UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
| x | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 27, 20182024
OR
| | | | | |
| ¨ | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission File Number: 1-37499
BARNES & NOBLE EDUCATION, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | | | | | | | | | | | | | |
| Delaware | | 46-0599018 |
| | |
Delaware | | 46-0599018 |
(State or Other Jurisdiction of
Incorporation or Organization)
| | (I.R.S. Employer
Identification No.)
|
| | | | |
| 120 Mountain View Blvd., | Basking Ridge, NJ | NJ | | 07920 |
| (Address of Principal Executive Offices) | | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code): (908) 991-2665
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of Class | Trading Symbol | Name of Exchange on which registered |
| Common Stock, $0.01 par value per share | BNED | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | | | | | | |
| | | | | |
| Large accelerated filer | | ¨ | ¨ | Accelerated filer | | x |
| | | | | |
| Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | | ¨ |
| | | | | |
| | | Emerging Growth Company | | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of February 16, 2018, 46,914,46623, 2024, 53,156,369 shares of Common Stock, par value $0.01 per share, were outstanding.
EXPLANATORY NOTE
On August 3, 2017, we acquired Student Brands, LLC ("Student Brands"), a leading direct-to-student subscription-based writing services business. The condensed consolidated financial statements for the 13 and 39 weeks ended January 27, 2018 include the financial results of Student Brands in the BNC segment from the date of acquisition, August 3, 2017, and the condensed consolidated financial statements for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of Student Brands.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Fiscal Quarter Ended January 27, 20182024
Index to Form 10-Q
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)
|
| | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| | January 27,
2018 | | January 28,
2017 | | January 27,
2018 | | January 28,
2017 |
| Sales: | | | | | | | |
| Product sales and other | $ | 540,903 |
| | $ | 457,147 |
| | $ | 1,693,230 |
| | $ | 1,372,810 |
|
| Rental income | 62,488 |
| | 64,477 |
| | 152,733 |
| | 158,722 |
|
| Total sales | 603,391 |
| | 521,624 |
| | 1,845,963 |
| | 1,531,532 |
|
| Cost of sales: | | | | | | | |
| Product and other cost of sales | 419,641 |
| | 366,190 |
| | 1,326,221 |
| | 1,098,682 |
|
| Rental cost of sales | 37,215 |
| | 39,509 |
| | 91,936 |
| | 97,998 |
|
| Total cost of sales | 456,856 |
| | 405,699 |
| | 1,418,157 |
| | 1,196,680 |
|
| Gross profit | 146,535 |
| | 115,925 |
| | 427,806 |
| | 334,852 |
|
| Selling and administrative expenses | 111,974 |
| | 97,111 |
| | 326,532 |
| | 282,171 |
|
| Depreciation and amortization expense | 17,007 |
| | 13,149 |
| | 48,728 |
| | 39,057 |
|
| Impairment loss (non-cash) | 313,130 |
| | — |
| | 313,130 |
| | — |
|
| Restructuring and other charges | — |
| | — |
| | 5,429 |
| | 1,790 |
|
| Transaction costs | 49 |
| | 467 |
| | 1,895 |
| | 2,638 |
|
| Operating (loss) income | (295,625 | ) | | 5,198 |
| | (267,908 | ) | | 9,196 |
|
| Interest expense, net | 2,954 |
| | 679 |
| | 7,828 |
| | 1,975 |
|
| (Loss) income before income taxes | (298,579 | ) | | 4,519 |
| | (275,736 | ) | | 7,221 |
|
| Income tax (benefit) expense | (15,344 | ) | | 758 |
| | (6,113 | ) | | 2,087 |
|
| Net (loss) income | $ | (283,235 | ) | | $ | 3,761 |
| | $ | (269,623 | ) | | $ | 5,134 |
|
| | | | | | | | |
| (Loss) Earnings per share of common stock: | | | | | | | |
| Basic | $ | (6.04 | ) | | $ | 0.08 |
| | $ | (5.77 | ) | | $ | 0.11 |
|
| Diluted | $ | (6.04 | ) | | $ | 0.08 |
| | $ | (5.77 | ) | | $ | 0.11 |
|
| Weighted average shares of common stock outstanding: | | | | | | | |
| Basic | 46,914 |
| | 46,276 |
| | 46,712 |
| | 46,265 |
|
| Diluted | 46,914 |
| | 46,844 |
| | 46,712 |
| | 46,716 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 39 weeks ended |
| January 27,
2024 | | January 28,
2023 | | January 27,
2024 | | January 28,
2023 |
| Sales: | | | | | | | |
| Product sales and other | $ | 415,375 | | | $ | 393,745 | | | $ | 1,237,723 | | | $ | 1,204,806 | |
| Rental income | 41,298 | | | 44,309 | | | 93,490 | | | 96,555 | |
| Total sales | 456,673 | | | 438,054 | | | 1,331,213 | | | 1,301,361 | |
| Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | |
| Product and other cost of sales | 332,728 | | | 317,833 | | | 991,695 | | | 957,788 | |
| Rental cost of sales | 23,909 | | | 23,210 | | | 52,606 | | | 52,416 | |
| Total cost of sales | 356,637 | | | 341,043 | | | 1,044,301 | | | 1,010,204 | |
| Gross profit | 100,036 | | | 97,011 | | | 286,912 | | | 291,157 | |
| Selling and administrative expenses | 79,756 | | | 91,841 | | | 243,193 | | | 281,136 | |
| Depreciation and amortization expense | 10,148 | | | 10,112 | | | 30,576 | | | 31,264 | |
| Impairment loss (non-cash) | 5,798 | | | 6,008 | | | 5,798 | | | 6,008 | |
| Restructuring and other charges | 3,413 | | | 4,127 | | | 12,320 | | | 4,762 | |
| Operating income (loss) | 921 | | | (15,077) | | | (4,975) | | | (32,013) | |
| Interest expense, net | 10,620 | | | 6,918 | | | 29,538 | | | 15,672 | |
| Loss from continuing operations before income taxes | (9,699) | | | (21,995) | | | (34,513) | | | (47,685) | |
| Income tax expense | 229 | | | 139 | | | 532 | | | 603 | |
| Loss from continuing operations | $ | (9,928) | | | $ | (22,134) | | | $ | (35,045) | | | $ | (48,288) | |
| Income (loss) from discontinued operations, net of tax of $0, $128, $20, and $297, respectively | $ | 289 | | | $ | (2,915) | | | $ | (802) | | | $ | (7,324) | |
| Net loss | $ | (9,639) | | | $ | (25,049) | | | $ | (35,847) | | | $ | (55,612) | |
| | | | | | | |
| Loss per share of common stock: | | | | | | | |
| Basic and Diluted: | | | | | | | |
| Continuing operations | $ | (0.19) | | | $ | (0.42) | | | $ | (0.66) | | | $ | (0.92) | |
| Discontinued operations | $ | 0.01 | | | $ | (0.06) | | | $ | (0.02) | | | $ | (0.14) | |
| Total Basic and Diluted Earnings per share | $ | (0.18) | | | $ | (0.48) | | | $ | (0.68) | | | $ | (1.06) | |
| Weighted average common shares outstanding - Basic and Diluted | 53,153 | | | 52,602 | | | 52,862 | | | 52,404 | |
| | | | | | | |
See accompanying notes to condensed consolidated financial statements.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
| | | | January 27,
2018 | | January 28,
2017 | | April 29,
2017 |
| January 27,
2024 | | | January 27,
2024 | | January 28,
2023 | | April 29,
2023 |
| | (unaudited) | | (unaudited) | | (audited) | | (unaudited) | | (unaudited) | | (audited) |
| ASSETS | | | | | |
| Current assets: | | | | | |
| Current assets: | |
| Current assets: | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Cash and cash equivalents | $ | 22,373 |
| | $ | 132,061 |
| | $ | 19,003 |
|
| Receivables, net | 243,434 |
| | 178,825 |
| | 86,040 |
|
| Merchandise inventories, net | 614,499 |
| | 494,032 |
| | 434,064 |
|
| Textbook rental inventories | 61,427 |
| | 67,372 |
| | 52,826 |
|
| Prepaid expenses and other current assets | 12,274 |
| | 8,134 |
| | 10,698 |
|
| Assets held for sale, current | |
| Total current assets | 954,007 |
| | 880,424 |
| | 602,631 |
|
| Property and equipment, net | 110,987 |
| | 107,272 |
| | 116,613 |
|
| Operating lease right-of-use assets | |
| Intangible assets, net | 224,314 |
| | 191,628 |
| | 209,885 |
|
| Goodwill | 49,282 |
| | 281,346 |
| | 329,467 |
|
| Deferred tax assets, net | |
| Other noncurrent assets | 41,990 |
| | 39,233 |
| | 41,236 |
|
| Total assets | $ | 1,380,580 |
| | $ | 1,499,903 |
| | $ | 1,299,832 |
|
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | |
| Current liabilities: | | | | | |
| Current liabilities: | |
| Current liabilities: | |
| Accounts payable | |
| Accounts payable | |
| Accounts payable | $ | 488,954 |
| | $ | 480,378 |
| | $ | 192,742 |
|
| Accrued liabilities | 252,202 |
| | 207,731 |
| | 120,478 |
|
| Current operating lease liabilities | |
| Short-term borrowings | — |
| | — |
| | 100,000 |
|
| Liabilities held for sale | |
| Total current liabilities | 741,156 |
| | 688,109 |
| | 413,220 |
|
| Long-term deferred taxes, net | 4,278 |
| | 22,709 |
| | 16,871 |
|
| Long-term operating lease liabilities | |
| Other long-term liabilities | 73,468 |
| | 76,196 |
| | 96,433 |
|
| Long-term borrowings | 113,000 |
| | — |
| | 59,600 |
|
| Total liabilities | 931,902 |
| | 787,014 |
| | 586,124 |
|
| Commitments and contingencies | — |
| | — |
| | — |
|
| Stockholders' equity: | | | | | |
| Preferred stock, $0.01 par value; authorized, 5,000 shares; issued and outstanding, none | — |
| | — |
| | — |
|
| Common stock, $0.01 par value; authorized, 200,000 shares; issued, 50,028, 48,972 and 49,372 shares, respectively; outstanding, 46,914, 46,276 and 46,517 shares, respectively | 500 |
| | 490 |
| | 494 |
|
| | Preferred stock, $0.01 par value; authorized, 5,000 shares; 0 shares issued and 0 shares outstanding | |
| | Preferred stock, $0.01 par value; authorized, 5,000 shares; 0 shares issued and 0 shares outstanding | |
| | 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, 55,840, 55,140 and 55,140 shares, respectively; outstanding, 53,156, 52,604 and 52,604 shares, respectively | |
| | Additional paid-in capital | 715,088 |
| | 706,736 |
| | 708,871 |
|
| (Accumulated deficit) Retained earnings | (237,260 | ) | | 32,136 |
| | 32,363 |
|
| Additional paid-in capital | |
| Additional paid-in capital | |
| Accumulated deficit | |
| Treasury stock, at cost | (29,650 | ) | | (26,473 | ) | | (28,020 | ) |
| Total stockholders' equity | 448,678 |
| | 712,889 |
| | 713,708 |
|
| Total liabilities and stockholders' equity | $ | 1,380,580 |
| | $ | 1,499,903 |
| | $ | 1,299,832 |
|
See accompanying notes to condensed consolidated financial statements.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
| | | | | | | | | | | |
| 39 weeks ended |
| January 27,
2024 | | January 28,
2023 |
| Cash flows from operating activities: | | | |
| Net loss | $ | (35,847) | | | $ | (55,612) | |
| Less: Loss from discontinued operations, net of tax | (802) | | | (7,324) | |
| Loss from continuing operations | (35,045) | | | (48,288) | |
| Adjustments to reconcile net loss from continuing operations to net cash flows from operating activities from continuing operations: | | | |
| Depreciation and amortization expense | 30,576 | | | 31,264 | |
| Content amortization expense | — | | | 26 | |
| Amortization of deferred financing costs | 8,380 | | | 2,058 | |
| Impairment loss (non-cash) | 5,798 | | | 6,008 | |
| | | |
| Deferred taxes | 171 | | | 171 | |
| Stock-based compensation expense | 2,568 | | | 4,275 | |
| Non-cash interest expense (paid-in-kind) | 1,750 | | | — | |
| Changes in operating lease right-of-use assets and liabilities | 19,553 | | | 13,196 | |
| Changes in other long-term assets and liabilities, net | (2,961) | | | 396 | |
| Changes in other operating assets and liabilities, net | | | |
| Receivables, net | (222,614) | | | (140,922) | |
| Merchandise inventories | (18,565) | | | (115,070) | |
| Textbook rental inventories | (14,172) | | | (5,856) | |
| Prepaid expenses and other current assets | 2,436 | | | 14,637 | |
| Accounts payable and accrued liabilities | 138,904 | | | 216,857 | |
| Changes in other operating assets and liabilities, net | (114,011) | | | (30,354) | |
| Net cash flows used in operating activities from continuing operations | (83,221) | | | (21,248) | |
| Net cash flows used in operating activities from discontinued operations | (3,650) | | | (1,349) | |
| Net cash flow used in operating activities | $ | (86,871) | | | $ | (22,597) | |
| Cash flows from investing activities: | | | |
| Purchases of property and equipment | $ | (11,459) | | | $ | (21,700) | |
| Net change in other noncurrent assets | 78 | | | 572 | |
| Net cash flows used in investing activities from continuing operations | (11,381) | | | (21,128) | |
| Net cash flows provided by (used in) investing activities from discontinued operations | 21,395 | | | (5,198) | |
| Net cash flow provided by (used in) investing activities | $ | 10,014 | | | $ | (26,326) | |
| Cash flows from financing activities: | | | |
| Proceeds from borrowings | $ | 454,459 | | | $ | 512,000 | |
| Repayments of borrowings | (384,545) | | | (452,100) | |
| Payment of deferred financing costs | (9,845) | | | (2,614) | |
| Purchase of treasury shares | (176) | | | (864) | |
| | | |
| Net cash flows provided by financing activities from continuing operations | 59,893 | | | 56,422 | |
| Net cash flows provided by financing activities from discontinued operations | — | | | — | |
| Net cash flows provided by financing activities | $ | 59,893 | | | $ | 56,422 | |
| | | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | (16,964) | | | 7,499 | |
| Cash, cash equivalents and restricted cash at beginning of period | 31,988 | | | 21,036 | |
|
| | | | | | | |
| | 39 weeks ended |
| | January 27,
2018 | | January 28,
2017 |
| Cash flows from operating activities: | | | |
| Net (loss) income | $ | (269,623 | ) | | $ | 5,134 |
|
| Adjustments to reconcile net (loss) income to net cash flows from operating activities: | | | |
| Depreciation and amortization expense | 48,728 |
| | 39,057 |
|
| Amortization of deferred financing costs | 1,127 |
| | 488 |
|
| Impairment loss (non-cash) | 313,130 |
| | — |
|
| Deferred taxes | (12,594 | ) | | (7,156 | ) |
| Stock-based compensation expense | 6,223 |
| | 7,227 |
|
| Change in other long-term liabilities | (23,252 | ) | | 815 |
|
| Changes in other operating assets and liabilities, net | 77,701 |
| | 99,437 |
|
| Net cash flows provided by operating activities | 141,440 |
| | 145,002 |
|
| Cash flows from investing activities: | | | |
| Purchases of property and equipment | (30,101 | ) | | (26,488 | ) |
| Acquisition of business, net of cash acquired | (58,259 | ) | | (917 | ) |
| Net increase in other noncurrent assets | (1,479 | ) | | (6,246 | ) |
| Net cash flows used in investing activities | (89,839 | ) | | (33,651 | ) |
| Cash flows from financing activities: | | | |
| Proceeds from borrowings under Credit Agreement | 481,600 |
| | 116,100 |
|
| Repayments of borrowings under Credit Agreement | (528,200 | ) | | (116,100 | ) |
| Purchase of treasury shares | (1,630 | ) | | (7,858 | ) |
| Net cash flows used in financing activities | (48,230 | ) | | (7,858 | ) |
| Net increase in cash, cash equivalents and restricted cash | 3,371 |
| | 103,493 |
|
| Cash, cash equivalents and restricted cash at beginning of period | 21,697 |
| | 30,866 |
|
| Cash, cash equivalents and restricted cash at end of period | $ | 25,068 |
| | $ | 134,359 |
|
| Changes in other operating assets and liabilities, net: | | | |
| Receivables, net | $ | (157,043 | ) | | $ | (127,369 | ) |
| Merchandise inventories | (180,434 | ) | | (181,285 | ) |
| Textbook rental inventories | (8,601 | ) | | (19,612 | ) |
| Prepaid expenses and other current assets | (1,079 | ) | | (1,583 | ) |
| Accounts payable and accrued liabilities | 424,858 |
| | 429,286 |
|
| Changes in other operating assets and liabilities, net | $ | 77,701 |
| | $ | 99,437 |
|
| | | | | | | | | | | |
| Cash, cash equivalents and restricted cash at end of period | 15,024 | | | 28,535 | |
| Less: Cash, cash equivalents and restricted cash of discontinued operations at end of period | — | | | (802) | |
| Cash, cash equivalents, and restricted cash of continuing operations at end of period | $ | 15,024 | | | $ | 27,733 | |
| | | |
See accompanying notes to condensed consolidated financial statements.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(In thousands)
(unaudited)
| | | | | | | | | | | | | | | | | |
| | | | | Additional | | | | | | | | |
| | | Common Stock | | Paid-In | | Retained | | Treasury Stock | | Total |
| | | Shares | | Amount | | Capital | | Earnings | | Shares | | Amount | | Equity |
| Balance at April 30, 2016 | | 48,645 |
| | $ | 486 |
| | $ | 699,513 |
| | $ | 27,002 |
| | 1,890 |
| | $ | (18,615 | ) | | $ | 708,386 |
|
| Stock-based compensation expense | | | | | | 7,227 |
| | | | | | | | 7,227 |
|
| Vested equity awards | | 327 |
| | 4 |
| | (4 | ) | | | | | | | | — |
|
| Common stock repurchased | | | | | | | | | | 689 |
| | (6,718 | ) | | (6,718 | ) |
| Shares repurchased for tax withholdings for vested stock awards | | | | | | | | | | 117 |
| | (1,140 | ) | | (1,140 | ) |
| Net income | | | | | |
| | 5,134 |
| | | | | | 5,134 |
|
| Balance at January 28, 2017 | | 48,972 |
| | $ | 490 |
| | $ | 706,736 |
| | $ | 32,136 |
| | 2,696 |
| | $ | (26,473 | ) | | $ | 712,889 |
|
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | Additional | | | | | | | | |
| | | Common Stock | | Paid-In | | Accumulated | | Treasury Stock | | Total |
| | | Shares | | Amount | | Capital | | Deficit | | Shares | | Amount | | Equity |
| Balance at April 29, 2017 | | 49,372 |
| | $ | 494 |
| | $ | 708,871 |
| | $ | 32,363 |
| | 2,855 |
| | $ | (28,020 | ) | | $ | 713,708 |
|
| | | | Additional | |
| | Common Stock | |
| | Common Stock | |
| | Common Stock | | | Paid-In | | Accumulated | | Treasury Stock | | Total |
| | Shares | | | | Shares | | Amount | | Capital | | Deficit | | Shares | | Amount | | Equity |
| Balance at April 30, 2022 | |
| Stock-based compensation expense | | | | | | 6,223 |
| | | | | | | | 6,223 |
|
| Vested equity awards | | 656 |
| | 6 |
| | (6 | ) | | | | | | | | — |
|
| Shares repurchased for tax withholdings for vested stock awards | | | | | | | | | | 259 |
| | (1,630 | ) | | (1,630 | ) |
| Net loss | | | | | | | | (269,623 | ) | | | | | | (269,623 | ) |
| Balance at January 27, 2018 | | 50,028 |
| | $ | 500 |
| | $ | 715,088 |
| | $ | (237,260 | ) | | 3,114 |
| | $ | (29,650 | ) | | $ | 448,678 |
|
| Balance July 30, 2022 | |
| Stock-based compensation expense | |
| Vested equity awards | |
| Shares repurchased for tax withholdings for vested stock awards | |
| | | | | | | | | | | | | | | |
| Net income | |
| Net income | |
| Net income | |
| Balance October 29, 2022 | |
| Stock-based compensation expense | |
| Vested equity awards | |
| Shares repurchased for tax withholdings for vested stock awards | |
| Net loss | |
| Balance January 28, 2023 | |
| | | | | Additional | |
| | | | | Additional | |
| | | | | Additional | |
| | Common Stock | |
| | Common Stock | |
| | Common Stock | | | Paid-In | | Accumulated | | Treasury Stock | | Total |
| | Shares | | | | Shares | | Amount | | Capital | | Deficit | | Shares | | Amount | | Equity |
| Balance at April 29, 2023 | |
| Stock-based compensation expense | |
| Vested equity awards | |
| Shares repurchased for tax withholdings for vested stock awards | |
| Net loss | |
| Balance July 29, 2023 | |
| Stock-based compensation expense | |
| Vested equity awards | |
| Shares repurchased for tax withholdings for vested stock awards | |
| Net income | |
| Balance October 28, 2023 | |
| Stock-based compensation expense | |
| Vested equity awards | |
| Shares repurchased for tax withholdings for vested stock awards | |
| Net loss | |
| Balance January 27, 2024 | |
|
See accompanying notes to condensed consolidated financial statements.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 20182024 and January 28, 20172023
(Thousands of dollars, except share and per share data)
(unaudited)
Unless the context otherwise indicates, references in these Notes to the accompanying condensed consolidated financial statements to “we,” “us,” “our”, and “the Company” refer to Barnes & Noble Education or "BNED", Inc., a Delaware corporation. References to “Barnes & Noble College” or "BNC" refer to our college bookstore business operated through our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our virtual bookstore and wholesale textbook distribution business operated through our subsidiary MBS Textbook Exchange, LLC, a Delaware corporation.LLC.
This Form 10-Q should be read in conjunction with our Audited Consolidated Financial Statements and accompanying Notes to consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended April 29, 2017,2023, 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, 2017,2023, April 30, 20162022 and May 2, 2015 (Fiscal 2017, 1, 2021 ("Fiscal 20162023," "Fiscal 2022" and Fiscal 2015,"Fiscal 2021", respectively) and the unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the 13 weeksquarter ended July 29, 20172023 and the unaudited condensed consolidated financial statements in our Form 10-Q for the 26 weeksquarter ended October 28, 2017.2023.
Note 1. Organization
Description of Business
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for higher educationcollege and university campuses and K-12 institutions across the United States,States. We are also one of the largest textbook wholesalers, inventory management hardware and a leading provider of digital education services. Through its Barnes & Noble College (“BNC”)software providers. We operate 1,272 physical, virtual, and MBS Textbook Exchange (“MBS”) subsidiaries, Barnes & Noble Education operates 1,480 physical and virtualcustom bookstores and servesserve more than 65.8 million students, delivering essential educational content, tools and toolsgeneral 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 have two reportable segments: 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 MBS.
BNC operates 782 physical campus bookstoresinclusive access programs, consisting of First DayComplete and First Day, which provide faculty required course materials on or before the first day of class at below market rates, as ofcompared to the total retail price for the same course materials if purchased separately (a la carte) and students are billed the below market price directly by the institution as a course charge or included in tuition. During the 13 weeks ended January 27, 2018,2024, BNC First Day total revenue increased by $63,371, or 53%, to $184,073 compared to $120,702 during the majority of which alsoprior year period. During the 39 weeks ended January 27, 2024, BNC First Day total revenue increased by $136,055, or 44%, to $445,094 compared to $309,039 during the prior year period. These programs have school-branded e-commerce sites operated by BNC. Our campus stores are a social and academic hub through which students can access affordableallowed us to reverse historical long-term trends in course materials revenue declines as the growth of our BNC First Day programs offsets declines in a la carte courseware sales and affinity products, including newclosed store sales.
