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. References to “Student Brands” refer to our direct-to-student subscription-based writing services business operated through our subsidiary Student Brands, LLC.
Note 1.
Organization
Description of Business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States. 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
1,448
physical, virtual, and custom bookstores and serve more than
6
million students, delivering essential educational content and tools within a dynamic omni channel retail environment. Additionally, we offer direct-to-student products and services to help students study more effectively and improve academic performance.
The
Barnes & Noble
and
MBS
brands are virtually synonymous with bookselling, and, we believe, are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important for leading publishers who rely on us as one of their primary distribution channels, and for being a trusted source for students in our direct-to-student digital solutions business.
The strengths of our business includes our ability to compete by developing new products and solutions to meet market needs, our large footprint with direct access to students and faculty, our well-established, deep relationships with partners and stable, long-term contracts and our well-recognized brands. We expect to continue to grow our business by introducing scalable and advanced digital solutions focused largely on the student, increasing market share with new accounts, and expanding our strategic opportunities through acquisitions and partnerships.
Prior to the fourth quarter of fiscal year 2019, we had
three
reportable segments: BNC, MBS, and Digital Student Solutions (“DSS”). During the fourth quarter of fiscal year 2019, in an effort to streamline our retail go-to-market strategy, reinforce our company branding, and more efficiently focus our product development efforts, we realigned our business and sales organization into the following
three
reportable segments: Retail, Wholesale and DSS. The
Retail Segment
combines the operations of the former BNC segment with MBS Direct (from the former MBS segment), the
Wholesale Segment
is comprised of the MBS wholesale business (from the former MBS segment), and the
DSS Segment
remains unchanged. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as “Corporate Services”. 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 6. Segment Reporting.
Note 2.
Summary of Significant Accounting Policies
Basis of Presentation
Our consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). In the opinion of the Company’s management, the accompanying consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position and the results of its operations and cash flows for the periods reported.
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. The fiscal year periods for each of the last three fiscal years consisted of the 52 weeks ended
April 27, 2019
(“Fiscal 2019”), 52 weeks ended
April 28, 2018
(“Fiscal 2018”), and 52 weeks ended
April 29, 2017
(“Fiscal 2017”).
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 and third quarter, as it sells textbooks and other course materials for retail distribution. Our DSS sales and operating profit are realized relatively consistently throughout the year.
Our quarterly results also may fluctuate depending on the timing of the start of the various school’s semesters, as well as shifts in fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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.
The consolidated financial statements include acquisitions effective their respective acquisition date.
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•
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The consolidated financial statements for the 52 weeks ended April 27, 2019 include the financial results of PaperRater from the acquisition date, August 21, 2018, to April 27, 2019.
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•
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The consolidated financial statements for the 52 weeks ended April 28, 2018 include the financial results of Student Brands from the acquisition date, August 3, 2017, to April 28, 2018.
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•
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The consolidated financial statements for the 52 weeks ended April 29, 2017 include the financial results of MBS from the acquisition date, February 27, 2017, to April 29, 2017.
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Use of Estimates
In preparing financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Reclassifications
Effective in the fourth quarter of Fiscal 2019, we have three reportable segments: Retail, Wholesale, and DSS, as described in
Part II - Item 8. Financial Statements and Supplementary Data - Note 6. Segment Reporting
. Prior to the fourth quarter of Fiscal 2019, BNC, MBS and DSS were previously our only reportable segments. Prior periods presented reflect the segment changes.
Cash and Cash Equivalents
We consider all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash of
$755
and
$742
is included in other noncurrent assets in the consolidated balance sheet as of April 27, 2019 and April 29, 2018, respectively. These funds are 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. Components of accounts receivables are as follows:
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|
|
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As of
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April 27, 2019
|
|
April 28, 2018
|
Trade accounts
|
|
$
|
74,311
|
|
|
$
|
67,634
|
|
Advances for book buybacks
|
|
6,339
|
|
|
9,554
|
|
Credit/debit card receivables
|
|
4,173
|
|
|
3,824
|
|
Other receivables
|
|
13,423
|
|
|
19,048
|
|
Total receivables, net
|
|
$
|
98,246
|
|
|
$
|
100,060
|
|
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
$2,135
, and
$2,083
for Fiscal 2019 and Fiscal 2018, respectively.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory.
Cost is determined primarily by the retail inventory method for our 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 2019, Fiscal 2018 and Fiscal 2017.
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 Segments four largest suppliers, excluding the supply sourced from our Wholesale Segment, accounted for approximately
37.4%
of our merchandise purchased during the 52 weeks ended April 27, 2019. For our Wholesale Segment, the four largest suppliers, excluding textbooks purchased from students at our Retail Segment's bookstores, accounted for approximately
34.0%
of merchandise purchases during the 52 weeks ended April 27, 2019.
Textbook Rental Inventories
Physical textbooks out on rent are categorized as textbook rental inventories. At the time a rental transaction is consummated, the book is removed from merchandise inventories and moved to textbook rental inventories at cost. The cost of the book is amortized down to its estimated residual value over the rental period. The related amortization expense is included in cost of goods sold. At the end of the rental period, upon return, the book is removed from textbook rental inventories and recorded in merchandise inventories at its amortized cost.
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation 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
$44,550
,
$46,531
, and
$41,224
of depreciation expense for Fiscal 2019, Fiscal 2018 and Fiscal 2017, 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
$1,096
,
$0
and
$0
of content amortization expense for Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
Components of property and equipment are as follows:
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As of
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Useful Life
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April 27, 2019
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April 28, 2018
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Property and equipment:
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Leasehold improvements
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(a)
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$
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148,015
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|
|
$
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148,413
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Machinery, equipment and display fixtures
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3 - 5
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240,171
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237,823
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Computer hardware and capitalized software costs
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(b)
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136,267
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|
|
123,575
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Office furniture and other
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2 - 7
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|
59,327
|
|
|
54,477
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|
Content development costs
|
|
3 - 5
|
|
11,593
|
|
|
514
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|
Construction in progress
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5,499
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|
|
6,546
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Total property and equipment
|
|
|
|
600,872
|
|
|
571,348
|
|
Less accumulated depreciation and amortization
|
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491,095
|
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|
460,061
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Total property and equipment, net
|
|
|
|
$
|
109,777
|
|
|
$
|
111,287
|
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
|
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(a)
|
Leasehold improvements are capitalized and depreciated over the shorter of the lease term or the useful life of the improvements, ranging from one to 15 years.
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(b)
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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.
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Other Long-Lived Assets
Our other long-lived assets include property and equipment and amortizable intangibles. We had
$194,978
and
$219,129
of amortizable intangible assets, net of amortization, as of
April 27, 2019
and
April 28, 2018
, respectively. These amortizable intangible assets relate primarily to our customer and bookstore relationships with our colleges and university clients, and technology acquired. For additional information related to amortizable intangibles, see
Part II - Item 8. Financial Statements and Supplementary Data - Note 10. Supplementary Information - Intangible Assets
.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and consider market participants in accordance with
Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets
. During the fourth quarter of Fiscal 2019, in conjunction with the change to reporting segments and the interim goodwill impairment test noted below, as well as operational changes in certain long-lived asset groups, we evaluated certain of our long-lived assets for impairment and recognized an impairment loss of
$8,466
, comprised of
$8,138
of intangible assets, primarily acquired technology, and
$328
of property and equipment related to our LoudCloud and Promoversity operations. These long-lived assets were not recoverable and had a de minimis fair value, as determined using the relief-from-royalty and income approaches (Level 3 input), resulting in a non-cash impairment charge for the full carrying value of those long-lived assets. See
Part II - Item 8. Financial Statements and Supplementary Data - Note 10. Supplementary Information - Intangible Assets.
In addition, in conjunction with the fourth quarter goodwill impairment test noted below, we evaluated certain of our other long-lived assets associated with our Retail and Wholesale segments for impairment. We evaluated the long-lived assets of these 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. Based on the results of the tests, an impairment loss calculation was not required as the estimated future undiscounted cash flows of the identified asset groups exceeded the carrying amount of the respective asset group. Impairment losses related to school contracts included in selling and administrative expenses totaled
$0
,
$0
, and
$23
during
Fiscal 2019, Fiscal 2018 and Fiscal 2017
, respectively.
