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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-Q
_______________________________________________
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2023
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-37499
_______________________________________________
BARNES & NOBLE EDUCATION, INC.
(Exact Name of Registrant as Specified in Its Charter)
_______________________________________________
Delaware 46-0599018
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
120 Mountain View Blvd., Basking Ridge, NJ 07920
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s Telephone Number, Including Area Code): (908) 991-2665
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Trading Symbol Name of Exchange on which registered
Common Stock, $0.01 par value per share BNED New York Stock Exchange
_______________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer ¨ Smaller reporting company ¨
Emerging Growth Company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of December 1, 2023, 53,149,504 shares of Common Stock, par value $0.01 per share, were outstanding.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Fiscal Quarter Ended October 28, 2023
Index to Form 10-Q
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations – For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022 3
Condensed Consolidated Balance Sheets – As of October 28, 2023, October 29, 2022, and April 29, 2023 4
Condensed Consolidated Statements of Cash Flows – For the 26 weeks ended October 28, 2023 and October 29, 2022 5
Condensed Consolidated Statements of Equity – As of October 28, 2023 and October 29, 2022 7
Notes to Condensed Consolidated Financial Statements 8
Note 1. Organization 8
Note 2. Summary of Significant Accounting Policies 9
Note 3. Revenue 16
Note 4. Segment Reporting 17
Note 5. Equity and Earnings Per Share 20
Note 6. Fair Value Measurements 21
Note 7. Debt 22
Note 8. Leases 25
Note 9. Supplementary Information 27
Note 10. Long-Term Incentive Plan Compensation Expense 27
Note 11. Employee Benefit Plans 27
Note 12. Income Taxes 28
Note 13. Legal Proceedings 28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
Overview 29
Results of Operations 34
Non-GAAP Measures 45
Liquidity and Capital Resources 48
Item 3. Quantitative and Qualitative Disclosures About Market Risk 56
Item 4. Controls and Procedures 56
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 57
Item 1A. Risk Factors 57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 57
Item 5. Other Information 57
Item 6. Exhibits 58
SIGNATURES 59
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
13 weeks ended 26 weeks ended
October 28,
2023
October 29,
2022
October 28,
2023
October 29,
2022
Sales:
Product sales and other $ 569,698 $ 567,299 $ 822,348 $ 811,061
Rental income 40,681 41,334 52,192 52,246
Total sales
610,379 608,633 874,540 863,307
Cost of sales (exclusive of depreciation and amortization
expense):
Product and other cost of sales 451,953 447,551 658,967 639,955
Rental cost of sales 22,184 22,941 28,697 29,206
Total cost of sales
474,137 470,492 687,664 669,161
Gross profit 136,242 138,141 186,876 194,146
Selling and administrative expenses
85,961 98,954 163,437 189,295
Depreciation and amortization expense 10,175 10,256 20,428 21,152
Restructuring and other charges 4,274 260 8,907 635
Operating income (loss)
35,832 28,671 (5,896) (16,936)
Interest expense, net 10,664 4,886 18,918 8,754
Income (loss) from continuing operations before income
taxes 25,168 23,785 (24,814) (25,690)
Income tax expense (benefit) 314 (383) 303 464
Income (loss) from continuing operations
$ 24,854 $ 24,168 $ (25,117) $ (26,154)
Loss from discontinued operations, net of tax of $0, $83,
$20, and $169, respectively
$ (674) $ (2,024) $ (1,091) $ (4,409)
Net income (loss)
$ 24,180 $ 22,144 $ (26,208) $ (30,563)
Earnings (loss) per share of common stock:
Basic:
Continuing operations $ 0.47 $ 0.46 $ (0.48) $ (0.50)
Discontinued operations $ (0.01) $ (0.04) $ (0.02) $ (0.08)
Total Basic Earnings per share $ 0.46 $ 0.42 $ (0.50) $ (0.58)
Weighted average common shares outstanding - Basic
52,791 52,438 52,716 52,305
Diluted:
Continuing operations $ 0.47 $ 0.46 $ (0.48) $ (0.50)
Discontinued operations $ (0.01) $ (0.04) $ (0.02) $ (0.08)
Total Diluted Earnings per share
$ 0.46 $ 0.42 $ (0.50) $ (0.58)
Weighted average common shares outstanding - Diluted
52,870 53,195 52,716 52,305
See accompanying notes to condensed consolidated financial statements.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
October 28,
2023
October 29,
2022
April 29,
2023
(unaudited) (unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,008 $ 17,296 $ 14,219
Receivables, net 221,805 209,288 92,512
Merchandise inventories, net 364,292 371,570 322,979
Textbook rental inventories 51,840 49,355 30,349
Prepaid expenses and other current assets 63,410 51,520 49,512
Assets held for sale, current — 30,558 27,430
Total current assets
716,355 729,587 537,001
Property and equipment, net 61,403 75,475 68,153
Operating lease right-of-use assets 246,531 291,704 246,972
Intangible assets, net 104,026 120,533 110,632
Deferred tax assets, net — — 132
Other noncurrent assets 16,664 21,100 17,889
Total assets $ 1,144,979 $ 1,238,399 $ 980,779
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 385,895 $ 326,007 $ 267,923
Accrued liabilities 112,075 113,628 85,759
Current operating lease liabilities 126,426 130,802 99,980
Liabilities held for sale — 5,243 8,423
Total current liabilities
624,396 575,680 462,085
Long-term deferred taxes, net 1,936 1,430 1,970
Long-term operating lease liabilities 160,185 190,758 184,754
Other long-term liabilities 18,625 19,622 19,068
Long-term borrowings 233,873 250,445 182,151
Total liabilities
1,039,015 1,037,935 850,028
Commitments and contingencies — — —
Stockholders' equity:
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, 55,818, 55,132 and
55,140 shares, respectively; outstanding, 53,137, 52,599 and 52,604 shares,
respectively 558 551 551
Additional paid-in capital 747,518 744,339 745,932
Accumulated deficit (619,564) (522,057) (593,356)
Treasury stock, at cost (22,548) (22,369) (22,376)
Total stockholders' equity
105,964 200,464 130,751
Total liabilities and stockholders' equity
$ 1,144,979 $ 1,238,399 $ 980,779
See accompanying notes to condensed consolidated financial statements.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands) (unaudited)
26 weeks ended
October 28,
2023
October 29,
2022
Cash flows from operating activities:
Net loss $ (26,208) $ (30,563)
Less: Loss from discontinued operations, net of tax (1,091) (4,409)
Loss from continuing operations
(25,117) (26,154)
Adjustments to reconcile net loss from continuing operations to net cash flows from operating activities from
continuing operations:
Depreciation and amortization expense 20,428 21,152
Content amortization expense — 26
Amortization of deferred financing costs 4,406 1,200
Deferred taxes 97 —
Stock-based compensation expense 1,756 3,066
Non-cash interest expense (paid-in-kind) 863 —
Changes in operating lease right-of-use assets and liabilities 1,826 (298)
Changes in other long-term assets and liabilities, net (2,311) 265
Changes in other operating assets and liabilities, net
Receivables, net (129,293) (73,287)
Merchandise inventories (41,313) (77,716)
Textbook rental inventories (21,491) (19,743)
Prepaid expenses and other current assets 2,756 13,149
Accounts payable and accrued liabilities 140,233 168,413
Changes in other operating assets and liabilities, net
(49,108) 10,816
Net cash flows (used in) provided by operating activities from continuing operations (47,160) 10,073
Net cash flows used in operating activities from discontinued operations (3,939) (703)
Net cash flow (used in) provided by operating activities $ (51,099) $ 9,370
Cash flows from investing activities:
Purchases of property and equipment $ (8,196) $ (16,823)
Net change in other noncurrent assets 78 255
Net cash flows used in investing activities from continuing operations
(8,118) (16,568)
Net cash flows provided by (used in) investing activities from discontinued operations 21,395 (3,750)
Net cash flow provided by (used in) investing activities
$ 13,277 $ (20,318)
Cash flows from financing activities:
Proceeds from borrowings $ 284,698 $ 348,200
Repayments of borrowings (233,970) (321,900)
Payment of deferred financing costs (9,381) (1,716)
Purchase of treasury shares (172) (857)
Net cash flows provided by financing activities from continuing operations
41,175 23,727
Net cash flows provided by financing activities from discontinued operations — —
Net cash flows provided by financing activities
$ 41,175 $ 23,727
Net increase in cash, cash equivalents and restricted cash
3,353 12,779
Cash, cash equivalents and restricted cash at beginning of period 31,988 21,036
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Cash, cash equivalents and restricted cash at end of period
35,341 33,815
Less: Cash, cash equivalents and restricted cash of discontinued operations at end of period — (929)
Cash, cash equivalents, and restricted cash of continuing operations at end of period
$ 35,341 $ 32,886
See accompanying notes to condensed consolidated financial statements.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(In thousands) (unaudited)
Additional
Common Stock
Paid-In Accumulated
Treasury Stock
Total
Shares Amount Capital Deficit Shares Amount Equity
Balance at April 30, 2022 54,234 $ 542 $ 740,838 $ (491,494) 2,188 $ (21,512) $ 228,374
Stock-based compensation expense 1,791 1,791
Vested equity awards 540 5 (5) —
Shares repurchased for tax withholdings for
vested stock awards 238 (612) (612)
Net loss
(52,707) (52,707)
Balance July 30, 2022
54,774 $ 547 $ 742,624 $ (544,201) 2,426 $ (22,124) $ 176,846
Stock-based compensation expense 1,719 1,719
Vested equity awards 357 4 (4) —
Shares repurchased for tax withholdings for
vested stock awards 107 (245) (245)
Net income 22,144 22,144
Balance October 29, 2022 55,131 $ 551 $ 744,339 $ (522,057) 2,533 $ (22,369) $ 200,464
Additional
Common Stock
Paid-In Accumulated
Treasury Stock
Total
Shares Amount Capital Deficit Shares Amount Equity
Balance at April 29, 2023 55,140 $ 551 $ 745,932 $ (593,356) 2,536 $ (22,376) $ 130,751
Stock-based compensation expense 794 794
Vested equity awards 179 2 (2) —
Shares repurchased for tax withholdings for
vested stock awards 78 (98) (98)
Net loss (50,388) (50,388)
Balance July 29, 2023
55,319 $ 553 $ 746,724 $ (643,744) 2,614 $ (22,474) $ 81,059
Stock-based compensation expense 799 799
Vested equity awards 499 5 (5) —
Shares repurchased for tax withholdings for
vested stock awards 67 (74) (74)
Net income 24,180 24,180
Balance October 28, 2023
55,818 $ 558 $ 747,518 $ (619,564) 2,681 $ (22,548) $ 105,964
See accompanying notes to condensed consolidated financial statements.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
Unless the context otherwise indicates, references in these Notes to the accompanying condensed consolidated financial statements to “we,” “us,” “our”
and “the Company” refer to Barnes & Noble Education or "BNED", Inc., a Delaware corporation. References to “Barnes & Noble College” 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.
This Form 10-Q should be read in conjunction with our Audited Consolidated Financial Statements and accompanying Notes to consolidated financial
statements in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023, which includes consolidated financial statements for the Company as
of April 29, 2023, and April 30, 2022 and for each of the three fiscal years ended April 29, 2023, April 30, 2022 and May 1, 2021 ("Fiscal 2023," "Fiscal 2022"
and "Fiscal 2021", respectively) and the unaudited condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the quarter ended
July 29, 2023.
Note 1. Organization
Description of Business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for college and university campuses
and K-12 institutions across the United States. We are also one of the largest textbook wholesalers, inventory management hardware and software providers.
We operate 1,271 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 at a discounted rate, as compared to the total retail price for the same course materials if purchased
separately. The BNC First Day discounted price is offered as a course fee or included in tuition. During the 26 weeks ended October 28, 2023, BNC First Day
total revenue increased by $72,684, or 39%, to $261,021 compared to $188,337 during the prior year period.
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 merchandising and e-commerce service provider agreement with Fanatics Retail Group Fulfillment,
LLC, Inc. (“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 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. Through this relationship, Fanatics and Lids provide unparalleled
product assortment, e-commerce capabilities and powerful digital marketing tools on our behalf 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.
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. We have two reportable segments: Retail and Wholesale. For additional information related to our strategies,
operations and segments, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
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 a discounted rate, as compared to the total retail price for the same course materials if purchased separately. The
BNC First Day discounted price is offered as a course fee or included in tuition.
• First Day Complete is adopted by an institution and includes 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 a key, and increasingly important
strategic initiative of ours to meet the market demands of substantially reduced pricing to students, as well as the opportunity to improve student outcomes,
while, at the same time, increasing our market share, revenue and relative gross profits of 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 have been observed at those schools where such programs have been adopted, and improve
predictability of our future results. We are moving quickly and decisively to accelerate our First Day Complete strategy. We plan to move many institutions to
First Day Complete in Fiscal 2024 and the majority of our schools by Fiscal 2025, with continued relative adoption of this model thereafter.
In the Fall of 2023, 157 campus stores are utilizing First Day Complete representing enrollment of nearly 800,000 undergraduate and post graduate
students (as reported by National Center for Education Statistics), an increase of approximately 47% compared to Fall of 2022. During the 26 weeks ended
October 28, 2023, First Day Complete sales increased by $55,455, or 52%, to $161,934 as compared to $106,479 in the prior year period. During the 26 weeks
ended October 28, 2023, First Day sales increased by $17,229, or 21%, to $99,087 as compared to $81,858 in the prior year period.
Relationship with Fanatics and Lids
In December 2020, we entered into the F/L Relationship. Under the related service provider agreements, we receive unparalleled product assortment, e-
commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our general merchandise business.
Fanatics and Lids process consumer personal information on our behalf, subject to certain contractual obligations as our service providers, offering our campus
stores 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. As our service provider, we leverage Fanatics’ e-commerce technology
and expertise on our behalf 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
Our condensed consolidated financial statements reflect our condensed consolidated financial position, results of operations and cash flows in conformity
with accounting principles generally accepted in the United States (“GAAP”). Net income (loss) is equal to comprehensive income (loss) on our condensed
consolidated statement of operations. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements
of the Company contain all
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position and the results of its operations and
cash flows for the periods reported. These consolidated financial statements are condensed and therefore do not include all of the information and footnotes
required by GAAP. All material intercompany accounts and transactions have been eliminated in consolidation.
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. Due to the seasonal nature of the business, the
results of operations for the 13 and 26 weeks ended October 28, 2023 are not indicative of the results expected for the 52 weeks ending April 27, 2024 ("Fiscal
2024").
Liquidity and Going Concern
The accompanying condensed 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 condensed 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 condensed 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.
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 generally purchase textbooks for the upcoming Fall and Spring semesters,
respectively. As of October 28, 2023, we had $35,341 of cash on hand, including $20,333 of restricted cash primarily related to segregated funds for
commission due to Lids for logo merchandise sales as per the merchandising service provider agreement.
Our business was significantly negatively impacted by the COVID-19 pandemic during the years ended April 30, 2022 and May 1, 2021, as many schools
adjusted their learning models and on-campus activities. Although most academic institutions have since reopened after the COVID-19 pandemic, the lingering
impacts of the pandemic have resulted in changes in customer behaviors, lower enrollments, and an evolving educational landscape which continued to impact
our financial results during the year ended April 29, 2023. Some institutions are still providing alternatives to traditional in-person instruction, including online
and hybrid learning options and significantly reduced classroom sizes. The impact of COVID-19 store closings, as well as lower earnings during the year ended
April 29, 2023, resulted in the loss of cash flows and increased borrowings that we would not otherwise have expected to incur.
We recognized Net Income from Continuing Operations of $24,854 and $24,168 for the 13 weeks ended October 28, 2023 and October 29, 2022,
respectively, and a Net Loss from Continuing Operations of $(25,117) and $(26,154) for the 26 weeks ended October 28, 2023 and October 29, 2022,
respectively, and we incurred a Net Loss from Continuing Operations of $(90,140), $(61,559), and $(133,569) for the years ended April 29, 2023, April 30,
2022, and May 1, 2021, respectively. Our Cash Flow (Used In) Provided by Operating Activities from Continuing Operations were $(47,160) and $10,073 for
the 26 weeks ended October 28, 2023 and October 29, 2022, respectively, and were $90,513, $(16,195), and $27,049, for the years ended April 29, 2023, April
30, 2022, and May 1, 2021, respectively. The tightening of our available credit commitments, including the elimination and repayment of our FILO Facility in
fiscal year 2023 of $40,000, had a significant impact on our liquidity during fiscal year 2023 and fiscal year 2024, including our ability to make timely vendor
payments and school commission payments.
Our losses and projected cash needs, combined with our current liquidity level, raised substantial doubt about our ability to continue as a going concern as
of the year ended April 29, 2023, which Management subsequently remediated by implementing a plan to improve the Company’s liquidity and successfully
alleviate substantial doubt including (1) raising additional liquidity and (2) taking additional operational restructuring actions.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
Debt amendments
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 (1)
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.
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), and as of the date of this filing, we
have satisfied such requirements. 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).
On July 28, 2023, we amended our Term Loan Agreement 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 $50,000 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).
Operational restructuring plans
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 last year, we have achieved
annualized savings of $30,000 to $35,000 from these cost savings initiatives. Additionally, during Fiscal 2024, Management's planned to implement further
cost savings measures, including reduction of gross capital expenditures, amounting to approximately $25,000, of which approximately $14,000 has been
achieved during the 26 weeks ended October 28, 2023. Management believes that these plans are within its control and will be focused on implementing as
outlined.
