAAP), cash flows or liquidity. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
As a result of the factors discussed above, we reported a net loss of $(68.9) million during the 52 weeks ended April 30, 2022, compared with a net loss of $(139.8) million during the 52 weeks ended May 1, 2021. Adjusted Earnings (non-GAAP) is $(55.6) million during the 52 weeks ended April 30, 2022, compared with $(96.5) million during the 52 weeks ended May 1, 2021. See Adjusted Earnings (non-GAAP) discussion below.
Results of Operations - 52 weeks ended May 1, 2021 (Restated) compared with the 53 weeks ended May 2, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 52 weeks ended, May 1, 2021 - Restated (a) (b) |
Dollars in thousands | Retail | | Wholesale | | DSS | | Corporate Services | | Eliminations (c) | | Total |
Sales: | | | | | | | | | | | |
Product sales and other | $ | 1,196,320 | | | $ | 165,825 | | | $ | 27,374 | | | $ | — | | | $ | (89,779) | | | $ | 1,299,740 | |
Rental income | 134,150 | | | — | | | — | | | — | | | — | | | 134,150 | |
Total sales | 1,330,470 | | | 165,825 | | | 27,374 | | | — | | | (89,779) | | | 1,433,890 | |
Cost of sales: | | | | | | | | | | | |
Product and other cost of sales | 1,047,613 | | | 131,142 | | | 5,056 | | | — | | | (89,822) | | | 1,093,989 | |
Rental cost of sales | 87,240 | | | — | | | — | | | — | | | — | | | 87,240 | |
Total cost of sales | 1,134,853 | | | 131,142 | | | 5,056 | | | — | | | (89,822) | | | 1,181,229 | |
Gross profit | 195,617 | | | 34,683 | | | 22,318 | | | — | | | 43 | | | 252,661 | |
Selling and administrative expenses | 278,149 | | | 16,085 | | | 22,116 | | | 22,079 | | | (149) | | | 338,280 | |
Depreciation and amortization expense | 39,634 | | | 5,461 | | | 7,763 | | | 109 | | | — | | | 52,967 | |
Sub-Total: | $ | (122,166) | | | $ | 13,137 | | | $ | (7,561) | | | $ | (22,188) | | | $ | 192 | | | (138,586) | |
Impairment loss (non-cash) | | | | | | | | | | | 27,630 | |
Restructuring and other charges | | | | | | | | | | | 10,678 | |
Operating loss | | | | | | | | | | | $ | (176,894) | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 53 weeks ended, May 2, 2020 (b) |
Dollars in thousands | Retail | | Wholesale | | DSS | | Corporate Services | | Eliminations (c) | | Total |
Sales: | | | | | | | | | | | |
Product sales and other | $ | 1,533,029 | | | $ | 198,353 | | | $ | 23,661 | | | $ | — | | | $ | (83,843) | | | 1,671,200 | |
Rental income | 179,863 | | | — | | | — | | | — | | | — | | | 179,863 | |
Total sales | 1,712,892 | | | 198,353 | | | 23,661 | | | — | | | (83,843) | | | 1,851,063 | |
Cost of sales: | | | | | | | | | | | |
Product and other cost of sales | 1,224,798 | | | 158,548 | | | 4,348 | | | — | | | (83,992) | | | 1,303,702 | |
Rental cost of sales | 104,812 | | | — | | | — | | | — | | | — | | | 104,812 | |
Total cost of sales | 1,329,610 | | | 158,548 | | | 4,348 | | | — | | | (83,992) | | | 1,408,514 | |
Gross profit | 383,282 | | | 39,805 | | | 19,313 | | | — | | | 149 | | | 442,549 | |
Selling and administrative expenses | 347,869 | | | 18,238 | | | 19,172 | | | 19,403 | | | (210) | | | 404,472 | |
Depreciation and amortization expense | 47,099 | | | 5,963 | | | 8,670 | | | 128 | | | — | | | 61,860 | |
Sub-Total: | $ | (11,686) | | | $ | 15,604 | | | $ | (8,529) | | | $ | (19,531) | | | $ | 359 | | | (23,783) | |
Impairment loss (non-cash) | | | | | | | | | | | 433 | |
Restructuring and other charges | | | | | | | | | | | 18,567 | |
Operating loss | | | | | | | | | | | $ | (42,783) | |
| | | | | | | | | | | |
(a) We identified certain out of period adjustments related to Restructuring and other charges for the 52 weeks ended May 1, 2021. The adjustments increased our fiscal year 2021 reported net loss by $8.0 million but did not have an impact on Adjusted EBITDA (non-GAAP), cash flows or liquidity. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
(b) In Fiscal 2021 and Fiscal 2020, our business experienced an unprecedented and significant impact as a result of the COVID-19 pandemic. The impact of which affects the comparability of our results of operations and cash flows.
(c) For additional information related to the intercompany activities and eliminations, see Part II - Item 8. Financial Statements and Supplementary Data - Note 5. Segment Reporting.
Sales
The following table summarizes our sales:
| | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | | | | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 | | % |
Product sales and other | | | | | 1,299,740 | | | 1,671,200 | | | (22.2)% |
Rental income | | | | | 134,150 | | | 179,863 | | | (25.4)% |
Total Sales | | | | | $ | 1,433,890 | | | $ | 1,851,063 | | | (22.5)% |
Our total sales decreased by $417.2 million, or 22.5%, to $1,433.9 million during the 52 weeks ended May 1, 2021 from $1,851.1 million during the 53 weeks ended May 2, 2020. The sales decrease is primarily related to the impact of the additional week for Fiscal 2020, the impact from temporary store closings related to COVID-19 earlier in the fiscal year, as well as lower in store foot traffic, lower enrollments and fewer on-campus events due to COVID-19. The components of the variances are reflected in the table below.
| | | | | | | | | | |
Sales variances | | 52 weeks ended | | |
Dollars in millions | | May 1, 2021 | | |
Retail Sales | | | | |
New stores | | $ | 64.2 | | | |
Closed stores | | (35.4) | | | |
Comparable stores (a) | | (409.2) | | | |
Textbook rental deferral | | (3.3) | | | |
Service revenue (b) | | (0.7) | | | |
Other (c) | | 2.0 | | | |
Retail Sales subtotal: | | $ | (382.4) | | | |
Wholesale Sales | | $ | (32.5) | | | |
DSS Sales | | $ | 3.7 | | | |
Eliminations (d) | | $ | (6.0) | | | |
Total sales variance | | $ | (417.2) | | | |
(a) Comparable store sales includes sales from physical stores that have been open for an entire fiscal year period and virtual store sales for the period, does not include sales from closed stores for all periods presented. Sales for logo and emblematic general merchandise fulfilled by FLC inventory and digital agency sales are included on a gross basis.
(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 total sales decreased by $382.4 million, or 22.3%, to $1,330.5 million during the 52 weeks ended May 1, 2021 from $1,712.9 million during the 53 weeks ended May 2, 2020. Retail added 98 new stores and closed 100 stores (not including temporary store closings due to COVID-19) during the 52 weeks ended May 1, 2021, ending the period with a total of 1,417 stores.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2021 | | Fiscal 2020 | | |
| | Physical | | Virtual | | Physical | | Virtual | | | | |
Number of stores at beginning of period | | 772 | | | 647 | | | 772 | | | 676 | | | | | |
Opened | | 40 | | | 58 | | | 50 | | | 71 | | | | | |
Closed | | 43 | | | 57 | | | 50 | | | 100 | | | | | |
Number of stores at end of period | | 769 | | | 648 | | | 772 | | | 647 | | | | | |
| | | | | | | | | | | | |
Product and other sales for Retail decreased by $336.7 million, or 22.0%, to $1,196.3 million during the 52 weeks ended May 1, 2021 from $1,533.0 million during the 53 weeks ended May 2, 2020. 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. Sales were impacted by the temporary store closings due to COVID-19 earlier in the fiscal year, 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. While many big-conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company’s high-margin general merchandise business. Additionally, sales were impacted by overall enrollment declines in higher education. Textbook (Course Materials) revenue for Retail decreased primarily due to lower new and used textbook and other course materials sales, while First Day (our inclusive access program), digital and eTextbook revenue increased.
Effective April 4, 2021, as per the FLC merchandising partnership agreement, logo and emblematic general merchandise sales were fulfilled by FLC and we recognized commission revenue earned for these sales on a net basis. Additionally, general merchandise sales for Retail decreased primarily due to lower emblematic apparel sales (as many athletic events were canceled due to COVID-19), lower supply product sales and lower graduation product sales (primarily due to COVID-19 related campus
closures). We have made continued progress in the development of our next generation e-commerce platform, which launched in Fiscal 2021 to deliver increased high-margin general merchandise sales.
Rental income for Retail decreased by $45.7 million, or 25.4%, to $134.2 million during the 52 weeks ended May 1, 2021 from $179.9 million during the 53 weeks ended May 2, 2020. Rental income is impacted by comparable store sales, new store openings and store closings. The decrease in rental income is primarily due to decreased rental activity due to the COVID-19 pandemic as discussed above and the impact of increased digital offerings.
Comparable store sales for Retail decreased for the 52 week sales period. Comparable store sales were impacted primarily by COVID-19 related campus temporary store closures, lower enrollment and on-campus events (all discussed above), a shift to lower cost options and more affordable solutions, including digital offerings, increased consumer purchases directly from publishers and other online providers, lower general merchandise sales (including graduation products and logo products for athletic events). These decreases were partially offset by increased First Day, digital and eTextbook revenue. Comparable store sales variances for Retail by category for the 52 week period is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Comparable Store Sales variances for Retail (a) | | 52 weeks ended | | | | | | | | | | | | |
Dollars in millions | | May 1, 2021 | | | | | | |
Textbooks (Course Materials) | | $ | (158.4) | | | (15.2) | % | | | | | | | | | | | | |
General Merchandise | | (235.3) | | | (45.9) | % | | | | | | | | | | | | |
Trade Books | | (20.9) | | | (64.3) | % | | | | | | | | | | | | |
Total Comparable Store Sales | | $ | (414.6) | | | (26.1) | % | | | | | | | | | | | | |
(a) Comparable sales data exclude the impact of the additional week for Fiscal 2020. Comparable store sales includes sales from physical stores that have been open for an entire fiscal year period and virtual store sales for the period, does not include sales from closed stores for all periods presented. Sales for logo and emblematic general merchandise fulfilled by FLC inventory and digital agency sales are included on a gross basis. We believe the current comparable store sales calculation method reflects the manner in which management views comparable sales, as well as the seasonal nature of our business.
Wholesale
Wholesale sales decreased by $32.5 million, or 16.4%, to $165.8 million during the 52 weeks ended May 1, 2021 from $198.3 million during the 53 weeks ended May 2, 2020. The decrease is primarily due to decreased gross sales impacted by the COVID-19 pandemic, 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.
DSS
DSS total sales increased by $3.7 million, or 15.7%, to $27.4 million during the 52 weeks ended May 1, 2021 from $23.7 million during the 53 weeks ended May 2, 2020, primarily due to higher bartleby subscription sales, which were partially offset by lower Student Brands sales.
Cost of Sales and Gross Margin
Our cost of sales increased as a percentage of sales to 82.4% during the 52 weeks ended May 1, 2021 compared to 76.1% during the 53 weeks ended May 2, 2020. Our gross margin decreased by $189.9 million, or 42.9%, to $252.7 million, or 17.6% of sales, during the 52 weeks ended May 1, 2021 from $442.5 million, or 23.9% of sales, during the 53 weeks ended May 2, 2020.
During the 52 weeks ended May 1, 2021, we recognized a merchandise inventory loss and write-off of $15.0 million in cost of goods sold in the Retail Segment discussed below. Excluding the merchandise inventory loss and write-off, cost of goods sold and gross margin was 81.3% and 18.7%, respectively, of sales during the 52 weeks ended May 1, 2021 compared to 76.1% and 23.9%, respectively, of sales during the 53 weeks ended May 2, 2020. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Organization and Note 2. Summary of Significant Accounting Policies - Merchandise Inventories.
Retail
The following table summarizes the Retail cost of sales:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 53 weeks ended |
Dollars in thousands | | | | | | | | | May 1, 2021 | | % of Related Sales | | May 2, 2020 | | % of Related Sales |
Product and other cost of sales | | | | | | | | | $ | 1,047,612 | | | 87.6% | | $ | 1,224,798 | | | 79.9% |
Rental cost of sales | | | | | | | | | 87,240 | | | 65.0% | | 104,812 | | | 58.3% |
Total Cost of Sales | | | | | | | | | $ | 1,134,852 | | | 85.3% | | $ | 1,329,610 | | | 77.6% |
The following table summarizes the Retail gross margin:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 53 weeks ended |
Dollars in thousands | | | | | | | | | May 1, 2021 | | % of Related Sales | | May 2, 2020 | | % of Related Sales |
Product and other gross margin | | | | | | | | | $ | 148,708 | | | 12.4% | | $ | 308,231 | | | 20.1% |
Rental gross margin | | | | | | | | | 46,910 | | | 35.0% | | 75,051 | | | 41.7% |
Gross Margin | | | | | | | | | $ | 195,618 | | | 14.7% | | $ | 383,282 | | | 22.4% |
For the 52 weeks ended May 1, 2021, the Retail gross margin as a percentage of sales decreased as discussed below:
•Product and other gross margin decreased (770 basis points), driven primarily by lower margin rates (435 basis points) due to higher markdowns, an unfavorable sales mix (370 basis points) due to lower high-margin general merchandise sales of approximately $231.2 million and the shift to lower margin digital courseware, and a merchandise inventory loss and write-off (100 basis points) of $15.0 million, comprised of a loss of $10.3 million related to the sale of our logo and emblematic general merchandise inventory below cost to FLC and an inventory write-off of $4.7 million related to our initiative to exit certain product offerings and streamline/rationalize our overall non-logo general merchandise product assortment resulting from the centralization of our merchandising decision-making during the year, partially offset by higher contract costs as a percentage of sales related to our college and university contracts (130 basis points) resulting from contract renewals and new store contracts.
•Rental gross margin decreased (670 basis points), driven primarily by higher contract costs as a percentage of sales related to our college and university contracts (620 basis points) and unfavorable rental mix (80 basis points), partially offset by higher rental margin rates (30 basis points).
Wholesale
The cost of sales and gross margin for Wholesale were $131.1 million, or 79.1% of sales, and $34.7 million, or 20.9% of sales, respectively, during the 52 weeks ended May 1, 2021. The cost of sales and gross margin for Wholesale were $158.5 million, or 79.9% of sales, and $39.8 million, or 20.1% of sales, respectively, during the 53 weeks ended May 2, 2020. The gross margin increased to 20.9% during the 52 weeks ended May 1, 2021 from 20.1% during the 53 weeks ended May 2, 2020. The increase was primarily due to the favorable impact of returns and allowances and lower markdowns, partially offset by an unfavorable sales mix.
DSS
Gross margin for the DSS segment was $22.3 million, or 81.5% of sales, during the 52 weeks ended May 1, 2021 and $19.3 million, or 81.6% of sales, during the 53 weeks ended May 2, 2020. The increase in gross margin was primarily due to higher bartleby subscription sales.
Intercompany Eliminations
During the 52 weeks ended May 1, 2021 and 53 weeks ended May 2, 2020, sales eliminations were $89.8 million and $83.9 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 52 weeks ended May 1, 2021 and 53 weeks ended May 2, 2020, the cost of sales eliminations were $89.8 million and $84.0 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.
The $0.1 million of gross margin elimination reflects the net impact of the sales eliminations and cost of sales eliminations during both the 52 weeks ended May 1, 2021 and 53 weeks ended May 2, 2020, 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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 53 weeks ended |
Dollars in thousands | | | | | | | | | May 1, 2021 | | % of Sales | | May 2, 2020 | | % of Sales |
Selling and Administrative Expenses | | | | | | | | | $ | 338,280 | | | 23.6% | | $ | 404,472 | | | 21.9% |
During the 52 weeks ended May 1, 2021, selling and administrative expenses decreased by $66.2 million, or 16.4%, to $338.3 million from $404.5 million during the 53 weeks ended May 2, 2020. The variances by segment are as follows:
Retail
For Retail, selling and administrative expenses decreased by $69.7 million, or 20.0%, to $278.2 million during the 52 weeks ended May 1, 2021 from $347.9 million during the 53 weeks ended May 2, 2020. This decrease was primarily due to a $59.3 million decrease in stores payroll and operating expenses, including comparable stores, primarily due to temporary furloughed store employees, lower virtual stores and new/closed stores payroll and operating expenses, and a decrease of $10.4 million in corporate payroll, infrastructure costs, product development costs and digital operations costs.
Wholesale
For Wholesale, selling and administrative expenses decreased by $2.1 million, or 11.8%, to $16.1 million during the 52 weeks ended May 1, 2021 from $18.2 million during the 53 weeks ended May 2, 2020. The decrease in selling and administrative expenses was primarily driven by lower payroll and operating costs.
DSS
For DSS, selling and administrative expenses increased by $2.9 million to $22.1 million during the 52 weeks ended May 1, 2021 from $19.2 million during the 53 weeks ended May 2, 2020. The increase in costs was primarily driven by an increase in payroll costs, higher professional services and advertising costs.
Corporate Services
Corporate Services' selling and administrative expenses increased by $2.7 million, or 13.8%, to $22.1 million during the 52 weeks ended May 1, 2021 from $19.4 million during the 53 weeks ended May 2, 2020. The increase was primarily due to higher compensation-related expenses and higher operating expenses.
Depreciation and Amortization Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 53 weeks ended |
Dollars in thousands | | | | | | | | | May 1, 2021 | | % of Sales | | May 2, 2020 | | % of Sales |
Depreciation and Amortization Expense | | | | | | | | | $ | 52,967 | | | 3.7% | | $ | 61,860 | | | 3.3% |
Depreciation and amortization expense decreased by $8.9 million, or 14.4%, to $53.0 million during the 52 weeks ended May 1, 2021 from $61.9 million during the 53 weeks ended May 2, 2020. The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during the third quarter of Fiscal 2021. See impairment loss discuss below.
Impairment loss (non-cash)
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. For information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies and Note 7. Fair Value Measurements.
During the 52 weeks ended May 1, 2021, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $27.6 million, $20.5 million after-tax, comprised of $5.1 million, $13.3 million, $6.3 million and $2.9 million of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively.
During the 53 weeks ended May 2, 2020, we recognized an impairment loss (non-cash) of $0.4 million in the Retail segment related to net capitalized development costs for a project which are not recoverable.
Restructuring and other charges
During the 52 weeks ended May 1, 2021, we recognized restructuring and other charges totaling $10.7 million (Restated), comprised primarily of $6.6 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, $5.7 million for professional service costs related to restructuring, process improvements, the financial advisor strategic review process, costs related to development and integration associated with Fanatics and FLC partnership agreements and shareholder activist activities, and liabilities for a facility closure, partially offset by a $1.6 million in an actuarial gain related to a frozen retirement benefit plan (non-cash).