Goodwill
The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance sheets. We completed our annual goodwill impairment test with the assistance of a third-party valuation firm, as of the first day of the third quarter of Fiscal 2019 for our reporting units as they existed at that date. Based on the quantitative test performed, the fair value of the MBS and DSS reporting units (as they existed at that date) exceeded their carrying values; therefore, no goodwill impairment was recognized for these reporting units. While the carrying value of the BNC reporting unit (as it existed at that date) exceeded its fair value, there was no goodwill allocated to the reporting unit as of the Fiscal 2019 annual goodwill impairment test date.
During the fourth quarter of Fiscal 2019, due to the change in our reporting segments, we determined that there had been a change to our previous MBS and BNC reporting units. See
Part II - Item 8. Financial Statements and Supplementary Data - Note 6. Segment Reporting.
We performed an interim qualitative assessment related to the MBS reporting unit prior to the change in reporting segments. Qualitative factors that we consider as part of our assessment include a change in our weighted cost of capital, industry and market conditions, macroeconomic conditions and financial performance of our businesses. After assessing these events and circumstances, we determined that it was not more likely than not that the fair value of the MBS reporting unit was less than its carrying value. We then reassigned the assets and liabilities, including goodwill, from the former MBS reporting unit to the new Retail and Wholesale reporting units. Using the assistance of a third-party valuation firm, we assessed the relative fair value of the
$49,282
total goodwill associated with the MBS reporting unit (as it existed at that date) and allocated
$20,538
of goodwill to the Retail Segment and
$28,744
of goodwill to the Wholesale Segment. Upon reallocating the goodwill, we performed an interim quantitative assessment using the income approach (Level 3 inputs) and determined that the revised carrying values of the Retail and Wholesale reporting units exceeded their respective fair values. After confirming that the long-lived assets of the respective reporting units were recoverable, we recognized a total goodwill impairment (non-cash impairment loss) of
$49,282
in Fiscal 2019, consisting of the full carrying value of the goodwill allocated to Retail and Wholesale reporting units.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
In Fiscal 2018, the carrying value of the BNC reporting unit (as it existed at that date) exceeded its fair value and we recognized a goodwill impairment (non-cash impairment loss) of $313,130.
As of April 27, 2019, we had
$0
,
$0
and
$4,700
of goodwill on our consolidated balance sheets related to our Retail, Wholesale, and DSS reporting units, respectively. As of April 28, 2018, we had
$49,282
,
$0
and
$0
of goodwill on our consolidated balance sheets remaining related to our MBS, BNC and DSS reporting units (as they existed at that date), respectively.
Application of the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of assets and liabilities to reporting units; assignment of goodwill to reporting units; and the determination of the fair value of each reporting unit. In performing the valuation, we used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions.
We estimated the fair value of our reporting units using a weighting of fair values derived from the income approach and the market approach. Under the income approach, we calculate the fair value of the reporting unit based on the present value of estimated future cash flows. Inherent in our preparation of cash flow projections are assumptions and estimates derived from a review of our operating results, business plans, expected growth rates, cost of capital and tax rates. We also make certain forecasts about future economic conditions, interest rates, market data, and other observable trends, such as comparable store sales trends, recent changes in publisher relationships, and development of innovative digital products and services in the rapidly changing education landscape. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows. Under the market approach, we estimate the fair value based on market multiples of cash flows and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit and considering a reasonable control premium.
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 relates to the sales of products through our bookstore locations, including virtual bookstores, and our bookstore affiliated ecommerce 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 5. 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
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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.
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 primarily relates to direct-to-student subscription-based writing 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 include costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.
Selling and Administrative Expenses
Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include stock-based compensation and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based writing services business. Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services.
Stock-Based 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 (“RS”), restricted stock units (“RSU”), performance shares (“PS”) and performance share units (“PSU”). We have not granted options under the Equity Incentive Plan. See
Part II - Item 8. Financial Statements and Supplementary Data - Note 13. Stock-Based Compensation
for a further discussion of our stock-based incentive plan.
We recognize compensation expense for awards ratably over the requisite service period of the award, which is generally three years. We recognize compensation expense based on the number of awards expected to vest using an estimated average forfeiture rate. We calculate the fair value of stock-based awards based on the closing price on the date the award was granted for awards with only performance or service conditions. For those awards with market conditions, we have determined the grant date fair value using the Monte Carlo simulation model.
Advertising Costs
The costs of advertising are expensed as incurred during the year pursuant to
ASC No. 720-35, Advertising Costs
. Advertising costs charged to selling and administrative expenses were
$10,636
,
$10,691
, and
$7,437
during
Fiscal 2019, Fiscal 2018 and Fiscal 2017
, respectively.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Income Taxes
The provision for income taxes includes federal, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax basis of assets and liabilities. The deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We regularly review deferred tax assets for recoverability and establish a valuation allowance, if determined to be necessary. For additional information, see
Part II - Item 8. Financial Statements and Supplementary Data - Note 14. Income Taxes
.
As of
April 27, 2019
, other long-term liabilities includes
$32,847
related to the long-term tax payable associated with the LIFO reserve. The LIFO reserve is impacted by changes in the consumer price index (“CPI”) and is dependent on the inventory levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling cycle. At the end of the most recent tax year, inventory levels declined as compared to the prior year resulting in approximately
$7,260
of the LIFO reserve becoming currently payable. Given recent trends relating to the pricing and rental of textbooks, management believes that an additional portion of the remaining long-term tax payable associated with the LIFO reserve could be payable within the next twelve months. We are unable to predict future trends for CPI and inventory levels, therefore it is difficult to project with reasonable certainty how much of this liability will become payable within the next twelve months.
Earnings Per Common Share
Basic earnings per share represent net earnings to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of our stock based compensation. See
Part II - Item 8. Financial Statements and Supplementary Data - Note 7. Equity and Earnings Per Share
for further information regarding the calculation of basic and diluted earnings per common share.
Note 3.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued
ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”),
which requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The ASU requires upfront implementation costs incurred in a cloud computing arrangement (or hosting arrangement) that is a service contract to be 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. We are required to adopt this standard in the first quarter of Fiscal 2021 and early adoption is permitted. The guidance may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating this standard to determine the impact of adoption on our consolidated financial statements.
In February 2016, the FASB issued
ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-01”)
to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. We will adopt this standard in the first quarter of Fiscal 2020 using a modified retrospective basis applied as of the period of adoption (i.e., on the effective date), with no restatement of prior periods, and we will elect the package of practical expedients permitted under the transition guidance. Although we have not yet finalized our evaluation of the guidance, we believe the most significant impact will be the recognition of right of use assets and liabilities on our consolidated balance sheet. We expect our lease obligations and right-of-use assets to be reported on the consolidated balance sheets for leases designated as operating leases to be in the range of
$255,000
to
$315,000
upon final adoption. We have collected relevant data for all of our leases and are currently in the process of validating lease data and updating processes and internal controls to meet the accounting, reporting and disclosure requirements.
Note 4.
Acquisitions
Acquisitions
PaperRater
On August 21, 2018, we acquired the assets of PaperRater in the DSS Segment. PaperRater is a leading website that offers students a suite of writing services aimed at improving multiple facets of writing. PaperRater's services include plagiarism detection, grammar feedback, and an AI-based writing score predictor, and are highly complementary to Student Brands' existing writing service offerings. PaperRater adds millions of pieces of content, from essays and dissertations to personal narratives and speeches, to our growing digital content library.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
We completed the purchase for cash consideration of
$10,000
and the transaction was funded from cash on-hand and availability under our existing Credit Agreement. The final purchase price was allocated primarily as follows:
$5,300
intangible assets (primarily content with an estimated useful life of
5
years) and
$4,700
goodwill. This acquisition is not material to our consolidated financial statements and therefore, disclosure of pro forma financial information has not been presented. The results of operations reflect the period of ownership of the acquired business.