During the 13 weeks ended October 28, 2023, Net Income from Continuing Operations increased by $686 compared to the prior year period. Excluding
interest expense and restructuring and other charges Net Income from Continuing Operations improved by $10,478 during the 13 weeks ended October 28,
2023 compared to the prior year period. During the 26 weeks ended October 28, 2023, Net Loss from Continuing Operations decreased by $1,037 compared to
the prior year period. Excluding interest expense and restructuring and other charges Net Loss from Continuing Operations decreased by $19,473 during the 26
weeks ended October 28, 2023 compared to the prior year period. The improvements in Net Income from Continuing Operations during the 13 and 26 weeks
are primarily due to operational improvements and cost savings initiatives.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
Management believes that the expected impact on our liquidity and cash flows resulting from the debt amendments and the operational initiatives outlined
above are sufficient to enable the Company to meet its obligations for at least twelve months from the issuance date of these condensed consolidated financial
statements and to continue to alleviate the conditions that initially raised substantial doubt about the Company's ability to continue as a going concern.
Seasonality
Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as
shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Our retail business is highly seasonal, 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. 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
condensed 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
condensed 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 condensed 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 condensed 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 26 weeks ended October 28, 2023, we recorded a Gain on Sale of Business of $3,068 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:
13 weeks ended 26 weeks ended
Dollars in thousands
October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Total sales
$ — $ 8,465 $ 2,784 $ 17,649
Cost of sales — 1,772 76 3,472
Gross profit
— 6,693 2,708 14,177
Selling and administrative expenses 643 8,131 2,924 16,277
Depreciation and amortization 3 503 3 2,140
Gain on sale of business — — (3,068) —
Impairment loss (non-cash) — — 610 —
Restructuring costs 10 — 3,297 —
Transaction costs 18 — 13 —
Operating loss (674) (1,941) (1,071) (4,240)
Income tax expense — 83 20 169
Loss from discontinued operations, net of tax $ (674) $ (2,024) $ (1,091) $ (4,409)
(a) Cost of sales and Gross margin for the DSS Segment includes amortization expense (non-cash) related to content development costs of $1,618 and $3,169 for the 13 and 26
weeks ended October 29, 2022, respectively.
(b) During the 26 weeks ended October 28, 2023, we recognized an impairment loss (non-cash) of $610 (both pre-tax and after-tax),
(a)
(a)
(b)
(c)
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
comprised of $119 and $491 of property and equipment and operating lease right-of-use assets, respectively, on the condensed consolidated statement of operations as part
of discontinued operations.
(c) During the 26 weeks ended October 28, 2023, we recognized restructuring and other charges of $3,297 comprised of severance and other employee termination costs.
The following table summarizes the assets and liabilities of the Assets Held for Sale included in the condensed consolidated balance sheets:
As of
April 29, 2023 October 29, 2022
Cash and cash equivalents $ 1,057 $ 929
Receivables, net 480 721
Prepaid expenses and other current assets 901 2,421
Property and equipment, net 19,523 20,621
Intangible assets, net 402 954
Goodwill 4,700 4,700
Deferred tax assets, net 130 —
Other noncurrent assets 237 212
Assets held for sale $ 27,430 $ 30,558
Accounts payable $ 211 $ 161
Accrued liabilities 8,212 5,061
Other long-term liabilities — 20
Liabilities held for sale
$ 8,423 $ 5,242
Restricted Cash
As of October 28, 2023 and October 29, 2022, we had restricted cash of $20,333 and $15,590, respectively, comprised of $19,388 and $14,686,
respectively, in prepaid and other current assets in the condensed 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 $945 and $904, respectively, in other noncurrent assets in the condensed
consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our inventory, which is all purchased
finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and
transportation. Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory, 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
2023, Fiscal 2022 and Fiscal 2021.
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.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
Textbook Rental Inventories
Physical textbooks out on rent are categorized as textbook rental inventories. At the time a rental transaction is consummated, the book is removed from
merchandise inventories and moved to textbook rental inventories at cost. The cost of the book is amortized down to its estimated residual value over the rental
period. The related amortization expense is included in cost of goods sold. At the end of the rental period, upon return, the book is removed from textbook
rental inventories and recorded in merchandise inventories at its amortized cost.
Leases
We recognize lease assets and lease liabilities on the condensed consolidated balance sheet for all operating lease arrangements based on the present value
of future lease payments as required by Accounting Standards Codification ("ASC") Topic 842, Leases. We do not recognize lease assets or lease liabilities for
short-term leases (i.e., those with a term of twelve months or less). We recognize lease expense on a straight-line basis over the lease term for contracts with
fixed lease payments, including those with fixed annual minimums, or over a rolling twelve-month period for leases where the annual guarantee resets at the
start of each contract year, in order to best reflect the pattern of usage of the underlying leased asset. For additional information, see Note 8. Leases.
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 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 at the point of sale as product revenue in our
condensed 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 condensed 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
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
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.
As contemplated by the F/L Relationship related merchandising agreement and e-commerce agreement, logo general merchandise sales are fulfilled by
Lids and Fanatics on our behalf and we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements.
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 partnership 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 partnership marketing agreements often include multiple performance obligations which are individually negotiated with our customers. For these
arrangements that contain distinct performance obligations, we allocate the transaction price based on the relative standalone selling price method by
comparing the standalone selling price (“SSP”) of each distinct performance obligation to the total value of the contract. The revenue is recognized as each
performance obligation is satisfied, typically at a point in time for brand partnership marketing service and overtime for advertising efforts as measured based
upon the passage of time for contracts that are based on a stated period of time or the number of impressions delivered for contracts with a fixed number of
impressions.
Cost of Sales
Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs
related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense,
related to our college and university contracts and other facility related expenses.
Selling and Administrative Expenses
Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include
long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting.
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.
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.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("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 condensed consolidated financial statements.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
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 Note 2.
Summary of Significant Accounting Policies for additional information related to our revenue recognition policies and Note 4. Segment Reporting for a
description of each segment's product and service offerings.
Disaggregation of Revenue
The following table disaggregates the revenue associated with our major product and service offerings:
13 weeks ended 26 weeks ended
October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Retail
Course Materials Product Sales $ 435,370 $ 416,410 $ 573,906 $ 547,262
General Merchandise Product Sales 105,022 122,648 193,702 211,472
Service and Other Revenue 18,263 18,218 24,996 24,137
Retail Product and Other Sales sub-total 558,655 557,276 792,604 782,871
Course Materials Rental Income
40,681 41,334 52,192 52,246
Retail Total Sales $ 599,336 $ 598,610 $ 844,796 $ 835,117
Wholesale Sales $ 20,973 $ 21,120 $ 59,764 $ 58,203
Eliminations
$ (9,930) $ (11,097) $ (30,020) $ (30,013)
Total Sales
$ 610,379 $ 608,633 $ 874,540 $ 863,307
(a) Logo general merchandise sales for the Retail Segment are recognized on a net basis as commission revenue in the condensed consolidated financial
statements.
(b) Service and other revenue primarily relates to brand partnership marketing 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 Liabilities
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 brand partnership marketing services, which are recognized when the contracted services are
provided to our brand partnership marketing customers; and
• unsatisfied performance obligations associated with the premium paid for the sale of treasury shares, which are expected to be recognized over the term
of the e-commerce and merchandising contracts for Fanatics and Lids, respectively.
(a)
(b)
(c)
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
The following table presents changes in deferred revenue associated with our contract liabilities:
26 weeks ended
October 28, 2023 October 29, 2022
Deferred revenue at the beginning of period $ 15,356 $ 16,475
Additions to deferred revenue during the period 97,773 96,121
Reductions to deferred revenue for revenue recognized during the period
(71,164) (68,676)
Deferred revenue balance at the end of period:
$ 41,965 $ 43,920
Balance Sheet classification:
Accrued liabilities $ 38,105 $ 39,504
Other long-term liabilities 3,860 4,416
Deferred revenue balance at the end of period:
$ 41,965 $ 43,920
As of October 28, 2023, we expect to recognize $38,105 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. For additional information, see 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 each segment's operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.
Retail Segment
The Retail Segment operates 1,271 college, university, and K-12 school bookstores, comprised of 717 physical bookstores and 554 virtual bookstores. Our
bookstores typically operate under agreements with the college, university, or K-12 schools to be the official bookstore and the exclusive seller of course
materials and supplies, including physical and digital products. The majority of the physical campus bookstores have school-branded e-commerce websites
which we operate independently or along with our merchant service providers, and which offer students access to affordable 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 a discounted rate, as compared to the total
retail price for the same course materials if purchased separately. The BNC First Day discounted price is offered as a course fee 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.
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 2,900 physical bookstores (including our Retail Segment's 717
physical bookstores) and sources and distributes new and used textbooks to our 554 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 330 college bookstores.
®
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance functions, including
executive functions, such as accounting, legal, treasury, information technology, and human resources.
Intercompany Eliminations
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.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
Summarized financial information for our reportable segments is reported below:
13 weeks ended 26 weeks ended
October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Sales
Retail $ 599,336 $ 598,610 $ 844,796 $ 835,117
Wholesale 20,973 21,120 59,764 58,203
Eliminations (9,930) (11,097) (30,020) (30,013)
Total Sales
$ 610,379 $ 608,633 $ 874,540 $ 863,307
Gross Profit
Retail $ 125,529 $ 129,502 $ 175,820 $ 183,495
Wholesale 6,090 5,455 11,884 12,354
Eliminations 4,623 3,184 (828) (1,703)
Total Gross Profit
$ 136,242 $ 138,141 $ 186,876 $ 194,146
Selling and Administrative Expenses
Retail $ 77,182 $ 90,086 $ 146,355 $ 169,090
Wholesale 3,492 3,867 6,880 7,998
Corporate Services 5,287 5,075 10,205 12,289
Eliminations — (74) (3) (82)
Total Selling and Administrative Expenses
$ 85,961 $ 98,954 $ 163,437 $ 189,295
Depreciation and Amortization
Retail $ 8,911 $ 8,869 $ 17,877 $ 18,398
Wholesale 1,254 1,370 2,531 2,719
Corporate Services 10 17 20 35
Total Depreciation and Amortization $ 10,175 $ 10,256 $ 20,428 $ 21,152
Restructuring and Other Charges
Retail $ 29 $ — $ 555 $ —
Wholesale — — 526 —
Corporate Services 4,245 260 7,826 635
Total Restructuring and Other Charges
$ 4,274 $ 260 $ 8,907 $ 635
Operating Income (Loss)
Retail $ 39,407 $ 30,547 $ 11,033 $ (3,993)
Wholesale 1,344 218 1,947 1,637
Corporate Services (9,542) (5,352) (18,051) (12,959)
Elimination 4,623 3,258 (825) (1,621)
Total Operating Income (Loss)
$ 35,832 $ 28,671 $ (5,896) $ (16,936)
Interest Expense, net $ 10,664 $ 4,886 $ 18,918 $ 8,754
Total Income (Loss) from Continuing Operations Before
Income Taxes
$ 25,168 $ 23,785 $ (24,814) $ (25,690)
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
Note 5. Equity and Earnings Per Share
Equity
Share Repurchases
During the 13 and 26 weeks ended October 28, 2023, we did not repurchase shares of our Common Stock under the stock repurchase program and as of
October 28, 2023, approximately $26,669 remains available under the stock repurchase program.
During the 13 and 26 weeks ended October 28, 2023, we repurchased 66,852 and 144,750 shares of our Common Stock, respectively, outside of the stock
repurchase program in connection with employee tax withholding obligations for vested stock awards.
Earnings Per Share
Basic EPS is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is computed based upon the
weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and
the average market price of our common stock for the year. We include participating securities (unvested share-based payment awards that contain non-
forfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely
of unvested restricted stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-
class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During
periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. During the 13 weeks ended
October 28, 2023 and October 29, 2022, average shares of 3,149,756 and 3,153,516 were excluded from the diluted earnings per share calculation as their
inclusion would have been antidilutive, respectively. During the 26 weeks ended October 28, 2023 and October 29, 2022, average shares of 3,453,892 and
4,898,303 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. The following is a
reconciliation of the basic and diluted earnings per share calculation:
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
13 weeks ended 26 weeks ended
(shares in thousands) October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Numerator for basic earnings per share:
Net income (loss) from continuing operations $ 24,854 $ 24,168 $ (25,117) $ (26,154)
Less allocation of earnings to participating securities (3) (11) — —
Net income (loss) from continuing operations available to common
shareholders $ 24,851 $ 24,157 $ (25,117) $ (26,154)
Loss from discontinued operations, net of tax (674) (2,024) (1,091) (4,409)
Net income (loss) available to common shareholders $ 24,177 $ 22,133 $ (26,208) $ (30,563)
Numerator for diluted earnings per share:
Net income (loss) from continuing operations $ 24,851 $ 24,157 $ (25,117) $ (26,154)
Allocation of earnings to participating securities 3 11 — —
Less diluted allocation of earnings to participating securities (3) (11) — —
Net income (loss) from continuing operations available to common
shareholders $ 24,851 $ 24,157 $ (25,117) $ (26,154)
Loss from discontinued operations, net of tax (674) (2,024) (1,091) (4,409)
Net income (loss) available to common shareholders
$ 24,177 $ 22,133 $ (26,208) $ (30,563)
Denominator for basic earnings per share:
Basic weighted average shares of Common Stock
52,791 52,438 52,716 52,305
Denominator for diluted earnings per share:
Basic weighted average shares of Common Stock 52,791 52,438 52,716 52,305
Average dilutive restricted stock units 74 141 — —
Average dilutive restricted shares 5 10 — —
Average dilutive stock options
— 606 — —
Diluted weighted average shares of Common Stock
52,870 53,195 52,716 52,305
Earnings (Loss) per share of Common Stock:
Basic
Continuing operations $ 0.47 $ 0.46 $ (0.48) $ (0.50)
Discontinuing operations (0.01) (0.04) (0.02) (0.08)
Total Basic Earnings per share
$ 0.46 $ 0.42 $ (0.50) $ (0.58)
Diluted
Continuing operations $ 0.47 $ 0.46 $ (0.48) $ (0.50)
Discontinuing operations (0.01) (0.04) (0.02) (0.08)
Total Diluted Earnings per share
$ 0.46 $ 0.42 $ (0.50) $ (0.58)
Note 6. Fair Value Measurements
In accordance with ASC No. 820, Fair Value Measurements and Disclosures, the fair value of an asset is considered to be the price at which the asset could
be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to
transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are
measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
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 value 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.
Other Non-Financial Liabilities
We granted phantom share units as long-term incentive awards which are settled in cash based on the fair market value of a share of common stock of the
Company at each vesting date. The fair value of the liability for the cash-settled phantom share unit awards will be remeasured at the end of each reporting
period through settlement to reflect current risk-free rate and volatility assumptions. As of October 28, 2023, we recorded a liability of $32 (Level 2 input)
which is reflected in accrued liabilities on the condensed consolidated balance sheet. As of October 29, 2022, we recorded a liability of $1,398 (Level 2 input)
which is reflected in accrued liabilities ($1,318) and other long-term liabilities ($80) on the condensed consolidated balance sheet. For additional information,
see Note 10. Long-Term Incentive Plan Compensation Expense.
Note 7. Debt
As of
Maturity Date October 28, 2023 October 29, 2022
Credit Facility December 28, 2024 $ 204,881 $ 222,000
Term Loan April 7, 2025 30,863 30,000
sub-total 235,744 252,000
Less: Deferred financing costs
(1,871) (1,555)
Total debt
$ 233,873 $ 250,445
Balance Sheet classification:
Short-term borrowings $ — $ —
Long-term borrowings
233,873 250,445
Total debt
$ 233,873 $ 250,445
Credit Facility
We have a credit agreement (the “Credit Agreement”), amended from time to time including on 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 a $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.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
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, on 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 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 requires 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.
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 condensed 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
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
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 26 weeks ended October 28, 2023, 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 condensed consolidated balance
sheets, and subsequently amortized ratably over the term of the credit agreement.
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 (1)
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 26 weeks ended October 28, 2023, we incurred debt issuance costs totaling $1,428 related to the October 2023 Credit
Agreement amendment.
As of October 28, 2023, and through the date of this filing, we were in compliance with all debt covenants under the Credit Agreement.
The Credit Facility is secured by substantially all of the inventory, accounts receivable and related assets of the borrowers under the Credit Facility. This is
considered an all asset lien (inclusive of proceeds from tax refunds payable to the Company and a pledge of equity from subsidiaries, exclusive of real estate).
During the 26 weeks ended October 28, 2023, we borrowed $284,698 and repaid $233,970 under the Credit Agreement, and had outstanding borrowings of
$204,881 as of October 28, 2023, comprised entirely of borrowings under the Credit Facility. During the 26 weeks ended October 29, 2022, we borrowed
$348,200 and repaid $321,900 under the Credit Agreement, and had outstanding borrowings of $222,000 as of October 29, 2022, comprised entirely of
borrowings under the Credit Facility. As of October 28, 2023 and October 29, 2022, we have issued $575 and $4,759, respectively, in letters of credit under the
Credit Facility.
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 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 26 weeks ended October 28, 2023, we incurred $863 for interest in kind on the Term Loans and repaid $0 under the Term Loan
Credit Agreement, with $30,863 of outstanding borrowings as of October 28, 2023. During the 26 weeks ended October 29, 2022, we borrowed $30,000 and
repaid $0 under the Term Loan Credit Agreement.
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
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
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 prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets, and subsequently
amortized ratably over the term of the credit agreement.
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.