During the 53 weeks ended May 2, 2020, we recognized restructuring and other charges totaling $18.6 million comprised primarily of $12.7 million for severance and other employee termination and benefit costs associated with several management changes, the elimination of various positions as part of cost reduction objectives, and professional service costs for process improvements, $2.8 million for professional service costs for shareholder activist activities, $2.7 million in an actuarial loss related to a frozen retirement benefit plan (non-cash), and $0.6 million for a store level asset impairment charge, offset by $0.2 million related to reduction of liabilities for a facility closure.
Operating Loss
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended - Restated (a) | | 53 weeks ended |
Dollars in thousands | | | | | | | | | May 1, 2021 | | % of Sales | | May 2, 2020 | | % of Sales |
Operating Loss | | | | | | | | | $ | (176,894) | | | (12.3)% | | $ | (42,783) | | | (2.3)% |
(a) We identified certain out of period adjustments related to Restructuring and other charges for the 52 weeks ended May 1, 2021. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
Our operating loss was $(176.9) million during the 53 weeks ended May 1, 2021 compared to operating loss of $(42.8) million during the 53 weeks ended May 2, 2020. This operating loss increase was due to the matters discussed above.
For the 52 weeks ended May 1, 2021, excluding the $15.0 million of merchandise inventory loss and write-off, $10.7 million of restructuring and other charges and the $27.6 million impairment loss (non-cash), all discussed above, operating loss was $(123.6) million (or (8.6)% of sales).
For the 53 weeks ended May 2, 2020, excluding the $18.6 million of restructuring and other charges and the $0.4 million impairment loss, all discussed above, operating loss was $(23.8) million (or (1.3)% of sales).
Interest Expense, Net
| | | | | | | | | | | | | | |
Dollars in thousands | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
Interest Expense, Net | | $ | 8,087 | | | $ | 7,445 | |
Net interest expense increased by $0.6 million to $8.1 million during the 52 weeks ended May 1, 2021 from $7.4 million during the 53 weeks ended May 2, 2020 primarily due to higher average borrowings.
Income Tax Benefit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended - Restated (a) | | 53 weeks ended |
Dollars in thousands | | | | | | | | | May 1, 2021 | | Effective Rate | | May 2, 2020 | | Effective Rate |
Income Tax Benefit | | | | | | | | | $ | (45,171) | | | 24.4% | | $ | (11,978) | | | 23.8% |
(a) We identified certain out of period adjustments related to Restructuring and other charges for the 52 weeks ended May 1, 2021. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
We recorded an income tax benefit of $(45.2) million on a pre-tax loss of $(185.0) million during the 52 weeks ended May 1, 2021, which represented an effective income tax rate of 24.4% and an income tax benefit of $(12.0) million on a pre-tax loss of $(50.2) million during the 53 weeks ended May 2, 2020, which represented an effective income tax rate of 23.8%.
The effective tax rate for the 52 weeks ended May 1, 2021 is higher as compared to the comparable prior year period due to various permanent differences and the impact of the CARES Act.
Impact of U.S. Tax Reform
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income 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. In accordance with SAB 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118), we completed our accounting for the tax effects of the enactment of the Act within the provisional period as of April 27, 2019. We recorded measurement period adjustments during Fiscal 2019 to reduce our net deferred tax liability by $3.9 million, which primarily relates to the acceleration of certain deductions as permitted by the U.S. tax code. The most significant impact of the legislation for the Company was a $20.4 million reduction of the value of our net deferred (which represents future tax liabilities) and long-term tax liabilities as a result of lowering the U.S. corporate income tax rate from 35% to 21%, which was recorded in Fiscal 2018. We also recorded a liability associated with the one-time transition tax. This amount is not material.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (The “CARES Act”) was enacted. We have analyzed the provisions, which provide for a technical correction to allow for full expensing of qualified leasehold improvements, modifications to charitable contribution and net operating loss limitations (“NOLs”), modifications to the deductibility of business interest expense, as well as Alternative Minimum Tax (“AMT”) credit acceleration. The most significant impact of the legislation for the Company was an income tax benefit of $7.2 million for the carryback of NOLs to higher tax rate years, recorded in Fiscal 2021. As of May 1, 2021, we recognized a current income tax receivable for NOL carrybacks of $30.5 million in prepaid and other current assets on the consolidated balance sheet.
Net Loss
| | | | | | | | | | | | | | | | | |
Dollars in thousands | | | | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
| | | | | Restated (a) | | |
Net Loss | | | | | $ | (139,810) | | | $ | (38,250) | |
(a) We identified certain out of period adjustments related primarily to Income tax benefit, as well as Restructuring and other charges, for the 52 weeks ended May 1, 2021.The adjustments increased our fiscal year 2021 reported net loss by $8.0 million but did not have an impact on Adjusted EBITDA (non-GAAP), cash flows or liquidity. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
As a result of the factors discussed above, we reported a net loss of $(139.8) million during the 52 weeks ended May 1, 2021, compared with a net loss of $(38.3) million during the 53 weeks ended May 2, 2020. Adjusted Earnings (non-GAAP) is $() million during the 52 weeks ended May 1, 2021, compared with $(21.1) million during the 53 weeks ended May 2, 2020. See Adjusted Earnings (non-GAAP) discussion below.
Use of Non-GAAP Measures - Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, and Free Cash Flow
To supplement our results prepared in accordance with generally accepted accounting principles (“GAAP”), we use the measure of Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, and 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 (loss). We define Adjusted EBITDA as net income (loss) plus (1) depreciation and amortization; (2) interest expense and (3) income taxes, (4) as adjusted for items that are subtracted from or added to net income (loss). We define Free Cash Flow as Cash Flows from Operating Activities less capital expenditures, cash interest and cash taxes.
To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in this Form 10-K, the reconciliation of Adjusted Earnings to net income (loss), the reconciliation of consolidated Adjusted EBITDA to consolidated net income (loss), and the reconciliation of Adjusted EBITDA by Segment to net income (loss) by segment, 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.
We review these non-GAAP financial measures as internal measures to evaluate our performance at a consolidated level and at a segment level and manage our operations. We believe that these measures are useful performance measures which are used by us to facilitate a comparison of our on-going operating performance on a consistent basis from period-to-period. We believe that these non-GAAP financial measures provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone, as they exclude certain items that management believes do not reflect the ordinary performance of our operations in a particular period. Our Board of Directors and management also use Adjusted EBITDA and Adjusted EBITDA by Segment, at a consolidated and at a segment level, as one of the primary methods for planning and forecasting expected performance, for evaluating on a quarterly and annual basis actual results against such expectations, and as a measure for performance incentive plans. Management also uses Adjusted EBITDA by Segment to determine segment capital allocations. We believe that the inclusion of Adjusted Earnings, Adjusted EBITDA, and Adjusted EBITDA by Segment results provides investors useful and important information regarding our operating results, in a manner that is consistent with management's evaluation of business performance. 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.
Consolidated Adjusted Earnings (non-GAAP)
| | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | | | | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
| | | | | | | Restated (a) | | |
Net loss (b) | | | | | $ | (68,857) | | | $ | (139,810) | | | $ | (38,250) | |
Reconciling items, after-tax (below) | | | | | 13,243 | | | 43,287 | | | 17,124 | |
Adjusted Earnings (non-GAAP) | | | | | $ | (55,614) | | | $ | (96,523) | | | $ | (21,126) | |
| | | | | | | | | |
Reconciling items, pre-tax | | | | | | | | | |
Impairment loss (non-cash) (c) | | | | | $ | 6,411 | | | $ | 27,630 | | | $ | 433 | |
Merchandise inventory loss and write-off (c) | | | | | 434 | | | 14,960 | | | — | |
Content amortization (non-cash) (d) | | | | | 5,454 | | | 5,034 | | | 4,082 | |
Restructuring and other charges (c) | | | | | 944 | | | 10,678 | | | 18,567 | |
Reconciling items, pre-tax | | | | | 13,243 | | | 58,302 | | | 23,082 | |
Less: Pro forma income tax impact (c)(e) | | | | | — | | | 15,015 | | | 5,958 | |
Reconciling items, after-tax | | | | | $ | 13,243 | | | $ | 43,287 | | | $ | 17,124 | |
Consolidated Adjusted EBITDA (non-GAAP)
| | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
| | | | Restated (a) | | |
Net loss (b) | | $ | (68,857) | | | $ | (139,810) | | | $ | (38,250) | |
Add: | | | | | | |
Depreciation and amortization expense | | 49,381 | | | 52,967 | | | 61,860 | |
Interest expense, net | | 10,096 | | | 8,087 | | | 7,445 | |
Income tax benefit | | (8,655) | | | (45,171) | | | (11,978) | |
Impairment loss (non-cash) (c) | | 6,411 | | | 27,630 | | | 433 | |
Merchandise inventory loss and write-off (c) | | 434 | | | 14,960 | | | — | |
Content amortization (non-cash) (d) | | 5,454 | | | 5,034 | | | 4,082 | |
Restructuring and other charges (c) | | 944 | | | 10,678 | | | 18,567 | |
Adjusted EBITDA (non-GAAP) | | $ | (4,792) | | | $ | (65,625) | | | $ | 42,159 | |
(a) We identified certain out of period adjustments related primarily to Income tax benefit, as well as Restructuring and other charges, for the 52 weeks ended May 1, 2021. The adjustments increased our fiscal year 2021 reported net loss by $8.0 million but did not have an impact on Adjusted EBITDA (non-GAAP), cash flows or liquidity. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
(b) In Fiscal 2022, 2021 and Fiscal 2020, our business experienced an unprecedented and significant impact as a result of the COVID-19 pandemic. The impact of which affects the comparability of our results of operations and cash flows.
(c) See Management Discussion and Analysis - Results of Operations discussion above.
(d) Earnings are adjusted for amortization expense (non-cash) related to content development costs which are included in cost of goods sold.
(e) Represents the income tax effects of the non-GAAP items.
The following is Adjusted EBITDA by segment for Fiscal 2022, Fiscal 2021, and Fiscal 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA - by Segment | | 52 weeks ended April 30, 2022 (a) |
Dollars in thousands | | Retail | | Wholesale | | DSS | | Corporate Services(b) | | Eliminations | | Total |
Net (loss) income | | $ | (37,305) | | | $ | 495 | | | $ | (6,801) | | | $ | (25,471) | | | $ | 225 | | | $ | (68,857) | |
Add: | | | | | | | | | | | | |
Depreciation and amortization expense | | 36,635 | | | 5,418 | | | 7,257 | | | 71 | | | — | | | 49,381 | |
Interest expense, net | | — | | | — | | | — | | | 10,096 | | | — | | | 10,096 | |
Income tax benefit | | — | | | — | | | — | | | (8,655) | | | — | | | (8,655) | |
Impairment loss (non-cash) (c) | | 6,411 | | | — | | | — | | | — | | | — | | | 6,411 | |
Merchandise inventory loss and write-off (b) | | 434 | | | — | | | — | | | — | | | — | | | 434 | |
Content amortization (non-cash) (d) | | 386 | | | — | | | 5,068 | | | — | | | — | | | 5,454 | |
Restructuring and other charges (c) | | 2,118 | | | (2,131) | | | — | | | 957 | | | — | | | 944 | |
Adjusted EBITDA (non-GAAP) | | $ | 8,679 | | | $ | 3,782 | | | $ | 5,524 | | | $ | (23,002) | | | $ | 225 | | | $ | (4,792) | |
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Adjusted EBITDA - by Segment | | 52 weeks ended May 1, 2021 (a) - Restated (e) |
Dollars in thousands | | Retail | | Wholesale | | DSS | | Corporate Services(a) | | Eliminations | | Total |
Net (loss) income | | $ | (155,310) | | | $ | 14,732 | | | $ | (8,132) | | | $ | 8,708 | | | $ | 192 | | | $ | (139,810) | |
Add: | | | | | | | | | | | | |
Depreciation and amortization expense | | 39,634 | | | 5,461 | | | 7,763 | | | 109 | | | — | | | 52,967 | |
Interest expense, net | | — | | | — | | | — | | | 8,087 | | | — | | | 8,087 | |
Income tax benefit | | — | | | — | | | — | | | (45,171) | | | — | | | (45,171) | |
Impairment loss (non-cash) (c) | | 27,630 | | | — | | | — | | | — | | | — | | | 27,630 | |
Merchandise inventory loss and write-off (b) | | 14,960 | | | — | | | — | | | — | | | — | | | 14,960 | |
Content amortization (non-cash) (d) | | 745 | | | — | | | 4,289 | | | — | | | — | | | 5,034 | |
Restructuring and other charges (c) | | 5,514 | | | (1,595) | | | 571 | | | 6,188 | | | — | | | 10,678 | |
Adjusted EBITDA (non-GAAP) | | $ | (66,827) | | | $ | 18,598 | | | $ | 4,491 | | | $ | (22,079) | | | $ | 192 | | | $ | (65,625) | |
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Adjusted EBITDA - by Segment | | 53 weeks ended May 2, 2020 (a) |
Dollars in thousands | | Retail | | Wholesale | | DSS | | Corporate Services(a) | | Eliminations | | Total |
Net (loss) income | | $ | (24,445) | | | $ | 12,909 | | | $ | (8,529) | | | $ | (18,544) | | | $ | 359 | | | $ | (38,250) | |
Add: | | | | | | | | | | | | |
Depreciation and amortization expense | | 47,099 | | | 5,963 | | | 8,670 | | | 128 | | | — | | | 61,860 | |
Interest expense, net | | — | | | — | | | — | | | 7,445 | | | — | | | 7,445 | |
Income tax benefit | | — | | | — | | | — | | | (11,978) | | | — | | | (11,978) | |
Impairment loss (non-cash) (c) | | 433 | | | — | | | — | | | — | | | — | | | 433 | |
Merchandise inventory loss and write-off (b) | | — | | | — | | | — | | | — | | | — | | | — | |
Content amortization (non-cash) (d) | | 814 | | | — | | | 3,268 | | | — | | | — | | | 4,082 | |
Restructuring and other charges (c) | | 12,326 | | | 2,695 | | | — | | | 3,546 | | | — | | | 18,567 | |
Adjusted EBITDA (non-GAAP) | | $ | 36,227 | | | $ | 21,567 | | | $ | 3,409 | | | $ | (19,403) | | | $ | 359 | | | $ | 42,159 | |
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(a) In Fiscal 2022, 2021 and Fiscal 2020, our business experienced an unprecedented and significant impact as a result of the COVID-19 pandemic. The impact of which affects the comparability of our results of operations and cash flows.
(b) Interest expense is reflected in Corporate Services as it is primarily related to our Credit Agreement which funds our operating and financing needs across the organization. Income taxes are reflected in Corporate Services as we record our income tax provision on a consolidated basis.
(c) See Management Discussion and Analysis - Results of Operations discussion above.
(d) Earnings are adjusted for amortization expense (non-cash) related to content development costs which are included in cost of goods sold.
(e) We identified certain out of period adjustments related primarily to Income tax benefit, as well as Restructuring and other charges, for the 52 weeks ended May 1, 2021. The adjustments increased our fiscal year 2021 reported net loss by $8.0 million but did not have an impact on Adjusted EBITDA (non-GAAP), cash flows or liquidity. Refer to Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies for further information.
Free Cash Flow (non-GAAP)
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Dollars in thousands | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
Net cash flows provided by (used in) operating activities | | $ | 2,060 | | | $ | 32,895 | | | $ | (8,676) | |
Less: | | | | | | |
Capital expenditures (a) | | 43,533 | | | 37,223 | | | 36,192 | |
Cash interest | | 8,166 | | | 6,778 | | | 6,796 | |
Cash taxes | | (8,007) | | | 6,008 | | | (4,141) | |
Free Cash Flow (non-GAAP) | | $ | (41,632) | | | $ | (17,114) | | | $ | (47,523) | |
(a) Purchases of property and equipment are also referred to as capital 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:
Capital Expenditures
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Dollars in thousands | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
Physical store capital expenditures | | $ | 16,206 | | | $ | 10,382 | | | $ | 13,926 | |
Product and system development | | 15,453 | | | 11,747 | | | 15,710 | |
Content development costs | | 9,340 | | | 8,741 | | | 4,335 | |
Other | | 2,534 | | | 6,353 | | | 2,221 | |
Total Capital Expenditures | | $ | 43,533 | | | $ | 37,223 | | | $ | 36,192 | |
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 April 30, 2022, we had $225.7 million of borrowings outstanding under the Credit Agreement. See Financing Arrangements discussion below.
We believe that our future cash from operations, access to borrowings under the Credit Facility, FILO Facility and short-term financings 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.
COVID-19 Business Impact
During Fiscal 2022, our business continued to be significantly negatively impacted by the COVID-19 pandemic. Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. We cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including variants, on enrollments, campus activities, university budgets, athletics and other areas that directly affect our business operations. Although most four year schools returned to a traditional on-campus environment for learning in the Fall semester, as well as hosted traditional on campus sporting activities, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and its effect on our ability to source products, including textbooks and general merchandise offerings.
As we entered the Spring rush period in early January 2022, we continued to experience the ongoing effects of COVID-19 with the surge of the Omicron variant further impacting students return to campus and on-campus activities. In early January, while the majority of schools brought students back to campus, some schools chose to conduct classes virtually for the beginning of the semester, while other schools chose to delay their start dates (and some schools both delayed the start of the semester and started classes virtually), thus reducing and/or delaying sales later into the quarter or shifting some sales to our fourth quarter. 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. Please see our Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview for further discussion.
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.
Sources and Uses of Cash Flow
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Dollars in thousands | | Fiscal 2022 | | Fiscal 2021 | | Fiscal 2020 |
Cash, cash equivalents, and restricted cash at beginning of period | | $ | 16,814 | | | $ | 9,008 | | | $ | 14,768 | |
Net cash flows provided by (used in) operating activities | | 2,060 | | | 32,895 | | | (8,676) | |
Net cash flows used in investing activities | | (42,661) | | | (36,888) | | | (37,019) | |
Net cash flows provided by financing activities | | 45,721 | | | 11,799 | | | 39,935 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 21,934 | | | $ | 16,814 | | | $ | 9,008 | |
As of April 30, 2022 and May 1, 2021, we had restricted cash of $11.5 million and $8.8 million, respectively, comprised of $10.6 million and $7.9 million, 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 as of the end of both periods in other noncurrent assets in the 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. When a school adopts our First Day inclusive access offerings, cash collection from the school generally occurs after the student drop/add dates, which is later in the working capital cycle, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor. For our wholesale operations, cash flows from operating activities are typically a source of cash in the second and fourth fiscal quarters, as payments are received from the summer and winter selling season when they sell textbooks 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 Fiscal 2022 were $2.1 million compared to $32.9 million during Fiscal 2021. This decrease in cash provided by operating activities of $30.8 million was primarily due to $41.8 million of proceeds received in Fiscal 2021 for the sale of logo merchandise inventory to FLC and changes in working capital, including higher accounts receivables outstanding and higher inventory purchases, partially offset by improved earnings in the current year period compared to the prior year period and lower tax payments of $14.0 million compared to the prior year period. 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 in the prior year.