Student Brands, LLC
On August 3, 2017, we acquired
100%
of the equity interests of Student Brands in the DSS Segment. Student Brands operates multiple direct-to-student businesses focused on study tools and writing help, all centered on assisting students with the writing process. We completed the purchase for cash consideration of
$61,997
, including cash acquired of
$4,626
, and the transaction was funded from cash on-hand and availability under our existing Credit Agreement. The final purchase price allocation was as follows:
$28,300
intangible assets,
$1,593
acquired working capital and
$31,782
goodwill. This acquisition is not material to our consolidated financial statements and therefore, disclosure of pro forma financial information has not been presented. The results of operations reflect the period of ownership of the acquired business. Identified intangible assets include the following:
|
|
|
|
|
|
|
|
Type of Intangible
|
|
Amount
|
|
Estimated Useful Life
|
Content
|
|
$
|
14,500
|
|
|
5
|
Technology
|
|
8,000
|
|
|
5
|
Non-Compete Agreements
|
|
4,000
|
|
|
3
|
Subscriber List
|
|
1,800
|
|
|
2
|
Total Intangibles:
|
|
$
|
28,300
|
|
|
|
MBS Textbook Exchange, LLC
On February 27, 2017, we completed the purchase of all issued and outstanding units of MBS Textbook Exchange, LLC. We acquired
100%
of the equity interests of MBS for cash consideration of
$187,862
, including cash and restricted cash acquired of
$1,171
, and the acquisition was financed with cash from operations, as well as proceeds from our existing credit facility. During the third quarter of Fiscal 2018, we finalized the valuation and recorded adjustments to the acquired liabilities which resulted in an increase to goodwill of
$1,163
. These adjustments were related to a final reconciliation of the pre-acquisition tax liability due to the seller of
$888
under the purchase agreement, as well as a net
$275
increase in other long-term liabilities. The following is a summary of consideration paid for the acquisition:
|
|
|
|
|
|
Cash paid to Seller or escrow
|
|
$
|
165,499
|
|
Consideration to Seller for pre-closing costs
|
|
4,657
|
|
Cash paid for Seller closing costs
|
|
4,044
|
|
Contract purchase price
|
|
$
|
174,200
|
|
Consideration for payment to settle Seller's outstanding short-term borrowings
|
|
24,437
|
|
Consideration for reimbursement of pre-acquisition tax liability to Seller
|
|
15,556
|
|
Less: Consideration to Seller for pre-closing costs
|
|
(4,657
|
)
|
Less: Consideration for settlement of pre-existing payable to Seller
|
|
(21,674
|
)
|
Total value of consideration transferred
|
|
$
|
187,862
|
|
|
|
|
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
The following is a summary of the fair values of the net assets acquired:
|
|
|
|
|
|
Total estimated consideration transferred
|
|
$
|
187,862
|
|
Cash and cash equivalents
|
|
$
|
472
|
|
Accounts receivable, net
|
|
28,177
|
|
Merchandise inventory
|
|
128,431
|
|
Property and equipment
|
|
12,403
|
|
Intangible assets
|
|
21,576
|
|
Prepaid and other assets
|
|
4,748
|
|
Total assets
|
|
$
|
195,807
|
|
Accounts payable
|
|
$
|
35,383
|
|
Accrued expenses
|
|
8,799
|
|
Other long-term liabilities
|
|
13,045
|
|
Total liabilities
|
|
$
|
57,227
|
|
Net assets to be acquired
|
|
$
|
138,580
|
|
Goodwill
|
|
$
|
49,282
|
|
Identified intangible assets include the following:
|
|
|
|
|
|
|
|
Type of Intangible
|
|
Amount
|
|
Estimated Useful Life
|
Favorable Lease
|
|
$
|
1,076
|
|
|
6.5
|
Trade Name
|
|
3,500
|
|
|
10
|
Technology
|
|
1,500
|
|
|
3
|
Book Store Relationship
|
|
13,000
|
|
|
13
|
Direct Customer Relationship
|
|
2,000
|
|
|
15
|
Non-Compete Agreements
|
|
500
|
|
|
3
|
Total Intangibles:
|
|
$
|
21,576
|
|
|
|
See
Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Pronouncements
for information related to subsequent goodwill impairment evaluations.
The consolidated financial statements for the 52 weeks ended April 29, 2017 include the financial results of MBS from the acquisition date, February 27, 2017, to April 29, 2017, including sales of
$34,091
and net loss of
$(2,630)
. As the acquisition was material to our consolidated financial statements, the following represents the pro forma consolidated income statement as if MBS had been included in the consolidated results for the entire fiscal year for Fiscal 2017:
|
|
|
|
|
Pro forma consolidated income statement
|
|
|
52 weeks ended
|
|
April 29, 2017
|
Sales
|
$
|
2,247,825
|
|
Net income
|
$
|
32,055
|
|
These amounts have been calculated after applying our accounting policies and adjusting the results of MBS to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on May 1, 2016, and includes the elimination of all significant intercompany accounts and transactions, together with the consequential tax effects.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Promoversity
In June 2016, we completed the purchase of substantially all of the assets of Promoversity, a custom merchandise supplier and e-commerce storefront solution serving the collegiate bookstore business and its customers. The acquisition enables us to customize our e-commerce offerings and drive on-campus apparel sales. The acquisition purchase price was
$1,417
, including working capital, and was financed with cash from operations. The purchase price was allocated primarily as follows:
$741
intangible assets (with a
5
year amortization period),
$441
goodwill,
$221
net current assets, and
$500
future performance-based obligations. This acquisition is not material to our consolidated financial statements and therefore, disclosure of pro forma financial information has not been presented. The results of operations reflect the period of ownership of the acquired business.
Note 5.
Revenue
In May 2014, the FASB issued
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”)
. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required.
We have analyzed the impacts of the guidance across all of our revenue streams and have adopted the standard using the modified retrospective method effective with the first quarter of Fiscal 2019. Financial results for reporting periods beginning after April 28, 2018 are presented in accordance with Topic 606, while comparative period information continues to reflect our historic accounting under the accounting standards in effect for those periods. There was no cumulative change to retained earnings as a result of adopting the guidance. We reclassified the product return asset of
$2,610
from Merchandise Inventories, Net to Prepaid Expenses and Other Current Assets on the consolidated balance sheets for the period ended April 28, 2018.
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 6. 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 27, 2019
|
|
April 28, 2018
|
|
April 29, 2017
|
Retail
|
|
|
|
|
|
|
Product Sales
|
|
$
|
1,646,917
|
|
|
$
|
1,753,528
|
|
|
$
|
1,594,116
|
|
Rental Income
|
|
195,883
|
|
|
219,145
|
|
|
232,481
|
|
Service and Other Revenue
(a)
|
|
46,208
|
|
|
51,868
|
|
|
38,974
|
|
Retail Total Sales
|
|
$
|
1,889,008
|
|
|
$
|
2,024,541
|
|
|
$
|
1,865,571
|
|
Wholesale Sales
|
|
$
|
223,374
|
|
|
$
|
258,369
|
|
|
$
|
14,758
|
|
DSS Sales
(b)
|
|
$
|
21,339
|
|
|
$
|
15,762
|
|
|
$
|
—
|
|
Eliminations
(c)
|
|
$
|
(99,078
|
)
|
|
$
|
(95,055
|
)
|
|
$
|
(5,967
|
)
|
Total Sales
|
|
$
|
2,034,643
|
|
|
$
|
2,203,617
|
|
|
$
|
1,874,362
|
|
|
|
(a)
|
Service and other revenue primarily relates to brand partnerships and other service revenues.
|
|
|
(b)
|
DSS sales primarily relate to direct-to-student subscription-based revenue.
|
|
|
(c)
|
The sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale.
|
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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 27, 2019 and April 28, 2018 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 primarily consists of advanced payments from customers related to textbook rental and subscription-based performance obligations that have not yet been satisfied, as well as unsatisfied performance obligations associated with partnership marketing services. Deferred revenue is recognized ratably over the terms of the related rental or subscription periods, or when the contracted services are provided to our partnership marketing customers. Deferred revenue of
$20,418
and
$20,144
is recorded within Accrued Liabilities on our consolidated balance sheets for the periods ended April 27, 2019 and April 28, 2018, respectively. The following table presents changes in contract liabilities during the fiscal year ended April 27, 2019:
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
April 27, 2019
|
Deferred revenue at the beginning of period
|
|
$
|
20,144
|
|
Additions to deferred revenue during the period
|
|
212,424
|
|
Reductions to deferred revenue for revenue recognized during the period
|
|
(212,150
|
)
|
Deferred revenue balance at the end of period
|
|
$
|
20,418
|
|
As of April 27, 2019, we expect to recognize
$20,418
of the deferred revenue balance within in the next 12 months.