During the 26 weeks ended October 28, 2023, we incurred debt issuance costs totaling $480 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 condensed consolidated balance
sheets, and subsequently amortized ratably over the term of the Term Loan Facility.
The Term Loans accrue interest at a rate equal to 11.25%, payable quarterly. All interest on the Term Loan prior to the July 29, 2023 was paid in cash.
During the 13 weeks ended October 28, 2023, all interest on the Term Loan was incurred in kind as permitted under the July 2023 Term Loan Amendment. 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.
Interest Expense
During the 13 weeks ended October 28, 2023 and October 29, 2022, we recognized interest expense of $10,664 and $4,886, respectively, and during the 26
weeks ended October 28, 2023 and October 29, 2022, we recognized interest expense of $18,918 and $8,754, respectively. Cash interest paid during the 26
weeks ended October 28, 2023 and October 29, 2022 was $13,972 and $7,301, respectively.
Note 8. Leases
We recognize lease assets and lease liabilities on the condensed consolidated balance sheets for substantially all lease arrangements as required by FASB
ASC 842, Leases (Topic 842). Our portfolio of leases consists of operating leases comprised of operations agreements which grant us the right to operate on-
campus bookstores at colleges and universities; real estate leases for office and warehouse operations; and vehicle leases. We do not have finance leases or
short-term leases (i.e., those with a term of twelve months or less).
We recognize a right of use ("ROU") asset and lease liability in our condensed consolidated balance sheets for leases with a term greater than twelve
months. Options to extend or terminate a lease are included in the determination of the ROU asset and lease liability when it is reasonably certain that such
options will be exercised. Our lease terms generally range from one year to fifteen years and a number of agreements contain minimum annual guarantees,
many of which are adjusted at the start of each contract year based on the actual sales activity of the leased premises for the most recently completed contract
year.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
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:
13 weeks ended 26 weeks ended
October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Variable lease expense $ 25,436 $ 25,281 $ 37,665 $ 40,465
Operating lease expense 46,902 52,998 69,291 75,860
Net lease expense
$ 72,338 $ 78,279 $ 106,956 $ 116,325
The decrease in lease expense during the 26 weeks ended October 28, 2023 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 October 28, 2023
Remainder of Fiscal 2024
$ 106,034
Fiscal 2025 57,282
Fiscal 2026 39,180
Fiscal 2027 31,414
Fiscal 2028 24,944
Thereafter 59,293
Total lease payments
318,147
Less: imputed interest (31,536)
Operating lease liabilities at period end $ 286,611
Future lease payment obligations related to leases that were entered into, but did not commence as of October 28, 2023, were not material. The following
summarizes additional information related to our operating leases:
As of
October 28, 2023 October 29, 2022
Weighted average remaining lease term (in years)
4.6 years 5.3 years
Weighted average discount rate 4.3 % 4.4 %
Supplemental cash flow information:
Cash payments for lease liabilities within operating activities $ 68,580 $ 75,876
Right-of-use assets obtained in exchange for lease liabilities from initial recognition $ 69,959 $ 86,045
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
Note 9. Supplementary Information
Restructuring and other charges
During the 13 and 26 weeks ended October 28, 2023, we recognized restructuring and other charges totaling $4,274 and $8,907, respectively, comprised
primarily of $4,245 and $7,827, respectively, for costs primarily associated with professional service costs for restructuring and $29 and $1,080, respectively,
for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($2,311 is
included in accrued liabilities in the condensed consolidated balance sheet as of October 28, 2023).
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 associated with the costs of
this committee, as well as other related professional service costs, are expected to decrease when the Company concludes on a strategic alternative.
During the 13 and 26 weeks ended October 29, 2022, we recognized restructuring and other charges totaling $260 and $635, respectively, comprised
primarily of costs associated with professional service costs for restructuring, process improvements.
Note 10. Long-Term Incentive Plan Compensation Expense
During the 13 and 26 weeks ended October 28, 2023, we did not grant any long-term incentive plan awards. We recognized compensation expense for
previously granted long-term incentive plan awards in selling and administrative expenses as follows:
13 weeks ended 26 weeks ended
October 28,
2023
October 29,
2022
October 28,
2023
October 29,
2022
Stock-based awards
Restricted stock expense $ 4 $ 64 $ 11 $ 158
Restricted stock units expense 448 820 1,016 1,686
Performance share units expense — — — 10
Stock option expense 346 606 729 1,212
Sub-total stock-based awards:
$ 798 $ 1,490 $ 1,756 $ 3,066
Cash settled awards
Phantom share units expense $ (40) $ 51 $ (129) $ 239
Total compensation expense for long-term incentive
awards
$ 758 $ 1,541 $ 1,627 $ 3,305
Total unrecognized compensation cost related to unvested awards as of October 28, 2023 was $4,001 and is expected to be recognized over a weighted-
average period of 1.5 years.
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. Total employee benefit expense for
these plans was $590 and $1,026 during the 13 weeks ended October 28, 2023 and October 29, 2022, respectively. Total employee benefit expense for these
plans was $1,687 and $2,285 during the 26 weeks ended October 28, 2023 and October 29, 2022, 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.
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BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 26 weeks ended October 28, 2023 and October 29, 2022
(Thousands of dollars, except share and per share data)
(unaudited)
Note 12. Income Taxes
Our provision for income taxes during interim reporting periods has historically been calculated by applying an estimate of the annual effective tax rate for
the full fiscal year to ordinary income (loss) (pre-tax income (loss) excluding unusual or infrequently occurring discrete items) for the reporting period. For the
26 weeks ended October 28, 2023, and in accordance with ASC 740-270-30-18 “Income Taxes - Interim Reporting - Initial Measurement,” and paragraph 82 of
FASB interpretation No. 18, "Accounting for Income Taxes in Interim Periods" ("FIN 18"), we computed our provision for income taxes based on the actual
effective tax rate for the year-to-date period by applying the discrete method. We determined that as small changes in estimated ordinary income would result in
significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the 26 weeks ended October 28,
2023. We believe that, at this time, the use of this discrete method represents the best estimate of our annual effective tax rate.
We recorded an income tax expense of $314 on pre-tax income of $25,168 during the 13 weeks ended October 28, 2023, which represented an effective
income tax rate of 1.2% and an income tax benefit of $(383) on pre-tax income of $23,785 during the 13 weeks ended October 29, 2022, which represented an
effective income tax rate of (1.6)%. We recorded an income tax expense of $303 on pre-tax loss of $(24,814) during the 26 weeks ended October 28, 2023,
which represented an effective income tax rate of (1.2)% and an income tax expense of $464 on pre-tax loss of $(25,690) during the 26 weeks ended October
29, 2022, which represented an effective income tax rate of (1.8)%. The effective tax rate for the 26 weeks ended October 28, 2023 is lower than the prior year
comparable period due to utilization of the discrete tax provision methodology discussed above.
In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets
would be realized. As of October 28, 2023, we determined that it was more likely than not that we would not realize all deferred tax assets and our tax rate for
the current fiscal year reflects this determination. We will continue to evaluate this position.
Note 13. Legal Proceedings
We are involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of our business, including
actions with respect to contracts, intellectual property, taxation, employment, benefits, personal injuries and other matters. The results of these proceedings in
the ordinary course of business are not expected to have a material adverse effect on our condensed consolidated financial position, results of operations, or
cash flows.
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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise indicates, references to “we,” “us,” “our” and “the Company” refer to Barnes & Noble Education, Inc. or “BNED”, a
Delaware corporation. References to “Barnes & Noble College” or “BNC” refer to our subsidiary Barnes & Noble College Booksellers, LLC. References to
“MBS” refer to our subsidiary MBS Textbook Exchange, LLC.
Overview
Description of Business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for college and university campuses
and K-12 institutions across the United States. We are also one of the largest textbook wholesalers, inventory management hardware and software providers.
We operate 1,271 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 at a discounted rate, as compared to the total retail price for the same course materials if purchased
separately. The BNC First Day discounted price is offered as a course fee or included in tuition. During the 26 weeks ended October 28, 2023, BNC First Day
total revenue increased by $73 million, or 39%, to $261 million compared to $188 million during the prior year period.
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, Inc. (“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 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. As our service providers, we receive unparalleled product assortment, e-commerce capabilities and
powerful digital marketing tools from Fanatics and Lids on our behalf to drive increased value for customers and accelerate growth of our logo general
merchandise business. During the 26 weeks ended October 28, 2023, Retail Gross Comparable Store general merchandise sales increased by 1.1%.
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.
For additional information related to our business, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended April 29,
2023.
Financing Arrangements
During the 13 and 26 weeks ended October 28, 2023, we amended our existing Credit Agreement and Term Loan Agreement to, extend the maturity dates
and modify various terms to provide additional liquidity. For additional information, see Item 1. Financial Statements - Note 7. Debt.
Sale of DSS Segment
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. 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 26 weeks ended
October 28, 2023, we recorded a Gain on Sale of Business of $3.1 million 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. For additional information, see
Note 2. Summary of Significant Accounting Policies.
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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 last year, we have achieved
annualized savings of $30 million to $35 million from these cost savings initiatives. Additionally, during Fiscal 2024, Management's planned to implement
further cost savings measures, including reduction of gross capital expenditures, amounting to approximately $25 million, of which approximately $14 million
has been achieved during the 26 weeks ended October 28, 2023. Management believes that these plans are within its control and will be focused on
implementing as outlined.
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 a discounted rate, as compared to the total retail price for the same course materials if purchased separately. The
BNC First Day discounted price is offered as a course fee or included in tuition.
• First Day Complete is adopted by an institution and includes 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 a key, and increasingly important
strategic initiative of ours to meet the market demands of substantially reduced pricing to students, as well as the opportunity to improve student outcomes,
while, at the same time, increasing our market share, revenue and relative gross profits of 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 have been observed at those schools where such programs have been adopted, and improve
predictability of our future results. We are moving quickly and decisively to accelerate our First Day Complete strategy. We plan to move many institutions to
First Day Complete in Fiscal 2024 and the majority of our schools by Fiscal 2025, with continued relative adoption of this model thereafter.
The following table summarizes our BNC First Day sales for the 13 and 26 weeks ended October 28, 2023 and October 29, 2022:
Dollars in millions 13 weeks ended 26 weeks ended
October 28, 2023
October 29,
2022 Var $ Var % October 28, 2023
October 29,
2022 Var $ Var %
First Day Complete Sales $ 136.4 $ 90.0 $ 46.4 52% $ 161.9 $ 106.5 $ 55.4 52%
First Day Sales
$ 62.8 $ 53.3
$ 9.5 18%
$ 99.1 $ 81.9
$ 17.2 21%
Total BNC First Day Sales
$ 199.2 $ 143.3
$ 55.9 39%
$ 261.0 $ 188.4
$ 72.6 39%
First Day Complete Fall 2023 Fall 2022 Var # Var %
Number of campus stores 157 111 46 41%
Estimated enrollment 800,000 545,000 255,000 47%
(a) Total undergraduate and graduate student enrollment as reported by National Center for Education Statistics (NCES)
®
(a)
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Relationship with Fanatics and Lids
In December 2020, we entered into the F/L Relationship. Under the related service provider agreements, we receive unparalleled product assortment, e-
commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our general merchandise business.
On our behalf, Fanatics’ cutting-edge e-commerce and technology expertise offers our campus stores expanded product selection, a world-class online and
mobile experience, and a progressive direct-to-consumer platform. Coupled with Lids, 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.
Segments
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. We completed the sale of the previous DSS Segment during the first quarter of Fiscal 2024. For additional
information, see 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 three segments. For additional
information about each segment's operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.
Retail Segment
The Retail Segment operates 1,271 college, university, and K-12 school bookstores, comprised of 717 physical bookstores and 554 virtual bookstores. Our
bookstores typically operate under agreements with the college, university, or K-12 schools to be the official bookstore and the exclusive seller of course
materials and supplies, including physical and digital products. The majority of the physical campus bookstores have school-branded e-commerce websites
which we operate independently or along with our merchant service providers, and which offer students access to affordable 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 a discounted rate, as compared to the total
retail price for the same course materials if purchased separately. The BNC First Day discounted price is offered as a course fee 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 26 weeks ended October 28, 2023, we opened 31 stores and closed 126 stores in the Retail Segment, with estimated net annual sales of $60
million as we pruned some under-performing, less profitable stores, satellite stores, and certain other contracts were awarded to competitors. We plan to move
many institutions to First Day Complete in Fiscal 2024 and the majority of our stores by Fiscal 2025, with continued relative adoption of this model thereafter.
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 2,900 physical bookstores (including our Retail Segment's 717
physical bookstores) and sources and distributes new and used textbooks to our 554 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 330 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.
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Seasonality
Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as
shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Our fiscal year is comprised of 52 or 53
weeks, ending on the Saturday closest to the last day of April.
Our retail business is highly seasonal, 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.
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 at the point of sale as product revenue in our condensed
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 condensed 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 schools with cash inflows collected from schools, including modifying
payment terms in existing and future school contracts.
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.
Trends, Competition and Other Business Conditions Affecting Our Business
The market for educational materials continues to undergo significant changes. As tuition and other costs rise, colleges and universities face increasing
pressure to attract and retain students and provide them with innovative, affordable educational content and tools that support their educational development.
Current trends, competition and other factors affecting our business include:
• Overall Capital Markets, Economic Environment, College Enrollment and Consumer Spending Patterns. Our business is affected by capital markets, the
overall economic environment, funding levels at colleges and universities, by changes in enrollments at colleges and universities, and spending on course
materials and general merchandise.
• Capital Market Trends: We may require additional capital in the future to sustain or grow our business, including implementation of our strategic
initiatives. The future availability of financing will depend on a variety of factors, such as economic and market conditions, and the availability of
credit. These factors have and could continue to materially adversely affect our costs of borrowing, and our financial position and results of operations
would be adversely impacted. Volatility in global financial markets may also limit our ability to access the capital markets at a time when we would
like, or need, to raise capital, which could have an impact on our ability to react to changing economic and business conditions.
• Economic Environment: Retail general merchandise sales are subject to short-term fluctuations driven by the broader retail environment and other
economic factors, such as interest rate fluctuations and inflationary considerations. Broader macro-economic global supply chain issues could impact
our ability to source textbooks, school supplies and general merchandise sold in our campus bookstores, including technology-related products and
emblematic clothing. Union and labor market issues may also impact our ability to provide services and products to our customers. A significant
reduction in U.S. economic activity could lead to decreased consumer spending.
• Enrollment Trends: The growth of our business depends on our ability to attract new customers and to increase the level of engagement by our current
customers. In the Fall of 2023, we observed increased enrollment trends. Enrollment trends, specifically at community colleges, generally correlate
with changes in the economy and unemployment factors, e.g., low unemployment tends to lead to low enrollment and higher unemployment rates tend
to lead to higher enrollment trends, as students generally enroll to obtain skills that are in demand in the workforce. Additionally, enrollment trends are
impacted by the dip in the United States birth rate resulting in fewer students at the
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traditional 18-24 year-old college age. Online degree program enrollments continue to grow, even in the face of declining overall higher education
enrollment.
• Increased Use of Open Educational Resources ("OER"), Online and Digital Platforms as Companions or Alternatives to Traditional Course Materials,
Including Artificial Intelligence ("AI") Technologies. Students and faculty can now choose from a wider variety of educational content and tools than ever
before, delivered across both print and digital platforms.
• Increasing Costs Associated with Defending Against Security Breaches and Other Data Loss, Including Cyber-Attacks. We are increasingly dependent
upon information technology systems, infrastructure and data. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have
become increasingly difficult to detect. We continue to invest in data protection, including insurance, and information technology to prevent or minimize
these risks and, to date, we have not experienced any material service interruptions and are not aware of any material breaches.
• Distribution Network Evolving. The way course materials are distributed and consumed is changing significantly, a trend that is expected to continue. The
market for course materials, including textbooks and supplemental materials, is intensely competitive and subject to rapid change.
• Disintermediation. We are experiencing growing competition from alternative media and alternative sources of textbooks and other course materials.
In addition to the official physical or virtual campus bookstore, course materials are also sold through off-campus bookstores, e-commerce outlets,
digital platform companies, publishers, including Cengage, Pearson and McGraw Hill, bypassing the bookstore distribution channel by selling or
renting directly to students and educational institutions, including student-to-student transactions over the Internet, and multi-title subscription access.
• Suppliers, Supply Chain and Inventory. The products that we sell originate from a wide variety of domestic and international vendors. During Fiscal
2023, our four largest retail suppliers, excluding our wholesale business which fulfills orders for all our physical and virtual bookstores, accounted for
approximately 28% of our merchandise purchased, with the largest supplier accounting for approximately 8% of our merchandise purchased. Since the
demand for used textbooks has historically been greater than the available supply, our financial results are highly dependent upon Wholesale’s ability
to build its textbook inventory from suppliers in advance of the selling season. In Fiscal 2021 and Fiscal 2022, during the COVID-19 pandemic, the
impact of fewer students on campus, and the resulting increase in transition to digital materials, has significantly impacted our on-campus buyback
programs which supplies Wholesale’s used textbook inventory for future selling periods. Some textbook publishers have begun to supply textbooks
pursuant to consignment or rental programs which could impact used textbook supplies in the future. Additionally, Wholesale is a national distributor
for rental textbooks offered through McGraw-Hill Education's and Pearson Education’s consignment rental program. We do not have long-term
arrangements with most of our suppliers to guarantee availability of merchandise, content or services, particular payment terms or the extension of
credit limits. If our current suppliers were to stop selling merchandise, content or services to us on acceptable terms, including as a result of one or
more supplier bankruptcies due to poor economic conditions or refusal by such suppliers to ship products to us due to delayed or extended payment
windows as a result of our own liquidity constraints, we may be unable to procure the same merchandise, content or services from other suppliers in a
timely and efficient manner and on acceptable terms, or at all. Additionally, delayed or incomplete publisher shipments of physical textbook orders, or
delays in receiving digital courseware access codes, could have an adverse impact on sales, including our First Day Complete equitable access
program, which relies upon timely receipt of inventory in advance of class start dates each academic term. The broader macro-economic global supply
chain issues may also impact our ability to source school supplies and general merchandise sold in our campus bookstores, including technology-
related products and emblematic clothing.