Cash flows provided by operating activities during Fiscal 2021 were $32.9 million compared to cash flow used in operating activities of $(8.7) million during Fiscal 2020. This increase in cash provided by operating activities of $41.6 million was primarily due to proceeds from the sale of logo merchandise inventory to FLC of $41.8 million, partially offset by lower net income, an increase in other long-term liabilities due to sale of treasury shares at a premium (discussed above), and changes in working capital. As discussed above, our operations were highly impacted by the COVID-19 pandemic in Fiscal 2021.
Cash Flow from Investing Activities
Cash flows used in investing activities during Fiscal 2022 were $(42.7) million compared to $(36.9) million during Fiscal 2021. 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 $(43.5) million and $(37.2) million during Fiscal 2022 and Fiscal 2021, respectively.
Cash flows used in investing activities during Fiscal 2021 were $(36.9) million compared to $(37.0) million during Fiscal 2020. Cash used in investing activities is primarily for 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 and lower payments to acquire businesses and the change in other noncurrent assets for contractual obligations. Capital expenditures totaled $37.2 million and $36.2 million during Fiscal 2021 and Fiscal 2020, respectively.
Cash Flow from Financing Activities
Cash flows provided by financing activities during Fiscal 2022 were $45.7 million compared to $11.8 million during Fiscal 2021. The net change of $33.9 million is primarily due to higher net borrowings under the credit agreement, offset by proceeds from the sale of treasury shares of $10.9 million during Fiscal 2021.
Cash flows provided by financing activities during Fiscal 2021 were $11.8 million compared to $39.9 million during Fiscal 2020. This net change of $28.1 million is primarily due to higher net borrowings under the credit agreement and the sale of treasury shares of $10.9 million (discussed above), partially offset by the payment of deferred financing costs of $1.1 million.
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 five-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 4, 2022, we were granted a waiver to the condition to the upcoming draw under the FILO Facility, scheduled for April 2022, that Consolidated EBITDA (as defined in the Credit Agreement) minus Restricted Payments (as defined in the Credit Agreement) equal at least $110.0 million. Under the waiver amendment, the commitment under the FILO Facility of $25.0 million was increased to $40.0 million, with all remaining terms unchanged.
On June 7, 2022, subsequent to the end of Fiscal 2022, we entered into a Term Loan Credit Agreement with TopLids LendCo, LLC and Vital Fundco, LLC and we entered an amendment to the Credit Agreement. Part II - Item 8. Financial Statements and Supplementary Data - Note 16. Subsequent Event for details.
On June 28, 2022, we obtained limited waivers with respect to the Credit Agreement and the Term Loan Credit Agreement, pursuant to which the requisite lenders thereunder waived any potential default or event of default under such agreements solely to the extent arising from the restatement of Fiscal 2021 consolidated financial statements as described in Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
During the 52 weeks ended April 30, 2022, we borrowed $632.2 million and repaid $584.1 million under the Credit Agreement, with $225.7 million of outstanding borrowings as of April 30, 2022. During the 52 weeks ended May 1, 2021, we borrowed $722.6 million and repaid $719.7 million under the Credit Agreement, with $177.6 million of outstanding borrowings as of May 1, 2021. During the 53 weeks ended May 2, 2020, we borrowed $600.9 million and repaid $559.7 million under the Credit Agreement, with $174.7 million of outstanding borrowings as of May 2, 2020. As of both April 30, 2022 and May 1, 2021, we have issued $4.8 million in letters of credit under the Credit Facility.
During the 52 weeks ended April 30, 2022 and May 1, 2021, we incurred debt issuance costs totaling $0.3 million and $1.1 million related to the March 4, 2022 waiver and March 31, 2021 Credit Facility amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the consolidated balance sheets, and subsequently amortized ratably over the term of the credit agreement.
The Credit Facility is secured by substantially all of the inventory, accounts receivable and related assets of the borrowers under the Credit Facility. This is considered an all asset lien (inclusive of proceeds from tax refunds payable to the Company and a pledge of equity from subsidiaries, exclusive of real estate).
Interest under the Credit Facility accrues, at our election, at a Secured Overnight Financing Rate ("SOFR") or alternate base rate, plus, in each case, an applicable interest rate margin, which is determined by reference to the level of excess availability under the Credit Facility. Loans will initially bear interest at SOFR plus 2.00% per annum, in the case of SOFR borrowings, or at the alternate base rate plus 1.00% per annum, in the alternative, and thereafter the interest rate will fluctuate between SOFR plus 2.00% per annum and SOFR plus 1.50% per annum (or between the alternate base rate plus 1.000% per
annum and the alternate base rate plus 0.50% per annum), based upon the excess availability under the Credit Facility at such time.
Loans under the FILO Facility will bear interest at a rate equal to the SOFR rate, plus 3.750%. In connection with the waiver, the applicable margin for credit extensions made under the FILO Facility after March 31, 2021 through the end of 2021 was increased by 0.50% (to 3.75% per annum for SOFR rate loans and 2.75% for base rate loans). The FILO Facility will be available solely during the draw period each year, from April 1 through July 31. We are required to borrow 100% of the aggregate commitments under the FILO Facility on April 1 of each year, and the loans must be repaid in full (including interest and fees) on July 31 of each year. The commitments under the FILO Facility decreased from $50.0 million to $25.0 million on August 1, 2021. We will pay a commitment fee of 0.375% on the daily unused portion of the FILO Facility.
The Credit Facility contains customary negative covenants, which limit the Company’s ability to incur additional indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets, among other things. In addition, if excess availability under the Credit Facility were to fall below certain specified levels, certain additional covenants (including fixed charge coverage ratio requirements and a minimum excess availability of the greater of 10% of the Loan Cap and $25.0 million when the FILO is funded) would be triggered, and the lenders would have the right to assume dominion and control over the Company's cash. The Credit Facility includes an anti-cash hoarding provision, which limits maximum excess cash allowed to $50.0 million when the FILO is funded.
The Credit Facility contains customary events of default, including payment defaults, material breaches of representations and warranties, covenant defaults, default on other material indebtedness, customary ERISA events of default, bankruptcy and insolvency, material judgments, invalidity of liens on collateral, change of control or cessation of business. The Credit Facility also contains customary affirmative covenants and representations and warranties. We are in compliance with all covenants, representations and warranties under the Credit Facility as of April 30, 2022.
Income Tax Implications on Liquidity
For the fiscal year ended April 30, 2022, the Company intends to file an application to change its tax year from January to April under the automatic consent provisions. As a result of the tax year-end change, there is no longer a long-term tax payable associated with the LIFO reserve in other long-term liabilities.
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 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 Fiscal 2022, Fiscal 2021, and Fiscal 2020, we did not purchase shares under the stock repurchase program. As of April 30, 2022, approximately $26.7 million remains available under the stock repurchase program.
During Fiscal 2022, Fiscal 2021, and Fiscal 2020, we also repurchased 239,751 shares, 414,174 shares, and 374,733 shares of our common stock, respectively, in connection with employee tax withholding obligations for vested stock awards.
Contractual Obligations
The following table sets forth our contractual obligations (in millions):
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| | Payments Due by Period |
| | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years |
Credit Facility (a) | | $ | 185.7 | | | $ | 185.7 | | | $ | — | | | $ | — | | | $ | — | |
FILO Facility (a) | | 40.0 | | | 40.0 | | | — | | | — | | | — | |
Term Loans (a) | | 30.0 | | | — | | | 30.0 | | | — | | | — | |
Lease obligations (excluding imputed interest) (b) | | 367.7 | | | 104.7 | | | 104.6 | | | 67.2 | | | 91.2 | |
Purchase obligations (c) | | 22.3 | | | 11.6 | | | 10.2 | | | 0.5 | | | — | |
Other long-term liabilities reflected on the balance sheet under GAAP (d) | | — | | | — | | | — | | | — | | | — | |
Total | | $ | 645.7 | | | $ | 342.0 | | | $ | 144.8 | | | $ | 67.7 | | | $ | 91.2 | |
(a)As of April 30, 2022, we had a total of $225.7 million of outstanding borrowings under the Credit Facility and FILO Facility. See Financing Arrangements discussion above for information about future borrowings and payments under the FILO Credit Facility. On June 7, 2022, subsequent to the end of Fiscal 2022, we entered into a Term Loan Credit Agreement and we entered an amendment to the Credit Agreement. Part II - Item 8. Financial Statements and Supplementary Data - Note 16. Subsequent Event for details.
(b)Our contracts for physical bookstores with colleges and universities are typically five years with renewal options, but can range from one to 15 years, and are typically cancelable by either party without penalty with 90 to 120 days' notice. Annual projections are based on current minimum guarantee amounts. In approximately 50% of our contracts with colleges and universities that include minimum guarantees, the minimum guaranteed amounts adjust annually to equal less than the prior year's commission earned. Excludes obligations under store leases for property insurance and real estate taxes, which totaled approximately 2.4% of the minimum rent payments under those leases.
(c)Includes information technology contracts.
(d)Other long-term liabilities excludes expected payments related to employee benefit plans. See Part II - Item 8. Financial Statements and Supplementary Data — Note 11. Employee Benefit Plans.
Certain Relationships and Related Party Transactions
See Part II - Item 8. Financial Statements and Supplementary Data — Note 10. Related Party Transactions.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in accordance with GAAP, we are required to use judgment in making estimates and assumptions that affect the amounts reported in our consolidated financial statements and related notes. In preparing these financial statements, management has made its best estimates and judgments with respect to certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
Revenue Recognition and Deferred Revenue
Product sales and rentals
The majority of our revenue is derived from the sale of products through our bookstore locations, including virtual bookstores, and our bookstore affiliated e-commerce websites, and contains a single performance obligation. Revenue from sales of our products is recognized at the point in time when control of the products is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for the products. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 3. Revenue.
Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks at which point title passes and risk of loss is transferred to the customer. Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of goods sold.
Revenue from the rental of physical textbooks, which contains a single performance obligation, is deferred and recognized over the rental period based on the passage of time commencing at the point of sale, when control of the product transfers to the customer. Rental periods are typically for a single semester and are always less than one year in duration. We offer a buyout option to allow the purchase of a rented physical textbook at the end of the rental period if the customer desires to do so. We record the buyout purchase when the customer exercises and pays the buyout option price which is determined at the time of the buyout. In these instances, we accelerate any remaining deferred rental revenue at the point of sale.
Revenue from the rental of digital textbooks, which contains a single performance obligation, is recognized at the point of sale. A software feature is embedded within the content of our digital textbooks, such that upon expiration of the rental term the customer is no longer able to access the content. While the digital rental allows the customer to access digital content for a fixed period of time, once the digital content is delivered to the customer, our performance obligation is complete.
We estimate returns based on an analysis of historical experience. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.
For sales and rentals involving third-party products, we evaluate whether we are acting as a principal or an agent. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where we are the principal, we record revenue on a gross basis, and for those transactions where we are an agent to a third-party, we record revenue on a net basis. Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021.
We do not have gift card or customer loyalty programs. We do not treat any promotional offers as expenses. Sales tax collected from our customers is excluded from reported revenues. Our payment terms are generally 30 days and do not extend beyond one year.
Service and other revenue
Service and other revenue is primarily derived from DSS segment subscription-based service revenues and partnership marketing services which includes promotional activities and advertisements within our physical bookstores and web properties performed on behalf of third-party customers.
Subscription-based revenue, which contains a single performance obligation, is deferred and recognized based on the passage of time over the subscription period commencing at the point of sale, when control of the service transfers to the customer. The majority of subscriptions sold are one month in duration.
Partnership marketing agreements often include multiple performance obligations which are individually negotiated with our customers. For these arrangements that contain distinct performance obligations, we allocate the transaction price based on the relative standalone selling price method by comparing the standalone selling price (“SSP”) of each distinct performance obligation to the total value of the contract. The revenue is recognized as each performance obligation is satisfied, typically at a point in time for partnership marketing service and overtime for advertising efforts as measured based upon the passage of time for contracts that are based on a stated period of time or the number of impressions delivered for contracts with a fixed number of impressions.
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.
Cost is determined primarily by the retail inventory method for our Retail Segment and last-in first out, or “LIFO”, method for our Wholesale Segment. Our textbook inventories, for Retail and Wholesale, and trade book inventories are valued using the LIFO method and the related reserve was not material to the recorded amount of our inventories. There were no LIFO adjustments in Fiscal 2022, Fiscal 2021, and Fiscal 2020.
Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory. Reserve calculations are sensitive to certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the non-returnable inventory reserve. However, if assumptions based on our history of liquidating non-returnable inventory are incorrect, we may be exposed to losses or gains that could be material. A 10% change
in actual non-returnable inventory would have affected pre-tax earnings by approximately $5.6 million in Fiscal 2022.
For our physical bookstores, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate shortage rates. However, if our estimates regarding shortage rates are incorrect, we may be exposed to losses or gains that could be material. A 10 basis point change in actual shortage rates would have affected pre-tax earnings by approximately $0.05 million in Fiscal 2022.
Textbook Rental Inventories
Physical textbooks out on rent are categorized as textbook rental inventories. At the time a rental transaction is consummated, the book is removed from merchandise inventories and moved to textbook rental inventories at cost. The cost of the book is amortized down to its estimated residual value over the rental period. The related amortization expense is included in cost of goods sold. At the end of the rental period, upon return, the book is removed from textbook rental inventories and recorded in merchandise inventories at its amortized cost. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate rental cost of goods sold. However, if our estimates regarding residual value are incorrect, we may be exposed to losses or gains that could be material. A 1% change in rental cost of goods sold would have affected pre-tax earnings by approximately $0.4 million in Fiscal 2022.
Long-Term Incentive Compensation
The assumptions used in calculating the fair value of long-term incentive compensation payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. See Part II - Item 8. Financial Statements and Supplementary Data — Note 12. Long-Term Incentive Compensation Expense for a further discussion of our stock-based incentive plan.
We are required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If their actual forfeiture rate is materially different from their estimate, our long-term incentive compensation expense could be significantly different from what we recorded in the current period. 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.
Phantom shares 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 a specific price per share. 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 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.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to determine long-term incentive compensation expense. If actual results are not consistent with the assumptions used, the long-term incentive compensation expense reported in our financial statements may not be representative of the actual economic cost of the long-term incentive compensation. A 10% change in our long-term incentive compensation expense would have affected pre-tax earnings by approximately $1.1 million in Fiscal 2022.
Evaluation of Other Long-Lived Assets Impairment
As of April 30, 2022, our other long-lived assets include property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets of $94.1 million, $286.6 million, $129.6 million, and $24.0 million, respectively, on our consolidated balance sheet.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and consider market participants in accordance with Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. We evaluate the long-lived assets of the reporting units for impairment at the lowest asset group level for which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, we first compared the carrying amount of the asset group to the estimated future undiscounted cash flows. The impairment loss calculation compares the carrying amount of the assets to the fair value based on estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value.
Our business has been significantly negatively impacted by the ongoing COVID-19 pandemic, as many schools continued to adjust their learning models and on-campus activities. Many of the trends observed during the Fall 2021 semester continued into the Spring 2022 semester, as fewer students have returned to campus for the Spring semester. As we entered the Spring rush period in early January 2022, we continued to experience the ongoing effects of COVID-19 with the surge of the Omicron
variant further impacting students return to campus and on-campus activities. In early January, while the majority of schools brought students back to campus, some schools chose to conduct classes virtually for the beginning of the semester, while other schools chose to delay their start dates (and some schools both delayed the start of the semester and started classes virtually), thus reducing and/or delaying sales. These combined events continue to impact the Company’s course materials and general merchandise business.
During the third quarter of Fiscal 2022, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6.4 million (both pre-tax and after-tax), comprised of $0.7 million, $1.8 million, $3.7 million and $0.2 million of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the consolidated statement of operations.
During the third quarter of Fiscal 2021, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $27.6 million, $20.5 million after-tax, comprised of $5.1 million, $13.3 million, $6.3 million and $2.9 million of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively,
The fair value of the impaired long-lived assets were determined using an income approach (Level 3 input), using the Company’s best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 6. Fair Value Measurements.
In the first quarter of Fiscal 2020, we recorded an impairment loss (non-cash) of $0.4 million in the Retail segment related to net capitalized development costs for a project which are not recoverable. During the fourth quarter of Fiscal 2020, in conjunction with COVID-19 related campus store closures, we evaluated certain of our long-lived assets associated with our Retail and Wholesale segments for impairment. Based on the results of the tests, for the Retail segment, we recognized an impairment loss of $0.6 million related to store-level assets in restructuring and other charges. These long-lived assets were not recoverable and had a de minimis fair value, as determined using an income approach (Level 3 input), resulting in a non-cash impairment charge for the full carrying value of those long-lived assets.
The impairment analysis process requires significant estimation to determine recoverability of each asset group and to determine the fair value of asset groups that were not recoverable, as well as the fair values of certain operating right-of-use assets included within the asset groups that were not recoverable. The significant assumptions used included annual revenue growth rates, gross margin rates and the estimated relationship of selling and administrative costs to revenue used to estimate the projected cash-flow directly related to the future operation of the stores as well as the weighted average cost of capital used to calculate the fair value. Significant assumptions used to determine the fair values of certain operating right-of-use assets included the current market rent and discount rate. These assumptions are subjective in nature and are affected by expectations about future market or economic conditions (including the effects of the global pandemic).
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate long-lived asset impairment losses. However, if actual results are not consistent with estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. A 10% decrease in our estimated discounted cash flows would not have materially affected the results of our operations in Fiscal 2022.
Evaluation of Goodwill Impairment
The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance sheets. In accordance with ASC 350-10, Intangibles - Goodwill and Other, we complete our annual goodwill impairment test as of the first day of the third quarter of each fiscal year, or whenever events or changes in circumstances indicate that the carrying amount of the reporting unit exceeds its fair value. As of both May 1, 2021 and May 2, 2020, we had $0, $0 and $4,700 million of goodwill on our consolidated balance sheets related to our Retail, Wholesale, and DSS reporting units, respectively.
During the third quarter of both Fiscal 2022 and Fiscal 2021, we completed our annual goodwill impairment test and concluded that the fair value of the DSS reporting unit was determined to exceed the carrying value of the reporting unit; therefore, no goodwill impairment was recognized.
