Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise indicates, references to “we,” “us,” “our” and “the Company” refer to Barnes & Noble Education, Inc. or “BNED”, a Delaware corporation. References to “Barnes & Noble College” or “BNC” refer to our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our subsidiary MBS Textbook Exchange, LLC.
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. “Fiscal 2024” means the 52 weeks ended April 27, 2024, “Fiscal 2023” means the 52 weeks ended April 29, 2023.
Overview
Description of Business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States. We are also one of the largest textbook wholesalers and inventory management hardware and software providers. We operate 1,245 physical, virtual, and custom bookstores and serve more than 5.8 million students, delivering essential educational content, tools and general merchandise within a dynamic omnichannel retail environment. For a discussion of our business, see Part I - Item 1. Business.
The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands. We provide product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes. We offer our BNC First Day® equitable and inclusive access programs, consisting of First Day Complete and First Day, which provide faculty required course materials on or before the first day of class at below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte), and students are billed the below market rate directly by the institution as a course charge or included in tuition. During the 52 weeks ended April 27, 2024, BNC First Day total revenue increased by $127 million, or 37%, to $474 million compared to $347 million during the prior year period. These programs have allowed us to reverse historical long-term trends in course materials revenue declines, which has been observed at those schools where such programs have been adopted, and improve predictability of our future results. In Fiscal 2024, the growth of our BNC First Day programs offset the declines in a la carte courseware sales and closed store sales. We are moving quickly to accelerate our First Day Complete strategy. Many institutions adopted First Day Complete in Fiscal 2024, and we plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond.
We expect to continue to introduce scalable and advanced solutions focused largely on the student and customer experience, expand our e-commerce capabilities and accelerate such capabilities through our service providers, Fanatics Retail Group Fulfillment, LLC (“Fanatics”) and Fanatics Lids College, Inc. D/B/A “Lids” (“Lids”) (collectively referred to herein as the “F/L Relationship”), win new accounts, and expand our revenue opportunities through strategic relationships. We expect gross comparable store general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the F/L Relationship. Fanatics and Lids, acting on our behalf as our service providers, provide unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo general merchandise business.
The Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important to our relationship with leading publishers who rely on us as one of their primary distribution channels.
BNC First Day Equitable and Inclusive Access Programs
We provide product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes. We offer our BNC First Day® equitable and inclusive access programs, consisting of First Day Complete and First Day, which provide faculty required course materials on or before the first day of class at below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte), and students are billed the below market rate directly by the institution as a course charge or included in tuition.
•First Day Complete is adopted by an institution and includes all or the majority of undergraduate classes (and on occasion graduate classes), providing students both physical and digital materials. The First Day Complete model drives
substantially greater unit sales and sell-through for the bookstore.
•First Day is adopted by a faculty member for a single course, and students receive primarily digital course materials through their school's learning management system ("LMS").
Offering course materials through our equitable and inclusive access First Day Complete and First Day models is an important strategic initiative of ours to meet the market demands of substantially reduced pricing to students, as well as the opportunity to improve student outcomes, while, at the same time, increasing our market share, revenue and relative gross profits of course material sales given the higher volumes of units sold in such models as compared to historical sales models that rely on individual student marketing and sales. These programs have allowed us to reverse historical long-term trends in course materials revenue declines, which has been observed at those schools where such programs have been adopted, and improve predictability of our future results. In Fiscal 2024, the growth of our BNC First Day programs offset the declines in a la carte courseware sales and closed store sales. We are moving quickly to accelerate our First Day Complete strategy. Many institutions adopted First Day Complete in Fiscal 2024, and we plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond.
The following table summarizes our BNC First Day sales for the 52 weeks ended April 27, 2024 and April 29, 2023:
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| Dollars in millions | | 52 weeks ended |
| | April 27, 2024 | | April 29, 2023 | | $ Increase | | % Change |
First Day Complete Sales | | $ | 292.7 | | | $ | 197.8 | | | $ | 94.9 | | | 48% |
First Day Sales | | $ | 181.2 | | | $ | 148.9 | | | $ | 32.3 | | | 22% |
Total BNC First Day Sales | | $ | 473.9 | | | $ | 346.7 | | | $ | 127.2 | | | 37% |
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| First Day Complete | | Spring 2024 | | Spring 2023 | | # Increase | | % Change |
| Number of campus stores | | 160 | | 116 | | 44 | | 38% |
Estimated enrollment (a) | | 805,000 | | 580,000 | | 225,000 | | 39% |
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(a) Total undergraduate and graduate student enrollment as reported by National Center for Education Statistics (NCES) as of October 26, 2023. |
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Relationship with Fanatics and Lids
In December 2020, we entered into the F/L Relationship. Fanatics and Lids, acting on our behalf as our service providers, provide unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo general merchandise business. Fanatics operates as our service provider, including processing consumer personal information on our behalf, using their cutting-edge e-commerce and technology expertise to offer our campus store websites expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with Lids, the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.
We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We also work closely with our campus partners to ensure that each campus store maintains unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus’s brand. We leverage Fanatics’ e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. Lids manages in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores, and Lids owns the inventory it manages, relieving us of the obligation to finance inventory purchases from working capital. As the logo and emblematic general merchandise sales are fulfilled by Lids and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis prior to April 2021.
Financing Arrangements
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs, which will also allow us to strategically invest in innovation and continue to execute our strategic initiatives, including but not limited to the growth of our First Day Complete program. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
Cost Savings Initiative
During Fiscal 2023, we implemented a significant cost reduction program designed to streamline our operations, maximize productivity and drive profitability. We reduced our workforce, eliminated duplicate administrative headcounts at all levels, implemented improved system development processes to reduce maintenance costs, reduced capital expenditures, and evaluated operating contractual obligations for cost savings. Over the course of Fiscal 2024, we have achieved annualized savings of approximately $30 million to $35 million from the Fiscal 2023 cost savings initiatives. Additionally, during Fiscal 2024, Management's implemented further cost savings measures, including reduction of gross capital expenditures, amounting to approximately $29 million in savings.
Segments
We have two reportable segments: Retail and Wholesale. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, are not allocated to a specific reporting segment and continue to be presented as “Corporate Services”. The following discussion provides information regarding the three segments.
Retail Segment
The Retail Segment operates 1,245 college, university, and K-12 school bookstores, comprised of 707 physical bookstores and 538 virtual bookstores. Our bookstores typically operate under agreements with the colleges, universities, 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 websites, which we operate independently or along with our merchant service providers, and which offer students access to required and recommended course materials and affinity products, including emblematic apparel and gifts. The Retail Segment offers our BNC First Day® equitable and inclusive access programs, consisting of First Day Complete and First Day, which provide faculty required course materials on or before the first day of class at below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte), and students are billed the below market rate directly by the institution as a course charge or included in tuition. 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.
During the 52 weeks ended April 27, 2024, we opened 46 stores and closed 167 stores in the Retail Segment with estimated net annual sales of $(74) million. The Company’s strategic initiative is to close under-performing and less profitable stores. Many institutions adopted First Day Complete in Fiscal 2024, and we plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond. These programs have allowed us to reverse historical long-term trends in course materials revenue declines as the growth of our BNC First Day programs offsets declines in a la carte courseware sales and closed store sales.
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 2,750 physical bookstores (including our Retail Segment's 707 physical bookstores) and sources and distributes new and used textbooks to our 538 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 325 college bookstores.
Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources.
Seasonality
Our business is highly seasonal. For example, our retail business is seasonal, particularly with respect to textbook sales and rentals, with the major portion of sales and operating profit realized during the second and third fiscal quarters when college students generally purchase and rent textbooks for the upcoming semesters and lowest in the first and fourth fiscal quarters. Our quarterly results also may fluctuate depending on the timing of the start of the various schools’ semesters, the revenue impact of accounting principles with respect to the recognition of revenue associated with our equitable and inclusive access programs,
the ability to secure inventory on a timely basis, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Sales attributable to our wholesale business are generally highest in our first, second and third quarters, as it sells textbooks and other course materials for retail distribution.
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. Revenue from the sale of digital textbooks, which contains a single performance obligation, is recognized when the customer accesses the digital content as product revenue in our consolidated financial statements. Revenue from the rental of physical textbooks 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 and is recognized as rental income in our consolidated financial statements. Depending on the product mix offered under the BNC First Day offerings, revenue recognized is consistent with our policies for product, digital and rental sales, net of an anticipated opt-out or return provision.
Given the growth of BNC First Day programs, the timing of cash collection from our school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts our BNC First Day equitable and inclusive access offerings, cash collection from the school generally occurs after the institution's drop/add dates, which is later in the working capital cycle, particularly in our third quarter given the timing of the Spring Term and our quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor. As a higher percentage of our sales shift to BNC First Day equitable and inclusive access offerings, we are focused on efforts to better align the timing of our cash outflows to course material vendors and cash inflows from collections from schools. As the concentration of digital product sales increases, revenue will be recognized earlier during the academic term as digital textbook revenue is recognized when the customer accesses the digital content compared to: (i) the rental of physical textbooks where revenue is recognized over the rental period, and (ii) a la carte courseware sales where 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.
Trends and Other Factors Affecting Our Business
For a discussion of our trends and other factors affecting our business, see Part I - Item 1. Business.
Results of Operations
Elements of Results of Operations
Our consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). 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.
During the fourth quarter of Fiscal 2023, assets related to our DSS Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Certain assets and liabilities associated with the DSS Segment are presented in our consolidated balance sheets as current "Assets Held for Sale" and current "Liabilities Held for Sale". The results of operations related to the DSS Segment are included in the consolidated statements of operations as "Loss from discontinued operations, net of tax." The cash flows of the DSS Segment are also presented separately in our consolidated statements of cash flows.
Our sales are primarily derived from the sale of course materials, which include new, used, rental and digital textbooks. Additionally, at college and university bookstores which we operate, we sell general merchandise, including emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and café items and graduation products. Our rental income is primarily derived from the rental of physical textbooks. We also derive revenue from other sources, such as sales of inventory management, hardware and point-of-sale software, and other services.
Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.
Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, and finance and accounting. 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 a specific reporting segment and are recorded in Corporate Services as discussed in the Overview - Segments discussion above.
Results of Operations Summary - Continuing Operations (a)
For a detailed discussion of Fiscal 2024 and year-over-year comparison to Fiscal 2023, see Results of Operations - Continuing Operations - 52 weeks ended April 27, 2024 compared with the 52 weeks ended April 29, 2023 below.
| | | | | | | | | | | | | | | | | | | |
| | | | | 52 weeks ended | | |
| Dollars in thousands | | | | | April 27, 2024 | | April 29, 2023 (a) | | |
Sales: | | | | | | | | | |
Product sales and other | | | | | $ | 1,430,456 | | | $ | 1,406,655 | | | |
| Rental income | | | | | 136,679 | | | 136,553 | | | |
| Total sales | | | | | $ | 1,567,135 | | | $ | 1,543,208 | | | |
| | | | | | | | | |
| Gross Profit | | | | | $ | 356,776 | | | $ | 349,439 | | | |
| | | | | | | | | |
Net loss from continuing operations | | | | | $ | (62,481) | | | $ | (90,140) | | | |
| | | | | | | | | |
Adjusted Earnings (non-GAAP) - Continuing Operations (b) | | | | | $ | (35,906) | | | $ | (74,003) | | | |
| | | | | | | | | |
Adjusted EBITDA (non-GAAP) - Continuing Operations (b) | | | | | | | | | |
| Retail | | | | | $ | 54,488 | | | $ | 10,640 | | | |
| Wholesale | | | | | 9,360 | | | 3,239 | | | |
| Corporate Services | | | | | (19,679) | | | (22,000) | | | |
| Eliminations | | | | | 1,033 | | | (25) | | | |
Total Adjusted EBITDA (non-GAAP) (b) | | | | | $ | 45,202 | | | $ | (8,146) | | | |
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(a)During the fourth quarter of Fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Net Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all years reported above.
(b)Adjusted Earnings, Adjusted EBITDA, and Adjusted EBITDA by Segment are non-GAAP financial measures. See Use of Non-GAAP Measures discussion below.
The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales:
| | | | | | | | | | | | | | | | | | | |
| | | | | 52 weeks ended | | |
| Continuing Operations | | | | | April 27, 2024 | | April 29, 2023 | | |
| Sales: | | | | | | | | | |
| Product sales and other | | | | | 91.3 | % | | 91.2 | % | | |
| Rental income | | | | | 8.7 | | | 8.8 | | | |
| Total sales | | | | | 100.0 | | | 100.0 | | | |
| Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | |
Product and other cost of sales (a) | | | | | 79.4 | | | 79.6 | | | |
Rental cost of sales (a) | | | | | 54.9 | | | 54.4 | | | |
| Total cost of sales | | | | | 77.2 | | | 77.4 | | | |
| Gross margin | | | | | 22.8 | | | 22.6 | | | |
| Selling and administrative expenses | | | | | 19.9 | | | 23.2 | | | |
| Depreciation and amortization expense | | | | | 2.6 | | | 2.7 | | | |
| Impairment loss (non-cash) | | | | | 0.5 | | | 0.4 | | | |
| Restructuring and other charges | | | | | 1.2 | | | 0.7 | | | |
| | | | | | | | | |
| Operating loss from continuing operations | | | | | (1.4) | % | | (4.3) | % | | |
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(a) Represents the percentage these costs bear to the related sales, instead of total sales.
Results of Operations - Discontinued Operations
During the fourth quarter of Fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. Certain assets and liabilities associated with the DSS Segment are presented in our consolidated balance sheets as "Assets Held for Sale" and "Liabilities Held for Sale". The results of operations related to the DSS Segment are included in the consolidated statements of operations as "Loss from discontinued operations, net of tax." The cash flows of the DSS Segment are also presented separately in our consolidated statements of cash flows.
On May 31, 2023, we completed the sale of these assets related to our DSS Segment for cash proceeds of $20 million, net of certain transaction fees, severance costs, escrow, and other considerations. During the 52 weeks ended April 27, 2024, we recorded a Gain on Sale of Business of $3.5 million in Loss from Discontinued Operations, Net, related to the sale. Net cash proceeds from the sale were used for debt repayment and to provide additional funds for working capital needs under our Credit Facility.
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| | | | | 52 weeks ended | | |
| Dollars in thousands | | | | | April 27, 2024 | | April 29, 2023 | | |
| Total sales | | | | | $ | 2,784 | | | $ | 35,353 | | | |
Cost of sales (a) | | | | | 76 | | | 7,156 | | | |
Gross profit (a) | | | | | 2,708 | | | 28,197 | | | |
| Selling and administrative expenses | | | | | 3,029 | | | 34,137 | | | |
| Depreciation and amortization | | | | | 3 | | | 3,155 | | | |
| Gain on sale of business | | | | | (3,545) | | | — | | | |
Impairment loss (non-cash) (b) | | | | | 610 | | | — | | | |
Restructuring costs (c) | | | | | 3,308 | | | 1,848 | | | |
| Transaction costs | | | | | 13 | | | 381 | | | |
| Operating loss | | | | | (710) | | | (11,324) | | | |
Income tax expense | | | | | 20 | | | 398 | | | |
| Loss from discontinued operations, net of tax | | | | | $ | (730) | | | $ | (11,722) | | | |
| | | | | | | | | |
(a) Cost of sales and Gross margin for the DSS Segment includes amortization expense (non-cash) related to content development costs of $0 million and $6.6 million for the 52 weeks ended April 27, 2024 and April 29, 2023, respectively.
(b) During the 52 weeks ended April 27, 2024, we recognized an impairment loss (non-cash) of $0.6 million (both pre-tax and after-tax), comprised of $0.1 million and $0.5 million of property and equipment and operating lease right-of-use assets, respectively, on the consolidated statement of operations as part of discontinued operations.
(c) During the 52 weeks ended April 27, 2024, we recognized restructuring and other charges of $3.3 million, comprised of severance and other employee termination costs, on the consolidated statement of operations as part of discontinued operations.
Results of Operations - Continuing Operations
- 52 weeks ended April 27, 2024 compared with the 52 weeks ended April 29, 2023
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| 52 weeks ended, April 27, 2024 (a) |
| Dollars in thousands | Retail | | Wholesale | | | | Corporate Services | | Eliminations | | Total |
| Sales: | | | | | | | | | | | |
| Product sales and other | $ | 1,378,238 | | | $ | 112,631 | | | | | $ | — | | | $ | (60,413) | | | $ | 1,430,456 | |
| Rental income | 136,679 | | | — | | | | | — | | | — | | | 136,679 | |
| Total sales | 1,514,917 | | | 112,631 | | | | | — | | | (60,413) | | | 1,567,135 | |
| Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | | | |
Product and other cost of sales | 1,106,987 | | | 89,832 | | | | | — | | | (61,443) | | | 1,135,376 | |
| Rental cost of sales | 74,983 | | | — | | | | | — | | | — | | | 74,983 | |
| Total cost of sales | 1,181,970 | | | 89,832 | | | | | — | | | (61,443) | | | 1,210,359 | |
| Gross profit | 332,947 | | | 22,799 | | | | | — | | | 1,030 | | | 356,776 | |
Selling and administrative expenses | 278,459 | | | 13,439 | | | | | 19,679 | | | (3) | | | 311,574 | |
Depreciation and amortization expense | 35,294 | | | 5,228 | | | | | 38 | | | — | | | 40,560 | |
| Impairment loss (non-cash) | 7,166 | | | — | | | | | — | | | — | | | 7,166 | |
Restructuring and other charges | 571 | | | (813) | | | | | 19,651 | | | — | | | 19,409 | |
Operating income (loss) from continuing operations | $ | 11,457 | | | $ | 4,945 | | | | | $ | (39,368) | | | $ | 1,033 | | | $ | (21,933) | |
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| 52 weeks ended, April 29, 2023 (a) |
| Dollars in thousands | Retail | | Wholesale | | | | Corporate Services | | Eliminations | | Total |
| Sales: | | | | | | | | | | | |
| Product sales and other | $ | 1,355,173 | | | $ | 106,366 | | | | | $ | — | | | $ | (54,884) | | | $ | 1,406,655 | |
| Rental income | 136,553 | | | — | | | | | — | | | — | | | 136,553 | |
| Total sales | 1,491,726 | | | 106,366 | | | | | — | | | (54,884) | | | 1,543,208 | |
| Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | | | |
Product and other cost of sales | 1,086,095 | | | 88,091 | | | | | — | | | (54,704) | | | 1,119,482 | |
| Rental cost of sales | 74,287 | | | — | | | | | — | | | — | | | 74,287 | |
| Total cost of sales | 1,160,382 | | | 88,091 | | | | | — | | | (54,704) | | | 1,193,769 | |
| Gross profit | 331,344 | | | 18,275 | | | | | — | | | (180) | | | 349,439 | |
Selling and administrative expenses | 320,730 | | | 15,036 | | | | | 22,000 | | | (155) | | | 357,611 | |
Depreciation and amortization expense | 36,737 | | | 5,373 | | | | | 53 | | | — | | | 42,163 | |
| Impairment loss (non-cash) | 6,008 | | | — | | | | | — | | | — | | | 6,008 | |
Restructuring and other charges | 2,964 | | | 916 | | | | | 6,223 | | | — | | | 10,103 | |
Operating loss from continuing operations | $ | (35,095) | | | $ | (3,050) | | | | | $ | (28,276) | | | $ | (25) | | | $ | (66,446) | |
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(a) During the fourth quarter of Fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Operating Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all years reported above.
Sales
The following table summarizes our sales:
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| | | | | 52 weeks ended | | | |
| Dollars in thousands | | | | | April 27, 2024 | | April 29, 2023 | | $ Increase | % Change |
| Product sales and other | | | | | $ | 1,430,456 | | | $ | 1,406,655 | | | $ | 23,801 | | 1.7% |
| Rental income | | | | | 136,679 | | | 136,553 | | | $ | 126 | | 0.1% |
| Total Sales | | | | | $ | 1,567,135 | | | $ | 1,543,208 | | | $ | 23,927 | | 1.6% |
Our total sales increased by $23.9 million, or 1.6%, to $1,567.1 million during the 52 weeks ended April 27, 2024 from $1,543.2 million during the 52 weeks ended April 29, 2023 which is primarily related to higher course material sales, primarily at our BNC First Day programs, and higher graduation product sales, offset by declines in a la carte courseware sales, including lower sales resulting from closed stores. The components of the sales variances for the 52-week period are reflected in the table below.
| | | | | | | | | | |
| Sales variances | | 52 weeks ended
April 27, 2024 | | |
| Dollars in millions | | | | |
| Retail Sales | | | | |
| New stores | | $ | 33.4 | | | |
| Closed stores | | (72.4) | | | |
Comparable stores (a) | | 62.8 | | | |
| Textbook rental deferral | | (1.1) | | | |
Service revenue (b) | | 0.7 | | | |
Other (c) | | (0.2) | | | |
| Retail Sales subtotal: | | $ | 23.2 | | | |
| Wholesale Sales | | $ | 6.3 | | | |
| | | | |
Eliminations (d) | | $ | (5.6) | | | |
| Total sales variance: | | $ | 23.9 | | | |
(a) Logo general merchandise sales for the Retail Segment are recognized on a net basis as commission revenue in the consolidated financial statements. For Retail Gross Comparable Store Sales details, see below.
(b) Service revenue includes brand marketing programs, shipping and handling, and revenue from other programs.
(c) Other includes inventory liquidation sales to third parties, marketplace sales and certain accounting adjusting items related to return reserves, and other deferred items.
(d) Eliminates Wholesale sales and service fees to Retail and Retail commissions earned from Wholesale. See discussion of intercompany activities and eliminations below.
Retail
The following is a store count summary for physical stores and virtual stores.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2024 | | Fiscal 2023 |
| Number of Stores: | | Physical | | Virtual | | Total | | Physical | | Virtual | | Total |
| Beginning of period | | 774 | | | 592 | | | 1,366 | | | 805 | | | 622 | | | 1,427 | |
| Opened | | 23 | | | 23 | | | 46 | | | 36 | | | 30 | | | 66 | |
| Closed | | 90 | | | 77 | | | 167 | | | 67 | | | 60 | | | 127 | |
| End of period | | 707 | | | 538 | | | 1,245 | | | 774 | | | 592 | | | 1,366 | |
During the 52 weeks ended April 27, 2024, we opened 46 stores and closed 167 stores in the Retail Segment, with estimated net annual sales of $(74) million. The Company’s strategic initiative is to close under-performing and less profitable stores. Many institutions adopted First Day Complete in Fiscal 2024, and we plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond.
Generally, sales are impacted by revenue from net new/closed stores, conversion to BNC First Day programs, increased campus traffic, and an increase in the number of on campus activities and events, such as graduations, athletic events, alumni events and prospective student campus tours.
Retail total sales increased by $23.2 million, or 1.6%, to $1,514.9 million during the 52 weeks ended April 27, 2024 from $1,491.7 million during the 52 weeks ended April 29, 2023.
•Product sales and other increased by $23.1 million, or 1.7%, to $1,378.2 million during the 52 weeks ended April 27, 2024 from $1,355.1 million during the 52 weeks ended April 29, 2023.