Note 6.
Segment Reporting
Prior to the fourth quarter of Fiscal 2019, we had
three
reportable segments: BNC, MBS, and DSS. During the fourth quarter of Fiscal 2019, in an effort to streamline our retail go-to-market strategy, reinforce our company branding, and more efficiently focus our product development efforts, we realigned our business and sales organization into the following
three
reportable segments: Retail, Wholesale and DSS. The
Retail Segment
combines the operations of the former BNC segment with MBS Direct (from the former MBS segment), the
Wholesale Segment
is comprised of the MBS wholesale business (from the former MBS segment), and the
DSS Segment
remains unchanged.
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
1,448
college, university, and K-12 school bookstores, comprised of
772
physical bookstores and
676
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 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, including e-content, are offered at a reduced price through a course materials fee, 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
3,500
physical bookstores, including our Retail Segment's
772
physical bookstores. Our Wholesale business also sources and distributes new and
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
used textbooks to our
676
virtual bookstores. Additionally, the Wholesale Segment sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to approximately
400
college bookstores.
DSS Segment
The
Digital Student Solutions (“DSS”) Segment
includes direct-to-student products and services to assist students to study more effectively and improve academic performance. The DSS Segment is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, and bartleby, a direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, tutoring and test prep services.
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 27, 2019
|
|
April 28, 2018
|
Total Assets
|
|
|
|
|
Retail (includes goodwill of $0 and $20,538, respectively)
|
|
$
|
707,975
|
|
|
$
|
771,140
|
|
Wholesale (includes goodwill of $0 and $28,743, respectively)
|
|
191,976
|
|
|
235,760
|
|
DSS (includes goodwill of $4,700 and $0, respectively)
|
|
40,543
|
|
|
28,564
|
|
Corporate Services
|
|
5,686
|
|
|
3,747
|
|
Total Assets
|
|
$
|
946,180
|
|
|
$
|
1,039,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 weeks ended
|
|
|
April 27, 2019
|
|
April 28, 2018
|
|
April 29, 2017
|
Capital Expenditures
|
|
|
|
|
|
|
Retail
|
|
$
|
33,008
|
|
|
$
|
38,598
|
|
|
$
|
34,536
|
|
Wholesale
|
|
1,824
|
|
|
1,559
|
|
|
117
|
|
DSS
(a)
|
|
11,444
|
|
|
2,620
|
|
|
—
|
|
Corporate Services
|
|
144
|
|
|
32
|
|
|
17
|
|
Total Capital Expenditures
|
|
$
|
46,420
|
|
|
$
|
42,809
|
|
|
$
|
34,670
|
|
|
|
|
|
|
|
|
(a) Primarily comprised of content development costs for
bartleby.com
textbook solutions which was launched in Fiscal 2019.
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 27, 2019
(a)
|
|
April 28, 2018
(b)
|
|
April 29, 2017
(c)
|
Sales:
|
|
|
|
|
|
|
Retail
|
|
$
|
1,889,008
|
|
|
$
|
2,024,541
|
|
|
$
|
1,865,571
|
|
Wholesale
|
|
223,374
|
|
|
258,369
|
|
|
14,758
|
|
DSS
|
|
21,339
|
|
|
15,762
|
|
|
—
|
|
Eliminations
|
|
(99,078
|
)
|
|
(95,055
|
)
|
|
(5,967
|
)
|
Total Sales
|
|
$
|
2,034,643
|
|
|
$
|
2,203,617
|
|
|
$
|
1,874,362
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
Retail
|
|
$
|
451,871
|
|
|
$
|
482,226
|
|
|
$
|
459,295
|
|
Wholesale
|
|
56,341
|
|
|
60,328
|
|
|
403
|
|
DSS
|
|
20,030
|
|
|
15,403
|
|
|
—
|
|
Eliminations
|
|
(516
|
)
|
|
(724
|
)
|
|
(637
|
)
|
Total Gross Profit
|
|
$
|
527,726
|
|
|
$
|
557,233
|
|
|
$
|
459,061
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
Retail
|
|
$
|
51,728
|
|
|
$
|
53,955
|
|
|
$
|
52,102
|
|
Wholesale
|
|
6,014
|
|
|
6,188
|
|
|
1,024
|
|
DSS
|
|
7,974
|
|
|
5,253
|
|
|
—
|
|
Corporate Services
|
|
149
|
|
|
190
|
|
|
192
|
|
Total Depreciation and Amortization
|
|
$
|
65,865
|
|
|
$
|
65,586
|
|
|
$
|
53,318
|
|
|
|
|
|
|
|
|
Operating (Loss) Income
|
|
|
|
|
|
|
Retail
(d)
|
|
$
|
3,751
|
|
|
$
|
(265,843
|
)
|
|
$
|
53,316
|
|
Wholesale
(d)
|
|
(2,131
|
)
|
|
31,388
|
|
|
(11,237
|
)
|
DSS
|
|
(3,345
|
)
|
|
226
|
|
|
—
|
|
Corporate Services
|
|
(25,463
|
)
|
|
(27,750
|
)
|
|
(27,887
|
)
|
Eliminations
|
|
(466
|
)
|
|
(724
|
)
|
|
(637
|
)
|
Total Operating (Loss) Income
(d)
|
|
$
|
(27,654
|
)
|
|
$
|
(262,703
|
)
|
|
$
|
13,555
|
|
|
|
|
|
|
|
|
The following is a reconciliation of segment Operating Income to consolidated Income Before Income Taxes
|
|
|
|
|
|
|
Total Operating (Loss) Income
|
|
$
|
(27,654
|
)
|
|
$
|
(262,703
|
)
|
|
$
|
13,555
|
|
Interest Expense, net
|
|
(9,780
|
)
|
|
(10,306
|
)
|
|
(3,464
|
)
|
Total (Loss) Income Before Income Taxes
|
|
$
|
(37,434
|
)
|
|
$
|
(273,009
|
)
|
|
$
|
10,091
|
|
|
|
|
|
|
|
|
|
|
(a)
|
We acquired PaperRater on August 21, 2018. The consolidated financial statements for the 52 weeks ended April 27, 2019 include the financial results of PaperRater from the acquisition date, August 21, 2018, to April 27, 2019.
|
|
|
(b)
|
We acquired Student Brands, LLC on August 3, 2017. The consolidated financial statements for the 52 weeks ended April 28, 2018 include the financial results of Student Brands from the acquisition date, August 3, 2017, to April 28, 2018.
|
|
|
(c)
|
We acquired MBS Textbook Exchange, LLC on February 27, 2017. The consolidated financial statements for the 52 weeks ended April 29, 2017 include the financial results of MBS from the acquisition date, February 27, 2017, to April 29, 2017.
|
|
|
(d)
|
In Fiscal 2019, we recorded goodwill impairment (non-cash impairment loss) of
$20,538
and
$28,744
in our Retail and Wholesale Segments, respectively.
|
In Fiscal 2018, we recorded a goodwill impairment (non-cash impairment loss) of
$313,130
in our Retail Segment (prior BNC segment) based on the results of our annual goodwill impairment test.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 7.
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 27, 2019,
47,562,947
shares of our common stock and
0
shares of our preferred stock were issued and outstanding. Our common stock trades on the NYSE under the symbol “BNED”.
The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Holders of shares of our common stock do not have cumulative voting rights in the election of directors. The holders of our common stock will be entitled to share ratably in our assets legally available for distribution to our stockholders, subject to the prior distribution rights of preferred stock, if any, then outstanding. The holders of our common stock do not have preemptive rights or preferential rights to subscribe for shares of our capital stock.
We have reserved
10,409,345
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 13. Stock-Based Compensation
.