We expect to continue to introduce scalable and used printadvanced solutions focused largely on the student and digital textbooks, which are available for sale or rent, emblematic apparelcustomer experience, expand our e-commerce capabilities and gifts, trade books, computer products, school and dorm supplies, café offerings, convenience food and beverages, and graduation products. BNC product offerings also include a suite of digital content, software, and servicesaccelerate such capabilities through our LoudCloud platform, suchmerchandising 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 predictive analytics, a varietythe “F/L Relationship”), win new accounts, and expand our revenue opportunities through strategic relationships. We expect gross comparable store general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of open educational resources ("OER") courseware,products in stores and competency-based learning solutionsonline, which we expect to be further enhanced and a learning management system. Additionally,accelerated through Student Brands, LLC, athe 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 direct-to-student subscription-based writing services business, BNC offers services focusedpublishers who rely on study tools, writing help, and literary research, all centered on assisting students with the writing process.
Our MBS subsidiary operates two highly integrated businesses. The MBS Direct business is the largest contract operator of virtual bookstores for college and university campuses and private/parochial K-12 schools. MBS Direct operates 698 virtual bookstoresus as of January 27, 2018, offering new and used print and digital textbooks, which are available for sale or rent. Additionally, MBS Direct sells textbooks directly to students through textbooks.comSM, one of their primary distribution channels.
During the largest e-commerce sitesfourth quarter of Fiscal 2023, assets related to our DSS Segment met the criteria for newclassification as Assets Held for Sale and used textbooks. MBS WholesaleDiscontinued Operations and is oneno longer a reportable segment. On May 31, 2023, we completed the sale of the largest textbook wholesalers in the country, providing a comprehensive selection
Educational institutions increasingly are outsourcing bookstore operations, investing in data-driven analytical tools, and offering students more affordable options for textbooks and other learning tools. Given these continuing trends, we are well-positioned to capture new market share and partner with an increasing number of schools across the country. As demand for new, improved, and more affordable products and services increase in the rapidly changing education landscape, we are working to evolve our business model and enhance our solutions. We aim to be an even stronger partner for schools and meet customer needs by expanding our physical and virtual bookstore service capabilities, courseware offerings and digital platform services. We believe that our recent strategic actions, including the acquisition of LoudCloud, Promoversity, MBS, and Student Brands and development of courseware, have substantially enhanced our competitive position. We continue to aggressively innovate and collaborate with our partners to provide solutions that extend well beyond course materials sourcing and sales to include new digital services that support successful student outcomes.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 20182024 and January 28, 20172023
(Thousands of dollars, except share and per share data)
(unaudited)
On August 3, 2017, we acquired Student Brands, LLC ("Student Brands"). Student Brands operates multiple direct-to-student businesses focused on study tools, writing help,these assets related to our DSS Segment. We have two reportable segments: Retail and literary research, all centered on assisting students with the writing process. Student Brands has a substantial and growing community of online learners, with over 20 million unique monthly users across its digital properties, which include123HelpMe.com, Bartleby.com and StudyMode.com in the United States and TrabalhosFeitos.com, Etudier.com and Monografias.com in Brazil, France and Mexico, respectively. Student Brands utilizes deep data analytics and artificial intelligence to drive its content management system, the Content Brain. The Content Brain sifts through millions of pieces of content and provides the best answer for virtually any assignment a student is tackling. Student Brands generates revenue predominantly through its subscription-based services and digital advertisements. See Note 4. Acquisitions.
Growth Drivers
The primary factors that we expect will enable us to grow our business are as follows:
Increasing market share with new accounts.
Adapting our merchandising strategy and product and service offerings.
Providing a scalable and leading digital product and solution set.
Expanding strategic opportunities through acquisitions and partnerships.
Wholesale. For additional information related to the growth drivers for ourbusiness, see Part I - Item 2. Management Discussion strategies, operations and Analysis - Overview in this Form 10-Q and segments, seePart I - Item 1. Business - Overview - Growth Drivers in our Annual Report on Form 10-K for the fiscal year ended April 29, 2017.2023.
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 DayComplete and First Day, which provide faculty required course materials on or before the first day of class at below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte) and students are billed the below market rate, directly by the institution as a course charge or included in tuition.
•First Day Complete is adopted by an institution and includes 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. The growth of our BNC First Day programs offsets declines in a la carte courseware sales. We are moving quickly and decisively to accelerate our First Day Complete strategy. We have seen many institutions adopt First Day Complete in Fiscal 2024 and plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond.
In the Spring of 2024, 160 campus stores are utilizing First Day® Complete representing enrollment of nearly 805,000 undergraduate and post graduate students (as reported by National Center for Education Statistics), an increase of approximately 39% compared to Spring of 2023. During the 13 weeks ended January 27, 2024, First Day Complete sales increased by $42,629, or 64%, to $109,531 as compared to $66,902 in the prior year period. During the 13 weeks ended January 27, 2024, First Day sales increased by $20,742, or 39%, to $74,542 as compared to $53,800 in the prior year period. During the 39 weeks ended January 27, 2024, First Day Complete sales increased by $98,084, or 57%, to $271,465 as compared to $173,381 in the prior year period. During the 39 weeks ended January 27, 2024, First Day sales increased by $37,971, or 28%, to $173,629 as compared to $135,658 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, operates as our service provider, including processing consumer personal information on our behalf, using their cutting-edge e-commerce and technology expertise to offer our campus store websites expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with Lids, the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.
We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We also work closely with our campus partners to ensure that each campus store maintains unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus’s brand. 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
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
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 adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position and the results of its operations and cash flows for the periods reported. These condensed consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by GAAP.
The condensed consolidated financial statements are presented on a consolidated basis for the 13 and 39 weeks ended January 27, 2018 and include the financial results of MBS (which was acquired on February 27, 2017) and Student Brands (which was acquired on August 3, 2017). All material intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of MBS and Student Brands.
Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. Our retail business (BNC and MBS Direct) sales are generally highest in the second and third fiscal quarters, when college students generally purchase textbooks for the upcoming semesters, and lowest in the first and fourth fiscal quarters. Sales attributable to the MBS wholesale business are generally highest in our first, second and third quarter as it sells textbooks for retail distribution, which somewhat offsets the decreased first quarter sales attributable to our retail business. MBS has significantly lower operating profit or operating loss realized during the fourth quarter. Due to the seasonal nature of the business, the results of operations for the 13 and 39 weeks ended January 27, 20182024 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 January 27, 2024, we had $15,024 of cash on hand, including $6,901 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, including increased competition and disintermediation, 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 Loss from Continuing Operations of $(9,928) and $(22,134) for the 13 weeks ended January 27, 2024 and January 28, 2018 (Fiscal 2018)2023, respectively, and a Net Loss from Continuing Operations of $(35,045) and $(48,288) for the 39 weeks ended January 27, 2024 and January 28, 2023, 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 $(83,221) and $(21,248) for the 39 weeks ended January 27, 2024 and January 28, 2023, 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,
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
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 levels and the maturity of our Credit Facility, which becomes due on December 28, 2024, raises substantial doubt about our ability to continue as a going concern. The Company's ability to continue as a going concern is contingent upon the successful execution of management's plan to improve the Company’s liquidity, including (1) raising additional liquidity and (2) continuing to take additional operational restructuring actions to achieve the required levels of liquidity to support the operations of the business.
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). The Board continues its ongoing review of a broad range of strategic alternatives available to the Company, including but not limited to potential capital raises, asset divestitures, a sale of the business, and pursuit of standalone growth plans. The Board has not set a timetable for the conclusion of this review, nor has it made any decisions related to any further actions at this time. There can be no assurance that the review will result in any transaction or other strategic change or outcome.
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) $32,500 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).
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.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
On December 12, 2023, we amended our existing Credit Agreement to, among other things: (i) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) at all times to be greater than the greater of (x) 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and (y) (A) $32,500 or, subject to the satisfaction of certain conditions relating to the repayment of the Credit Agreement in full, (B) (a) $20,000 for the period of December 8, 2023 through January 12, 2024, (b) $25,000 for the period from January 26, 2024 through February 9, 2024, (c) $25,000 for the period of April 1, 2024 through April 30, 2024 and (d) $30,000 for the period of May 1, 2024 through May 31, 2024, and (ii) revise certain reporting requirements under the Credit Agreement. The amendment also revised the Specified Liquidity Transaction Fee introduced in the October 2023 Credit Agreement Amendment such that the $3,800 became due and was paid on January 31, 2024.
On March 12, 2024, we amended our existing Credit Agreement to, among other things, (i) revise certain reporting requirements under the Credit Agreement and (ii) set certain milestones for liquidity and refinancing contingency plans, with respect to which we must execute a binding commitment no later than April 3, 2024 (as may be extended by the administrative agent to April 10, 2024).
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 course of Fiscal 2024, we have achieved annualized savings of approximately $30,000 to $35,000 from the Fiscal 2023 cost savings initiatives. Additionally, during Fiscal 2024, Management's plan to implement further cost savings measures, including reduction of gross capital expenditures, amounting to approximately $25,000, of which approximately $18,000 has been achieved during the 39 weeks ended January 27, 2024. Management believes that these plans are within its control and will be focused on implementing these cost savings measures.
During the 13 weeks ended January 27, 2024, Net Loss from Continuing Operations improved by $12,206, or 55%, compared to the prior year period. Net Loss from Continuing Operations, excluding interest expense, impairment loss (non-cash) and restructuring and other charges, improved by $14,984 during the 13 weeks ended January 27, 2024 compared to the prior year period. During the 39 weeks ended January 27, 2024, Net Loss from Continuing Operations improved by $13,243, or 27%, compared to the prior year period. Net Loss from Continuing Operations, excluding interest expense, impairment loss (non-cash) and restructuring and other charges, improved by $34,457 during the 39 weeks ended January 27, 2024 compared to the prior year period. The improvements in Net Loss from Continuing Operations during the 13 and 39 weeks are primarily due to operational improvements, including successful implementation of our BNC First Day programs, and cost savings initiatives.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2024 | | January 28, 2023 | | Var $ | | Var % | | January 27, 2024 | | January 28, 2023 | | Var $ | | Var % |
Net loss from continuing operations | $ | (9,928) | | | $ | (22,134) | | | $ | 12,206 | | | 55% | | $ | (35,045) | | | $ | (48,288) | | | $ | 13,243 | | | 27% |
| | | | | | | | | | | | | | | |
| Reconciling items: | | | | | | | | | | | | | | | |
Interest Expense (a) | $ | 10,620 | | | $ | 6,918 | | | $ | 3,702 | | | 54% | | $ | 29,538 | | | $ | 15,672 | | | $ | 13,866 | | | 88% |
| Impairment loss (non-cash) | 5,798 | | | 6,008 | | | (210) | | | (3)% | | 5,798 | | | 6,008 | | | (210) | | | (3)% |
| Restructuring and other charges | 3,413 | | | 4,127 | | | (714) | | | (17)% | | 12,320 | | | 4,762 | | | 7,558 | | | 159% |
| Total Reconciling items | $ | 19,831 | | | $ | 17,053 | | | $ | 2,778 | | | 16% | | $ | 47,656 | | | $ | 26,442 | | | $ | 21,214 | | | 80% |
| Net Income (Loss) from Continuing Operations Excluding Interest Expense, Impairment Loss and Restructuring and Other Charges | $ | 9,903 | | | $ | (5,081) | | | $ | 14,984 | | | 295% | | $ | 12,611 | | | $ | (21,846) | | | $ | 34,457 | | | 158% |
| | | | | | | | | | | | | | | |
(a) Interest expense increased by $13.9 million compared to the prior year period, comprised of $7.2 million resulting from higher borrowings and higher interest rates and $6.3 million resulting from increased amortization of deferred financing costs. For additional information, see Note 7. Debt - Deferred Financing Costs and Note 7. Debt - Interest Expense.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
Seasonality
Our business is highly seasonal. For example, our retail business is seasonal, particularly with respect to textbook sales and rentals, with the major portion of sales and operating profit realized during the second and third fiscal quarters when college students generally purchase and rent textbooks for the upcoming semesters and lowest in the first and fourth fiscal quarters. Our quarterly results also may fluctuate depending on the timing of the start of the various schools’ semesters, the revenue impact of accounting principles with respect to the recognition of revenue associated with our equitable and inclusive access programs, the ability to secure inventory on a timely basis, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Sales attributable to our wholesale business are generally highest in our first, second and third quarters, as it sells textbooks and other course materials for retail distribution. 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 39 weeks ended January 27, 2024, we recorded a Gain on Sale of Business of $3,545 in Loss from Discontinued Operations, Net, related to the sale. Net cash proceeds from the sale were used for debt repayment and provided additional funds for working capital needs under our Credit Facility. The following table summarizes the operating results of the discontinued operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Total sales | $ | — | | | $ | 9,010 | | | $ | 2,784 | | | $ | 26,659 | |
Cost of sales (a) | — | | | 1,811 | | | 76 | | | 5,283 | |
Gross profit (a) | — | | | 7,199 | | | 2,708 | | | 21,376 | |
| Selling and administrative expenses | 177 | | | 7,632 | | | 3,101 | | | 23,909 | |
| Depreciation and amortization | — | | | 506 | | | 3 | | | 2,646 | |
| Gain on sale of business | (477) | | | — | | | (3,545) | | | — | |
Impairment loss (non-cash) (b) | — | | | — | | | 610 | | | — | |
Restructuring costs (c) | 11 | | | 1,848 | | | 3,308 | | | 1,848 | |
| Transaction costs | — | | | — | | | 13 | | | — | |
| Operating loss | 289 | | | (2,787) | | | (782) | | | (7,027) | |
| Income tax expense | — | | | 128 | | | 20 | | | 297 | |
| Loss from discontinued operations, net of tax | $ | 289 | | | $ | (2,915) | | | $ | (802) | | | $ | (7,324) | |
| | | | | | | |
(a) Cost of sales and gross profit for the DSS Segment includes amortization expense (non-cash) related to content development costs of $1,686 and $4,855 for the 13 and 39 weeks ended January 28, 2023, respectively.
(b) During the 39 weeks ended January 27, 2024, we recognized an impairment loss (non-cash) of $610 (both pre-tax and after-tax),
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 20182024 and January 28, 20172023
(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 39 weeks ended January 27, 2024 and January 28, 2023, we recognized restructuring and other charges of $3,308 and $1,848, respectively, 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 | | January 28, 2023 |
| Cash and cash equivalents | | $ | 1,057 | | | $ | 802 | |
| Receivables, net | | 480 | | | 589 | |
| Prepaid expenses and other current assets | | 901 | | | 2,412 | |
| Property and equipment, net | | 19,523 | | | 20,150 | |
| Intangible assets, net | | 402 | | | 678 | |
| Goodwill | | 4,700 | | | 4,700 | |
| Deferred tax assets, net | | 130 | | | — | |
| Other noncurrent assets | | 237 | | | 288 | |
| Assets held for sale | | $ | 27,430 | | | $ | 29,619 | |
| | | | |
| Accounts payable | | $ | 211 | | | $ | 148 | |
| Accrued liabilities | | 8,212 | | | 5,236 | |
| | | | |
| Liabilities held for sale | | $ | 8,423 | | | $ | 5,384 | |
| | | | |
Restricted Cash
As of January 27, 2024, January 28, 2023, and April 29, 2023, we had restricted cash of $6,901, $18,309, and $16,712, respectively, comprised of $5,948, $17,397, and $15,790, 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 $953, $912, and $922, respectively, in other noncurrent assets in the condensed consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.
Merchandise Inventories
Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory.inventory, which includes certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand.
Cost is determined primarily by the retail inventory method for our BNC segment and last-in first out, or “LIFO”, method for our MBSRetail segment. Our textbook inventories, for BNC and MBS, 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 BNC segment,physical bookstores, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends.
The Retail Segment fulfillment order is directed first to our wholesale business before other sources of inventory are utilized. The products that we sell originate from a wide variety of domestic and international vendors. After internal sourcing, the bookstore purchases textbooks from outside suppliers and publishers.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(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. We recognize lease expense related to our college and university contracts as cost of sales in our condensed consolidated statement of operations and we recognize lease expense related to our various office spaces as selling and administrative expenses in our condensed consolidated statement of operations. 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 at physical locations is recognized at the point in time when control of sale. Revenue from sales ofthe products ordered throughis transferred to our websitescustomers in an amount that reflects the consideration we expect to be entitled to in exchange for the products. For additional information, see Note 3. Revenue.
Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers. Revenue from the salecustomers for products ordered through our websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks from our wholesaleat which point title passes and virtual bookstoresrisk of loss is recognized attransferred to the time of shipment.customer. Additional revenue is recognized for shipping charges billed to customers.customers and shipping costs are accounted for as fulfillment costs within cost of goods sold.
We rent both physical and digital textbooks. Revenue from the rentalsale of physicaldigital textbooks, which contains a single performance obligation, is deferred and recognized over the rental period commencing at point of sale. We offer a buyout option to allow the purchase of a rented physical textbook at the end of the rental period. We record the buyout purchase when the customer exercises and pays the buyout option price. In these instances, we would accelerate any remaining deferred rental revenue at the point of sale.
Revenue from the rental of digital textbooks is recognized at the time of sale.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 rental term the customer is no longer able to access the content. While the sale of the digital rentaltextbook 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 primarilyoffer 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 textbookand 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
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.
For sales and rentals involving third-party products, we evaluate whether we are acting as a principal or an agent. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where we are the principal, we record revenue on a gross basis, and for those transactions where we are an agent to a third-party, we record revenue on a net basis.
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 accordance with ASC 605-45-45, Reporting Revenue Gross as a Principal versus Net as an Agent.our condensed consolidated financial statements.
We provide direct-to-student subscription-based writing services. Subscription revenue is deferred and recognized over the service period. The majority of subscriptions sold are one month in duration.
Sales taxes collected from our customers are excluded from reported revenues. All of our sales are recognized as revenue on a “net” basis, including sales in connection with any periodic promotions offered to customers.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 includeincludes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.
Selling and Administrative Expenses
Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include stock-basedlong-term incentive plan compensation expense and general office expenses, such as executive oversight, merchandising, procurement, field support, finance and accounting. Shared-service costs such as human resources, benefits, training, legal, andtreasury, 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.
Evaluation of Long-Lived Assets
During the fourth quarter of Fiscal 2023, assets related to our DSS Segment met the criteria for classification as wellAssets Held for Sale and Discontinued Operations and is no longer a reportable segment. Goodwill on our condensed consolidated balance sheet as of January 28, 2023 related to our investmentsDSS reporting unit has been classified as Assets Held for Sale. On May 31, 2023, we completed the sale of these assets related to our DSS Segment.
We review our long-lived assets for impairment whenever events or changes in circumstances, including but not limited to contractual changes, renewals or amendments are made to agreements with our digital platformcollege, university, or K-12 schools, indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. As of January 27, 2024, our other long-lived assets include property and subscription-based services.equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets of $57,273, $220,238, $97,947, and $12,488, respectively, on our condensed consolidated balance sheet.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 20182024 and January 28, 20172023
(Thousands of dollars, except share and per share data)
(unaudited)
Although most academic institutions have since reopened since the COVID-19 pandemic, some are providing alternatives to traditional in-person instruction, including online and hybrid learning options and significantly reduced classroom sizes. Enrollment trends have been negatively impacted at physical campuses. While many athletic conferences resumed their sport activities, other events, such as parent and alumni weekends and prospective student campus tour activities, some may still be curtailed or offer a virtual option. These combined events, as well as increased competition and disintermediation, continue to impact the Company’s course materials and general merchandise business.
GoodwillDuring the 13 weeks ended January 27, 2024, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $5,798 (both pre-tax and after-tax), comprised of $364, $2,726, and $2,708 of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the condensed consolidated statements of operations.
During the 13 weeks ended January 28, 2023, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6,008 (both pre-tax and after-tax), comprised of $708, $1,697, $3,599 and $4 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the condensed consolidated statements of operations.
The fair value of the impaired long-lived assets were determined using an income approach (Level 3 input), using the Company’s best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations. For additional information, see Note 6. Fair Value Measurements.
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 January 2017,December 2023, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standard Update (“ASU”) No. 2017-04, Intangibles - GoodwillASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to improve annual income tax disclosure requirements, primarily to (1) disclose specific categories in the rate reconciliation (2) provide additional information for reconciling items that meet a quantitative threshold, and Other (Topic 350) to simplify the test for goodwill impairment. The revised(3) enhance cash tax payment disclosures. This guidance eliminated the former Step 2 of the goodwill impairment test which required an entity to compute the implied fair value of its goodwill at the testing date in order to measure the amount of the impairment charge when the fair value of the reporting unit failed Step 1 of the goodwill impairment test. Under the revised guidance, an entity would recognize an impairment chargewill be effective for the amount by whichCompany for the carrying amount ofannual report for the reporting unit exceeds its fair value; however,fiscal year ending April 26, 2025. Early adoption is permitted and the loss recognized would not exceed the total amount of goodwill allocated to the reporting unit. The guidance will beis applied on a prospective basis. We have early adoptedare currently assessing this standard inguidance and determining the second quarterimpact on our condensed consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This guidance will be effective for the Company for the annual report for the fiscal year ending April 26, 2025 and subsequent interim periods. Early adoption is permitted and retrospective adoption is required for all prior periods presented. We are currently assessing this guidance and determining the impact on our condensed consolidated financial statements.
Note 3. Revenue
Revenue from sales of Fiscal 2018.
We completed our annual goodwill impairment test with the assistance of a third-party valuation firm, as of the first day of the third quarter of Fiscal 2018. We completed the impairment evaluation process to compare the fair value of our reporting units to their respective carrying values. In performing the valuation, we used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions. We estimated the fair value of our reporting units using a weighting of fair values derived from the income approach and the market approach. Under the income approach, we calculate the fair value of the reporting unit based on the present value of estimated future cash flows. Inherent in our preparation of cash flow projections are assumptions and estimates derived from a review of our operating results, business plans, expected growth rates, cost of capital and tax rates. We also make certain forecasts about future economic conditions, interest rates, market data, and other observable trends, such as comparable store sales trends, recent changes in publisher relationships, and development of innovative digital products and services is recognized either at the point in time when control of the rapidly changing education landscape. The discount rate usedproducts is based ontransferred to our customers or over time as services are provided in an amount that reflects the weighted-average cost of capital adjustedconsideration we expect to be entitled to in exchange for the relevant risk associated with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows. Under the market approach, we estimate the fair value based on market multiplesproducts or services. See Note 2. Summary of cash flows and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit and considering a reasonable control premium. The decline of our stock price and the corresponding reduction in our market capitalization had a significant affect on the implied control premium. As a corroborative source ofSignificant Accounting Policies for additional information we reconcile the estimated aggregate fair values of its reporting units to within a reasonable range of its market capitalization, which includes an assumed control premium (an adjustment reflecting an estimated fair value on a control basis), to verify the reasonableness of the fair value of its reporting units obtained through the aforementioned methods.
The fair value of the MBS reporting unit exceeded its carrying value; therefore, no goodwill impairment was recognized for the MBS segment. The carrying value of the BNC reporting unit exceeded its fair value and we recorded a goodwill impairment (non-cash impairment loss) of $313,130. As of January 27, 2018, we had $49,282 and $0 of goodwill remaining related to our MBSrevenue recognition policies and BNC reporting units, respectively.Note 4. Segment Reporting for a description of each segment's product and service offerings.
Our other long-lived assets include property and equipment and amortizable intangibles. As of January 27, 2018, we had $110,987 and $224,314 of property and equipment and amortizable intangible assets, net of depreciation and amortization, respectively, on our consolidated balance sheet.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. During the third quarter of Fiscal 2018, in conjunction with the goodwill impairment test noted above, we evaluated certain of our long-lived assets for impairment.
We evaluated long-lived assets for impairment at the lowest asset group level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, we first compared the carrying amount of the asset group to the estimated future undiscounted cash flows. If the estimated future cash flows were less than the carrying amount of the asset group, an impairment loss calculation is prepared. Based on the results of the tests, an impairment loss calculation was not required as the estimated future undiscounted cash flows of the asset group exceeded the carrying amount of the asset group.