Application of the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of assets and liabilities to reporting units; assignment of goodwill to reporting units; and the determination of the fair value of each reporting unit. In performing the valuation, we used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions.
We estimated the fair value of our reporting units using a weighting of fair values derived from the income approach and the market approach for our annual impairment testing and using the income approach for our interim impairment test. Under the income approach, we calculate the fair value of the reporting unit based on the present value of estimated future cash flows. Inherent in our preparation of cash flow projections are assumptions and estimates derived from a review of our operating
results, business plans, expected growth rates, cost of capital and tax rates. We also make certain forecasts about future economic conditions, interest rates, market data, and other observable trends, such as comparable store sales trends, recent changes in publisher relationships, and development of innovative digital products and services in the rapidly changing education landscape. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows. Under the market approach, we estimate the fair value based on market multiples of cash flows and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit and considering a reasonable control premium.
Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. Changes in assumptions or estimates could materially affect the estimate of the fair value, and therefore could affect the likelihood and amount of potential impairment. The following assumptions are significant to our evaluation process:
Business Projections- We make assumptions about the level of revenues, gross profit, operating expenses, as well as capital expenditures and net working capital requirements. These assumptions drive our planning assumptions and represent key inputs for developing our cash flow projections. These projections are developed using our internal business plans over a five-year planning period that are updated at least annually;
Long-term Growth Rates- We also utilize an assumed long-term growth rate representing the expected rate at which our cash flow stream is projected to grow. These rates are used to calculate the terminal value and are added to the cash flows projected during our five-year planning period; and
Discount Rates- The estimated future cash flows are then discounted at a rate that is consistent with a weighted-average cost of capital that is likely to be expected by market participants. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise.
Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. FASB guidance on accounting for income taxes requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience and expectations of future taxable income by taxing jurisdiction, the carryforward periods available to us for tax reporting purposes and other relevant factors. The actual realization of deferred tax assets may differ significantly from the amounts we have recorded.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if available evidence indicates it is more likely than not that the tax position will be fully sustained upon review by taxing authorities, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount with a greater than 50 percent likelihood of being realized upon ultimate settlement. For tax positions that are 50 percent or less likely of being sustained upon audit, we do not recognize any portion of that benefit in the financial statements. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. Our actual results could differ materially from our current estimates.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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FINANCIAL STATEMENT INDEX |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Barnes & Noble Education, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Barnes & Noble Education, Inc. and subsidiaries (the Company) as of April 30, 2022 and May 1, 2021, the related consolidated statements of operations, equity and cash flows for each of the three years in the period ended April 30, 2022 and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2022 and May 1, 2021, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of April 30, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated June 29, 2022 expressed an adverse opinion thereon.
Restatement of fiscal 2021 Financial Statements
As discussed in Note 2, Restatement - Fiscal 2021 Consolidated Financial Statements, the fiscal 2021 consolidated financial statements have been restated to correct a misstatement.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee of the Company’s board of directors and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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| | Non-Returnable Inventory Reserve |
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Description of the Matter | | As described in Note 2 to the consolidated financial statements, the Company reserves for non-returnable inventory based on its history of liquidating non-returnable inventory. |
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| | Auditing management’s estimate of the reserves for non-returnable inventory involved especially subjective auditor judgment as such estimates are based on various factors that are affected by current and future market and economic conditions. In particular, the reserve calculations are sensitive to certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand. |
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company's inventory reserve process, including management’s review controls over the determination of significant assumptions and the data underlying the calculations of the inventory reserves. |
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| | Our procedures included, among others, evaluating the significant assumptions, identified above, and testing the accuracy and completeness of the underlying data used in management’s inventory reserve calculation. We recalculated the reserve using management’s methodology and assumptions, and we evaluated the methodology and the significant assumptions for reasonableness by comparing them to the related actual historical activity and expected future market and economic conditions. We also analyzed the impact of reasonable changes to the significant assumptions on the recorded inventory reserves. |
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| | Long-Lived Asset Impairment |
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Description of the Matter | | As described in Note 2 to the consolidated financial statements, the Company tests its long-lived assets for impairment if an event occurs or circumstances change that would indicate the carrying amount may not be recoverable. If the carrying amount of a long-lived asset (group) exceeds its fair value, the asset (group) is written down to its fair value and an impairment charge is recognized. During the fiscal year 2022, the Company recognized an impairment charge of $6.4 million related to long-lived assets at certain of its stores. |
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| | Auditing the Company's impairment of store long-lived assets was complex and highly judgmental due to the significant estimation required to determine recoverability of each asset group and to determine the fair value of asset groups that were not recoverable, as well as the fair values of certain operating right-of-use assets included within the asset groups that were not recoverable. The significant assumptions used included annual revenue growth rates, gross margin rates and the estimated relationship of selling and administrative costs to revenue used to estimate the projected cash-flow directly related to the future operation of the stores as well as the weighted average cost of capital used to calculate the fair value. Significant assumptions used to determine the fair values of certain operating right-of-use assets included the current market rent and discount rate. These assumptions are subjective in nature and are affected by expectations about future market or economic conditions (including the effects of the global pandemic). |
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the store long-lived assets impairment process, including controls over the determination of the undiscounted projected cash flows of the stores with indicators of impairment, the fair values of the stores with carrying values that were not recoverable and the fair values of operating right-of-use assets within those stores. We also tested controls over management’s review of the significant assumptions described above. |
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| | Our testing of the Company's impairment analysis included, among other procedures, evaluating the significant assumptions described above and the operating data used to calculate the estimated future cash flows of the stores and to determine fair values. We tested the completeness and accuracy of the data used by the Company in its analysis. We also compared the significant assumptions used to determine the projected cash flows to historical operating results of the stores, management’s expectations related to recovery from the pandemic and published third-party information regarding overall college and university enrollment trends; and, we obtained an understanding of the business initiatives supporting the assumptions used to estimate the future cash flows through inquiries of management and inspection of internal and external communications. We involved our internal valuation specialists to assist in evaluating the calculation of the fair values of certain operating lease right-of-use assets, which included assessing the reasonableness of the methodology utilized to determine market rental rates and evaluating the applied discount rate. |
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/s/ Ernst & Young LLP
We have served as the Company's auditor since 2015.
Iselin, New Jersey
June 29, 2022
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
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| | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
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Sales: | | | | | | | | | |
Product sales and other | | | | | $ | 1,398,046 | | | $ | 1,299,740 | | | $ | 1,671,200 | |
Rental income | | | | | 133,354 | | | 134,150 | | | 179,863 | |
Total sales | | | | | 1,531,400 | | | 1,433,890 | | | 1,851,063 | |
Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | |
Product and other cost of sales | | | | | 1,081,981 | | | 1,093,989 | | | 1,303,702 | |
Rental cost of sales | | | | | 76,659 | | | 87,240 | | | 104,812 | |
Total cost of sales | | | | | 1,158,640 | | | 1,181,229 | | | 1,408,514 | |
Gross profit | | | | | 372,760 | | | 252,661 | | | 442,549 | |
Selling and administrative expenses | | | | | 383,440 | | | 338,280 | | | 404,472 | |
Depreciation and amortization expense | | | | | 49,381 | | | 52,967 | | | 61,860 | |
Impairment loss (non-cash) | | | | | 6,411 | | | 27,630 | | | 433 | |
Restructuring and other charges | | | | | 944 | | | 10,678 | | | 18,567 | |
Operating loss | | | | | (67,416) | | | (176,894) | | | (42,783) | |
Interest expense, net | | | | | 10,096 | | | 8,087 | | | 7,445 | |
Loss before income taxes | | | | | (77,512) | | | (184,981) | | | (50,228) | |
Income tax benefit | | | | | (8,655) | | | (45,171) | | | (11,978) | |
Net loss | | | | | $ | (68,857) | | | $ | (139,810) | | | $ | (38,250) | |
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Loss per share of Common Stock | | | | | | | | | |
Basic | | | | | $ | (1.33) | | | $ | (2.81) | | | $ | (0.80) | |
Diluted | | | | | $ | (1.33) | | | $ | (2.81) | | | $ | (0.80) | |
Weighted average shares of Common Stock outstanding: | | | | | | | | | |
Basic | | | | | 51,797 | | | 49,669 | | | 48,013 | |
Diluted | | | | | 51,797 | | | 49,669 | | | 48,013 | |
See accompanying notes to consolidated financial statements.
(a) We identified certain out of period adjustments related primarily to Income tax benefit, as well as Restructuring and other charges, for the 52 weeks ended May 1, 2021. Refer to Note 2. Summary of Significant Accounting Policies for further information.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
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| | April 30, 2022 | | May 1, 2021 | | |
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ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 10,388 | | | $ | 8,024 | | | |
Receivables, net | | 137,039 | | | 121,072 | | | |
Merchandise inventories, net | | 293,854 | | | 281,112 | | | |
Textbook rental inventories | | 29,612 | | | 28,692 | | | |
Prepaid expenses and other current assets | | 61,709 | | | 61,933 | | | |
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Total current assets | | 532,602 | | | 500,833 | | | |
Property and equipment, net | | 94,072 | | | 89,172 | | | |
Operating lease right-of-use assets | | 286,584 | | | 240,456 | | | |
Intangible assets, net | | 129,624 | | | 150,904 | | | |
Goodwill | | 4,700 | | | 4,700 | | | |
Deferred tax assets, net | | — | | | 15,943 | | | |
Other noncurrent assets | | 23,971 | | | 29,105 | | | |
Total assets | | $ | 1,071,553 | | | $ | 1,031,113 | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 182,790 | | | $ | 137,578 | | | |
Accrued liabilities | | 95,387 | | | 93,589 | | | |
Current operating lease liabilities | | 97,143 | | | 92,513 | | | |
Short-term borrowings | | 40,000 | | | 50,000 | | | |
Total current liabilities | | 415,320 | | | 373,680 | | | |
Long-term deferred taxes, net | | 1,430 | | | — | | | |
Long-term operating lease liabilities | | 219,594 | | | 184,780 | | | |
Other long-term liabilities | | 21,135 | | | 52,042 | | | |
Long-term borrowings | | 185,700 | | | 127,600 | | | |
Total liabilities | | 843,179 | | | 738,102 | | | |
Commitments and contingencies | | — | | | — | | | |
Stockholders' equity: | | | | | | |
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Preferred stock, $0.01 par value; authorized, 5,000 shares; 0 shares issued and 0 shares outstanding | | — | | | — | | | |
Common stock, $0.01 par value; authorized, 200,000 shares; issued, 54,234 and 53,327 shares, respectively; outstanding, 52,046 and 51,379 shares, respectively | | 542 | | | 533 | | | |
Additional paid-in capital | | 740,838 | | | 734,257 | | | |
Accumulated deficit | | (491,494) | | | (422,637) | | | |
Treasury stock, at cost | | (21,512) | | | (19,142) | | | |
Total stockholders' equity | | 228,374 | | | 293,011 | | | |
Total liabilities and stockholders' equity | | $ | 1,071,553 | | | $ | 1,031,113 | | | |
See accompanying notes to consolidated financial statements.
(a) We identified certain out of period adjustments related to Deferred tax assets, net and Accrued liabilities as of May 1, 2021. Refer to Note 2. Summary of Significant Accounting Policies for further information.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (In thousands)
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| | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
| | | | Restated (a) | | |
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (68,857) | | | $ | (139,810) | | | $ | (38,250) | |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | | | | |
Depreciation and amortization expense | | 49,381 | | | 52,967 | | | 61,860 | |
Impairment loss (non-cash) | | 6,411 | | | 27,630 | | | 433 | |
Merchandise inventory loss and write-off | | 434 | | | 14,960 | | | — | |
Content amortization expense | | 5,454 | | | 5,034 | | | 4,082 | |
Amortization of deferred financing costs | | 1,472 | | | 1,112 | | | 1,095 | |
Deferred taxes | | (7,961) | | | (8,138) | | | (5,380) | |
Stock-based compensation expense | | 6,333 | | | 5,095 | | | 6,638 | |
Changes in operating lease right-of-use assets and liabilities | | (8,475) | | | (4,367) | | | 18,399 | |
Changes in other long-term assets and liabilities and other, net | | (2,155) | | | 9,251 | | | 947 | |
Changes in other operating assets and liabilities, net | | 20,023 | | | 69,161 | | | (58,500) | |
Net cash flows provided by (used in) operating activities | | 2,060 | | | 32,895 | | | (8,676) | |
Cash flows from investing activities: | | | | | | |
Purchases of property and equipment | | (43,533) | | | (37,223) | | | (36,192) | |
Changes in other noncurrent assets and other | | 872 | | | 335 | | | (827) | |
Net cash flows used in investing activities | | (42,661) | | | (36,888) | | | (37,019) | |
Cash flows from financing activities: | | | | | | |
Proceeds from borrowings under Credit Agreement | | 632,220 | | | 722,600 | | | 600,900 | |
Repayments of borrowings under Credit Agreement | | (584,120) | | | (719,700) | | | (559,700) | |
Payment of deferred financing costs | | (265) | | | (1,076) | | | — | |
Sale of treasury shares | | — | | | 10,869 | | | — | |
Purchase of treasury shares | | (2,370) | | | (894) | | | (1,265) | |
Proceeds from the exercise of stock options, net | | 256 | | | — | | | — | |
Net cash flows provided by (used in) financing activities | | 45,721 | | | 11,799 | | | 39,935 | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | 5,120 | | | 7,806 | | | (5,760) | |
Cash, cash equivalents, and restricted cash at beginning of period | | 16,814 | | | 9,008 | | | 14,768 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 21,934 | | | $ | 16,814 | | | $ | 9,008 | |
Changes in other operating assets and liabilities, net: | | | | | | |
Receivables, net | | $ | (15,967) | | | $ | (30,221) | | | $ | 7,320 | |
Merchandise inventories | | (13,176) | | | 132,867 | | | (8,617) | |
Textbook rental inventories | | (920) | | | 12,018 | | | 6,291 | |
Prepaid expenses and other current assets | | 3,112 | | | (37,492) | | | (4,399) | |
Accounts payable and accrued liabilities | | 46,974 | | | (8,011) | | | (59,095) | |
Changes in other operating assets and liabilities, net | | $ | 20,023 | | | $ | 69,161 | | | $ | (58,500) | |
| | | | | | |
Supplemental cash flow information: | | | | | | |
Cash paid during the period for: | | | | | | |
Interest paid | | $ | 8,166 | | | $ | 6,778 | | | $ | 6,796 | |
Income taxes paid (net of refunds) | | $ | (8,007) | | | $ | 6,008 | | | $ | (4,141) | |
See accompanying notes to consolidated financial statements.
(a) We identified certain out of period adjustments related to Deferred tax assets and Accrued liabilities as of May 1, 2021. Refer to Note 2. Summary of Significant Accounting Policies for further information.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | Additional | | | | | | | |
| | Common Stock | | Paid-In | | Accumulated | | Treasury Stock | | Total |
| | Shares | Amount | | Capital | | Deficit | | Shares | Amount | | Equity |
Balance at April 27, 2019 | | 51,030 | | $ | 510 | | | $ | 726,331 | | | $ | (244,577) | | | 3,467 | | $ | (31,636) | | | $ | 450,628 | |
Stock-based compensation expense | | | | | 6,638 | | | | | | | | 6,638 | |
Vested equity awards | | 1,110 | | 11 | | | (11) | | | | | | | | — | |
Shares repurchased for tax withholdings for vested stock awards | | | | | | | | | 375 | | (1,265) | | | (1,265) | |
Net loss | | | | | | | (38,250) | | | | | | (38,250) | |
Balance at May 2, 2020 | | 52,140 | | $ | 521 | | | $ | 732,958 | | | $ | (282,827) | | | 3,842 | | $ | (32,901) | | | $ | 417,751 | |
Stock-based compensation expense | | | | | 5,095 | | | | | | | | 5,095 | |
Vested equity awards | | 1,187 | | 12 | | | (12) | | | | | | | | — | |
Sale of treasury shares | | | | | (3,784) | | | | | (2,308) | | 14,653 | | | 10,869 | |
Shares repurchased for tax withholdings for vested stock awards | | | | | | | | | 414 | | (894) | | | (894) | |
Net loss - Restated (a) | | | | | | | (139,810) | | | | | | (139,810) | |
Balance at May 1, 2021 - Restated (a) | | 53,327 | | $ | 533 | | | $ | 734,257 | | | $ | (422,637) | | | 1,948 | | $ | (19,142) | | | $ | 293,011 | |
Stock-based compensation expense | | | | | 6,333 | | | | | | | | 6,333 | |
Vested equity awards | | 829 | | 8 | | | (8) | | | | | | | | — | |
Shares repurchased for tax withholdings for vested stock awards | | | | | | | | | 240 | | (2,370) | | | (2,370) | |
Issuance of common stock upon exercise of stock options | | 78 | | 1 | | | 256 | | | | | | | | 257 | |
Net loss | | | | | | | (68,857) | | | | | | (68,857) | |
Balance at April 30, 2022 | | 54,234 | | $ | 542 | | | $ | 740,838 | | | $ | (491,494) | | | 2,188 | | $ | (21,512) | | | $ | 228,374 | |
| | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
(a) We identified certain out of period adjustments related to related primarily to Income tax benefit, as well as Restructuring and other charges, for the 52 weeks ended May 1, 2021. Refer to Note 2. Summary of Significant Accounting Policies for further information.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Thousands of dollars, except share and per share data)
Unless the context otherwise indicates, references in these Notes to the accompanying consolidated financial statements to “we,” “us,” “our” and “the Company” refer to Barnes & Noble Education, Inc., a Delaware corporation. References to “Barnes & Noble College” refer to our college bookstore business operated through our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our virtual bookstore and wholesale textbook distribution business operated through our subsidiary MBS Textbook Exchange, LLC.
Note 1. Organization
Description of Business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States. We are also one of the largest textbook wholesalers, inventory management hardware and software providers, and a leading provider of digital education solutions. We operate 1,427 physical, virtual, and custom bookstores and serve more than 6 million students, delivering essential educational content, tools and general merchandise within a dynamic omnichannel retail environment. Additionally, we offer direct-to-student products and services to help students study more effectively and improve academic performance.
The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands. We expect to continue to introduce scalable and advanced digital solutions focused largely on the student, expand our e-commerce capabilities and accelerate such capabilities through our 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 gross general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the FLC Partnership. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo and emblematic general merchandise business.
We believe the Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important to our relationship with leading publishers who rely on us as one of their primary distribution channels, and for being a trusted source for students in our direct-to-student digital solutions business.
We have three reportable segments: Retail, Wholesale and DSS. For additional information related to our strategies, operations and segments, see Part I - Item 1. Business and Part II - Item 8. Financial Statements and Supplementary Data - Note 4. Segment Reporting.
First Day Inclusive Access Programs
We provide product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes. We offer our BNC First Day® inclusive access programs, consisting of First Day and First Day Complete, in which course materials, including both physical and digital content, are offered at a reduced price through a course fee or included in tuition, and delivered to students on or before the first day of class.