Share Repurchases
On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to
$50,000
, in the aggregate, of our outstanding common stock. The stock repurchase program is carried out at the direction of management (which includes a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. During the 52 weeks ended April 27, 2019 and April 28, 2018, we did not purchase shares under the stock repurchase program. During the
52 weeks ended
April 29, 2017, we repurchased
688,948
shares for approximately
$6,718
at a weighted average cost per share of
$10.10
. As of April 27, 2019, approximately
$26,669
remains available under the stock repurchase program.
During the
52 weeks ended
April 27, 2019
, April 28, 2018 and April 29, 2017, we also repurchased
351,043
shares,
260,531
shares and
276,292
shares of our common stock in connection with employee tax withholding obligations for vested stock awards, respectively.
Dividends
We paid no dividends to common stockholders during
Fiscal 2019, Fiscal 2018 and Fiscal 2017
. We do not intend to pay dividends on our common stock in the foreseeable future.
Earnings Per Share
Basic EPS is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the year. We include participating securities (unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of unvested restricted stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. During the
Fiscal 2019, Fiscal 2018 and Fiscal 2017
, average shares of
2,939,089
,
2,494,799
and
375,457
were excluded from the diluted earnings per share calculation using the two-class method as their inclusion would have been antidilutive, respectively.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
The following is a reconciliation of the basic and diluted earnings per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
(shares in thousands)
|
Fiscal 2019
|
|
Fiscal 2018
|
|
Fiscal 2017
|
Numerator for basic earnings per share:
|
|
|
|
|
|
Net (loss) income
|
$
|
(24,374
|
)
|
|
$
|
(252,566
|
)
|
|
$
|
5,361
|
|
Less allocation of earnings to participating securities
|
—
|
|
|
—
|
|
|
(3
|
)
|
Net (loss) income available to common shareholders
|
$
|
(24,374
|
)
|
|
$
|
(252,566
|
)
|
|
$
|
5,358
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share:
|
|
|
|
|
|
Net (loss) income available to common shareholders
|
$
|
(24,374
|
)
|
|
$
|
(252,566
|
)
|
|
$
|
5,358
|
|
Allocation of earnings to participating securities
|
—
|
|
|
—
|
|
|
3
|
|
Less diluted allocation of earnings to participating securities
|
—
|
|
|
—
|
|
|
(3
|
)
|
Net (loss) income available to common shareholders
|
$
|
(24,374
|
)
|
|
$
|
(252,566
|
)
|
|
$
|
5,358
|
|
|
|
|
|
|
|
Denominator for basic earnings per share:
|
|
|
|
|
|
Basic weighted average shares of Common Stock
|
47,306
|
|
|
46,763
|
|
|
46,317
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
Basic weighted average shares of Common Stock
|
47,306
|
|
|
46,763
|
|
|
46,317
|
|
Average dilutive restricted stock units
|
—
|
|
|
—
|
|
|
389
|
|
Average dilutive performance shares
|
—
|
|
|
—
|
|
|
40
|
|
Average dilutive restricted shares
|
—
|
|
|
—
|
|
|
17
|
|
Average dilutive performance share units
|
—
|
|
|
—
|
|
|
—
|
|
Average dilutive options
|
—
|
|
|
—
|
|
|
—
|
|
Diluted weighted average shares of Common Stock
|
47,306
|
|
|
46,763
|
|
|
46,763
|
|
|
|
|
|
|
|
(Loss) Earnings per share of Common Stock:
|
|
|
|
|
|
Basic
|
$
|
(0.52
|
)
|
|
$
|
(5.40
|
)
|
|
$
|
0.12
|
|
Diluted
|
$
|
(0.52
|
)
|
|
$
|
(5.40
|
)
|
|
$
|
0.11
|
|
Note 8.
Fair Values of Financial Instruments
In accordance with
ASC No. 820, Fair Value Measurements and Disclosures
, the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1—Observable inputs that reflect quoted prices in active markets
Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3—Unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions
Our financial instruments include cash and cash equivalents, receivables, accrued liabilities and accounts payable. The fair values of cash and cash equivalents, receivables, accrued liabilities and accounts payable approximates their carrying values because of the short-term nature of these instruments, which are all considered Level 1. The fair value of short-term and long-term debt approximates its carrying value.
For nonrecurring fair value measurements associated with impairment testing performed during Fiscal 2019, refer to
Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies - Other Long-lived Assets
and
Note 2. Summary of Significant Accounting Policies - Goodwill
where we determined the fair value of impaired assets using Level 3 inputs.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 9.
Credit Facility
On March 1, 2019, we entered into an amendment to extend our original credit agreement (the “Credit Agreement”) that was entered on August 3, 2015 with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders, from time to time party thereto, under which the lenders committed to provide us with a
five
-year asset-backed revolving credit facility in an aggregate committed principal amount of
$400,000
(the “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 March 1, 2019 amendment included an extension to the maturity date of the incremental first in, last out seasonal loan facility (the “FILO Facility”) that was entered into on February 27, 2017. The FILO Facility remains a
$100,000
incremental facility maintaining the maximum availability under the Credit Agreement at
$500,000
.
As of April 27, 2019, we had outstanding borrowings of
$33,500
and
$100,000
under the Credit Facility and FILO Facility, respectively. As of April 28, 2018, we had outstanding borrowings of
$96,400
and
$100,000
under the Credit Facility and FILO Facility, respectively.
During the
52 weeks ended
April 27, 2019
, we borrowed
$521,200
and repaid
$584,100
under the Credit Agreement, and had a net total of
$133,500
of outstanding borrowings as of
April 27, 2019
. As of both
April 27, 2019
and April 28, 2018, we issued
$4,759
in letters of credit under the Credit Facility, respectively. During Fiscal 2018, we borrowed
$674,500
and repaid
$637,700
under the Credit Facility. During Fiscal 2017, we borrowed
$312,700
and repaid
$153,100
under the Credit Agreement.
During Fiscal 2019, we incurred debt issuance costs totaling
$3,395
related to the March 1, 2019 Credit Facility amendment and recorded a write-off of
$118
of existing unamortized debt issuance costs. During Fiscal 2017, we incurred debt issuance costs totaling
$2,912
related to the FILO Facility. The debt issuance costs have been deferred and are presented as an asset which is subsequently amortized ratably over the term of the Credit Agreement.
The Credit Facility is secured by substantially all of the inventory, accounts receivable and related assets of the borrowers under the Credit Facility, but excluding the equity interests in us and our subsidiaries, intellectual property, equipment and certain other property.
Interest under the Credit Facility accrues, at our election, at a LIBOR or alternate base rate, plus, in each case, an applicable interest rate margin, which is determined by reference to the level of excess availability under the Credit Facility. Loans will initially bear interest at LIBOR plus 1.750% per annum, in the case of LIBOR borrowings, or at the alternate base rate plus 0.750% per annum, in the alternative, and thereafter the interest rate will fluctuate between LIBOR plus 1.750% per annum and LIBOR plus 1.250% per annum (or between the alternate base rate plus 0.750% per annum and the alternate base rate plus 0.250% 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 LIBOR rate, plus 2.750%. 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 were amended as part of the March 1, 2019 amendment to the Credit Facility and will decrease from $100,000 to $75,000 on August 1, 2019, from $75,000 to $50,000 on August 1, 2020 and from $50,000 to $25,000 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 our ability to incur additional indebtedness, create liens, make investments, make restricted payments or specified payments and merge or acquire assets, among other things. In addition, if excess availability under the Credit Facility were to fall below certain specified levels, certain additional covenants (including fixed charge coverage ratio requirements) would be triggered, and the lenders would have the right to assume dominion and control over the Company's cash.
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 27, 2019.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
We believe that our future cash from operations, access to borrowings under the Credit Facility, FILO Facility and short-term vendor financing will provide adequate resources to fund our operating and financing needs for the foreseeable future. Our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for and pace of sustainable growth in our markets, the levels at which we maintain inventory, the number and timing of new store openings, and any potential acquisitions of other brands or companies including digital properties. To the extent that available funds are insufficient to fund our future activities, we may need to raise additional funds through public or private financing of debt or equity. Our access to, and the availability of, financing in the future will be impacted by many factors, including the liquidity of the overall capital markets and the current state of the economy. There can be no assurances that we will have access to capital markets on acceptable terms.