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate long-lived asset impairment losses. However, if actual results are not consistent with estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 20182024 and January 28, 20172023
(Thousands of dollars, except share and per share data)
(unaudited)
Disaggregation of Revenue
Income Taxes
As of January 27, 2018, other long-term liabilities includes $54,370 related toThe following table disaggregates the long-term tax payablerevenue associated with our major product and service offerings: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Retail | | | | | | | | |
| Course Materials Product Sales | | $ | 317,725 | | | $ | 286,714 | | | $ | 891,631 | | | $ | 834,190 | |
General Merchandise Product Sales (a) | | 72,831 | | | 81,813 | | | 266,533 | | | 293,285 | |
Service and Other Revenue (b) | | 7,592 | | | 8,423 | | | 32,588 | | | 32,346 | |
| Retail Product and Other Sales sub-total | | 398,148 | | | 376,950 | | | 1,190,752 | | | 1,159,821 | |
| Course Materials Rental Income | | 41,298 | | | 44,309 | | | 93,490 | | | 96,555 | |
| Retail Total Sales | | $ | 439,446 | | | $ | 421,259 | | | $ | 1,284,242 | | | $ | 1,256,376 | |
| Wholesale Sales | | $ | 37,167 | | | $ | 38,958 | | | $ | 96,931 | | | $ | 97,161 | |
Eliminations (c) | | $ | (19,940) | | | $ | (22,163) | | | $ | (49,960) | | | $ | (52,176) | |
| Total Sales | | $ | 456,673 | | | $ | 438,054 | | | $ | 1,331,213 | | | $ | 1,301,361 | |
(a)Logo general merchandise sales for the LIFO reserve. The LIFO reserve is impacted by changesRetail Segment are recognized on a net basis as commission revenue in the consumer price index ("CPI") and is dependent on the inventory levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling cycle. At the end of the most recent tax year, inventory levels within our BNC segment declined as compared to the prior year resulting in approximately$13,754 of the LIFO reserve becoming currently payable. Given recent trends relating to the pricing and rental of textbooks, management believes that an additional portion of the remaining long-term tax payable associated with the LIFO reserve could be payable within the next twelve months. We are unable to predict future trends for CPI and inventory levels, therefore it is difficult to project with reasonable certainty how much of this liability will become payable within the next twelve months.
Note 3. Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-01") to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. We are required to adopt this standard in the first quarter of Fiscal 2020 and early adoption is permitted. The guidance will be applied on a modified retrospective basis beginning with the earliest period presented. We are currently evaluating this standard to determine the impact of adoption on our condensed consolidated financial statements.
In May 2014,(b)Service and other revenue primarily relates to brand partnership marketing and other service revenues.
(c)The sales eliminations represent the FASB issued ASU No. 2014-09, Revenueelimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Contracts with Customers (“ASU 2014-09”). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the guidance is thatWholesale.
Contract Liabilities
Contract liabilities represent an entity should recognize revenueobligation to depict the transfer of promised 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 in an amount that reflects the considerationrelated to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. In 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations, identifyingtextbook rental performance obligations, andwhich are recognized ratably over the accounting for licenses of intellectual property. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferralterms of the Effective Date,related rental period;
•unsatisfied performance obligations associated with brand partnership marketing services, which effectively delayedare recognized when the adoption date by one year. Wecontracted services are requiredprovided to adopt ASU 2014-09 in the first quarter of Fiscal 2019our brand partnership marketing customers; and early adoption is permitted. The new standard is required to be applied retrospectively to each prior reporting period (full retrospective method) or retrospectively
•unsatisfied performance obligations associated with the cumulative effectpremium paid for the sale of initially applying the standard recognized as an adjustment to opening retained earnings at the date of initial adoption (modified retrospective method).
Wetreasury shares, which are in the process of analyzing the impacts of the guidance across all of our revenue streams. This includes reviewing current accounting policies and practices to identify potential differences that would result from applying the guidance. The majority of our revenue is generated from sales of finished products, which will continueexpected to be recognized when control is transferred toover the customer. Our assessment includes an evaluationterm of the impact that the guidance will have one-commerce and merchandising contracts for Fanatics and Lids, respectively.
The following table presents changes in deferred revenue associated with our accounting for marketing revenue and other income streams. We are evaluating the guidance for our software license revenue, which is currently not material and is recognized over time, but may be recognized at a point in time under the new guidance. We are continuing to evaluate our revenue streams related to our digital product offerings and subscription-based services. We do not have loyalty programs or gift cards. While our assessmentcontract liabilities:
| | | | | | | | | | | | | | |
| | 39 weeks ended |
| | January 27, 2024 | | January 28, 2023 |
| Deferred revenue at the beginning of period | | $ | 15,356 | | | $ | 16,475 | |
| Additions to deferred revenue during the period | | 159,888 | | | 150,477 | |
| Reductions to deferred revenue for revenue recognized during the period | | (122,449) | | | (116,643) | |
| Deferred revenue balance at the end of period: | | $ | 52,795 | | | $ | 50,309 | |
| Balance Sheet classification: | | | | |
| Accrued liabilities | | $ | 49,074 | | | $ | 46,032 | |
| Other long-term liabilities | | 3,721 | | | 4,277 | |
| Deferred revenue balance at the end of period: | | $ | 52,795 | | | $ | 50,309 | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 20182024 and January 28, 20172023
(Thousands of dollars, except share and per share data)
(unaudited)
Note 4. Acquisitions
Student Brands, LLC
On August 3, 2017, we acquired 100% of the equity interests of Student Brands. Student Brands operates multiple direct-to-student businesses focused on study tools, writing help, and literary research, all centered on assisting students with the writing process.
We completed the purchase for cash consideration of $61,997, including cash acquired of $4,626, and the transaction was funded from cash on-hand and availability under our existing Credit Agreement. The Student Brands operations are part of the BNC segment. The final purchase price allocation was as follows: $28,300 intangible assets, $1,593 acquired working capital and $31,782 goodwill. This acquisition is not material to our consolidated financial statements and therefore, disclosure of pro forma financial information has not been presented. The results of operations reflect the period of ownership of the acquired business. Identified intangible assets include the following:
|
| | | | | | |
| Type of Intangible | | Amount | | Estimated Useful Life |
| Content | | $ | 14,500 |
| | 5 |
| Technology | | 8,000 |
| | 5 |
| Non-Compete Agreements | | 4,000 |
| | 3 |
| Subscriber List | | 1,800 |
| | 2 |
| Total Intangibles: | | $ | 28,300 |
| | |
MBS Textbook Exchange, LLC
On February 27, 2017, we completed the purchase of all issued and outstanding units of MBS Textbook Exchange, LLC. MBS operates two highly integrated businesses, Wholesale and Direct. Refer to Note 1. Organization of this Form 10-Q for additional information about MBS. We acquired 100% of the equity interests of MBS for cash consideration of $187,862, including cash and restricted cash acquired of $1,171, and the acquisition was financed with cash from operations as well as proceeds from our existing credit facility. During the 13 weeks ended October 28, 2017, we finalized the valuation and recorded adjustments to the acquired liabilities which resulted in an increase to goodwill of $1,163. These adjustments were related to a final reconciliation of the pre-acquisition tax liability due to the seller of $888 under the purchase agreement, as well as a net $275 increase in other long-term liabilities.
The following is a summary of consideration paid for the acquisition:
|
| | | | |
| Cash paid to Seller or escrow | | $ | 165,499 |
|
| Consideration to Seller for pre-closing costs | | 4,657 |
|
| Cash paid for Seller closing costs | | 4,044 |
|
| Contract purchase price | | $ | 174,200 |
|
| Consideration for payment to settle Seller's outstanding short-term borrowings | | 24,437 |
|
| Consideration for reimbursement of pre-acquisition tax liability to Seller | | 15,556 |
|
| Less: Consideration to Seller for pre-closing costs | | (4,657 | ) |
| Less: Consideration for settlement of pre-existing payable to Seller | | (21,674 | ) |
| Total value of consideration transferred | | $ | 187,862 |
|
| | | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2018 and January 28, 2017
(Thousands of dollars, except share and per share data)
(unaudited)
The following is a summary of the fair values of the net assets acquired:
|
| | | | |
| Total consideration transferred | | $ | 187,862 |
|
| Cash and cash equivalents | | $ | 472 |
|
| Accounts receivable, net | | 28,177 |
|
| Merchandise inventory | | 128,431 |
|
| Property and equipment | | 12,403 |
|
| Intangible assets | | 21,576 |
|
| Prepaid and other assets | | 4,748 |
|
| Total assets | | $ | 195,807 |
|
| Accounts payable | | $ | 35,383 |
|
| Accrued expenses | | 8,799 |
|
| Other long-term liabilities | | 13,044 |
|
| Total liabilities | | $ | 57,226 |
|
| Net assets acquired | | $ | 138,581 |
|
| Goodwill | | $ | 49,281 |
|
Identified intangible assets include the following:
|
| | | | | | |
| Type of Intangible | | Amount | | Estimated Useful Life |
| Favorable Lease | | $ | 1,076 |
| | 6.5 |
| Trade Name | | 3,500 |
| | 10 |
| Technology | | 1,500 |
| | 3 |
| Book Store Relationship | | 13,000 |
| | 13 |
| Direct Customer Relationship | | 2,000 |
| | 15 |
| Non-Compete Agreements | | 500 |
| | 3 |
| Total Intangibles: | | $ | 21,576 |
| | |
Note 5. 4. Segment Reporting
During the fourth quarter of Fiscal 2023, assets related to our DSS Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. On May 31, 2023, we completed the sale of these assets related to our DSS Segment. For additional information, see Note 2. Summary of Significant Accounting Policies.
We identifiedhave 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 based onin 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. EffectiveThe 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 1,272 college, university, and K-12 school bookstores, comprised of 717 physical bookstores and 555 virtual bookstores. Our bookstores typically operate under agreements with the acquisitioncollege, university, or K-12 schools to be the official bookstore and the exclusive seller of MBS on February 27, 2017, wecourse materials and supplies, including physical and digital products. The majority of the physical campus bookstores have determined thatschool-branded e-commerce websites which we operate two reportable segments: 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 MBS. Priorinclusive access programs, consisting of First DayComplete and First Day, which provide faculty required course materials on or before the first day of class at below market rates, as compared to the acquisitiontotal retail price for the same course materials if purchased separately (a la carte) and students are billed the below market rate, directly by the institution as a course charge or included in tuition. Additionally, the Retail Segment offers a suite of MBS, BNC was our only reportable segment. Our international operations are not materialdigital content and the majorityservices to colleges and universities, including a variety of open educational resource-based courseware.
Wholesale Segment
The Wholesale Segment is comprised of our revenuewholesale textbook business and total assets are within the United States. For a descriptionis one of the BNClargest textbook wholesalers in the country. The Wholesale Segment centrally sources, sells, and MBS businesses, referdistributes new and used textbooks to Note 1. Organizationapproximately 2,900 physical bookstores (including our Retail Segment's 717 physical bookstores) and sources and distributes new and used textbooks to our 555 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a software suite of this Form 10-Q.applications that provides inventory management and point-of-sale solutions to approximately 325 college bookstores.
The condensed consolidated financial statements for the 13Corporate Services represents unallocated shared-service costs which include corporate level expenses and 39 weeks ended January 27, 2018 include the financial results of MBSother governance functions, including executive functions, such as accounting, legal, treasury, information technology, and all material intercompany accounts and transactions have been eliminated in consolidation. human resources.
Intercompany Eliminations
The eliminations are primarily related to the following intercompany activities:
BNC purchases new•The sales eliminations represent the elimination of Wholesale sales and used textbooks from MBS for distribution at BNC's physical college bookstores. We eliminate the net sales from MBSfulfillment 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 andat the end of the current period.
MBS pays commissions to BNC for certain textbooks it sells to MBS that cannot be returned to suppliers or used in their stores. The commission is based onOur international operations are not material, and the volumemajority of textbooks sold to MBSthe revenue and with respect tototal assets are within the textbook requirementsUnited States.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 20182024 and January 28, 20172023
(Thousands of dollars, except share and per share data)
(unaudited)
Intercompany Eliminations
Sales eliminations represent the elimination of MBS sales to BNC and the elimination of BNC commissions earned from MBS. Cost of sales eliminations represent (i) the recognition of intercompany profit for BNC inventory that was purchased from MBS in a prior period that was subsequently sold to external customers during the current period, net of (ii) the elimination of intercompany profit for MBS inventory purchases by BNC that remain in ending inventory at the end of the current period. Gross margin eliminations reflect the net impact of the sales eliminations and cost of sales eliminations.
Summarized financial information for our reportable segments is reported below:
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 39 weeks ended |
| January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Sales | | | | | | | |
| Retail | $ | 439,446 | | | $ | 421,259 | | | $ | 1,284,242 | | | $ | 1,256,376 | |
| Wholesale | 37,167 | | | 38,958 | | | 96,931 | | | 97,161 | |
| Eliminations | (19,940) | | | (22,163) | | | (49,960) | | | (52,176) | |
| Total Sales | $ | 456,673 | | | $ | 438,054 | | | $ | 1,331,213 | | | $ | 1,301,361 | |
| | | | | | | |
| Gross Profit | | | | | | | |
| Retail | $ | 89,243 | | | $ | 88,926 | | | $ | 265,063 | | | $ | 272,421 | |
| Wholesale | 7,996 | | | 6,668 | | | 19,880 | | | 19,022 | |
| Eliminations | 2,797 | | | 1,417 | | | 1,969 | | | (286) | |
| Total Gross Profit | $ | 100,036 | | | $ | 97,011 | | | $ | 286,912 | | | $ | 291,157 | |
| | | | | | | |
| Selling and Administrative Expenses | | | | | | | |
| Retail | $ | 71,393 | | | $ | 82,753 | | | $ | 217,748 | | | $ | 251,843 | |
| Wholesale | 3,271 | | | 3,563 | | | 10,151 | | | 11,561 | |
| Corporate Services | 5,092 | | | 5,572 | | | 15,297 | | | 17,861 | |
| Eliminations | — | | | (47) | | | (3) | | | (129) | |
| Total Selling and Administrative Expenses | $ | 79,756 | | | $ | 91,841 | | | $ | 243,193 | | | $ | 281,136 | |
| | | | | | | |
| Depreciation and Amortization | | | | | | | |
| Retail | $ | 8,817 | | | $ | 8,749 | | | $ | 26,694 | | | $ | 27,147 | |
| Wholesale | 1,321 | | | 1,357 | | | 3,852 | | | 4,076 | |
| Corporate Services | 10 | | | 6 | | | 30 | | | 41 | |
| Total Depreciation and Amortization | $ | 10,148 | | | $ | 10,112 | | | $ | 30,576 | | | $ | 31,264 | |
| | | | | | | |
| Impairment loss (non-cash) - Retail | $ | 5,798 | | | $ | 6,008 | | | $ | 5,798 | | | $ | 6,008 | |
| | | | | | | |
| Restructuring and Other Charges | | | | | | | |
| Retail | $ | — | | | $ | 1,452 | | | $ | 555 | | | $ | 1,452 | |
| Wholesale | — | | | 931 | | | 526 | | | 931 | |
| Corporate Services | 3,413 | | | 1,744 | | | 11,239 | | | 2,379 | |
| Total Restructuring and Other Charges | $ | 3,413 | | | $ | 4,127 | | | $ | 12,320 | | | $ | 4,762 | |
| | | | | | | |
| Operating Income (Loss) | | | | | | | |
| Retail | $ | 3,235 | | | $ | (10,036) | | | $ | 14,268 | | | $ | (14,029) | |
| Wholesale | 3,404 | | | 817 | | | 5,351 | | | 2,454 | |
| Corporate Services | (8,515) | | | (7,322) | | | (26,566) | | | (20,281) | |
| Elimination | 2,797 | | | 1,464 | | | 1,972 | | | (157) | |
| Total Operating Income (Loss) | $ | 921 | | | $ | (15,077) | | | $ | (4,975) | | | $ | (32,013) | |
| | | | | | | |
| Interest Expense, net | $ | 10,620 | | | $ | 6,918 | | | $ | 29,538 | | | $ | 15,672 | |
| Total Loss from Continuing Operations Before Income Taxes | $ | (9,699) | | | $ | (21,995) | | | $ | (34,513) | | | $ | (47,685) | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| | January 27,
2018 | | January 28,
2017 | | January 27, 2018 | | January 28, 2017 |
| Sales: | | | | | | | |
| BNC | $ | 506,460 |
| | $ | 521,624 |
| | $ | 1,518,224 |
| | $ | 1,531,532 |
|
| MBS | 138,927 |
| | — |
| | 413,579 |
| | — |
|
| Elimination | (41,996 | ) | | — |
| | (85,840 | ) | | — |
|
| Total Sales | $ | 603,391 |
| | $ | 521,624 |
| | $ | 1,845,963 |
| | $ | 1,531,532 |
|
| | | | | | | | |
| Gross Profit | | | | | | | |
| BNC | $ | 117,413 |
| | $ | 115,925 |
| | $ | 337,875 |
| | $ | 334,852 |
|
| MBS | 34,949 |
| | — |
| | 95,713 |
| | — |
|
| Elimination | (5,827 | ) | | — |
| | (5,782 | ) | | — |
|
| Total Gross Profit | $ | 146,535 |
| | $ | 115,925 |
| | $ | 427,806 |
| | $ | 334,852 |
|
| | | | | | | | |
| Depreciation and Amortization | | | | | | | |
| BNC | $ | 15,411 |
| | $ | 13,149 |
| | $ | 43,879 |
| | $ | 39,057 |
|
| MBS | 1,596 |
| | — |
| | 4,849 |
| | — |
|
| Total Depreciation and Amortization | $ | 17,007 |
| | $ | 13,149 |
| | $ | 48,728 |
| | $ | 39,057 |
|
| | | | | | | | |
| Operating (Loss) Income | | | | | | | |
BNC (a),(b),(c) | $ | (308,954 | ) | | $ | 5,198 |
| | $ | (310,004 | ) | | $ | 9,196 |
|
| MBS | 19,156 |
| | — |
| | 47,878 |
| | — |
|
| Elimination | (5,827 | ) | | — |
| | (5,782 | ) | | — |
|
| Total Operating (Loss) Income | $ | (295,625 | ) | | $ | 5,198 |
| | $ | (267,908 | ) | | $ | 9,196 |
|
| | | | | | | | |
| The following is a reconciliation of segment Operating (Loss) Income to consolidated (Loss) Income Before Income Taxes: | | | | | | | |
| Total Operating (Loss) Income | $ | (295,625 | ) | | $ | 5,198 |
| | $ | (267,908 | ) | | $ | 9,196 |
|
| Interest Expense, net | (2,954 | ) | | (679 | ) | | (7,828 | ) | | (1,975 | ) |
| Total (Loss) Income Before Income Taxes | $ | (298,579 | ) | | $ | 4,519 |
| | $ | (275,736 | ) | | $ | 7,221 |
|
| | | | | | | | |
(a) During the 39 weeks ended January 27, 2018, we recognized expenses totaling approximately $5,361 related to the resignation of Mr. Max J. Roberts as Chief Executive Officer of the Company and the appointment of Mr. Michael P. Huseby to the position of Chief Executive Officer and Chairman of the Board, both effective as of September 19, 2017. For additional information, refer to Note 9. Supplemental Information - Restructuring and Other Charges in this Form 10-Q.
(b) On August 3, 2017, we acquired Student Brands, LLC, a leading direct-to-student subscription-based writing services business. The condensed consolidated financial statements for the 13 and 39 weeks ended January 27, 2018 include the financial results of Student Brands in the BNC segment from the date of acquisition, August 3, 2017, and the condensed consolidated financial statements for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of Student Brands.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 20182024 and January 28, 20172023
(Thousands of dollars, except share and per share data)
(unaudited)
| |
(c) | During the 13 weeks ended January 27, 2018, we completed our annual goodwill impairment test. Based on the results of the impairment test, the carrying value of the BNC reporting unit exceeded its fair value and we recorded a goodwill impairment (non-cash impairment loss) of $313,130 for the BNC segment. For additional information, see Note 2. Summary of Significant Accounting Policies in this Form 10-Q.
|
Note 6. 5. Equity and Earnings Per Share
Equity
Share Repurchases
On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50,000, in the aggregate, of our outstanding Common Stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. During the 13 and 39 weeks ended January 27, 2018,2024, we did not repurchase shares of our common stock. AsCommon Stock under the stock repurchase program and as of January 27, 2018,2024, approximately $26,669 remains available under the stock repurchase program.
During the 13 and 39 weeks ended January 27, 2018,2024, we also repurchased 2593,135 and 147,885 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 and 39 weeks ended January 27, 2018,2024 and January 28, 2023, average shares of 2,8443,009,464 and 2,4774,677,926 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. During the 13 and 39 weeks ended January 27, 2024 and January 28, 2017,2023, average shares of 3393,305,749 and 3954,824,844 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2018 and January 28, 2017
(Thousands of dollars, except share and per share data)
(unaudited)
The following is a reconciliation of the basic and diluted lossearnings per share calculation:
|
| | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| | January 27,
2018 | | January 28,
2017 | | January 27,
2018 | | January 28,
2017 |
| Numerator for basic and diluted earnings per share: | | | | | | | |
| Net (loss) income | $ | (283,235 | ) | | $ | 3,761 |
| | $ | (269,623 | ) | | $ | 5,134 |
|
| Less allocation of earnings to participating securities | — |
| | (1 | ) | | — |
| | (3 | ) |
| Net (loss) income available to common shareholders | $ | (283,235 | ) | | $ | 3,760 |
| | $ | (269,623 | ) | | $ | 5,131 |
|
| | | | | | | | |
| Numerator for diluted earnings per share: | | | | | | | |
| Net (loss) income available to common shareholders | $ | (283,235 | ) | | $ | 3,760 |
| | $ | (269,623 | ) | | $ | 5,131 |
|
| Allocation of earnings to participating securities | — |
| | 1 |
| | — |
| | 3 |
|
| Less diluted allocation of earnings to participating securities | — |
| | (1 | ) | | — |
| | (3 | ) |
| Net (loss) income available to common shareholders | $ | (283,235 | ) | | $ | 3,760 |
| | $ | (269,623 | ) | | $ | 5,131 |
|
| | | | | | | | |
| Denominator for basic earnings per share: | | | | | | | |
| Basic weighted average shares of Common Stock | 46,914 |
| | 46,276 |
| | 46,712 |
| | 46,265 |
|
| | | | | | | | |
| Denominator for diluted earnings per share: | | | | | | | |
| Basic weighted average shares of Common Stock | 46,914 |
| | 46,276 |
| | 46,712 |
| | 46,265 |
|
| Average dilutive restricted stock units | — |
| | 512 |
| | — |
| | 397 |
|
| Average dilutive performance shares | — |
| | 52 |
| | — |
| | 33 |
|
| Average dilutive restricted shares | — |
| | 4 |
| | — |
| | 21 |
|
| Average dilutive performance share units | — |
| | — |
| | — |
| | — |
|
| Average dilutive options | — |
| | — |
| | — |
| | — |
|
| Diluted weighted average shares of Common Stock | 46,914 |
| | 46,844 |
| | 46,712 |
| | 46,716 |
|
| | | | | | | | |
| (Loss) Earnings per share of Common Stock: | | | | | | | |
| Basic | $ | (6.04 | ) | | $ | 0.08 |
| | $ | (5.77 | ) | | $ | 0.11 |
|
| Diluted | $ | (6.04 | ) | | $ | 0.08 |
| | $ | (5.77 | ) | | $ | 0.11 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 39 weeks ended |
| (shares in thousands) | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Numerator for basic and diluted earnings per share: | | | | | | | |
| Loss from continuing operations, net of tax | $ | (9,928) | | | $ | (22,134) | | | $ | (35,045) | | | $ | (48,288) | |
| Loss from discontinued operations, net of tax | 289 | | | (2,915) | | | (802) | | | (7,324) | |
| Net loss available to common shareholders | $ | (9,639) | | | $ | (25,049) | | | $ | (35,847) | | | $ | (55,612) | |
| | | | | | | |
| Denominator for basic and diluted earnings per share: | | | | | | | |
| Basic and diluted weighted average shares of Common Stock | 53,153 | | | 52,602 | | | 52,862 | | | 52,404 | |
| | | | | | | |
| Loss per share of Common Stock: | | | | | | | |
| Basic and Diluted | | | | | | | |
| Continuing operations | $ | (0.19) | | | $ | (0.42) | | | $ | (0.66) | | | $ | (0.92) | |
| Discontinuing operations | 0.01 | | | (0.06) | | | (0.02) | | | (0.14) | |
| Basic and diluted loss per share of Common Stock | $ | (0.18) | | | $ | (0.48) | | | $ | (0.68) | | | $ | (1.06) | |
| | | | | | | |
Note 7. 6. Fair Values of Financial InstrumentsValue 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.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
These tiers include:
Level 1—Observable inputs that reflect quoted prices in active markets
Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3—Unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions
Our financial instruments include cash and cash equivalents, receivables, accrued liabilities and accounts payable. The fair valuesvalue of cash and cash equivalents, receivables, accrued liabilities and accounts payable approximates their carrying values
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2018 and January 28, 2017
(Thousands of dollars, except share and per share data)
(unaudited)
because of the short-term nature of these instruments, which are all considered Level 1. The fair value of short-term and long-term debt approximates its carrying value.