• Price Competition. In addition to the competition in the services we provide to our customers, our textbook and other course materials business faces
significant price competition. Students purchase textbooks and other course materials from multiple providers, are highly price sensitive, and can
easily shift spending from one provider or format to another.
• First Day Complete and First Day Models. Offering course materials sales through our equitable and inclusive access First Day Complete and First
Day models is a key, and increasingly important, strategic initiative of ours to meet the market demands of substantially reduced pricing to students.
Our First Day Complete and First Day programs contribute to improved student outcomes, while increasing our market share, revenue and relative
gross profits of course materials 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 have been observed at those schools where such programs have been adopted. We are moving quickly and decisively to accelerate our First
Day Complete strategy. While we plan to
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move many institutions to First Day Complete in Fiscal 2024, and the majority of our schools by Fiscal 2025, we cannot guarantee that we will be
able to achieve these plans within these timeframes or at all.
• A Large Number of Traditional Campus Bookstores Have Yet to be Outsourced.
• Outsourcing Trends. We continue to see the trend towards outsourcing in the campus bookstore market and also continue to see a variety of business
models being pursued for the provision of course materials (such as equitable and inclusive access programs and publisher subscription models) and
general merchandise.
• New and Existing Bookstore Contracts. We expect awards of new accounts resulting in new physical and virtual store openings will continue to be an
important driver of future growth in our business. We also expect that certain less profitable or non-essential bookstores we operate may close. The
scope of any such store closures remains uncertain, although we are not aware, at this time, of any significant volume of stores which we operate that
are likely to close or have informed us of upcoming closures.
For additional discussion of our trends and other factors affecting our business, see Part I - Item 1. Business in our Annual Report on Form 10-K for the
fiscal year ended April 29, 2023.
Elements of Results of Operations
Our condensed 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 condensed 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 condensed 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 condensed 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 condensed 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, content development cost amortization, warehouse costs
related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense,
related to our college and university contracts and other facility related expenses.
Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include
long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, 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.
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Results of Operations - Summary - Continuing Operations
13 weeks ended 26 weeks ended
Dollars in thousands
October 28,
2023
October 29,
2022
October 28,
2023
October 29,
2022
Sales:
Product sales and other $ 569,698 $ 567,299 $ 822,348 $ 811,061
Rental income
40,681 41,334 52,192 52,246
Total sales
$ 610,379 $ 608,633 $ 874,540 $ 863,307
Net income (loss) from continuing operations
$ 24,854 $ 24,168 $ (25,117) $ (26,154)
Adjusted Earnings (non-GAAP) - Continuing Operations (c)
$ 29,128 $ 24,428 $ (16,210) $ (25,493)
Adjusted EBITDA by Segment (non-GAAP) - Continuing Operations
Retail $ 48,347 $ 39,416 $ 29,465 $ 14,431
Wholesale 2,598 1,588 5,004 4,356
Corporate Services (5,287) (5,075) (10,205) (12,289)
Elimination 4,623 3,258 (825) (1,621)
Total Adjusted EBITDA (non-GAAP)
$ 50,281 $ 39,187 $ 23,439 $ 4,877
(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 periods reported above.
(b) Logo general merchandise sales for the Retail Segment are recognized on a net basis as commission revenue in the condensed consolidated financial
statements. For Retail Gross Comparable Store Sales details, see below.
(c) 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:
13 weeks ended 26 weeks ended
October 28,
2023
October 29,
2022
October 28,
2023
October 29,
2022
Sales:
Product sales and other 93.3 % 93.2 % 94.0 % 93.9 %
Rental income 6.7 6.8 6.0 6.1
Total sales 100.0 100.0 100.0 100.0
Cost of sales (exclusive of depreciation and amortization expense):
Product and other cost of sales 79.3 78.9 80.1 78.9
Rental cost of sales 54.5 55.5 55.0 55.9
Total cost of sales 77.7 77.3 78.6 77.5
Gross margin
22.3 22.7 21.4 22.5
Selling and administrative expenses
14.1 16.3 18.7 21.9
Depreciation and amortization expense 1.7 1.7 2.3 2.5
Restructuring and other charges 0.7 — 1.0 0.1
Operating income (loss) from continuing operations
5.8 % 4.7 % (0.6)% (2.0)%
(a) Represents the percentage these costs bear to the related sales, instead of total sales.
(a)
(b)
(c)
(c)
(a)
(a)
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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
condensed 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 condensed 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 condensed 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 26 weeks ended October 28, 2023, we recorded a Gain on Sale of Business of $3.1 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.
13 weeks ended 26 weeks ended
Dollars in thousands
October 28,
2023
October 29,
2022
October 28,
2023
October 29,
2022
Total sales $ — $ 8,465 $ 2,784 $ 17,649
Cost of sales — 1,772 76 3,472
Gross profit
— 6,693 2,708 14,177
Selling and administrative expenses
643 8,131 2,924 16,277
Depreciation and amortization 3 503 3 2,140
Gain on sale of business — — (3,068) —
Impairment loss (non-cash) — — 610 —
Restructuring costs 10 — 3,297 —
Transaction costs 18 — 13 —
Operating loss (674) (1,941) (1,071) (4,240)
Income tax expense — 83 20 169
Loss from discontinued operations, net of tax
$ (674) $ (2,024) $ (1,091) $ (4,409)
(a) Cost of sales and Gross margin for the DSS Segment includes amortization expense (non-cash) related to content development costs of $0 and $1.6 million for the 13 weeks
ended October 28, 2023 and October 29, 2022, respectively, and $0 and $3.2 million for the 26 weeks ended October 28, 2023 and October 29, 2022, respectively.
(b) During the 26 weeks ended October 28, 2023, 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 condensed consolidated statement of operations as part of discontinued
operations.
(c) During the 26 weeks ended October 28, 2023, we recognized restructuring and other charges of $3.3 million comprised of severance and other employee termination costs.
Results of Operations - Continuing Operations - 13 and 26 weeks ended October 28, 2023 compared with the 13 and 26 weeks ended October 29, 2022
13 weeks ended October 28, 2023
Dollars in thousands
Retail Wholesale
Corporate
Services Eliminations Total
Sales:
Product sales and other $ 558,655 $ 20,973 $ — $ (9,930) $ 569,698
Rental income 40,681 — — — 40,681
Total sales
599,336 20,973 — (9,930) 610,379
Cost of sales (exclusive of depreciation and amortization expense):
Product and other cost of sales 451,623 14,883 — (14,553) 451,953
Rental cost of sales 22,184 — — — 22,184
Total cost of sales
473,807 14,883 — (14,553) 474,137
Gross profit
125,529 6,090 — 4,623 136,242
Selling and administrative expenses 77,182 3,492 5,287 — 85,961
Depreciation and amortization expense 8,911 1,254 10 — 10,175
Restructuring and other charges 29 — 4,245 — 4,274
Operating income (loss)
$ 39,407 $ 1,344 $ (9,542) $ 4,623 $ 35,832
(a)
(a)
(b)
(c)
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13 weeks ended October 29, 2022
Dollars in thousands
Retail Wholesale
Corporate
Services Eliminations Total
Sales:
Product sales and other $ 557,276 $ 21,120 $ — $ (11,097) $ 567,299
Rental income 41,334 — — — 41,334
Total sales 598,610 21,120 — (11,097) 608,633
Cost of sales (exclusive of depreciation and amortization expense):
Product and other cost of sales 446,167 15,665 — (14,281) 447,551
Rental cost of sales 22,941 — — — 22,941
Total cost of sales 469,108 15,665 — (14,281) 470,492
Gross profit
129,502 5,455 — 3,184 138,141
Selling and administrative expenses
90,086 3,867 5,075 (74) 98,954
Depreciation and amortization expense 8,869 1,370 17 — 10,256
Restructuring and other charges
— — 260 — 260
Operating income (loss) $ 30,547 $ 218 $ (5,352) $ 3,258 $ 28,671
26 weeks ended October 28, 2023
Dollars in thousands
Retail Wholesale
Corporate
Services Eliminations Total
Sales:
Product sales and other $ 792,604 $ 59,764 $ — $ (30,020) $ 822,348
Rental income 52,192 — — — 52,192
Total sales
844,796 59,764 — (30,020) 874,540
Cost of sales (exclusive of depreciation and amortization expense):
Product and other cost of sales 640,279 47,880 — (29,192) 658,967
Rental cost of sales 28,697 — — — 28,697
Total cost of sales
668,976 47,880 — (29,192) 687,664
Gross profit 175,820 11,884 — (828) 186,876
Selling and administrative expenses
146,355 6,880 10,205 (3) 163,437
Depreciation and amortization expense 17,877 2,531 20 — 20,428
Restructuring and other charges 555 526 7,826 — 8,907
Operating income (loss)
$ 11,033 $ 1,947 $ (18,051) $ (825) $ (5,896)
26 weeks ended October 29, 2022
Dollars in thousands
Retail Wholesale
Corporate
Services Eliminations Total
Sales:
Product sales and other $ 782,871 $ 58,203 $ — $ (30,013) $ 811,061
Rental income 52,246 — — — 52,246
Total sales 835,117 58,203 — (30,013) 863,307
Cost of sales (exclusive of depreciation and amortization expense):
Product and other cost of sales 622,416 45,849 — (28,310) 639,955
Rental cost of sales 29,206 — — — 29,206
Total cost of sales 651,622 45,849 — (28,310) 669,161
Gross profit
183,495 12,354 — (1,703) 194,146
Selling and administrative expenses
169,090 7,998 12,289 (82) 189,295
Depreciation and amortization expense 18,398 2,719 35 — 21,152
Restructuring and other charges
— — 635 — 635
Operating (loss) income $ (3,993) $ 1,637 $ (12,959) $ (1,621) $ (16,936)
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Sales
The following table summarizes our sales for the 13 and 26 weeks ended October 28, 2023 and October 29, 2022:
13 weeks ended 26 weeks ended
Dollars in thousands
October 28, 2023
October 29,
2022 Var $ Var % October 28, 2023
October 29,
2022 Var $ Var %
Product sales and other $ 569,698 $ 567,299 $ 2,399 0.4% $ 822,348 $ 811,061 $ 11,287 1.4%
Rental income 40,681 41,334
$ (653) (1.6)%
52,192 52,246
$ (54) (0.1)%
Total Sales
$ 610,379 $ 608,633
$ 1,746 0.3%
$ 874,540 $ 863,307
$ 11,233 1.3%
The sales increase during the 13 and 26 weeks ended October 28, 2023 is primarily related to higher course material sales, primarily at our BNC First Day
programs. See Retail discussion below. The components of the sales variances for the 13 and 26 week periods are reflected in the table below.
Sales variances 13 weeks ended 26 weeks ended
Dollars in millions
October 28, 2023 October 28, 2023
Retail Sales
New stores $ 16.3 $ 21.0
Closed stores (30.3) (37.8)
Comparable stores 16.5 25.3
Textbook rental deferral (1.8) 0.3
Service revenue (0.1) (0.4)
Other 0.1 1.3
Retail sales subtotal: $ 0.7 $ 9.7
Wholesale Sales $ (0.2) $ 1.6
Eliminations $ 1.2 $ (0.1)
Total sales variance:
$ 1.7 $ 11.2
(a) Logo general merchandise sales for the Retail Segment are recognized on a net basis as commission revenue in the condensed consolidated financial statements. For Retail
Gross Comparable Store Sales details, see below.
(b) Service revenue includes brand partnership marketing, 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.
13 weeks ended 26 weeks ended
October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Number of Stores:
Physical Virtual Total Physical Virtual Total Physical Virtual Total Physical Virtual Total
Beginning of period 726 563 1,289 793 613 1,406 774 592 1,366 805 622 1,427
Opened 5 6 11 8 10 18 13 18 31 34 24 58
Closed 14 15 29 8 17 25 70 56 126 46 40 86
End of period
717 554 1,271 793 606 1,399 717 554 1,271 793 606 1,399
During the 26 weeks ended October 28, 2023, we opened 31 stores and closed 126 stores in the Retail Segment, with estimated net annual sales of $60
million as we pruned some under-performing, less profitable stores, satellite stores, and certain other contracts were awarded to competitors. We plan to move
many institutions to First Day Complete in Fiscal 2024 and the majority of our stores by Fiscal 2025, with continued relative adoption of this model thereafter.
(a)
(a)
(b)
(c)
(d)
38
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Generally, sales are impacted by revenue from net new/closed stores, 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, as schools approach a more traditional campus experience.
We continued to experience higher sales related to our BNC First Day programs and higher general merchandise gross sales, especially for graduation products,
logo products, and cafe and convenience products, as on campus traffic continues to grow compared to the prior year.
Retail sales increased by $0.7 million, or 0.1%, to $599.3 million during the 13 weeks ended October 28, 2023 from $598.6 million during the 13 weeks
ended October 29, 2022.
• Product sales and other increased by $1.4 million, or 0.2%, to $558.7 million during the 13 weeks ended October 28, 2023 from $557.3 million during
the 13 weeks ended October 29, 2022. During the 13 weeks ended October 28, 2023, total course material product sales increased by $19.0 million, or
4.6%, to $435.4 million, compared to the prior year period, primarily due to the growth of our BNC First Day programs discussed below; total general
merchandise product net sales decreased by $17.6 million, or 14.4%, to $105.0 million, compared to the prior year period, primarily due lower
commissions received for logo general merchandise part of the F/L Relationship-related agreements, under which the commission rates adjusts as the
relationship matured, offset by higher graduation product sales. Effective August 1, 2023, our commission rates received for logo general merchandise
increases for an estimated one year period under the terms of the July 2023 Term Loan Credit Agreement amendment. Retail Gross Comparable Store
Sales for general merchandise decreased by 1.7% compared to the prior year period as discussed below. Service and other revenue remained flat at $18.2
million compared to the prior year period.
• Total course material rental income decreased by $0.7 million, or 1.6%, to $40.7 million during the 13 weeks ended October 28, 2023 from $41.3
million during the 13 weeks ended October 29, 2022 primarily due to the increased shift to digital course materials.
• Revenue from both of our BNC First Day equitable and inclusive access programs increased during the 13 weeks ended October 28, 2023 compared to
the prior year period as follows:
Dollars in millions
13 weeks ended
October 28, 2023 October 29, 2022 Var $ Var %
First Day Complete Sales
$ 136.4 $ 90.0 $ 46.4 52%
First Day Sales $ 62.8 $ 53.3
$ 9.5 18%
Total BNC First Day Sales $ 199.2 $ 143.3
$ 55.9 39%
Retail sales increased by $9.7 million, or 1.2%, to $844.8 million during the 26 weeks ended October 28, 2023 from $835.1 million during the 26 weeks
ended October 29, 2022.
• Product sales and other increased by $9.7 million, or 1.2%, to $792.6 million during the 26 weeks ended October 28, 2023 from $782.9 million during
the 26 weeks ended October 29, 2022. During the 26 weeks ended October 28, 2023, total course material product sales increased by $26.6 million, or
4.9%, to $573.9 million, compared to the prior year period, primarily due to the growth of our BNC First Day programs discussed below; total general
merchandise product net sales decreased by $17.8 million, or 8.4%, to $193.7 million, compared to the prior year period, primarily due to lower
commissions for logo general merchandise part of the F/L Relationship-related agreements, under which the commission rates adjusts as the relationship
matured, offset by higher graduation product sales. Effective August 1, 2023, our commission rates received for logo general merchandise increases for
an estimated one year period under the terms of the July 2023 Term Loan Credit Agreement amendment. Retail Gross Comparable Store Sales for
general merchandise increased by 1.1% compared to the prior year period as discussed below. Service and other revenue increased by $0.9 million to
$25.0 million, compared to the prior year period, primarily due to improvements in marketplace sales and return reserves, partially by lower other
income for non-return rental penalty fees.
• Total course material rental income remained flat at $52.2 million during both 26 weeks ended October 28, 2023 and October 29, 2022 primarily due to
the increased shift to digital course materials.
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• Revenue from both of our BNC First Day equitable and inclusive access programs increased during the 26 weeks ended October 28, 2023 compared to
the prior year period as follows:
Dollars in millions
26 weeks ended
October 28, 2023 October 29, 2022 Var $ Var %
First Day Complete Sales
$ 161.9 $ 106.5 $ 55.4 52%
First Day Sales $ 99.1 $ 81.9 $ 17.2 21%
Total BNC First Day Sales
$ 261.0 $ 188.4
$ 72.6 39%
First Day Complete Fall 2023 Fall 2022 Var # Var %
Number of campus stores 157 111 46 41%
Estimated enrollment 800,000 545,000 255,000 47%
(a) Total undergraduate and post graduate student enrollment (as reported by National Center for Education Statistics).
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 condensed
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),
partially offset by a shift to lower cost options and more affordable solutions, including digital offerings. The decrease in general merchandise sales during the
13 weeks ended October 28, 2023 are primarily related to lower logo product sales. The increase in general merchandise sales during the 26 weeks ended
October 28, 2023 was primarily due to higher sales related to graduation products and logo products, and cafe and convenience products.