Note 10.
Supplementary Information
Impairment Loss (non-cash)
During the 52 weeks ended April 27, 2019, we recorded an impairment loss (non-cash) of
$57,748
, comprised of
$49,282
of goodwill and
$8,466
of long-lived assets. During the 52 weeks ended April 28, 2018, we recorded an impairment loss (non-cash) of
$313,130
related to goodwill. For information, see
Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies
.
Restructuring and Other Charges
Restructuring
During the 52 weeks ended April 27, 2019, we recognized expenses totaling
$4,554
, which is comprised of severance and transition payments related to senior management changes, and other employee termination and benefit costs. Mr. Patrick Maloney resigned as Executive Vice President, Operations of the Company and President, BNC effective as of April 27, 2019, resulting in
$2,500
of severance and transition payments. For additional information, see the Form 8-K dated December 13, 2018, filed with the SEC on December 18, 2018. Additionally, as part of the our cost reduction objectives, various positions were eliminated, resulting in approximately
$2,054
in employee termination costs.
During the 52 weeks ended April 28, 2018, we recognized expenses totaling
$5,429
, which is primarily comprised of severance and transition payments, as well as related expenses, resulting from the resignation of Mr. Max J. Roberts as Chief Executive Officer of the Company. Mr. Michael P. Huseby was appointed to the position of Chief Executive Officer and Chairman of the Board, both effective as of September 19, 2017. For additional information, see the Form 8-K dated July 19, 2017, filed with the SEC on July 20, 2017.
Other Charges
During the 52 weeks ended April 27, 2019, we recognized other charges totaling
$2,679
, primarily comprised of
$2,274
in an actuarial loss for a retirement benefit plan (non-cash),
$281
related to additional liabilities for a facility closure, and a write-off of
$118
of existing unamortized debt issuance costs.
Intangible Assets
Amortizable intangible assets as of
April 27, 2019
and
April 28, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 27, 2019
|
Amortizable intangible assets
|
|
Remaining
Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Total
|
Customer relationships
|
|
1 - 15
|
|
$
|
271,800
|
|
|
$
|
(101,781
|
)
|
|
$
|
170,019
|
|
Content
|
|
3 - 4
|
|
19,400
|
|
|
(5,728
|
)
|
|
13,672
|
|
Technology
(a)
|
|
1 - 3
|
|
9,500
|
|
|
(3,883
|
)
|
|
5,617
|
|
Other
(b)
|
|
1 - 9
|
|
9,831
|
|
|
(4,161
|
)
|
|
5,670
|
|
|
|
|
|
$
|
310,531
|
|
|
$
|
(115,553
|
)
|
|
$
|
194,978
|
|
|
|
(a)
|
See
Impairment Loss (non-cash)
discussion above.
|
|
|
(b)
|
Other consists of recognized intangibles for non-compete agreements, trade names, and favorable leasehold interests.
|
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 28, 2018
|
Amortizable intangible assets
|
|
Remaining
Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Total
|
Customer relationships
|
|
1 - 16
|
|
$
|
272,419
|
|
|
$
|
(89,767
|
)
|
|
$
|
182,652
|
|
Content
|
|
4
|
|
14,500
|
|
|
(2,175
|
)
|
|
12,325
|
|
Technology
|
|
2 - 8
|
|
20,100
|
|
|
(4,080
|
)
|
|
16,020
|
|
Other
(a)
|
|
1 - 9
|
|
10,853
|
|
|
(2,721
|
)
|
|
8,132
|
|
|
|
|
|
$
|
317,872
|
|
|
$
|
(98,743
|
)
|
|
$
|
219,129
|
|
|
|
(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 27, 2019
|
$
|
21,314
|
|
For the 52 weeks ended April 28, 2018
|
$
|
19,056
|
|
For the 52 weeks ended April 29, 2017
|
$
|
12,095
|
|
|
|
|
|
|
|
|
Estimated Amortization Expense: (Fiscal Year)
|
|
2020
|
$
|
19,524
|
|
2021
|
$
|
17,744
|
|
2022
|
$
|
17,410
|
|
2023
|
$
|
14,032
|
|
2024
|
$
|
12,102
|
|
After 2024
|
$
|
114,166
|
|
For additional information about intangible assets, see
Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies
and
Note 4. Acquisitions
.
Goodwill
The following table details the changes in carrying value of goodwill (including foreign currency translation):
|
|
|
|
|
|
Balance at April 29, 2017
|
|
$
|
329,467
|
|
Goodwill related to Student Brands acquisition
|
|
31,782
|
|
Goodwill related to MBS measurement period adjustment
|
|
1,163
|
|
Impairment loss (non-cash)
(a)
|
|
(313,130
|
)
|
Balance at April 29, 2018
|
|
$
|
49,282
|
|
Goodwill related to PaperRater acquisition
|
|
4,700
|
|
Impairment loss (non-cash)
(a)
|
|
(49,282
|
)
|
Balance at April 27, 2019
|
|
$
|
4,700
|
|
|
|
(a)
|
See
Impairment Loss (non-cash)
discussion above.
|
As of April 27, 2019, goodwill of approximately
$79,578
was deductible for federal income tax purposes.
For additional information related to goodwill, see
Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies
and
Note 4. Acquisitions
.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 11.
Related Party Transactions
MBS Textbook Exchange, LLC
Prior to the acquisition of MBS on February 27, 2017, MBS was considered a related-party as it was majority-owned by Leonard Riggio, who is a principal owner holding substantial shares of our common stock, and other members of the Riggio family. See
Part II - Item 8. Financial Statements and Supplementary Data - Note 4. Acquisitions
.
Prior to the acquisition, we had a long-term supply agreement (“Supply Agreement”) with MBS, under which and subject to availability and competitive terms and conditions, we purchased new and used printed textbooks for a given academic term from MBS prior to buying them from other suppliers, other than in connection with student buy-back programs. Prior to the acquisition on February 27, 2017, total purchases from MBS were
$92,956
(amount prior to returns which occurred subsequent to the February 27, 2017 acquisition date) for Fiscal 2017. Additionally, the Supply Agreement provided that we could sell to MBS certain textbooks that we could not return to suppliers or use in our stores. MBS paid us commissions based on the volume of these textbooks sold to MBS each year and with respect to the textbook requirements of certain distance learning programs that MBS fulfilled on our behalf. Prior to the acquisition on February 27, 2017, MBS paid us
$7,376
related to these commissions in Fiscal 2017. In addition, the Supply Agreement contains restrictive covenants that limited our ability to become a used textbook wholesaler and that place certain limitations on MBS’s business activities. We also previously entered into an agreement with MBS pursuant to which MBS purchased books from us, which have no resale value for a flat rate per box. Prior to the acquisition on February 27, 2017, total sales to MBS under this program were
$339
for Fiscal 2017.
Subsequent to the acquisition, the consolidated financial statements include the accounts of MBS and all material intercompany accounts and transactions have been eliminated in consolidation.
MBS leases its main warehouse and distribution facility located in Columbia, Missouri from MBS Realty Partners L.P. which is majority-owned by Leonard Riggio, with the remaining ownership by other sellers of MBS. The lease was originally entered into in 1991 and included a renewal option which extended the lease through September 1, 2023. Based upon a valuation performed as of the acquisition date, the lease was determined to be favorable from a lessee perspective with below market rent. Rent payments to MBS Realty Partners L.P. were approximately
$1,380
in both Fiscal 2019 and Fiscal 2018. See
Part II - Item 8. Financial Statements and Supplementary Data - Note 4. Acquisitions
.
Note 12.
Employee Benefit Plans
We sponsor defined contribution plans for the benefit of substantially all of the employees of BNC and DSS. MBS maintains a profit sharing plan covering substantially all full-time employees of MBS. For all plans, we are responsible to fund the employer contributions directly. Total employee benefit expense for these plans was
$6,702
,
$7,196
, and
$4,828
during Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
Note 13.
Stock-Based Compensation
We have reserved
10,409,345
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”) and performance share units (“PSU”). We have not granted options under the Equity Incentive Plan.