◦Course material product sales increased by $44.0 million, or 4.7%, to $972.0 million during the 52 weeks ended April 27, 2024, compared to $927.9 million in the prior year period. The increase was primarily due to the growth of our BNC First Day programs, which increased by $127.2 million, or 36.7%, to $473.9 million, offset by a decline of $83.1 million in a la carte courseware sales, including lower sales resulting from closed stores.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dollars in millions | | 52 weeks ended |
| | April 27, 2024 | | April 29, 2023 | | $ Increase | | % Change |
First Day Complete Sales | | $ | 292.7 | | | $ | 197.8 | | | $ | 94.9 | | | 48% |
First Day Sales | | $ | 181.2 | | | $ | 148.9 | | | $ | 32.3 | | | 22% |
Total BNC First Day Sales | | $ | 473.9 | | | $ | 346.7 | | | $ | 127.2 | | | 37% |
| | | | | | | | |
| First Day Complete | | Spring 2024 | | Spring 2023 | | # Increase | | % Change |
| Number of campus stores | | 160 | | 116 | | 44 | | 38% |
Estimated enrollment (a) | | 805,000 | | 580,000 | | 225,000 | | 39% |
| | | | | | | | |
(a) Total undergraduate and graduate student enrollment as reported by National Center for Education Statistics (NCES) as of October 26, 2023. |
| | | | | | | | |
◦General merchandise product net sales decreased by $21.4 million, or 5.6%, to $364.1 million, compared to $385.5 million in the prior year period, primarily due to closed stores, and lower cafe and convenience, trade, and supply product sales, offset by higher graduation product sales and higher emblematic product sales. Retail Gross Comparable Store Sales for general merchandise increased by $6.6 million, or 1.2%, compared to the prior year period as discussed below.
◦Service and other revenue increased by $0.4 million, or 1%, to $42.2 million, compared to $41.8 million in the prior year period, primarily due to higher other income for non-return rental penalty fees, offset by lower partnership marketing and marketplace sales.
•Rental income for course materials increased by $0.1 million, or 0.1%, to $136.7 million during the 52 weeks ended April 27, 2024 from $136.6 million during the 52 weeks ended April 29, 2023, primarily due to the growth of our BNC First Day programs, offset by closed stores and the shift to digital products.
Retail Gross Comparable Store Sales
To supplement the Total Sales table presented above, the Company uses Retail Gross Comparable Store Sales as a key performance indicator. Retail Gross Comparable Store Sales includes sales from physical and virtual stores that have been open for an entire fiscal year period and does not include sales from permanently closed stores for all periods presented. For Retail Gross Comparable Store Sales, sales for logo general merchandise fulfilled by Lids, Fanatics and digital agency sales are included on a gross basis in Retail Gross Comparable Store Sales compared to a net basis as commission revenue in our consolidated financial statements.
We believe the current Retail Gross Comparable Store Sales calculation method reflects management’s view that such comparable store sales are an important measure of the growth in sales when evaluating how established stores have performed over time. We present this metric as additional useful information about the Company’s operational and financial performance and to allow greater transparency with respect to important metrics used by management for operating and financial decision-making. Retail Gross Comparable Store Sales are also referred to as "same-store" sales by others within the retail industry and the method of calculating comparable store sales varies across the retail industry. As a result, our calculation of comparable
store sales is not necessarily comparable to similarly titled measures reported by other companies and is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.
The increase in course material sales was primarily due to the growth of BNC First Day equitable and inclusive access programs (as discussed above), offset by declines in a la carte courseware sales. The decrease in general merchandise sales are primarily related to lower logo product sales, as well as lower trade books and cafe and convenience product sales, offset by higher graduation and supplies product sales.
Retail Gross Comparable Store Sales variances for Retail by category for the 52-week period are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dollars in millions | | 52 weeks ended |
| | April 27, 2024 | | April 29, 2023 |
| Textbooks (Course Materials) | | $ | 70.4 | | | 7.2% | | $ | 4.1 | | | 0.4% |
| General Merchandise | | 6.6 | | | 1.2% | | 43.9 | | | 8.6% |
| Total Retail Gross Comparable Store Sales | | $ | 77.0 | | | 5.0% | | $ | 48.0 | | | 3.2% |
Wholesale
Wholesale sales increased by $6.3 million, or 5.9%, to $112.6 million during the 52 weeks ended April 27, 2024 from $106.3 million during the 52 weeks ended April 29, 2023. The increase is primarily due to lower returns and allowances of $8.0 million, partially offset by a decline in gross sales of $1.7 million from lower customer demand resulting from a shift in buying patterns from physical textbooks to digital products, and lower demand from other third-party clients.
Cost of Sales and Gross Margin
Our cost of sales decreased as a percentage of sales to 77.2% during the 52 weeks ended April 27, 2024 compared to 77.4% during the 52 weeks ended April 29, 2023. Our gross margin increased by $7.3 million, or 2.1%, to $356.8 million, or 22.8% of sales, during the 52 weeks ended April 27, 2024 from $349.5 million, or 22.6% of sales, during the 52 weeks ended April 29, 2023. The variances by segment are discussed by segment below.
Retail
The following table summarizes the Retail cost of sales:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 52 weeks ended | | 52 weeks ended |
| Dollars in thousands | | | | | | | | | April 27, 2024 | | % of
Related Sales | | April 29, 2023 | | % of
Related Sales |
Product and other cost of sales | | | | | | | | | $ | 1,106,987 | | | 80.3% | | $ | 1,086,095 | | | 80.1% |
Rental cost of sales | | | | | | | | | 74,983 | | | 54.9% | | 74,287 | | | 54.4% |
Total Cost of Sales | | | | | | | | | $ | 1,181,970 | | | 78.0% | | $ | 1,160,382 | | | 77.8% |
The following table summarizes the Retail gross margin:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 52 weeks ended | | 52 weeks ended |
| Dollars in thousands | | | | | | | | | April 27, 2024 | | % of
Related Sales | | April 29, 2023 | | % of
Related Sales |
| Product and other gross margin | | | | | | | | | $ | 271,251 | | | 19.7% | | $ | 269,078 | | | 19.9% |
| Rental gross margin | | | | | | | | | 61,696 | | | 45.1% | | 62,266 | | | 45.6% |
| Gross Margin | | | | | | | | | $ | 332,947 | | | 22.0% | | $ | 331,344 | | | 22.2% |
For the 52 weeks ended April 27, 2024, the Retail gross margin as a percentage of sales remained flat at 22.2% as discussed below:
•Product and other gross margin decreased (20 basis points) driven primarily by lower margin rates for course materials due to higher markdowns, including markdowns related to closed stores (155 basis points), partially offset by lower contract costs as a percentage of sales related to our college and university contracts as a result of the shift to digital, the adoption of our BNC First Day models, and lower renewals for under-performing school contracts (85 basis points) and favorable product sales mix, including higher margin First Day Complete course material sales (50 basis points).
•Retail Rental gross margin as a percentage of sales decreased (30 basis points), driven primarily by lower rental margin rates, higher markdowns, partially offset by lower contract costs as a percentage of sales related to our college and university contracts as a result of the shift to digital, the adoption of our BNC First Day models, and lower renewals for under-performing school contracts, and a favorable rental sales mix.
Wholesale
The cost of sales and gross margin for Wholesale were $89.8 million, or 79.8% of sales, and $22.8 million, or 20.2% of sales, respectively, during the 52 weeks ended April 27, 2024. The cost of sales and gross margin for Wholesale were $88.1 million, or 82.8% of sales, and $18.3 million, or 17.2% of sales, respectively, during the 52 weeks ended April 29, 2023. The increase gross margin was primarily due to lower returns and allowances of $5.3 million, partially offset by higher cost of product of $0.8 million.
Intercompany Eliminations
During the 52 weeks ended April 27, 2024 and 52 weeks ended April 29, 2023, sales eliminations were $60.4 million and $54.9 million, respectively. These sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale.
During the 52 weeks ended April 27, 2024 and 52 weeks ended April 29, 2023, the cost of sales eliminations were $61.4 million and $54.7 million, respectively. These cost of sales eliminations represent (i) the recognition of intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the current period.
During the 52 weeks periods ended April 27, 2024 and 52 weeks ended April 29, 2023, the gross margin eliminations were $1.0 million and $(0.2) million, respectively. The gross margin eliminations reflect the net impact of the sales eliminations and cost of sales eliminations during the above mentioned reporting periods.
Selling and Administrative Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 52 weeks ended | | 52 weeks ended |
| Dollars in thousands | | | | | | | | | April 27, 2024 | | % of
Sales | | April 29, 2023 | | % of
Sales |
| Selling and Administrative Expenses | | | | | | | | | $ | 311,574 | | | 19.9% | | $ | 357,611 | | | 23.2% |
During the 52 weeks ended April 27, 2024, selling and administrative expenses decreased by $46.0 million, or 12.9%, to $311.6 million from $357.6 million during the 52 weeks ended April 29, 2023. The variances by segment are discussed by segment below.
Retail
For Retail, selling and administrative expenses decreased by $42.3 million, or 13.2%, to $278.4 million during the 52 weeks ended April 27, 2024 from $320.7 million during the 52 weeks ended April 29, 2023. This decrease was primarily due to a $15.0 million decrease in closed stores payroll and related operating costs, cost savings initiatives comprised of a $19.3 million decrease in comparable store payroll expense and related operating costs and a $10.9 million decrease in corporate payroll expense, infrastructure and product development costs, partially offset by a $2.9 million increase in new store payroll expense and related operating costs.
Wholesale
For Wholesale, selling and administrative expenses decreased by $1.6 million, or 10.6%, to $13.4 million during the 52 weeks ended April 27, 2024 from $15.0 million during the 52 weeks ended April 29, 2023. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of $1.8 million, partially offset by higher operating expenses of $0.2 million.
Corporate Services
Corporate Services' selling and administrative expenses decreased by $2.3 million, or 10.6%, to $19.7 million during the 52 weeks ended April 27, 2024 from $22.0 million during the 52 weeks ended April 29, 2023. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of $1.5 million and lower operating costs of $0.8 million.
Depreciation and Amortization Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 52 weeks ended | | 52 weeks ended |
| Dollars in thousands | | | | | | | | | April 27, 2024 | | % of
Sales | | April 29, 2023 | | % of
Sales |
| Depreciation and Amortization Expense | | | | | | | | | $ | 40,560 | | | 2.6% | | $ | 42,163 | | | 2.7% |
Depreciation and amortization expense decreased by $1.6 million to $40.6 million during the 52 weeks ended April 27, 2024 from $42.2 million during the 52 weeks ended April 29, 2023. Capital expenditures decreased by $11.0 million during the 52 weeks ended April 27, 2024 compared to the prior year period and depreciable assets and intangibles were lower due to the store impairment loss recognized during Fiscal 2024 and Fiscal 2023.
Impairment loss (non-cash)
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. For information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies and Note 6. Fair Value Measurements.
During the 52 weeks ended April 27, 2024, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $7.2 million (both pre-tax and after-tax), comprised of $0.4 million, $3.6 million, and $3.2 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the consolidated statement of operations.
During the 52 weeks ended April 29, 2023, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6.0 million (both pre-tax and after-tax), comprised of $0.7 million, $1.7 million, and $3.6 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the consolidated statement of operations.
Restructuring and other charges
During the 52 weeks ended April 27, 2024, we recognized restructuring and other charges totaling $19.4 million, comprised primarily of $19.6 million, primarily for costs primarily associated with professional service costs for restructuring and process improvements (see next paragraph below) and $1.1 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, partially offset by a $1.3 million in an actuarial gain related to a frozen retirement benefit plan (non-cash).
Pursuant to the July 28, 2023 Credit Agreement amendment, the Board established a committee consisting of three independent directors to explore, consider, solicit expressions of interest or proposals for, respond to any communications, inquiries or proposals regarding, and advise as to all strategic alternatives to effect a “Specified Liquidity Transaction” (as defined in the Credit Agreement). Restructuring and other expenses include costs associated with the costs of this committee, as well as other related professional service costs. On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
During the 52 weeks ended April 29, 2023, we recognized restructuring and other charges totaling $10.1 million, comprised primarily of $4.4 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, and $5.7 million, primarily for costs primarily associated with professional service costs for restructuring and process improvements.
Operating Loss
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 52 weeks ended | | 52 weeks ended |
| Dollars in thousands | | | | | | | | | April 27, 2024 | | % of
Sales | | April 29, 2023 | | % of
Sales |
| Operating Loss | | | | | | | | | $ | (21,933) | | | (1.4)% | | $ | (66,446) | | | (4.3)% |
Our operating loss was $(21.9) million during the 52 weeks ended April 27, 2024 compared to operating loss of $(66.4) million during the 52 weeks ended April 29, 2023. The improvements in operating results were due to the matters discussed above.
For the 52 weeks ended April 27, 2024, excluding the $19.4 million of restructuring and other charges and the $7.2 million impairment loss (non-cash), all discussed above, operating income was $4.6 million (or 0.3% of sales).
For the 52 weeks ended April 29, 2023, excluding the $10.1 million of restructuring and other charges and the $6.0 million impairment loss (non-cash), all discussed above, operating loss was $(50.3) million (or (3.3)% of sales).
Interest Expense, Net
| | | | | | | | | | | | | | |
| | 52 weeks ended |
| Dollars in thousands | | April 27, 2024 | | April 29, 2023 |
| Interest Expense, Net | | $ | 40,365 | | | $ | 22,683 | |
Net interest expense increased by $17.7 million to $40.4 million during the 52 weeks ended April 27, 2024 from $22.7 million during the 52 weeks ended April 29, 2023. Interest expense increased primarily due to higher borrowings, higher interest rates and $10.0 million resulting from increased amortization of deferred financing costs. The following table disaggregates interest expense for the 52-week period:
| | | | | | | | | | | | | | |
| | 52 weeks ended |
| Dollars in thousands | | April 27, 2024 | | April 29, 2023 |
| Interest Incurred | | | | |
| Credit Facility | | $ | 24,409 | | | $ | 16,994 | |
| Term Loan | | 3,984 | | | 3,078 | |
| Total Interest Incurred | | $ | 28,393 | | | $ | 20,072 | |
| Amortization of Deferred Financing Costs | | | | |
| Credit Facility | | $ | 11,910 | | | $ | 1,948 | |
| Term Loan | | 1,240 | | | 1,181 | |
| Total Amortization of Deferred Financing Costs | | $ | 13,150 | | | $ | 3,129 | |
| Interest Income, net of expense | | $ | (1,178) | | | $ | (518) | |
| Total Interest Expense | | $ | 40,365 | | | $ | 22,683 | |
Cash interest paid during the 52 weeks ended April 27, 2024 and April 29, 2023 was $24.9 million and $19.0 million, respectively.
Income Tax Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 52 weeks ended | | 52 weeks ended |
| Dollars in thousands | | | | | | | | | April 27, 2024 | | Effective Rate | | April 29, 2023 | | Effective Rate |
Income Tax Expense | | | | | | | | | $ | 183 | | | (0.3)% | | $ | 1,011 | | | (1.1)% |
We recorded an income tax expense of $0.2 million on a pre-tax loss of $(62.3) million during the 52 weeks ended April 27, 2024, which represented an effective income tax rate of (0.3)% and an income tax expense of $1.0 million on a pre-tax loss of $(89.1) million during the 52 weeks ended April 29, 2023, which represented an effective income tax rate of (1.1)%.
The effective tax rate for the 52 weeks ended April 27, 2024 is materially consistent with the prior year comparable period.
Net Loss from Continuing Operations
| | | | | | | | | | | | | | | | | |
| | | | | 52 weeks ended |
| Dollars in thousands | | | | | April 27, 2024 | | April 29, 2023 |
| Net Loss from Continuing Operations | | | | | $ | (62,481) | | | $ | (90,140) | |
As a result of the factors discussed above, we reported a net loss from continuing operations of $(62.5) million during the 52 weeks ended April 27, 2024, compared with a net loss of $(90.1) million during the 52 weeks ended April 29, 2023. Adjusted Earnings (non-GAAP) - Continuing Operations is $(35.9) million during the 52 weeks ended April 27, 2024, compared with $(74.0) million during the 52 weeks ended April 29, 2023. See Adjusted Earnings (non-GAAP) discussion below.
Use of Non-GAAP Measures - Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, and Free Cash Flow
To supplement our results prepared in accordance with generally accepted accounting principles (“GAAP”), we use the measure of Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, and Free Cash Flow, which are non-GAAP financial measures under Securities and Exchange Commission (the “SEC”) regulations. We define Adjusted Earnings as net income (loss) from continuing operations adjusted for certain reconciling items that are subtracted from or added to net income (loss) from continuing operations. We define Adjusted EBITDA as net income (loss) from continuing operations plus (1) depreciation and amortization; (2) interest expense and (3) income taxes, (4) as adjusted for items that are subtracted from or added to net income (loss) from continuing operations. We define Free Cash Flow as Cash Flows from Operating Activities less capital expenditures, cash interest and cash taxes.
To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in this Form 10-K, the reconciliation of Adjusted Earnings to net income (loss) from continuing operations, the reconciliation of consolidated Adjusted EBITDA to consolidated net income (loss) from continuing operations, and the reconciliation of Adjusted EBITDA by Segment to net income (loss) from continuing operations by segment, the most directly comparable financial measure presented in accordance with GAAP, set forth in the tables below. All of the items included in the reconciliations below are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance.
These non-GAAP financial measures are not intended as substitutes for and should not be considered superior to measures of financial performance prepared in accordance with GAAP. In addition, our use of these non-GAAP financial measures may be different from similarly named measures used by other companies, limiting their usefulness for comparison purposes.
We review these non-GAAP financial measures as internal measures to evaluate our performance at a consolidated level and at a segment level and manage our operations. We believe that these measures are useful performance measures which are used by us to facilitate a comparison of our on-going operating performance on a consistent basis from period-to-period. We believe that these non-GAAP financial measures provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone, as they exclude certain items that management believes do not reflect the ordinary performance of our operations in a particular period. Our Board of Directors and management also use Adjusted EBITDA and Adjusted EBITDA by Segment, at a consolidated and at a segment level, as one of the primary methods for planning and forecasting expected performance, for evaluating on a quarterly and annual basis actual results against such expectations, and as a measure for performance incentive plans. Management also uses Adjusted EBITDA by Segment to determine segment capital allocations. We believe that the inclusion of Adjusted Earnings, Adjusted EBITDA, and Adjusted EBITDA by Segment provides investors useful and important information regarding our operating results, in a manner that is consistent with management's evaluation of business performance. We believe that Free Cash Flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements and assists investors in their understanding of our operating profitability and liquidity as we manage the business to maximize margin and cash flow.
For a discussion regarding the Seasonality of our business, see Management Discussion and Analysis - Seasonality discussion above.
Consolidated Adjusted Earnings (non-GAAP) - Continuing Operations
| | | | | | | | | | | | | | | | | | | |
| | | | | 52 weeks ended | | |
| Dollars in thousands | | | | | April 27, 2024 | | April 29, 2023 | | |
Net loss from continuing operations (a) | | | | | $ | (62,481) | | | $ | (90,140) | | | |
Reconciling items, after-tax (below) | | | | | 26,575 | | | 16,137 | | | |
| Adjusted Earnings (non-GAAP) | | | | | $ | (35,906) | | | $ | (74,003) | | | |
| | | | | | | | | |
| Reconciling items, pre-tax | | | | | | | | | |
Impairment loss (non-cash) (b) | | | | | $ | 7,166 | | | $ | 6,008 | | | |
| | | | | | | | | |
Content amortization (non-cash) (c) | | | | | — | | | 26 | | | |
Restructuring and other charges (b) | | | | | 19,409 | | | 10,103 | | | |
Reconciling items (d) | | | | | $ | 26,575 | | | $ | 16,137 | | | |
Consolidated Adjusted EBITDA (non-GAAP) - Continuing Operations
| | | | | | | | | | | | | | | | |
| | 52 weeks ended | | |
| Dollars in thousands | | April 27, 2024 | | April 29, 2023 | | |
Net loss from continuing operations (a) | | $ | (62,481) | | | $ | (90,140) | | | |
| Add: | | | | | | |
| Depreciation and amortization expense | | 40,560 | | | 42,163 | | | |
| Interest expense, net | | 40,365 | | | 22,683 | | | |
| Income tax expense (benefit) | | 183 | | | 1,011 | | | |
Impairment loss (non-cash) (b) | | 7,166 | | | 6,008 | | | |
| | | | | | |
Content amortization (non-cash) (c) | | — | | | 26 | | | |
Restructuring and other charges (b) | | 19,409 | | | 10,103 | | | |
| Adjusted EBITDA (Non-GAAP) - Continuing Operations | | $ | 45,202 | | | $ | (8,146) | | | |
| Adjusted EBITDA (Non-GAAP) - Discontinued Operations | | $ | (321) | | | $ | 654 | | | |
| Adjusted EBITDA (Non-GAAP) - Total | | $ | 44,881 | | | $ | (7,492) | | | |
| | | | | | |
(a) During the fourth quarter of Fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Net Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all years reported above.
(b) See Management Discussion and Analysis - Results of Operations discussion above.
(c) Amortization expense (non-cash) related to content development costs are included in cost of goods sold on our consolidated statements of operations.
(d) There is no pro forma income tax effect of the non-GAAP items.
The following is Adjusted EBITDA - Continuing Operations by Segment for Fiscal 2024 and Fiscal 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA - by Segment | | 52 weeks ended April 27, 2024 |
| Dollars in thousands | | Retail | | Wholesale | | | | Corporate Services(a) | | Eliminations | | Total |
Net income (loss) from continuing operations (b) | | $ | 11,457 | | | $ | 4,945 | | | | | $ | (79,916) | | | $ | 1,033 | | | $ | (62,481) | |
| Add: | | | | | | | | | | | | |
| Depreciation and amortization expense | | 35,294 | | | 5,228 | | | | | 38 | | | — | | | 40,560 | |
| Interest expense, net | | — | | | — | | | | | 40,365 | | | — | | | 40,365 | |
| Income tax expense | | — | | | — | | | | | 183 | | | — | | | 183 | |
Impairment loss (non-cash) (c) | | 7,166 | | | — | | | | | — | | | — | | | 7,166 | |
| | | | | | | | | | | | |
Restructuring and other charges (c) | | 571 | | | (813) | | | | | 19,651 | | | — | | | 19,409 | |
| Adjusted EBITDA (non-GAAP) | | $ | 54,488 | | | $ | 9,360 | | | | | $ | (19,679) | | | $ | 1,033 | | | $ | 45,202 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA - by Segment | | 52 weeks ended April 29, 2023 |
| Dollars in thousands | | Retail | | Wholesale | | | | Corporate Services(a) | | Eliminations | | Total |
Net loss from continuing operations (b) | | $ | (35,095) | | | $ | (3,050) | | | | | $ | (51,970) | | | $ | (25) | | | $ | (90,140) | |
| Add: | | | | | | | | | | | | |
| Depreciation and amortization expense | | 36,737 | | | 5,373 | | | | | 53 | | | — | | | 42,163 | |
| Interest expense, net | | — | | | — | | | | | 22,683 | | | — | | | 22,683 | |
Income tax expense | | — | | | — | | | | | 1,011 | | | — | | | 1,011 | |
Impairment loss (non-cash) (c) | | 6,008 | | | — | | | | | — | | | — | | | 6,008 | |
Content amortization (non-cash) (d) | | 26 | | | — | | | | | — | | | — | | | 26 | |
Restructuring and other charges (c) | | 2,964 | | | 916 | | | | | 6,223 | | | — | | | 10,103 | |
| Adjusted EBITDA (non-GAAP) | | $ | 10,640 | | | $ | 3,239 | | | | | $ | (22,000) | | | $ | (25) | | | $ | (8,146) | |
| | | | | | | | | | | | |
(a) Interest expense is reflected in Corporate Services as it is primarily related to our Credit Agreement and Term Loan Agreement which fund our operating and financing needs across the organization. Income taxes are reflected in Corporate Services as we record our income tax provision on a consolidated basis.