Retail Gross Comparable Store Sales variances by category for the 13 and 26 week periods are as follows:
13 weeks ended 26 weeks ended
Dollars in millions October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Textbooks (Course Materials) $ 26.0 5.8 % $ (21.8) (4.6)% $ 35.2 6.0 % $ (19.5) (3.2)%
General Merchandise
(3.1)
(1.7)%
7.7
4.5 %
3.6
1.1 %
39.2
14.9 %
Total Retail Gross Comparable Store Sales
$ 22.9
3.6 %
$ (14.1)
(2.2)%
$ 38.8
4.3 %
$ 19.7
2.3 %
Wholesale
Wholesale sales decreased by $0.2 million, or 0.7% to $20.9 million during the 13 weeks ended October 28, 2023 from $21.1 million during the 13 weeks
ended October 29, 2022. The decrease is primarily due to higher returns and allowances of $1.2 million, partially offset by higher gross sales of $1.0 million
compared to the prior year period.
Wholesale sales increased by $1.6 million, or 2.7% to $59.8 million during the 26 weeks ended October 28, 2023 from $58.2 million during the 26 weeks
ended October 29, 2022. The increase is primarily due to higher gross sales of $6.2 million compared to the prior year period, partially offset by higher returns
and allowances of $4.6 million.
(a)
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Cost of Sales and Gross Margin
Our cost of sales increased as a percentage of sales to 77.7% during the 13 weeks ended October 28, 2023 compared to 77.3% during the 13 weeks ended
October 29, 2022. Our gross margin decreased by $1.9 million, or 1.4%, to $136.2 million, or 22.3% of sales, during the 13 weeks ended October 28, 2023
from $138.1 million, or 22.7% of sales during the 13 weeks ended October 29, 2022.
Our cost of sales increased as a percentage of sales to 78.6% during the 26 weeks ended October 28, 2023 compared to 77.5% during the 26 weeks ended
October 29, 2022. Our gross margin decreased by $7.3 million, or 11.5%, to $186.9 million, or 21.4% of sales, during the 26 weeks ended October 28, 2023
from $194.1 million, or 22.5% of sales during the 26 weeks ended October 29, 2022.
Retail
The following table summarizes the Retail cost of sales for the 13 and 26 weeks ended October 28, 2023 and October 29, 2022:
13 weeks ended 26 weeks ended
Dollars in thousands
October 28,
2023
% of
Related Sales
October 29,
2022
% of
Related Sales
October 28,
2023
% of
Related Sales
October 29,
2022
% of
Related Sales
Product and other cost of sales $ 451,623 80.8% $ 446,167 80.1% $ 640,279 80.8% $ 622,416 79.5%
Rental cost of sales
22,184
54.5%
22,941
55.5%
28,697
55.0%
29,206
55.9%
Total Cost of Sales
$ 473,807
79.1%
$ 469,108
78.4%
$ 668,976
79.2%
$ 651,622
78.0%
The following table summarizes the Retail gross margin for the 13 and 26 weeks ended October 28, 2023 and October 29, 2022:
13 weeks ended 26 weeks ended
Dollars in thousands
October 28,
2023
% of
Related Sales
October 29,
2022
% of
Related Sales
October 28,
2023
% of
Related Sales October 29, 2022
% of
Related Sales
Product and other gross margin $ 107,032 19.2% $ 111,109 19.9% $ 152,325 19.2% $ 160,455 20.5%
Rental gross margin
18,497
45.5%
18,393
44.5%
23,495
45.0%
23,040
44.1%
Gross Margin
$ 125,529
20.9%
$ 129,502
21.6%
$ 175,820
20.8%
$ 183,495
22.0%
For the 13 and 26 weeks ended October 28, 2023, the Retail Product and other gross margin as a percentage of sales decreased as discussed below:
• For the 13 weeks ended October 28, 2023, Product and other gross margin as a percentage of sales decreased (70 basis points), driven primarily by lower
margin rates for course materials (155 basis points) due to higher markdowns, including markdowns related to closed stores; and lower general
merchandise sales, primarily from closed stores, and an unfavorable sales mix (20 basis points) due to the shift to digital course materials. These
decreases in gross margin rate were partially offset by increased sales from higher margin First Day Complete course material sales, and lower contract
costs as a percentage of sales related to our college and university contracts (100 basis points) as a result of the shift to digital and First Day models and
lower performing school contracts not renewed.
• For the 26 weeks ended October 28, 2023, Product and other gross margin as a percentage of sales decreased (120 basis points), driven primarily by
lower margin rates for course materials (195 basis points) due to higher markdowns, including markdowns related to closed stores, and lower general
merchandise sales, primarily from closed stores, and an unfavorable sales mix (60 basis points) due to the shift to digital course materials. These
decreases in gross margin rate were partially offset by increased sales from higher margin First Day Complete course material sales, and lower contract
costs as a percentage of sales related to our college and university contracts (130 basis points) as a result of the shift to digital and First Day models and
lower performing school contracts not renewed.
As part of the F/L Relationship-related agreements, the commission rates adjust as the relationship matures. Effective August 1, 2023, our commission
rates received for logo general merchandise increases for an estimated one year period under the terms of the July 2023 Term Loan Credit Agreement
amendment.
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For the 13 and 26 weeks ended October 28, 2023, the Retail Rental gross margin as a percentage of sales increased driven primarily by favorable rental
mix due to improved availability of used textbook inventory, partially offset by higher rental margin rates.
Wholesale
The cost of sales and gross margin for Wholesale were $14.9 million, or 71.0% of sales, and $6.1 million, or 29.0% of sales, respectively, during the 13
weeks ended October 28, 2023. The cost of sales and gross margin for Wholesale was $15.7 million or 74.2% of sales and $5.5 million or 25.8% of sales,
respectively, during the 13 weeks ended October 29, 2022. The gross margin rate increased during the 13 weeks ended October 28, 2023 primarily due to lower
markdowns, lower product costs, and lower warehouse costs, partially offset by an increase in the returns and allowances.
The cost of sales and gross margin for Wholesale were $47.9 million, or 80.1% of sales, and $11.9 million, or 19.9% of sales, respectively, during the 26
weeks ended October 28, 2023. The cost of sales and gross margin for Wholesale was $45.8 million or 78.8% of sales and $12.4 million or 21.2% of sales,
respectively, during the 26 weeks ended October 29, 2022. The gross margin rate decreased during the 26 weeks ended October 28, 2023 primarily due to an
increase in the returns and allowances and higher product costs, partially offset by lower markdowns.
Intercompany Eliminations
During the 13 weeks ended October 28, 2023 and October 29, 2022, our sales eliminations were $(9.9) million and $(11.1) million, respectively. During
the 26 weeks ended October 28, 2023 and October 29, 2022, our sales eliminations were $(30.0) million and $(30.0) million, respectively. These sales
eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from
Wholesale.
During the 13 weeks ended October 28, 2023 and October 29, 2022, the cost of sales eliminations were $(14.6) million and $(14.3) million, respectively.
During the 26 weeks ended October 28, 2023 and October 29, 2022, the cost of sales eliminations were $(29.2) million and $(28.3) million, respectively. These
cost of sales eliminations represent (i) the recognition of intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was
subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual
store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the
current period.
During the 13 weeks ended October 28, 2023 and October 29, 2022, the gross margin eliminations were $4.6 million and $3.2 million, respectively. During
the 26 weeks ended October 28, 2023 and October 29, 2022, the gross margin eliminations were $(0.8) million and $(1.7) million, respectively. The gross
margin eliminations reflect the net impact of the sales eliminations and cost of sales eliminations during the above mentioned reporting periods.
Selling and Administrative Expenses
13 weeks ended 26 weeks ended
Dollars in thousands October 28, 2023
% of
Sales October 29, 2022
% of
Sales October 28, 2023
% of
Sales October 29, 2022
% of
Sales
Total Selling and Administrative
Expenses
$ 85,961
14.1%
$ 98,954
16.3%
$ 163,437
18.7%
$ 189,295
21.9%
During the 13 weeks ended October 28, 2023, selling and administrative expenses decreased by $13.0 million, or 13.1%, to $86.0 million from $99.0
million during the 13 weeks ended October 29, 2022. During the 26 weeks ended October 28, 2023, selling and administrative expenses decreased by $25.9
million, or 13.7%, to $163.4 million from $189.3 million during the 26 weeks ended October 29, 2022. The variances by segment are discussed below.
Retail
During the 13 weeks ended October 28, 2023, Retail selling and administrative expenses decreased by $12.9 million, or 14.3%, to $77.2 million from
$90.1 million during the 13 weeks ended October 29, 2022. This decrease was primarily due to cost savings initiatives comprised of a $11.9 million decrease in
comparable store payroll expense, new/closed store payroll expense and related operating costs, and a $4.1 million decrease in corporate payroll expense,
infrastructure and product development costs, partially offset by a $3.1 million increase in incentive plan compensation expense due to the reversal of the
incentive accrual in the prior year.
During the 26 weeks ended October 28, 2023, Retail selling and administrative expenses decreased by $22.7 million, or 13.4%, to $146.4 million from
$169.1 million during the 26 weeks ended October 29, 2022. This decrease was primarily due to cost savings initiatives comprised of a $17.9 million decrease
in comparable store payroll expense, new/closed store payroll expense and related operating costs, and a $5.7 million decrease in corporate payroll expense,
infrastructure and product development costs, partially offset by an $0.8 million increase in incentive plan compensation expense.
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Table of Contents
Wholesale
During the 13 weeks ended October 28, 2023, Wholesale selling and administrative expenses decreased by $0.4 million, or 9.7%, to $3.5 million from $3.9
million during the 13 weeks ended October 29, 2022. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of $0.5
million, partially offset by higher operating expenses of $0.1 million.
During the 26 weeks ended October 28, 2023, Wholesale selling and administrative expenses decreased by $1.1 million, or 14.0%, to $6.9 million from
$8.0 million during the 26 weeks ended October 29, 2022. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of
$1.1 million and lower incentive plan compensation expense of $0.1 million, partially offset by higher operating expenses of $0.1 million.
Corporate Services
During the 13 weeks ended October 28, 2023, Corporate Services' selling and administrative expenses increased by $0.2 million, or 4.2%, to $5.3 million
from $5.1 million during the 13 weeks ended October 29, 2022. The increase in costs was primarily due to higher incentive plan compensation expense of $0.9
million due to the reversal of the incentive accrual in the prior year, partially offset by lower operating costs of $0.4 million and lower payroll expense of $0.3
million.
During the 26 weeks ended October 28, 2023, Corporate Services' selling and administrative expenses decreased by $2.1 million, or 17.0%, to $10.2
million from $12.3 million during the 26 weeks ended October 29, 2022. The decrease in costs was primarily due to cost savings initiatives comprised of lower
incentive plan compensation expense of $0.6 million, lower payroll expense of $0.8 million, and lower operating costs of $0.7 million.
Depreciation and Amortization Expense
13 weeks ended 26 weeks ended
Dollars in thousands
October 28, 2023
% of
Sales October 29, 2022
% of
Sales October 28, 2023
% of
Sales October 29, 2022
% of
Sales
Total Depreciation and Amortization
Expense
$ 10,175
1.7%
$ 10,256
1.7%
$ 20,428
2.3%
$ 21,152
2.5%
Depreciation and amortization expense decreased by $0.1 million, or 0.8%, to $10.2 million during the 13 weeks ended October 28, 2023 from $10.3
million during the 13 weeks ended October 29, 2022. Depreciation and amortization expense decreased by $0.7 million, or 3.4%, to $20.4 million during the 26
weeks ended October 28, 2023 from $21.1 million during the 26 weeks ended October 29, 2022. The decrease was primarily attributable to lower depreciable
assets and intangibles due to the store impairment loss recognized during Fiscal 2023.
Restructuring and other charges
During the 13 and 26 weeks ended October 28, 2023, we recognized restructuring and other charges totaling $4.3 million and $8.9 million, respectively,
comprised primarily of $4.3 million and $7.8 million, respectively, for costs primarily associated with professional service costs for restructuring as discussed
below and process improvements and $0 and $1.1 million, respectively, for severance and other employee termination and benefit costs associated with
elimination of various positions as part of cost savings initiatives.
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 associated with the costs of
this committee, as well as other related professional service costs, are expected to decrease when the Company concludes on a strategic alternative.
During the 13 and 26 weeks ended October 29, 2022, we recognized restructuring and other charges totaling $0.3 million and $0.6 million, respectively,
comprised primarily of professional service costs for restructuring and process improvements.
Operating Income (Loss)
13 weeks ended 26 weeks ended
Dollars in thousands
October 28, 2023
% of
Sales October 29, 2022
% of
Sales October 28, 2023
% of
Sales October 29, 2022
% of
Sales
Total Operating Income (Loss)
$ 35,832
5.8%
$ 28,671
4.7%
$ (5,896)
(0.6)%
$ (16,936)
(2.0)%
Our operating income was $35.8 million during the 13 weeks ended October 28, 2023, compared to $28.7 million during the 13 weeks ended October 29,
2022. The increase in operating income is due to the matters discussed above. For the 13 weeks ended October 28, 2023, excluding the $4.3 million of
restructuring and other charges, discussed above, operating income was
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$40.1 million (or 6.6% of sales). For the 13 weeks ended October 29, 2022, excluding the $0.3 million of restructuring and other charges, discussed above,
operating income was $29.0 million (or 4.8% of sales).
Our operating loss was $(5.9) million during the 26 weeks ended October 28, 2023, compared to $(16.9) million during the 26 weeks ended October 29,
2022. The decrease in operating loss is due to the matters discussed above. For the 26 weeks ended October 28, 2023, excluding the $8.9 million of
restructuring and other charges, discussed above, operating income was $3.0 million (or 0.3% of sales). For the 26 weeks ended October 29, 2022, excluding
the $0.6 million of restructuring and other charges, discussed above, operating loss was $(16.3) million (or (1.9)% of sales).
Interest Expense, Net
13 weeks ended 26 weeks ended
Dollars in thousands
October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Interest Expense, Net
$ 10,664 $ 4,886 $ 18,918 $ 8,754
Net interest expense increased by $5.8 million to $10.7 million during the 13 weeks ended October 28, 2023 from $4.9 million during the 13 weeks ended
October 29, 2022. Net interest expense increased by $10.2 million to $18.9 million during the 26 weeks ended October 28, 2023 from $8.8 million during the
26 weeks ended October 29, 2022. The increase was primarily due to higher borrowings and higher interest rates compared to the prior year period.
Income Tax (Benefit) Expense
13 weeks ended 26 weeks ended
Dollars in thousands
October 28, 2023
Effective
Rate October 29, 2022
Effective
Rate October 28, 2023
Effective
Rate October 29, 2022
Effective
Rate
Income Tax (Benefit) Expense
$ 314
1.2%
$ (383)
(1.6)%
$ 303
(1.2)%
$ 464
(1.8)%
We recorded an income tax expense of $0.3 million on pre-tax income of $25.2 million during the 13 weeks ended October 28, 2023, which represented an
effective income tax rate of 1.2% and we recorded an income tax benefit of $(0.4) million on a pre-tax income of $23.8 million during the 13 weeks ended
October 29, 2022, which represented an effective income tax rate of (1.6)%.
We recorded an income tax expense of $0.3 million on pre-tax loss of $(24.8) million during the 26 weeks ended October 28, 2023, which represented an
effective income tax rate of (1.2)% and we recorded an income tax expense of $0.5 million on a pre-tax loss of $(25.7) million during the 26 weeks ended
October 29, 2022, which represented an effective income tax rate of (1.8)%.
The effective tax rate for the 13 and 26 weeks ended October 28, 2023 is higher than the prior year comparable period due to the utilization of the discrete
tax provision methodology in the current year. For additional information, see Item 1. Financial Statements - Note 12. Income Taxes.
Net Income (Loss) from Continuing Operations
13 weeks ended 26 weeks ended
Dollars in thousands
October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Net Income (Loss) from Continuing Operations $ 24,854 $ 24,168 $ (25,117) $ (26,154)
As a result of the factors discussed above, net income from continuing operations was $24.9 million during the 13 weeks ended October 28, 2023,
compared with $24.2 million during the 13 weeks ended October 29, 2022 and net loss from continuing operations was $(25.1) million during the 26 weeks
ended October 28, 2023, compared with $(26.2) million during the 26 weeks ended October 29, 2022.
Adjusted Earnings (non-GAAP) is $29.1 million during the 13 weeks ended October 28, 2023, compared with $24.4 million during the 13 weeks ended
October 29, 2022. Adjusted Earnings (non-GAAP) is $(16.2) million during the 26 weeks ended October 28, 2023, compared with $(25.5) million during the
26 weeks ended October 29, 2022. See Adjusted Earnings (non-GAAP) discussion below.
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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 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 condensed consolidated financial statements included elsewhere in this
Form 10-Q, 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.
Consolidated Adjusted Earnings (non-GAAP) - Continuing Operations
13 weeks ended 26 weeks ended
Dollars in thousands
October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Net income (loss) from continuing operations $ 24,854 $ 24,168 $ (25,117) $ (26,154)
Reconciling items (below)
4,274 260 8,907 661
Adjusted Earnings (non-GAAP)
$ 29,128 $ 24,428 $ (16,210) $ (25,493)
Reconciling items
Content amortization (non-cash) $ — $ — $ — $ 26
Restructuring and other charges 4,274 260 8,907 635
Reconciling items
$ 4,274 $ 260 $ 8,907 $ 661
(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 and Results of Operations discussion above.