Non-Financial Assets and Liabilities Note 8. Credit FacilityOur 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.
On August 3, 2015,During the 13 weeks ended January 27, 2024 and January 28, 2023, we andevaluated certain of our subsidiaries, entered intostore-level long-lived assets in the Retail segment for impairment and based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $5,798 and $6,008 (both pre-tax and after-tax), respectively, on the condensed consolidated statement of operations. The fair value of the impaired long-lived assets were determined using an income approach (Level 3 input), using our best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations. For additional information, see Note 2. Summary of Significant Accounting Policies.
The following table shows the fair values of our non-financial assets and liabilities that were required to be remeasured at fair value on a non-recurring basis for each respective period and the total impairments recorded as a result of the remeasurement process:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 and 39 weeks ended January 27, 2024 | | 13 and 39 weeks ended January 28, 2023 |
| Carrying Value
Prior to Impairment | | Fair Value | | Impairment Loss
(non-cash) | | Carrying Value Prior to Impairment | | Fair Value | | Impairment Loss
(non-cash) |
| Property and equipment, net | $ | 364 | | | $ | — | | | $ | 364 | | | $ | 708 | | | $ | — | | | $ | 708 | |
| Operating lease right-of-use assets | 6,130 | | | 3,404 | | | 2,726 | | | 3,002 | | | 1,305 | | | 1,697 | |
| Intangible assets, net | 2,708 | | | — | | | 2,708 | | | 3,599 | | | — | | | 3,599 | |
| Other noncurrent assets | — | | | — | | | — | | | 4 | | | — | | | 4 | |
| Total | $ | 9,202 | | | $ | 3,404 | | | $ | 5,798 | | | $ | 7,313 | | | $ | 1,305 | | | $ | 6,008 | |
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 January 27, 2024, we recorded a liability of $34 (Level 2 input) which is reflected in accrued liabilities on the condensed consolidated balance sheet. As of January 28, 2023, we recorded a liability of $1,261 (Level 2 input) which is reflected in accrued liabilities ($1,205) and other long-term liabilities ($56) on the condensed consolidated balance sheet. For additional information, see Note 10. Long-Term Incentive Plan Compensation Expense.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
Note 7. Debt
| | | | | | | | | | | | | | | | | |
| | | As of |
| Maturity Date | | January 27, 2024 | | January 28, 2023 |
| Credit Facility | December 28, 2024 | | $ | 224,067 | | | $ | 255,600 | |
| | | | | |
| Term Loan | April 7, 2025 | | 31,750 | | | 30,000 | |
| sub-total | | | 255,817 | | | 285,600 | |
Less: Deferred financing costs, Term Loan (a) | | | (1,559) | | | (1,743) | |
| Total debt | | | $ | 254,258 | | | $ | 283,857 | |
| Balance Sheet classification: | | | | | |
| Short-term borrowings | | | $ | 224,067 | | | $ | — | |
| Long-term borrowings | | | 30,191 | | | 283,857 | |
| Total debt | | | $ | 254,258 | | | $ | 283,857 | |
| | | | | |
(a) For additional information on Credit Facility and Term Loan deferred financing costs, see Deferred Financing Costs below.
Credit Facility
We have a credit agreement (the “Credit Agreement”), amended from time to time including on December 12, 2023, October 10, 2023, July 28, 2023, May 24, 2023, March 8, 2023, March 31, 2021 and March 1, 2019, under which the lenders originally committed to provide us with a five-year5 year asset-backed revolving credit facility in an aggregate committed principal amount of $400,000 (the “Credit Facility”). The Company has 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.
On February 27, 2017, in connection with the acquisition of MBS, we amended Proceeds from the Credit Agreement with our current lenders to add a new $100,000Facility 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”) increasingfor 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 $500,000.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 $20,000 to $380,000, (iii) increase the applicable margin with respect to the interest rate under the Credit Agreement to 3.375% per annum, in the case of interest accruing based on a Secured Overnight Financing Rate, and 2.375%, in the case of interest accruing based on an alternative base rate, in each case, without regard to a pricing grid, (iv) reduce advance rates with respect to the borrowing base (x) by 500 basis points upon the achievement of certain liquidity events, which may include a sale of equity interests or of assets (a “Specified Event”), or, if such a Specified Event shall not have occurred, no later than May 31, 2023 (see discussion below) and (y) by an additional 500 basis points on September 29, 2023, (v) amend certain negative covenants and add certain additional covenants, (vi) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) to be at all times greater than the greater of 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and $32,500 and (vii) require repayment of the loans under the Credit Agreement upon a Specified Event. For additional information including interest terms and covenant requirements related to the Credit Facility, refer to Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity in our AnnualAgreement amendment, see the Company’s Report on Form 10-K 8-K dated March 8, 2023 and filed with the SEC on March 9, 2023.
As noted above, the amendment required the achievement of a Special Event by no later than May 31, 2023 (as such date may be extended pursuant to the terms of the Credit Agreement). See Note 2. Summary of Significant Accounting Policies for information related to the yearsale 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, 2017.2023, 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
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
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 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 39 weeks ended January 27, 2018,2024, we borrowed $481,600incurred debt issuance costs totaling $11,516 related to the July 2023 Credit Agreement amendment. The debt issuance costs have been deferred and repaid $528,200are 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 net totalamendment introduced a Specified Liquidity Transaction Fee of $3,800 that would become due and payable at the earlier to occur of (a) January 31, 2024, to the extent a Specified Liquidity Transaction (as defined in the Credit Agreement) has not been consummated prior to such date (or such later date that is up to thirty days thereafter to the extent agreed to in writing by the Administrative Agent in its sole discretion) or (b) an Event of Default under the Credit Agreement. During the 39 weeks ended January 27, 2024, we incurred debt issuance costs totaling $1,428 related to the October 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets, and subsequently amortized ratably over the term of the Credit Agreement.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
December 2023 Credit Agreement Amendment
On December 12, 2023, we amended our existing Credit Agreement to, among other things: (i) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) at all times to be greater than the greater of (x) 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and (y) (A) $32,500 or, subject to the satisfaction of certain conditions relating to the repayment of the Credit Agreement in full, (B) (a) $20,000 for the period of December 8, 2023 through January 12, 2024, (b) $25,000 for the period from January 26, 2024 through February 9, 2024, (c) $25,000 for the period of April 1, 2024 through April 30, 2024 and (d) $30,000 for the period of May 1, 2024 through May 31, 2024, and (ii) revise certain reporting requirements under the Credit Agreement. The amendment also revised the Specified Liquidity Transaction Fee introduced in the October 2023 Credit Agreement Amendment such that the $3,800 became due and was paid on January 31, 2024. During the 39 weeks ended January 27, 2024, we incurred debt issuance costs totaling $4,047 related to the December 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets, and subsequently amortized ratably over the term of the Credit Agreement. For additional information related to the Credit Agreement amendment, see the Company’s Report on Form 8-K dated December 12, 2023 and filed with the SEC on December 13, 2023.
March 2024 Credit Agreement Amendment
On March 12, 2024, we amended our existing Credit Agreement to, among other things, (i) revise certain reporting requirements under the Credit Agreement and (ii) set certain milestones for liquidity and refinancing contingency plans, with respect to which we must execute a binding commitment no later than April 3, 2024 (as may be extended by the administrative agent to April 10, 2024).
As of January 27, 2024, 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 39 weeks ended January 27, 2024, we borrowed $454,459 and repaid $384,545 under the Credit Agreement, and had outstanding borrowings of $113,000$224,067 as of January 27, 2018 is2024, comprised entirely of borrowings under the Credit Facility. During the 39 weeks ended January 28, 2023, we borrowed $482,000 and repaid $452,100 under the Credit Agreement, and had outstanding borrowings of $255,600 as of January 28, 2023, comprised entirely of borrowings under the Credit Facility. As of January 27, 2018,2024 and January 28, 2023, we have issued $3,575 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 39 weeks ended January 27, 2024, we incurred $1,750 for interest in kind on the Term Loans and repaid $0 under the Term Loan Credit Agreement, with $31,750 of outstanding borrowings as of January 27, 2024. During the 39 weeks ended January 28, 2023, 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
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(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 a reduction to long-term borrowings in the consolidated balance sheets, and subsequently amortized ratably over the term of the Term Loan Facility.
July 2023 Term Loan Credit Agreement Amendment
On July 28, 2023, we amended our Term Loan to (i) extend the maturity date of the Term Loan Agreement to April 7, 2025, (ii) allow for interest to be paid in kind until September 2, 2024, (iii) amend the 1.50% anniversary fee to recur on June 7 of each year that the Term Loan Agreement remains outstanding, with 2024 fee deferred to the earlier of September 2, 2024 and the Termination Date (as defined in the Term Loan Agreement) and (iv) amend certain negative covenants and affirmative and add certain additional covenants. We must pay a fee of $50 to the lenders under the Term Loan Agreement on the earlier of September 2, 2024 and the Termination Date (as defined in the Term Loan Agreement). For additional information, see the Company's Report on Form 8-K filed with the SEC on July 28, 2023.
During the 39 weeks ended January 27, 2024, 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 July 29, 2023 was paid in cash. During the 13 weeks ended October 28, 2023 and 13 weeks ended January 27, 2024, 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.
Deferred Financing Costs
The debt issuance costs have been deferred and are presented as noted below in the consolidated balance sheets, and are subsequently amortized ratably over the term of respective debt.
| | | | | | | | | | | | | | | | | |
| | | As of |
| Balance Sheet Location | Maturity Date/ Amortization Term | | January 27, 2024 | | January 28, 2023 |
| Credit Facility - Prepaid and Other Current Assets | December 28, 2024 | | $ | 14,570 | | | $ | 1,583 | |
| Credit Facility - Other noncurrent assets | | | — | | | 132 | |
| Credit Facility - sub-total | | | 14,570 | | | 1,715 | |
| Term Loan - Contra Debt | April 7, 2025 | | 1,559 | | | 1,743 | |
| Total deferred financing costs | | | $ | 16,129 | | | $ | 3,458 | |
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
Interest Expense
During the 13 weeks ended January 27, 2024 and January 28, 2023, we recognized interest expense of $10,620 and $6,918, respectively, and during the 39 weeks ended January 27, 2024 and January 28, 2023, we recognized interest expense of $29,538 and $15,672, respectively. The following table disaggregates interest expense for the 13 and 39 week periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Interest Incurred | | | | | | | | |
| Credit Facility | | $ | 5,747 | | | $ | 5,215 | | | $ | 18,286 | | | $ | 11,910 | |
| Term Loan | | 907 | | | 853 | | | 3,074 | | | 2,213 | |
| Total Interest Incurred | | $ | 6,654 | | | $ | 6,068 | | | $ | 21,360 | | | $ | 14,123 | |
| Amortization of Deferred Financing Costs | | | | | | | | |
| Credit Facility | | $ | 3,662 | | | $ | 396 | | | $ | 7,456 | | | $ | 1,187 | |
| Term Loan | | 312 | | | 462 | | | 924 | | | 871 | |
| Total Amortization of Deferred Financing Costs | | $ | 3,974 | | | $ | 858 | | | $ | 8,380 | | | $ | 2,058 | |
| Interest Income, net of expense | | $ | (8) | | | $ | (8) | | | $ | (202) | | | $ | (509) | |
| Total Interest Expense | | $ | 10,620 | | | $ | 6,918 | | | $ | 29,538 | | | $ | 15,672 | |
Cash interest paid during the 39 weeks ended January 27, 2024 and January 28, 2023 was $19,640 and $13,406, 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.
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.
During the 39 weeks ended January 27, 2024 and January 28, 2023, we recognized lease expense of $139 and $121, respectively, related to our various office spaces as selling and administrative expenses in our condensed consolidated statement of operations.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2024 and January 28, 2023
(Thousands of dollars, except share and per share data)
(unaudited)
We recognized lease expense related to our college and university contracts as cost of sales in our condensed consolidated statement of operations as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Variable lease expense | | $ | 18,679 | | | $ | 17,240 | | | $ | 56,039 | | | $ | 57,698 | |
| Operating lease expense | | 33,830 | | | 38,555 | | | 103,314 | | | 114,342 | |
| Net lease expense | | $ | 52,509 | | | $ | 55,795 | | | $ | 159,353 | | | $ | 172,040 | |
The decrease in lease expense during the 39 weeks ended January 27, 2024 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 January 27, 2024 |
| Remainder of Fiscal 2024 | | $ | 95,818 | |
| Fiscal 2025 | | 58,601 | |
| Fiscal 2026 | | 39,373 | |
| Fiscal 2027 | | 31,589 | |
| Fiscal 2028 | | 25,119 | |
| Thereafter | | 59,308 | |
| Total lease payments | | 309,808 | |
| Less: imputed interest | | (29,037) | |
| Operating lease liabilities at period end | | $ | 280,771 | |
Future lease payment obligations related to leases that were entered into, but did not commence as of January 27, 2024, were not material. The following summarizes additional information related to our operating leases:
| | | | | | | | | | | | | | |
| | As of |
| | January 27, 2024 | | January 28, 2023 |
| Weighted average remaining lease term (in years) | | 4.4 years | | 5.2 years |
| Weighted average discount rate | | 4.4 | % | | 4.5 | % |
| | | | |
| Supplemental cash flow information: | | | | |
| Cash payments for lease liabilities within operating activities | | $ | 85,880 | | | $ | 100,130 | |
| Right-of-use assets obtained in exchange for lease liabilities from initial recognition | | $ | 78,446 | | | $ | 91,365 | |
Note 9. Supplementary Information
Restructuring and other charges
Restructuring
In Fiscal 2016, we implemented a plan to restructure our digital education operations which was completed inDuring the first quarter of Fiscal 2017,13 and was primarily comprised of costs related to employee matters. We recorded restructuring costs of $68 and $1,790 during the 39 weeks ended January 27, 2018 and January 28, 2017, respectively.
Other Charges
On July 19, 2017, Mr. Max J. Roberts resigned as Chief Executive Officer of the Company and Mr. Michael P. Huseby was appointed to the position of Chief Executive Officer and Chairman of the Board, both effective as of September 19, 2017. Pursuant to the terms of the Retirement Letter Agreement, Mr. Roberts received an aggregate payment of approximately $4,424, comprised of salary, bonus and benefits. In addition, the Company paid Mr. Roberts and Mr. Huseby a one-time cash transition payment of approximately $562 and $250, respectively, at the time of the transition. During the 39 weeks ended January 27, 2018,2024, we recognized expensesrestructuring and other charges totaling approximately $5,361, which is$3,413 and $12,320, respectively, comprised primarily of the$3,413 and $11,240, respectively, for costs primarily associated with professional service costs for restructuring as discussed below and process improvements, and $0 and $1,080, respectively, for severance and transition payments. For additional information, see the Form 8-K dated July 19, 2017, filedother employee termination and benefit costs associated with the SEC on July 20, 2017.
Note 10. Barnes & Noble, Inc. Transactions
Our History with Barnes & Noble, Inc.
On August 2, 2015, we completed the legal separation from Barnes & Noble, Inc. ("Spin-Off") at which time we began to operateelimination of various positions as an independent publicly-traded company. In connection with the separation from Barnes & Noble, we entered into a Separation and Distribution Agreement with Barnes & Noble which governs the relationship between the parties after the separation and allocates between the parties various assets,part of cost reduction objectives ($921 is included in accrued liabilities rights and obligations following the separation, including inventory purchases, employee benefits, intellectual property, information technology, insurance and tax-related assets and liabilities. The agreements also describe Barnes & Noble’s future commitments to provide us with certain transition services following the Spin-Off. For information about our history with Barnes & Noble, Inc., see Part II - Item 8. Financial Statements and Supplementary Data - Note 10. Barnes & Noble, Inc. Transactions in our Annual Report on Form 10-K for the year ended April 29, 2017.
Summary of Transactions with Barnes & Noble, Inc.
During the 13 weeks ended January 27, 2018 and January 28, 2017, we were billed $5,465 and $7,356, respectively, for purchases of inventory and direct costs incurred under the agreements discussed above which are included as cost of sales, and selling and administrative expenses in the condensed consolidated statementbalance sheet as of operations.January 27, 2024).
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
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 20182024 and January 28, 20172023
(Thousands of dollars, except share and per share data)
(unaudited)
During the 39 weeks ended January 27, 2018 and January 28, 2017, we were billed $20,488 and $23,497, respectively, for purchases of inventory and direct costs incurred under the agreements discussed above which are included as cost of sales, and selling and administrative expensesdefined in the condensed consolidated statement of operations.
As of January 27, 2018 and January 28, 2017, amounts due to Barnes & Noble, Inc. for book purchases and direct costs incurred under the agreements discussed above of $6,723 and $7,445 were included in accounts payable in the condensed consolidated balance sheets, respectively.
Note 11. Related Party Transactions
Prior to the acquisition of MBS on February 27, 2017, MBS was considered a related-party as it was majority-owned by Leonard Riggio, who is a principal owner holding a substantial percentage of shares of our Common Stock,Credit Agreement). Restructuring and other members ofexpenses associated with the Riggio family.
Prior to the acquisition (as discussed in Note 4. Acquisitionscosts of this Form 10Q), we hadcommittee, as well as other related professional service costs, are expected to decrease when the Company concludes on a long-term supply agreement (“Supply Agreement”) with MBS, under which and subject to availability and competitive terms and conditions, we purchased new and used printed textbooks for a given academic term from MBS prior to buying them from other suppliers, other than in connection with student buy-back programs. strategic alternative.
During the 13 and 39 weeks ended January 28, 2017, total net purchases from MBS were $22,0442023, we recognized restructuring and $92,083, respectively. Additionally, the Supply Agreement provided that we could sell to MBS certain textbooks that we could not return to suppliers or useother charges totaling $4,127 and $4,762, respectively, comprised primarily of $2,848 in our stores. MBS paid us commissions based on the volumeeach period for severance and other employee termination and benefit costs associated with elimination of these textbooks sold to MBS each yearvarious positions as part of cost reduction objectives, and $1,279 and $1,914, respectively, for costs primarily associated with respect to the textbook requirements of certain distance learning programs that MBS fulfilled on our behalf. professional service costs for restructuring and process improvements.
Note 10. Long-Term Incentive Plan Compensation Expense
During the 13 and 39 weeks ended January 28, 2017, MBS paid us $2,15227, 2024, 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 $6,077, respectively,administrative expenses as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 39 weeks ended |
| January 27,
2024 | | January 28,
2023 | | January 27,
2024 | | January 28,
2023 |
| Stock-based awards | | | | | | | |
| Restricted stock expense | $ | — | | | $ | 7 | | | $ | 11 | | | $ | 165 | |
| Restricted stock units expense | 512 | | | 704 | | | 1,528 | | | 2,390 | |
| | | | | | | |
| Performance share units expense | — | | | — | | | — | | | 10 | |
| Stock option expense | 300 | | | 498 | | | 1,029 | | | 1,710 | |
| Sub-total stock-based awards: | $ | 812 | | | $ | 1,209 | | | $ | 2,568 | | | $ | 4,275 | |
| Cash settled awards | | | | | | | |
| Phantom share units expense | $ | 1 | | | $ | (72) | | | $ | (128) | | | $ | 167 | |
| Total compensation expense for long-term incentive awards | $ | 813 | | | $ | 1,137 | | | $ | 2,440 | | | $ | 4,442 | |
Total unrecognized compensation cost related to these commissions. In addition, the Supply Agreement contained restrictive covenants that limited our ability to become a used textbook wholesaler and placed certain limitations on MBS’s business activities. We also previously entered into an agreement with MBS pursuant to which MBS purchased books, which have no resale value for a flat rate per box, from us. During the 13 and 39 weeks ended January 28, 2017, total sales to MBS under this program were $88 and $253, respectively. Total outstanding amounts payable to MBS for all arrangements net of any amounts due was $45,581unvested awards as of January 28, 2017.
Subsequent to the acquisition, the condensed consolidated financial statements include the accounts of MBS27, 2024 was $3,173 and all material intercompany accounts and transactions have been eliminated in consolidation.
MBS leases its main warehouse and distribution facility located in Columbia, Missouri from MBS Realty Partners L.P. which is majority-owned by Leonard Riggio, with the remaining ownership by other sellers of MBS. The lease was originally entered into in 1991 and included a renewal option which extended the lease through September 1, 2023. Based upon a valuation performed as of the acquisition date, the lease was determinedexpected to be favorable fromrecognized over a lessee perspective with below market rent. For additional information, see Note 4. Acquisitionsweighted-average period of this Form 10Q. Rent payments to MBS Realty Partners L.P. were approximately $345 and $1,035 during the 13 and 39 weeks ended January 27, 2018, respectively.1.3 years.
Note 12. 11. Employee Benefit Plans
BNC
BNC has aWe sponsor defined contribution planplans for itsthe benefit of substantially all of the employees ("Savings Plan"). BNC is responsible for employer contributions to the Savings Plan and to fund the contributions directly. Total contributions charged to employee benefit expenses for this plan was $887 and $919 during the 13 weeks ended January 27, 2018 and January 28, 2017, respectively, and $3,096 and $3,159 during the 39 weeks ended January 27, 2018 and January 28, 2017, respectively.
MBS
of BNC. MBS maintains a defined contribution and profit sharing plan ("Profit Sharing Plan") covering substantially all full-time employees of MBS. MBS transfers employee contributions to the account balances of their employees and isFor all plans, we are responsible to fund the employer contributions directly. Total employee benefit expensesexpense for the Profit Sharing Planthese plans was $638$0 and $2,193$1,101 during the 13 weeks ended January 27, 2024 and January 28, 2023, respectively. Total employee benefit expense for these plans was $1,687 and $3,386 during the 39 weeks ended January 27, 2018,2024 and January 28, 2023, respectively.
Commencing in September 2023, we revised the 401(k)-retirement savings plan to an annual end of plan year discretionary match, in lieu of the current pay period match.
Note 12. Income Taxes
We recorded an income tax expense of $229 on pre-tax loss of $(9,699) during the 13 weeks ended January 27, 2024, which represented an effective income tax rate of (2.4)% and an income tax expense of $139 on pre-tax loss of $(21,995) during the 13 weeks ended January 28, 2023, which represented an effective income tax rate of (0.6)%. We recorded an income tax expense of $532 on pre-tax loss of $(34,513) during the 39 weeks ended January 27, 2024, which represented an effective income tax rate of (1.5)% and an income tax expense of $603 on pre-tax loss of $(47,685) during the 39 weeks ended January 28, 2023, which represented an effective income tax rate of (1.3)%. The effective tax rate for the 13 weeks ended January 27, 2024 is lower than the prior year comparable period due to immaterial return to provision adjustments recorded in the prior year. The effective tax rate for the 39 weeks ended January 27, 2024 is materially consistent with the prior year comparable period.
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 January 27, 2024, we determined that it was more likely than not that
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 20182024 and January 28, 20172023
(Thousands of dollars, except share and per share data)
(unaudited)
Note 13. Stock-Based Compensation
We recognize compensation expense for awards ratably over the requisite service period of the award, which is generally three years. We recognize compensation expense based on the number of awards expected to vest using an estimated average forfeiture rate. We calculate the fair value of stock-based awards based on the closing price on the date the award was granted.
During the 39 weeks ended January 27, 2018, we granted the following awards:
537,756 performance share units ("PSU") awards to employees that will only vest based upon the achievement of pre-established performance goals related to Adjusted EBITDAwould not realize all deferred tax assets and new business achieved measured over a period of time. The PSU awards will vest based on company performance during Fiscal 2018 - Fiscal 2019 with one additional year of time-based vesting. The number of PSU awards that will vest range from 0%-150% of the target award based on actual performance.