(b) During the fourth quarter of Fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Net Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all years reported above.
(c) See Management Discussion and Analysis - Results of Operations discussion above.
(d) Amortization expense (non-cash) related to content development costs are included in cost of goods sold on our consolidated statements of operations.
| | | | | | | | | | | | | | | | |
| Adjusted EBITDA (non-GAAP) - Discontinued Operations | | 52 weeks ended | | |
| | April 27, 2024 | | April 29, 2023 | | |
Loss from discontinued operations (a) | | $ | (730) | | | $ | (11,722) | | | |
| Add: | | | | | | |
| Depreciation and amortization expense | | 3 | | | 3,155 | | | |
Income tax expense | | 20 | | | 398 | | | |
| Content amortization (non-cash) | | — | | | 6,594 | | | |
| Gain on sale of business | | (3,545) | | | — | | | |
| Impairment loss (non-cash) | | 610 | | | — | | | |
| Restructuring and other charges | | 3,308 | | | 1,848 | | | |
| Transaction costs | | 13 | | | 381 | | | |
| Adjusted EBITDA (Non-GAAP) - Discontinued Operations | | $ | (321) | | | $ | 654 | | | |
(a) During the fourth quarter of Fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Net Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all years reported above. For additional information, see Note 2. Summary of Significant Accounting Policies.
Free Cash Flow (non-GAAP) - Continuing Operations
| | | | | | | | | | | | | | | | |
| | 52 weeks ended | | |
| Dollars in thousands | | April 27, 2024 | | April 29, 2023 | | |
Net cash flows (used in) provided by operating activities from continuing operations (a) | | $ | (1,545) | | | $ | 90,513 | | | |
| Less: | | | | | | |
Capital expenditures (b) | | 14,070 | | | 25,092 | | | |
| Cash interest | | 24,943 | | | 19,024 | | | |
| Cash taxes (refund) paid | | (7,293) | | | (16,005) | | | |
| Free Cash Flow (non-GAAP) | | $ | (33,265) | | | $ | 62,402 | | | |
(a) See Liquidity and Capital Resources - Sources and Uses of Cash Flow discussion below.
Given the growth of our BNC First Day programs, the timing of cash collection from our school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts our BNC First Day equitable and inclusive access offerings, cash collection from the school generally occurs after the institution's drop/add dates, which is later in the working capital cycle, particularly in our third quarter given the timing of the Spring Term and our quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor. As a higher percentage of our sales shift to BNC First Day equitable and inclusive access offerings, we are focused on efforts to better align the timing of our cash outflows to course material vendors and cash inflows from collections from schools.
(b) Purchases of property and equipment are also referred to as capital expenditures. Our investing activities consist principally of capital expenditures for contractual capital investments associated with renewing existing contracts, new store construction, and enhancements to internal systems and our website. The following table provides the components of total purchases of property and equipment:
Capital Expenditures - Continuing Operations
| | | | | | | | | | | | | | | | |
| | 52 weeks ended | | |
| Dollars in thousands | | April 27, 2024 | | April 29, 2023 | | |
| Physical store capital expenditures | | $ | 5,813 | | | $ | 13,068 | | | |
| Product and system development | | 6,670 | | | 10,030 | | | |
| | | | | | |
| Other | | 1,587 | | | 1,994 | | | |
| Total Capital Expenditures | | $ | 14,070 | | | $ | 25,092 | | | |
Liquidity and Capital Resources
During Fiscal 2024, our primary sources of cash are net cash flows from operating activities, funds available under our Credit Agreement, Term Loan Agreement, and short-term vendor financing. Our liquidity is highly dependent on the seasonal nature of our business, particularly with respect to course material sales, as sales are generally highest in the second and third fiscal quarters, when college students purchase textbooks for the upcoming Fall and Spring semesters, respectively. As of April 27, 2024, we had $28.6 million of cash on hand, including $18.1 million of restricted cash primarily related to segregated funds for commission due to Lids for logo merchandise sales as per the F/L Relationship-related agreements.
Going Concern evaluation in conjunction with the issuance of the April 27, 2024 Consolidated Financial Statements
The accompanying consolidated financial statements are prepared in accordance with U.S. GAAP applicable to a going concern. This presentation contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described below.
Pursuant to ASC 205-40, Presentation of Financial Statements — Going Concern (“ASC 205-40”), management must evaluate whether there are conditions and events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that these consolidated financial statements are issued.
Our primary sources of cash are net cash flows from operating activities and funds available under our Credit Facility. Our liquidity is highly dependent on the seasonal nature of our business, particularly with respect to course material sales, as sales
are generally highest in the second and third fiscal quarters, when college students generally purchase textbooks for the upcoming Fall and Spring semesters, respectively. The tightening of our available credit commitments, including the elimination and repayment of our seasonal borrowing facility (FILO Facility) of $40.0 million, has had a significant impact on our liquidity during Fiscal 2023 and Fiscal 2024, including our ability to make timely vendor payments and school commission payments. Our recurring losses and projected cash needs, combined with our current liquidity levels and the maturity of our Credit Facility and Term Loan, which were originally scheduled to become due on December 28, 2024 and April 7, 2025, respectively, raised substantial doubt about our ability to continue as a going concern beyond twelve months from the issuance of our third quarter financial statements as of March 12, 2024 as disclosed in our previously filed Quarterly Report on Form 10-Q.
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs, which will also allow us to strategically invest in innovation and continue to execute our strategic initiatives, including but not limited to the growth of our First Day Complete program. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 7. Debt and Note 17. Subsequent Events.
As a result of the equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, all executed on June 10, 2024, Management concluded that substantial doubt about the Company's ability to continue as a going concern no longer exists.
Sources and Uses of Cash Flow - Continuing Operations
| | | | | | | | | | | | | | | | |
| | | | |
| Dollars in thousands | | Fiscal 2024 | | Fiscal 2023 | | |
Net cash flows (used in) provided by operating activities from continuing operations | | $ | (1,545) | | | $ | 90,513 | | | |
| Net cash flows used in investing activities from continuing operations | | (13,992) | | | (24,501) | | | |
Net cash flows (used in) financing activities from continuing operations | | (5,699) | | | (49,675) | | | |
| Net change in cash, cash equivalents, and restricted cash from continuing operations | | $ | (21,236) | | | $ | 16,337 | | | |
As of April 27, 2024 and April 29, 2023, we had cash of $10.5 million and $14.2 million, respectively. As of April 27, 2024 and April 29, 2023, we had restricted cash of $18.1 million and $16.7 million, respectively, comprised of $17.1 million and $15.8 million, respectively, in prepaid and other current assets in the consolidated balance sheet primarily related to segregated funds for commission due to Lids for logo merchandise sales as per the Lids service provider merchandising agreement and $1.0 million and $0.9 million, respectively, in other noncurrent assets in the consolidated balance sheets related to amounts held in trust for future distributions related to employee benefit plans.
Cash Flow from Operating Activities from Continuing Operations
Our business is highly seasonal. For our retail operations, cash flows from operating activities are typically a source of cash in the second and third fiscal quarters, when students generally purchase and rent textbooks and other course materials for the upcoming semesters based on the typical academic semester. Given the growth of our BNC First Day programs, the timing of cash collection from our school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts our BNC First Day equitable and inclusive access offerings, cash collection from the school generally occurs after the institution's drop/add dates, which is later in the working capital cycle, particularly in our third quarter given the timing of the Spring Term and our quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor. As a higher percentage of our sales shift to BNC First Day equitable and inclusive access offerings, we are focused on efforts to better align the timing of our cash outflows to course material vendors and cash inflows from collections from schools. For our wholesale operations, cash flows from operating activities are typically a source of cash in the second and third fiscal quarters, as payments are received from the summer and winter selling season when our wholesale business sell textbooks and other course materials for retail distribution. For both retail and wholesale, cash flows from operating activities are typically a use of cash in the fourth fiscal quarter, when sales volumes are materially lower than the other quarters. Our quarterly cash flows also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods.
Cash flows used in operating activities from continuing operations during Fiscal 2024 were $(1.5) million compared to cash flows provided by operating activities from continuing operations of $90.5 million during Fiscal 2023. The increase in
cash flows used in operating activities from continuing operations of $92.1 million was primarily due to the timing of payables ($63.1 million) to vendors for inventory purchases and expenses, all of which were delayed resulting from lower borrowing base availability under our credit facility, lower accounts receivables collections ($55.1 million) compared to the prior year, and higher payments for interest expense ($5.9 million), offset by higher earnings ($27.7 million).
Cash Flow from Investing Activities from Continuing Operations
Cash flows used in investing activities from continuing operations during Fiscal 2024 were $(14.0) million compared to $(24.5) million during Fiscal 2023. The decrease in cash used in investing activities is primarily due to lower capital expenditures and contractual capital investments, enhancements to internal systems and websites, and new store construction. Capital expenditures totaled $(14.1) million and $(25.1) million during Fiscal 2024 and Fiscal 2023, respectively.
Cash Flow from Financing Activities from Continuing Operations
Cash flows used in financing activities from continuing operations during Fiscal 2024 were $(5.7) million compared to $(49.7) million during Fiscal 2023. Our cash flow used in financing from continuing operations decreased due to a decrease in net borrowings during the year, offset by an increase in deferred financing costs paid.
Financing Arrangements
| | | | | | | | | | | | | | | | | |
| | | As of |
| Maturity Date (a) | | April 27, 2024 | | April 29, 2023 |
| Credit Facility | December 28, 2024 | | $ | 164,947 | | | $ | 154,154 | |
| Term Loan | April 7, 2025 | | 32,653 | | | 30,000 | |
| sub-total | | | 197,600 | | | 184,154 | |
Less: Deferred financing costs, Term Loan (b) | | | (1,263) | | | (2,003) | |
| Total debt | | | $ | 196,337 | | | $ | 182,151 | |
| Balance Sheet classification: | | | | | |
| | | | | |
| Long-term borrowings | | | $ | 196,337 | | | $ | 182,151 | |
| | | | | |
| | | | | |
(a) On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including amending and extending the maturity date of the Credit Facility to June 9, 2028 and converting all outstanding principal and interest amounts owed under our Term Loan Credit Agreement into shares of our Common Stock. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
(b) For additional information on deferred financing costs, see Deferred Financing Costs below.
June 2024 Equity and Debt Transactions
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs, which will also allow us to strategically invest in innovation and continue to execute our strategic initiatives, including but not limited to the growth of our First Day Complete program. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
Credit Facility
As of April 27, 2024, we are party to a credit agreement (the “Credit Agreement”), which was amended from time to time including on April 16, 2024, March 12, 2024, December 12, 2023, October 10, 2023, July 28, 2023, May 24, 2023, March 8, 2023, March 31, 2021, and March 1, 2019, under which the lenders originally committed to provide us with a 5 year asset-backed revolving credit facility in an aggregate committed principal amount of $400.0 million (the “Credit Facility”) effective from the March 1, 2019 amendment. The agreement included an incremental first in, last out seasonal loan facility (the “FILO Facility”) for a $100.0 million maintaining the maximum availability under the Credit Agreement at $500.0 million. As of July 31, 2022, the FILO Facility was repaid and eliminated according to its terms and future commitments under the FILO Facility were reduced to $0. Proceeds from the Credit Facility are used for general corporate purposes, including seasonal working capital needs. The Credit Facility is secured by substantially all of the inventory, accounts receivable and related assets of the borrowers under the Credit Facility. This is considered an all asset lien (inclusive of proceeds from tax refunds payable to the Company and a pledge of equity from subsidiaries, exclusive of real estate). For information regarding the Credit Agreement amendments, deferred financing costs and terms, see Part II - Item 8. Financial Statements and Supplementary Data - Note 7. Debt.
As of April 27, 2024, and through the date of this filing, we were in compliance with all debt covenants under the Credit Agreement.
During the 52 weeks ended April 27, 2024, we borrowed $563.0 million and repaid $552.2 million under the Credit Agreement, with $164.9 million of outstanding borrowings as of April 27, 2024 under the Credit Facility. During the 52 weeks ended April 29, 2023, we borrowed $590.3 million and repaid $631.8 million under the Credit Agreement, with $154.2 million of outstanding borrowings as of April 29, 2023, comprised entirely of borrowings under the Credit Facility and $0 under the FILO Facility, which was repaid on August 1, 2022. As of both April 27, 2024 and April 29, 2023, we have issued $3.6 million and $2.1 million, respectively, in letters of credit under the Credit Facility.
Term Loan
As of April 27, 2024, we are party to a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with TopLids LendCo, LLC and Vital Fundco, LLC to incur the Term Loan Facility, which was amended on March 8, 2023 and July 28, 2023. The Term Loan Credit Agreement matures on April 7, 2025. The proceeds of the Term Loans were used to finance working capital, and to pay fees and expenses related to the Term Loan Facility. For information regarding the Term Loan Credit Agreement amendments, deferred financing costs and terms, see Part II - Item 8. Financial Statements and Supplementary Data - Note 7. Debt.
During the 52 weeks ended April 27, 2024, we incurred $2.7 million for interest in kind on the Term Loan Credit Agreement and repaid $0 under the Term Loan Credit Agreement, with $32.7 million of outstanding borrowings as of April 27, 2024. During the 52 weeks ended April 29, 2023, we borrowed $30.0 million and repaid $0 under the Term Loan Credit Agreement, with $30.0 million of outstanding borrowings as of April 29, 2023.
Deferred Financing Costs
The debt issuance costs have been deferred and are presented as noted below in the consolidated balance sheets and are subsequently amortized ratably over the term of respective debt.
| | | | | | | | | | | | | | | | | |
| Dollars in thousands | | | As of |
Balance Sheet Location | Maturity Date/ Amortization Term (a) | | April 27, 2024 | | April 29, 2023 |
Credit Facility - Prepaid and Other Current Assets | December 28, 2024 | | $ | — | | | $ | 3,776 | |
Credit Facility - Other noncurrent assets | | | 12,897 | | | 1,259 | |
Credit Facility - sub-total | | | 12,897 | | | 5,035 | |
Term Loan - Contra Debt | April 7, 2025 | | 1,263 | | | 2,003 | |
Total deferred financing costs | | | $ | 14,160 | | | $ | 7,038 | |
(a) On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including amending and extending the maturity date of the Credit Facility to June 9, 2028 and converting all outstanding principal and interest amounts owed under our Term Loan Credit Agreement into shares of our Common Stock. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
Interest Expense
The following table presents interest expense on the consolidated statement of operations and cash interest paid:
| | | | | | | | | | | | | | | | |
| | 52 weeks ended | | |
| | April 27, 2024 | | April 29, 2023 | | |
| Interest Incurred | | | | | | |
| Credit Facility | | $ | 24,409 | | | $ | 16,994 | | | |
| Term Loan | | 3,984 | | | 3,078 | | | |
| Total Interest Incurred | | $ | 28,393 | | | $ | 20,072 | | | |
| Amortization of Deferred Financing Costs | | | | | | |
| Credit Facility | | $ | 11,910 | | | $ | 1,948 | | | |
| Term Loan | | 1,240 | | | 1,181 | | | |
| Total Amortization of Deferred Financing Costs | | $ | 13,150 | | | $ | 3,129 | | | |
| Interest Income, net of expense | | $ | (1,178) | | | $ | (518) | | | |
| Total Interest Expense | | $ | 40,365 | | | $ | 22,683 | | | |
| | | | | | |
Cash Interest Paid | | $ | 24,943 | | | $ | 19,024 | | | |
| | | | | | |
Income Tax Implications on Liquidity
As of April 27, 2024, we recognized a current income tax receivable for net operating loss carrybacks in prepaid and other current assets on the consolidated balance sheet. We received refunds of $15.8 million refund in Fiscal 2023, an $8.5 million refund (including $0.9 million in interest) in Fiscal 2024 and we expect to receive additional refunds of approximately $2.4 million in Fiscal 2025.
Share Repurchases
On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50 million, in the aggregate, of our outstanding common stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. During Fiscal 2024 and Fiscal 2023, we did not purchase shares under the stock repurchase program. As of April 27, 2024, approximately $26.7 million remains available under the stock repurchase program.
During Fiscal 2024 and Fiscal 2023, we also repurchased 147,885 shares and 347,808 shares, respectively, of our common stock in connection with employee tax withholding obligations for vested stock awards.
Contractual Obligations
The following table sets forth our contractual obligations as of June 21, 2024 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | | Total | | Less Than
1 Year | | 1-3
Years | | 3-5
Years | | More Than
5 Years |
New Credit Facility (a) | | $ | 325.0 | | | $ | — | | | $ | — | | | $ | 325.0 | | | $ | — | |
Lease obligations (excluding imputed interest) (b) | | 271.7 | | | 111.6 | | | 73.4 | | | 48.7 | | | 38.0 | |
Purchase obligations (c) | | 18.6 | | | 12.1 | | | 6.5 | | | — | | | — | |
Other long-term liabilities reflected on the balance sheet under GAAP (d) | | — | | | — | | | — | | | — | | | — | |
| Total | | $ | 615.3 | | | $ | 123.7 | | | $ | 79.9 | | | $ | 373.7 | | | $ | 38.0 | |
(a) On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs, which will also allow us to strategically invest in innovation and continue to execute our strategic initiatives, including but not limited to the growth of our First Day Complete program. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
(b) Our contracts for physical bookstores with colleges and universities are typically five years with renewal options, but can range from one to 15 years, and are typically cancelable by either party without penalty with 90 to 120 days' notice. Annual projections are based on current minimum guarantee amounts. In approximately 50% of our contracts with colleges and universities that include minimum guarantees, the minimum guaranteed amounts adjust annually to equal less than the prior year's commission earned. See Part II - Item 8. Financial Statements and Supplementary Data — Note 8. Leases.
(c) Includes information technology contracts.
(d) Other long-term liabilities excludes expected payments related to employee benefit plans.
Certain Relationships and Related Party Transactions
See Part II - Item 8. Financial Statements and Supplementary Data — Note 10. Related Party Transactions.
Critical Accounting Policies and Estimates
The accompanying consolidated financial statements are prepared in accordance with U.S. GAAP applicable to a going concern. This presentation contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described below. Pursuant to ASC 205-40, Presentation of Financial Statements — Going Concern (“ASC 205-40”), management must evaluate whether there are conditions and events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that these consolidated financial statements are issued. In accordance with ASC 205-40, management’s analysis can only include the potential mitigating impact of management’s plans that have not been fully implemented as of the issuance date of these consolidated financial statements if (a) it is probable that management’s plans will be effectively implemented on a timely basis, and (b) it is probable that the plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern.
In preparing our consolidated financial statements in accordance with GAAP, we are required to use judgment in making estimates and assumptions that affect the amounts reported in our consolidated financial statements and related notes. In preparing these financial statements, management has made its best estimates and judgments with respect to certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
Revenue Recognition and Deferred Revenue
Product sales and rentals
The majority of our revenue is derived from the sale of products through our bookstore locations, including virtual bookstores, and our bookstore affiliated e-commerce websites, and contains a single performance obligation. Revenue from sales of our products is recognized at the point in time when control of the products is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for the products. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 3. Revenue.
Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks at which point title passes and risk of loss is transferred to the customer. Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of goods sold.
Revenue from the sale of digital textbooks, which contains a single performance obligation, is recognized when the customer accesses the digital content as product revenue in our consolidated financial statements. A software feature is embedded within the content of our digital textbooks, such that upon expiration of the term the customer is no longer able to access the content. While the sale of the digital textbook 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.
Revenue from the rental of physical textbooks 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 and is recognized as rental income in our consolidated financial statements. 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 recognized for our BNC First Day offerings is consistent with our policies outlined above for product, digital and rental sales, net of an anticipated opt-out or return provision. Given the growth of BNC First Day programs, the timing of cash collection from our school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts our BNC First Day equitable and inclusive access offerings, cash collection from the school generally occurs after the institution's drop/add dates, which is later in the working capital cycle, particularly in our third quarter given the timing of the Spring Term and our quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor.
We estimate returns based on an analysis of historical experience. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.
For sales and rentals involving third-party products, we evaluate whether we are acting as a principal or an agent. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where we are the principal, we record revenue on a gross basis, and for those transactions where we are an agent to a third-party, we record revenue on a net basis.
Effective in April 2021, as contemplated by the F/L Relationship related merchandising agreement and e-commerce agreement, we began to transition the fulfillment of our logo general merchandise sales to Lids and Fanatics. As the logo general merchandise sales are fulfilled by Lids and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo general merchandise sales on a gross basis in the periods prior to the transition.
We do not have gift card or customer loyalty programs. We do not treat any promotional offers as expenses. Sales tax collected from our customers is excluded from reported revenues. Our payment terms are generally 30 days and do not extend beyond one year.
Service and other revenue
Service and other revenue is primarily derived from brand marketing services which includes promotional activities and advertisements within our physical bookstores and web properties performed on behalf of third-party customers, shipping and handling, non-return rental penalty fees, and revenue from other programs.
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation.
Cost is determined primarily by the retail inventory method for our Retail Segment. Our textbook and trade book inventories, for Retail and Wholesale Segments, 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 2024 and Fiscal 2023.
Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory. Reserve calculations are sensitive to certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the non-returnable inventory reserve. However, if assumptions based on our history of liquidating non-returnable inventory are incorrect, we may be exposed to losses or gains that could be material. A 10% change in actual non-returnable inventory would have affected pre-tax earnings by approximately $6.2 million in Fiscal 2024.
For our physical bookstores, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate shortage rates. However, if our estimates regarding shortage rates are incorrect, we may be exposed to losses or gains that could be material. A 10 basis point change in actual shortage rates would have affected pre-tax earnings by approximately $1.0 million in Fiscal 2024.
Textbook Rental Inventories
Physical textbooks out on rent are categorized as textbook rental inventories. At the time a rental transaction is consummated, the book is removed from merchandise inventories and moved to textbook rental inventories at cost. The cost of the book is amortized down to its estimated residual value over the rental period. The related amortization expense is included in cost of goods sold. At the end of the rental period, upon return, the book is removed from textbook rental inventories and recorded in merchandise inventories at its amortized cost. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate rental cost of goods sold. However, if our estimates
regarding residual value are incorrect, we may be exposed to losses or gains that could be material. A 10% change in rental cost of goods sold would have affected pre-tax earnings by approximately $3.7 million in Fiscal 2024.
Evaluation of Other Long-Lived Assets Impairment
As of April 27, 2024, our other long-lived assets include property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets of $52.9 million, $202.5 million, $94.2 million, and $24.7 million, respectively, on our consolidated balance sheet.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and consider market participants in accordance with Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. We evaluate the long-lived assets of the reporting units for impairment at the lowest asset group level for which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, we first compared the carrying amount of the asset group to the estimated future undiscounted cash flows. The impairment loss calculation compares the carrying amount of the assets to the fair value based on estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value.
Our business has been significantly negatively impacted by the COVID-19 pandemic, as many schools adjusted their learning models and on-campus activities. Although most academic institutions have since reopened, some are providing alternatives to traditional in-person instruction, including online and hybrid learning options and significantly reduced classroom sizes. Enrollment trends have been negatively impacted overall by COVID-19 concerns at physical campuses. While many athletic conferences resumed their sport activities, other events, such as parent and alumni weekends and prospective student campus tour activities, some may still be curtailed or offer a virtual option. These combined events continue to impact the Company’s course materials and general merchandise business.
During Fiscal 2024, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $7.2 million (both pre-tax and after-tax), comprised of $0.4 million, $3.6 million, and $3.2 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the consolidated statement of operations.
During Fiscal 2023, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6.0 million (both pre-tax and after-tax), comprised of $0.7 million, $1.7 million, and $3.6 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the consolidated statement of operations.