(c) There is no pro forma income effect of the non-GAAP items.
(a)
(b)
(c)
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Consolidated Adjusted EBITDA (non-GAAP) - Continuing Operations
13 weeks ended 26 weeks ended
Dollars in thousands
October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Net income (loss) from continuing operations $ 24,854 $ 24,168 $ (25,117) $ (26,154)
Add:
Depreciation and amortization expense 10,175 10,256 20,428 21,152
Interest expense, net 10,664 4,886 18,918 8,754
Income tax expense (benefit) 314 (383) 303 464
Content amortization (non-cash) — — — 26
Restructuring and other charges
4,274 260 8,907 635
Adjusted EBITDA (Non-GAAP) - Continuing Operations
$ 50,281 $ 39,187 $ 23,439 $ 4,877
Adjusted EBITDA (Non-GAAP) - Discontinued Operations $ (643) $ 180 $ (216) $ 1,069
Adjusted EBITDA (Non-GAAP) - Total
$ 49,638 $ 39,367 $ 23,223 $ 5,946
(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) 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.
(c) See Management Discussion and Analysis and Results of Operations discussion above.
The following is Adjusted EBITDA - Continuing Operations by Segment for the 13 and 26 weeks ended October 28, 2023 and October 29, 2022.
Adjusted EBITDA - by Segment
13 weeks ended October 28, 2023
Dollars in thousands
Retail Wholesale
Corporate
Services Eliminations Total
Net income (loss) from continuing operations
$ 39,407 $ 1,344 $ (20,520) $ 4,623
$ 24,854
Add:
Depreciation and amortization expense
8,911 1,254 10 — 10,175
Interest expense, net
— — 10,664 — 10,664
Income tax expense
— — 314 —
314
Restructuring and other charges
29 — 4,245 — 4,274
Adjusted EBITDA (non-GAAP) $ 48,347 $ 2,598 $ (5,287) $ 4,623 $ 50,281
Adjusted EBITDA - by Segment
13 weeks ended October 29, 2022
Dollars in thousands
Retail Wholesale
Corporate
Services Eliminations Total
Net income (loss) from continuing operations $ 30,547 $ 218 $ (9,855) $ 3,258 $ 24,168
Add:
Depreciation and amortization expense
8,869 1,370 17 — 10,256
Interest expense, net
— — 4,886 —
4,886
Income tax benefit
— — (383) — (383)
Content amortization (non-cash)
— — — — —
Restructuring and other charges
— — 260 —
260
Adjusted EBITDA (non-GAAP)
$ 39,416 $ 1,588 $ (5,075) $ 3,258 $ 39,187
(a)
(b)
(c)
(b)
(a)
(c)
(b)
(a)
(c)
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Adjusted EBITDA - by Segment
26 weeks ended October 28, 2023
Dollars in thousands Retail Wholesale
Corporate
Services Eliminations Total
Net income (loss) from continuing operations $ 11,033 $ 1,947 $ (37,272) $ (825) $ (25,117)
Add:
Depreciation and amortization expense
17,877 2,531 20 —
20,428
Interest expense, net
— — 18,918 — 18,918
Income tax expense
— — 303 — 303
Restructuring and other charges
555 526 7,826 —
8,907
Adjusted EBITDA (non-GAAP)
$ 29,465 $ 5,004 $ (10,205) $ (825) $ 23,439
Adjusted EBITDA - by Segment
26 weeks ended October 29, 2022
Dollars in thousands
Retail Wholesale
Corporate
Services Eliminations Total
Net (loss) income from continuing operations $ (3,993) $ 1,637 $ (22,177) $ (1,621) $ (26,154)
Add:
Depreciation and amortization expense
18,398 2,719 35 — 21,152
Interest expense, net
— — 8,754 —
8,754
Income tax expense
— — 464 — 464
Content amortization (non-cash)
26 — — — 26
Restructuring and other charges
— — 635 —
635
Adjusted EBITDA (non-GAAP)
$ 14,431 $ 4,356 $ (12,289) $ (1,621) $ 4,877
(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) 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.
(c) See Management Discussion and Analysis and Results of Operations discussion above.
Adjusted EBITDA (non-GAAP) - Discontinued Operations 13 weeks ended 26 weeks ended
October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Loss from discontinued operations $ (674) $ (2,024) $ (1,091) $ (4,409)
Add:
Depreciation and amortization expense 3 503 3 2,140
Income tax expense — 83 20 169
Content amortization (non-cash) — 1,618 — 3,169
Gain on sale of business — — (3,068) —
Impairment loss (non-cash) — — 610 —
Restructuring and other charges 10 — 3,297 —
Transaction costs 18 — 13 —
Adjusted EBITDA (Non-GAAP) - Discontinued Operations
$ (643) $ 180 $ (216) $ 1,069
(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.
(b)
(a)
(c)
(b)
(a)
(c)
(a)
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Free Cash Flow (non-GAAP)
13 weeks ended 26 weeks ended
Dollars in thousands October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Net cash flows provided by (used in) operating activities from
continuing operations $ 72,698 $ 38,680 $ (47,160) $ 10,073
Less:
Capital expenditures 3,977 9,293 8,196 16,823
Cash interest 7,576 4,368 13,972 7,301
Cash taxes
43 (15,705) 388 (15,583)
Free Cash Flow (non-GAAP)
$ 61,102 $ 40,724 $ (69,716) $ 1,532
(a) Purchases of property and equipment are also referred to as capital expenditures. Our investing activities consist principally of capital expenditures for
contractual capital investments associated with renewing existing contracts, new store construction, and enhancements to internal systems and our website.
The following table provides the components of total purchases of property and equipment:
Capital Expenditures
13 weeks ended 26 weeks ended
Dollars in thousands October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022
Physical store capital expenditures $ 1,743 $ 6,052 $ 3,948 $ 10,548
Product and system development 1,697 2,689 3,460 5,175
Other
537 552 788 1,100
Total Capital Expenditures
$ 3,977 $ 9,293 $ 8,196 $ 16,823
Liquidity and Capital Resources
The accompanying condensed 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 condensed 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 condensed 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.
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 generally purchase textbooks for the upcoming Fall and Spring semesters,
respectively. As of October 28, 2023, we had $35.3 million of cash on hand, including $20.3 million of restricted cash related to segregated funds for
commission due to Lids for logo merchandise sales as per the F/L Relationship-related agreements.
Our business was significantly negatively impacted by the COVID-19 pandemic during the years ended April 30, 2022 and May 1, 2021, as many schools
adjusted their learning models and on-campus activities. Although most academic institutions have since reopened after the COVID-19 pandemic, the lingering
impacts of the pandemic have resulted in changes in customer behaviors, lower enrollments, and an evolving educational landscape which continued to impact
our financial results during the year ended April 29, 2023. Some institutions are still providing alternatives to traditional in-person instruction, including online
and hybrid learning options and significantly reduced classroom sizes. The impact of COVID-19 store closings, as well as lower earnings during the year ended
April 29, 2023, resulted in the loss of cash flows and increased borrowings that we would not otherwise have expected to incur.
(a)
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We recognized Net Income from Continuing Operations of $24.9 million and $24.2 million for the 13 weeks ended October 28, 2023 and October 29,
2022, respectively, and a Net Loss from Continuing Operations of $(25.1) million and $(26.2) million for the 26 weeks ended October 28, 2023 and October
29, 2022, respectively, and we incurred a Net Loss from Continuing Operations of $(90.1) million, $(61.6) million, and $(133.6) million for the years ended
April 29, 2023, April 30, 2022, and May 1, 2021, respectively. Our Cash Flow (Used In) Provided by Operating Activities from Continuing Operations were
$(47.2) million and $10.1 million for the 26 weeks ended October 28, 2023 and October 29, 2022, respectively, and were $90.5 million, $(16.2) million, and
$27.0 million, for the years ended April 29, 2023, April 30, 2022, and May 1, 2021, respectively. The tightening of our available credit commitments, including
the elimination and repayment of our FILO Facility in fiscal year 2023 of $40.0 million, had a significant impact on our liquidity during fiscal year 2023 and
fiscal year 2024, including our ability to make timely vendor payments and school commission payments.
Our losses and projected cash needs, combined with our current liquidity level, raised substantial doubt about our ability to continue as a going concern as
of the year ended April 29, 2023, which Management subsequently remediated by implementing a plan to improve the Company’s liquidity and successfully
alleviate substantial doubt including (1) raising additional liquidity and (2) taking additional operational restructuring actions.
Debt amendments
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) $32.5 million minus, subject to the conditions set forth in such amendment,
(B) (a) $7.5 million for the period of April 1, 2024 through and including April 30, 2024, (b) $2.5 million 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), and as of the date
of this filing, we have satisfied such requirements. 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).
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 $0.05 million 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).
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 $3.8 million that would become due and payable at the earlier to occur
of (1) 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.
Operational restructuring plans
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 last year, we have achieved
annualized savings of $30 million to
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$35 million from these cost savings initiatives. Additionally, during Fiscal 2024, Management's planned to implement further cost savings measures, including
reduction of gross capital expenditures, amounting to approximately $25 million, of which approximately $14 million has been achieved during the 26 weeks
ended October 28, 2023. Management believes that these plans are within its control and will be focused on implementing as outlined.
During the 13 weeks ended October 28, 2023, Net Income from Continuing Operations increased by $0.7 million compared to the prior year period.
Excluding interest expense and restructuring and other charges Net Income from Continuing Operations improved by $10.5 million during the 13 weeks ended
October 28, 2023 compared to the prior year period. During the 26 weeks ended October 28, 2023, Net Loss from Continuing Operations decreased by $1.1
million compared to the prior year period. Excluding interest expense and restructuring and other charges Net Loss from Continuing Operations decreased by
$19.5 million during the 26 weeks ended October 28, 2023 compared to the prior year period. The improvements in Net Income from Continuing Operations
during the 13 and 26 weeks are primarily due to operational improvements and cost savings initiatives.
Management believes that the expected impact on our liquidity and cash flows resulting from the debt amendments and the operational initiatives outlined
above are sufficient to enable the Company to meet its obligations for at least twelve months from the issuance date of these condensed consolidated financial
statements and to continue to alleviate the conditions that initially raised substantial doubt about the Company's ability to continue as a going concern.
See Part I - Risk Factors - We are dependent upon access to the capital markets, bank credit facilities, and short-term vendor financing for liquidity needs
in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.
Sources and Uses of Cash Flow - Continuing Operations
26 weeks ended
Dollars in thousands October 28, 2023 October 29, 2022
Net cash flows (used in) provided by operating activities from continuing operations $ (47,160) $ 10,073
Net cash flows used in investing activities from continuing operations (8,118) (16,568)
Net cash flows provided by financing activities from continuing operations 41,175 23,727
Net change in cash, cash equivalents, and restricted cash from continuing operations
$ (14,103) $ 17,232
As of October 28, 2023 and October 29, 2022, we had restricted cash of $20.3 million and $15.6 million, respectively, comprised of $19.4 million and
$14.7 million, respectively, in prepaid and other current assets in the condensed 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 $0.9 million for both periods in other noncurrent assets in the
condensed consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.
Cash Flow from Operating Activities 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 with cash inflows collected from schools, including modifying payment terms
in existing and future school contracts. 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 school’s semesters,
as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods.
Cash flows used in operating activities from continuing operations during the 26 weeks ended October 28, 2023 were $(47.2) million compared to cash
flows provided by operating activities of $10.1 million during the 26 weeks ended October 29, 2022. This decrease in cash flows used in operating activities
from continuing operations of $57.3 million was
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primarily due to changes in working capital, including higher accounts receivables of $56.0 million and higher inventory levels of $34.6 million primarily
related to our increased adoption of our BNC First Day equitable and inclusive access sales for Fall term; higher payments for interest expense of $6.7 million;
offset by higher payables of $28.2 million due to delayed payments to vendors for inventory purchases and expenses, which were delayed resulting from lower
borrowing base availability.
Cash Flow from Investing Activities from Continuing Operations
Cash flows used in investing activities from continuing operations during the 26 weeks ended October 28, 2023 were $(8.1) million compared to $(16.6)
million during the 26 weeks ended October 29, 2022. 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 $8.2 million and $16.8
million during the 26 weeks ended October 28, 2023 and October 29, 2022, respectively.
Cash Flow from Financing Activities from Continuing Operations
Cash flows provided by financing activities from continuing operations during the 26 weeks ended October 28, 2023 were $41.2 million compared to
$23.7 million during the 26 weeks ended October 29, 2022. This net change of $17.4 million is primarily due to higher net borrowings of $24.4 million,
partially offset by higher payments for deferred financing costs of $7.7 million.
Financing Arrangements
As of
Maturity Date October 28, 2023 October 29, 2022
Credit Facility December 28, 2024 $ 204,881 $ 222,000
Term Loan April 7, 2025
30,863 30,000
sub-total 235,744 252,000
Less: Deferred financing costs
(1,871) (1,555)
Total debt
$ 233,873 $ 250,445
Balance Sheet classification:
Short-term borrowings $ — $ —
Long-term borrowings
233,873 250,445
Total debt
$ 233,873 $ 250,445
Credit Facility
We have a credit agreement (the “Credit Agreement”), amended from time to time including on 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. We had the option to request an
increase in commitments under the Credit Facility of up to $100.0 million, 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 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.
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 $20.0 million to $380.0 million, (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, on 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 $32.5 million and (vii)
require repayment of the loans under the Credit Agreement upon a Specified Event. For additional information related to
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the 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 requires 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.
During the 52 weeks ended April 29, 2023, we incurred debt issuance costs totaling $4.1 million 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 condensed 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) $32.5 million 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 26 weeks ended October 28, 2023, we incurred debt issuance costs totaling $11.5 million 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 condensed
consolidated balance sheets, and subsequently amortized ratably over the term of the credit agreement.
October 2023 Credit Agreement Amendment
On October 10, 2023, we amended our existing Credit Agreement to amend certain reporting requirements to the administrative agent and lenders under
the Credit Agreement. The amendment introduced a Specified Liquidity Transaction Fee of $3.8 million that would become due and payable at the earlier to
occur of (1) 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
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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 26 weeks ended October 28, 2023, we incurred debt issuance costs totaling $1.4 million related to the October 2023 Credit Agreement
amendment.
As of October 28, 2023, and through the date of this filing, we were in compliance with all debt covenants under the Credit Agreement.
The Credit Facility is secured by substantially all of the inventory, accounts receivable and related assets of the borrowers under the Credit Facility. This is
considered an all asset lien (inclusive of proceeds from tax refunds payable to the Company and a pledge of equity from subsidiaries, exclusive of real estate).
During the 26 weeks ended October 28, 2023, we borrowed $284.7 million and repaid $234.0 million under the Credit Agreement, and had outstanding
borrowings of $204.9 million as of October 28, 2023, comprised entirely of borrowings under the Credit Facility. During the 26 weeks ended October 29, 2022,
we borrowed $318.2 million and repaid $321.9 million under the Credit Agreement, and had outstanding borrowings of $222.0 million as of October 29, 2022,
comprised entirely of borrowings under the Credit Facility. As of October 28, 2023 and October 29, 2022, we have issued $0.5 million and $4.8 million,
respectively, in letters of credit under the Credit Facility.
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 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 $30.0 million (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 26 weeks ended October 28, 2023, we incurred $0.9 million for interest in kind on the Term Loan and repaid $0 under the
Term Loan Credit Agreement, with $30.9 million of outstanding borrowings as of October 28, 2023. During the 26 weeks ended October 29, 2022, we
borrowed $30.0 million and repaid $0 under the Term Loan Credit Agreement, with $30.0 million of outstanding borrowings as of October 29, 2022.
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 $0.4 million related to the March 2023 Term Loan Credit Agreement
amendment. We paid a fee of $0.05 million 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 prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets, and subsequently
amortized ratably over the term of the credit agreement.
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 $0.05 million 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.
During the 26 weeks ended October 28, 2023, we incurred debt issuance costs totaling $0.4 million 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.
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The Term Loans accrue interest at a rate equal to 11.25%, payable quarterly. All interest on the Term Loan prior to the July 29, 2023 was paid in cash.
During the 13 weeks ended October 28, 2023, all interest on the Term Loan was incurred in kind as permitted under the July 2023 Term Loan Amendment. 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
$75.0 million.
Interest Expense
During the 13 weeks ended October 28, 2023 and October 29, 2022, we recognized interest expense of $10.7 million and $4.9 million, respectively, and
during the 26 weeks ended October 28, 2023 and October 29, 2022, we recognized interest expense of $18.9 million and $8.8 million, respectively. Cash
interest paid during the 26 weeks ended October 28, 2023 and October 29, 2022 was $14.0 million and $7.3 million, respectively.
Income Tax Implications on Liquidity
For the fiscal year ended April 30, 2022, we filed an application to change our tax year from January to April under the automatic consent provisions. As a
result of the tax year-end change, there is no longer a long-term tax payable associated with the LIFO reserve in other long-term liabilities.
As of October 28, 2023, we recognized a current income tax receivable for net operating loss carrybacks in prepaid and other current assets on the
condensed consolidated balance sheet. We received refunds of $7.8 million in Fiscal 2022 and a $15.8 million refund in Fiscal 2023. We expect to receive
additional refunds of approximately $10.0 million.
Share Repurchases
During the 13 and 26 weeks ended October 28, 2023, we did not repurchase any of our Common Stock under the stock repurchase program. As of
October 28, 2023, approximately $26.7 million remains available under the stock repurchase program.