•Through First Day, digital course materials are adopted by a faculty member for a single course, and students receive their materials through their learning management system.
•First Day Complete is adopted by an institution and includes all classes, providing students both physical and digital materials. The First Day Complete model drives substantially greater unit sell-through for the bookstore.
Offering courseware sales through our inclusive access First Day and First Day Complete models is a key, and increasingly important strategic initiative of ours to meet the market demands of substantially reduced pricing to students, as well as the opportunity to improve student outcomes, while, at the same time, increasing our market share, revenue and relative gross profits of courseware sales given the higher volumes of units sold in such models as compared to historical sales models
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
that rely on individual student marketing and sales. We expect these programs to allow us to ultimately reverse historical long-term trends in courseware revenue declines, which has occurred at those schools where such programs have been adopted.
Partnership with Fanatics and FLC
In December 2020, we entered into the FLC Partnership. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our general merchandise business. Fanatics’ cutting-edge e-commerce and technology expertise offers our campus stores expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with Lids (FLC's parent company), the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.
We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We also work closely with our campus partners to ensure that each campus store 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 consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis prior to April 4, 2021. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies and Note 5. Equity and Earnings Per Share.
COVID-19 Business Impact
Our business has experienced an unprecedented and significant negative impact as a result of COVID-19 related campus store closures. Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. We cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including variants, on enrollments, campus activities, university budgets, athletics and other areas that directly affect our business operations. Although most four year schools returned to a traditional on-campus environment, as well as hosted traditional on campus sporting activities, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and its effect on our ability to source products, including textbooks and general merchandise offerings. Please see our Part II - Item 7. 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
Our consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). In the opinion of the Company’s management, the accompanying consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position and the results of its operations and cash flows for the periods reported.
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. The fiscal year periods for each of the last three fiscal years consisted of the 52 weeks ended April 30, 2022 (“Fiscal 2022”), 52 weeks ended May 1, 2021 (“Fiscal 2021”), and 53 weeks ended May 2, 2020 (“Fiscal 2020”).
Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. 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
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
MBS sells textbooks and other course materials for retail distribution. Our DSS segment sales and operating profit are realized relatively consistently throughout the year.
As discussed in Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Organization, our business experienced an unprecedented and significant impact as a result of the COVID-19 pandemic. The impact of the COVID-19 pandemic on our operations affects the comparability of our results of operations and cash flows.
Restatement - Fiscal 2021 Consolidated Financial Statements
We identified certain out of period adjustments related primarily to the recognition of Income tax benefit related to the recording of an additional deferred tax valuation allowance, and Restructuring and other charges related to severance costs, for the 52 weeks ended May 1, 2021, the 13 weeks ended July 31, 2021, the 26 weeks ended October 30, 2021 and the 39 weeks ended January 29, 2022. The adjustments did not impact Net cash flows provided by operating activities, Net cash flows used in investing activities, or Net cash flows used in financing activities for the periods noted. The impact of the adjustments identified are disclosed as follows:
| | | | | | | | | | | | | | | | | | | | |
Fiscal 2021 | | 52 weeks ended May 1, 2021 |
| | As Reported | | Adjustment | | Restated |
Statement of Operations | | | | | | |
Restructuring and other charges | | $ | 9,960 | | | $ | 718 | | | $ | 10,678 | |
Operating loss | | $ | (176,176) | | | $ | (718) | | | $ | (176,894) | |
Loss before income taxes | | $ | (184,263) | | | $ | (718) | | | $ | (184,981) | |
Income tax benefit | | $ | (52,476) | | | $ | 7,305 | | | $ | (45,171) | |
Net loss | | $ | (131,787) | | | $ | (8,023) | | | $ | (139,810) | |
| | | | | | |
Basic EPS | | $ | (2.65) | | | $ | (0.16) | | | $ | (2.81) | |
Diluted EPS | | $ | (2.65) | | | $ | (0.16) | | | $ | (2.81) | |
| | | | | | |
| | As of May 1, 2021 |
Balance Sheet | | As Reported | | Adjustment | | Restated |
Deferred tax assets, net | | $ | 23,248 | | | $ | (7,305) | | | $ | 15,943 | |
Total assets | | $ | 1,038,418 | | | $ | (7,305) | | | $ | 1,031,113 | |
Accrued liabilities | | $ | 92,871 | | | $ | 718 | | | $ | 93,589 | |
Total current liabilities | | $ | 372,962 | | | $ | 718 | | | $ | 373,680 | |
Total liabilities | | $ | 737,384 | | | $ | 718 | | | $ | 738,102 | |
Accumulated deficit | | $ | (414,614) | | | $ | (8,023) | | | $ | (422,637) | |
Total stockholders' equity | | $ | 301,034 | | | $ | (8,023) | | | $ | 293,011 | |
Total liabilities and stockholders' equity | | $ | 1,038,418 | | | $ | (7,305) | | | $ | 1,031,113 | |
Restatement - Fiscal 2022 Interim Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal 2022 | 13 weeks ended July 31, 2021 | | 26 weeks ended October 30, 2021 | | 39 weeks ended January 29, 2022 |
| As Reported | | Adjustment | | Restated | | As Reported | | Adjustment | | Restated | | As Reported | | Adjustment | | Restated |
Statement of Operations | | | | | | | | | | | | | | | | | |
Restructuring and other charges | $ | 2,623 | | | $ | (718) | | | $ | 1,905 | | | $ | 3,739 | | | $ | (718) | | | $ | 3,021 | | | $ | 3,785 | | | $ | (718) | | | $ | 3,067 | |
Operating loss | $ | (41,453) | | | $ | 718 | | | $ | (40,735) | | | $ | (16,864) | | | $ | 718 | | | $ | (16,146) | | | $ | (49,999) | | | $ | 718 | | | $ | (49,281) | |
Loss before income taxes | $ | (43,947) | | | $ | 718 | | | $ | (43,229) | | | $ | (21,622) | | | $ | 718 | | | $ | (20,904) | | | $ | (57,808) | | | $ | 718 | | | $ | (57,090) | |
Net loss | $ | (44,346) | | | $ | 718 | | | $ | (43,628) | | | $ | (21,818) | | | $ | 718 | | | $ | (21,100) | | | $ | (58,619) | | | $ | 718 | | | $ | (57,901) | |
| | | | | | | | | | | | | | | | | |
Basic EPS | $ | (0.86) | | | $ | 0.01 | | | $ | (0.85) | | | $ | (0.42) | | | $ | 0.01 | | | $ | (0.41) | | | $ | (1.13) | | | $ | 0.01 | | | $ | (1.12) | |
Diluted EPS | $ | (0.86) | | | $ | 0.01 | | | $ | (0.85) | | | $ | (0.42) | | | $ | 0.01 | | | $ | (0.41) | | | $ | (1.13) | | | $ | 0.01 | | | $ | (1.12) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of July 31, 2021 | | As of October 30, 2021 | | As of January 29, 2022 |
Balance Sheet | As Reported | | Adjustment | | Restated | | As Reported | | Adjustment | | Restated | | As Reported | | Adjustment | | Restated |
Deferred tax assets, net | $ | 23,248 | | | $ | (7,305) | | | $ | 15,943 | | | $ | 23,248 | | | $ | (7,305) | | | $ | 15,943 | | | $ | 22,918 | | | $ | (7,305) | | | $ | 15,613 | |
Total assets | $ | 1,251,315 | | | $ | (7,305) | | | $ | 1,244,010 | | | $ | 1,259,515 | | | $ | (7,305) | | | $ | 1,252,210 | | | $ | 1,274,035 | | | $ | (7,305) | | | $ | 1,266,730 | |
Accumulated deficit | $ | (458,960) | | | $ | (7,305) | | | $ | (466,265) | | | $ | (436,432) | | | $ | (7,305) | | | $ | (443,737) | | | $ | (473,233) | | | $ | (7,305) | | | $ | (480,538) | |
Total stockholders' equity | $ | 256,595 | | | $ | (7,305) | | | $ | 249,290 | | | $ | 279,494 | | | $ | (7,305) | | | $ | 272,189 | | | $ | 244,765 | | | $ | (7,305) | | | $ | 237,460 | |
Total liabilities and stockholders' equity | $ | 1,251,315 | | | $ | (7,305) | | | $ | 1,244,010 | | | $ | 1,259,515 | | | $ | (7,305) | | | $ | 1,252,210 | | | $ | 1,274,035 | | | $ | (7,305) | | | $ | 1,266,730 | |
Consolidation
The results of operations reflected in our consolidated financial statements are presented on a consolidated basis. All material intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
In preparing financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
We consider all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Restricted Cash
As of April 30, 2022, we had restricted cash of $11,545, comprised of $10,649 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 $897 in other noncurrent assets in the condensed consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.
As of May 1, 2021, we had restricted cash of $8,790, comprised of $7,893 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 merchandising partnership agreement and $897 in other noncurrent assets in the consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.
Accounts Receivable
Receivables represent customer, private and public institutional and government billings (colleges, universities and other financial aid providers), credit/debit card receivables, advances for book buybacks, advertising and other receivables due within one year. The increase in trade accounts receivable is primarily due to the growth of our of First Day inclusive access offerings, where cash collection from the school generally occurs after the student drop/add dates, which is later in the working capital cycle, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor. The increase in other receivables is primarily due to vendor reimbursements. Components of accounts receivables are as follows:
| | | | | | | | | | | | | | |
| | As of |
| | April 30, 2022 | | May 1, 2021 |
Trade accounts | | $ | 102,358 | | | $ | 99,583 | |
Advances for book buybacks | | 2,292 | | | 2,901 | |
Credit/debit card receivables | | 5,129 | | | 4,433 | |
Other receivables | | 27,260 | | | 14,155 | |
Total receivables, net | | $ | 137,039 | | | $ | 121,072 | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Accounts receivable are presented on our consolidated balance sheets net of allowances. An allowance for doubtful accounts is determined through an analysis of the aging of accounts receivable and assessments of collectability based on historical trends, the financial condition of our customers and an evaluation of economic conditions. We write-off uncollectible trade receivables once collection efforts have been exhausted and record bad debt expenses related to textbook rentals that are not returned and we are unable to successfully charge the customer. Allowance for doubtful accounts were $2,243, and $3,594 as of April 30, 2022 and May 1, 2021, respectively.
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory, which includes certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand.
Cost is determined primarily by the retail inventory method for our Retail segment and last-in first out, or “LIFO”, method for our Wholesale segment. Our textbook inventories, for Retail and Wholesale, and trade book inventories are valued using the LIFO method and the related reserve was not material to the recorded amount of our inventories. There were no LIFO adjustments in Fiscal 2022, Fiscal 2021 and Fiscal 2020.
For our physical bookstores, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends.
The Retail Segment fulfillment order is directed first to our wholesale business before other sources of inventory are utilized. The products that we sell originate from a wide variety of domestic and international vendors. After internal sourcing, the bookstore purchases textbooks from outside suppliers and publishers. The Retail Segment's four largest suppliers, excluding the supply sourced from our Wholesale Segment, accounted for approximately 30% of our merchandise purchased during the 52 weeks ended April 30, 2022. For our Wholesale Segment, the four largest suppliers, excluding textbooks purchased from students at our Retail Segment's bookstores, accounted for approximately 27% of merchandise purchases during the 52 weeks ended April 30, 2022.
As contemplated by the merchandising partnership agreement, we sold our logo and emblematic general merchandise inventory to FLC and received proceeds of $41,773, and recognized a merchandise inventory loss on the sale of $10,262 in cost of goods sold in the consolidated statement of operations during the 52 weeks ended May 1, 2021 for the Retail Segment. The final inventory sale price was determined during the first quarter of Fiscal 2022, at which time, we received additional proceeds of $1,906, and recognized a merchandise inventory loss on the sale of $434 in cost of goods sold in the condensed consolidated statement of operations for the Retail Segment. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Organization.
Additionally, during the 52 weeks ended May 1, 2021, we also recognized a merchandise inventory write-off of $4,698 in cost of goods sold in the statement of operations for the Retail Segment related to our initiative to exit certain product offerings and streamline/rationalize our overall non-logo general merchandise product assortment resulting from the centralization of our merchandising decision-making during the year.
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.
Cloud Computing Arrangements
Implementation costs incurred in a cloud computing arrangement (or hosting arrangement) that is a service contract are amortized to hosting expense over the term of the arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. Implementation costs are included in prepaid expenses and other assets in the consolidated balance sheets and amortized to selling and administrative expense in the consolidated statement of operations. Implementation costs incurred in cloud computing arrangements reflected in prepaid and other assets in the consolidated
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
balance sheets were $13,294 and $10,516 as of April 30, 2022 and May 1, 2021, respectively. We had $3,179, $283, and $96 of amortization of implementation costs in selling and administrative expense in the consolidated statement of operations, for the 52 weeks ended April 30, 2022, 52 weeks ended May 1, 2021, and 53 weeks ended May 2, 2020, respectively.
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over estimated useful lives. Maintenance and repairs are expensed as incurred, however major maintenance and remodeling costs are capitalized if they extend the useful life of the asset. We had $31,785, $35,024, and $42,550, of depreciation expense in the consolidated statement of operations for the 52 weeks ended April 30, 2022, 52 weeks ended May 1, 2021, and 53 weeks ended May 2, 2020, respectively.
Content development costs are primarily related to bartleby.com textbook solutions which was launched in Fiscal 2019. Content amortization is computed using the straight-line method over estimated useful lives. Amortization of content development costs is recorded to cost of goods sold. We had $5,454, $5,034, and $4,082, of content amortization expense in the consolidated statement of operations for the 52 weeks ended April 30, 2022, 52 weeks ended May 1, 2021, and 53 weeks ended May 2, 2020, respectively.
Components of property and equipment are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | As of | | |
| | Useful Life | | April 30, 2022 | | May 1, 2021 | | |
Property and equipment: | | | | | | | | |
Leasehold improvements | | (a) | | $ | 125,462 | | | $ | 131,784 | | | |
Machinery, equipment and display fixtures | | 3 - 5 | | 252,582 | | | 247,979 | | | |
Computer hardware and capitalized software costs | | (b) | | 163,963 | | | 152,941 | | | |
Office furniture and other | | 2 - 7 | | 64,375 | | | 62,031 | | | |
Content development costs | | 3 - 5 | | 34,867 | | | 25,526 | | | |
Construction in progress | | | | 3,710 | | | 4,444 | | | |
Total property and equipment | | | | 644,959 | | | 624,705 | | | |
Less accumulated depreciation and amortization | | | | 550,887 | | | 535,533 | | | |
Total property and equipment, net | | | | $ | 94,072 | | | $ | 89,172 | | | |
(a) Leasehold improvements are capitalized and depreciated over the shorter of the lease term or the useful life of the improvements, ranging from 1 - 15 years.
(b) System costs are capitalized and amortized over their estimated useful lives, from the date the systems become operational. Purchased software is generally amortized over a period of between 2 - 5 years.
Intangible Assets
Amortizable intangible assets as of April 30, 2022 and May 1, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of April 30, 2022 |
Amortizable intangible assets | | Remaining Life | | Gross Carrying Amount | | Accumulated Amortization | | Total |
Customer relationships | | 8 - 12 | | $ | 253,528 | | | $ | (128,229) | | | $ | 125,299 | |
Content | | 1 | | 19,400 | | | (17,375) | | | 2,025 | |
Technology | | 1 | | 9,500 | | | (9,100) | | | 400 | |
Other (a) | | 1 - 6 | | 8,737 | | | (6,837) | | | 1,900 | |
| | | | $ | 291,165 | | | $ | (161,541) | | | $ | 129,624 | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of May 1, 2021 |
Amortizable intangible assets | | Remaining Life | | Gross Carrying Amount | | Accumulated Amortization | | Total |
Customer relationships | | 9 - 13 | | $ | 263,168 | | | $ | (122,565) | | | $ | 140,603 | |
Content | | 1 - 2 | | 19,400 | | | (13,495) | | | 5,905 | |
Technology | | 1 | | 9,500 | | | (7,500) | | | 2,000 | |
Other (a) | | 1 - 7 | | 8,930 | | | (6,534) | | | 2,396 | |
| | | | $ | 300,998 | | | $ | (150,094) | | | $ | 150,904 | |
(a) Other consists of recognized intangibles for non-compete agreements, trade names, and favorable leasehold interests.
All amortizable intangible assets are being amortized over their useful life on a straight-line basis.
| | | | | |
Aggregate Amortization Expense: | |
For the 52 weeks ended April 30, 2022 | $ | 17,596 | |
For the 52 weeks ended May 1, 2021 | $ | 17,943 | |
For the 53 weeks ended May 2, 2020 | $ | 19,310 | |
| |
| | | | | |
Estimated Amortization Expense: (Fiscal Year) | |
2023 | $ | 13,066 | |
2024 | $ | 11,201 | |
2025 | $ | 10,848 | |
2026 | $ | 10,848 | |
2027 | $ | 10,790 | |
After 2027 | $ | 72,871 | |
For additional information about intangible assets, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
Leases
We recognize lease assets and lease liabilities on the consolidated balance sheet for all operating lease arrangements based on the present value of future lease payments as required by FASB ASC 842, Leases (Topic 842). 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 Part II - Item 8. Financial Statements and Supplementary Data - Note 8. Leases.
Impairment of Long-Lived Assets
As of April 30, 2022, our other long-lived assets include property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets of $94,072, $286,584, $129,624, and $23,971, respectively, on our consolidated balance sheet. As of May 1, 2021, our other long-lived assets include property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets of $89,172, $240,456, $150,904, and $29,105, respectively, on our consolidated balance sheet.
These amortizable intangible assets relate primarily to our customer and bookstore relationships with our colleges and university clients, and technology acquired. For additional information related to amortizable intangibles, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies - Intangible Assets.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and consider market participants in accordance with Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. We evaluate the long-lived
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
assets of the reporting units for impairment at the lowest asset group level for which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, we first compared the carrying amount of the asset group to the estimated future undiscounted cash flows. The impairment loss calculation compares the carrying amount of the assets to the fair value based on estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value.
Our business has been significantly negatively impacted by the ongoing COVID-19 pandemic during Fiscal 2022 and Fiscal 2021, as many schools continued to adjust their learning models and on-campus activities. Many of the trends observed during Fiscal 2021 continued into Fiscal 2022, as fewer students returned to campus and enrollments declined, including enrollments at community colleges and by international 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. As we entered the Spring rush period in early January 2022, we continued to experience the ongoing effects of COVID-19 with the surge of the Omicron variant further impacting students return to campus and on-campus activities. In early January, while the majority of schools brought students back to campus, some schools chose to conduct classes virtually for the beginning of the semester, while other schools chose to delay their start dates (and some schools both delayed the start of the semester and started classes virtually), thus reducing and/or delaying sales. These combined events continue to impact the Company’s course materials and general merchandise business.