1,562,110 restricted stock units ("RSU") awards were granted to employees with a three year vesting period in accordance with the Equity Incentive Plan;
78,816 RSU awards and 19,704 restricted stock ("RS") awards were granted to the current Board of Directors ("BOD") members for annual compensation with a one year vesting period in accordance with the Equity Incentive Plan.
We recognized stock-based compensation expense for equity-based awards in selling and administrative expenses as follows:
|
| | | | | | | | | | | | | | | |
| �� | 13 weeks ended | | 39 weeks ended |
| | January 27,
2018 | | January 28,
2017 | | January 27,
2018 | | January 28,
2017 |
| Restricted stock expense | $ | 30 |
| | $ | 30 |
| | $ | 90 |
| | $ | 250 |
|
Restricted stock units expense (a) | 2,237 |
| | 2,622 |
| | 6,277 |
| | 6,500 |
|
Performance shares expense (b) | 58 |
| | 117 |
| | (275 | ) | | 477 |
|
Performance share units expense (b) | (255 | ) | | — |
| | 131 |
| | — |
|
| Stock-based compensation expense | $ | 2,070 |
| | $ | 2,769 |
| | $ | 6,223 |
| | $ | 7,227 |
|
(a) The stock-based compensation expense for the RSUs reflect the forfeiture adjustment for unvested shares related to the CEO transition. See Note 9. Supplementary Information - Restructuring and Other Charges of this Form 10-Q for additional information.
(b) The performance shares and PSUs expenses reflect a cumulative adjustment to reflect changes to the expected level of achievement of the respective grants.
Total unrecognized compensation cost related to unvested awards as of January 27, 2018 was $15,180 and is expected to be recognized over a weighted-average period of 2.1 years. Approximately $847 of the unrecognized compensation cost is related to performance shares and performance share units, which is subject to attaining the stated performance metrics.
Note 14. Income Taxes
We recorded an income tax benefit of $(15,344) on a pre-tax loss of $(298,579) during the 13 weeks ended January 27, 2018, which represented an effective incomeour tax rate of 5.1% and an income tax expense of $758 on pre-tax income of $4,519 during the 13 weeks ended January 28, 2017, which represented an effective income tax rate of 16.8%.
We recorded an income tax benefit of $(6,113) on a pre-tax loss of $(275,736) during the 39 weeks ended January 27, 2018, which represented an effective income tax rate of 2.2% and an income tax expense of $2,087 on pre-tax income of $7,221 during the 39 weeks ended January 28, 2017, which represented an effective income tax rate of 28.9%.
The effective tax rates for the 13 and 39 weeks ended January 27, 2018 are significantly lower as compared to the comparable prior year periods due to the tax benefit of U.S. Tax Reform, partially offset by permanent differences, which in this quarter includes the nondeductible portion of the goodwill impairment.
Management expects nondeductible compensation expense for the current fiscal year reflects this determination. We will continue to be significantly lower compared to the prior fiscal year as components of our executive compensation program now qualify as deductible under Section 162(m) of the Internal Revenue Code. In addition, our income tax provision for the preceding two fiscal years reflected certain non-recurringevaluate this position.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the 13 and 39 weeks ended January 27, 2018 and January 28, 2017
(Thousands of dollars, except share and per share data)
(unaudited)
tax benefits arising from the Spin-Off. Management does not expect any similar non-recurring tax benefits associated with the Spin-Off to impact our effective tax rate either in the current fiscal year or in future fiscal year.
Impact of U.S. Tax Reform
The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, among other provisions. As of January 27, 2018, we had not completed the accounting for the tax effects of enactment of the Act; however, as described below, we have made a reasonable estimate of the effects on existing deferred tax balances and the one-time transition tax in accordance with SAB 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118). These amounts are provisional and subject to change within the measurement period proscribed by SAB 118 which is not to extend beyond one year from the enactment date. The most significant impact of the legislation for the Company was a $21,126 reduction of the value of the our net deferred (which represents future tax liabilities) and long-term tax liabilities as a result of lowering the U.S. corporate income tax rate from 35% to 21%. We have provisionally recorded a liability associated with the one-time transition tax, however, such amount is not material.
Note 15. 13. Legal Proceedings
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.
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise indicates, references to “we,” “us,” “our” and “the Company” refer to Barnes & Noble Education, Inc. or “BNED”, a Delaware corporation. References to “Barnes & Noble College” or "BNC"“BNC” refer to our college bookstore business operated through our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our virtual bookstore and wholesale textbook distribution business operated through our subsidiary MBS Textbook Exchange, LLC, a Delaware corporation.LLC.
Overview
Description of businessBusiness
Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for higher educationcollege and university campuses and K-12 institutions across the United States,States. We are also one of the largest textbook wholesalers, inventory management hardware and a leading provider of digital education services. Through its Barnes & Noble College (“BNC”)software providers. We operate 1,272 physical, virtual, and MBS Textbook Exchange (“MBS”) subsidiaries, Barnes & Noble Education operates 1,480 physical and virtualcustom bookstores and servesserve more than 65.8 million students, delivering essential educational content, tools and toolsgeneral merchandise within a dynamic omnichannel retail environment. Through LoudCloud, its digital education platform, Barnes & Noble Education offers a suite of digital software, content and services that include predictive analytics, open educational resources ("OER") courseware, competency-based solutions, and a learning management system. Additionally, through Student Brands, LLC, a leading direct-to-student subscription-based writing services business, BNC offers services focused on study tools, writing help, and literary research, all centered on assisting students with the writing process.
We believe our product offerings and services for students, faculty and administrators enable a more personalized learning experience, which improves student success rates and retention. We strive to be the first stop for students, educators and administrators by offering the most comprehensive resources available with our flexible physical and/or virtual bookstore options. The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with well-recognized brand; our abilitydirect access to meet students’ affordability needs; our comprehensive suite of course materials;students and faculty, our well-established, deep relationships with partners; direct access to students and faculty; integrated systems with our customers;academic partners and stable, long-term contracts. 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 DayComplete and First Day, which provide faculty required course materials on or before the first day of class at below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte) and students are billed the below market rate directly by the institution as a course charge or included in tuition. During the 39 weeks ended January 27, 2024, BNC First Day total revenue increased by $136 million, or 44%, to $445 million compared to $309 million during the prior year period. These programs have allowed us to reverse historical long-term trends in course materials revenue declines as the growth of our BNC First Day programs offsets declines in a la carte courseware sales and closed store sales.
We expect to continue to grow our business by increasing market share with new accounts, introducingintroduce scalable and advanced digital solutions focused largely on the student and expandingcustomer experience, expand our strategice-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 acquisitionsstrategic relationships. We expect gross comparable store general merchandise sales to increase over the long term, as our product assortments continue to emphasize and partnerships.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.
Educational institutions increasinglyThe Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are outsourcing bookstore operations, investingsynonymous with innovation in data-driven analytical tools,bookselling and offering students more affordable options for textbookscampus retailing, and other learning tools. Given these continuing trends, we are well-positioned to capture new market sharewidely recognized and partner with an increasing number of schools across the country. As demand for new, improved, and more affordable products and services increaserespected brands in the rapidly changing education landscape, we are working to evolve our business modelUnited States. Our large college footprint, reputation, and enhance our solutions. We aim to be an even stronger partner for schools and meet customer needs by expanding our physical and virtual bookstore service capabilities, courseware offerings and digital platform services. We have begun to offer the distribution of e-content via our First Day™, our inclusive access program, in which course materials are includedcredibility in the costmarketplace 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 tuition and delivered to students digitally or through their Barnes & Noble College campus bookstore. We believe that our strategic actions, including the acquisition of LoudCloud, Promoversity, MBS, and Student Brands (discussed below) and development of courseware, have substantially enhanced our competitive position. We continue to aggressively innovate and collaborate with our partners to provide solutions that extend well beyond course materials sourcing and sales to include new digital services that support successful student outcomes. See Fiscal Year 2018 Highlights below for a discussion of recent activities to enhance our product offerings and services.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, 2017.2023.
Fiscal Year 2018 HighlightsBNC First Day Equitable and Inclusive Access Programs
McGraw-Hill Education - In February 2018, we expandedWe 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 relationship with McGraw-Hill Education with two new initiatives to provide students, facultyBNC First Day® equitable and institutions greater access to more affordable course materials. The companies will partner on two initiatives: the distribution of McGraw-Hill Education e-content through our First Day™, our inclusive access program, inprograms, consisting of First DayComplete and First Day, which provide faculty required course materials are included in the cost of tuition and delivered to students digitallyon or through their Barnes & Noble College campus bookstore, and the distribution of McGraw-Hill Education's new rental titles through our channels. MBS will act as a distributor for rental textbooks offered through McGraw-Hill Education's newly announced rental program. The program includes more than 250 titles, with plans for all future titles. Through its centrally located, advanced distribution center, MBS will offer a seamless integration of McGraw-Hill Education's rental program, providing a single point of entry for the rental titles and centralized administration and distribution to more than 3,700 stores.
Pearson - In February 2018, we announcement that we entered an agreement with Pearson to offer Pearson content through our inclusive access models at our 1,480 physical and virtual campus bookstores nationwide, serving more than 6 million students and their faculty. This collaboration provides students with affordable access to high-quality course materials, including MyLab™
and Mastering™, Revel™ and eTexts, onbefore the first day of class.class at below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte) and students are billed the below market rate directly by the institution as a course charge or included in tuition.
•First Day Complete is adopted by an institution and includes the majority of undergraduate classes (and on occasion graduate classes), providing students both physical and digital materials. The seamless deliveryFirst Day Complete model drives substantially greater unit sales and sell-through for the bookstore.
•First Day is made possibleadopted by BNED’s First Day™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 program and Pearson’s technology integrations with campus systems.
Kentucky Community and Technical College System ("KCTCS") - This Fall, more than 1,000 KCTCS students used BNED Courseware in their classes. Three colleges in the KCTCS took part in our digital courseware program, as part of an ongoing KCTCS effort to provide students with more affordable course materials. BNED Courseware is digital course content that includes videos, activities and auto-graded practice assessments that faculty can easily personalize to align with class objectives. BNED Courseware was offered through First Day™. The First Day program, offeredComplete and First Day models is a key, and increasingly important strategic initiative of ours to meet the entire KCTCS system, ensuresmarket 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 theirallowed us to reverse historical long-term trends in course materials onrevenue declines, which have been observed at those schools where such programs have been adopted, and improve predictability of our future results. The growth of our BNC First Day programs offsets declines in a la carte courseware sales and closed store sales. We are moving quickly and decisively to accelerate our First Day Complete strategy. We have seen many institutions adopt First Day Complete in Fiscal 2024 and plan to continue to scale the first daynumber of class.schools adopting First Day Complete in Fiscal 2025 and beyond.
The Princeton Review -following table summarizes our BNC First Day sales for the 13 and 39 weeks ended January 27, 2024 and January 28, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dollars in millions | 13 weeks ended | | 39 weeks ended |
| January 27, 2024 | | January 28, 2023 | | Var $ | | Var % | | January 27, 2024 | | January 28, 2023 | | Var $ | | Var % |
First Day Complete Sales | $ | 109.5 | | | $ | 66.9 | | | $ | 42.6 | | | 64% | | $ | 271.5 | | | $ | 173.4 | | | $ | 98.1 | | | 57% |
First Day Sales | $ | 74.5 | | | $ | 53.8 | | | $ | 20.7 | | | 38% | | $ | 173.6 | | | $ | 135.7 | | | $ | 37.9 | | | 28% |
Total BNC First Day Sales | $ | 184.0 | | | $ | 120.7 | | | $ | 63.3 | | | 52% | | $ | 445.1 | | | $ | 309.1 | | | $ | 136.0 | | | 44% |
| | | | | | | | | | | | | | | |
| First Day Complete | | | | | | | | | Spring 2024 | | Spring 2023 | | Var # | | Var % |
| Number of campus stores | | | | | | | | | 160 | | 116 | | 44 | | 38% |
Estimated enrollment (a) | | | | | | | | | 805,000 | | 580,000 | | 225,000 | | 39% |
| | | | | | | | | | | | | | | |
| (a) Total undergraduate and graduate student enrollment as reported by National Center for Education Statistics (NCES) |
| | | | | | | | | | | | | | | |
Relationship with Fanatics and Lids
In November 2017,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, operates as our service provider, including processing consumer personal information on our behalf, using their cutting-edge e-commerce and technology expertise to offer our campus store websites expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with Lids, the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.
We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We also work closely with our campus partners to ensure that each campus store maintains unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus’s brand. We leverage Fanatics’ e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. Lids manages in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores, and Lids owns the inventory it manages, relieving us of the obligation to finance inventory purchases from working capital.
Financing Arrangements and Strategic Review
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 partnership withalternatives to effect a “Specified Liquidity Transaction” (as defined in the Credit Agreement). The Princeton Review.Board continues its ongoing review of a broad range of strategic alternatives available to the Company, including but not limited to potential capital raises, asset divestitures, a sale of the business, and pursuit of standalone growth plans. The partnership allows usBoard has not set a timetable for the conclusion of this review, nor has it made any decisions
related to any further expandactions at this time. There can be no assurance that the review will result in any transaction or other strategic change or outcome.
Cost Savings Initiative
During Fiscal 2023, we implemented a significant cost reduction program designed to streamline our end-to-end offeringsoperations, maximize productivity and fulfilldrive 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 full breadthcourse of student education needs by offering The Princeton Review's productsFiscal 2024, we have achieved annualized savings of approximately $30 million to $35 million from the Fiscal 2023 cost savings initiatives. Additionally, during Fiscal 2024, Management's plan to implement further cost savings measures, including reduction of gross capital expenditures, amounting to approximately $25 million, of which approximately $18 million has been achieved during the 39 weeks ended January 27, 2024. Management believes that these plans are within its control and serviceswill be focused on implementing these cost savings measures.
Segments
During the fourth quarter of Fiscal 2023, assets related to our network of more than 6 million students.
Portland State UniversityDigital Student Solutions ("PSU"DSS") - In October 2017, we announced our strategic partnership with PSU to co-develop Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a degree planning solution. Using insights generated by PSU's reTHINK initiative and leveraging our analytics platform, the solution will ultimately help more students graduate on time with better pathways to employment and provide the university with long-term demand planning tools.
Eastern Gateway Community College ("EGCC") - In August 2017, we announced that we signed a multi-year contract with EGCC to provide a full suite of solutions, including bookstore operations, an institution-wide learning management system (LMS), LoudSight, our predictive analytics offering, and digital courseware to the students, faculty and advisors of EGCC.
Acquisition of Student Brands, LLC - reportable segment. On August 3, 2017, we acquired Student Brands. Student Brands is an education technology company that operates multiple direct-to-student businesses focused on study tools, writing help, and literary research, all centered on assisting students with the writing process. Student Brands generates revenue predominantly through its subscription-based services and digital advertisements. Student Brands has over 20 million unique monthly users across its digital properties, which include123HelpMe.com, Bartleby.com and StudyMode.com in the United States and TrabalhosFeitos.com, Etudier.com and Monografias.com in Brazil, France and Mexico, respectively.
Unizin, Ltd. ("Unizin")- In May 2017, we entered into an agreement with Unizin to provide its 22 member universities with LoudCloud's predictive analytics solution, LoudSight. As a result, faculty and advisors will have access to a customized solution that helps educators identify, monitor, and support at-risk students, with the goal of improving student success rates and retention.
Integration of MBS Textbook Exchange, LLC. ("MBS") - Prior to the end of Fiscal 2017, in February 2017,31, 2023, we completed the purchasesale of all issuedthese assets related to our DSS Segment for cash proceeds of $20 million, net of certain transaction fees, severance costs, escrow, and outstanding unitsother considerations. During the 39 weeks ended January 27, 2024, we recorded a Gain on Sale of MBS, which operates two highly integrated businesses, WholesaleBusiness of $3.5 million in Loss from Discontinued Operations, Net, related to the sale. Net cash proceeds from the sale were used for debt repayment and Direct. We continueprovided additional funds for working capital needs under our efforts to integrate the operationsCredit Facility. For additional information, see Note 2. Summary of MBS to achieve our strategic objectives and anticipated synergies.
SegmentsSignificant Accounting Policies.
We have two reportable segments: BNCRetail and MBS.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”.
BNCWe 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 7821,272 college, university, and K-12 school bookstores, comprised of 717 physical bookstores and 555 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 as of January 27, 2018, the majority of which also have school-branded e-commerce sites operated by BNC,websites which we operate independently or along with our merchant service providers, and BNC also includes our digital education operations and subscription-based writing services business. Our campus stores are a social and academic hub through which offer students can access to affordable course materials and affinity products, including new and used print and digital textbooks, which are available for sale or rent, emblematic apparel and gifts, trade books, computer products, schoolgifts. The Retail Segment offers our BNC First Day® equitable and dorm supplies, café offerings, convenience food inclusive access programs, consisting of First DayComplete and beverages,First Day, which provide faculty required course materials on or before the first day of class at below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte) and graduation products. BNC product offerings also includestudents are billed the below market rate directly by the institution as a course charge or included in tuition. Additionally, the Retail Segment offers a suite of digital content software, and services through our LoudCloud platform, such as predictive analytics,to colleges and universities, including a variety of open educational resources ("OER") courseware, and competency-based learning solutions and a learning management system. Additionally, through Student Brands, BNC offers services focused on study tools, writing help, and literary research, all centered on assisting students with the writing process. resource-based courseware.
During the 39 weeks ended January 27, 2018, BNC2024, we opened 3041 stores and closed 135 stores in the Retail Segment with estimated net annual first year sales of $61.0 million.$65 million as we pruned some under-performing, less profitable stores, satellite stores, and certain other contracts were awarded to competitors. We have seen many institutions adopt First Day Complete in Fiscal 2024 and plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond. These programs have allowed us to reverse historical long-term trends in course materials revenue declines as the growth of our BNC First Day programs offsets declines in a la carte courseware sales and closed store sales.
Our MBS subsidiary operates two highly integrated businesses. Wholesale Segment
The MBS DirectWholesale Segment is comprised of our wholesale textbook business is the largest contract operator of virtual bookstores for college and university campuses and private/parochial K-12 schools. MBS Direct operates 698 virtual bookstores as of January 27, 2018, offering new and used print and digital textbooks, which are available for sale or rent. Additionally, MBS Direct sells textbooks directly to students through textbooks.comSM, one of the largest e-commerce sites for new and used textbooks. MBS Wholesale is one of the largest textbook wholesalers in the country, providing a comprehensive selection ofcountry. The Wholesale Segment centrally sources, sells, and distributes new and used textbooks at a low cost of supply to more than 3,700approximately 2,900 physical bookstores (as(including our Retail Segment's 717 physical bookstores) and sources and distributes new and used textbooks to our 555 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a software suite of April 29, 2017),applications that provides inventory management and point-of-sale solutions to approximately 325 college bookstores.
Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance functions, including BNC’s 782 campus bookstores. Duringexecutive functions, such as accounting, legal, treasury, information technology, and human resources.
Seasonality
Our business is highly seasonal. For example, our retail business is seasonal, particularly with respect to textbook sales and rentals, with the 39 weeks ended January 27, 2018, MBS Direct opened 19 stores,major portion of sales and operating profit realized during the second and third fiscal quarters when college students generally purchase and rent textbooks for the upcoming semesters and lowest in the first and fourth fiscal quarters. Our quarterly results also may fluctuate depending on the timing of the start of the various schools’ semesters, the revenue impact of accounting principles with estimated annual first year salesrespect to the recognition of $5.7 million.
For additional information relatedrevenue associated with our equitable and inclusive access programs, the ability to product and platform offerings for BNC and MBS, see Part I - Item 1. Business secure inventory on a timely basis, as well as shifts in our Annual Reportfiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Sales attributable to our wholesale business are generally highest in our first, second and third quarters, as it sells textbooks and other course materials for retail distribution. See Revenue Recognition and Deferred Revenue discussion below.
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 Form 10-Kthe 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 year ended April 29, 2017.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. As the concentration of digital product sales increases, revenue will be recognized earlier during the academic term as digital textbook revenue is recognized when the customer accesses the digital content compared to: (i) the rental of physical textbook where revenue is recognized over the rental period, and (ii) ala carte courseware sales where revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores.
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 FactorsBusiness 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: 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 textbookscourse 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 studentscustomers and to increase the level of engagement by existing students. Forour current customers. In the 39 weeks ended January 27, 2018, our comparable store sales wereFall 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 lower average selling pricesthe dip in the United States birth rate resulting in fewer students at the traditional 18-24 year-old college age. Online degree program enrollments continue to grow, even in the face of declining overall higher education enrollment.
•Increased Use of 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 driven by lower publisher prices resultingare distributed and consumed is changing significantly, a trend that is expected to continue. The market for course materials, including textbooks and supplemental materials, is intensely competitive and subject to rapid change.
•Disintermediation. We are experiencing growing competition from a shift to lower cost optionsalternative media and more affordable solutions, including digital. Additionally, comparable store sales declined foralternative sources of textbooks due to lower community college enrollment, increased consumer purchases directly from publishers and other online providers,course materials. In addition to the official physical or virtual campus bookstore, course materials are also sold through off-campus bookstores, e-commerce outlets, digital platform companies, and general weakness inpublishers, including Cengage, Pearson and McGraw Hill, bypassing the retail environment.
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: 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 and new textbooks has historically been greater than the available supply, our financial results are highly dependent upon MBS Wholesale’s ability to build its textbook inventory from suppliers in advance of the selling season. 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 onpursuant to consignment or rental programs which could impact used textbook supplies in the future. In February 2018, BNED signed an agreement with McGraw-Hill Education, in which MBS would act asAdditionally, Wholesale is a national distributor for rental textbooks offered through McGraw-Hill Education's newly announcedand 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 program includes more than 250 titles, with plans for all future titles. See Fiscal Year 2018 Highlights above for additional information.broader macro-economic global supply chain issues may also impact our ability to source school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing.
Demand for Digital Offerings: Over the longer-term, we anticipate significant new opportunities for our digital product offerings. Through our LoudCloud platform, we address the growing demand for alternative forms of educational materials and learning tools.•Price Competition. In addition to the competition in the services we provide to our acquisitioncustomers, 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 Student Brands offers additional digital direct-to-student services, centeredours 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 assisting students withindividual student marketing and sales. These programs have allowed us to reverse historical long-term trends in course materials revenue declines as the writing process. See growth of our BNC First Day programs offsets declines in a la carte courseware sales and closed store sales. We are moving quickly and decisively to accelerate our First Day Complete strategy. While we have seen many institutions adopt First Day Complete in Fiscal Year 2018 Highlights above2024 and plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond, we cannot guarantee that we will be able to achieve these plans within these timeframes or at all. Additionally, the United States Department of Education has recently proposed regulatory changes that, if adopted as proposed, could impact equitable and inclusive access models across the higher education industry.
•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 additional information.
the provision of course materials (such as equitable and inclusive access programs and publisher subscription models) and general merchandise.•New and Existing Bookstore Contracts: Contracts. We expect awards of new accounts resulting in new physical and virtual store openings will continue to be an important driver of future growth in our business. We also expect that certain less profitable or non-essential bookstores we operate may close, as we focus on the profitability of our stores. 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 continue to successfully renewclose or have informed us of upcoming closures. The growth of our current contracts on favorable terms.
Campus Bookstore Outsourcing: We continue to see increasing trends towards outsourcingBNC First Day programs offsets declines in the campus bookstore market, including virtual bookstores and online marketplace websites. We also continue to see a variety of business models being pursued for the provision of textbooks, course materials and general merchandise. Contract costs, which are included in cost ofla carte courseware sales and primarily consist of the payments we makeclosed store sales. We are moving quickly and decisively to the colleges and universities to operate their official bookstores (management service agreement costs), including rent expense, have generally increased as a percentage of sales as a result of increased competition for renewals and new store contracts. We continue to work on evolvingaccelerate our business model and enhance our solutions, as well as enforce our contract exclusivity, to combat increased competition.