During the 13 and 26 weeks ended October 28, 2023, we repurchased 66,852 and 144,750 of our Common Stock, respectively, outside of the stock
repurchase program in connection with employee tax withholding obligations for vested stock awards.
Contractual Obligations
Our projected contractual obligations are consistent with amounts disclosed in Part II - Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.
Off-Balance Sheet Arrangements
As of October 28, 2023, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
Critical Accounting Policies
Our policies regarding the use of estimates and other critical accounting policies are consistent with the disclosures in Part II - Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our Annual Report on Form 10-K
for the fiscal year ended April 29, 2023.
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Disclosure Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995 and information relating to us and our business that are based on the beliefs of our management as well as assumptions made by and information currently
available to our management. When used in this communication, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will,” “forecasts,”
“projections,” and similar expressions, as they relate to us or our management, identify forward-looking statements. Moreover, we operate in a very
competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we
assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed
in this Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Such statements reflect our current views with respect to future events, the outcome of which is subject to certain risks, including, among others:
• the amount of our indebtedness and ability to comply with covenants applicable to current and /or any future debt financing;
• our ability to satisfy future capital and liquidity requirements;
• our ability to access the credit and capital markets at the times and in the amounts needed and on acceptable terms;
• our ability to maintain adequate liquidity levels to support ongoing inventory purchases and related vendor payments in a timely manner;
• our ability to attract and retain employees;
• the pace of equitable access adoption in the marketplace is slower than anticipated and our ability to successfully convert the majority of our institutions
to our BNC First Day equitable and inclusive access course material models or successfully compete with third parties that provide similar equitable
and inclusive access solutions;
• the strategic objectives, successful integration, anticipated synergies, and/or other expected potential benefits of various strategic and restructuring
initiatives, may not be fully realized or may take longer than expected;
• dependency on strategic service provider relationships, such as with VitalSource Technologies, Inc. and the Fanatics Retail Group Fulfillment, LLC, Inc.
(“Fanatics”) and Fanatics Lids College, Inc. D/B/A "Lids" (“Lids”) (collectively referred to herein as the “F/L Relationship”), and the potential for
adverse operational and financial changes to these strategic service provider relationships, may adversely impact our business;
• non-renewal of managed bookstore, physical and/or online store contracts and higher-than-anticipated store closings;
• decisions by colleges and universities to outsource their physical and/or online bookstore operations or change the operation of their bookstores;
• general competitive conditions, including actions our competitors and content providers may take to grow their businesses;
• the risk of changes in price or in formats of course materials by publishers, which could negatively impact revenues and margin;
• changes to purchase or rental terms, payment terms, return policies, the discount or margin on products or other terms with our suppliers;
• product shortages, including decreases in the used textbook inventory supply associated with the implementation of publishers’ digital offerings and
direct to student textbook consignment rental programs;
• work stoppages or increases in labor costs;
• possible increases in shipping rates or interruptions in shipping services;
• a decline in college enrollment or decreased funding available for students;
• decreased consumer demand for our products, low growth or declining sales;
• the general economic environment and consumer spending patterns;
• trends and challenges to our business and in the locations in which we have stores;
®
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• risks associated with operation or performance of MBS Textbook Exchange, LLC’s point-of-sales systems that are sold to college bookstore customers;
• technological changes, including the adoption of artificial intelligence technologies for educational content;
• risks associated with counterfeit and piracy of digital and print materials;
• risks associated with data privacy, information security and intellectual property;
• disruptions to our information technology systems, infrastructure, data, supplier systems, and customer ordering and payment systems due to computer
malware, viruses, hacking and phishing attacks, resulting in harm to our business and results of operations;
• disruption of or interference with third party web service providers and our own proprietary technology;
• risks associated with the impact that public health crises, epidemics, and pandemics, such as the COVID-19 pandemic, have on the overall demand for
BNED products and services, our operations, the operations of our suppliers, service providers, and campus partners, and the effectiveness of our
response to these risks;
• lingering impacts that public health crises may have on the ability of our suppliers to manufacture or source products, particularly from outside of the
United States;
• changes in applicable domestic and international laws, rules or regulations, including, without limitation, U.S. tax reform, changes in tax rates, laws and
regulations, as well as related guidance;
• changes in and enactment of applicable laws, rules or regulations or changes in enforcement practices including, without limitation, with regard to
consumer data privacy rights, which may restrict or prohibit our use of consumer personal information for texts, emails, interest based online
advertising, or similar marketing and sales activities;
• adverse results from litigation, governmental investigations, tax-related proceedings, or audits;
• changes in accounting standards; and
• the other risks and uncertainties detailed in the section titled “Risk Factors” in Part I - Item 1A in our Annual Report on Form 10-K for the fiscal year
ended April 29, 2023.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. We undertake no
obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this
Form 10-Q.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the items discussed in Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our
Annual Report on Form 10-K for the fiscal year ended April 29, 2023.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation (as required under Rules 13a-15(b) and 15d-15(b) under the Exchange Act) was performed under the supervision and with the participation
of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation
of the Company’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
period covered by this report. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will
detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s
disclosure controls and procedures were effective at the reasonable assurance level as of October 28, 2023.
Management has not identified any changes in the Company’s internal control over financial reporting that occurred during the second quarter that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of our business, including
actions with respect to contracts, intellectual property, taxation, employment, benefits, personal injuries and other matters. We record a liability when we
believe that it is both probable that a loss has been incurred and the amount of loss can be reasonably estimated. Based on our current knowledge, we do not
believe that there is a reasonable possibility that the final outcome of any pending or threatened legal proceedings to which we or any of our subsidiaries are a
party, either individually or in the aggregate, will have a material adverse effect on our future financial results. However, legal matters are inherently
unpredictable and subject to significant uncertainties, some of which are beyond our control. As such, there can be no assurance that the final outcome of these
matters will not materially and adversely affect our business, financial condition, results of operations or cash flows.
Item 1A. Risk Factors
There have been no material changes during the 26 weeks ended October 28, 2023 to the risk factors discussed in Part I - Item 1A. Risk Factors in our
Annual Report on Form 10-K for the fiscal year ended April 29, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information as of October 28, 2023 with respect to shares of Common Stock we purchased during the second quarter of
Fiscal 2024:
Period
Total Number of
Shares Purchased
Average Price Paid per
Share (a)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under the Plans or
Programs
August 30, 2023 - August 26, 2023
— $ — — $ 26,669,324
August 27, 2023 - September 30, 2023 — $ — — $ 26,669,324
October 1, 2023 - October 28, 2023 — $ — — $ 26,669,324
—
$ —
—
(a) This amount represents the average price paid per common share. This price includes a per share commission paid for all repurchases.
During the 13 and 26 weeks ended October 28, 2023, we did not repurchase any shares of our Common Stock under the stock repurchase program.
During the 13 and 26 weeks ended October 28, 2023, we repurchased 66,852 and 144,750 shares of our Common Stock, respectively, outside of the stock
repurchase program in connection with employee tax withholding obligations for vested stock awards.
Item 5. Other Information
Securities Trading Plans of Directors and Executive Officers
During the period covered by this Quarterly Report on Form 10-Q, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading
arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits
3.1 Amended and Restated By-Laws of Barnes & Noble Education, Inc., effective as of October 5, 2023, referenced in the Report on Form 8-
K filed with the SEC on October 12, 2023, and incorporated herein by reference.
10.1 Ninth Amendment, dated as of October 10, 2023, among the Company, as the lead borrower, the other borrowers party thereto, the lenders
party thereto and Bank of America, N.A., as administrative agent and collateral agent for the lenders, to the Credit Agreement, dated as of
August 3, 2015.
10.2 Retention Agreement Amendment, dated September 8, 2023 between Michael C. Miller and Barnes & Noble Education, Inc., referenced
in the Report on Form 8-K filed with the SEC on September 14, 2023, and incorporated herein by reference.
10.3 Retention Agreement Amendment, dated September 8, 2023 between Jonathan Shar and Barnes & Noble Education, Inc., referenced in the
Report on Form 8-K filed with the SEC on September 14, 2023, and incorporated herein by reference.
10.4 Performance Incentive Agreement, dated September 14, 2023 between Michael P. Huseby and Barnes & Noble Education, Inc., referenced
in the Report on Form 8-K filed with the SEC on September 14, 2023, and incorporated herein by reference.
31.1 * Certification by the Chief Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 * Certification by the Chief Financial Officer and Principal Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 ** Certification of Chief Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of
1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 ** Certification of Chief Financial Officer and Principal Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of
1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded
within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BARNES & NOBLE EDUCATION, INC.
(Registrant)
By:
/S/ KEVIN WATSON
Kevin Watson
Chief Financial Officer
(principal financial officer)
By:
/S/ SEEMA C. PAUL
Seema C. Paul
Chief Accounting Officer
(principal accounting officer)
December 7, 2023
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Exhibit 10.1
Execution Version
NINTH AMENDMENT TO CREDIT AGREEMENT
This NINTH AMENDMENT TO CREDIT AGREEMENT, dated as of October 10, 2023 (this “Amendment”), is by and
among Bank of America, N.A., in its capacity as administrative agent and collateral agent for the Lenders, pursuant to the Existing
Credit Agreement defined below (in such capacity, the “Administrative Agent”), the Lenders party hereto (which Lenders comprise
Super-Majority Required Lenders under the Existing Credit Agreement as of the date hereof), Barnes & Noble Education, Inc., a
Delaware corporation (the “Lead Borrower”), the other borrowers party hereto (collectively with the Lead Borrower, the
“Borrowers”) and the other parties party hereto as “Guarantors” (collectively with the Borrowers, the “Loan Parties”). References
herein to a Lender shall be deemed to include each such Lender in its capacity as an LC Issuer and/or the Swing Line Lender.
W I T N E S E T H :
WHEREAS, the Administrative Agent, certain financial institutions from time to time party thereto as lenders (collectively,
the “Lenders”) and/or as agents, the Borrowers and the Guarantors are parties to that certain Credit Agreement, dated August 3, 2015
(as amended by that certain First Amendment to Credit Agreement, dated as of February 27, 2017, that certain Second Amendment,
Waiver and Consent to Credit Agreement, dated as of March 1, 2019, that certain Third Amendment and Waiver to Credit Agreement
and First Amendment to Security Agreement, dated as of March 31, 2021, that certain Fourth Amendment to Credit Agreement,
dated as of March 7, 2022, that certain Fifth Amendment to Credit Agreement, dated as of June 7, 2022, that certain Sixth
Amendment to Credit Agreement, dated as of March 8, 2023, that certain Seventh Amendment to Credit Agreement, dated as of May
24, 2023, that certain Eighth Amendment to Credit Agreement, dated as of July 28, 2023, and as further amended, restated, amended
and restated, supplemented or modified prior to the effectiveness of this Amendment, the “Existing Credit Agreement”; capitalized
terms used but not defined herein shall have the meanings set forth in the Existing Credit Agreement, as modified by this
Amendment (the “Amended Credit Agreement”).
WHEREAS, the Borrowers have requested that the Administrative Agent and the Super-Majority Required Lenders agree to
make certain amendments to the Existing Credit Agreement, as more specifically set forth herein.
WHEREAS, the Administrative Agent and the Super-Majority Required Lenders are willing to make certain amendments to
the Existing Credit Agreement, all subject to the terms and conditions set forth herein, as more specifically set forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements and covenants contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Approved Budget. On and after the Ninth Amendment Effective Date, each reference in the Amended Credit Agreement
to the “Approved Budget” shall initially mean and be a reference to the cash flow forecast attached hereto as Annex I and thereafter
shall mean, as of any date of determination, the most recently delivered Approved Budget Update.
2. Amendments to Existing Credit Agreement. Subject to the terms and conditions hereof, including satisfaction of the
conditions set forth in Section 4 of this Amendment, the Existing Credit Agreement is hereby amended as follows:
(a) Section 1.01 (Defined Terms) of the Existing Credit Agreement is hereby amended to add the following defined
terms in the appropriate alphabetical order:
““Cumulative Eight-Week Period” means, as of any date of determination, the eight-week period up to and through the
Saturday of the most recent week then ended.”
““Cumulative Five-Week Period” means, as of any date of determination, the five-week period up to and through the
Saturday of the most recent week then ended.”
““Ninth Amendment” means that certain Ninth Amendment to Credit Agreement, dated as of October 10, 2023, among the
Loan Parties, the Administrative Agent and the Lenders party thereto.”
““University Contract Summary” has the meaning given to such term in the Ninth Amendment.”
(b) Section 1.01 (Defined Terms) of the Existing Credit Agreement is hereby amended to amend and restate the
following defined terms in their entirety:
“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees,
agents, trustees, administrators, managers, advisors and representatives of such Person (including, with respect to the Administrative
Agent, the Administrative Agent Consultant) and of such Person’s Affiliates.
(c) Clause (d) of Section 6.10 (Inspection Rights; Consultants) of the Existing Credit Agreement is hereby amended
to delete the reference to “PKF Clear Thinking, LLC and/or its Affiliates” and replace with “B.Riley Securities and/or its Affiliates”.
(d) Clause (b) of Section 7.16 (Variance Covenant) of the Existing Credit Agreement is hereby amended and
restated to read in its entirety as follows: “[Reserved]; and”.
(e) Clause (c) of Section 7.16 (Variance Covenant) of the Existing Credit Agreement is hereby amended and
restated in its entirety as follows:
“(c) (1) Commencing as of the first full Cumulative Five-Week Period ending on October 7, 2023 (it being understood that
for any historical period not reflected in the Approved Budget delivered on the Ninth Amendment Effective Date, the
variance results with respect to Budgeted Disbursement Amounts, Budgeted Inventory Receipts and Budgeted Net Cash
Flow shall be determined by reference to the immediately preceding Approved Budget) and with respect to each Cumulative
Five-Week Period occurring thereafter, permit (i) Actual Disbursement Amounts for any Cumulative Five-Week Period to
exceed the Budgeted Disbursement Amounts for such Cumulative Five-Week Period, as reflected in the applicable Approved
Budget, by an amount greater than ten percent (10.0%) (it being understood and agreed that for purposes of determining
compliance with the foregoing, payments of amendment fees, consent fees or other similar fees payable pursuant to the Loan
Documents shall be disregarded), (ii) [reserved], (iii) Actual Inventory Receipts for any Cumulative Five-Week Period to be
less than an amount equal to ninety percent (90.0%) of the Budgeted Inventory Receipts for such Cumulative Five-Week
Period, as reflected in the applicable Approved Budget, and (iv) Actual Net Cash Flow for any Cumulative Five-Week Period
(1) if projected to be a positive amount, to be less than an amount equal to ninety percent (90.0%) of the Budgeted Net Cash
Flow for such Cumulative Five-Week Period and (2) if projected to be a negative amount, to be greater than ten percent
(10.0%) of the Budgeted Net Cash Flow for such Cumulative Five-Week Period, each, as reflected in the applicable
Approved Budget, in each case of the foregoing clauses (i) and (iii) solely with respect to BNCB; and
2
(2) commencing as of the first full Cumulative Eight-Week Period ending on October 7, 2023 (it being understood
that for any historical period not reflected in the Approved Budget delivered on the Ninth Amendment Effective Date, the
variance results with respect to Budgeted Cash Receipts shall be determined by reference to the immediately preceding
Approved Budget) and with respect to each Cumulative Eight-Week Period occurring thereafter, permit Actual Cash Receipts
for any Cumulative Eight-Week Period to be less than an amount equal to ninety percent (90.0%) of the Budgeted Cash
Receipts for such Cumulative Eight-Week Period, in each case as reflected in the applicable Approved Budget solely with
respect to BNCB.”
(f) Section 6.19(d) (Teleconferences) of the Existing Credit Agreement is hereby amended and restated in its
entirety as follows:
“(d) At the Administrative Agent’s request, not less than weekly, the Loan Parties shall be available to conduct a telephonic
meeting with the CRO and the Loan Parties’ other advisors in which the respective representatives of the Lead Borrower,
each other Loan Party, the Administrative Agent and their respective advisors and counsel shall be entitled to participate,
whereupon the Lead Borrower shall present, among other things, an update on the Loan Parties’ cash flow, changes in
management and/or organizational structure, business operations, and financial performance and updates regarding (i) the
Contingency Transition Plan and their efforts to obtain a Specified Liquidity Transaction, including parties contacted,
diligence information provided, proposals received and the status of negotiation and documentation of such transaction, and
the Lead Borrower shall promptly provide copies of any such proposals, commitments or other documents to the
Administrative Agent and (ii) the University Contract Summary; provided however, the Loan Parties agree that, on a bi-
weekly basis, the Lenders and their respective advisors and counsel shall be entitled to participate in any such telephonic
meeting.”
(g) Section 6.21 (Independent Board Members and Alternative Transactions Committee) is hereby amended to add
the following new clause (d):
“(d) Any Contingency Transition Plan developed, analyzed or implemented by the Alternative Transactions Committee
shall be in consultation with the Administrative Agent Consultant. At the Administrative Agent’s request, not less than
monthly, the Loan Parties shall cause the Alternative Transactions Committee to be available to discuss the Contingency Plan
with the Administrative Agent Consultant, whereupon the Alternative Transactions Committee shall present, among other
things, updates on the Contingency Transition Plan and their efforts to obtain a Specified Liquidity Transaction.”