The fair value of the impaired long-lived assets were determined using an income approach (Level 3 input), using the Company’s best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 6. Fair Value Measurements.
The impairment analysis process requires significant estimation to determine recoverability of each asset group and to determine the fair value of asset groups that were not recoverable, as well as the fair values of certain operating right-of-use assets included within the asset groups that were not recoverable. The significant assumptions used included annual revenue growth rates, gross margin rates and the estimated relationship of selling and administrative costs to revenue used to estimate the projected cash-flow directly related to the future operation of the stores as well as the weighted average cost of capital used to calculate the fair value. Significant assumptions used to determine the fair values of certain operating right-of-use assets included the current market rent and discount rate. These assumptions are subjective in nature and are affected by expectations about future market or economic conditions (including the effects of the global pandemic).
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate long-lived asset impairment losses. However, if actual results are not consistent with estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. A 10% decrease in our estimated discounted cash flows would not have materially affected the results of our operations in Fiscal 2024.
Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. FASB guidance on accounting for income taxes requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience and expectations of future taxable income by taxing jurisdiction, the carryforward periods available to us for tax reporting purposes
and other relevant factors. The actual realization of deferred tax assets may differ significantly from the amounts we have recorded.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if available evidence indicates it is more likely than not that the tax position will be fully sustained upon review by taxing authorities, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount with a greater than 50 percent likelihood of being realized upon ultimate settlement. For tax positions that are 50 percent or less likely of being sustained upon audit, we do not recognize any portion of that benefit in the financial statements. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. Our actual results could differ materially from our current estimates.
Recent Accounting Pronouncements
See Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies - Recent Accounting Pronouncements for information related to new accounting pronouncements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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FINANCIAL STATEMENT INDEX |
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Barnes & Noble Education, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Barnes & Noble Education, Inc. and subsidiaries (the Company) as of April 27, 2024 and April 29, 2023, the related consolidated statements of operations, equity and cash flows for each of the two years in the period ended April 27, 2024 and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 27, 2024 and April 29, 2023, and the results of its operations and its cash flows for each of the two years in the period ended April 27, 2024, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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| | Non-Returnable Inventory Reserve |
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| Description of the Matter | | As described in Note 2 to the consolidated financial statements, the Company reserves for non-returnable inventory based on its history of liquidating non-returnable inventory. |
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| | Auditing management’s estimate of the reserves for non-returnable inventory involved especially subjective auditor judgment as such estimates are based on various factors that are affected by current and future market and economic conditions. In particular, the reserve calculations are sensitive to certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand. |
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| How We Addressed the Matter in Our Audit | | Our procedures included, among others, evaluating the significant assumptions, identified above, and testing the accuracy and completeness of the underlying data used in management’s inventory reserve calculation. We recalculated the reserve using management’s methodology and assumptions, and we evaluated the methodology and the significant assumptions for reasonableness by comparing them to the related actual historical activity and expected future market and economic conditions. We also analyzed the impact of reasonable changes to the significant assumptions on the recorded inventory reserves. |
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| | Long-Lived Asset Impairment |
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| Description of the Matter | | As described in Note 2 to the consolidated financial statements, the Company tests its long-lived assets for impairment if an event occurs or circumstances change that would indicate the carrying amount may not be recoverable. If the carrying amount of a long-lived asset (group) exceeds its fair value, the asset (group) is written down to its fair value and an impairment charge is recognized. During the fiscal year 2024, the Company recognized an impairment charge of $7.2 million related to long-lived assets at certain of its stores. |
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| | Auditing the Company's impairment of store long-lived assets was complex and highly judgmental due to the significant estimation required to determine recoverability of each asset group and to determine the fair value of asset groups that were not recoverable, as well as the fair values of certain operating right-of-use assets included within the asset groups that were not recoverable. The significant assumptions used included annual revenue growth rates, gross margin rates and the estimated relationship of selling and administrative costs to revenue used to estimate the projected cash-flow directly related to the future operation of the stores as well as the weighted average cost of capital used to calculate the fair value. Significant assumptions used to determine the fair values of certain operating right-of-use assets included the current market rent and discount rate. These assumptions are subjective in nature and are affected by expectations about future market or economic conditions. |
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| How We Addressed the Matter in Our Audit | | Our testing of the Company's impairment analysis included, among other procedures, evaluating the significant assumptions described above and the operating data used to calculate the estimated future cash flows of the stores and to determine fair values. We tested the completeness and accuracy of the data used by the Company in its analysis. We also compared the significant assumptions used to determine the projected cash flows to historical operating results of the stores, management’s expectations related to recovery from the pandemic and published third-party information regarding overall college and university enrollment trends; and, we obtained an understanding of the business initiatives supporting the assumptions used to estimate the future cash flows through inquiries of management and inspection of internal and external communications. |
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/s/ Ernst & Young LLP
We have served as the Company's auditor since 2015.
Iselin, New Jersey
July 1, 2024
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
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| | | | | 52 weeks ended | | |
| | | April 27, 2024 | | April 29, 2023 | | |
| Sales: | | | | | | | | | |
| Product sales and other | | | | | $ | 1,430,456 | | | $ | 1,406,655 | | | |
| Rental income | | | | | 136,679 | | | 136,553 | | | |
| Total sales | | | | | 1,567,135 | | | 1,543,208 | | | |
| Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | |
| Product and other cost of sales | | | | | 1,135,376 | | | 1,119,482 | | | |
| Rental cost of sales | | | | | 74,983 | | | 74,287 | | | |
| Total cost of sales | | | | | 1,210,359 | | | 1,193,769 | | | |
| Gross profit | | | | | 356,776 | | | 349,439 | | | |
| Selling and administrative expenses | | | | | 311,574 | | | 357,611 | | | |
| Depreciation and amortization expense | | | | | 40,560 | | | 42,163 | | | |
| Impairment loss (non-cash) | | | | | 7,166 | | | 6,008 | | | |
| Restructuring and other charges | | | | | 19,409 | | | 10,103 | | | |
| Operating loss | | | | | (21,933) | | | (66,446) | | | |
| Interest expense, net | | | | | 40,365 | | | 22,683 | | | |
| Loss from continuing operations before income taxes | | | | | (62,298) | | | (89,129) | | | |
| Income tax expense (benefit) | | | | | 183 | | | 1,011 | | | |
| Loss from continuing operations, net of tax | | | | | (62,481) | | | (90,140) | | | |
Loss from discontinued operations, net of tax of $20 and 398, respectively | | | | | (730) | | | (11,722) | | | |
| Net loss | | | | | $ | (63,211) | | | $ | (101,862) | | | |
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| Loss per share of Common Stock | | | | | | | | | |
| Basic and Diluted | | | | | | | | | |
| Continuing operations | | | | | $ | (23.47) | | | $ | (34.17) | | | |
| Discontinued operations | | | | | $ | (0.28) | | | $ | (4.44) | | | |
| Total Basic and Diluted Earnings per share | | | | | $ | (23.75) | | | $ | (38.61) | | | |
| Weighted average shares of common stock outstanding - Basic and Diluted | | | | | 2,662 | | | 2,638 | | | |
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See accompanying notes to consolidated financial statements.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
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| | As of | | |
| | April 27, 2024 | | April 29, 2023 | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 10,459 | | | $ | 14,219 | | | |
| Receivables, net | | 104,110 | | | 92,512 | | | |
| Merchandise inventories, net | | 344,037 | | | 322,979 | | | |
| Textbook rental inventories | | 32,992 | | | 30,349 | | | |
| Prepaid expenses and other current assets | | 39,158 | | | 49,512 | | | |
| Assets held for sale, current | | — | | | 27,430 | | | |
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| Total current assets | | 530,756 | | | 537,001 | | | |
| Property and equipment, net | | 52,912 | | | 68,153 | | | |
| Operating lease right-of-use assets | | 202,522 | | | 246,972 | | | |
| Intangible assets, net | | 94,191 | | | 110,632 | | | |
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| Deferred tax assets, net | | — | | | 132 | | | |
| Other noncurrent assets | | 24,703 | | | 17,889 | | | |
| Total assets | | $ | 905,084 | | | $ | 980,779 | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 299,157 | | | $ | 267,923 | | | |
| Accrued liabilities | | 77,441 | | | 85,759 | | | |
| Current operating lease liabilities | | 102,206 | | | 99,980 | | | |
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| Liabilities held for sale | | — | | | 8,423 | | | |
| Total current liabilities | | 478,804 | | | 462,085 | | | |
| Long-term deferred taxes, net | | 1,289 | | | 1,970 | | | |
| Long-term operating lease liabilities | | 142,193 | | | 184,754 | | | |
| Other long-term liabilities | | 15,882 | | | 19,068 | | | |
| Long-term borrowings | | 196,337 | | | 182,151 | | | |
| Total liabilities | | 834,505 | | | 850,028 | | | |
| Commitments and contingencies | | — | | | — | | | |
| Stockholders' equity: | | | | | | |
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Preferred stock, $0.01 par value; authorized, 5,000 shares; 0 shares issued and 0 shares outstanding | | — | | | — | | | |
Common stock, $0.01 par value; authorized, 200,000 shares; issued, 558 and 551 shares, respectively; outstanding, 532 and 526 shares, respectively | | 558 | | | 551 | | | |
| Additional paid-in capital | | 749,140 | | | 745,932 | | | |
Accumulated deficit | | (656,567) | | | (593,356) | | | |
| Treasury stock, at cost | | (22,552) | | | (22,376) | | | |
| Total stockholders' equity | | 70,579 | | | 130,751 | | | |
| Total liabilities and stockholders' equity | | $ | 905,084 | | | $ | 980,779 | | | |
See accompanying notes to consolidated financial statements.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (In thousands)
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| | 52 weeks ended | | |
| | April 27, 2024 | | April 29, 2023 | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (63,211) | | | $ | (101,862) | | | |
| Less: Loss from discontinued operations, net of tax | | (730) | | | (11,722) | | | |
| Loss from continuing operations, net of tax | | (62,481) | | | (90,140) | | | |
| Adjustments to reconcile net loss from continuing operations to net cash flows from operating activities from continuing operations: | | | | | | |
| Depreciation and amortization expense | | 40,560 | | | 42,163 | | | |
| Impairment loss (non-cash) | | 7,166 | | | 6,008 | | | |
| Merchandise inventory loss | | — | | | — | | | |
| Content amortization expense | | — | | | 26 | | | |
| Amortization of deferred financing costs | | 13,150 | | | 3,129 | | | |
| Non-cash interest expense (paid-in-kind) | | 2,652 | | | — | | | |
| Deferred taxes | | (550) | | | 409 | | | |
| Stock-based compensation expense | | 3,380 | | | 4,715 | | | |
| Changes in operating lease right-of-use assets and liabilities | | 24 | | | 5,912 | | | |
| Changes in other long-term assets and liabilities and other, net | | (20,997) | | | 2,711 | | | |
| Changes in other operating assets and liabilities, net: | | | | | | |
| Receivables, net | | (11,598) | | | 43,489 | | | |
| Merchandise inventories | | (21,058) | | | (29,125) | | | |
| Textbook rental inventories | | (2,643) | | | (737) | | | |
| Prepaid expenses and other current assets | | 31,593 | | | 19,610 | | | |
| Accounts payable and accrued liabilities | | 19,257 | | | 82,343 | | | |
| Changes in other operating assets and liabilities, net | | 15,551 | | | 115,580 | | | |
Net cash flows (used in) provided by operating activities from continuing operations | | (1,545) | | | 90,513 | | | |
Net cash flows (used in) provided by operating activities from discontinued operations | | (3,577) | | | 1,157 | | | |
Net cash flows (used in) provided by operating activities | | $ | (5,122) | | | $ | 91,670 | | | |
| Cash flows from investing activities: | | | | | | |
| Purchases of property and equipment | | $ | (14,070) | | | $ | (25,092) | | | |
| Changes in other noncurrent assets and other | | 78 | | | 591 | | | |
| Net cash flows used in investing activities from continuing operations | | (13,992) | | | (24,501) | | | |
Net cash flows provided by (used in) investing activities from discontinued operations | | 21,395 | | | (6,542) | | | |
Net cash flows provided by (used in) investing activities | | $ | 7,403 | | | $ | (31,043) | | | |
| Cash flows from financing activities: | | | | | | |
| Proceeds from borrowings | | $ | 563,023 | | | $ | 590,303 | | | |
| Repayments of borrowings | | (552,230) | | | (631,849) | | | |
| Payment of deferred financing costs | | (16,316) | | | (7,265) | | | |
| Purchase of treasury shares | | (176) | | | (864) | | | |
| Proceeds from the exercise of stock options, net | | — | | | — | | | |
Net cash flows used in financing activities from continuing operations | | (5,699) | | | (49,675) | | | |
| Net cash flows provided by financing activities from discontinued operations | | — | | | — | | | |
Net cash flows used in financing activities | | $ | (5,699) | | | $ | (49,675) | | | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | | $ | (3,418) | | | $ | 10,952 | | | |
| Cash, cash equivalents, and restricted cash at beginning of period | | 31,988 | | | 21,036 | | | |
| Cash, cash equivalents, and restricted cash at end of period | | 28,570 | | | 31,988 | | | |
| | | | | | | | | | | | | | | | |
| Less: Cash and cash equivalents of discontinued operations at end of period | | — | | | (1,057) | | | |
| Cash, cash equivalents, and restricted cash of continuing operations at end of period | | $ | 28,570 | | | $ | 30,931 | | | |
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| Supplemental cash flow information: | | | | | | |
| Cash paid during the period for: | | | | | | |
| Interest paid | | $ | 24,943 | | | $ | 19,024 | | | |
| Income taxes paid (net of refunds) | | $ | (7,293) | | | $ | (15,216) | | | |
See accompanying notes to consolidated financial statements.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
(In thousands)
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| | | | Additional | | | | | | | |
| | Common Stock | | Paid-In | | Accumulated | | Treasury Stock | | Total |
| | Shares | Amount | | Capital | | Deficit | | Shares | Amount | | Equity |
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| Balance at April 30, 2022 | | 54,234 | | $ | 542 | | | $ | 740,838 | | | $ | (491,494) | | | 2,188 | | $ | (21,512) | | | $ | 228,374 | |
Stock-based compensation expense | | | | | 5,103 | | | | | | | | 5,103 | |
| Vested equity awards | | 906 | | 9 | | | (9) | | | | | | | | — | |
Shares repurchased for tax withholdings for vested stock awards | | | | | | | | | 348 | | (864) | | | (864) | |
| Net loss | | | | | | | (101,862) | | | | | | (101,862) | |
| Balance at April 29, 2023 | | 55,140 | | $ | 551 | | | $ | 745,932 | | | $ | (593,356) | | | 2,536 | | $ | (22,376) | | | $ | 130,751 | |
Stock-based compensation expense | | | | | 3,215 | | | | | | | | 3,215 | |
| Vested equity awards | | 700 | | 7 | | | (7) | | | | | | | | — | |
Shares repurchased for tax withholdings for vested stock awards | | | | | | | | | 148 | | (176) | | | (176) | |
| Net loss | | | | | | | (63,211) | | | | | | (63,211) | |
| Reverse Stock Split | | (55,282) | | — | | | — | | | — | | | (2,657) | | — | | | — | |
| Balance at April 27, 2024 | | 558 | | $ | 558 | | | $ | 749,140 | | | $ | (656,567) | | | 27 | | $ | (22,552) | | | $ | 70,579 | |
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See accompanying notes to consolidated financial statements.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Thousands of dollars, except share and per share data)
Unless the context otherwise indicates, references in these Notes to the accompanying consolidated financial statements to “we,” “us,” “our” and “the Company” refer to Barnes & Noble Education, Inc., or “BNED”, a Delaware corporation. References to “Barnes & Noble College” refer to our college bookstore business operated through our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our virtual bookstore and wholesale textbook distribution business operated through our subsidiary MBS Textbook Exchange, LLC.
Note 1. Organization
Description of Business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States. We are also one of the largest textbook wholesalers and inventory management hardware and software providers. We operate 1,245 physical, virtual, and custom bookstores and serve more than 5.8 million students, delivering essential educational content, tools and general merchandise within a dynamic omnichannel retail environment.
The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands. We provide product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes. We offer our BNC First Day® equitable and inclusive access programs, consisting of First Day Complete and First Day, which provide faculty required course materials on or before the first day of class. These programs have allowed us to reverse historical long-term trends in course materials revenue declines, which has been observed at those schools where such programs have been adopted, and improve predictability of our future results. See BNC First Day Equitable and Inclusive Access Programs discussion below.
We expect to continue to introduce scalable and advanced solutions focused largely on the student and customer experience, expand our e-commerce capabilities and accelerate such capabilities through our service providers, Fanatics Retail Group Fulfillment, LLC (“Fanatics”) and Fanatics Lids College, Inc. D/B/A “Lids” (“Lids”) (collectively referred to herein as the “F/L Relationship”), win new accounts, and expand our revenue opportunities through strategic relationships. We expect gross comparable store general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the F/L Relationship. Fanatics and Lids, acting on our behalf as our service providers, provide unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo general merchandise business. See Relationship with Fanatics and Lids discussion below.
The Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important to our relationship with leading publishers who rely on us as one of their primary distribution channels.
BNC First Day Equitable and Inclusive Access Programs
We provide product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes. We offer our BNC First Day® equitable and inclusive access programs, consisting of First Day Complete and First Day, which provide faculty required course materials on or before the first day of class. During the 52 weeks ended April 27, 2024, BNC First Day total revenue increased by $127,211, or 37%, to $473,863 compared to $346,652 during the prior year period.
•First Day Complete is adopted by an institution and includes all or the majority of undergraduate classes (and on occasion graduate classes), providing students both physical and digital materials. The First Day Complete model drives substantially greater unit sales and sell-through for the bookstore. In the Spring of 2024, 160 campus stores are utilizing First Day® Complete representing enrollment of nearly 805,000 undergraduate and post graduate students (as reported by National Center for Education Statistics as of October 26, 2023), an increase of approximately 39% compared to Spring of 2023. During the 52 weeks ended April 27, 2024, First Day Complete sales increased by $94,948, or 48.0%, to $292,704 as compared to $197,756 in the prior year period.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
•First Day is adopted by a faculty member for a single course, and students receive primarily digital course materials through their school's learning management system ("LMS"). During the 52 weeks ended April 27, 2024, First Day sales increased by $32,263, or 21.7%, to 181,159 as compared to $148,896 in the prior year period.
Offering course materials through our equitable and inclusive access First Day Complete and First Day models is an important strategic initiative of ours to meet the market demands of substantially reduced pricing to students, as well as the opportunity to improve student outcomes, while, at the same time, increasing our market share, revenue and relative gross profits of course material sales given the higher volumes of units sold in such models as compared to historical sales models that rely on individual student marketing and sales. These programs have allowed us to reverse historical long-term trends in course materials revenue declines, which has been observed at those schools where such programs have been adopted, and improve predictability of our future results. In Fiscal 2024, the growth of our BNC First Day programs offset the declines in a la carte courseware sales and closed store sales. We are moving quickly to accelerate our First Day Complete strategy. Many institutions adopted First Day Complete in Fiscal 2024, and we plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond.
Relationship with Fanatics and Lids
In December 2020, we entered into the F/L Relationship. Fanatics and Lids, acting on our behalf as our service providers, provide unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo general merchandise business. Fanatics operates as our service provider, including processing consumer personal information on our behalf, using their cutting-edge e-commerce and technology expertise to offer our campus store websites expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with Lids, the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.
We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We also work closely with our campus partners to ensure that each campus store maintains unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus’s brand. We leverage Fanatics’ e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. Lids manages in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores, and Lids owns the inventory it manages, relieving us of the obligation to finance inventory purchases from working capital.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and 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. 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”). Net income (loss) is equal to comprehensive income (loss) on our consolidated statement of operations. 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, 2024 (“Fiscal 2024”) and 52 weeks ended April 29, 2023 (“Fiscal 2023”).
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering. Because the rights issuance was offered to all existing stockholders at an exercise price that was less than the fair value of our Common Stock, as of such time, the weighted average shares outstanding and basic and diluted earnings (loss) per share were adjusted retroactively to reflect the bonus element of the rights offering for all periods presented by a factor of 5.03. On June 11, 2024, subsequent to the end of Fiscal 2024, we completed a reverse stock split of our outstanding shares of common stock at a ratio of 1-for-100 in which every 100 shares of the common stock issued and outstanding was converted into one share of our common stock. The weighted average common shares and loss per common share reflect the bonus element resulting from the equity rights offering and the reverse stock split for all periods presented on the consolidated statements of operations. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Liquidity and Going Concern Evaluation in conjunction with the issuance of the April 27, 2024 Consolidated Financial Statements
The accompanying consolidated financial statements are prepared in accordance with U.S. GAAP applicable to a going concern. This presentation contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described below.
Pursuant to ASC 205-40, Presentation of Financial Statements — Going Concern (“ASC 205-40”), management must evaluate whether there are conditions and events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that these consolidated financial statements are issued.
Our primary sources of cash are net cash flows from operating activities and funds available under our Credit Facility. Our liquidity is highly dependent on the seasonal nature of our business, particularly with respect to course material sales, as sales are generally highest in the second and third fiscal quarters, when college students generally purchase textbooks for the upcoming Fall and Spring semesters, respectively. The tightening of our available credit commitments, including the elimination and repayment of our seasonal borrowing facility (FILO Facility) of $40,000, has had a significant impact on our liquidity during Fiscal 2023 and Fiscal 2024, including our ability to make timely vendor payments and school commission payments. Our recurring losses and projected cash needs, combined with our current liquidity levels and the maturity of our Credit Facility and Term Loan, which were originally scheduled to become due on December 28, 2024 and April 7, 2025, respectively, raised substantial doubt about our ability to continue as a going concern beyond twelve months from the issuance of our third quarter financial statements as of March 12, 2024 as disclosed in our previously filed Quarterly Report on Form 10-Q.
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs.
Upon closing of the Transactions on June 10, 2024:
•We received gross proceeds of $95,000 of new equity capital through a $50,000 new equity investment (the “Private Investment”) led by Immersion Corporation (“Immersion”) and a $45,000 fully backstopped equity rights offering (the “Rights Offering”). The Transactions infused approximately $80,000 of net cash proceeds after transaction costs. The transaction resulted in Immersion obtaining controlling financial interest.
•Our existing Term Loan credit agreement lenders, TopLids LendCo, LLC and Vital Fundco, LLC, converted approximately $34,000 of outstanding principal and any accrued and unpaid interest into our common stock.
•We refinanced our Credit Facility providing access to a $325,000 facility maturing in 2028. The refinanced Credit Facility will meaningfully enhance our financial flexibility and reduce our annual interest expense.
As a result of the equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, all executed on June 10, 2024, Management concluded that substantial doubt about the Company's ability to continue as a going concern no longer exists. For additional information related to the rights offering, new equity investment, Term Loan credit agreement debt conversion, and Credit Facility refinancing terms, see Part II - Item 8. Financial Statements and Supplementary Data - Note 7. Debt and Note 17. Subsequent Events.
Seasonality
Our business is highly seasonal. For example, our retail business is seasonal, particularly with respect to textbook sales and rentals, with the major portion of sales and operating profit realized during the second and third fiscal quarters when college students generally purchase and rent textbooks for the upcoming semesters and lowest in the first and fourth fiscal quarters. Our quarterly results also may fluctuate depending on the timing of the start of the various schools’ semesters, the ability to secure inventory on a timely basis, as well as shifts in our fiscal calendar dates.