First Day Complete strategy.Course Materials Market: In addition to the competition in the services we provide to our customers, our textbook business faces significant price competition. Many students purchase from multiple textbook providers, are highly price sensitive and can easily shift spending from one provider or format to another. SomeFor additional discussion of our competitors have adopted, and may continue to adopt, aggressive pricing policies and devote substantial resources to marketing, website and systems development. As we expand our textbook rental offerings, students have been shifting away from higher priced textbook purchases to lower priced rental options, which has resulted in lower textbook sales and increasing rental income.
Retail Environment: BNC general merchandise sales, which are subject to short-term fluctuations driven by the broader retail environment, continue to increase over the long term as our product assortments continue to emphasize and reflect the changing consumer trends and we evolve our presentation concepts and merchandising of products in stores and online.
For additional information related toother factors affecting our business,seePart I - Item 1. Business - Trends and Other Factors Affecting Our Business in our Annual Report on Form 10-K for the fiscal year ended April 29, 2017.2023.
Elements of Results of Operations
Our condensed consolidated financial statements reflect our condensed consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). On February 27, 2017, we acquired MBS Textbook Exchange, LLC and on August 3, 2017 we acquired Student Brands, LLC. The results of operations for the 13 and 39 weeks ended January 27, 2018 include thereflected in our condensed consolidated financial results of both MBS and Student Brands and allstatements 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 forrelated to the 13 and 39 weeks ended January 28, 2017 excludeDSS Segment are included in the financial resultscondensed consolidated statements of MBS and Student Brands.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, and used, textbooksrental and digital textbooks. Our rental income is primarily derived from the rental of physical and digital textbooks. AtAdditionally, 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 related toof inventory management, hardware and point-of-sale software, and direct-to-student subscription-based writingother services.
Our cost of sales primarily includeincludes costs such as merchandise costs, textbook rental amortization, payroll costs, as well as 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 stock-basedlong-term incentive plan compensation expense and general office expenses, such as executive oversight, merchandising, procurement, field support, and finance and accounting. Shared-service costs such as human resources, benefits, training, legal, andtreasury, 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 well as our investmentsdiscussed in our digital platform and subscription-based writing services.the Overview - Segments discussion above.
Results of Operations - Summary - Continuing Operations (a)
|
| | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 |
| Sales: | | | | | | | |
| Product sales and other | $ | 540,903 |
| | $ | 457,147 |
| | $ | 1,693,230 |
| | $ | 1,372,810 |
|
| Rental income | 62,488 |
| | 64,477 |
| | 152,733 |
| | 158,722 |
|
| Total sales | $ | 603,391 |
| | $ | 521,624 |
| | $ | 1,845,963 |
| | $ | 1,531,532 |
|
| | | | | | | | |
| Net (loss) income | $ | (283,235 | ) | | $ | 3,761 |
| | $ | (269,623 | ) | | $ | 5,134 |
|
| | | | | | | | |
Adjusted Earnings (non-GAAP) (a) | $ | 19,644 |
| | $ | 4,047 |
| | $ | 39,781 |
| | $ | 7,848 |
|
| | | | | | | | |
Adjusted EBITDA (non-GAAP) (a) | | | | | | | |
| BNC | $ | 19,636 |
| | $ | 18,814 |
| | $ | 54,329 |
| | $ | 52,681 |
|
| MBS | 20,752 |
| | — |
| | 56,000 |
| | — |
|
| Elimination | (5,827 | ) | | — |
| | (5,782 | ) | | — |
|
| Total Adjusted EBITDA (non-GAAP) | $ | 34,561 |
| | $ | 18,814 |
| | $ | 104,547 |
| | $ | 52,681 |
|
| | | | | | | | |
| |
(a) | Adjusted Earnings and Adjusted EBITDA are a non-GAAP financial measures. See Adjusted Earnings (non-GAAP) and Adjusted EBITDA (non-GAAP) discussion below.
|
Store Count
|
| | | | | | | | |
| | 13 weeks ended January 27, 2018 | | 13 weeks ended January 28, 2017 |
| Number of Stores: | BNC Stores | | MBS Direct Stores | | BNC Stores |
| Opened | 6 |
| | 5 |
| | 2 |
|
| Closed | 1 |
| | 13 |
| | 3 |
|
| Opened at end of period | 782 |
| | 698 |
| | 770 |
|
| | | | | | |
Comparable store sales (a) | (6.2 | )% | | N/A |
| | (5.3 | )% |
|
| | | | | | | | |
| | 39 weeks ended January 27, 2018 | | 39 weeks ended January 28, 2017 |
| Number of Stores: | BNC Stores | | MBS Direct Stores | | BNC Stores |
| Opened | 30 |
| | 19 |
| | 36 |
|
| Closed | 17 |
| | 33 |
| | 17 |
|
| Opened at end of period | 782 |
| | 698 |
| | 770 |
|
| | | | | | |
Comparable store sales (a) | (4.7 | )% | | N/A |
| | (4.0 | )% |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27,
2024 | | January 28,
2023 | | January 27,
2024 | | January 28,
2023 |
| Sales: | | | | | | | |
Product sales and other (b) | $ | 415,375 | | | $ | 393,745 | | | $ | 1,237,723 | | | $ | 1,204,806 | |
| Rental income | 41,298 | | | 44,309 | | | 93,490 | | | 96,555 | |
| Total sales | $ | 456,673 | | | $ | 438,054 | | | $ | 1,331,213 | | | $ | 1,301,361 | |
| | | | | | | |
| Loss from continuing operations | $ | (9,928) | | | $ | (22,134) | | | $ | (35,045) | | | $ | (48,288) | |
| | | | | | | |
| Adjusted Earnings (non-GAAP) - Continuing Operations (c) | $ | (717) | | | $ | (11,999) | | | $ | (16,927) | | | $ | (37,492) | |
| | | | | | | |
Adjusted EBITDA by Segment (non-GAAP) - Continuing Operations (c) | | | | | | | |
| Retail | $ | 17,850 | | | $ | 6,173 | | | $ | 47,315 | | | $ | 20,604 | |
| Wholesale | 4,725 | | | 3,105 | | | 9,729 | | | 7,461 | |
| Corporate Services | (5,092) | | | (5,572) | | | (15,297) | | | (17,861) | |
| Elimination | 2,797 | | | 1,464 | | | 1,972 | | | (157) | |
Total Adjusted EBITDA (non-GAAP) (c) | $ | 20,280 | | | $ | 5,170 | | | $ | 43,719 | | | $ | 10,047 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| |
(a) | For BNC, effective for the first quarter of Fiscal 2017, comparable store sales includes sales from stores that have been open for an entire fiscal year period, does not include sales from closed stores for all periods presented, and digital agency |
(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 includedrecognized on a gross basis. We believenet basis as commission revenue in the current comparable store sales calculation method better reflects the manner in which management views comparable sales, as well as the seasonal naturecondensed 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 our business. Prior year comparable store sales have been updated to exclude store inventory sales to MBS, which are reflected as intercompany inventory transfers since the acquisition.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 | | 39 weeks ended |
| | January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 |
| Sales: | | | | | | | |
| Product sales and other | 89.6 | % | | 87.6 | % | | 91.7 | % | | 89.6 | % |
| Rental income | 10.4 |
| | 12.4 |
| | 8.3 |
| | 10.4 |
|
| Total sales | 100.0 |
| | 100.0 |
| | 100.0 |
| | 100.0 |
|
| Cost of sales: | | | | | | | |
Product and other cost of sales (a) | 77.6 |
| | 80.1 |
| | 78.3 |
| | 80.0 |
|
Rental cost of sales (a) | 59.6 |
| | 61.3 |
| | 60.2 |
| | 61.7 |
|
| Total cost of sales | 75.7 |
| | 77.8 |
| | 76.8 |
| | 78.1 |
|
| Gross margin | 24.3 |
| | 22.2 |
| | 23.2 |
| | 21.9 |
|
| Selling and administrative expenses | 18.6 |
| | 18.6 |
| | 17.7 |
| | 18.4 |
|
| Depreciation and amortization expense | 2.8 |
| | 2.5 |
| | 2.6 |
| | 2.6 |
|
| Impairment loss (non-cash) | 51.9 |
| | — |
| | 17.0 |
| | — |
|
| Restructuring and other charges | — |
| | — |
| | 0.3 |
| | 0.1 |
|
| Transaction costs | — |
| | 0.1 |
| | 0.1 |
| | 0.2 |
|
| Operating (loss) income | (49.0 | )% | | 1.0 | % | | (14.5 | )% | | 0.6 | % |
| |
(a) | Represents the percentage these costs bear to the related sales, instead of total sales. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| January 27,
2024 | | January 28,
2023 | | January 27,
2024 | | January 28,
2023 |
| Sales: | | | | | | | |
| Product sales and other | 91.0 | % | | 89.9 | % | | 93.0 | % | | 92.6 | % |
| Rental income | 9.0 | | | 10.1 | | | 7.0 | | | 7.4 | |
| 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 (a) | 80.1 | | | 80.7 | | | 80.1 | | | 79.5 | |
Rental cost of sales (a) | 57.9 | | | 52.4 | | | 56.3 | | | 54.3 | |
| Total cost of sales | 78.1 | | | 77.9 | | | 78.4 | | | 77.6 | |
| Gross margin | 21.9 | | | 22.1 | | | 21.6 | | | 22.4 | |
| Selling and administrative expenses | 17.5 | | | 21.0 | | | 18.3 | | | 21.6 | |
| Depreciation and amortization expense | 2.2 | | | 2.3 | | | 2.3 | | | 2.4 | |
| Impairment loss (non-cash) | 1.3 | | | 1.4 | | | 0.4 | | | 0.5 | |
| Restructuring and other charges | 0.7 | | | 0.9 | | | 0.9 | | | 0.4 | |
| | | | | | | |
| Operating income (loss) from continuing operations | 0.2 | % | | (3.5) | % | | (0.3) | % | | (2.5) | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(a)Represents the percentage these costs bear to the related sales, instead of total sales.
Results of Operations - Discontinued Operations
During the fourth quarter of fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. Certain assets and liabilities associated with the DSS Segment are presented in our 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 39 weeks ended January 27, 2024, we recorded a Gain on Sale of Business of $3.5 million in Loss from Discontinued Operations, Net, related to the sale. Net cash proceeds from the sale were used for debt repayment and to provide additional funds for working capital needs under our Credit Facility.
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27,
2024 | | January 28,
2023 | | January 27,
2024 | | January 28,
2023 |
| Total sales | $ | — | | | $ | 9,010 | | | $ | 2,784 | | | $ | 26,659 | |
Cost of sales (a) | — | | | 1,811 | | | 76 | | | 5,283 | |
Gross profit (a) | — | | | 7,199 | | | 2,708 | | | 21,376 | |
| Selling and administrative expenses | 177 | | | 7,632 | | | 3,101 | | | 23,909 | |
| Depreciation and amortization | — | | | 506 | | | 3 | | | 2,646 | |
| Gain on sale of business | (477) | | | — | | | (3,545) | | | — | |
Impairment loss (non-cash) (b) | — | | | — | | | 610 | | | — | |
Restructuring costs (c) | 11 | | | 1,848 | | | 3,308 | | | 1,848 | |
| Transaction costs | — | | | — | | | 13 | | | — | |
| Operating income (loss) | 289 | | | (2,787) | | | (782) | | | (7,027) | |
| Income tax expense | — | | | 128 | | 20 | | 297 |
| Income (loss) from discontinued operations, net of tax | $ | 289 | | | $ | (2,915) | | | $ | (802) | | | $ | (7,324) | |
| | | | | | | |
(a) Cost of sales and gross profit for the DSS Segment includes amortization expense (non-cash) related to content development costs of $0 and $1.7 million for the 13 weeks ended January 27, 2024 and January 28, 2023, respectively, and $0 and $4.9 million for the 39 weeks ended January 27, 2024 and January 28, 2023, respectively.
(b) During the 39 weeks ended January 27, 2024, we recognized an impairment loss (non-cash) of $0.6 million (both pre-tax and after-tax), comprised of $0.1 million and $0.5 million of property and equipment and operating lease right-of-use assets, respectively, on the condensed consolidated statement of operations as part of discontinued operations.
(c) During the 39 weeks ended January 27, 2024, 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 39 weeks ended January 27, 20182024 compared with the 13 and 39 weeks ended January 28, 20172023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended January 27, 2024 |
| Dollars in thousands | Retail | | Wholesale | | Corporate Services | | Eliminations | | Total |
| Sales: | | | | | | | | | |
| Product sales and other | $ | 398,148 | | | $ | 37,167 | | | $ | — | | | $ | (19,940) | | | $ | 415,375 | |
| Rental income | 41,298 | | | — | | | — | | | — | | | 41,298 | |
| Total sales | 439,446 | | | 37,167 | | | — | | | (19,940) | | | 456,673 | |
| Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | |
| Product and other cost of sales | 326,294 | | | 29,171 | | | — | | | (22,737) | | | 332,728 | |
| Rental cost of sales | 23,909 | | | — | | | — | | | — | | | 23,909 | |
| Total cost of sales | 350,203 | | | 29,171 | | | — | | | (22,737) | | | 356,637 | |
| Gross profit | 89,243 | | | 7,996 | | | — | | | 2,797 | | | 100,036 | |
| Selling and administrative expenses | 71,393 | | | 3,271 | | | 5,092 | | | — | | | 79,756 | |
| Depreciation and amortization expense | 8,817 | | | 1,321 | | | 10 | | | — | | | 10,148 | |
| Impairment loss (non-cash) | 5,798 | | | — | | | — | | | — | | | 5,798 | |
| Restructuring and other charges | — | | | — | | | 3,413 | | | — | | | 3,413 | |
| Operating income (loss) | $ | 3,235 | | | $ | 3,404 | | | $ | (8,515) | | | $ | 2,797 | | | $ | 921 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended January 28, 2023 |
| Dollars in thousands | Retail | | Wholesale | | Corporate Services | | Eliminations | | Total |
| Sales: | | | | | | | | | |
| Product sales and other | $ | 376,950 | | | $ | 38,958 | | | $ | — | | | $ | (22,163) | | | $ | 393,745 | |
| Rental income | 44,309 | | | — | | | — | | | — | | | 44,309 | |
| Total sales | 421,259 | | | 38,958 | | | — | | | (22,163) | | | 438,054 | |
| Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | |
| Product and other cost of sales | 309,123 | | | 32,290 | | | — | | | (23,580) | | | 317,833 | |
| Rental cost of sales | 23,210 | | | — | | | — | | | — | | | 23,210 | |
| Total cost of sales | 332,333 | | | 32,290 | | | — | | | (23,580) | | | 341,043 | |
| Gross profit | 88,926 | | | 6,668 | | | — | | | 1,417 | | | 97,011 | |
| Selling and administrative expenses | 82,753 | | | 3,563 | | | 5,572 | | | (47) | | | 91,841 | |
| Depreciation and amortization expense | 8,749 | | | 1,357 | | | 6 | | | — | | | 10,112 | |
| Impairment loss (non-cash) | 6,008 | | | — | | | — | | | — | | | 6,008 | |
| Restructuring and other charges | 1,452 | | | 931 | | | 1,744 | | | — | | | 4,127 | |
| Operating (loss) income | $ | (10,036) | | | $ | 817 | | | $ | (7,322) | | | $ | 1,464 | | | $ | (15,077) | |
| | | | | | | | | |
| | | | 13 weeks ended, January 27, 2018 | | 13 weeks ended |
| 39 weeks ended January 27, 2024 | | | 39 weeks ended January 27, 2024 |
| Dollars in thousands | BNC(a) | | MBS (b) | | Eliminations | | January 27,
2018 (a),(b) | | January 28, 2017 | Dollars in thousands | Retail | | Wholesale | | Corporate Services | | Eliminations | | Total |
| Sales: | | | | | | | | | |
| Product sales and other | $ | 445,642 |
| | $ | 137,257 |
| | $ | (41,996 | ) | | $ | 540,903 |
| | $ | 457,147 |
|
| Product sales and other | |
| Product sales and other | |
| Rental income | 60,818 |
| | 1,670 |
| | | | 62,488 |
| | 64,477 |
|
| Total sales | 506,460 |
| | 138,927 |
| | (41,996 | ) | | 603,391 |
| | 521,624 |
|
| Cost of sales: | | | | | | | | | |
| Cost of sales (exclusive of depreciation and amortization expense): | |
| Product and other cost of sales | |
| Product and other cost of sales | |
| Product and other cost of sales | 352,742 |
| | 103,068 |
| | (36,169 | ) | | 419,641 |
| | 366,190 |
|
| Rental cost of sales | 36,305 |
| | 910 |
| | — |
| | 37,215 |
| | 39,509 |
|
| Total cost of sales | 389,047 |
| | 103,978 |
| | (36,169 | ) | | 456,856 |
| | 405,699 |
|
| Gross profit | 117,413 |
| | 34,949 |
| | (5,827 | ) | | 146,535 |
| | 115,925 |
|
| Selling and administrative expenses | 97,777 |
| | 14,197 |
| | — |
| | 111,974 |
| | 97,111 |
|
| Depreciation and amortization expense | 15,411 |
| | 1,596 |
| | — |
| | 17,007 |
| | 13,149 |
|
| Impairment loss (non-cash) | 313,130 |
| | — |
| | — |
| | 313,130 |
| | |
| Restructuring and other charges | — |
| | — |
| | — |
| | — |
| | — |
|
| Transaction costs | 49 |
| | — |
| | — |
| | 49 |
| | 467 |
|
| Operating (loss) income | $ | (308,954 | ) | | $ | 19,156 |
| | $ | (5,827 | ) | | $ | (295,625 | ) | | $ | 5,198 |
|
| Operating income (loss) | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | 39 weeks ended, January 27, 2018 | | 39 weeks ended |
| Dollars in thousands | BNC(a) | | MBS (b) | | Eliminations | | January 27,
2018 (a),(b) | | January 28, 2017 |
| Sales: | | | | | | | | | |
| Product sales and other | $ | 1,369,770 |
| | $ | 409,300 |
| | $ | (85,840 | ) | | $ | 1,693,230 |
| | $ | 1,372,810 |
|
| Rental income | 148,454 |
| | 4,279 |
| | — |
| | 152,733 |
| | 158,722 |
|
| Total sales | 1,518,224 |
| | 413,579 |
| | (85,840 | ) | | 1,845,963 |
| | 1,531,532 |
|
| Cost of sales: | | | | | | | | | |
| Product and other cost of sales | 1,090,756 |
| | 315,523 |
| | (80,058 | ) | | 1,326,221 |
| | 1,098,682 |
|
| Rental cost of sales | 89,593 |
| | 2,343 |
| | — |
| | 91,936 |
| | 97,998 |
|
| Total cost of sales | 1,180,349 |
| | 317,866 |
| | (80,058 | ) | | 1,418,157 |
| | 1,196,680 |
|
| Gross profit | 337,875 |
| | 95,713 |
| | (5,782 | ) | | 427,806 |
| | 334,852 |
|
| Selling and administrative expenses | 283,546 |
| | 42,986 |
| | — |
| | 326,532 |
| | 282,171 |
|
| Depreciation and amortization expense | 43,879 |
| | 4,849 |
| | — |
| | 48,728 |
| | 39,057 |
|
| Impairment loss (non-cash) | 313,130 |
| | — |
| | — |
| | 313,130 |
| | — |
|
| Restructuring and other charges | 5,429 |
| | — |
| | — |
| | 5,429 |
| | 1,790 |
|
| Transaction costs | 1,895 |
| | — |
| | — |
| | 1,895 |
| | 2,638 |
|
| Operating (loss) income | $ | (310,004 | ) | | $ | 47,878 |
| | $ | (5,782 | ) | | $ | (267,908 | ) | | $ | 9,196 |
|
| | | | | | | | | | |
| |
(a) | On August 3, 2017, we acquired Student Brands, LLC. The condensed consolidated financial statements for the 13 and 39 weeks ended January 27, 2018 include the financial results of Student Brands in the BNC segment from the date of acquisition, August 3, 2017, and the condensed consolidated financial statements for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of Student Brands.
|
| |
(b) | On February 27, 2017, we acquired MBS. The results of operations for the 13 and 39 weeks ended January 27, 2018 include the financial results of MBS and all material intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the 13 and 39 weeks ended January 28, 2017 exclude the financial results of MBS.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 39 weeks ended January 28, 2023 |
| Dollars in thousands | Retail | | Wholesale | | Corporate Services | | Eliminations | | Total |
| Sales: | | | | | | | | | |
| Product sales and other | $ | 1,159,821 | | | $ | 97,161 | | | $ | — | | | $ | (52,176) | | | $ | 1,204,806 | |
| Rental income | 96,555 | | | — | | | — | | | — | | | 96,555 | |
| Total sales | 1,256,376 | | | 97,161 | | | — | | | (52,176) | | | 1,301,361 | |
| Cost of sales (exclusive of depreciation and amortization expense): | | | | | | | | | |
| Product and other cost of sales | 931,539 | | | 78,139 | | | — | | | (51,890) | | | 957,788 | |
| Rental cost of sales | 52,416 | | | — | | | — | | | — | | | 52,416 | |
| Total cost of sales | 983,955 | | | 78,139 | | | — | | | (51,890) | | | 1,010,204 | |
| Gross profit | 272,421 | | | 19,022 | | | — | | | (286) | | | 291,157 | |
| Selling and administrative expenses | 251,843 | | | 11,561 | | | 17,861 | | | (129) | | | 281,136 | |
| Depreciation and amortization expense | 27,147 | | | 4,076 | | | 41 | | | — | | | 31,264 | |
| Impairment loss (non-cash) | 6,008 | | | — | | | — | | | — | | | 6,008 | |
| Restructuring and other charges | 1,452 | | | 931 | | | 2,379 | | | — | | | 4,762 | |
| Operating (loss) income | $ | (14,029) | | | $ | 2,454 | | | $ | (20,281) | | | $ | (157) | | | $ | (32,013) | |
| | | | | | | | | |
Sales
The following table summarizes our sales for the 13 and 39 weeks ended January 27, 20182024 and January 28, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2024 | | January 28, 2023 | | Var $ | | Var % | | January 27, 2024 | | January 28, 2023 | | Var $ | | Var % |
| Product sales and other | $ | 415,375 | | | $ | 393,745 | | | $ | 21,630 | | | 5.5% | | $ | 1,237,723 | | | $ | 1,204,806 | | | $ | 32,917 | | | 2.7% |
| Rental income | 41,298 | | | 44,309 | | | $ | (3,011) | | | (6.8)% | | 93,490 | | | 96,555 | | | $ | (3,065) | | | (3.2)% |
| Total Sales | $ | 456,673 | | | $ | 438,054 | | | $ | 18,619 | | | 4.3% | | $ | 1,331,213 | | | $ | 1,301,361 | | | $ | 29,852 | | | 2.3% |
|
| | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | January 28, 2017 | | % | | January 27, 2018 | | January 28, 2017 | | % |
| Product sales and other | $ | 540,903 |
| | $ | 457,147 |
| | 18.3% | | $ | 1,693,230 |
| | $ | 1,372,810 |
| | 23.3% |
| Rental income | 62,488 |
| | 64,477 |
| | (3.1)% | | 152,733 |
| | 158,722 |
| | (3.8)% |
| Total Sales | $ | 603,391 |
| | $ | 521,624 |
| | 15.7% | | $ | 1,845,963 |
| | $ | 1,531,532 |
| | 20.5% |
OurThe sales increased $81.7 million, or 15.7%, to $603.4 millionincrease during the 13 weeks ended January 27, 2018 from $521.6 million during the 13 weeks ended January 28, 2017. Our sales increased $314.4 million, or 20.5%, to $1,846.0 million during theand 39 weeks ended January 27, 2018 from $1,531.5 million during the 39 weeks ended January 28, 2017. Sales increased2024 is primarily duerelated to the acquisition of MBS and Student Brands, partiallyhigher course material sales, primarily at our BNC First Day programs, offset by BNC comparabledeclines in a la carte courseware sales, declines primarily due toincluding lower student enrollment, specifically in two-year community colleges, increased consumer purchases directlysales from publishers and other online providers, and general weakness in the retail environment. closed stores. See Retail discussion below.