3. Post-Closing Covenants. The Loan Parties shall deliver (or shall cause to be delivered) the following documents or
shall complete (or shall cause to be completed) the following tasks, as applicable, in each case no later than the dates specified
below:
(a) On or before November 30, 2023 (or such later date as determined by the Administrative Agent in writing in its
reasonable discretion), the Loan Parties shall (or shall cause Investment Bank to) provide the Administrative Agent with copies of all
contracts (or such lesser contracts mutually agreed to in writing by the Administrative Agent and the Lead Borrower) with any
university or college (each, a “University”) for the operation or provision of bookstore services then in effect to which any Loan
Party is a party, including all amendments and supplements thereto (each, a “University Contract” and collectively, the “University
Contracts”).
(b) On or before December 31, 2023 (or, subject to the proviso appearing at the end of this clause (b), such later
date as determined by the Administrative Agent in writing in
3
its reasonable discretion), the Loan Parties shall (or shall cause Investment Bank to) provide the Administrative Agent with a
completed written summary (in scope, form and substance reasonably acceptable to the Administrative Agent) of the University
Contracts, on a contract-by-contract basis, and, unless otherwise agreed to by the Administrative Agent in its reasonable discretion,
such summary shall include each of the following terms in respect of each University Contract (such summary, the “University
Contract Summary”):
1. Effective and expiration date, including a summary of the renewal terms (if any).
2. A summary of each party’s termination rights (with and without cause and related notice provisions in respect
thereof) and, in the event of any termination, the rights and obligations of each party, including:
a. Repurchase obligations of University (including purchase price and/or transfer pricing for applicable
inventory (including all used, new and rental inventory)).
b. Return to vendor requirements, if any, and other affirmative obligations of the Loan Parties to mitigate
damages to any such University.
c. Restrictions on access rights to bookstore premises and/or use of electronic media.
3. A summary of any restrictions on sales (including in respect of types of sales).
4. A summary of ongoing payment obligations of any University owing to any Loan Party under each University
Contract.
5. A summary of bankruptcy provisions contained in any University Contract.
6. Any other material term requested by the Administrative Agent in its reasonable discretion.
; provided that, if on or prior to December 31, 2023 (or such later date as determined by the Administrative Agent in writing in its
reasonable discretion) the Administrative Agent shall have received a partially completed University Contract Summary covering at
least fifty percent (50%) of the total University Contracts, the deadline for a fully completed University Contract Summary shall
automatically be extended to January 31, 2024.
Notwithstanding anything to the contrary contained in the Amended Credit Agreement, the Loan Parties acknowledge and agree that
the failure to comply with this Section 3 within the times provided herein shall constitute an immediate Event of Default under
Section 8.01(b) of the Amended Credit Agreement.
4. Conditions Precedent. This Amendment shall be effective on the date that each of the following conditions precedent
are satisfied or waived by the Administrative Agent and the Super-Majority Required Lenders (the date of such satisfaction or
waiver, the “Ninth Amendment Effective Date”):
(a) the Administrative Agent shall have received each of the following documents or instruments each of which
shall be originals, facsimiles or other electronic transmission (in the case of facsimiles or other electronic transmission followed
promptly by originals) unless otherwise specified, in form and substance reasonably acceptable to the Administrative Agent:
4
(i) this Amendment, duly executed and delivered by the Loan Parties, the Administrative Agent and each
Super-Majority Required Lender; and
(ii) that certain Ninth Amendment Fee Letter (“Ninth Amendment Fee Letter”), dated as of the date hereof,
duly executed by the Lead Borrower and the Administrative Agent;
(b) the Administrative Agent shall have received the new Approved Budget referenced in Section 1 above, which
shall be in form and substance acceptable to the Administrative Agent in its sole discretion;
(c) the Administrative Agent shall have received the forecasts required to be delivered under Section 6.01(d) of the
Amended Credit Agreement for the Fiscal Years ending April 27, 2024 and April 26, 2025;
(d) the Lead Borrower shall have paid all invoiced and accrued fees and reasonable and documented expenses of the
Administrative Agent in respect of this Amendment (including but not limited to (i) the reasonable and documented fees and
expenses of counsel to the Administrative Agent in respect of this Amendment and (ii) the fees described in the Ninth Amendment
Fee Letter;
(e) no order, injunction or judgment has been entered into prohibiting the closing of the Amendment or any of the
transactions contemplated to occur pursuant hereto;
(f) no Default or Event of Default shall have occurred or be continuing; and
(g) all representations and warranties contained in this Amendment (including those made in Section 5 hereof) are
true and correct on and as of the Ninth Amendment Effective Date.
For purposes of determining compliance with the conditions specified in this Section 4, each Lender that has signed this Amendment
shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required
hereunder to be consented to or approved by or acceptable or satisfactory to such Lender unless the Administrative Agent shall have
received written notice from such Lender prior to the proposed Ninth Amendment Effective Date specifying its objection thereto.
5. Representations and Warranties. In order to induce the Administrative Agent and the Lenders to enter into this
Amendment, each Borrower and each other Loan Party hereby represents to the Administrative Agent and the Lenders as of the date
hereof as follows:
(a) Such Loan Party is duly authorized to execute and deliver this Amendment and is duly authorized to perform its
obligations under the Amended Credit Agreement and the other Loan Documents to which it is a party.
(b) The execution and delivery of this Amendment by such Loan Party does not and will not (i) contravene the
terms of the Organization Documents of such Loan Party; (ii) conflict with or result in any breach or contravention of, or the
creation of any Lien under (x) any Contractual Obligation to which such Loan Party is a party (other than Liens created under the
Loan Documents in favor of the Administrative Agent for the ratable benefit of the Secured Parties (as defined in the Security
Agreement) or (y) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Loan
Party or its property is subject; or (iii) violate any applicable Law.
5
(c) This Amendment is a legal, valid, and binding obligation of such Loan Party, enforceable against such Loan
Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar Laws relating to or affecting the rights and remedies of creditors or by general equitable principles.
(d) As of the Ninth Amendment Effective Date and after giving effect to this Amendment, the representations and
warranties of the Lead Borrower and each other Loan Party contained in Article V of the Amended Credit Agreement or any other
Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, (i)
which are qualified by materiality shall be true and correct, and (ii) which are not qualified by materiality shall be true and correct in
all material respects, in each case, on and as of the Ninth Amendment Effective Date, except to the extent that such representations
and warranties specifically refer to an earlier date, in which case they shall be true and correct, or true and correct in all material
respects, as the case may be, as of such earlier date, and except that the representations and warranties contained in subsections (a)
and (b) of Section 5.05 of the Amended Credit Agreement shall be deemed to refer to the most recent consolidated statements
furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Amended Credit Agreement.
(e) As of the Ninth Amendment Effective Date and after giving effect to this Amendment, each Loan Party has
complied with and is in compliance with all of the covenants set forth in the Amended Credit Agreement, including those set forth in
Article VI and Article VII of the Amended Credit Agreement.
(f) As of the Ninth Amendment Effective Date, both immediately before and after giving effect to this Amendment,
no Default or Event of Default has occurred and is continuing or would result herefrom.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK (EXCEPT FOR THE CONFLICT OF LAWS RULES THEREOF, BUT
INCLUDING GENERAL OBLIGATIONS LAW SECTIONS 5-1401 AND 5-1402).
7. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their
respective successors and assigns.
8. Ratification and Reaffirmation.
(a) Each Loan Party hereby consents to the amendments and modifications to the Existing Credit Agreement
effected hereby, and confirms and agrees that, notwithstanding the effectiveness of this Amendment, each Loan Document to which
such Loan Party is a party is, and the obligations of such Loan Party contained in the Existing Credit Agreement, as amended and
modified hereby, or in any other Loan Documents to which it is a party are, and shall continue to be, in full force and effect and are
hereby ratified and confirmed in all respects, in each case as amended and modified by this Amendment. Without limiting the
generality of the foregoing, the execution of this Amendment shall not constitute a novation.
(b) Each Loan Party hereby agrees and confirms that the Secured Obligations continue to be secured and guaranteed
under and in accordance with the existing Loan Documents to which such Loan Party is a party, together with all other instruments
and documents executed and delivered by such Loan Party as security for the Secured Obligations, and each such Loan Party hereby
grants and re-grants to the Administrative Agent, for the ratable benefit of the Credit Parties, a security interest in all of such Loan
Party’s right, title and interest in and to the Collateral (as defined in the Security Agreement), whether now owned or hereafter
6
acquired by such Loan Party, wherever located, and whether now or hereafter existing or arising, as security for the payment or
performance, as the case may be, in full of the Secured Obligations.
(c) Each Guarantor agrees that the Facility Guaranty (as defined in the Existing Credit Agreement) remains in full
force and effect, and each Guarantor reaffirms the continued validity of, and ratifies, such Facility Guaranty, and agrees and confirms
that its guarantee of the “Guaranteed Obligations” (as defined in the Existing Credit Agreement, and as amended by this
Amendment) remains in full force and effect.
(d) To the extent such Loan Party is named as a debtor in any UCC financing statement in favor of the
Administrative Agent (collectively, the “Existing UCC Financing Statements”), such Loan Party hereby ratifies its prior
authorization for the Administrative Agent to have filed such Existing UCC Financing Statement naming such Loan Party as debtor.
9. Acknowledgement.
(a) The Loan Parties hereby reaffirm, acknowledge and agree that the Administrative Agent is entitled to engage and
retain (directly or indirectly) one or more consultants or advisors from time to time in connection with the performance of its duties
and obligations under the Loan Documents (including, at any time on or following the Ninth Amendment Effective Date), and the
Loan Parties shall and shall cause its Subsidiaries to cooperate with such advisors and consultants in performing the scope of their
respectful engagements.
(b) Without limiting the Administrative Agent’s rights to implement other Reserves in accordance with the Credit
Agreement, the Loan Parties specifically acknowledge and agree that the Administrative Agent may from time to time, in its
Permitted Discretion, implement Availability Reserves to reflect claims and liabilities (including costs and expenses) that may need
to be satisfied in connection with the realization upon the Collateral (including all such claims and liabilities (including costs and
expenses) that may be incurred in connection with any insolvency or restructuring proceeding).
(c) Each of the Administrative Agent and Lenders hereby acknowledges receipt of the 2L Amendment, and hereby
consents and agrees to the amendments and modifications of the Subordinated Term Loan Agreement made pursuant thereto.
10. Reference to and Effect on the Credit Agreement and the Loan Documents.
(a) On and after the Ninth Amendment Effective Date, each reference in the Existing Credit Agreement to “this
Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the Notes and
each of the other Loan Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Amended Credit Agreement.
(b) The Existing Credit Agreement and each of the other Loan Documents, as specifically amended and modified by
this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver or novation of any right, power or remedy of any Lender, any L/C Issuer, any Swing Line Lender, the Collateral
Agent or the Administrative Agent under any of the Loan Documents, nor constitute a waiver or novation of any provision of any of
the Loan Documents.
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(d) The Administrative Agent, the Lenders and the Loan Parties agree that this Amendment shall be a Loan
Document.
11. Waiver, Modification, Etc. No provision or term of this Amendment may be modified, altered, waived, discharged or
terminated orally, but only by an instrument in writing executed by the party against whom such modification, alteration, waiver,
discharge or termination is sought to be enforced.
12. Headings. The headings listed herein are for convenience only and do not constitute matters to be construed in
interpreting this Amendment.
13. Counterparts. This Amendment may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract, and
shall become effective as to each party hereto. Delivery of an executed counterpart of a signature page of this Amendment by
facsimile or other electronic imaging means (e.g., via electronic mail in .pdf form) shall be effective as delivery of a manually
executed counterpart of this Amendment. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or
relating to this Amendment and/or any document to be signed in connection with this Amendment and the transactions contemplated
hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall
be of the same legal effect, validity and enforceability as a manually executed signature, physical delivery thereof or the use of a
paper-based recordkeeping system, as the case may be.
14. Further Assurances. Each of the parties to this Amendment agrees that at any time and from time to time upon the
written request of any other party, it will execute and deliver such further documents and do such further acts and things as such
other party may reasonably request in order to effect the purposes of this Amendment.
15. Release. In consideration of the agreements of the Administrative Agent and the Lenders contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Loan Party, on behalf of itself
and its successors, assigns, and other legal representatives (each Loan Party and all such other Persons being hereinafter referred to
collectively as the “Releasors” and individually as a “Releasor”), hereby absolutely, unconditionally and irrevocably releases,
remises and forever discharges the Administrative Agent and the Lenders, and their successors and assigns, and their present and
former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, consultants, advisors, employees,
agents and other representatives (the Administrative Agent and each other Lender and all such other Persons being hereinafter
referred to collectively as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action,
suits, controversies, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and
liabilities whatsoever (individually, a “Claim” and collectively, “Claims”) of every name and nature, known or unknown, suspected
or unsuspected, both at law and in equity, which any Releasor may now own, hold, have or claim to have against the Releasees or
any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the
day and date of this Amendment, in any way related to or in connection with the Existing Credit Agreement, Amended Credit
Agreement or any of the other Loan Documents or transactions thereunder or related thereto. Each Loan Party understands,
acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis
for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the
provisions of such release. Each Loan Party agrees that no fact, event, circumstance, evidence or transaction which could now be
asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release
set forth above.
8
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
9
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their
authorized officers as of the day and year first above written.
BANK OF AMERICA, N.A., as Administrative Agent
By: /s/ L. Daniel Menendez
Name: L. Daniel Menendez
Title: Vice President
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
BANK OF AMERICA, N.A., as a Revolving Lender and as the Swing Line Lender
By: /s/ L. Daniel Menendez
Name: L. Daniel Menendez
Title: Vice President
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
JPMORGAN CHASE BANK, N.A., as a Revolving Lender
By: /s/ Hai Nguyen
Name: Hai Nguyen
Title: Authorized Officer
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Revolving Lender
By: /s/ Katelyn Murray
Name: Katelyn Murray
Title: Authorized Signatory
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
TRUIST BANK, as successor by merger to SUNTRUST BANK, as a Revolving
Lender
By: /s/ Mark Bohntinsky
Name: Mark Bohntinsky
Title: Managing Director
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
CITIZENS BANK, N.A., as a Revolving Lender
By: /s/ Monirah J. Masud
Name: Monirah J. Masud
Title: Senior Vice President
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
REGIONS BANK, as a Revolving Lender
By: /s/ Bruce Kasper
Name: Bruce Kasper
Title: Managing Director
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
CAPITAL ONE, NATIONAL ASSOCIATION,
as successor to CAPITAL ONE BUSINESS CREDIT CORP.,
as a Revolving Lender
By: /s/Robert Johnson
Name: Robert Johnson
Title: Duly Authorized Signatory
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
PNC BANK, NATIONAL ASSOCIATION,
as a Revolving Lender
By: /s/ Paul L. Starman
Name: Paul L. Starman
Title: Vice President
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
HSBC BANK USA, NATIONAL ASSOCIATION,
as a Revolving Lender
By: /s/ Stephen Santini
Name: Stephen Santini
Title: Vice President
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
LEAD BORROWER:
BARNES & NOBLE EDUCATION, INC., a Delaware corporation
By: /s/ Michael P. Huseby
Name: Michael P. Huseby
Title: Chief Executive Officer
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
BORROWERS:
B&N EDUCATION, LLC, a Delaware limited liability company
BARNES & NOBLE COLLEGE BOOKSELLERS, LLC, a Delaware limited
liability company
BNED DIGITAL HOLDINGS, LLC, a Delaware limited liability company
BNED LOUDCLOUD, LLC, a Delaware limited liability company
BNED MBS HOLDINGS, LLC, a Delaware limited liability company (f/k/a Morocco
Holdings, LLC)
MBS AUTOMATION LLC, a Delaware limited liability company
MBS DIRECT, LLC, a Delaware limited liability company
MBS INTERNET, LLC, a Delaware limited liability company
MBS SERVICE COMPANY LLC, a Delaware limited liability company
MBS TEXTBOOK EXCHANGE, LLC, a Delaware limited liability company
TEXTBOOKCENTER LLC, a Delaware limited liability company
TXTB.COM, LLC, a Delaware limited liability company
By: /s/ Michael P. Huseby
Name: Michael P. Huseby
Title: Chief Executive Officer
Barnes & Noble Education, Inc.
Ninth Amendment to Credit Agreement
Signature Page
ANNEX I
Approved Budget
[On file with the Administrative Agent]
Exhibit 31.1
CERTIFICATION BY THE
CHIEF EXECUTIVE OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael P. Huseby, certify that:
1. I have reviewed this report on Form 10-Q for the quarterly period ended October 28, 2023 of Barnes & Noble Education, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: December 7, 2023
By:
/s/ Michael P. Huseby
Michael P. Huseby
Chief Executive Officer
Barnes & Noble Education, Inc.
Exhibit 31.2
CERTIFICATION BY THE
CHIEF FINANCIAL OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin Watson, certify that:
1. I have reviewed this report on Form 10-Q for the quarterly period ended October 28, 2023 of Barnes & Noble Education, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: December 7, 2023
By:
/s/ Kevin Watson
Kevin Watson
Chief Financial Officer
Barnes & Noble Education, Inc.
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Barnes & Noble Education, Inc. (the “Company”) on Form 10-Q for the period ended October 28, 2023, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael P. Huseby, Chief Executive Officer of the Company, certify, to
the best of my knowledge, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Michael P. Huseby
Michael P. Huseby
Chief Executive Officer
Barnes & Noble Education, Inc.
December 7, 2023
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Barnes & Noble Education, Inc. (the “Company”) on Form 10-Q for the period ended October 28, 2023, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin Watson, Chief Financial Officer of the Company, certify, to the
best of my knowledge, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Kevin Watson
Kevin Watson
Chief Financial Officer
Barnes & Noble Education, Inc.
December 7, 2023
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