As the concentration of digital product sales increases, revenue will be recognized earlier during the academic term as digital textbook revenue is recognized when the customer accesses the digital content compared to: (i) the rental of physical textbook where revenue is recognized over the rental period, and (ii) ala carte courseware sales where 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.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
These shifts in timing may affect the comparability of our results across periods. Sales attributable to our wholesale business are generally highest in our first, second and third quarters, as it sells textbooks and other course materials for retail distribution. See Revenue Recognition and Deferred Revenue discussion below.
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.
Discontinued Operations
During the fourth quarter of Fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. Certain assets and liabilities associated with the DSS Segment are presented in our consolidated balance sheets as "Assets Held for Sale" and "Liabilities Held for Sale". The results of operations related to the DSS Segment are included in the consolidated statements of operations as "Loss from discontinued operations, net of tax." The cash flows of the DSS Segment are also presented separately in our consolidated statements of cash flows. All corresponding prior year periods presented in our financial statements and related information in the accompanying notes have been reclassified to reflect the Asset Held for Sale and Discontinued Operations presentation.
On May 31, 2023, we completed the sale of these assets related to our DSS Segment for cash proceeds of $20,000, net of certain transaction fees, severance costs, escrow, and other considerations. During the 52 weeks ended April 27, 2024, we recorded a Gain on Sale of Business of $3,545 in Loss from Discontinued Operations, Net, related to the sale. Net cash proceeds from the sale were used for debt repayment and provided additional funds for working capital needs under our Credit Facility. The following table summarizes the operating results of the discontinued operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | |
| | | | | 52 weeks ended | | |
| Dollars in thousands | | | | | April 27, 2024 | | April 29, 2023 | | |
| Total sales | | | | | $ | 2,784 | | | $ | 35,353 | | | |
Cost of sales (a) | | | | | 76 | | | 7,156 | | | |
Gross profit (a) | | | | | 2,708 | | | 28,197 | | | |
| Selling and administrative expenses | | | | | 3,029 | | | 34,137 | | | |
| Depreciation and amortization | | | | | 3 | | | 3,155 | | | |
| Gain on sale of business | | | | | (3,545) | | | — | | | |
Impairment loss (non-cash) (b) | | | | | 610 | | | — | | | |
Restructuring costs (c) | | | | | 3,308 | | | 1,848 | | | |
| Transaction costs | | | | | 13 | | | 381 | | | |
| Operating loss | | | | | (710) | | | (11,324) | | | |
| Income tax expense | | | | | 20 | | | 398 | | | |
| Loss from discontinued operations, net of tax | | | | | $ | (730) | | | $ | (11,722) | | | |
| | | | | | | | | |
(a) Cost of sales and Gross margin for the DSS Segment includes amortization expense (non-cash) related to content development costs of $0 and $6,594 for the 52 weeks ended April 27, 2024 and April 29, 2023, respectively.
(b) During the 52 weeks ended April 27, 2024, we recognized an impairment loss (non-cash) of $610 (both pre-tax and after-tax), comprised of $119 and $491 of property and equipment and operating lease right-of-use assets, respectively, on the consolidated statement of operations as part of discontinued operations.
(c) During the 52 weeks ended April 27, 2024 and April 29, 2023, we recognized restructuring and other charges of $3,308 and $1,848, respectively, comprised of severance and other employee termination costs.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
The following table summarizes the assets and liabilities of the Assets Held for Sale included in the consolidated balance sheets for the periods indicated:
| | | | | | | | | | | | | | |
| | As of |
| | April 27, 2024 | | April 29, 2023 |
| Cash and cash equivalents | | $ | — | | | $ | 1,057 | |
| Receivables, net | | — | | | 480 | |
| Prepaid expenses and other current assets | | — | | | 901 | |
| Property and equipment, net | | — | | | 19,523 | |
| Intangible assets, net | | — | | | 402 | |
| Goodwill | | — | | | 4,700 | |
| Deferred tax assets, net | | — | | | 130 | |
| Other noncurrent assets | | — | | | 237 | |
| Assets held for sale | | $ | — | | | $ | 27,430 | |
| | | | |
| Accounts payable | | $ | — | | | $ | 211 | |
| Accrued liabilities | | — | | | 8,212 | |
| Other long-term liabilities | | — | | | — | |
| Liabilities held for sale | | $ | — | | | $ | 8,423 | |
| | | | |
Cash and Cash Equivalents
We consider all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Restricted Cash
As of April 27, 2024, we had restricted cash of $18,111, comprised of $17,146 in prepaid and other current assets in the consolidated balance sheet related to segregated funds for commission due to Lids for logo merchandise sales as per the Lids service provider merchandising agreement and $965 in other noncurrent assets in the consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.
As of April 29, 2023, we had restricted cash of $16,712, comprised of $15,790 in prepaid and other current assets in the consolidated balance sheet related to segregated funds for commission due to Lids for logo merchandise sales as per the Lids service provider merchandising agreement and $922 in other noncurrent assets in the consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.
Accounts Receivable
Receivables represent customer, private and public institutional and government billings (colleges, universities and other financial aid providers), credit/debit card receivables, advances for book buybacks, advertising and other receivables due within one year. Components of accounts receivables are as follows:
| | | | | | | | | | | | | | |
| | As of |
| | April 27, 2024 | | April 29, 2023 |
| Trade accounts | | $ | 75,026 | | | $ | 71,990 | |
| Advances for book buybacks | | 1,291 | | | 2,344 | |
| Credit/debit card receivables | | 9,075 | | | 4,733 | |
| Other receivables | | 18,718 | | | 13,445 | |
| Total receivables, net | | $ | 104,110 | | | $ | 92,512 | |
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
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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 $867, and $1,156 as of April 27, 2024 and April 29, 2023, respectively.
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory, which includes certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand.
Cost is determined primarily by the retail inventory method for our Retail segment. Our textbook and trade book inventories, for Retail and Wholesale, 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 2024 and Fiscal 2023.
For our physical bookstores, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends.
The Retail Segment fulfillment order is directed first to our wholesale business before other sources of inventory are utilized. The products that we sell originate from a wide variety of domestic and international vendors. After internal sourcing, the bookstore purchases textbooks from outside suppliers and publishers. The Retail Segment's four largest suppliers, excluding the supply sourced from our Wholesale Segment, accounted for approximately 26% of our merchandise purchased during the 52 weeks ended April 27, 2024. For our Wholesale Segment, the four largest suppliers, excluding textbooks purchased from students at our Retail Segment's bookstores, accounted for approximately 24% of merchandise purchases during the 52 weeks ended April 27, 2024.
Textbook Rental Inventories
Physical textbooks out on rent are categorized as textbook rental inventories. At the time a rental transaction is consummated, the book is removed from merchandise inventories and moved to textbook rental inventories at cost. The cost of the book is amortized down to its estimated residual value over the rental period. The related amortization expense is included in cost of goods sold. At the end of the rental period, upon return, the book is removed from textbook rental inventories and recorded in merchandise inventories at its amortized cost.
Cloud Computing Arrangements
Implementation costs incurred in a cloud computing arrangement (or hosting arrangement) that is a service contract are amortized to hosting expense over the term of the arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. Implementation costs are included in prepaid expenses and other assets in the consolidated balance sheets and amortized to selling and administrative expense in the consolidated statement of operations. Implementation costs incurred in cloud computing arrangements reflected in prepaid and other assets in the consolidated balance sheets were $6,367 and $9,359 as of April 27, 2024 and April 29, 2023, respectively. We had $4,286 and $6,460 of amortization of implementation costs in selling and administrative expense in the consolidated statement of operations, for the 52 weeks ended April 27, 2024 and April 29, 2023, respectively.
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over estimated useful lives. Maintenance and repairs are expensed as incurred, however major maintenance and remodeling costs are capitalized if they extend the useful life of the asset. We had $27,281 and $29,401 of depreciation expense in the consolidated statement of operations for the 52 weeks ended April 27, 2024 and April 29, 2023, respectively.
Content development costs are primarily related to development of courseware. 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 $0 and $26 of content amortization expense in the consolidated statement of operations for the 52 weeks ended April 27, 2024 and April 29, 2023, respectively.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Components of property and equipment are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | As of | | |
| | Useful Life | | April 27, 2024 | | April 29, 2023 | | |
| Property and equipment: | | | | | | | | |
| Leasehold improvements | | (a) | | $ | 106,764 | | | $ | 120,687 | | | |
| Machinery, equipment and display fixtures | | 3 - 5 | | 246,206 | | | 253,763 | | | |
| Computer hardware and capitalized software costs | | (b) | | 167,347 | | | 163,098 | | | |
| Office furniture and other | | 2 - 7 | | 62,133 | | | 66,201 | | | |
Content development costs (c) | | 3 - 5 | | — | | | 2,519 | | | |
| Construction in progress | | | | 2,361 | | | 4,644 | | | |
| Total property and equipment | | | | 584,811 | | | 610,912 | | | |
| Less accumulated depreciation and amortization | | | | 531,899 | | | 542,759 | | | |
| Total property and equipment, net | | | | $ | 52,912 | | | $ | 68,153 | | | |
(a) Leasehold improvements are capitalized and depreciated over the shorter of the lease term or the useful life of the improvements, ranging from 1 - 15 years.
(b) System costs are capitalized and amortized over their estimated useful lives, from the date the systems become operational. Purchased software is generally amortized over a period of between 2 - 5 years.
(c) Content development costs are fully depreciated and are generally depreciated over 3 - 5 years.
Intangible Assets
Amortizable intangible assets as of April 27, 2024 and April 29, 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of April 27, 2024 |
| Amortizable intangible assets | | Estimated Useful Life | | Gross
Carrying
Amount | | Accumulated
Amortization | | Total |
| Customer relationships | | 6 - 10 | | $ | 225,337 | | | $ | (132,138) | | | $ | 93,199 | |
| | | | | | | | |
| | | | | | | | |
Other (a) | | 1 - 3 | | 3,500 | | | (2,508) | | | 992 | |
| | | | $ | 228,837 | | | $ | (134,646) | | | $ | 94,191 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of April 29, 2023 |
| Amortizable intangible assets | | Estimated Useful Life | | Gross
Carrying
Amount | | Accumulated
Amortization | | Total |
| Customer relationships | | 7 - 11 | | $ | 239,955 | | | $ | (130,667) | | | $ | 109,288 | |
| | | | | | | | |
| Technology | | 3 | | 1,500 | | | (1,500) | | | — | |
Other (a) | | 1 - 4 | | 4,162 | | | (2,818) | | | 1,344 | |
| | | | $ | 245,617 | | | $ | (134,985) | | | $ | 110,632 | |
(a) Other consists of recognized intangibles for non-compete agreements and trade names
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, 2024 | $ | 13,279 | |
| For the 52 weeks ended April 29, 2023 | $ | 12,761 | |
| |
| |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
| | | | | |
| Estimated Amortization Expense: (Fiscal Year) | |
| 2025 | $ | 9,757 | |
| 2026 | $ | 9,757 | |
| 2027 | $ | 9,699 | |
| 2028 | $ | 9,407 | |
| 2029 | $ | 9,407 | |
| After 2029 | $ | 46,164 | |
See Impairment of Long-Lived Assets below for discussion of impairment loss related to intangible assets.
Leases
We recognize lease assets and lease liabilities on the consolidated balance sheet for all operating lease arrangements based on the present value of future lease payments as required by Accounting Standards Codification ("ASC") Topic 842, Leases. We do not recognize lease assets or lease liabilities for short-term leases (i.e., those with a term of twelve months or less). We recognize lease expense on a straight-line basis over the lease term for contracts with fixed lease payments, including those with fixed annual minimums, or over a rolling twelve-month period for leases where the annual guarantee resets at the start of each contract year, in order to best reflect the pattern of usage of the underlying leased asset. We recognize lease expense related to our college and university contracts as cost of sales in our consolidated statement of operations and we recognize lease expense related to our various office spaces as selling and administrative expenses in our consolidated statement of operations. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 8. Leases.
Impairment of Long-Lived Assets
As of April 27, 2024, our other long-lived assets include property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets of $52,912, $202,522, $94,191, and $24,703, respectively, on our consolidated balance sheet. As of April 29, 2023, our other long-lived assets include property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets of $68,153, $246,972, $110,632, and $17,889, respectively, on our consolidated balance sheet.
We review our long-lived assets for impairment whenever events or changes in circumstances, including but not limited to contractual changes, renewals or amendments are made to agreements with our college, university, or K-12 schools, indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. We evaluate the long-lived assets of the reporting units for impairment at the lowest asset group level for which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, we first compared the carrying amount of the asset group to the estimated future undiscounted cash flows. The impairment loss calculation compares the carrying amount of the assets to the fair value based on estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value.
Many college and universities are providing alternatives to traditional in-person instruction, including online and hybrid learning options. Additionally, enrollment trends have been negatively impacted at physical campuses. Many other events, such as parent and alumni weekends and prospective student campus tour activities, offer a virtual option. These combined events have reduced on-campus activity, as well as increased competition and disintermediation, continue to impact the Company’s course materials and general merchandise business.
During Fiscal 2024, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $7,166 (both pre-tax and after-tax), comprised of $405, $3,600, and $3,161 of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the consolidated statements of operations.
During Fiscal 2023, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6,008 (both pre-tax and after-tax), comprised of $708, $1,697, $3,599 and $4 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the consolidated statement of operations.
The fair value of the impaired long-lived assets were determined using an income approach (Level 3 input), using the Company’s best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations. The significant assumptions used in the income approach included annual revenue growth rates, gross margin rates and the estimated relationship of selling and administrative costs to revenue
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
used to estimate the projected cash-flow directly related to the future operation of the stores as well as the weighted average cost of capital used to calculate the fair value. Significant assumptions used to determine the fair values of certain operating right-of-use assets included the current market rent and discount rate. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 6. Fair Value Measurements.
Revenue Recognition and Deferred Revenue
Product sales and rentals
The majority of our revenue is derived from the sale of products through our bookstore locations, including virtual bookstores, and our bookstore affiliated e-commerce websites, and contains a single performance obligation. Revenue from sales of our products is recognized at the point in time when control of the products is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for the products. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 3. Revenue.
Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks at which point title passes and risk of loss is transferred to the customer. Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of goods sold.
Revenue from the sale of digital textbooks, which contains a single performance obligation, is recognized when the customer accesses the digital content as product revenue in our consolidated financial statements. A software feature is embedded within the content of our digital textbooks, such that upon expiration of the term the customer is no longer able to access the content. While the sale of the digital textbook 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.
Revenue from the rental of physical textbooks 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 and is recognized as rental income in our consolidated financial statements. 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 recognized for our BNC First Day offerings is consistent with our policies outlined above for product, digital and rental sales, net of an anticipated opt-out or return provision. Given the growth of BNC First Day programs, the timing of cash collection from our school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts our BNC First Day equitable and inclusive access offerings, cash collection from the school generally occurs after the institution's drop/add dates, which is later in the working capital cycle, particularly in our third quarter given the timing of the Spring Term and our quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor.
We estimate returns based on an analysis of historical experience. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.
For sales and rentals involving third-party products, we evaluate whether we are acting as a principal or an agent. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where we are the principal, we record revenue on a gross basis, and for those transactions where we are an agent to a third-party, we record revenue on a net basis.
Effective in April 2021, as contemplated by the F/L Relationship's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of our logo general merchandise sales to Lids and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by Lids and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis prior to April 2021.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
We do not have gift card or customer loyalty programs. We do not treat any promotional offers as expenses. Sales tax collected from our customers is excluded from reported revenues. Our payment terms are generally 30 days and do not extend beyond one year.
Service and other revenue
Service and other revenue is primarily derived from brand marketing services which includes promotional activities and advertisements within our physical bookstores and web properties performed on behalf of third-party customers, shipping and handling, and revenue from other programs.
Brand 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 brand marketing service and overtime for advertising efforts as measured based upon the passage of time for contracts that are based on a stated period of time or the number of impressions delivered for contracts with a fixed number of impressions.
Cost of Sales
Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.
Selling and Administrative Expenses
Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting. 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 a specific reporting segment and are recorded in Corporate Services.
Long-Term Incentive Compensation
We have granted awards in accordance with the Barnes & Noble Education Inc. Equity Incentive Plan (the “Equity Incentive Plan”). Types of equity awards that can be granted under the Equity Incentive Plan include options, restricted stock, restricted stock units, performance shares, performance share units, and phantom share units. See Part II - Item 8. Financial Statements and Supplementary Data - Note 12. Long-Term Incentive Compensation Expense for additional information regarding expense recognition for each type of award.
Advertising Costs
The costs of advertising are expensed as incurred during the year pursuant to ASC No. 720-35, Advertising Costs. Advertising costs charged to selling and administrative expenses were $5,784 and $9,139 in the consolidated statement of operations for the 52 weeks ended April 27, 2024 and April 29, 2023, respectively.
Income Taxes
The provision for income taxes includes federal, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax basis of assets and liabilities. The deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We regularly review deferred tax assets for recoverability and establish a valuation allowance, if determined to be necessary. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 13. Income Taxes.
Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to improve annual income tax disclosure requirements, primarily to (1) disclose specific categories in the rate reconciliation (2) provide additional information for reconciling items that meet a quantitative threshold, and (3) enhance cash tax payment disclosures. This ASU, which can be applied either prospectively or retrospectively, is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently assessing this guidance and determining the impact on our consolidated financial statements.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This guidance will be effective for the Company for the annual report for the fiscal year ending April 26, 2025 and subsequent interim periods. Early adoption is permitted, and retrospective adoption is required for all prior periods presented. We are currently assessing this guidance and determining the impact on our consolidated financial statements.
Note 3. Revenue
Revenue from sales of our products and services is recognized either at the point in time when control of the products is transferred to our customers or over time as services are provided in an amount that reflects the consideration we expect to be entitled to in exchange for the products or services.
See Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Pronouncements for additional information related to our revenue recognition policies and Part II - Item 8. Financial Statements and Supplementary Data - Note 4. Segment Reporting for a description of each segment's 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, 2024 | | April 29, 2023 | | |
| Retail | | | | | | | | | | |
| Course Materials Product Sales | | | | | | $ | 971,950 | | | $ | 927,915 | | | |
General Merchandise Product Sales (a) | | | | | | 364,097 | | | 385,499 | | | |
Service and Other Revenue (b) | | | | | | 42,191 | | | 41,759 | | | |
| Retail Product and Other Sales sub-total | | | | | | 1,378,238 | | | 1,355,173 | | | |
| Course Materials Rental Income | | | | | | 136,679 | | | 136,553 | | | |
| Retail Total Sales | | | | | | $ | 1,514,917 | | | $ | 1,491,726 | | | |
| Wholesale Sales | | | | | | $ | 112,631 | | | $ | 106,366 | | | |
Eliminations (c) | | | | | | $ | (60,413) | | | $ | (54,884) | | | |
| Total Sales | | | | | | $ | 1,567,135 | | | $ | 1,543,208 | | | |
(a)Logo general merchandise sales for the Retail Segment are recognized on a net basis as commission revenue in the consolidated financial statements.
(b)Service and other revenue primarily relates to brand marketing programs and other service revenues.
(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.
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, 2024 and April 29, 2023 on our consolidated balance sheets.
Contract liabilities represent an obligation to transfer goods or services to a customer for which we have received consideration and consists of our deferred revenue liability (deferred revenue). Deferred revenue consists of the following:
•advanced payments from customers related to textbook rental performance obligations, which are recognized ratably over the terms of the related rental period;
•unsatisfied performance obligations associated with partnership marketing services, which are recognized when the contracted services are provided to our partnership marketing customers; and
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
•unsatisfied performance obligations associated with the premium paid for the sale of treasury shares, which are expected to be recognized over the term of the merchandising contracts for Fanatics and Lids. respectively as discussed in Part II - Item 8. Financial Statements and Supplementary Data - Note 5. Equity and Earnings Per Share - Sale of Treasury Shares.
The following table presents changes in deferred revenue associated with our contract liabilities:
| | | | | | | | | | | | | | |
| | 52 weeks ended |
| | April 27, 2024 | | April 29, 2023 |
| Deferred revenue at the beginning of period | | $ | 15,356 | | | $ | 16,475 | |
| Additions to deferred revenue during the period | | 176,319 | | | 184,163 | |
| Reductions to deferred revenue for revenue recognized during the period | | (176,783) | | | (185,282) | |
| Deferred revenue balance at the end of period: | | $ | 14,892 | | | $ | 15,356 | |
| Balance Sheet classification: | | | | |
| Accrued liabilities | | $ | 11,310 | | | $ | 11,218 | |
| Other long-term liabilities | | 3,582 | | | 4,138 | |
| Deferred revenue balance at the end of period: | | $ | 14,892 | | | $ | 15,356 | |
As of April 27, 2024, we expect to recognize $11,310 of the deferred revenue balance within the next 12 months.
Note 4. Segment Reporting
During the fourth quarter of Fiscal 2023, assets related to our DSS Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. On May 31, 2023, we completed the sale of these assets related to our DSS Segment. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
We have two reportable segments: Retail and Wholesale. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, are not allocated to a specific reporting segment and 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 two segments. For additional information about this segment's operations, see Part I - Item 1. Business.
Retail Segment
The Retail Segment operates 1,245 college, university, and K-12 school bookstores, comprised of 707 physical bookstores and 538 virtual bookstores. Our bookstores typically operate under agreements with the colleges, universities, 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 websites, which we operate independently or along with our merchant service providers, and which offer students access to required and recommended course materials and affinity products, including emblematic apparel and gifts. The Retail Segment offers our BNC First Day® equitable and inclusive access programs, consisting of First Day Complete and First Day, which provide faculty required course materials 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 2,750 physical bookstores (including our Retail Segment's 707 physical bookstores) and sources and distributes new and used textbooks to our 538 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 325 college bookstores.