The components of the sales variances for the 13 and 39 week periods are reflected in the table below.
| | | | | | | | | | | | | | | | | | |
| Sales variances | | 13 weeks ended | | | | | | 39 weeks ended |
| Dollars in millions | | January 27, 2024 | | | | | | January 27, 2024 |
Retail Sales (a) | | | | | | | | |
| New stores | | $ | 10.1 | | | | | | | $ | 31.0 | |
| Closed stores | | (25.0) | | | | | | | (62.0) | |
Comparable stores (a) | | 37.3 | | | | | | | 61.9 | |
| Textbook rental deferral | | (4.4) | | | | | | | (4.1) | |
Service revenue (b) | | 0.7 | | | | | | | 0.3 | |
Other (c) | | (0.5) | | | | | | | 0.8 | |
| Retail sales subtotal: | | $ | 18.2 | | | | | | | $ | 27.9 | |
| Wholesale Sales | | $ | (1.8) | | | | | | | $ | (0.2) | |
Eliminations (d) | | $ | 2.2 | | | | | | | $ | 2.2 | |
| Total sales variance: | | $ | 18.6 | | | | | | | $ | 29.9 | |
|
| | | | | | | | | | | | | | | | |
| Sales variances | | 13 weeks ended | | 39 weeks ended |
| Dollars in millions | | January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 |
MBS Sales (a) | | | | | | | | |
| Wholesale | | $ | 92.2 |
| | $ | — |
| | $ | 232.2 |
| | $ | — |
|
| Direct | | 46.7 |
| | — |
| | 181.4 |
| | — |
|
| MBS Sales subtotal: | | $ | 138.9 |
| | $ | — |
| | $ | 413.6 |
| | $ | — |
|
| BNC Sales | | | | | | | | |
| New stores | | $ | 14.1 |
| | $ | 34.2 |
| | $ | 55.8 |
| | $ | 92.7 |
|
| Closed stores | | (2.2 | ) | | (8.0 | ) | | (9.7 | ) | | (20.6 | ) |
| Comparable stores | | (31.3 | ) | | (27.3 | ) | | (69.9 | ) | | (59.8 | ) |
| Textbook rental deferral | | 2.6 |
| | 2.3 |
| | 6.2 |
| | 0.1 |
|
Service revenue (b) | | 6.7 |
| | 0.9 |
| | 13.1 |
| | 3.3 |
|
Other (c) | | (5.1 | ) | | 1.1 |
| | (8.8 | ) | | 2.5 |
|
| BNC Sales subtotal: | | $ | (15.2 | ) | | $ | 3.2 |
| | $ | (13.3 | ) | | $ | 18.2 |
|
Eliminations (d) | | $ | (42.0 | ) | | $ | — |
| | $ | (85.9 | ) | | $ | — |
|
| Total sales variance | | $ | 81.7 |
| | $ | 3.2 |
| | $ | 314.4 |
| | $ | 18.2 |
|
| |
(a) | Represents(a) Logo general merchandise sales for MBS for the 13 and 39 weeks ended January 27, 2018. MBS’s business is highly seasonal. For MBS’s retail operations (virtual bookstores), a major portion of sales and operating profit are realized during the second and third quarters, when students generally purchase and rent textbooks for the upcoming semesters. For MBS’s wholesale business, a major portion of sales and operating profit is realized during the first, second and third fiscal quarters, as it sells textbooks for retail distribution, which somewhat offsets the decreased first quarter sales attributable to our retail business. MBS has significantly lower operating profit or operating loss realized during the fourth quarter. |
| |
(b) | Service revenue includes Student Brands, brand partnerships, Promoversity, LoudCloud, shipping and handling and revenue from other programs. |
| |
(c) | Other includes certain adjusting items related to return reserves and other deferred items. |
| |
(d) | Eliminates MBS sales to BNC and BNC commissions earned from MBS. See Part I - Item 1. Financial Statements - Note 5. Segment Reporting of this Form 10-Q for a discussion of intercompany activities and eliminations.
|
Rental income for BNC for the 13Retail 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 | | 39 weeks ended |
| January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Number of Stores: | Physical | | Virtual | | Total | | Physical | | Virtual | | Total | | Physical | | Virtual | | Total | | Physical | | Virtual | | Total |
| Beginning of period | 717 | | | 554 | | | 1,271 | | | 793 | | | 606 | | | 1,399 | | | 774 | | | 592 | | | 1,366 | | | 805 | | | 622 | | | 1,427 | |
| Opened | 6 | | | 4 | | | 10 | | | — | | | 4 | | | 4 | | | 19 | | | 22 | | | 41 | | | 34 | | | 28 | | | 62 | |
| Closed | 6 | | | 3 | | | 9 | | | 8 | | | 7 | | | 15 | | | 76 | | | 59 | | | 135 | | | 54 | | | 47 | | | 101 | |
| End of period | 717 | | | 555 | | | 1,272 | | | 785 | | | 603 | | | 1,388 | | | 717 | | | 555 | | | 1,272 | | | 785 | | | 603 | | | 1,388 | |
During the 39 weeks ended January 27, 2018 decreased2024, we opened 41 stores and closed 135 stores in the Retail Segment, with estimated net annual sales of $65 million as we pruned some under-performing, less profitable stores, satellite stores, and certain other contracts were awarded to competitors. We have seen many institutions adopt First Day Complete in Fiscal 2024 and plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond.
Generally, sales are impacted by $3.7revenue from net new/closed stores, conversion to BNC First Day programs, increased campus traffic, and an increase in the number of on campus activities and events, such as graduations, athletic events, alumni events and prospective student campus tours.
Retail sales increased by $18.2 million, or 5.7%4.3%, and $10.3to $439.4 million or 6.5%, respectively. Forduring the 13 and 39 weeks ended January 27, 2018, rental income for BNC was impacted2024 from $421.2 million during the 13 weeks ended January 28, 2023.
•Product sales and other increased by an increase$21.2 million, or 5.6%, to $398.1 million during the 13 weeks ended January 27, 2024 from $376.9 million during the 13 weeks ended January 28, 2023.
◦Course material product sales increased by $31.0 million, or 10.8%, to $317.7 million during the 13 weeks ended January 27, 2024, compared to $286.7 million in the recognitionprior year period, primarily due to the growth of our previously deferred rental revenueBNC First Day programs, which increased by $63.3 million, or 52%, to $184.0 million, offset by a decline of $2.6$35.4 million and $6.2in a la carte courseware sales, including lower sales from closed stores.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dollars in millions | | 13 weeks ended |
| | January 27, 2024 | | January 28, 2023 | | Var $ | | Var % |
First Day Complete Sales | | $ | 109.5 | | | $ | 66.9 | | | $ | 42.6 | | | 64% |
First Day Sales | | $ | 74.5 | | | $ | 53.8 | | | $ | 20.7 | | | 38% |
Total BNC First Day Sales | | $ | 184.0 | | | $ | 120.7 | | | $ | 63.3 | | | 52% |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | |
◦General merchandise product net sales decreased by $9.0 million, respectively, and decreased rental activity. Excludingor 11.0%, to $72.8 million, compared to $81.8 million in the prior year period, primarily due to a lower average commission rate resulting in lower commissions received for logo general merchandise as part of the F/L Relationship-related agreements, under which the commission rates adjust as the relationship matures, as well as the impact of closed stores, lower trade books and cafe and convenience product sales. Retail Gross Comparable Store Sales for general merchandise decreased by $5.7 million, or 4.6%, compared to the deferredprior year period as discussed below.
◦Service and other revenue decreased by $0.8 million, or 9.9%, to $7.6 million, compared to $8.4 million in the prior year period, primarily due to lower marketplace sales.
•Rental income for course materials decreased by $3.0 million, or 6.8%, to $41.3 million during the 13 weeks ended January 27, 2024 from $44.3 million during the 13 weeks ended January 28, 2023 primarily due to the increased shift to digital course materials, offset by the growth in rental income decreasedresulting from the adoption of our BNC First Day programs.
Retail sales increased by $6.3$27.9 million, or 7.5% and $16.52.2%, to $1,284.2 million or 7.5%, respectively.
BNC added 30 new stores and closed 17 stores during the 39 weeks ended January 27, 2018, ending2024 from $1,256.3 million during the 39 weeks ended January 28, 2023.
•Product sales and other increased by $30.9 million, or 2.7%, to $1,190.7 million during the 39 weeks ended January 27, 2024 from $1,159.8 million during the 39 weeks ended January 28, 2023.
◦Course material product sales increased by $57.4 million, or 6.9%, to $891.6 million during the 39 weeks ended January 27, 2024, compared to $834.2 million in the prior year period, withprimarily due to the growth of our BNC First Day programs, which increased by $136.0 million, or 44%, to $445.1 million, offset by a totaldecline of 782$78.1 million in a la carte courseware sales, including lower sales from closed stores.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dollars in millions | | 39 weeks ended |
| | January 27, 2024 | | January 28, 2023 | | Var $ | | Var % |
First Day Complete Sales | | $ | 271.5 | | | $ | 173.4 | | | $ | 98.1 | | | 57% |
First Day Sales | | $ | 173.6 | | | $ | 135.7 | | | $ | 37.9 | | | 28% |
Total BNC First Day Sales | | $ | 445.1 | | | $ | 309.1 | | | $ | 136.0 | | | 44% |
| | | | | | | | |
| First Day Complete | | Spring 2024 | | Spring 2023 | | Var # | | Var % |
| Number of campus stores | | 160 | | 116 | | 44 | | | 38% |
Estimated enrollment (a) | | 805,000 | | | 580,000 | | | 225,000 | | | 39% |
| | | | | | | | |
| (a) Total undergraduate and post graduate student enrollment (as reported by National Center for Education Statistics). |
| | | | | | | | |
◦General merchandise product net sales decreased by $26.7 million, or 9.1%, to $266.5 million, compared to $293.3 million in the prior year period, primarily due to a lower average commission rate resulting in lower commissions received for logo general merchandise as part of the F/L Relationship-related agreements, under which the commission rates adjust as the relationship matures, as well as the impact from closed stores, lower trade books and cafe and convenience product sales, offset by higher graduation and supplies product sales. Retail Gross Comparable Store Sales for general merchandise decreased by $2.0 million, or 0.4%, compared to the prior year period as discussed below.
◦Service and other revenue increased by $0.2 million to $32.6 million, compared to $32.4 million in the prior year period, primarily due to higher other income for non-return rental penalty fees, offset by lower marketplace sales.
•Rental income for course materials decreased by $3.1 million, or 3.2%, to $93.5 million during the 39 weeks ended January 27, 2024 from $96.6 million during the 39 weeks ended January 28, 2023 primarily due to the increased shift to
digital course materials, offset by the growth in rental income resulting from the adoption of our BNC First Day programs.
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 variancesare an important measure of the growth in sales when evaluating how established stores have performed over time. We present this metric as additional useful information about the Company’s operational and financial performance and to allow greater transparency with respect to important metrics used by management for operating and financial decision-making. Retail Gross Comparable Store Sales are also referred to as "same-store" sales by others within the retail industry and the method of calculating comparable store sales varies across the retail industry. As a result, our calculation of comparable store sales is not necessarily comparable to similarly titled measures reported by other companies and is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.
The increase in course material sales was primarily due to the growth of BNC First Day equitable and inclusive access programs (as discussed above), offset by declines in a la carte courseware sales. The decrease in general merchandise sales are primarily related to lower logo product sales, as well as lower trade books and cafe and convenience product sales, offset by higher graduation and supplies product sales.
Retail Gross Comparable Store Sales variances by category for the 13 and 39 week periods are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in millions | | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Textbooks (Course Materials) | | $ | 43.8 | | | 14.1 | % | | $ | 21.3 | | | 7.4 | % | | $ | 78.3 | | | 8.8 | % | | $ | 2.9 | | | 0.3 | % |
| General Merchandise | | (5.7) | | | (4.6) | % | | 2.6 | | | 2.3 | % | | (2.0) | | | (0.4) | % | | 42.6 | | | 11.3 | % |
| Total Retail Gross Comparable Store Sales | | $ | 38.1 | | | 8.8 | % | | $ | 23.9 | | | 5.9 | % | | $ | 76.3 | | | 5.7 | % | | $ | 45.5 | | | 3.6 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comparable Store Sales variances-BNC | | 13 weeks ended | | 39 weeks ended |
| Dollars in millions | | January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 |
| Textbooks | | $ | (26.3 | ) | | (7.2 | )% | | $ | (25.4 | ) | | (6.7 | )% | | $ | (62.8 | ) | | (6.1 | )% | | $ | (55.3 | ) | | (5.3 | )% |
| General Merchandise | | (3.5 | ) | | (2.8 | )% | | (0.5 | ) | | (0.5 | )% | | (3.3 | ) | | (0.8 | )% | | (1.2 | ) | | (0.3 | )% |
| Trade Books | | (1.5 | ) | | (11.9 | )% | | (1.2 | ) | | (8.3 | )% | | (3.8 | ) | | (9.5 | )% | | (2.7 | ) | | (6.2 | )% |
| Other | | — |
| | — | % | | (0.2 | ) | | (86.7 | )% | | — |
| | — | % | | (0.6 | ) | | (88.3 | )% |
| Total Comparable Store Sales | | $ | (31.3 | ) | | (6.2 | )% | | $ | (27.3 | ) | | (5.3 | )% | | $ | (69.9 | ) | | (4.7 | )% | | $ | (59.8 | ) | | (4.0 | )% |
Comparable storeWholesale
Wholesale sales for BNC decreased for the 13 and 39 week sales periods. Comparable store sales were impacted primarily by lower average selling prices of course materials driven by lower publisher prices resulting from a shift$1.8 million, or 4.6% to lower cost options and more affordable solutions, including digital. Comparable store sales were also impacted by the timing of the spring back-to-school rush season which extended past the close of our fiscal third quarter and lower student enrollment, specifically in two-year community colleges, increased consumer purchases directly from publishers and other online providers, and other recent negative retail trends. The components of the variances are reflected in the table above.
Textbook revenue for BNC for the 13 and 39 weeks ended January 27, 2018 decreased primarily due to lower new and used textbook sales and rentals as discussed above, while eTextbook revenue increased. General merchandise sales for BNC decreased for$37.2 million during the 13 weeks ended January 27, 20182024 from $39.0 million during the 13 weeks ended January 28, 2023. The decrease is primarily due to a decrease in school supplies, computer and convenience productlower gross sales and emblematic apparel,of $4.5 million, partially offset by higher graduation products sales. General merchandiselower returns and allowances of $2.7 million compared to the prior year period.
Wholesale sales for BNC decreased forby $0.2 million, or 0.2% to $96.9 million during the 39 weeks ended January 27, 20182024 from $97.1 million during the 39 weeks ended January 28, 2023. The decrease is primarily due to a decrease in school supplies,higher returns and computer and convenience product sales,allowances of $2.0 million, partially offset by higher emblematic apparel and graduation products sales.gross sales of $1.8 million compared to the prior year period.
Cost of Sales and Gross Margin
Our cost of sales decreasedincreased as a percentage of sales to 75.7%78.1% during the 13 weeks ended January 27, 20182024 compared to 77.8%77.9% during the 13 weeks ended January 28, 2017.2023. Our gross margin increased by $30.6$3.0 million, or 26.4%3.1%, to $146.5$100.0 million, or 24.3%21.9% of sales, during the 13 weeks ended January 27, 20182024 from $115.9$97.0 million, or 22.2%22.1% of sales during the 13 weeks ended January 28, 2017.2023.
Our cost of sales decreasedincreased as a percentage of sales to 76.8%78.4% during the 39 weeks ended January 27, 20182024 compared to 78.1%77.6% during the 39 weeks ended January 28, 2017.2023. Our gross margin increaseddecreased by $93.0$4.2 million, or 27.8%1.5%, to $427.8$286.9 million, or 23.2%21.6% of sales, during the 39 weeks ended January 27, 20182024 from $334.9$291.1 million, or 21.9%22.4% of sales during the 39 weeks ended January 28, 2017.2023.
Intercompany Eliminations
Retail
The following table summarizes the Retail cost of sales for the 13 and 39 weeks ended January 27, 2018,2024 and January 28, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2024 | | % of
Related Sales | | January 28, 2023 | | % of
Related Sales | | January 27, 2024 | | % of
Related Sales | | January 28, 2023 | | % of
Related Sales |
| Product and other cost of sales | $ | 326,294 | | | 82.0% | | $ | 309,123 | | | 82.0% | | $ | 966,573 | | | 81.2% | | $ | 931,539 | | | 80.3% |
| Rental cost of sales | 23,909 | | | 57.9% | | 23,210 | | | 52.4% | | 52,606 | | | 56.3% | | 52,416 | | | 54.3% |
| Total Cost of Sales | $ | 350,203 | | | 79.7% | | $ | 332,333 | | | 78.9% | | $ | 1,019,179 | | | 79.4% | | $ | 983,955 | | | 78.3% |
The following table summarizes the Retail gross margin for the 13 and 39 weeks ended January 27, 2024 and January 28, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2024 | | % of
Related Sales | | January 28, 2023 | | % of
Related Sales | | January 27, 2024 | | % of
Related Sales | | January 28, 2023 | | % of
Related Sales |
| Product and other gross margin | $ | 71,854 | | | 18.0% | | $ | 67,827 | | | 18.0% | | $ | 224,179 | | | 18.8% | | $ | 228,282 | | | 19.7% |
| Rental gross margin | 17,389 | | | 42.1% | | 21,099 | | | 47.6% | | 40,884 | | | 43.7% | | 44,139 | | | 45.7% |
| Gross Margin | $ | 89,243 | | | 20.3% | | $ | 88,926 | | | 21.1% | | $ | 265,063 | | | 20.6% | | $ | 272,421 | | | 21.7% |
For the 13 and 39 weeks ended January 27, 2024, the Retail Product and other gross margin as a percentage of sales decreased as discussed below:
•For the 13 weeks ended January 27, 2024, Product and other gross margin as a percentage of sales was flat primarily from increased sales of $63.3 million 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 as a result of the shift to digital and First Day modelsand lower performing school contracts not renewed (90 basis points), were partially offset by lower margin rates for course materials due to higher markdowns, including markdowns related to closed stores (70 basis points), and lower general merchandise sales, primarily from closed stores, a lower average commission rate and an unfavorable sales mix due to the shift to digital course materials (20 basis points).
•For the 39 weeks ended January 27, 2024, Product and other gross margin as a percentage of sales decreased (90 basis points), driven primarily by lower margin rates for course materials due to higher markdowns, including markdowns related to closed stores, and lower general merchandise sales, primarily from closed stores and a lower average commission rate (170 basis points) and an unfavorable sales mix due to the shift to digital course materials (35 basis points). These decreases in gross margin rate were partially offset by increased sales of $136.0 million 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 as a result of the shift to digital and First Day models, and lower performing school contracts not renewed (115 basis points).
For the 13 and 39 weeks ended January 27, 2024, the Retail Rental gross margin as a percentage of sales decreased driven primarily by lower rental margin rates, higher markdowns and unfavorable rental mix, partially offset by lower contract costs as a percentage of sales related to our college and university contracts as a result of the shift to digital and the adoption of our BNC First Day models and lower performing school contracts not renewed.
Wholesale
The cost of sales and gross margin for Wholesale were $29.2 million, or 78.5% of sales, and $8.0 million, or 21.5% of sales, respectively, during the 13 weeks ended January 27, 2024. The cost of sales and gross margin for Wholesale was $32.3 million or 82.9% of sales and $6.7 million or 17.1% of sales, respectively, during the 13 weeks ended January 28, 2023. The gross margin rate increased during the 13 weeks ended January 27, 2024 primarily due to lower returns and allowances and lower warehouse costs, partially offset by higher markdowns.
The cost of sales and gross margin for Wholesale were $77.1 million, or 79.5% of sales, and $19.9 million, or 20.5% of sales, respectively, during the 39 weeks ended January 27, 2024. The cost of sales and gross margin for Wholesale was $78.1
million or 80.4% of sales and $19.0 million or 19.6% of sales, respectively, during the 39 weeks ended January 28, 2023. The gross margin rate increased during the 39 weeks ended January 27, 2024 primarily due to lower warehouse costs, partially offset by higher product costs and higher markdowns.
Intercompany Eliminations
During the 13 weeks ended January 27, 2024 and January 28, 2023, our sales eliminations were $42.0$(19.9) million and $85.9$(22.2) million, respectively. During the 39 weeks ended January 27, 2024 and January 28, 2023, our sales eliminations were $(50.0) million and $(52.2) million, respectively. These sales eliminations represent the elimination of MBSWholesale sales and fulfillment service fees to BNCRetail and the elimination of BNCRetail commissions earned from MBS.Wholesale.
During the 13 and 39 weeks ended January 27, 2018,2024 and January 28, 2023, the cost of sales eliminations were $36.2$(22.7) million and $80.1$(23.6) million, respectively. During the 39 weeks ended January 27, 2024 and January 28, 2023, the cost of sales eliminations were $(51.9) million and $(51.9) million, respectively. These cost of sales eliminations represent (i) the recognition of intercompany profit for BNCRetail inventory that was purchased from MBSWholesale 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 MBSWholesale inventory purchases by BNCRetail that remain in ending inventory at the end of the current period.
The $5.8 million ofDuring the 13 weeks ended January 27, 2024 and January 28, 2023, the gross margin elimination reflectseliminations were $2.8 million and $1.4 million, respectively. During the 39 weeks ended January 27, 2024 and January 28, 2023, the gross margin eliminations were $2.0 million and $(0.3) 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 | | 39 weeks ended |
| Dollars in thousands | January 27, 2024 | | % of
Sales | | January 28, 2023 | | % of
Sales | | January 27, 2024 | | % of
Sales | | January 28, 2023 | | % of
Sales |
| Total Selling and Administrative Expenses | $ | 79,756 | | | 17.5% | | $ | 91,841 | | | 21.0% | | $ | 243,193 | | | 18.3% | | $ | 281,136 | | | 21.6% |
During the 13 weeks ended January 27, 2024, selling and administrative expenses decreased by $12.1 million, or 13.2%, to $79.8 million from $91.8 million during the 13 weeks ended January 28, 2023. During the 39 weeks ended January 27, 2024, selling and administrative expenses decreased by $37.9 million, or 13.5%, to $243.2 million from $281.1 million during the 39 weeks ended January 28, 2023. The variances by segment are discussed below.
Retail
During the 13 weeks ended January 27, 2024, Retail selling and administrative expenses decreased by $11.4 million, or 13.7%, to $71.4 million from $82.8 million during the 13 weeks ended January 28, 2023. This decrease was primarily due to cost savings initiatives comprised of a $7.9 million decrease in comparable store payroll expense, new/closed store payroll expense and related operating costs, and a $3.4 million decrease in corporate payroll expense, infrastructure and product development costs.
During the 39 weeks ended January 27, 2024, Retail selling and administrative expenses decreased by $34.1 million, or 13.5%, to $217.7 million from $251.8 million during the 39 weeks ended January 28, 2023. This decrease was primarily due to cost savings initiatives comprised of a $25.7 million decrease in comparable store payroll expense, new/closed store payroll expense and related operating costs, and a $8.4 million decrease in corporate payroll expense, infrastructure and product development costs.
Wholesale
During the 13 weeks ended January 27, 2024, Wholesale selling and administrative expenses decreased by $0.3 million, or 8.2%, to $3.3 million from $3.6 million during the 13 weeks ended January 28, 2023. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of $0.4 million, partially offset by higher operating expenses of $0.1 million.
During the 39 weeks ended January 27, 2024, Wholesale selling and administrative expenses decreased by $1.4 million, or 12.2%, to $10.2 million from $11.6 million during the 39 weeks ended January 28, 2023. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of $1.6 million, partially offset by higher operating expenses of $0.2 million.
Corporate Services
During the 13 weeks ended January 27, 2024, Corporate Services' selling and administrative expenses decreased by $0.5 million, or 8.6%, to $5.1 million from $5.6 million during the 13 weeks ended January 28, 2023. The decrease was primarily due to lower payroll expense of $0.3 million and lower operating costs of $0.2 million.
During the 39 weeks ended January 27, 2024, Corporate Services' selling and administrative expenses decreased by $2.6 million, or 14.4%, to $15.3 million from $17.9 million during the 39 weeks ended January 28, 2023. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of $1.8 million and lower operating costs of $0.8 million.