During the third quarter of Fiscal 2022, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6,411 (both pre-tax and after-tax), comprised of $739, $1,793, $3,668 and $211 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the consolidated statement of operations.
During the third quarter of Fiscal 2021, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $27,630, $20,506 after-tax, comprised of $5,085, $13,328, $6,278 and $2,939 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the consolidated statement of operations.
The fair value of the impaired long-lived assets were determined using an income approach (Level 3 input), using the Company’s best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations. The significant assumptions used in the income approach included annual revenue growth rates, gross margin rates and the estimated relationship of selling and administrative costs to revenue used to estimate the projected cash-flow directly related to the future operation of the stores as well as the weighted average cost of capital used to calculate the fair value. Significant assumptions used to determine the fair values of certain operating right-of-use assets included the current market rent and discount rate. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 6. Fair Value Measurements.
In the first quarter of Fiscal 2020, we recorded an impairment loss (non-cash) of $433 in the Retail segment related to net capitalized development costs for a project which are not recoverable. During the fourth quarter of Fiscal 2020, in conjunction with COVID-19 related campus store closures, we evaluated certain of our long-lived assets associated with our Retail and Wholesale segments for impairment. Based on the results of the tests, for the Retail segment, we recognized an impairment loss of $587 related to store-level assets in restructuring and other charges. These long-lived assets were not recoverable and had a de minimis fair value, as determined using an income approach (Level 3 input), resulting in a non-cash impairment charge for the full carrying value of those long-lived assets.
Goodwill
The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance sheets. In accordance with ASC 350-10, Intangibles - Goodwill and Other, we complete our annual goodwill impairment test as of the first day of the third quarter of each fiscal year, or whenever events or changes in circumstances indicate that the carrying amount of the reporting unit exceeds its fair value. As of both April 30, 2022 and May 1, 2021, we had $0, $0 and $4,700 of goodwill on our consolidated balance sheets related to our Retail, Wholesale, and DSS reporting units, respectively.
During the third quarter of Fiscal 2022, Fiscal 2021 and Fiscal 2020, we completed our annual goodwill impairment test and concluded that the fair value of the DSS reporting unit was determined to exceed the carrying value of the reporting unit; therefore, no goodwill impairment was recognized.
As of April 30, 2022, goodwill of approximately $60,910 was deductible for federal income tax purposes. This is higher than the goodwill balance reflected on the consolidated balance sheet as of April 30, 2022 due to impairment losses recorded in Fiscal 2018 and Fiscal 2019.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Application of the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of assets and liabilities to reporting units; assignment of goodwill to reporting units; and the determination of the fair value of each reporting unit. In performing the valuation, we used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions.
We estimated the fair value of our reporting units using a weighting of fair values derived from the income approach. 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.
Refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates for a discussion of key assumptions used in our testing.
Revenue Recognition and Deferred Revenue
Product sales and rentals
The majority of our revenue is derived from the sales of products through our bookstore locations, including virtual bookstores, and our bookstore affiliated e-commerce websites, and contains a single performance obligation. Revenue from sales of our products is recognized at the point in time when control of the products is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for the products. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 3. Revenue.
Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks at which point title passes and risk of loss is transferred to the customer. Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of goods sold.
Revenue from the rental of physical textbooks, which contains a single performance obligation, is deferred and recognized over the rental period based on the passage of time commencing at the point of sale, when control of the product transfers to the customer. Rental periods are typically for a single semester and are always less than one year in duration. We offer a buyout option to allow the purchase of a rented physical textbook at the end of the rental period if the customer desires to do so. We record the buyout purchase when the customer exercises and pays the buyout option price which is determined at the time of the buyout. In these instances, we accelerate any remaining deferred rental revenue at the point of sale.
Revenue from the rental of digital textbooks, which contains a single performance obligation, is recognized at the point of sale. A software feature is embedded within the content of our digital textbooks, such that upon expiration of the rental term the customer is no longer able to access the content. While the digital rental allows the customer to access digital content for a fixed period of time, once the digital content is delivered to the customer, our performance obligation is complete.
We estimate returns based on an analysis of historical experience. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.
For sales and rentals involving third-party products, we evaluate whether we are acting as a principal or an agent. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where we are the principal, we record revenue on a gross basis, and for those transactions where we are an agent to a third-party, we record revenue on a net basis. Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
We do not have gift card or customer loyalty programs. We do not treat any promotional offers as expenses. Sales tax collected from our customers is excluded from reported revenues. Our payment terms are generally 30 days and do not extend beyond one year.
Service and other revenue
Service and other revenue is primarily derived from DSS segment subscription-based service revenues and partnership marketing services which includes promotional activities and advertisements within our physical bookstores and web properties performed on behalf of third-party customers.
Subscription-based revenue, which contains a single performance obligation, is deferred and recognized based on the passage of time over the subscription period commencing at the point of sale, when control of the service transfers to the customer. The majority of subscriptions sold are one month in duration.
Partnership marketing agreements often include multiple performance obligations which are individually negotiated with our customers. For these arrangements that contain distinct performance obligations, we allocate the transaction price based on the relative standalone selling price method by comparing the standalone selling price (“SSP”) of each distinct performance obligation to the total value of the contract. The revenue is recognized as each performance obligation is satisfied, typically at a point in time for partnership marketing service and overtime for advertising efforts as measured based upon the passage of time for contracts that are based on a stated period of time or the number of impressions delivered for contracts with a fixed number of impressions.
Cost of Sales
Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.
Selling and Administrative Expenses
Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based services business. Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services.
Long-Term Incentive Compensation
We have granted awards in accordance with the Barnes & Noble Education Inc. Equity Incentive Plan (the “Equity Incentive Plan”). Types of equity awards that can be granted under the Equity Incentive Plan include options, restricted stock, restricted stock units, performance shares, performance share units, and phantom share units. See Part II - Item 8. Financial Statements and Supplementary Data - Note 12. Long-Term Incentive Compensation Expense for additional information regarding expense recognition for each type of award.
Advertising Costs
The costs of advertising are expensed as incurred during the year pursuant to ASC No. 720-35, Advertising Costs. Advertising costs charged to selling and administrative expenses were $13,206, $12,916, and $10,349 in the consolidated statement of operations for the 52 weeks ended April 30, 2022, 52 weeks ended May 1, 2021, and 53 weeks ended May 2, 2020, respectively.
Income Taxes
The provision for income taxes includes federal, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax basis of assets and liabilities. The deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We regularly review deferred tax assets for recoverability and establish a valuation allowance, if determined to be necessary. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 13. Income Taxes.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
For the fiscal year ended April 30, 2022, the Company intends to file an application to change its tax year from January to April under the automatic consent provisions. As a result of the tax year-end change, there is no longer a long-term tax payable associated with the LIFO reserve in other long-term liabilities.
Note 3. Revenue
Revenue from sales of our products and services is recognized either at the point in time when control of the products is transferred to our customers or over time as services are provided in an amount that reflects the consideration we expect to be entitled to in exchange for the products or services.
See Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Pronouncements for additional information related to our revenue recognition policies and Part II - Item 8. Financial Statements and Supplementary Data - Note 4. Segment Reporting for a description of each segments product and service offerings.
Disaggregation of Revenue
The following table disaggregates the revenue associated with our major product and service offerings.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
Retail | | | | | | | | | | |
Course Materials Product Sales | | | | | | $ | 710,665 | | | $ | 657,279 | | | $ | 752,505 | |
General Merchandise Product Sales (a) | | | | | | 558,818 | | | 499,836 | | | 740,539 | |
Service and Other Revenue (b) | | | | | | 36,827 | | | 39,205 | | | 39,985 | |
Retail Product and Other Sales sub-total | | | | | | 1,306,310 | | | 1,196,320 | | | 1,533,029 | |
Course Materials Rental Income | | | | | | 133,354 | | | 134,150 | | | 179,863 | |
Retail Total Sales | | | | | | $ | 1,439,664 | | | $ | 1,330,470 | | | $ | 1,712,892 | |
Wholesale Sales | | | | | | $ | 112,246 | | | $ | 165,825 | | | $ | 198,353 | |
DSS Sales (c) | | | | | | $ | 35,666 | | | $ | 27,374 | | | $ | 23,661 | |
Eliminations (d) | | | | | | $ | (56,176) | | | $ | (89,779) | | | $ | (83,843) | |
Total Sales | | | | | | $ | 1,531,400 | | | $ | 1,433,890 | | | $ | 1,851,063 | |
(a)Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021.
(b)Service and other revenue primarily relates to brand partnerships and other service revenues.
(c)DSS sales primarily relate to direct-to-student subscription-based revenue.
(d)The sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale.
Contract Assets and Contract Liabilities
Contract assets represent the sale of goods or services to a customer before we have the right to obtain consideration from the customer. Contract assets consist of unbilled amounts at the reporting date and are transferred to accounts receivable when the rights become unconditional. Contract assets (unbilled receivables) were $0 as of both April 30, 2022 and May 1, 2021 on our 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;
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
•unsatisfied performance obligations associated with partnership marketing services, which are recognized when the contracted services are provided to our partnership marketing customers; and
•unsatisfied performance obligations associated with the premium paid for the sale of treasury shares, which are expected to be recognized over the term of the merchandising contracts for Fanatics and FLC as discussed in Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Organization - Partnership with Fanatics and FLC and Note 5. Equity and Earnings Per Share - Sale of Treasury Shares.
Deferred revenue of $14,946 and $4,776 is recorded within accrued liabilities and other long-term liabilities on our consolidated balance sheet, respectively, as of April 30, 2022 and $13,469 and $4,670 is recorded within accrued liabilities and other long-term liabilities on our consolidated balance sheet, respectively, as of May 1, 2021. As of April 30, 2022 we expect to recognize $14,946 of the deferred revenue balance within in the next 12 months. The following table presents changes in contract liabilities during the fiscal year ended April 30, 2022:
| | | | | | | | |
Deferred revenue balance as of May 2, 2020 | | $ | 13,373 | |
Additions to deferred revenue during the period | | 171,834 | |
Reductions to deferred revenue for revenue recognized during the period | | (167,068) | |
Deferred revenue balance as of May 1, 2021 | | $ | 18,139 | |
Additions to deferred revenue during the period | | 163,597 | |
Reductions to deferred revenue for revenue recognized during the period | | (162,014) | |
Deferred revenue balance as of April 30, 2022 | | $ | 19,722 | |
Note 4. Segment Reporting
We have three reportable segments: Retail, Wholesale and DSS. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as “Corporate Services”.
We identify our segments in accordance with the way our business is managed (focusing on the financial information distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance. The following summarizes the three segments. For additional information about this segments operations, see Part I - Item 1. Business.
Retail Segment
The Retail Segment operates 1,427 college, university, and K-12 school bookstores, comprised of 805 physical bookstores and 622 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 content and services to colleges and universities, including a variety of open educational 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 3,100 physical bookstores (including our Retail Segment's 805 physical bookstores) and sources and distributes new and used textbooks to our 622 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 350 college bookstores.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
DSS Segment
The Digital Student Solutions (“DSS”) Segment includes products and services to assist students to study more effectively and improve academic performance. The DSS Segment is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, and bartleby®, an institutional and direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, writing and tutoring.
Corporate Services
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.
Eliminations
The eliminations are primarily related to the following intercompany activities:
•The sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale, and
•These cost of sales eliminations represent (i) the recognition of intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the current period.
Our international operations are not material and the majority of the revenue and total assets are within the United States.
| | | | | | | | | | | | | | |
| | As of |
| | April 30, 2022 | | May 1, 2021 |
| | | | Restated |
Total Assets | | | | |
Retail | | $ | 875,569 | | | $ | 792,707 | |
Wholesale | | 159,125 | | | 199,698 | |
DSS | | 32,418 | | | 33,937 | |
Corporate Services | | 4,441 | | | 4,771 | |
Total Assets | | $ | 1,071,553 | | | $ | 1,031,113 | |
| | | | |
As of both April 30, 2022 and May 1, 2021, we had $0, $0 and $4,700 of goodwill on our consolidated balance sheets related to our Retail, Wholesale, and DSS reporting units, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
Capital Expenditures | | | | | | | | | |
Retail | | | | | $ | 31,073 | | | $ | 21,208 | | | $ | 28,546 | |
Wholesale | | | | | 2,472 | | | 5,905 | | | 2,126 | |
DSS (a) | | | | | 9,926 | | | 9,662 | | | 5,425 | |
Corporate Services | | | | | 62 | | | 448 | | | 95 | |
Total Capital Expenditures | | | | | $ | 43,533 | | | $ | 37,223 | | | $ | 36,192 | |
| | | | | | | | | |
(a) Primarily comprised of content development costs for bartleby.com.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Summarized financial information for our reportable segments is reported below:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 52 weeks ended April 30, 2022 (a) | | 52 weeks ended May 1, 2021 (a) | | 53 weeks ended May 2, 2020 (a) |
| | | | | | | Restated | | |
Sales: | | | | | | | | | |
Retail | | | | | $ | 1,439,664 | | | $ | 1,330,470 | | | $ | 1,712,892 | |
Wholesale | | | | | 112,246 | | | 165,825 | | | 198,353 | |
DSS | | | | | 35,666 | | | 27,374 | | | 23,661 | |
Eliminations | | | | | (56,176) | | | (89,779) | | | (83,843) | |
Total Sales | | | | | $ | 1,531,400 | | | $ | 1,433,890 | | | $ | 1,851,063 | |
| | | | | | | | | |
Gross Profit | | | | | | | | | |
Retail (b) | | | | | $ | 322,983 | | | $ | 195,617 | | | $ | 383,282 | |
Wholesale | | | | | 19,782 | | | 34,683 | | | 39,805 | |
DSS | | | | | 29,928 | | | 22,318 | | | 19,313 | |
Eliminations | | | | | 67 | | | 43 | | | 149 | |
Total Gross Profit | | | | | $ | 372,760 | | | $ | 252,661 | | | $ | 442,549 | |
| | | | | | | | | |
Depreciation and Amortization | | | | | | | | | |
Retail | | | | | $ | 36,635 | | | $ | 39,634 | | | $ | 47,099 | |
Wholesale | | | | | 5,418 | | | 5,461 | | | 5,963 | |
DSS | | | | | 7,257 | | | 7,763 | | | 8,670 | |
Corporate Services | | | | | 71 | | | 109 | | | 128 | |
Total Depreciation and Amortization | | | | | $ | 49,381 | | | $ | 52,967 | | | $ | 61,860 | |
| | | | | | | | | |
Operating Loss | | | | | | | | | |
Retail (c) | | | | | $ | (37,305) | | | $ | (155,310) | | | $ | (24,445) | |
Wholesale (c) | | | | | 495 | | | 14,732 | | | 12,909 | |
DSS | | | | | (6,801) | | | (8,132) | | | (8,529) | |
Corporate Services | | | | | (24,030) | | | (28,376) | | | (23,077) | |
Eliminations | | | | | 225 | | | 192 | | | 359 | |
Total Operating Loss (c) | | | | | $ | (67,416) | | | $ | (176,894) | | | $ | (42,783) | |
| | | | | | | | | |
The following is a reconciliation of segment Operating Loss to consolidated Income Before Income Taxes | | | | | | | | | |
Total Operating Loss | | | | | $ | (67,416) | | | $ | (176,894) | | | $ | (42,783) | |
Interest Expense, net | | | | | (10,096) | | | (8,087) | | | (7,445) | |
Total Loss Before Income Taxes | | | | | $ | (77,512) | | | $ | (184,981) | | | $ | (50,228) | |
| | | | | | | | | |
(a)In Fiscal 2022, Fiscal 2021 and Fiscal 2020, our business experienced an unprecedented and significant impact as a result of the COVID-19 pandemic. The impact of which affects the comparability of our results of operations and cash flows.
(b)In Fiscal 2022 and 2021, gross margin includes a merchandise inventory loss and write-off of $434 and $14,960, respectively, in the Retail Segment. See Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies - Merchandise Inventories.
(c)In Fiscal 2022, we recognized an impairment loss (non-cash) of $6,411, both before-tax and after-tax, in the Retail segment related to certain of our store-level long-lived assets. In Fiscal 2021, we recognized an impairment loss (non-cash) of $27,630, $20,506 after-tax, in the Retail segment related to certain of our store-level long-lived assets. In Fiscal 2020, we recorded an impairment loss (non-cash) of $433 in the Retail segment related to net capitalized development costs for a project which were not recoverable. See Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 5. Equity and Earnings Per Share
Equity
Our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share. As of April 30, 2022, 54,234,055 shares and 52,045,951 shares of our common stock were issued and outstanding, respectively, and 0 shares of our preferred stock were both issued and outstanding. Our common stock trades on the NYSE under the symbol “BNED”.
The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Holders of shares of our common stock do not have cumulative voting rights in the election of directors. The holders of our common stock will be entitled to share ratably in our assets legally available for distribution to our stockholders, subject to the prior distribution rights of preferred stock, if any, then outstanding. The holders of our common stock do not have preemptive rights or preferential rights to subscribe for shares of our capital stock.
Following our shareholders approval of 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, we have reserved an aggregate of 13,409,345 shares of common stock for future grants in accordance with the Barnes & Noble Education Inc. Equity Incentive Plan. See Part II - Item 8. Financial Statements and Supplementary Data - Note 12. Long-Term Incentive Compensation Expense.
Repurchase of Shares
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 Fiscal 2022, Fiscal 2021 and Fiscal 2020, we did not purchase shares under the stock repurchase program. As of April 30, 2022, approximately $26,669 remains available under the stock repurchase program.
During the Fiscal 2022, Fiscal 2021 and Fiscal 2020, we also repurchased 239,751, 414,174 shares, and 374,733 shares of our common stock in connection with employee tax withholding obligations for vested stock awards, respectively.
Sale of Treasury Shares
In December 2020, we entered into a new merchandising partnership with Fanatics and FLC which included a strategic equity investment in the Company. Fanatics, Inc. and Lids Holdings, Inc. jointly purchased an aggregate 2,307,692 of our common shares (issued from treasury shares) for $15,000, representing a share price of $6.50 per share. The premium price paid above the fair market value of our common stock at closing was approximately $4,131 and was recorded as a contract liability which is recognized over the term of the merchandising contracts for Fanatics and FLC ($211 and $202, respectively, in accrued liabilities, and $3,709 and $3,920, respectively, as of April 30, 2022 and May 1, 2021, in other long-term liabilities our consolidated balance sheet) which is expected to be recognized over the term of the merchandising contracts for Fanatics and FLC, as discussed in Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Organization - Partnership with Fanatics and FLC.