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.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Intercompany 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, 2024 | | April 29, 2023 |
| Total Assets | | | | |
| Retail | | $ | 748,378 | | | $ | 785,900 | |
| Wholesale | | 143,390 | | | 160,868 | |
| | | | |
| Corporate Services | | 13,316 | | | 6,581 | |
| Sub-Total | | 905,084 | | | 953,349 | |
| Assets Held for Sale | | — | | | 27,430 | |
| Total Assets | | $ | 905,084 | | | $ | 980,779 | |
| | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | 52 weeks ended | | |
| | | | | April 27, 2024 | | April 29, 2023 | | |
| Capital Expenditures from Continuing Operations | | | | | | | | | |
| Retail | | | | | $ | 12,483 | | | $ | 23,098 | | | |
| Wholesale | | | | | 1,573 | | | 1,959 | | | |
| Corporate Services | | | | | 14 | | | 35 | | | |
| Total Capital Expenditures | | | | | $ | 14,070 | | | $ | 25,092 | | | |
| | | | | | | | | |
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, 2024 | | April 29, 2023 | | |
| Sales: | | | | | | | | | |
| Retail | | | | | $ | 1,514,917 | | | $ | 1,491,726 | | | |
| Wholesale | | | | | 112,631 | | | 106,366 | | | |
| Eliminations | | | | | (60,413) | | | (54,884) | | | |
| Total Sales | | | | | $ | 1,567,135 | | | $ | 1,543,208 | | | |
| | | | | | | | | |
| Gross Profit | | | | | | | | | |
Retail | | | | | $ | 332,947 | | | $ | 331,344 | | | |
| Wholesale | | | | | 22,799 | | | 18,275 | | | |
| Eliminations | | | | | 1,030 | | | (180) | | | |
| Total Gross Profit | | | | | $ | 356,776 | | | $ | 349,439 | | | |
| | | | | | | | | |
| Selling and Administrative Expenses | | | | | | | | | |
| Retail | | | | | $ | 278,459 | | | $ | 320,730 | | | |
| Wholesale | | | | | 13,439 | | | 15,036 | | | |
| Corporate Services | | | | | 19,679 | | | 22,000 | | | |
| Eliminations | | | | | (3) | | | (155) | | | |
| Total Selling and Administrative Expenses | | | | | $ | 311,574 | | | $ | 357,611 | | | |
| | | | | | | | | |
| Depreciation and Amortization | | | | | | | | | |
| Retail | | | | | $ | 35,294 | | | $ | 36,737 | | | |
| Wholesale | | | | | 5,228 | | | 5,373 | | | |
| Corporate Services | | | | | 38 | | | 53 | | | |
| Total Depreciation and Amortization | | | | | $ | 40,560 | | | $ | 42,163 | | | |
| | | | | | | | | |
Impairment loss (non-cash) - Retail (a) | | | | | $ | 7,166 | | | $ | 6,008 | | | |
| | | | | | | | | |
Restructuring and Other Charges (b) | | | | | | | | | |
| Retail | | | | | $ | 571 | | | $ | 2,964 | | | |
| Wholesale | | | | | (813) | | | 916 | | | |
| Corporate Services | | | | | 19,651 | | | 6,223 | | | |
| Total Restructuring and Other Charges | | | | | $ | 19,409 | | | $ | 10,103 | | | |
| | | | | | | | | |
Operating Income (Loss) | | | | | | | | | |
| Retail | | | | | $ | 11,457 | | | $ | (35,095) | | | |
Wholesale | | | | | 4,945 | | | (3,050) | | | |
| Corporate Services | | | | | (39,368) | | | (28,276) | | | |
| Eliminations | | | | | 1,033 | | | (25) | | | |
| Total Operating Loss | | | | | $ | (21,933) | | | $ | (66,446) | | | |
| | | | | | | | | |
| The following is a reconciliation of segment Operating Loss from Continuing Operations to consolidated Loss from Continuing Operations Before Income Taxes | | | | | | | | | |
| Total Operating Loss | | | | | $ | (21,933) | | | $ | (66,446) | | | |
| Interest Expense, net | | | | | (40,365) | | | (22,683) | | | |
| Total Loss from Continuing Operations Before Income Taxes | | | | | $ | (62,298) | | | $ | (89,129) | | | |
| | | | | | | | | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
(a)See Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies - Impairment of Long-Lived Assets.
(b)See Part II - Item 8. Financial Statements and Supplementary Data - Note 9. Supplementary Information.
Note 5. Equity and Earnings Per Share
Equity
As of April 27, 2024, 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, 2024, 55,840,166 shares and 53,156,369 shares of our common stock were issued and outstanding, respectively, and 0 shares of our preferred stock were both issued and outstanding. Our common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “BNED”.
On October 5, 2023, our shareholders approved an amendment and restatement of the Equity Incentive Plan to increase the number of shares available for issuance by an additional 4,500,000 of our Common Stock. We have reserved an aggregate of 17,909,345 shares of common stock for future grants in accordance with the Barnes & Noble Education Inc. Equity Incentive Plan. See Item 8. Financial Statements and Supplementary Data - Note 12. Long-Term Incentive Compensation Expense.
On June 5, 2024, our shareholders approved an amendment to our Amended and Restated Certificate of Incorporation, as amended, to increase the aggregate number of authorized shares of Common Stock from 200,000,000 shares to 10,000,000,000 shares.
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
On June 11, 2024, we completed a reverse stock split of the Company’s outstanding shares of common stock at a ratio of 1-for-100 (the “Reverse Stock Split”), which was previously approved by stockholders at a special meeting held on June 5, 2024. In connection with the Reverse Stock Split, every 100 shares of the common stock issued and outstanding was converted into one share of the Company’s common stock. The Reverse Stock Split reduced the number of shares of the Company’s outstanding common stock from approximately 2,620,495,552 shares (as of June 11, 2024) to approximately 26,204,956 shares, subject to adjustment for rounding. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
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.
Repurchase of Shares
On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50,000, in the aggregate, of our outstanding common stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. During Fiscal 2024 and Fiscal 2023, we did not purchase shares under the stock repurchase program. As of April 27, 2024, approximately $26,669 remains available under the stock repurchase program.
During Fiscal 2024 and Fiscal 2023, we also repurchased 147,885 shares and 347,808 shares of our common stock in connection with employee tax withholding obligations for vested stock awards, respectively.
Sale of Treasury Shares
In December 2020 (Fiscal 2021), we entered into a merchandising agreement with Fanatics and Lids which included a strategic equity investment in the Company. Fanatics, Inc. and Lids Holdings, Inc,. jointly as TopLids LendCo, LLC (“TopLids”), purchased an aggregate 2,307,692 of our common shares (issued from treasury shares) for $15,000, representing a share price of $6.50 per share. The premium price paid above the fair market value of our common stock at closing was
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
approximately $4,131 and was recorded as a contract liability which is recognized over the term of the merchandising contracts for Fanatics and Lids ($211 and $211, respectively, in accrued liabilities, and $3,287 and $3,498, respectively, as of April 27, 2024 and April 29, 2023, in other long-term liabilities our consolidated balance sheet) which is expected to be recognized over the term of the merchandising contracts for Fanatics and Lids, as discussed in Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Organization - Relationship with Fanatics and Lids. For information related to additional equity investments by TopLids subsequent to the end of Fiscal 2024, see Part II - Item 8. Financial Statements and Supplementary Data - Note 10. Related Party Transactions and Note 17 Subsequent Events.
Dividends
We paid no other dividends to common stockholders during Fiscal 2024 and Fiscal 2023. We do not intend to pay dividends on our common stock in the foreseeable future and dividend payments are not permitted under current or future financing arrangements. See Part II - Item 8. Financial Statements and Supplementary Data - Note 7 - Debt and Note 17. Subsequent Event for details.
On April 16, 2024, our Board of Directors approved the adoption of a short-term stockholder rights plan and declared a dividend distribution of one preferred share purchase right on each outstanding share of the Company's common stock. Each right will entitle stockholders to buy one one-thousandth of a share of our preferred stock at an established exercise price. The dividend was payable to holders of record as of the close of business on April 29, 2024. The rights will be exercisable only if a person or group acquires 10% or more of our outstanding common stock and various other criteria are met (the “Distribution Date”). Until the Distribution Date, the rights will not be exercisable; the rights will not be evidenced by separate rights certificates; and the rights will be transferable by, and only in connection with, the transfer of common stock. The rights will expire no later than January 31, 2025.
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 Fiscal 2024 and Fiscal 2023, average shares of 32,304 and 47,404, respectively, were excluded from the diluted earnings per share calculation using the two-class method as their inclusion would have been antidilutive.
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events. Because the rights issuance was offered to all existing stockholders at an exercise price that was less than the fair value of our Common Stock, as of such time, the weighted average shares outstanding and basic and diluted earnings (loss) per share were adjusted retroactively to reflect the bonus element of the rights offering for all periods presented by a factor of 5.03.
On June 11, 2024, we completed a reverse stock split of the Company’s outstanding shares of common stock at a ratio of 1-for-100 (the “Reverse Stock Split”), which was approved by stockholders at a special meeting held on June 5, 2024. In connection with the Reverse Stock Split, every 100 shares of the common stock issued and outstanding was converted into one share of the Company’s common stock. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
Weighted average shares for both basic and diluted, prior to giving effect to the bonus element of the rights offering and the Reverse Stock Split was 52,935,533 for the 52 weeks ended April 27, 2024. The weighted average common shares and loss per common share reflect the bonus element resulting from the equity rights offering and the Reverse Stock Split for all periods presented on the consolidated statements of operations.
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:
| | | | | | | | | | | | | | | | | |
| | | | | 52 weeks ended | | |
| (shares in thousands) | | | | | April 27, 2024 | | April 29, 2023 | | |
| Numerator for basic and diluted earnings per share: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Loss from continuing operations, net of tax | | | | | $ | (62,481) | | | $ | (90,140) | | | |
| Loss from discontinued operations, net of tax | | | | | (730) | | | (11,722) | | | |
| Net loss available to common shareholders | | | | | $ | (63,211) | | | $ | (101,862) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Denominator for basic and diluted earnings per share: | | | | | | | | | |
| Basic and diluted weighted average shares of Common Stock | | | | | 2,662 | | | 2,638 | | | |
| Loss per share of Common Stock: | | | | | | | | | |
| Basic and Diluted | | | | | | | | | |
| Continuing operations | | | | | $ | (23.47) | | | $ | (34.17) | | | |
| Discontinued operations | | | | | (0.28) | | | (4.44) | | | |
| Basic and diluted loss per share of Common Stock | | | | | $ | (23.75) | | | $ | (38.61) | | | |
Note 6. Fair Values Measurements
In accordance with ASC No. 820, Fair Value Measurements and Disclosures, the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1—Observable inputs that reflect quoted prices in active markets
Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3—Unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions
Our financial instruments include cash and cash equivalents, receivables, accrued liabilities and accounts payable. The fair values of cash and cash equivalents, receivables, accrued liabilities and accounts payable approximates their carrying values because of the short-term nature of these instruments, which are all considered Level 1. The fair value of short-term and long-term debt approximates its carrying value.
Non-Financial Assets and Liabilities
Our non-financial assets include property and equipment, operating lease right-of-use assets, and intangible assets. Such assets are reported at their carrying values and are not subject to recurring fair value measurements. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets.
During the 52 weeks ended April 27, 2024 and April 29, 2023, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment, and we recognized an impairment loss (non-cash) of $7,166 and $6,008, respectively, on the consolidated statement of operations. The fair value of the impaired long-lived assets were determined using an income approach (Level 3 input), using our best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
The following table shows the fair values of our non-financial assets and liabilities that were required to be remeasured at fair value on a non-recurring basis for each respective period and the total impairments recorded as a result of the remeasurement process:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 52 weeks ended April 27, 2024 | | 52 weeks ended April 29, 2023 | | |
| Carrying Value
Prior to Impairment | | Fair Value | | Impairment Loss
(non-cash) | | Carrying Value
Prior to Impairment | | Fair Value | | Impairment Loss
(non-cash) | | | | | | |
| Property and equipment, net | $ | 460 | | | $ | 55 | | | $ | 405 | | | $ | 708 | | | $ | — | | | $ | 708 | | | | | | | |
| Operating lease right-of-use assets | 8,044 | | | 4,444 | | | 3,600 | | | 3,002 | | | 1,305 | | | 1,697 | | | | | | | |
| Intangible assets, net | 3,860 | | | 699 | | | 3,161 | | | 3,599 | | | — | | | 3,599 | | | | | | | |
| Other noncurrent assets | — | | | — | | | — | | | 4 | | | — | | | 4 | | | | | | | |
| Total | $ | 12,364 | | | $ | 5,198 | | | $ | 7,166 | | | $ | 7,313 | | | $ | 1,305 | | | $ | 6,008 | | | | | | | |
| | | | | | | | | | | | | | | | | |
Non-Financial LiabilitiesWe granted phantom share units as long-term incentive awards which are settled in cash based on the fair market value of a share of common stock of the Company at each vesting date. The fair value of the liability for the cash-settled phantom share unit awards will be remeasured at the end of each reporting period through settlement to reflect current risk-free rate and volatility assumptions. As of April 27, 2024, we recorded a liability of $8 (Level 2 input) which is reflected in accrued liabilities on the consolidated balance sheet. As of April 29, 2023, we recorded a liability of $777 (Level 2 input) which is reflected in accrued liabilities ($734) and other long-term liabilities ($42) on the consolidated balance sheet. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 12. Long-Term Incentive Compensation Expense.
Note 7. Debt
| | | | | | | | | | | | | | | | | |
| | | As of |
| Maturity Date (a) | | April 27, 2024 | | April 29, 2023 |
| Credit Facility | December 28, 2024 | | $ | 164,947 | | | $ | 154,154 | |
| | | | | |
| Term Loan | April 7, 2025 | | 32,653 | | | 30,000 | |
| sub-total | | | 197,600 | | | 184,154 | |
Less: Deferred financing costs, Term Loan (b) | | | (1,263) | | | (2,003) | |
| Total debt | | | $ | 196,337 | | | $ | 182,151 | |
| Balance Sheet classification: | | | | | |
| | | | | |
| Long-term borrowings | | | $ | 196,337 | | | $ | 182,151 | |
| | | | | |
| | | | | |
(a) On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including amending and extending the maturity date of the Credit Facility to June 9, 2028 and converting all outstanding principal and interest amounts owed under our Term Loan Credit Agreement into shares of our Common Stock. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
(b) For additional information, see Deferred Financing Costs below.
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs, which will also allow us to strategically invest in innovation and continue to execute our strategic initiatives, including but not limited to the growth of our First Day Complete program.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Upon closing of the Transactions on June 10, 2024:
•We received gross proceeds of $95,000 of new equity capital through a $50,000 new equity investment (the “Private Investment”) led by Immersion Corporation (“Immersion”) and a $45,000 fully backstopped equity rights offering (the “Rights Offering”). The Transactions infused approximately $80,000 of net cash proceeds after transaction costs. The transaction resulted in Immersion obtaining controlling financial interest.
•Our existing Term Loan credit agreement lenders, TopLids LendCo, LLC and Vital Fundco, LLC, converted approximately $34,000 of outstanding principal and any accrued and unpaid interest into our common stock.
•We refinanced our Credit Facility providing access to a $325,000 facility maturing in 2028. The refinanced Credit Facility will meaningfully enhance our financial flexibility and reduce our annual interest expense.
For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
Credit Facility
As of April 27, 2024, we are party to a credit agreement (the “Credit Agreement”), which was amended from time to time including on April 16, 2024, March 12, 2024, December 12, 2023, October 10, 2023, July 28, 2023, May 24, 2023, March 8, 2023, March 31, 2021, and March 1, 2019, under which the lenders originally committed to provide us with a 5 year asset-backed revolving credit facility in an aggregate committed principal amount of $400,000 (the “Credit Facility”) effective from the March 1, 2019 amendment. We had the option to request an increase in commitments under the Credit Facility of up to $100,000, subject to certain restrictions. Proceeds from the Credit Facility are used for general corporate purposes, including seasonal working capital needs. The agreement included an incremental first in, last out seasonal loan facility (the “FILO Facility”) for $100,000 maintaining the maximum availability under the Credit Agreement at $500,000. As of July 31, 2022, the FILO Facility was repaid and eliminated according to its terms and future commitments under the FILO Facility were reduced to $0.
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. See Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
The Credit Facility is secured by substantially all of the inventory, accounts receivable and related assets of the borrowers under the Credit Facility. This is considered an all asset lien (inclusive of proceeds from tax refunds payable to the Company and a pledge of equity from subsidiaries, exclusive of real estate).
As of April 27, 2024, and through the date of this filing, we were in compliance with all debt covenants under the Credit Agreement.
During the 52 weeks ended April 27, 2024, we borrowed $563,023 and repaid $552,230 under the Credit Agreement, with $164,947 of outstanding borrowings under the Credit Facility as of April 27, 2024. During the 52 weeks ended April 29, 2023, we borrowed $590,303 and repaid $631,849 under the Credit Agreement, with $154,154 of outstanding borrowings as of April 29, 2023, comprised entirely of borrowing under the Credit Facility and $0 under the FILO Facility, which was repaid on August 1, 2022. As of April 27, 2024 and April 29, 2023, we issued $3,575 and $2,059, respectively, in letters of credit under the Credit Facility.
The following is a summary of the various Credit Agreement amendments.
March 2023 Credit Agreement Amendment
On March 8, 2023, we amended our existing Credit Agreement to (i) extend the maturity date of the Credit Agreement by six months to August 29, 2024, (ii) reduce the commitments under the Credit Agreement by $20,000 to $380,000, (iii) increase the applicable margin with respect to the interest rate under the Credit Agreement to 3.375% per annum, in the case of interest accruing based on a Secured Overnight Financing Rate, and 2.375%, in the case of interest accruing based on an alternative base rate, in each case, without regard to a pricing grid, (iv) reduce advance rates with respect to the borrowing base (x) by 500 basis points upon the achievement of certain liquidity events, which may include a sale of equity interests or of assets (a “Specified Event”), or, if such a Specified Event shall not have occurred, no later than May 31, 2023 (see discussion below) and (y) by an additional 500 basis points on September 29, 2023, (v) amend certain negative covenants and add certain additional covenants, (vi) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) to be at all times greater than the greater of 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and $32,500 and (vii) require repayment of the loans under the Credit Agreement upon a Specified Event. For additional information related to the
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Credit Agreement amendment, see the Company’s Report on Form 8-K dated March 8, 2023 and filed with the SEC on March 9, 2023.
As noted above, the amendment required the achievement of a Special Event by no later than May 31, 2023 (as such date may be extended pursuant to the terms of the Credit Agreement). See Note 2. Summary of Significant Accounting Policies for information related to the sale of our DSS segment on May 31, 2023.
We paid a fee of 0.25% of the outstanding principal amount of the commitments under the Credit Agreement on the amendment closing date and we will pay an additional fee of 1.00% of the outstanding principal amount of the commitments under the Credit Agreement on September 29, 2023 (see July 2023 Credit Agreement Amendment below for the change in payment terms)
During the 52 weeks ended April 29, 2023, we incurred debt issuance costs totaling $4,081 related to the March 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the consolidated balance sheets, and subsequently amortized ratably over the term of the Credit Agreement.
May 2023 Credit Agreement Amendment
On May 24, 2023, we amended our existing Credit Agreement to (i) increase the applicable margin with respect to the interest rate under the Credit Agreement to 3.75% per annum, in the case of interest accruing based on SOFR, and 2.75%, in the case of interest accruing based on an alternative base rate, in each case, without regard to a pricing grid, (ii) defer the reduction of advance rates used to calculate our borrowing capacity by an amount equal to 500 basis points previously required on May 31, 2023 to September 1, 2023, (iii) require cash flow reporting and variance testing commencing June 3, 2023 and (iv) defer partial prepayment of the term loan from the DSS segment sale proceeds to September 1, 2023. We did not incur debt issuance costs related to the May 2023 Credit Agreement amendment. For additional information related to the Credit Agreement amendment, see the Company’s Report on Form 8-K dated May 24, 2023 and filed with the SEC on May 31, 2023.
July 2023 Credit Agreement Amendment
On July 28, 2023, we amended our existing Credit Agreement to (i) extend the maturity date of the Credit Agreement to December 28, 2024, (ii) reduce advance rates with respect to the borrowing base by 1000 basis points on September 2, 2024 (in lieu of the reductions previously contemplated for September 2023), (iii) subject to the conditions set forth in such amendment, add a CARES Act tax refund claim to the borrowing base, from April 1, 2024 through July 31, 2024, (iv) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) at all times greater than the greater of (x) 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and (y) (A) $32,500 minus, subject to the conditions set forth in such amendment, (B) (a) $7,500 for the period of April 1, 2024 through and including April 30, 2024, (b) $2,500 for the period of May 1, 2024 through and including May 31, 2024 and (c) $0 at all other times, (v) add a minimum Consolidated EBITDA (as defined in the Credit Agreement) financial maintenance covenant, and (vi) amend certain negative and affirmative covenants and add certain additional covenants, all as more particularly set forth in such amendment. The amendment also requires that we appoint a Chief Restructuring Officer and that, by August 11, 2023, we (i) appoint two independent members to the board of directors of the Company from prospective candidates that have been previously disclosed to the Administrative Agent and the Lenders and (ii) appoint a committee of the board of directors of the Company to consist of three board members (two of whom will be the new independent directors). The committee’s responsibilities will include, among other things, to explore, consider, solicit expressions of interest or proposals for, respond to any communications, inquiries or proposals regarding, and advise as to all strategic alternatives to effect a “Specified Liquidity Transaction” (as defined in the Credit Agreement). There can be no guarantee or assurances that any such transaction or transactions be consummated. We must pay (i) a fee of 0.50% of the outstanding principal amount of the commitments under the Credit Agreement March 2023 amendment (as defined in the Credit Agreement) on the closing date (in lieu of the deferred fee previously contemplated in connection with the March 2023 amendment (as defined in the Credit Agreement)) and (ii) a fee of 1.00% of the outstanding principal amount of the commitments under the Credit Agreement as of the closing date on the earlier to occur of September 2, 2024 and an Event of Default (as defined in the Credit Agreement). For additional information related to the Credit Agreement amendment, see the Company's Report on Form 8-K filed with the SEC on July 28, 2023.
During the 52 weeks ended April 27, 2024, we incurred debt issuance costs totaling $11,516 related to the July 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the consolidated balance sheets, and subsequently amortized ratably over the term of the Credit Agreement.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
October 2023 Credit Agreement Amendment
On October 10, 2023, we amended our existing Credit Agreement to revise certain reporting requirements to the administrative agent and lenders under the Credit Agreement. The amendment introduced a Specified Liquidity Transaction Fee of $3,800 that would become due and payable at the earlier to occur of (a) January 31, 2024, to the extent a Specified Liquidity Transaction (as defined in the Credit Agreement) has not been consummated prior to such date (or such later date that is up to thirty days thereafter to the extent agreed to in writing by the Administrative Agent in its sole discretion) or (b) an Event of Default under the Credit Agreement. During the 52 weeks ended April 27, 2024, we incurred debt issuance costs totaling $1,428 related to the October 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the consolidated balance sheets, and subsequently amortized ratably over the term of the Credit Agreement.
December 2023 Credit Agreement Amendment
On December 12, 2023, we amended our existing Credit Agreement to, among other things: (i) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) at all times to be greater than the greater of (x) 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and (y) (A) $32,500 or, subject to the satisfaction of certain conditions relating to the repayment of the Credit Agreement in full, (B) (a) $20,000 for the period of December 8, 2023 through January 12, 2024, (b) $25,000 for the period from January 26, 2024 through February 9, 2024, (c) $25,000 for the period of April 1, 2024 through April 30, 2024 and (d) $30,000 for the period of May 1, 2024 through May 31, 2024, and (ii) revise certain reporting requirements under the Credit Agreement. The amendment also revised the Specified Liquidity Transaction Fee introduced in the October 2023 Credit Agreement Amendment such that the $3,800 became due and was paid on January 31, 2024. During the 52 weeks ended April 27, 2024, we incurred debt issuance costs totaling $4,047 related to the December 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the consolidated balance sheets, and subsequently amortized ratably over the term of the Credit Agreement. For additional information related to the Credit Agreement amendment, see the Company’s Report on Form 8-K dated December 12, 2023 and filed with the SEC on December 13, 2023.
March 2024 Credit Agreement Amendment
On March 12, 2024, we amended our existing Credit Agreement to, among other things, (i) revise certain reporting requirements under the Credit Agreement and (ii) set certain milestones for liquidity and refinancing contingency plans, with respect to which we must execute a binding commitment no later than April 3, 2024 (as may be extended by the administrative agent to April 10, 2024). During the 52 weeks ended April 27, 2024, we incurred debt issuance costs totaling $1,929 related to the March 2024 Credit Agreement amendment.