A RS award is an award of common stock that is subject to certain restrictions during a specified period. Restricted stock awards are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of unvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon (although payment may be deferred until the shares have vested) and are considered to be currently issued and outstanding. Restricted stock awards will have a minimum vesting period of one year.
A RSU is a grant valued in terms of our common stock, but no stock is issued at the time of grant. Each restricted stock unit may be redeemed for one share of our common stock once vested. Restricted stock units are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the units except in very limited circumstances and with the consent of the compensation committee. Shares associated with unvested restricted stock units have no voting rights but are entitled to receive dividends and other distributions thereon (although payment may be deferred until the units have vested). Restricted stock units generally vest over a period of three years, but will have a minimum vesting period of one year.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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.
We recognize compensation expense for awards ratably over the requisite service period of the award, which is generally three years. We recognize compensation expense based on the number of awards expected to vest using an estimated average forfeiture rate. We calculate the fair value of stock-based awards based on the closing price on the date the award was granted. For those awards with market conditions, we have determined the grant date fair value using the Monte Carlo simulation model.
Stock-Based Compensation Activity
The following table presents a summary of awards activity related to our current Equity Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
|
Restricted Stock Units
|
|
Performance Shares
|
|
Performance Share Units
|
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
Balance,
April 30, 2016
|
|
46,080
|
|
|
$
|
13.02
|
|
|
1,241,467
|
|
|
$
|
11.10
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
12,371
|
|
|
$
|
9.70
|
|
|
1,207,070
|
|
|
$
|
9.70
|
|
|
406,078
|
|
|
$
|
9.52
|
|
|
—
|
|
|
$
|
—
|
|
Vested
|
|
(46,080
|
)
|
|
$
|
13.02
|
|
|
(680,489
|
)
|
|
$
|
9.72
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
—
|
|
|
$
|
—
|
|
|
(36,425
|
)
|
|
$
|
9.69
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Balance,
April 29, 2017
|
|
12,371
|
|
|
$
|
9.70
|
|
|
1,731,623
|
|
|
$
|
10.70
|
|
|
406,078
|
|
|
$
|
9.52
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
19,704
|
|
|
$
|
6.09
|
|
|
1,640,926
|
|
|
$
|
5.88
|
|
|
—
|
|
|
$
|
—
|
|
|
537,756
|
|
|
$
|
7.90
|
|
Vested
|
|
(12,371
|
)
|
|
$
|
9.70
|
|
|
(697,370
|
)
|
|
$
|
10.93
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
(a)
|
|
—
|
|
|
$
|
—
|
|
|
(355,055
|
)
|
|
$
|
9.04
|
|
|
(120,142
|
)
|
|
$
|
9.52
|
|
|
—
|
|
|
$
|
—
|
|
Balance,
April 28, 2018
|
|
19,704
|
|
|
$
|
6.09
|
|
|
2,320,124
|
|
|
$
|
7.47
|
|
|
285,936
|
|
|
$
|
9.52
|
|
|
537,756
|
|
|
$
|
7.90
|
|
Granted
|
|
21,506
|
|
|
$
|
5.58
|
|
|
1,443,746
|
|
|
$
|
5.58
|
|
|
—
|
|
|
$
|
—
|
|
|
385,171
|
|
|
$
|
4.18
|
|
Vested
|
|
(19,704
|
)
|
|
$
|
6.09
|
|
|
(1,056,486
|
)
|
|
$
|
8.31
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
(a)
|
|
—
|
|
|
$
|
—
|
|
|
(355,067
|
)
|
|
$
|
6.23
|
|
|
(60,425
|
)
|
|
$
|
9.52
|
|
|
(157,028
|
)
|
|
$
|
6.83
|
|
Balance,
April 27, 2019
|
|
21,506
|
|
|
$
|
5.58
|
|
|
2,352,317
|
|
|
$
|
6.12
|
|
|
225,511
|
|
|
$
|
9.52
|
|
|
765,899
|
|
|
$
|
6.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The PS and PSUs forfeitures reflect a cumulative adjustment to reflect changes to the expected level of achievement of the respective grants.
Total fair value of vested share awards since the inception of the Equity Incentive Plan is
$27,364
.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Stock-Based Compensation Expense
We recognized stock-based compensation expense for equity-based awards in selling and administrative expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
|
Fiscal 2018
|
|
Fiscal 2017
|
Restricted Stock Expense
|
$
|
110
|
|
|
$
|
120
|
|
|
$
|
280
|
|
Restricted Stock Units Expense
|
7,846
|
|
|
8,370
|
|
|
8,431
|
|
Performance Shares Expense
(a)
|
87
|
|
|
(218
|
)
|
|
655
|
|
Performance Share Units Expense
(a)
|
974
|
|
|
187
|
|
|
—
|
|
Stock-Based Compensation Expense
|
$
|
9,017
|
|
|
$
|
8,459
|
|
|
$
|
9,366
|
|
|
|
(a)
|
Stock-based 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 27, 2019
was
$11,115
and is expected to be recognized over a weighted-average period of
1.85
years.
Note 14.
Income Taxes
For Fiscal 2019, Fiscal 2018 and Fiscal 2017, we had no material revenue or expense in jurisdictions outside the United States.
Impact of U.S. Tax Reform
The Tax Cuts and Jobs Act (the “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
$3,911
, which primarily related 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
$20,425
reduction of the value of our net deferred (which represents future tax liabilities) and long-term tax liabilities as a result of lowering the U.S. corporate income tax rate from
35%
to
21%
, which was recorded in Fiscal 2018. We also recorded a liability associated with the one-time transition tax, however, such amount is not material.
Income tax (benefits) provisions for
Fiscal 2019, Fiscal 2018 and Fiscal 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
|
Fiscal 2018
|
|
Fiscal 2017
|
Current:
|
|
|
|
|
|
|
Federal
(a)
|
|
$
|
(6,494
|
)
|
|
$
|
(8,089
|
)
|
|
$
|
14,872
|
|
State
|
|
(2,035
|
)
|
|
2,410
|
|
|
1,819
|
|
Total Current
|
|
(8,529
|
)
|
|
(5,679
|
)
|
|
16,691
|
|
Deferred:
|
|
|
|
|
|
|
Federal
(a)
|
|
(3,681
|
)
|
|
(13,250
|
)
|
|
(9,238
|
)
|
State
|
|
(850
|
)
|
|
(1,514
|
)
|
|
(2,723
|
)
|
Total Deferred
|
|
(4,531
|
)
|
|
(14,764
|
)
|
|
(11,961
|
)
|
Total
|
|
$
|
(13,060
|
)
|
|
$
|
(20,443
|
)
|
|
$
|
4,730
|
|
|
|
(a)
|
For Fiscal 2018, the income tax benefit was caused largely by the revaluation due to the change in the U.S. corporate income tax rate from
35%
to
21%
as described above.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
|
Fiscal 2018
|
|
Fiscal 2017
|
Federal statutory income tax rate
(a)
|
|
21.0
|
%
|
|
34.1
|
%
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
6.3
|
|
|
(0.3
|
)
|
|
(5.8
|
)
|
Permanent book / tax differences
|
|
(3.9
|
)
|
|
(0.7
|
)
|
|
25.5
|
|
Goodwill impairment
|
|
—
|
|
|
(34.2
|
)
|
|
—
|
|
Provisional remeasurement due to Tax Legislation
|
|
10.4
|
|
|
7.5
|
|
|
—
|
|
Credits
|
|
0.3
|
|
|
0.2
|
|
|
(5.5
|
)
|
Other, net
|
|
0.8
|
|
|
0.9
|
|
|
(2.3
|
)
|
Effective income tax rate
|
|
34.9
|
%
|
|
7.5
|
%
|
|
46.9
|
%
|
|
|
(a)
|
Due to the Act, we applied a U.S. statutory federal income tax rate of
33.9%
for earnings between April 30, 2017 and January 27, 2018, and
21%
for earnings between January 28, 2018 and April 28, 2018. The result is an effective statutory rate of
34.1%
for Fiscal 2018.
|
The effective tax rate for Fiscal 2019 is significantly higher as compared to the comparable prior year period due to the tax benefit of revaluing deferred tax liabilities recorded in the prior year period and permanent differences, partially offset by the reduced federal tax rate because of the Act.