Dividends
We paid no other dividends to common stockholders during Fiscal 2022, Fiscal 2021 and Fiscal 2020. We do not intend to pay dividends on our common stock in the foreseeable future and dividend payments are not permitted under current or future financing arrangements. On June 7, 2022, subsequent to the end of Fiscal 2022, we entered into a Term Loan Credit Agreement with TopLids LendCo, LLC and Vital Fundco, LLC and we entered an amendment to the Credit Agreement. See Part II - Item 8. Financial Statements and Supplementary Data - Note 7 - Credit Facility and Note 16. Subsequent Event for details.
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
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. During the Fiscal 2022, Fiscal 2021 and Fiscal 2020, average shares of 3,995,990, 3,387,185, and 3,795,603, respectively, were excluded from the diluted earnings per share calculation using the two-class method as their inclusion would have been antidilutive.
The following is a reconciliation of the basic and diluted earnings per share calculation:
| | | | | | | | | | | | | | | | | | | | | |
(shares in thousands) | | | | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
| | | | | | | Restated | | |
Numerator for basic and diluted earnings per share: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Net loss available to common shareholders | | | | | $ | (68,857) | | | $ | (139,810) | | | $ | (38,250) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Denominator for basic and diluted earnings per share: | | | | | | | | | |
Basic and diluted weighted average shares of Common Stock | | | | | 51,797 | | | 49,669 | | | 48,013 | |
Loss per share of Common Stock: | | | | | | | | | |
Basic and diluted loss per share of Common Stock | | | | | $ | (1.33) | | | $ | (2.81) | | | $ | (0.80) | |
Note 6. Fair Values Measurements
In accordance with ASC No. 820, Fair Value Measurements and Disclosures, the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1—Observable inputs that reflect quoted prices in active markets
Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3—Unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions
Our financial instruments include cash and cash equivalents, receivables, accrued liabilities and accounts payable. The fair values of cash and cash equivalents, receivables, accrued liabilities and accounts payable approximates their carrying values because of the short-term nature of these instruments, which are all considered Level 1. The fair value of short-term and long-term debt approximates its carrying value.
Non-Financial Assets and Liabilities
Our non-financial assets include goodwill, property and equipment, operating lease right-of-use assets, and intangible assets. Such assets are reported at their carrying values and are not subject to recurring fair value measurements. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets.
During the 52 weeks ended April 30, 2022, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment, and we recognized an impairment loss (non-cash) of $6,411, both pre-tax and after-tax, on the consolidated statement of operations. During the 52 weeks ended May 1, 2021, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment, and we recognized an impairment loss (non-cash) of $27,630, $20,506 after-tax, on the consolidated statement of operations. The fair value of the impaired long-lived assets were determined using an income approach (Level 3 input), using our best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations.
During the 53 weeks ended May 2, 2020, we recognized an impairment loss (non-cash) of $433 in the Retail segment related to net capitalized development costs for a project which are not recoverable.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
The following table shows the fair values of our non-financial assets and liabilities that were required to be remeasured at fair value on a non-recurring basis and the total impairments recorded as a result of the remeasurement process:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
| Carrying Value Prior to Impairment | | Fair Value | | Impairment Loss (non-cash) | | Carrying Value Prior to Impairment | | Fair Value | | Impairment Loss (non-cash) | | Carrying Value Prior to Impairment | | Fair Value | | Impairment Loss (non-cash) |
Receivables, net | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 245 | | | $ | — | | | $ | 245 | |
Property and equipment, net | 742 | | | 3 | | | 739 | | | 5,505 | | | 420 | | | 5,085 | | | 300 | | | — | | | 300 | |
Operating lease right-of-use assets | 3,299 | | | 1,506 | | | 1,793 | | | 26,427 | | | 13,099 | | | 13,328 | | | — | | | — | | | — | |
Intangible assets, net | 3,745 | | | 77 | | | 3,668 | | | 7,723 | | | 1,445 | | | 6,278 | | | — | | | — | | | — | |
Other noncurrent assets | 211 | | | — | | | 211 | | | 3,539 | | | 600 | | | 2,939 | | | — | | | — | | | — | |
Accrued liabilities | — | | | — | | | — | | | — | | | — | | | — | | | (112) | | | — | | | (112) | |
Total | $ | 7,997 | | | $ | 1,586 | | | $ | 6,411 | | | $ | 43,194 | | | $ | 15,564 | | | $ | 27,630 | | | $ | 433 | | | $ | — | | | $ | 433 | |
| | | | | | | | | | | | | | | | | |
Non-Financial Liabilities We granted phantom share units as long-term incentive awards which are settled in cash based on the fair market value of a share of common stock of the Company at each vesting date. The fair value of the liability for the cash-settled phantom share unit awards will be remeasured at the end of each reporting period through settlement to reflect current risk-free rate and volatility assumptions. As of April 30, 2022, we recorded a liability of $2,774 (Level 2 input) which is reflected in accrued liabilities ($1,726) and other long-term liabilities ($1,048) on the consolidated balance sheet. As of May 1, 2021, we recorded a liability of $3,845 (Level 2 input) which is reflected in accrued liabilities ($2,509) and other long-term liabilities ($1,336) on the consolidated balance sheet. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 12. Long-Term Incentive Compensation Expense.
Note 7. Credit Facility
We have a credit agreement (the “Credit Agreement”), under which the lenders committed to provide us with a 5 year asset-backed revolving credit facility in an aggregate committed principal amount of $400,000 (the “Credit Facility”) effective from the date of the amendment. We have the option to request an increase in commitments under the Credit Facility of up to $100,000, subject to certain restrictions. Proceeds from the Credit Facility are used for general corporate purposes, including seasonal working capital needs. The agreement includes an incremental first in, last out seasonal loan facility (the “FILO Facility”) for a $100,000 incremental facility maintaining the maximum availability under the Credit Agreement at $500,000.
On March 4, 2022, we were granted a waiver to the condition to the upcoming draw under the FILO Facility, scheduled for April 2022, that Consolidated EBITDA (as defined in the Credit Agreement) minus Restricted Payments (as defined in the Credit Agreement) equal at least $110,000. Under the waiver amendment, the commitment under the FILO Facility of $25,000 was increased to $40,000, with all remaining terms unchanged.
On June 7, 2022, subsequent to the end of Fiscal 2022, we entered into a Term Loan Credit Agreement with TopLids LendCo, LLC and Vital Fundco, LLC and we entered an amendment to the Credit Agreement. See Part II - Item 8. Financial Statements and Supplementary Data - Note 16. Subsequent Event for details.
On June 28, 2022, we obtained limited waivers with respect to the Credit Agreement and the Term Loan Credit Agreement, pursuant to which the requisite lenders thereunder waived any potential default or event of default under such agreements solely to the extent arising from the restatement of Fiscal 2021 consolidated financial statements as described in Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies and Note 16. Subsequent Events.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
During the 52 weeks ended April 30, 2022, we borrowed $632,220 and repaid $584,120 under the Credit Agreement, and had outstanding borrowings of $185,700 and $40,000 under the Credit Facility and FILO Facility, respectively, as of April 30, 2022. During the 52 weeks ended May 1, 2021, we borrowed $722,600 and repaid $719,700 under the Credit Agreement, and had outstanding borrowings of $127,600 and $50,000 under the Credit Facility and FILO Facility, respectively, as of May 1, 2021. During the 53 weeks ended May 2, 2020, we borrowed $600,900 and repaid $559,700 under the Credit Agreement, and had outstanding borrowings of $99,700 and $75,000 under the Credit Facility and FILO Facility, respectively, as of May 2, 2020. As of both April 30, 2022 and May 1, 2021, we issued $4,759 in letters of credit under the Credit Facility, respectively.
During the 52 weeks ended April 30, 2022 and May 1, 2021, we incurred debt issuance costs totaling $265 and $1,076 related to the March 4, 2022 waiver and March 31, 2021 Credit Facility amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the consolidated balance sheets, and subsequently amortized ratably over the term of the credit agreement.
The Credit Facility is secured by substantially all of the inventory, accounts receivable and related assets of the borrowers under the Credit Facility. This is considered an all asset lien (inclusive of proceeds from tax refunds payable to the Company and a pledge of equity from subsidiaries, exclusive of real estate).
Interest under the Credit Facility accrues, at our election, at a Secured Overnight Financing Rate ("SOFR") or alternate base rate, plus, in each case, an applicable interest rate margin, which is determined by reference to the level of excess availability under the Credit Facility. Loans will initially bear interest at SOFR plus 2.00% per annum, in the case of SOFR borrowings, or at the alternate base rate plus 1.00% per annum, in the alternative, and thereafter the interest rate will fluctuate between SOFR plus 2.00% per annum and SOFR plus 1.50% per annum (or between the alternate base rate plus 1.00% per annum and the alternate base rate plus 0.50% per annum), based upon the excess availability under the Credit Facility at such time.
Loans under the FILO Facility will bear interest at a rate equal to the SOFR rate, plus 3.750%. In connection with the waiver, the applicable margin for credit extensions made under the FILO Facility after March 31, 2021 through the end of 2021 was increased by 0.50% (to 3.75% per annum for LIBO rate loans and 2.75% for base rate loans). The FILO Facility will be available solely during the draw period each year, from April 1 through July 31. We are required to borrow 100% of the aggregate commitments under the FILO Facility on April 1 of each year, and the loans must be repaid in full (including interest and fees) on July 31 of each year. We will pay a commitment fee of 0.375% on the daily unused portion of the FILO Facility.
The Credit Facility contains customary negative covenants, which limit the Company’s ability to incur additional indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets, among other things. In addition, if excess availability under the Credit Facility were to fall below certain specified levels, certain additional covenants (including fixed charge coverage ratio requirements and a minimum excess availability of the greater of 10% of the Loan Cap and $25,000 when the FILO is funded) would be triggered, and the lenders would have the right to assume dominion and control over the Company's cash. The Credit Facility includes an anti-cash hoarding provision, which limits maximum excess cash allowed to $50,000 when the FILO is funded.
The Credit Facility contains customary events of default, including payment defaults, material breaches of representations and warranties, covenant defaults, default on other material indebtedness, customary ERISA events of default, bankruptcy and insolvency, material judgments, invalidity of liens on collateral, change of control or cessation of business. The Credit Facility also contains customary affirmative covenants and representations and warranties. We are in compliance with all covenants, representations and warranties under the Credit Facility as of April 30, 2022.
We believe that our future cash from operations, access to borrowings under the Credit Facility, FILO Facility and short-term financings 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.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 8. Leases
We recognize lease assets and lease liabilities on the consolidated balance sheets for substantially all lease arrangements based on the present value of future lease payments 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 consolidated balance sheets for leases with a term greater than twelve months. Options to extend or terminate a lease are included in the determination of the ROU asset and lease liability when it is reasonably certain that such options will be exercised. Our lease terms generally range from one year to fifteen years and a number of agreements contain minimum annual guarantees, many of which are adjusted at the start of each contract year based on the actual sales activity of the leased premises for the most recently completed contract year.
Payment terms are based on the fixed rates explicit in the lease, including minimum annual guarantees, and/or variable rates based on: i) a percentage of revenues or sales arising at the relevant premises (“variable commissions”), and/or ii) operating expenses, such as common area charges, real estate taxes and insurance. For contracts with fixed lease payments, including those with minimum annual guarantees, we recognize lease expense on a straight-line basis over the lease term or over the contract year in order to best reflect the pattern of usage of the underlying leased asset and our minimum obligations arising from these types of leases. Our lease agreements do not contain any material residual value guarantees, material restrictions or covenants.
We used our incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable. We utilized an estimated collateralized incremental borrowing rate as of the effective date or the commencement date of the lease, whichever is later.
The following table summarizes lease expense:
| | | | | | | | | | | | | | | | | | | | |
| | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
Variable lease expense | | $ | 77,956 | | | $ | 69,511 | | | $ | 73,455 | |
Operating lease expense | | 114,815 | | | 108,282 | | | 159,289 | |
Net lease expense | | $ | 192,771 | | | $ | 177,793 | | | $ | 232,744 | |
The increase in lease expense is primarily due to higher sales for contracts based on a percentage of revenue and the impact of the timing and reduction of minimum contractual guarantees due to temporary store closings due to the COVID pandemic during the prior year.
The following table summarizes our minimum fixed lease obligations, excluding variable commissions, as of April 30, 2022:
| | | | | | | | |
| | As of |
| | April 30, 2022 |
Fiscal 2023 | | $ | 104,681 | |
Fiscal 2024 | | 55,701 | |
Fiscal 2025 | | 48,856 | |
Fiscal 2026 | | 37,468 | |
Fiscal 2027 | | 29,735 | |
Thereafter | | 91,255 | |
Total lease payments | | 367,696 | |
Less: imputed interest | | (50,959) | |
Operating lease liabilities at period end | | $ | 316,737 | |
Future lease payment obligations related to leases that were entered into, but did not commence as of April 30, 2022, were not material.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
The following summarizes additional information related to our operating leases:
| | | | | | | | | | | | | | | | | | | | |
| | As of |
| | April 30, 2022 | | May 1, 2021 | | May 2, 2020 |
Weighted average remaining lease term (in years) | | 6.2 years | | 5.5 years | | 5.2 years |
Weighted average discount rate | | 4.7 | % | | 4.9 | % | | 4.6 | % |
| | | | | | |
Supplemental cash flow information: | | | | | | |
Cash payments for lease liabilities within operating activities | | $ | 123,037 | | | $ | 111,167 | | | $ | 140,670 | |
ROU assets obtained in exchange for lease liabilities from initial recognition | | $ | 160,510 | | | $ | 123,556 | | | $ | 131,175 | |
Note 9. Supplementary Information
Impairment Loss (non-cash)
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. For information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
During the 52 weeks ended April 30, 2022, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6,411 (both pre-tax and after-tax), comprised of $739, $1,793, $3,668 and $211 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the consolidated statement of operations.
During the 52 weeks ended May 1, 2021, we recognized an impairment loss (non-cash) of $27,630, $20,506 after-tax, in the Retail segment comprised of $5,085, $13,328, $6,278 and $2,939 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the consolidated statement of operations.
During the 53 weeks ended May 2, 2020, we recognized an impairment loss (non-cash) of $433 in the Retail segment related to net capitalized development costs for a project which are not recoverable.
Restructuring and Other Charges
During the 52 weeks ended April 30, 2022, we recognized restructuring and other charges totaling $944, comprised primarily of $1,250 for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($71 is included in accrued liabilities in the consolidated balance sheet as of April 30, 2022) and $1,825 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, partially offset by a $2,131 in an actuarial gain related to a frozen retirement benefit plan (non-cash).
During the 52 weeks ended May 1, 2021, we recognized restructuring and other charges totaling $10,678 (Restated), comprised primarily of $6,606 for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($3,246 is included in accrued liabilities in the consolidated balance sheet as of May 1, 2021), $5,213 for professional service costs related to restructuring, process improvements, the financial advisor strategic review process, costs related to development and integration associated with the FLC Partnership and shareholder activist activities, and $454 related to liabilities for a facility closure, partially offset by a $1,595 in an actuarial gain related to a frozen retirement benefit plan (non-cash).
During the 53 weeks ended May 2, 2020, we recognized restructuring and other charges totaling $18,567 comprised of $12,667 for severance and other employee termination and benefit costs associated with several management changes ($10,370 is included in accrued liabilities in the consolidated balance sheet as of May 2, 2020), the elimination of various positions as part of cost reduction objectives, and professional service costs for process improvements, and $2,695 related to an actuarial loss for a frozen retirement benefit plan (non-cash), $2,841 for professional service costs for shareholder activist activities, and $587 related to a store-level asset impairment charge, offset by $223 related to reduction of liabilities for a facility closure.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 10. Related Party Transactions
MBS Textbook Exchange, LLC
Prior to the acquisition of MBS on February 27, 2017, MBS was considered a related-party as it was majority-owned by Leonard Riggio, who is a principal owner holding substantial shares of our common stock, and other members of the Riggio family. Subsequent to the acquisition, the consolidated financial statements include the accounts of MBS and all material intercompany accounts and transactions have been eliminated in consolidation.
MBS leases its main warehouse and distribution facility located in Columbia, Missouri from MBS Realty Partners L.P. which is majority-owned by Leonard Riggio, with the remaining ownership by other sellers of MBS. The lease was originally entered into in 1991 and included a renewal option which extended the lease through September 1, 2023. Based upon a valuation performed as of the acquisition date, the lease was determined to be favorable from a lessee perspective with below market rent. Rent payments to MBS Realty Partners L.P. were approximately $1,380 during each of the 52 weeks ended April 30, 2022, May 1, 2021, and May 2, 2020.
Note 11. Employee Benefit Plans
We sponsor defined contribution plans for the benefit of substantially all of the employees of BNC and DSS. MBS maintains a profit sharing plan covering substantially all full-time employees of MBS. For all plans, we are responsible to fund the employer contributions directly. Total employee benefit expense for these plans was $3,287, $0, and $5,015, during the 52 weeks ended April 30, 2022, May 1, 2021, and May 2, 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. Long-Term Incentive Compensation Expense
We have reserved 13,409,345 shares of our common stock for future grants in accordance with the Barnes & Noble Education Inc. Equity Incentive Plan. Types of equity awards that can be granted under the Equity Incentive Plan include options, restricted stock (“RS”), restricted stock units (“RSU”), performance shares (“PS”), performance share units (“PSU”), and stock options.
We recognize compensation expense for restricted stock awards and performance share awards ratably over the requisite service period of the award, which is generally three years. We recognize compensation expense for these awards based on the number of awards expected to vest, which includes an estimated average forfeiture rate. We calculate the fair value of these awards based on the closing stock price on the date the award was granted. For those awards with market conditions, we have determined the grant date fair value using the Monte Carlo simulation model and compensation expense is recognized ratably over the requisite service period regardless of whether the market condition is satisfied.
Restricted Stock Awards
A RS award is an award of common stock that is subject to certain restrictions during a specified period. Restricted stock awards are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of unvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon (although payment may be deferred until the shares have vested) and are considered to be currently issued and outstanding. Restricted stock awards will have a minimum vesting period of one year.
A RSU is a grant valued in terms of our common stock, but no stock is issued at the time of grant. Each restricted stock unit may be redeemed for one share of our common stock once vested. Restricted stock units are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the units except in very limited circumstances and with the consent of the compensation committee. Shares associated with unvested restricted stock units have no voting rights but are entitled to receive dividends and other distributions thereon (although payment may be deferred until the units have vested). Restricted stock units generally vest over a period of three years, but will have a minimum vesting period of one year.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Performance Share Awards
PS awards and PSU awards were granted to employees. Each PS and PSU may be redeemed for one share of our common stock once vested and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the PS or PSU awards except in very limited circumstances and with the consent of the compensation committee. Shares of unvested PSU awards have no voting rights but are entitled to receive dividends and other distributions thereon (although payment may be deferred until the shares or units, as the case may be, have vested). The PS and PSU awards will only vest based upon the achievement of pre-established performance goals related to Adjusted EBITDA, segment revenue, new business, and/or total shareholder return performance achieved over a period of time. The PS and PSU awards will vest based on company performance and/or market conditions during the subsequent two year period with one additional year of time-based vesting. The number of PS and PSU awards that will vest range from 0%-150% of the target award based on actual performance.