April 2024 Credit Agreement Amendment
On April 16, 2024, we amended our existing Credit Agreement to, among other things, revise certain milestones related to the previously-disclosed liquidity and refinancing contingency plans to align such milestones with the Transactions contemplated by the Purchase Agreement (as defined in Note 17. Subsequent Events) (the “Twelfth Amendment to Credit Agreement”), which milestones include (i) filing the Form S-1 no later than two (2) business days after the date of such amendment, (ii) obtaining receipt of support letters in support of the Transactions from persons owning not less than 20% of the outstanding voting stock of the Company by no later than May 3, 2024 (or such later date as agreed to in writing by the administrative agent in its sole discretion), (iii) obtaining receipt of the Securities and Exchange Commission (“SEC”) approval with respect to such Form S-1 on or before May 24, 2024 (or such later date as agreed to in writing by the administrative agent in its sole discretion) and (iv) closing the Transactions contemplated by the Purchase Agreement on or before the date that is 25 days after the receipt of SEC approval with respect to the Form S-1. During the 52 weeks ended April 27, 2024, we incurred debt issuance costs totaling $851 related to the April 2024 Credit Agreement amendment.
On June 10, 2024, subsequent to the end of the quarter, we amended and extended the Credit Agreement to provide access to a $325,000 facility (the “ABL Facility”) maturing in 2028. The refinanced ABL Facility will meaningfully enhance our financial flexibility and reduce our annual interest expense. For information on the refinanced Credit Agreement terms, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
Term Loan
On June 7, 2022, we entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with TopLids LendCo, LLC and Vital Fundco, LLC and we entered into an amendment to our existing Credit Agreement, which permitted us
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
to incur the Term Loan Facility (as defined below). For additional information, see the Company’s Report on Form 8-K dated June 7, 2022 and filed with the SEC on June 10, 2022.
The Term Loan Credit Agreement provides for term loans in an amount equal to $30,000 (the “Term Loan Facility” and, the loans thereunder, the “Term Loans”) and matures on April 7, 2025. The proceeds of the Term Loans are being used to finance working capital, and to pay fees and expenses related to the Term Loan Facility. During the 52 weeks ended April 27, 2024, we incurred $2,652 for interest in kind on the Term Loans and repaid $0 under the Term Loan Credit Agreement, with $32,652 of outstanding borrowings as of April 27, 2024. During the 52 weeks ended April 29, 2023, we borrowed $30,000 and repaid $0 under the Term Loan Credit Agreement, with $30,000 of outstanding borrowings as of April 29, 2023.
The Term Loans accrue interest at a rate equal to 11.25%, payable quarterly. All interest on the Term Loan prior to July 29, 2023 was paid in cash. Subsequent to July 29, 2023, all interest incurred on the Term Loan was incurred in kind as permitted under the July 2023 Term Loan Amendment and is part of the outstanding debt balance. The Term Loans do not amortize prior to maturity.
The Term Loan Credit Agreement does not contain a financial covenant, but otherwise contains representations and warranties, covenants and events of default that are substantially the same as those in the Credit Agreement, including restrictions on the ability of the Company and its subsidiaries to incur additional debt, incur or permit liens on assets, make investments and acquisitions, consolidate or merge with any other company, engage in asset sales and make dividends and distributions. The Term Loan Facility is secured by second-priority liens on all assets securing the obligations under the Credit Agreement, which is all of the assets of the Company and the Guarantors, subject to customary exclusions and limitations set forth in the Term Loan Credit Agreement and the other loan documents executed in connection therewith.
The Credit Agreement amendment permitted us to incur the Term Loan Facility and also provides that, upon repayment of the Term Loan Credit Agreement (and, if applicable, any replacement credit facility thereof), we may incur second lien secured debt in an aggregate principal amount not to exceed $75,000.
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed certain equity transactions to substantially deleverage our consolidated balance sheet, including converting all outstanding principal and interest amounts owed under our Term Loan Credit Agreement into shares of our Common Stock. For information on the Term Loan Credit Agreement conversion transaction subsequent to the end of Fiscal 2024, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
The following is a summary of the various Term Loan Credit Agreement amendments.
March 2023 Term Loan Credit Agreement Amendment
On March 8, 2023, we amended the Term Loan Credit Agreement to (i) extend the maturity date of the Term Loan Credit Agreement by six months to December 7, 2024, (ii) permit the application of certain proceeds to the repayment of the loans under Credit Agreement and (iii) amend certain negative covenants and add certain additional covenants to conform to the Credit Agreement. In addition, the amendment requires the achievement of a Specified Event (as described above) by no later than May 31, 2023 (as such date may be extended under the Credit Agreement, but no later than August 31, 2023 without consent from lenders under the Term Loan Credit Agreement). For additional information, see the Company's Report on Form 8-K dated March 8, 2023 and filed with the SEC on March 9, 2023.
During the 52 weeks ended April 29, 2023, we incurred debt issuance costs totaling $431 related to the March 2023 Term Loan Credit Agreement amendment. We paid a fee of $50 on the amendment closing date to the lenders under the Term Loan Credit Agreement. The debt issuance costs have been deferred and are presented as a reduction to long-term borrowings in the consolidated balance sheets, and subsequently amortized ratably over the term of the Term Loan Facility.
July 2023 Term Loan Credit Agreement Amendment
On July 28, 2023, we amended our Term Loan to (i) extend the maturity date of the Term Loan Agreement to April 7, 2025, (ii) allow for interest to be paid in kind until September 2, 2024, (iii) amend the 1.50% anniversary fee to recur on June 7 of each year that the Term Loan Agreement remains outstanding, with 2024 fee deferred to the earlier of September 2, 2024 and the Termination Date (as defined in the Term Loan Agreement) and (iv) amend certain negative covenants and affirmative and add certain additional covenants. We must pay a fee of $50 to the lenders under the Term Loan Agreement on the earlier of September 2, 2024 and the Termination Date (as defined in the Term Loan Agreement). For additional information, see the Company's Report on Form 8-K filed with the SEC on July 28, 2023.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
During the 52 weeks ended April 27, 2024, we incurred debt issuance costs totaling $499 related to the July 2023 Term Loan Credit Agreement amendment. The debt issuance costs have been deferred and are presented as a reduction to long-term borrowings in the consolidated balance sheets, and subsequently amortized ratably over the term of the Term Loan Facility.
Deferred Financing Costs
The debt issuance costs have been deferred and are presented as noted below in the consolidated balance sheets and are subsequently amortized ratably over the term of respective debt.
| | | | | | | | | | | | | | | | | |
| Dollars in thousands | | | As of |
Balance Sheet Location | Maturity Date/ Amortization Term (a) | | April 27, 2024 | | April 29, 2023 |
Credit Facility - Prepaid and Other Current Assets | December 28, 2024 | | $ | — | | | $ | 3,776 | |
Credit Facility - Other noncurrent assets | | | 12,897 | | | 1,259 | |
Credit Facility - sub-total | | | 12,897 | | | 5,035 | |
Term Loan - Contra Debt | April 7, 2025 | | 1,263 | | | 2,003 | |
Total deferred financing costs | | | $ | 14,160 | | | $ | 7,038 | |
(a) On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including amending and extending the maturity date of the Credit Facility to June 9, 2028 and converting all outstanding principal and interest amounts owed under our Term Loan Credit Agreement into shares of our Common Stock. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
Interest Expense
The following table presents interest expense on the consolidated statement of operations and cash interest paid during the 52 week periods:
| | | | | | | | | | | | | | | | |
| | 52 weeks ended | | |
| | April 27, 2024 | | April 29, 2023 | | |
| Interest Incurred | | | | | | |
| Credit Facility | | $ | 24,409 | | | $ | 16,994 | | | |
| Term Loan | | 3,984 | | | 3,078 | | | |
| Total Interest Incurred | | $ | 28,393 | | | $ | 20,072 | | | |
| Amortization of Deferred Financing Costs | | | | | | |
| Credit Facility | | $ | 11,910 | | | $ | 1,948 | | | |
| Term Loan | | 1,240 | | | 1,181 | | | |
| Total Amortization of Deferred Financing Costs | | $ | 13,150 | | | $ | 3,129 | | | |
| Interest Income, net of expense | | $ | (1,178) | | | $ | (518) | | | |
| Total Interest Expense | | $ | 40,365 | | | $ | 22,683 | | | |
| | | | | | |
Cash Interest Paid | | $ | 24,943 | | | $ | 19,024 | | | |
| | | | | | |
Note 8. Leases
We recognize lease assets and lease liabilities on the consolidated balance sheets for substantially all lease arrangements based on the present value of future lease payments as required by ASC 842, Leases (Topic 842). Our portfolio of leases consists of operating leases comprised of operations agreements which grant us the right to operate on-campus bookstores at colleges and universities; real estate leases for office and warehouse operations; and vehicle leases. We do not have finance leases or short-term leases (i.e., those with a term of twelve months or less).
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
We recognize a right of use (“ROU”) asset and lease liability in our consolidated balance sheets for leases with a term greater than twelve months. Options to extend or terminate a lease are included in the determination of the ROU asset and lease liability when it is reasonably certain that such options will be exercised. Our lease terms generally range from one year to fifteen years and a number of agreements contain minimum annual guarantees, many of which are adjusted at the start of each contract year based on the actual sales activity of the leased premises for the most recently completed contract year.
Payment terms are based on the fixed rates explicit in the lease, including minimum annual guarantees, and/or variable rates based on: i) a percentage of revenues or sales arising at the relevant premises (“variable commissions”), and/or ii) operating expenses, such as common area charges, real estate taxes and insurance. For contracts with fixed lease payments, including those with minimum annual guarantees, we recognize lease expense on a straight-line basis over the lease term or over the contract year in order to best reflect the pattern of usage of the underlying leased asset and our minimum obligations arising from these types of leases. Our lease agreements do not contain any material residual value guarantees, material restrictions or covenants.
We used our incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable. We utilized an estimated collateralized incremental borrowing rate as of the effective date or the commencement date of the lease, whichever is later.
The following table summarizes lease expense:
| | | | | | | | | | | | | | | | |
| | 52 weeks ended | | |
| | April 27, 2024 | | April 29, 2023 | | |
| Variable lease expense | | $ | 69,550 | | | $ | 69,570 | | | |
| Operating lease expense | | 122,963 | | | 135,037 | | | |
| Net lease expense | | $ | 192,513 | | | $ | 204,607 | | | |
The decrease in lease expense is primarily due to lower commission rates related to the shift from physical to digital course materials, closed stores, and the impact of the timing due to contract renewals, partially offset by higher sales for contracts based on a percentage of sales.
The following table summarizes our minimum fixed lease obligations, excluding variable commissions, as of April 27, 2024:
| | | | | | | | |
| | As of |
| | April 27, 2024 |
| Fiscal 2025 | | $ | 111,590 | |
| Fiscal 2026 | | 42,360 | |
| Fiscal 2027 | | 31,060 | |
| Fiscal 2028 | | 25,875 | |
| Fiscal 2029 | | 22,821 | |
| Thereafter | | 37,960 | |
| Total lease payments | | 271,666 | |
| Less: imputed interest | | (27,267) | |
| Operating lease liabilities at period end | | $ | 244,399 | |
Future lease payment obligations related to leases that were entered into, but did not commence as of April 27, 2024, were not material.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
The following summarizes additional information related to our operating leases:
| | | | | | | | | | | | | | | | |
| | As of | | |
| | April 27, 2024 | | April 29, 2023 | | |
| Weighted average remaining lease term (in years) | | 4.6 years | | 5.3 years | | |
| Weighted average discount rate | | 4.8 | % | | 4.7 | % | | |
| | | | | | |
| Supplemental cash flow information: | | | | | | |
| Cash payments for lease liabilities within operating activities | | $ | 123,115 | | | $ | 127,582 | | | |
| ROU assets obtained in exchange for lease liabilities from initial recognition | | $ | 85,572 | | | $ | 97,926 | | | |
Note 9. Supplementary Information
Restructuring and Other Charges
During the 52 weeks ended April 27, 2024, we recognized restructuring and other charges totaling $19,409, comprised primarily of $19,651 for costs associated with professional service costs for restructuring (as discussed below) and process improvements, and $1,097 for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($33 is included in accrued liabilities in the consolidated balance sheet as of April 27, 2024), partially offset by a $1,339 in an actuarial gain related to a frozen retirement benefit plan (non-cash).
Pursuant to the July 28, 2023 Credit Agreement amendment, the Board established a committee consisting of three independent directors to explore, consider, solicit expressions of interest or proposals for, respond to any communications, inquiries or proposals regarding, and advise as to all strategic alternatives to effect a “Specified Liquidity Transaction” (as defined in the Credit Agreement). Restructuring and other charges include costs associated with the costs of this committee, as well as other related legal and advisory professional service costs. On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. and provide additional flexibility for working capital needs. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
During the 52 weeks ended April 29, 2023, we recognized restructuring and other charges totaling $10,103, comprised primarily of $4,359 for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, ($1,712 is included in accrued liabilities in the consolidated balance sheet as of April 29, 2023), and $5,744 for costs primarily associated with professional service costs for restructuring and process improvements.
Note 10. Related Party Transactions
MBS Textbook Exchange, LLC
Prior to the acquisition of MBS on February 27, 2017, MBS was considered a related-party as it was majority-owned by Leonard Riggio, who is a principal owner holding substantial shares of our common stock, and other members of the Riggio family. Subsequent to the acquisition, the consolidated financial statements include the accounts of MBS and all material intercompany accounts and transactions have been eliminated in consolidation.
MBS leases its main warehouse and distribution facility located in Columbia, Missouri from MBS Realty Partners L.P. which is majority-owned by Leonard Riggio, with the remaining ownership by other sellers of MBS. The lease was originally entered into in 1991 and included a renewal option which extended the lease through September 1, 2023. Effective January 1, 2023, MBS amended the lease agreement to lower the rent and extend the term to December 31, 2024. Rent payments to MBS Realty Partners L.P. were approximately $690 and $1,150 during the 52 weeks ended April 27, 2024 and April 29, 2023, respectively.
TopLids LendCo, LLC
In December 2020 (Fiscal 2021), we entered into the F/L Relationship to execute a merchandising agreement with Fanatics and Lids which included a strategic equity investment in the Company. Fanatics, Inc. and Lids Holdings, Inc,. jointly as
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
TopLids LendCo, LLC (“TopLids”), purchased an aggregate 2,307,692 of our common shares. On June 7, 2022, we entered into a Term Loan Credit Agreement with TopLids LendCo, LLC and Vital Fundco, LLC (see discussion below). On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. TopLids will own more than 5% of our Common Stock outstanding following the closing of the transactions. Total commission revenue from the F/L Relationship was $126,886 and $145,416, during the 52 weeks ended April 27, 2024 and April 29, 2023, respectively. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Organization, Note 5. Equity and Earnings Per Share, Note 7. Debt, and Note 17. Subsequent Events.
VitalSource Technologies, Inc.
On June 7, 2022, we entered into a Term Loan Credit Agreement with TopLids LendCo, LLC (see discussion above) and Vital Fundco, LLC (a subsidiary of Vital Technologies, Inc. (“VitalSource”)). We have contracted with VitalSource to provide digitally formatted courseware, from all major publishers. On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. VitalSource will own more than 5% of our Common Stock outstanding following the closing of the transactions. Total purchases from the VitalSource were $331,232 and $249,464, during the 52 weeks ended April 27, 2024 and April 29, 2023, respectively. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Organization, Note 5. Equity and Earnings Per Share, Note 7. Debt, and Note 17. Subsequent Events.
Note 11. Employee Benefit Plans
We sponsor defined contribution plans for the benefit of substantially all of the employees of BNC. 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, if any. Total employee benefit expense for these plans was $1,687 and $4,391, during the 52 weeks ended April 27, 2024 and April 29, 2023, respectively. Commencing in September 2023, we revised the 401(k)-retirement savings plan to an annual end of plan year discretionary match, in lieu of the current pay period match.
Note 12. Long-Term Incentive Compensation Expense
We have reserved 17,909,345 shares of our common stock for future grants in accordance with the Barnes & Noble Education Inc. Equity Incentive Plan. Types of equity awards that can be granted under the Equity Incentive Plan include options, restricted stock (“RS”), restricted stock units (“RSU”), performance shares (“PS”), performance share units (“PSU”), and stock options. During the 52 weeks ended April 27, 2024, no equity share awards were granted to employees or board members.
We recognize compensation expense for restricted stock awards and performance share awards ratably over the requisite service period of the award, which is generally three years. We recognize compensation expense for these awards based on the number of awards expected to vest, which includes an estimated average forfeiture rate. We calculate the fair value of these awards based on the closing stock price on the date the award was granted. For those awards with market conditions, we have determined the grant date fair value using the Monte Carlo simulation model and compensation expense is recognized ratably over the requisite service period regardless of whether the market condition is satisfied.
Restricted Stock Awards
A RS award is an award of common stock that is subject to certain restrictions during a specified period. Restricted stock awards are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of unvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon (although payment may be deferred until the shares have vested) and are considered to be currently issued and outstanding. Restricted stock awards will have a minimum vesting period of one year.
A RSU is a grant valued in terms of our common stock, but no stock is issued at the time of grant. Each restricted stock unit may be redeemed for one share of our common stock once vested. Restricted stock units are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the units except in very limited circumstances and with the consent of the compensation committee. Shares associated with unvested restricted stock units have no voting rights but are entitled to receive dividends and other distributions thereon (although payment may be deferred until
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
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.
Phantom Shares
Phantom share units were granted to employees. Each phantom share represents the economic equivalent to one share of the Company's common stock and will be settled in cash based on the fair market value of a share of common stock at each vesting date in an amount not to exceed a specific value per share. The phantom shares vest and settle in three equal installments commencing one year after the date of grant. The fair value of the phantom shares was determined using the closing stock price on the date of the award less the fair value of the call option which was estimated using the Black-Scholes model. The fair value of the liability for the cash-settled phantom share unit awards will be remeasured at the end of each reporting period through settlement to reflect current risk-free rate and volatility assumptions.
As of April 27, 2024, we recorded a liability of $8 (Level 2 input) related to phantom share units grants which is reflected in accrued liabilities on the consolidated balance sheet. As of April 29, 2023, we recorded a liability of $777 (Level 2 input) related to phantom share units grants of which $734 and $42 is reflected in accrued liabilities and other long-term liabilities, respectively, on the consolidated balance sheet, respectively.
Stock Options
For stock options granted with an "at market" exercise price, we determined the grant fair value using the Black-Scholes model and for stock options granted with "a premium" exercise price, we determined the grant date fair value using the Monte Carlo simulation model. The fair value models for stock options use assumptions that include the risk-free interest rate, expected volatility, expected dividend yield and expected term of the options. The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for periods corresponding to the expected stock option term. The expected stock option term represents the weighted average period of time that stock options granted are expected to be outstanding, based on vesting schedules and the contractual term of the stock options. Volatility is based on the historical volatility of the Company’s common stock over a period of time corresponding to the expected stock option term. The stock options are exercisable in four equal annual installments commencing one year after the date of grant and have a ten year term. Holders are not entitled to receive dividends (if any) prior to vesting and exercise of the options.
Long-Term Incentive Compensation Activity
On June 11, 2024, we completed a reverse stock split of the Company’s outstanding shares of common stock at a ratio of 1-for-100 (the “Reverse Stock Split”), which was approved by stockholders at a special meeting held on June 5, 2024. In connection with the Reverse Stock Split, every 100 shares of the common stock issued and outstanding was converted into one share of the Company’s common stock. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events. The following table presents a summary of awards activity related to our current Equity Incentive Plan and reflects the Reverse Stock Split for all periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Restricted Stock Awards | | Restricted Stock Units | | Phantom Shares |
| | 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 29, 2023 | | 118 | | | $ | 230.00 | | 10,910 | | | $ | 533.00 | | 6,021 | | | $ | 301.00 |
| Granted | | — | | | $ | — | | — | | | $ | — | | — | | | $ | — |
| Vested | | (118) | | | $ | 230.00 | | (4,260) | | | $ | 541.00 | | (5,048) | | | $ | 253.00 |
| Forfeited | | — | | | $ | — | | (1,797) | | | $ | 590.00 | | (505) | | | $ | 273.00 |
| Balance, April 27, 2024 | | — | | | $ | — | | 4,853 | | | $ | 504.00 | | 468 | | | $ | 850.00 |
| | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Options | |
| | Number of
Shares | | Weighted
Average
Grant Date
Fair Value | | Weighted
Average
Exercise Price | |
| Balance, April 29, 2023 | | 27,623 | | | $ | 240.00 | | $ | 521.00 | |
| Granted | | — | | | $ | — | | $ | — | |
Exercised (a) | | — | | | $ | — | | $ | — | |
| Forfeited | | — | | | $ | — | | $ | — | |
| Expired | | (2,433) | | | $ | 219.00 | | $ | 490.00 | |
| Balance, April 27, 2024 | | 25,190 | | | $ | 241.00 | | $ | 524.00 | |
| Exercisable, April 27, 2024 | | 15,369 | | | $ | 223.00 | | $ | 498.00 | |
| | | | | | | |
(a) During the period ended April 27, 2024, no options were exercised with a total intrinsic value of $0.
The aggregate grant date fair value of stock options that vested during the 52 weeks ended April 27, 2024 and April 29, 2023 was $1,540 and $1,903, respectively.
Total fair value of vested share awards during the periods ended April 27, 2024 and April 29, 2023 was $4,405 and $8,851, respectively.
Long-Term Incentive Compensation Expense
We recognized compensation expense for long-term incentive plan awards in selling and administrative expenses as follows:
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | 52 weeks ended | | |
| | | | | April 27, 2024 | | April 29, 2023 | | |
| Stock-based awards | | | | | | | | | |
| Restricted stock expense | | | | | $ | 11 | | | $ | 172 | | | |
| Restricted stock units expense | | | | | 2,041 | | | 2,813 | | | |
Performance share units expense (a) | | | | | — | | | 10 | | | |
| Stock option expense | | | | | 1,328 | | | 1,720 | | | |
| Sub-total stock-based awards: | | | | | $ | 3,380 | | | $ | 4,715 | | | |
| Cash settled awards | | | | | | | | | |
| Phantom share units expense | | | | | $ | (154) | | | $ | (299) | | | |
| Total compensation expense for long-term incentive awards | | | | | $ | 3,226 | | | $ | 4,416 | | | |
(a) Long-term incentive compensation expense reflects cumulative adjustments to reflect changes to the expected level of achievement of the respective grants.
Total unrecognized compensation cost related to unvested awards as of April 27, 2024 was $2,352 and is expected to be recognized over a weighted-average period of 1.08 years.
Note 13. Income Taxes - Continuing Operations
For Fiscal 2024 and Fiscal 2023, we had no material revenue or expense in jurisdictions outside the United States other than India.
Impact of U.S. Tax Reform
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (The “CARES Act”) was enacted. We have analyzed the provisions, which provide for a technical correction to allow for full expensing of qualified leasehold improvements, modifications to charitable contribution and net operating loss limitations (“NOLs”), modifications to the deductibility of business interest expense, as well as Alternative Minimum Tax (“AMT”) credit acceleration. The most significant impact of the legislation for the Company was an income tax benefit of $7,164 for the carryback of NOLs to higher
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
tax rate years, recorded in Fiscal 2021. As of April 29, 2024, we recognized a current income tax receivable for NOL carrybacks in prepaid and other current assets on the consolidated balance sheet. We received a $15,774 refund in Fiscal 2023 and a $7,621 refund in Fiscal 2024 and expect to receive additional refunds of approximately $2,403 in Fiscal 2025.