One percentage point on our Fiscal 2019 effective tax rate is approximately
$374
. The permanent book / tax differences are principally comprised of non-deductible compensation, non-deductible meals and entertainment costs, and federal income tax credits.
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 27, 2019
|
|
April 28, 2018
|
Deferred tax assets:
|
|
|
|
|
Estimated accrued liabilities
|
|
$
|
10,972
|
|
|
$
|
9,375
|
|
Inventory
|
|
2,969
|
|
|
8,256
|
|
Stock-based compensation
|
|
1,738
|
|
|
1,374
|
|
Insurance liability
|
|
518
|
|
|
474
|
|
Lease transactions
|
|
982
|
|
|
1,095
|
|
Property and equipment
|
|
—
|
|
|
2,803
|
|
Tax credits
|
|
402
|
|
|
220
|
|
Goodwill
|
|
19,903
|
|
|
9,105
|
|
Net operating losses
|
|
4,928
|
|
|
5,834
|
|
Other
|
|
8,253
|
|
|
4,356
|
|
Gross deferred tax assets
|
|
50,665
|
|
|
42,892
|
|
Valuation allowance
|
|
(1,194
|
)
|
|
(932
|
)
|
Net deferred tax assets
|
|
49,471
|
|
|
41,960
|
|
Deferred tax liabilities:
|
|
|
|
|
Intangible asset amortization
|
|
(40,790
|
)
|
|
(44,066
|
)
|
Property and equipment
|
|
(6,256
|
)
|
|
—
|
|
Gross deferred tax liabilities
|
|
(47,046
|
)
|
|
(44,066
|
)
|
Net deferred tax asset (liabilities)
|
|
$
|
2,425
|
|
|
$
|
(2,106
|
)
|
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
As of
April 27, 2019
, we had
$91
of unrecognized tax benefits, all of which, if recognized, would affect our effective tax rate. We do not believe that it is reasonably possible that these unrecognized tax benefits will decrease in the next twelve months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
Balance at April 30, 2016
|
$
|
21
|
|
Additions for tax positions of the current period
|
40
|
|
Additions for tax positions of prior periods
|
25
|
|
Reductions due to settlements
|
—
|
|
Other reductions for tax positions of prior periods
|
—
|
|
Balance at April 29, 2017
|
$
|
86
|
|
Additions for tax positions of the current period
|
25
|
|
Additions for tax positions of prior periods
|
2
|
|
Reductions due to settlements
|
—
|
|
Other reductions for tax positions of prior periods
|
(16
|
)
|
Balance at April 28, 2018
|
$
|
97
|
|
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
|
(6
|
)
|
Balance at April 27, 2019
|
$
|
91
|
|
|
|
Our policy is to recognize interest and penalties related to income tax matters in income tax expense. As of
April 27, 2019
and
April 28, 2018
, we had accrued
$4
and
$5
, respectively, for net interest and penalties. The change in the amount accrued for net interest and penalties includes
$1
in reductions for net interest and penalties recognized in income tax expense in our Fiscal 2019 consolidated statement of operations.
In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets would be realized. In evaluating the 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. We have recorded a valuation allowance of
$1,194
and
$932
for April 27, 2019 and April 28, 2018, respectively.
As of April 27, 2019, and based on our tax year ended January 2019, we had state net operating loss carryforwards (“NOLs”) of approximately
$81,786
that are available to offset taxable income in our respective taxing jurisdiction beginning in the current period and that expire beginning in 2030. We had net state tax credit carryforwards totaling
$509
, which expire beginning in 2021.
As of April 27, 2019, 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 2013 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 15.
Legal Proceedings
We are involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of our business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 16.
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. We provide for minimum contract expense over the contract terms on a straight-line basis. The excess of such minimum contract expense over actual contract payments (net of school allowances) is reflected in other long-term liabilities and accrued liabilities in the consolidated balance sheets. The expense related to our college and university contracts for physical bookstores, including rent expense, and other facility costs in the consolidated statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
|
Fiscal 2018
|
|
Fiscal 2017
|
Minimum contract expense
|
|
$
|
169,131
|
|
|
$
|
170,351
|
|
|
$
|
165,980
|
|
Percentage contract expense
|
|
73,368
|
|
|
80,630
|
|
|
87,843
|
|
Total expense
|
|
$
|
242,499
|
|
|
$
|
250,981
|
|
|
$
|
253,823
|
|
Our physical bookstore management contracts with colleges and universities are typically five years with renewal options and are typically cancelable by either party without penalty with 90 to120 days' notice. The annual projections below are based on current minimum guarantee amounts. In approximately 72% of our physical bookstore management 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.
As of
April 27, 2019
, future minimum annual obligations required under our physical bookstore management contracts with colleges and universities and other facility costs are as follows:
|
|
|
|
|
Fiscal Year
|
|
2020
|
$
|
138,523
|
|
2021
|
133,741
|
|
2022
|
120,327
|
|
2023
|
113,518
|
|
2024
|
99,693
|
|
After 2024
|
161,090
|
|
Total
|
$
|
766,892
|
|
Purchase obligations, which includes information technology contracts and inventory purchase commitments, as of
April 27, 2019
are as follows:
|
|
|
|
|
Less Than 1 Year
|
$
|
4,262
|
|
1-3 Years
|
1,819
|
|
3-5 Years
|
32
|
|
Total
|
$
|
6,113
|
|
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Note 17.
Selected Quarterly Financial Information (Unaudited)
A summary of quarterly financial information for Fiscal 2019 and Fiscal 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 Quarterly Period Ended
|
|
July 28,
2018
|
|
October 27, 2018
|
|
January 26, 2019
|
|
April 27, 2019
|
|
Fiscal Year
2019
|
Sales
|
|
$
|
337,484
|
|
|
$
|
814,766
|
|
|
$
|
548,008
|
|
|
$
|
334,385
|
|
|
$
|
2,034,643
|
|
Gross profit
|
|
$
|
66,610
|
|
|
$
|
210,760
|
|
|
$
|
132,953
|
|
|
$
|
117,403
|
|
|
$
|
527,726
|
|
Net (loss) income
|
|
$
|
(38,622
|
)
|
|
$
|
59,697
|
|
|
$
|
769
|
|
|
$
|
(46,218
|
)
|
|
$
|
(24,374
|
)
|
Basic (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(0.82
|
)
|
|
$
|
1.26
|
|
|
$
|
0.02
|
|
|
$
|
(0.97
|
)
|
|
$
|
(0.52
|
)
|
Diluted (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(0.82
|
)
|
|
$
|
1.25
|
|
|
$
|
0.02
|
|
|
$
|
(0.97
|
)
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2018 Quarterly Period Ended
|
|
July 29,
2017
|
|
October 28, 2017
(a)
|
|
January 27, 2018
|
|
April 28, 2018
|
|
Fiscal Year
2018
|
Sales
|
|
$
|
355,711
|
|
|
$
|
886,861
|
|
|
$
|
603,391
|
|
|
$
|
357,654
|
|
|
$
|
2,203,617
|
|
Gross profit
|
|
$
|
65,200
|
|
|
$
|
216,700
|
|
|
$
|
146,999
|
|
|
$
|
128,334
|
|
|
$
|
557,233
|
|
Net (loss) income
|
|
$
|
(34,783
|
)
|
|
$
|
48,395
|
|
|
$
|
(283,235
|
)
|
|
$
|
17,057
|
|
|
$
|
(252,566
|
)
|
Basic (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(0.75
|
)
|
|
$
|
1.04
|
|
|
$
|
(6.04
|
)
|
|
$
|
0.36
|
|
|
$
|
(5.40
|
)
|
Diluted (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(0.75
|
)
|
|
$
|
1.03
|
|
|
$
|
(6.04
|
)
|
|
$
|
0.36
|
|
|
$
|
(5.40
|
)
|
|
|
(a)
|
We acquired Student Brands, LLC on August 3, 2017. The consolidated financial statements for the 52 weeks ended April 28, 2018 include the financial results of Student Brands from the acquisition date, August 3, 2017, to April 28, 2018.
|