Stock Options
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 Fiscal 2022, we granted 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 (Stock Option Grant #2) granted to employees. The stock options are exercisable in four equal annual installments commencing one year after the date of grant and have a ten year term. Holders are not entitled to receive dividends (if any) prior to vesting and exercise of the options.
The following summarizes the stock option fair value assumptions:
| | | | | | | | | | | |
| Stock Option Grant #1 | | Stock Option Grant #2 |
Exercise Price | $ | 10.80 | | | $ | 13.30 | |
Valuation method utilized | Black-Scholes | | Monte Carlo |
Risk-free interest rate | 0.94 | % | | 0.94 | % |
Expected option term | 6.2 years | | 10.0 years |
Company volatility | 74 | % | | 74 | % |
Dividend yield | — | % | | — | % |
Grant date fair value per award | $ | 7.10 | | | $ | 6.73 | |
The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for periods corresponding to the expected stock option term. For Stock Option Grant #1, we are permitted to use the simplified approach to estimate the expected term of the stock options, which typically assumes exercise occurs at the mid-point between the end of the vesting period and the expiration date. The simplified approach is not allowed for premium-priced options (Stock Option Grant #2), which were estimated using a stock price multiple, as there is no option exercise history which to base an early exercise option. The expected stock option term represents the weighted average period of time that stock options granted are expected to be outstanding, based on vesting schedules and the contractual term of the stock options. Volatility is based on the historical volatility of the Company’s common stock over a period of time corresponding to the expected stock option term.
Phantom Shares
During Fiscal 2022, we granted 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
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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 April 30, 2022, we recorded a liability of $2,774 (Level 2 input) related to phantom share units grants of which $1,726 and $1,048 is reflected in accrued liabilities and other long-term liabilities, respectively, on the consolidated balance sheet. As of May 1, 2021, we recorded a liability of $3,845 (Level 2 input) related to phantom share units grants of which $2,509 and $1,336 is reflected in accrued liabilities and other long-term liabilities, respectively, on the consolidated balance sheet, respectively.
Long-Term Incentive Compensation Activity
The following table presents a summary of awards activity related to our current Equity Incentive Plan:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Restricted Stock Awards | | Restricted Stock Units |
| | Number of Shares | | Weighted Average Grant Date Fair Value | | Number of Shares | | Weighted Average Grant Date Fair Value |
Balance, May 1, 2021 | | 146,343 | | | $ | 2.40 | | 1,199,851 | | | $ | 3.56 |
Granted | | 35,412 | | | $ | 10.59 | | 896,582 | | | $ | 10.61 |
Vested | | (146,343) | | | $ | 2.40 | | (850,952) | | | $ | 3.70 |
Forfeited (a) | | — | | | $ | — | | (40,402) | | | $ | 3.67 |
Balance, April 30, 2022 | | 35,412 | | | $ | 10.59 | | 1,205,079 | | | $ | 8.71 |
| | | | | | | | |
| | Performance Share Units | | Phantom Shares |
| | Number of Shares | | Weighted Average Grant Date Fair Value | | Number of Shares | | Weighted Average Grant Date Fair Value |
Balance, May 1, 2021 | | 595,233 | | | $ | 2.23 | | 2,204,863 | | | $ | 1.97 |
Granted | | — | | | $ | — | | 183,348 | | | $ | 8.50 |
Vested | | — | | | $ | — | | (734,945) | | | $ | 1.97 |
Forfeited (a) | | (66,666) | | | $ | 2.23 | | (114,239) | | | $ | 2.34 |
Balance, April 30, 2022 | | 528,567 | | | $ | 2.23 | | 1,539,027 | | | $ | 2.72 |
| | | | | | | | |
| | Stock Options | | |
| | Number of Shares | | Weighted Average Grant Date Fair Value | | Weighted Average Exercise Price | | |
Balance, May 1, 2021 | | 2,190,990 | | | $ | 1.43 | | $ | 3.73 | | |
Granted | | 671,218 | | | $ | 6.91 | | $ | 12.10 | | |
Exercised (b) | | (77,883) | | | $ | 1.48 | | $ | 3.29 | | |
Forfeited | | (81,388) | | | $ | 1.43 | | $ | 3.73 | | |
Balance, April 30, 2022 | | 2,702,937 | | | $ | 2.79 | | $ | 5.82 | | |
Exercisable, April 30, 2022 | | 469,859 | | | $ | 1.42 | | $ | 3.80 | | |
| | | | | | | | |
(a) The PSUs forfeitures reflect a cumulative adjustment to reflect changes to the expected level of achievement of the respective grants.
(b) During the period ended April 30, 2022, 77,883 options were exercised with a total intrinsic value of $369.
The aggregate grant date fair value of stock options that vested during the period ending April 30, 2022 was $783. There were no stock options that vested during the periods ended May 1, 2021 and May 2, 2020.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Total fair value of vested share awards during the periods ended April 30, 2022, May 1, 2021, and May 2, 2020 was $9,651, $6,631, and $8,130, respectively.
Long-Term Incentive Compensation Expense
We recognized compensation expense for long-term incentive plan awards in selling and administrative expenses as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
Stock-based awards | | | | | | | | | |
Restricted stock expense | | | | | $ | 394 | | | $ | 226 | | | $ | 120 | |
Restricted stock units expense | | | | | 3,880 | | | 3,919 | | | 6,253 | |
Performance shares expense (a) | | | | | — | | | — | | | 12 | |
Performance share units expense (a) | | | | | 120 | | | 283 | | | 253 | |
Stock option expense | | | | | 1,939 | | | 667 | | | — | |
Sub-total stock-based awards: | | | | | $ | 6,333 | | | $ | 5,095 | | | $ | 6,638 | |
Cash settled awards | | | | | | | | | |
Phantom share units expense | | | | | $ | 4,295 | | | $ | 3,845 | | | $ | — | |
Total compensation expense for long-term incentive awards | | | | | $ | 10,628 | | | $ | 8,940 | | | $ | 6,638 | |
(a) Long-term incentive compensation expense reflects cumulative adjustments to reflect changes to the expected level of achievement of the respective grants.
Total unrecognized compensation cost related to unvested awards as of April 30, 2022 was $14,448 and is expected to be recognized over a weighted-average period of 2.50 years.
Note 13. Income Taxes
For Fiscal 2022, Fiscal 2021 and Fiscal 2020, we had no material revenue or expense in jurisdictions outside the United States.
Impact of U.S. Tax Reform
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (The “CARES Act”) was enacted. We have analyzed the provisions, which provide for a technical correction to allow for full expensing of qualified leasehold improvements, modifications to charitable contribution and net operating loss limitations (“NOLs”), modifications to the deductibility of business interest expense, as well as Alternative Minimum Tax (“AMT”) credit acceleration. The most significant impact of the legislation for the Company was an income tax benefit of $7,164 for the carryback of NOLs to higher tax rate years, recorded in Fiscal 2021. As of May 1, 2021, we recognized a current income tax receivable for NOL carrybacks of $30,492 in prepaid and other current assets on the consolidated balance sheet. We received a $7,841 refund in the second quarter of Fiscal 2022 and expect to receive additional refunds of approximately $22,651.
Income tax benefits for Fiscal 2022, Fiscal 2021 and Fiscal 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
| | | | Restated (a) | | |
Current: | | | | | | |
Federal | | $ | (1,138) | | | $ | (36,187) | | | $ | (5,471) | |
State | | 444 | | | (846) | | | (1,127) | |
Total Current | | (694) | | | (37,033) | | | (6,598) | |
Deferred: | | | | | | |
Federal | | (12,074) | | | (6,250) | | | (4,086) | |
State | | 4,113 | | | (1,888) | | | (1,294) | |
Total Deferred | | (7,961) | | | (8,138) | | | (5,380) | |
Total | | $ | (8,655) | | | $ | (45,171) | | | $ | (11,978) | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Reconciliation between the effective income tax rate and the federal statutory income tax rate is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 52 weeks ended April 30, 2022 | | 52 weeks ended May 1, 2021 | | 53 weeks ended May 2, 2020 |
| | | | Restated (a) | | |
Federal statutory income tax rate (a) | | 21.0 | % | | 21.0 | % | | 21.0 | % |
State income taxes, net of federal income tax benefit | | 4.6 | | | 4.4 | | | 3.7 | |
| | | | | | |
Permanent book / tax differences | | (0.7) | | | (0.9) | | | (2.9) | |
CARES Act NOL Carryback | | — | | | 3.9 | | | — | |
Valuation allowance | | (13.4) | | | (4.0) | | | — | |
Credits | | — | | | — | | | 0.5 | |
Other, net | | (0.3) | | | — | | | 1.5 | |
Effective income tax rate | | 11.2 | % | | 24.4 | % | | 23.8 | % |
(a) We identified certain out of period adjustments related primarily to the recognition of Income tax benefit related to the recording of an additional deferred tax valuation allowance for the 52 weeks ended May 1, 2021. Refer to Note 2. Summary of Significant Accounting Policies for further information.
The effective tax rate for Fiscal 2022 is significantly lower as compared to the prior year comparable period due to the change in pre-tax loss and the change in the assessment of the realization of deferred tax assets as compared to the prior year loss carrybacks.
One percentage point on our Fiscal 2022 effective tax rate is approximately $775. The permanent book / tax differences are principally comprised of non-deductible compensation, and non-deductible meals and entertainment costs.
We account for income taxes using the asset and liability method. Deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards. The significant components of our deferred taxes consisted of the following:
| | | | | | | | | | | | | | |
| | As of |
| | April 30, 2022 | | May 1, 2021 |
| | | | Restated (a) |
Deferred tax assets: | | | | |
Estimated accrued liabilities | | $ | 7,312 | | | $ | 11,744 | |
Inventory | | 16,113 | | | 17,644 | |
Stock-based compensation | | 1,879 | | | 1,622 | |
Insurance liability | | 374 | | | 505 | |
Operating lease liabilities | | 76,138 | | | 65,456 | |
Tax credits | | 440 | | | 433 | |
Goodwill | | 14,362 | | | 16,759 | |
Net operating losses | | 53,149 | | | 10,810 | |
Other | | 5,009 | | | 10,570 | |
Gross deferred tax assets | | 174,776 | | | 135,543 | |
Valuation allowance | | (43,550) | | | (8,692) | |
Net deferred tax assets | | 131,226 | | | 126,851 | |
Deferred tax liabilities: | | | | |
Intangible asset amortization | | (21,878) | | | (33,547) | |
Operating lease right-of-use assets | | (73,224) | | | (61,896) | |
LIFO inventory valuation | | (29,916) | | | (9,571) | |
Property and equipment | | (7,638) | | | (5,894) | |
Gross deferred tax liabilities | | (132,656) | | | (110,908) | |
Net deferred tax (liability) asset | | $ | (1,430) | | | $ | 15,943 | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
(a) We identified certain out of period adjustments related primarily to the recognition of Income tax benefit related to the recording of an additional deferred tax valuation allowance for the 52 weeks ended May 1, 2021. Refer to Note 2. Summary of Significant Accounting Policies for further information.
As of April 30, 2022, we had $0 of unrecognized tax benefits. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | |
Balance at April 27, 2019 | $ | 91 | |
Additions for tax positions of the current period | — | |
Additions for tax positions of prior periods | — | |
Reductions due to settlements | — | |
Other reductions for tax positions of prior periods | (39) | |
Balance at May 2, 2020 | $ | 52 | |
Additions for tax positions of the current period | — | |
Additions for tax positions of prior periods | — | |
Reductions due to settlements | — | |
Other reductions for tax positions of prior periods | (52) | |
Balance at May 1, 2021 | $ | — | |
Additions for tax positions of the current period | — | |
Additions for tax positions of prior periods | — | |
Reductions due to settlements | — | |
Other reductions for tax positions of prior periods | — | |
Balance at April 30, 2022 | $ | — | |
| |
Our policy is to recognize interest and penalties related to income tax matters in income tax expense. As of both April 30, 2022 and May 1, 2021, we had accrued $0 for net interest and penalties.
In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets would be realized. In evaluating our ability to utilize our deferred tax assets, we considered all available evidence, both positive and negative, in determining future taxable income on a jurisdiction by jurisdiction basis. As of April 30, 2022, we recorded a valuation allowance of $43,550 compared to $8,692 as of May 1, 2021.
As of April 30, 2022, we had state net operating loss carryforwards (“NOLs”) of approximately $348,201 which will begin to expire in 2030, state tax credit carryforwards totaling $440 which will begin to expire in 2023, and federal NOLs of approximately $166,118 which have an indefinite carryforward period.
As of April 30, 2022, we recorded $200 of foreign withholding tax related to repatriations of earnings from certain foreign subsidiaries. If additional earnings in these foreign subsidiaries were repatriated in the future, additional income and withholding tax expense would be incurred. Additional income and withholding tax expense on any future repatriated earnings is estimated to be less than $100.
We are subject to U.S. federal income tax, as well as income tax in jurisdictions of each state having an income tax. The tax years that remain subject to examination are primarily Fiscal 2015 and forward. Some earlier years remain open for a small minority of states. We retain an income tax liability for periods prior to the Spin-Off from Barnes & Noble, Inc. only for returns filed on a stand-alone basis.
Note 14. Legal Proceedings
We are involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of our business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on our condensed consolidated financial position, results of operations, or cash flows.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 15. Commitments and Contingencies
We generally operate our physical bookstores pursuant to multi-year school management contracts under which a school designates us to operate the official school physical bookstore on campus and we provide the school with regular payments that represent a percentage of store sales and, in some cases, include a minimum fixed guaranteed payment. We account for these service agreements for our physical bookstores under lease accounting. Prior to the adoption of FASB ASC 842, Leases (Topic 842) ("ASC 842"), the excess of such minimum contract expense over actual contract payments (net of school allowances) was reflected in other long-term liabilities and accrued liabilities in the consolidated balance sheets.
We recognize lease assets and lease liabilities on the consolidated balance sheets for substantially all fixed lease arrangements (excluding variable obligations) with a term greater than twelve months. For additional information on lease expense and minimum fixed lease obligations, excluding variable commissions, see Part II - Item 8. Financial Statements and Supplementary Data - Note 8. Leases.
Purchase obligations, which includes information technology contracts, as of April 30, 2022 are as follows:
| | | | | |
Less Than 1 Year | $ | 11,617 | |
1-3 Years | 10,175 | |
3-5 Years | 477 | |
Total | $ | 22,269 | |
Note 16. Subsequent Event
On June 7, 2022, we entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with TopLids LendCo, LLC and Vital Fundco, LLC and we entered an amendment to our existing Credit Agreement. For additional information, see the Company’s Report on Form 8-K dated June 7, 2022 and filed with the SEC on June 10, 2022. See Part II - Item 8. Financial Statements and Supplementary Data - Note 7. Credit Facility for Credit Agreement details.
The Term Loan Credit Agreement provides for term loans in an amount equal to $30,000 (the “Term Loan Facility” and, the loans thereunder, the “Term Loans”). The proceeds of the Term Loans are being used to finance working capital, and to pay fees and expenses related to the Term Loan Facility. The Term Loans accrue interest at a rate equal to 11.25% and mature on June 7, 2024. We have the right, through December 31, 2022, to pay all or a portion of the interest on the Term Loans in kind. The Term Loans do not amortize prior to maturity. Solely to the extent that any Term Loans remain outstanding on June 7, 2023, we must pay a fee of 1.5% of the outstanding principal amount of the Term Loans on such date.
The Term Loans are required to be repaid (i) after repayment of the FILO Facility under the Credit Agreement, with up to 100% of the proceeds of the sale of a non-core business line of the Company generating net proceeds in excess of $1,000, other than ordinary course dispositions and (ii) in full in connection with a debt or equity financing transaction generating net proceeds in excess of an amount sufficient to repay the FILO Facility under the Credit Agreement.
The Term Loan Credit Agreement does not contain a financial covenant, but otherwise contains representations and warranties, covenants and events of default that are substantially the same as those in the Credit Agreement, including restrictions on the ability of the Company and its subsidiaries to incur additional debt, incur or permit liens on assets, make investments and acquisitions, consolidate or merge with any other company, engage in asset sales and make dividends and distributions. The Term Loan Facility is secured by second-priority liens on all assets securing the obligations under the Credit Agreement, which is all of the assets of the Company and the Guarantors, subject to customary exclusions and limitations set forth in the Term Loan Credit Agreement and the other loan documents executed in connection therewith.
The Credit Agreement amendment permits us to incur the Term Loan Facility and also provides that, upon repayment of the Term Loan Credit Agreement (and, if applicable, any replacement credit facility thereof), we may incur second lien secured debt in an aggregate principal amount not to exceed $75,000.
On June 28, 2022, we obtained limited waivers with respect to the Credit Agreement and the Term Loan Credit Agreement, pursuant to which the requisite lenders thereunder waived any potential default or event of default under such agreements solely to the extent arising from the restatement of Fiscal 2021 consolidated financial statements as described in Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
Schedule II—Valuation and Qualifying Accounts
Receivables Valuation and Qualifying Accounts
(In thousands)
For the 52 weeks ended April 30, 2022, 52 weeks ended May 1, 2021, and 53 weeks ended May 2, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at beginning of period | | Charge (recovery) to costs and expenses | | Write-offs | | Balance at end of period |
Allowance for Doubtful Accounts | | | | | | | | |
April 30, 2022 | | $ | 3,594 | | | $ | 2,750 | | | $ | (4,101) | | | $ | 2,243 | |
May 1, 2021 | | $ | 1,986 | | | $ | 4,600 | | | $ | (2,992) | | | $ | 3,594 | |
May 2, 2020 | | $ | 2,135 | | | $ | 1,710 | | | $ | (1,859) | | | $ | 1,986 | |
| | | | | | | | |
| | Balance at beginning of period | | Addition Charged to Costs | | Deductions | | Balance at end of period |
Sales Returns Reserves | | | | | | | | |
April 30, 2022 | | $ | 3,331 | | | $ | 123,559 | | | $ | (124,167) | | | $ | 2,723 | |
May 1, 2021 | | $ | 5,063 | | | $ | 145,595 | | | $ | (147,327) | | | $ | 3,331 | |
May 2, 2020 | | $ | 5,282 | | | $ | 186,305 | | | $ | (186,524) | | | $ | 5,063 | |
All other schedules are omitted because the conditions requiring their filing do not exist, or because the required information is provided in the consolidated financial statements, including the notes thereto.