Income tax benefits for Fiscal 2024 and Fiscal 2023 are as follows:
| | | | | | | | | | | | | | | | |
| | 52 weeks ended | | |
| | April 27, 2024 | | April 29, 2023 | | |
| Current: | | | | | | |
| Federal | | $ | — | | | $ | — | | | |
| State | | 318 | | | 301 | | | |
| International | | 417 | | | 252 | | | |
| Total Current | | 735 | | | 553 | | | |
| Deferred: | | | | | | |
| Federal | | (552) | | | 458 | | | |
| State | | — | | | — | | | |
| International | | — | | | — | | | |
| Total Deferred | | (552) | | | 458 | | | |
| Total US tax provision | | $ | 183 | | | $ | 1,011 | | | |
Reconciliation between the effective income tax rate and the federal statutory income tax rate is as follows:
| | | | | | | | | | | | | | | | |
| | 52 weeks ended | | |
| | April 27, 2024 | | April 29, 2023 | | |
Federal statutory income tax rate (a) | | 21.0 | % | | 21.0 | % | | |
State income taxes, net of federal income tax benefit | | 4.0 | | | 3.6 | | | |
| Permanent book / tax differences | | (1.7) | | | (1.2) | | | |
| | | | | | |
Changes in valuation allowance | | (23.0) | | | (24.6) | | | |
| Other, net | | (0.6) | | | 0.1 | | | |
| Effective income tax rate | | (0.3) | % | | (1.1) | % | | |
The effective tax rate for Fiscal 2024 is materially consistent with the prior year.
One percentage point on our Fiscal 2024 effective tax rate is approximately $623. The other permanent book/tax differences are principally comprised of non-deductible officer's compensation, and non-deductible stock compensation.
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.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
The significant components of our deferred taxes consisted of the following:
| | | | | | | | | | | | | | |
| | As of |
| | April 27, 2024 | | April 29, 2023 |
| Deferred tax assets: | | | | |
| Estimated accrued liabilities | | $ | 3,279 | | | $ | 5,840 | |
| Inventory | | 19,402 | | | 19,426 | |
| Stock-based compensation | | 979 | | | 1,145 | |
| Insurance liability | | — | | | 347 | |
| Operating lease liabilities | | 53,628 | | | 65,471 | |
| Tax credits | | 1,131 | | | 886 | |
| Goodwill | | 7,329 | | | 8,314 | |
| Net operating losses | | 79,182 | | | 70,503 | |
| Interest carryforwards | | 14,897 | | | 7,246 | |
| Property and equipment | | 795 | | | — | |
| Other | | 4,052 | | | 2,456 | |
| Gross deferred tax assets | | 184,674 | | | 181,634 | |
| Valuation allowance | | (81,174) | | | (56,962) | |
| Net deferred tax assets | | 103,500 | | | 124,672 | |
| Deferred tax liabilities: | | | | |
| Intangible asset amortization | | (19,757) | | | (23,555) | |
| Operating lease right-of-use assets | | (51,640) | | | (63,201) | |
| LIFO inventory valuation | | (33,392) | | | (33,999) | |
| Property and equipment | | — | | | (5,755) | |
| Gross deferred tax liabilities | | (104,789) | | | (126,510) | |
| Net deferred tax liability | | $ | (1,289) | | | $ | (1,838) | |
As of April 27, 2024 and April 29, 2023, we had $0 of unrecognized tax benefits.
Our policy is to recognize interest and penalties related to income tax matters in income tax expense. As of both April 27, 2024 and April 29, 2023, we had accrued $0 for net interest and penalties.
In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets would be realized. In evaluating our ability to utilize our deferred tax assets, we considered all available evidence, both positive and negative, in determining future taxable income on a jurisdiction by jurisdiction basis. As of April 27, 2024, we recorded a valuation allowance of $81,174 compared to $56,962 as of April 29, 2023.
As of April 27, 2024, we had state net operating loss carryforwards (“NOLs”) of approximately $457,609 which will begin to expire in 2026, state tax credit carryforwards totaling $430 which will begin to expire in 2024, federal tax credit carryforward of $1,131 which will begin to expire in 2040 and federal NOLs of approximately $265,522 which have an indefinite carryforward period.
As of April 27, 2024, we recorded $201 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 2018 and forward. Some earlier years remain open for a small minority of states.
Potential Limitation to Future Tax Attribute Utilization
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change” (generally defined as a cumulative change in our ownership by “5-percent shareholders” that exceeds 50
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
percentage points over a rolling three-year period), the corporation’s ability to use its pre-change net operating losses and certain other pre-change tax attributes to offset its post-change income and taxes may be limited. Similar rules may apply under state tax laws. As a result of the rights offering, backstop commitment, private investment, and debt conversion completed on June 10, 2024, we may have experienced an ownership changes as defined by Sections 382 and 383. The Company intends to perform a study to determine if an ownership change has occurred. If it is determined that an ownership change has occurred under Section 382 and 383, we expect any corresponding annual limitations to severely impact the future utilization of our tax attributes including our $265,522 NOL carryforward. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
Note 14. Legal Proceedings
We are involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of our business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
Note 15. Commitments and Contingencies
We generally operate our physical bookstores pursuant to multi-year school management contracts under which a school designates us to operate the official school physical bookstore on campus and we provide the school with regular payments that represent a percentage of store sales and, in some cases, include a minimum fixed guaranteed payment. We account for these service agreements for our physical bookstores under lease accounting. We recognize lease assets and lease liabilities on the consolidated balance sheets for substantially all fixed lease arrangements (excluding variable obligations) with a term greater than twelve months. For additional information on lease expense and minimum fixed lease obligations, excluding variable commissions, see Part II - Item 8. Financial Statements and Supplementary Data - Note 8. Leases.
Purchase obligations, which includes information technology contracts, as of April 27, 2024 are as follows:
| | | | | |
| Less Than 1 Year | $ | 12,066 | |
| 1-3 Years | 6,497 | |
| |
| Total | $ | 18,563 | |
Note 16. Selected Quarterly Financial Information (Unaudited)
A summary of quarterly financial information for the 52 weeks ended April 27, 2024 and April 29, 2023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended (a) | | 52 weeks ended |
| | July 29, 2023 | | October 28, 2023 | | | | January 27, 2024 | | April 27, 2024 | | April 27, 2024 |
| Sales | | $ | 264,161 | | | $ | 610,379 | | | | | $ | 456,673 | | | $ | 235,922 | | | $ | 1,567,135 | |
| Gross profit | | $ | 50,634 | | | $ | 136,242 | | | | | $ | 100,036 | | | $ | 69,864 | | | $ | 356,776 | |
(Loss) income from continuing operations, net of tax (b)(c)(d) | | $ | (49,971) | | | $ | 24,854 | | | | | $ | (9,928) | | | $ | (27,436) | | | $ | (62,481) | |
| Loss from discontinued operations, net of tax | | $ | (417) | | | $ | (674) | | | | | $ | 289 | | | $ | 72 | | | $ | (730) | |
Net (loss) income (b)(c)(d) | | $ | (50,388) | | | $ | 24,180 | | | | | $ | (9,639) | | | $ | (27,364) | | | $ | (63,211) | |
| | | | | | | | | | | | |
(Loss) earnings per common share: (e) | | | | | | | | | | | | |
| Basic and Diluted | | | | | | | | | | | | |
| Continuing operations | | $ | (18.87) | | | $ | 9.36 | | | | | $ | (3.71) | | | $ | (10.27) | | | $ | (23.47) | |
| Discontinued operations | | (0.16) | | | (0.25) | | | | | 0.11 | | | 0.03 | | | (0.28) | |
| Total Basic and Diluted Earnings per share | | $ | (19.03) | | | $ | 9.11 | | | | | $ | (3.60) | | | $ | (10.24) | | | $ | (23.75) | |
| Weighted average common shares outstanding - Basic: | | 2,648 | | | 2,655 | | | | | 2,673 | | | 2,673 | | | 2,662 | |
| Weighted average common shares outstanding - Diluted: | | 2,648 | | | 2,655 | | | | | 2,673 | | | 2,673 | | | 2,662 | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
(a) For information related to quarterly seasonality and other variance components, see Part II - Item 7. Management Discussion and Analysis - Results of Operations and Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies - Seasonality.
(b) Includes $4,633, $4,274, $3,413, and $7,089 of restructuring and other charges for the 13 weeks ended July 29, 2023, October 28, 2023, January 27, 2024 and April 27, 2024, respectively, and $19,409 for the 52 weeks ended April 27, 2024.
(c) Includes $0, $0, $5,798, and $1,368 of impairment loss (non-cash) for the 13 weeks ended July 29, 2023, October 28, 2023, January 27, 2024 and April 27, 2024, respectively, and $7,166 for the 52 weeks ended April 27, 2024.
(d) Includes $8,254, $10,664, $10,620, and $10,827 of interest expense for the 13 weeks ended July 29, 2023, October 28, 2023, January 27, 2024 and April 27, 2024, respectively, and $40,365 for the 52 weeks ended April 27, 2024. The increase in interest expense is primarily due to higher borrowings, higher interest rates and increased amortization of deferred financing costs.
(e) On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering. Because the rights issuance was offered to all existing stockholders at an exercise price that was less than the fair value of our Common Stock, as of such time, the weighted average shares outstanding and basic and diluted earnings (loss) per share were adjusted retroactively to reflect the bonus element of the rights offering for all periods presented by a factor of 5.03.
On June 11, 2024, subsequent to the end of Fiscal 2024, we completed a reverse stock split of our outstanding shares of common stock at a ratio of 1-for-100 in which every 100 shares of the common stock issued and outstanding was converted into one share of our common stock.
The weighted average common shares and loss per common share reflect the bonus element resulting from the equity rights offering and the reverse stock split for all periods presented on the consolidated statements of operations. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended (a) | | 52 weeks ended |
| | July 30, 2022 | | October 29, 2022 | | | | January 28, 2023 | | April 29, 2023 | | April 29, 2023 |
| Sales | | $ | 254,674 | | | $ | 608,633 | | | | | $ | 438,054 | | | $ | 241,847 | | | $ | 1,543,208 | |
| Gross profit | | $ | 56,005 | | | $ | 138,141 | | | | | $ | 97,011 | | | $ | 58,282 | | | $ | 349,439 | |
(Loss) income from continuing operations, net of tax (b)(c)(d) | | $ | (50,322) | | | $ | 24,168 | | | | | $ | (22,134) | | | $ | (41,852) | | | $ | (90,140) | |
| Loss from discontinued operations, net of tax | | $ | (2,385) | | | $ | (2,024) | | | | | $ | (2,915) | | | $ | (4,398) | | | $ | (11,722) | |
Net (loss) income (b)(c)(d) | | $ | (52,707) | | | $ | 22,144 | | | | | $ | (25,049) | | | $ | (46,250) | | | $ | (101,862) | |
| | | | | | | | | | | | |
(Loss) earnings per common share: (e) | | | | | | | | | | | | |
Basic | | | | | | | | | | | | |
| Continuing operations | | $ | (19.18) | | | $ | 9.16 | | | | | $ | (8.37) | | | $ | (15.82) | | | $ | (34.17) | |
| Discontinued operations | | (0.91) | | | (0.77) | | | | | (1.10) | | | (1.66) | | | (4.44) | |
Total Basic Earnings per share | | $ | (20.09) | | | $ | 8.39 | | | | | $ | (9.47) | | | $ | (17.48) | | | $ | (38.61) | |
| Weighted average common shares outstanding - Basic: | | 2,624 | | | 2,637 | | | | | 2,646 | | | 2,646 | | | 2,638 | |
| | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | |
| Continuing operations | | $ | (19.18) | | | $ | 9.14 | | | | | $ | (8.37) | | | $ | (15.82) | | | $ | (34.17) | |
| Discontinued operations | | (0.91) | | | (0.77) | | | | | (1.10) | | | (1.66) | | | (4.44) | |
| Total Diluted Earnings per share | | $ | (20.09) | | | $ | 8.37 | | | | | $ | (9.47) | | | $ | (17.48) | | | $ | (38.61) | |
| Weighted average common shares outstanding - Diluted: | | 2,624 | | | 2,645 | | | | | 2,646 | | | 2,646 | | | 2,638 | |
(a) For information related to quarterly seasonality and other variance components, see Part II - Item 7. Management Discussion and Analysis - Results of Operations and Item 8. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies - Seasonality.
(b) Includes $375, $260, $4,127, and $5,341 of restructuring and other charges for the 13 weeks ended July 30, 2022, October 29, 2022, January 28, 2023 and April 29, 2023, respectively, and $10,103 for the 52 weeks ended April 29, 2023.
(c) Includes $0, $0, $6,008, and $0 of impairment loss (non-cash) for the 13 weeks ended July 30, 2022, October 29, 2022, January 28, 2023 and April 29, 2023, respectively, and $6,008 for the 52 weeks ended April 29, 2023.
(d) Includes $3,868, $4,886, $6,918, and $7,011 of interest expense for the 13 weeks ended July 30, 2022, October 29, 2022, January 28, 2023 and April 29, 2023, respectively, and $22,683 for the 52 weeks ended April 29, 2023.
(e) On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering. Because the rights issuance was offered to all existing stockholders at an exercise price that was less than the fair value of our Common Stock, as of such time, the weighted average shares outstanding and basic and diluted earnings (loss) per share were adjusted retroactively to reflect the bonus element of the rights offering for all periods presented by a factor of 5.03.
On June 11, 2024, subsequent to the end of Fiscal 2024, we completed a reverse stock split of our outstanding shares of common stock at a ratio of 1-
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
for-100 in which every 100 shares of the common stock issued and outstanding was converted into one share of our common stock.
The weighted average common shares and loss per common share reflect the bonus element resulting from the equity rights offering and the reverse stock split for all periods presented on the consolidated statements of operations. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.
Note 17. Subsequent Events
On June 5, 2024, our shareholders approved an amendment to our Amended and Restated Certificate of Incorporation, as amended, to increase the aggregate number of authorized shares of Common Stock from 200,000,000 shares to 10,000,000,000 shares, and approved the transactions (the “Transactions”) as outlined below pursuant to a Standby, Securities Purchase and Debt Conversion Agreement, dated as of April 16, 2024, by and among the Company and certain investors (the “Purchase Agreement”).
On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various Transactions to substantially deleverage our consolidated balance sheet. These Transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs, which will also allow us to strategically invest in innovation and continue to execute our strategic initiatives, including but not limited to the growth of our First Day Complete program. The proceeds will be used to reduce the balance under the Company’s existing Credit Facility and pay expenses in connection with the Transactions.
For additional information related to the Transactions, see the Company’s Report on Form 8-K dated June 11, 2024. For information related to the Credit Agreement and Term Loan Credit Agreement prior to the execution of these Transaction, see Part II - Item 8. Financial Statements and Supplementary Data - Note 7. Debt.
Upon closing of the Transactions on June 10, 2024:
•We received gross proceeds of $95,000 of new equity capital through a $50,000 new equity investment (the “Private Investment”) led by Immersion Corporation (“Immersion”) and a $45,000 fully backstopped equity rights offering (the “Rights Offering”). The Transactions infused approximately $80,000 of net cash proceeds after transaction costs. The transaction resulted in Immersion obtaining controlling financial interest. See Private Investment, Rights Offering, and Backstop Commitment below;
•Our existing Term Loan Credit Agreement lenders, TopLids LendCo, LLC (“TopLids”) and Vital Fundco, LLC (“VitalSource”), converted approximately $34,000 of outstanding principal and any accrued and unpaid interest into shares of our common stock. See Term Loan Credit Agreement Debt Conversion below; and
•We amended and extended our existing asset based loan facility (the “Credit Facility”) providing access to a $325,000 revolving loan facility (the “Restated ABL Facility”) maturing in 2028. The amended ABL Facility will meaningfully enhance our financial flexibility and reduce our annual interest expense. See Restated ABL Facility terms below.
Private Investment, Rights Offering, and Backstop Commitment
Immersion and VitalSource purchased approximately $45,000 and $5,000, respectively, in shares of our Common Stock, at the Subscription Price, defined below, in a private placement exempt from the registration requirements under the Securities Act and separate from the Rights Offering (the “Private Investment”). The Private Investment is in addition to shares of Common Stock purchased by Immersion pursuant to the Backstop Commitment discussed below.
Through the Rights Offering, we issued 900,000,000 shares of our common stock at a cash subscription price (the “Subscription Price”) of $0.05 per share. In the Rights Offering, we distributed to each holder of Common Stock, one non-transferable subscription right (each, a “Subscription Right”) for every share of Common Stock owned by such holder on May 14, 2024 (the “Record Date”), and each Subscription Right entitled the holder to purchase 17 shares of Common Stock. Each holder that fully exercised their Subscription Rights was entitled to Over-Subscription Rights to subscribe for additional shares of Common Stock that remain unsubscribed as a result of any unexercised Subscription Rights, which allowed such holder to subscribe for additional shares of Common Stock up to the number of shares purchased under such holder’s basic Subscription Right at $0.05 per share. We received approximately $32,100 in gross proceeds from the exercise of Subscriptions Rights and Over-Subscription Rights from the Company's stockholders.
For those Subscription Rights which remained unexercised, upon the expiration of the Rights Offering after accounting for all Over-Subscription Rights exercised, the standby purchasers, led by Immersion, Outerbridge Capital Management, LLC (“Outerbridge”) and Selz Family 2011 Trust (“Selz”), collectively purchased the unexercised Subscription Rights at the Subscription Price (“Backstop Commitment”). We received approximately $12,900 in gross proceeds for the exercise of Subscription Rights not subscribed for by the Company’s stockholders. We paid Immersion and Selz approximately $2,850
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
and $350, respectively, comprised of commitment fees in consideration for the Backstop Commitment, and expense reimbursements for all out-of-pocket costs, fees and expenses incurred in connection with the Transactions and we paid Outerbridge approximately $1,250 for expense reimbursements for all out-of-pocket costs, fees and expenses incurred in connection with the Transactions.
The Rights Offering was offered to all existing stockholders at an exercise price that was less than the fair value of our Common Stock, as of such time, the weighted average shares outstanding and basic and diluted earnings (loss) per share were adjusted retroactively to reflect the bonus element of the rights offering for all periods presented by a factor of 5.03.
Term Loan Credit Agreement Debt Conversion
Upon closing of the Rights Offering, we converted all outstanding principal and any accrued and unpaid interest under the Term Loan Credit Agreement, totaling $34,000, into shares of our Common Stock.
Restated ABL Facility
On June 10, 2024 (the “Closing Date”), we amended and restated and extended the maturity of our existing asset-based Credit Facility with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders from time to time party thereto (such amended and restated credit facility, the “Restated ABL Facility”). Pursuant to the Restated ABL Facility, the lenders thereunder have committed to provide a four-year asset-backed revolving credit facility in an aggregate committed principal amount of up to $325,000. The Restated ABL Facility has a maturity date of June 9, 2028.
Interest under the Restated ABL Facility accrues, at the election of the Company, either (x) based on the Secured Overnight Financing Rate (“SOFR”), which is subject to a floor of 2.50% per annum, plus a spread of 3.50% per annum or (y) at an alternate base rate, which is subject to a floor of 3.50% per annum, plus a spread of 2.50% per annum, provided that, in the event the Company meets certain financial metrics for a consecutive six-month period beginning and ending after the one-year anniversary of the Closing Date, the foregoing spreads shall be reduced by 0.25% per annum.
The Credit Agreement contains customary negative covenants that limit the Company’s ability to incur or assume additional indebtedness, grant or permit liens, make investments, make restricted payments and other specified payments, merge with other entities, dispose of or acquire assets, or engage in transactions with affiliates, among other things. Additionally, the Restated ABL Facility includes the following financial maintenance covenants:
•following the date that is six months following the Closing Date, the Company is required to maintain a minimum Availability (as defined in the Credit Agreement) of (x) $25,000 for the first thirty (30) months after the Closing Date and (y) $30,000 after the date that is thirty (30) months after the Closing Date;
•commencing with the month ending May 31, 2025, the Company is required to maintain a Consolidated Fixed Charge Coverage Ratio (as defined in the Restated ABL Facility) of not less than 1.10 to 1.00, which will be tested monthly on the last day of each fiscal month for the trailing 12-month period; and
•commencing with the quarter ending October 31, 2024, the Company is required to maintain a minimum Consolidated EBITDA (as defined in the Restated ABL Facility), which will be tested quarterly on the last day of each fiscal quarter for (a) the trailing six-month period for the first test date, (b) the trailing nine-month period of the second test date and (c) for the trailing 12-month period thereafter.
The Restated ABL Facility does not require the retention of a chief restructuring officer or the formation or maintenance of any special committees of the board of directors of the company.
The Credit Agreement contains customary events of default, including for non-payment of obligations owing under the Restated ABL Facility, material breaches of representations and warranties, failure to perform or observe covenants, default on other material indebtedness, customary ERISA events of default, bankruptcy and insolvency, material judgments, invalidity of liens on collateral, change of control or cessation of business. The Credit Agreement also contains customary affirmative covenants and representations and warranties.
In connection with the Restated ABL Facility, the 1.00% fee payable in connection with the eighth amendment to the Restated ABL Facility (prior to its having been restated) is due and payable (x) 50% on September 2, 2024 and (y) 50% on June 10, 2025.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(Thousands of dollars, except share and per share data)
Reverse Stock Split
On June 11, 2024, we completed a reverse stock split of the Company’s outstanding shares of common stock at a ratio of 1-for-100 (the “Reverse Stock Split”), which was previously approved by stockholders at a special meeting held on June 5, 2024. In connection with the Reverse Stock Split, every 100 shares of the common stock issued and outstanding was converted into one share of the Company’s common stock. No change will be made to the trading symbol for the Company’s shares of Common Stock, “BNED,” in connection with the Reverse Stock Split. The Reverse Stock Split is part of the Company’s plan to regain compliance with the minimum bid price requirement of $1.00 per share required to maintain continued listing on the NYSE.
The Reverse Stock Split reduced the number of shares of the Company’s outstanding common stock from approximately 2,620,495,552 shares (as of the date June 11, 2024, when including issuances pursuant to the Transactions) to approximately 26,204,956 shares, subject to adjustment for rounding.
The Reverse Stock Split affected all issued and outstanding shares of Common Stock. All outstanding options and restricted stock units, and other securities entitling their holders to purchase or otherwise receive shares of Common Stock were adjusted as a result of the Reverse Stock Split, as required by the terms of each security. The number of shares available to be awarded under the Company’s equity compensation plans will also be appropriately adjusted. Following the Reverse Stock Split, the par value of the Common Stock will remain unchanged at $0.01 per share. The Reverse Stock Split will not change the authorized number of shares of Common Stock or preferred stock. No fractional shares will be issued in connection with the reverse split; instead any fractional shares as a result of the Reverse Stock Split will be rounded up to the next whole number of post-split shares of Common Stock.
Schedule II—Valuation and Qualifying Accounts
Receivables Valuation and Qualifying Accounts
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at
beginning
of period | | Charge
(recovery) to
costs and
expenses | | Write-offs | | Balance at
end
of period |
| Allowance for Doubtful Accounts | | | | | | | | |
| April 27, 2024 | | $ | 1,156 | | | $ | 1,595 | | | $ | (1,884) | | | $ | 867 | |
| April 29, 2023 | | $ | 2,243 | | | $ | 575 | | | $ | (1,662) | | | $ | 1,156 | |
| | | | | | | | |
| | | | | | | | |
| | Balance at
beginning
of period | | Addition
Charged to
Costs | | Deductions | | Balance at
end
of period |
| Sales Returns Reserves | | | | | | | | |
| April 27, 2024 | | $ | 2,426 | | | $ | 142,660 | | | $ | (142,905) | | | $ | 2,182 | |
| April 29, 2023 | | $ | 2,723 | | | $ | 122,831 | | | $ | (123,128) | | | $ | 2,426 | |
| | | | | | | | |
All other schedules are omitted because the conditions requiring their filing do not exist, or because the required information is provided in the consolidated financial statements, including the notes thereto.