Depreciation and Amortization Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2024 | | % of
Sales | | January 28, 2023 | | % of
Sales | | January 27, 2024 | | % of
Sales | | January 28, 2023 | | % of
Sales |
| Total Depreciation and Amortization Expense | $ | 10,148 | | | 2.2% | | $ | 10,112 | | | 2.3% | | $ | 30,576 | | | 2.3% | | $ | 31,264 | | | 2.4% |
Depreciation and amortization expense was flat at $10.1 million for both the 13 weeks ended January 27, 2024 and the 13 weeks ended January 28, 2023. Depreciation and amortization expense decreased by $0.7 million, or 2.2%, to $30.6 million during the 39 weeks ended January 27, 2024 from $31.3 million during the 39 weeks ended January 28, 2023. The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during Fiscal 2024 and Fiscal 2023.
Impairment Loss (non-cash)
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets.
During the 13 and 39 weeks ended January 27, 2018.2024, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $5.8 million (both pre-tax and after-tax), comprised of $0.4 million, $2.7 million, and $2.7 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the condensed consolidated statement of operations.
MBS
The cost of sales and gross margin for MBS was $104.0 million or 74.8% of sales and $35.0 million or 25.2% of sales, respectively, during the 13 weeks ended January 27, 2018. The cost of sales and gross margin for MBS was $317.9 million or 76.9% of sales and $95.7 million or 23.1% of sales, respectively, during the 39 weeks ended January 27, 2018. The MBS gross margin as a percentage of sales is impacted by the seasonality of their business. For MBS’s retail operations (virtual bookstores), a major portion of sales and operating profit are realized during the second and third quarters, when students generally purchase and rent textbooks for the upcoming semesters. For MBS’s wholesale business, a major portion of sales and operating profit is realized during the first, second and third fiscal quarters, as it sells textbooks for retail distribution, which somewhat offsets the decreased first quarter sales attributable to our retail business. ForDuring the 13 and 39 weeks ended January 27, 2018, the margin impact was primarily due to28, 2023, we evaluated certain fixed warehouse facility and operation costs. For the 39 weeks ended January 27, 2018, the margin was also impacted by the incremental cost of sales of $3.3 million related to recording MBS inventory at fair value as
of the acquisition date. The non-cash fair value inventory adjustment of $3.7 million for MBS was recognized over six months from the date of acquisition and was allocated based on monthly sales. Excluding the $3.3 million inventory fair value amortization, cost of sales and gross margin for MBS was $314.6 million or 76.1% of sales and $99.0 million or 23.9% of sales, respectively, during the 39 weeks ended January 27, 2018.
BNC
The following table summarizes the BNC cost of sales for the 13 and 39 weeks ended January 27, 2018 and January 28, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | % of
Related Sales | | January 28, 2017 | | % of
Related Sales | | January 27, 2018 | | % of Related Sales | | January 28, 2017 | | % of Related Sales |
| Product and other cost of sales | $ | 352,742 |
| | 79.2% | | $ | 366,190 |
| | 80.1% | | $ | 1,090,756 |
| | 79.6% | | $ | 1,098,682 |
| | 80.0% |
| Rental cost of sales | 36,305 |
| | 59.7% | | 39,509 |
| | 61.3% | | 89,593 |
| | 60.4% | | 97,998 |
| | 61.7% |
| Total Cost of Sales | $ | 389,047 |
| | 76.8% | | $ | 405,699 |
| | 77.8% | | $ | 1,180,349 |
| | 77.7% | | $ | 1,196,680 |
| | 78.1% |
The following table summarizes the BNC gross margin for the 13 and 39 weeks ended January 27, 2018 and January 28, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | % of
Related Sales | | January 28, 2017 | | % of
Related Sales | | January 27, 2018 | | % of Related Sales | | January 28, 2017 | | % of Related Sales |
| Product and other gross margin | $ | 92,900 |
| | 20.8% | | $ | 90,957 |
| | 19.9% | | $ | 279,014 |
| | 20.4% | | $ | 274,128 |
| | 20.0% |
| Rental gross margin | 24,513 |
| | 40.3% | | 24,968 |
| | 38.7% | | 58,861 |
| | 39.6% | | 60,724 |
| | 38.3% |
| Gross Margin | $ | 117,413 |
| | 23.2% | | $ | 115,925 |
| | 22.2% | | $ | 337,875 |
| | 22.3% | | $ | 334,852 |
| | 21.9% |
For the 13 weeks ended January 27, 2018, the BNC gross margin as a percentage of sales increased as discussed below:
Product and other gross margin increased (90 basis points), driven primarily by high margin Student Brands subscription service revenue earned (125 basis points), higher margin rates (20 basis points) related to decreased markdowns on textbooks, and lower costs related to our college and university contracts (5 basis points) resulting from contract renewals and new store contracts. This increase was partially offset by an unfavorable sales mix (60 basis points) resulting from a decrease in higher margin used textbooks and general merchandise as a percentage of sales.
Rental gross margin increased (160 basis points), driven primarily by higher rental margin rates (185 basis points) and lower costs related to our college and university contracts (15 basis points) resulting from contract renewals and new store contracts, partially offset by an unfavorable rental mix (40 basis points).
For the 39 weeks ended January 27, 2018, the BNC gross margin as a percentage of sales increased as discussed below:
Product and other gross margin increased (40 basis points), driven primarily by Student Brands subscription service revenue earned (75 basis points) and higher margin rates (15 basis points) related to decreased markdowns on textbooks. This increase was partially offset by an unfavorable sales mix (30 basis points) resulting from a decrease in higher margin used textbooks as a percentage of sales and lower costs related to our college and university contracts (15 basis points) resulting from contract renewals and new store contracts.
Rental gross margin increased (130 basis points), driven primarily by higher rental margin rates (190 basis points), partially offset by higher costs related to our college and university contracts (15 basis points) resulting from contract renewals and new store contracts and an unfavorable rental mix (35 basis points).
Selling and Administrative Expenses
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | % of
Sales | | January 28, 2017 | | % of
Sales | | January 27, 2018 | | % of
Sales | | January 28, 2017 | | % of
Sales |
| Total Selling and Administrative Expenses | $ | 111,974 |
| | 18.6% | | $ | 97,111 |
| | 18.6% | | $ | 326,532 |
| | 17.7 | % | | $ | 282,171 |
| | 18.4 | % |
During the 13 weeks ended January 27, 2018, selling and administrative expenses increased by $14.9 million, or 15.3%, to $112.0 million from $97.1 million during the 13 weeks ended January 28, 2017. During the 39 weeks ended January 27, 2018, selling and administrative expenses increased by $44.4 million, or 15.7%, to $326.5 million from $282.2 million during the 39
weeks ended January 28, 2017. The increase for the 13 and 39 weeks was primarily due to the selling and administrative expenses for MBS of $14.2 million and $43.0 million, respectively (which includes a $1.7 million and $5.1 million selling and administrative expense allocation from BNC for shared corporate overhead, during the 13 and 39 weeks ended January 27, 2018, respectively).
During the 13 weeks ended January 27, 2018, BNC's selling and administrative expenses increased by $0.7 million, or 0.7%, to $97.8 million from $97.1 million. The increase was primarily due to a $0.7 million increase in new store payroll and operating expenses (net of closed stores), as a result of a $11.9 million increase in new store sales (net of closed stores), a $2.1 million increase in Student Brands expenses, and a $0.9 million increase in corporate overhead, including digital expenses. These increases were partially offset by a $1.7 million of shared corporate overhead costs allocated to MBS and a $1.3 million decrease in comparable store payroll and operating expenses.
During the 39 weeks ended January 27, 2018, BNC's selling and administrative expenses increased by $1.4 million, or 0.5%, to $283.5 million from $282.2 million. The increase was primarily due a $4.3 million increase in new store payroll and operating expenses (net of closed stores), as a result of a $46.1 million increase in new store sales (net of closed stores), a $4.1 million increase in Student Brands expenses, and a $2.8 million increase in corporate overhead, including digital expenses. These increases were partially offset by a $5.1 million of shared corporate overhead costs allocated to MBS and a $4.7 million decrease in comparable store payroll and operating expenses.
Depreciation and Amortization Expense
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | % of
Sales | | January 28, 2017 | | % of
Sales | | January 27, 2018 | | % of
Sales | | January 28, 2017 | | % of
Sales |
| Total Depreciation and Amortization Expense | $ | 17,007 |
| | 2.8% | | $ | 13,149 |
| | 2.5% | | $ | 48,728 |
| | 2.6 | % | | $ | 39,057 |
| | 2.6 | % |
Depreciation and amortization expense increased by $3.9 million, or 29.3%, to $17.0 million during the 13 weeks ended January 27, 2018 from $13.1 million during the 13 weeks ended January 28, 2017. Depreciation and amortization expense increased by $9.7 million, or 24.8%, to $48.7 million during the 39 weeks ended January 27, 2018 from $39.1 million during the 39 weeks ended January 28, 2017. This increase was primarily attributable to incremental depreciation and amortization expense resulting from the acquisitions of MBS and Student Brands associated with the property and equipment and identified intangibles recorded at fair value as of the respective acquisition dates and additional capital expenditures for BNC.
Impairment loss (non-cash)
We completed our annual goodwill impairment test as of the first day of the third quarter of Fiscal 2018. In performing the valuation, we used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions. We estimated the fair value of our reporting units using a weighting of fair values derived fromstore-level long-lived assets in the income approach and the market approach.Retail segment for impairment. Based on the results of the test,impairment tests, we recognized an impairment loss (non-cash) of $6.0 million (both pre-tax and after-tax), comprised of $0.7 million, $1.7 million, and $3.6 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the carrying valuecondensed consolidated statement of the BNC reporting unit exceeded its fair value and we recorded a goodwill impairment (non-cash impairment loss) of $313.1 million. operations.
For additional information, seePart I - Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies in this Form 10-Q. and Note 6. Fair Value Measurements.
Restructuring and other charges
Restructuring
In Fiscal 2016, in our BNC segment, we implemented a plan to restructure our digital education operations and we announced a reduction in staff and closure of the facilities in Mountain View, California, and Redmond, Washington, which was completed during the first quarter of Fiscal 2017. We recorded restructuring costs of $0.07 million and $1.8 million during the 39 weeks ended January 27, 2018 and January 28, 2017, respectively.
Other Charges
On July 19, 2017, Mr. Max J. Roberts resigned as Chief Executive Officer of the Company and Mr. Michael P. Huseby was appointed to the position of Chief Executive Officer and Chairman of the Board, both effective as of September 19, 2017. During the 39 weeks ended January 27, 2018, we recognized expenses totaling approximately $5.4 million, which is comprised of the severance and transition payments as well as related expenses. For additional information, see Part I - Item 1. Financial Statements - Note 9. Supplementary Information in this Form 10-Q or the Form 8-K dated July 19, 2017, filed with the SEC on July 20, 2017.
Transaction Costs
Transaction costs were $0.05 million and $1.9 million during the 13 and 39 weeks ended January 27, 2018 compared to $0.52024, we recognized restructuring and other charges totaling $3.4 million and $2.6$12.3 million, duringrespectively, comprised primarily of $3.4 million and $11.2 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 39 weeks ended January 28, 2017, respectively. We incur transaction2023, we recognized restructuring and other charges totaling $4.1 million and $4.8 million, respectively, comprised primarily of $2.8 million in each period for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, and $1.3 million and $2.0 million, respectively, primarily for costs primarily associated with professional service costs for business developmentrestructuring and acquisitions as discussed above. For additional information related to our recent acquisitions, see Part I - Item 1. Financial Statements - Note 4. Acquisitions in this Form 10-Q.process improvements.
Operating Income (Loss) Income
| | | | 13 weeks ended | | 39 weeks ended |
| 13 weeks ended | | | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | % of
Sales | | January 28, 2017 | | % of
Sales | | January 27, 2018 | | % of
Sales | | January 28, 2017 | | % of
Sales | Dollars in thousands | January 27, 2024 | | % of
Sales | | January 28, 2023 | | % of
Sales | | January 27, 2024 | | % of
Sales | | January 28, 2023 | | % of
Sales |
| Total Operating (Loss) Income | $ | (295,625 | ) | | (49.0)% | | $ | 5,198 |
| | 1.0% | | $ | (267,908 | ) | | (14.5 | )% | | $ | 9,196 |
| | 0.6 | % |
| Total Operating Income (Loss) | | Total Operating Income (Loss) | $ | 921 | | | 0.2% | | $ | (15,077) | | | (3.5)% | | $ | (4,975) | | | (0.3)% | | $ | (32,013) | | | (2.5)% |
Our operating lossincome was $295.6$0.9 million during the 13 weeks ended January 27, 20182024, compared to operating incomeloss of $5.2$(15.1) million during the 13 weeks ended January 28, 2017. This2023. The increase wasin operating income is due to the matters discussed above. For the 13 weeks ended January 27, 2018,2024, operating income, excluding the $313.1$5.8 million of goodwill impairment loss (non-cash) and transaction coststhe $3.4 million of $0.05 million, operating incomerestructuring and other charges, discussed above, was $17.6$10.1 million (or 2.9%2.2% of sales). For the 13 weeks ended January 28, 2017,2023, operating loss, excluding the transaction costs$6.0 million of $0.5impairment loss (non-cash) and the $4.1 million of restructuring and other charges, discussed above, operating income was $5.7$(5.0) million (or 1.1%(1.1)% of sales) during the 13 weeks ended January 28, 2017..
Our operating loss was $268.0$(5.0) million during the 39 weeks ended January 27, 20182024, compared to operating income of $9.2$(32.0) million during the 39 weeks ended January 28, 2017. This increase was2023. The decrease in operating loss is due to the matters discussed above. For the 39 weeks ended January 27, 2018,2024, operating income, excluding the $313.1$5.8 million of goodwill impairment loss (non-cash) and the $3.3$12.3 million of incremental cost of sales related to amortization of the MBS inventory fair value adjustment, the restructuring and other charges, of $5.4 million and transaction costs of $1.9 million, all discussed above, operating loss was $55.8$13.1 million (or 3.0%1.0% of sales). For the 39 weeks ended January 28, 2017,2023, operating loss, excluding the transaction costs$6.0 million of $2.6impairment loss (non-cash) and the $4.8 million andof restructuring costs and other charges, of $1.8 million, discussed above, operating income was $13.6$(21.2) million (or 0.9%(1.6)% of sales) during the 39 weeks ended January 28, 2017..
Interest Expense, Net
| | | | 13 weeks ended | | 39 weeks ended | | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 | Dollars in thousands | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Interest Expense, Net | $ | 2,954 |
| | $ | 679 |
| | $ | 7,828 |
| | $ | 1,975 |
|
Net interest expense increased by $2.3$3.7 million to $3.0$10.6 million during the 13 weeks ended January 27, 20182024 from $0.7$6.9 million during the 13 weeks ended January 28, 2017.2023. Net interest expense increased by $5.9$13.9 million to $7.8$29.5 million during the 39 weeks ended January 27, 20182024 from $2.0$15.7 million during the 39 weeks ended January 28, 2017.2023. Interest expense increased by $13.9 million compared to the prior year period, comprised of $7.2 million resulting from higher borrowings and higher interest rates and $6.3 million resulting from increased amortization of deferred financing costs. The increasefollowing table disaggregates interest expense for the 13 and 39 week periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Interest Incurred | | | | | | | | |
| Credit Facility | | $ | 5,747 | | | $ | 5,215 | | | $ | 18,286 | | | $ | 11,910 | |
| Term Loan | | 907 | | | 853 | | | 3,074 | | | 2,213 | |
| Total Interest Incurred | | $ | 6,654 | | | $ | 6,068 | | | $ | 21,360 | | | $ | 14,123 | |
| Amortization of Deferred Financing Costs | | | | | | | | |
| Credit Facility | | $ | 3,662 | | | $ | 396 | | | $ | 7,456 | | | $ | 1,187 | |
| Term Loan | | 312 | | | 462 | | | 924 | | | 871 | |
| Total Amortization of Deferred Financing Costs | | $ | 3,974 | | | $ | 858 | | | $ | 8,380 | | | $ | 2,058 | |
| Interest Income, net of expense | | $ | (8) | | | $ | (8) | | | $ | (202) | | | $ | (509) | |
| Total Interest Expense | | $ | 10,620 | | | $ | 6,918 | | | $ | 29,538 | | | $ | 15,672 | |
Cash interest paid during the 39 weeks ended January 27, 2024 and January 28, 2023 was primarily due to increased borrowings under the Credit Facility$19,640 and the FILO Facility (which was entered into during Fiscal 2017).$13,406, respectively.
Income Tax (Benefit) Expense
| | | | 13 weeks ended | | 39 weeks ended | | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | Effective Rate | | January 28, 2017 | | Effective Rate | | January 27, 2018 | | Effective Rate | | January 28, 2017 | | Effective Rate | Dollars in thousands | January 27, 2024 | | Effective Rate | | January 28, 2023 | | Effective Rate | | January 27, 2024 | | Effective Rate | | January 28, 2023 | | Effective Rate |
| Income Tax (Benefit) Expense | $ | (15,344 | ) | | 5.1% | | $ | 758 |
| | 16.8% | | $ | (6,113 | ) | | 2.2 | % | | $ | 2,087 |
| | 28.9 | % |
| Income Tax Expense | | Income Tax Expense | $ | 229 | | | (2.4)% | | $ | 139 | | | (0.6)% | | $ | 532 | | | (1.5)% | | $ | 603 | | | (1.3)% |
We recorded an income tax benefitexpense of $(15.3)$0.2 million on a pre-tax loss of $(298.6)$(9.7) million of during the 13 weeks ended January 27, 2018,2024, which represented an effective income tax rate of 5.1%(2.4)% and we recorded an income tax expense of $0.7$0.1 million on a pre-tax incomeloss of $4.5$(22.0) million during the 13 weeks ended January 28, 2017,2023, which represented an effective income tax rate of 16.8%(0.6)%.
We recorded an income tax benefitexpense of $(6.1)$0.5 million on a pre-tax loss of $(275.7)$(34.5) million of during the 39 weeks ended January 27, 2018,2024, which represented an effective income tax rate of 2.2%(1.5)% and we recorded an income tax expense of $2.1$0.6 million on a pre-tax incomeloss of $7.2$(47.7) million during the 39 weeks ended January 28, 2017,2023, which represented an effective income tax rate of 28.9%(1.3)%.
The effective tax ratesrate for the 13 andweeks ended January 27, 2024 is lower than the prior year comparable period due to immaterial return to provision adjustments recorded in the prior year period. The effective tax rate for the 39 weeks ended January 27, 2018 are significantly lower as compared to2024 is materially consistent with the comparable prior year periods due to the tax benefit of U.S. Tax Reform, partially offset by permanent differences, which in this quarter includes the nondeductible portion of the goodwill impairment.comparable period. For additional information, see Item 1. Financial Statements -Note 12. Income Taxes.
Management expects nondeductible compensation expense for the current fiscal year to be significantly lower compared to the prior fiscal year as components of our executive compensation program now qualify as deductible under Section 162(m) of the Internal Revenue Code. In addition, our income tax provision for the preceding two fiscal years reflected certain non-recurring tax benefits arisingNet Loss from the Spin-Off. Management does not expect any similar non-recurring tax benefits associated with the Spin-Off to impact our effective tax rate either in the current fiscal year or in future fiscal year.Continuing Operations
Impact of U.S. Tax Reform | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Net Loss from Continuing Operations | $ | (9,928) | | | $ | (22,134) | | | $ | (35,045) | | | $ | (48,288) | |
The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, among other provisions. As of January 27, 2018, we had not completed the accounting for the tax
effects of enactment of the Act; however, as described below, we have made a reasonable estimate of the effects on existing deferred tax balances and the one-time transition tax in accordance with SAB 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118). These amounts are provisional and subject to change within the measurement period proscribed by SAB 118 which is not to extend beyond one year from the enactment date. The most significant impact of the legislation for the Company was a $21.1 million reduction of the value of the our net deferred (which represents future tax liabilities) and long-term tax liabilities as a result of lowering the U.S. corporate income tax rate from 35% to 21%. We have provisionally recorded a liability associated with the one-time transition tax, however, such amount is not material.
|
| | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 |
| Net (Loss) Income | $ | (283,235 | ) | | $ | 3,761 |
| | $ | (269,623 | ) | | $ | 5,134 |
|
As a result of the factors discussed above, we reported net loss of $(283.2)from continuing operations was $(9.9) million during the 13 weeks ended January 27, 2018,2024, compared with a net income of $3.8$(22.1) million during the 13 weeks ended January 28, 2017. 2023 and net loss from continuing operations was $(35.0) million during the 39 weeks ended January 27, 2024, compared with $(48.3) million during the 39 weeks ended January 28, 2023.
Adjusted Earnings (non-GAAP) is $19.6$(0.7) million during the 13 weeks ended January 27, 2018,2024, compared with $4.0$(12.0) million during the 13 weeks ended January 28, 2017. See 2023. Adjusted Earnings (non-GAAP) discussion below.
As a result of the factors discussed above, we reported net loss of $(269.6) is $(16.9) million during the 39 weeks ended January 27, 2018,2024, compared with a net income of $5.1$(37.5) million during the 39 weeks ended January 28, 2017. 2023. See Adjusted Earnings (non-GAAP) is $39.8 million during the 39 weeks ended January 27, 2018, compared with $7.8 million during the 39 weeks ended January 28, 2017. See Adjusted Earnings (non-GAAP) discussion below.
Use of Non-GAAP Measures - Adjusted Earnings, and Adjusted EBITDA, Adjusted EBITDA by Segment, and Free Cash Flow
To supplement our results prepared in accordance with GAAP,generally accepted accounting principles (“GAAP”), we use the measure of Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, and Adjusted Earnings,Free Cash Flow, which are non-GAAP financial measures under Securities and Exchange Commission (the “SEC”) regulations. We define Adjusted Earnings as net income 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 additional items that are subtracted from or added to net income.income (loss) from continuing operations. We define Adjusted EarningsFree Cash Flow as net income as adjusted for additional items that are subtractedCash Flows from or added to net income.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 EBITDAEarnings 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 EarningsEBITDA 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. These non-GAAP financial measures should not be considered as alternatives to net income as an indicator
We review these Non-GAAPnon-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-GAAPnon-GAAP financial measures provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone, as it excludesthey exclude certain items that management believes do not reflect the ordinary earningsperformance of our operations.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 overall 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 Earnings resultsEBITDA by Segment provides investors useful and important information regarding our operating results.results, in a manner that is consistent with management's evaluation of business performance. We believe that Free Cash Flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements and assists investors in their understanding of our operating profitability and liquidity as we manage the business to maximize margin and cash flow.
For a discussion regarding the Seasonality of our business, see See Management Discussion and Analysis - Seasonality discussion above.
Consolidated Adjusted Earnings (non-GAAP) - Continuing Operations
| | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
Net loss from continuing operations (a) | $ | (9,928) | | | $ | (22,134) | | | $ | (35,045) | | | $ | (48,288) | |
Reconciling items (below) | 9,211 | | | 10,135 | | | 18,118 | | | 10,796 | |
| Adjusted Earnings (non-GAAP) | $ | (717) | | | $ | (11,999) | | | $ | (16,927) | | | $ | (37,492) | |
| | | | | | | |
| Reconciling items | | | | | | | |
Impairment loss (non-cash) (a) | $ | 5,798 | | | $ | 6,008 | | | $ | 5,798 | | | $ | 6,008 | |
| | | | | | | |
Content amortization (non-cash) | — | | | — | | | — | | | 26 | |
Restructuring and other charges (b) | 3,413 | | | 4,127 | | | 12,320 | | | 4,762 | |
| | | | | | | |
Reconciling items (c) | $ | 9,211 | | | $ | 10,135 | | | $ | 18,118 | | | $ | 10,796 | |
| | | | | | | |
| | | | | | | |
(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.
|
| | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 |
| Net (loss) income | $ | (283,235 | ) | | $ | 3,761 |
| | $ | (269,623 | ) | | $ | 5,134 |
|
Reconciling items, after-tax (below) | 302,879 |
| | 286 |
| | 309,404 |
| | 2,714 |
|
Adjusted Earnings (non-GAAP) (a) | $ | 19,644 |
| | $ | 4,047 |
| | $ | 39,781 |
| | $ | 7,848 |
|
| | | | | | | | |
| Reconciling items, pre-tax | | | | | | | |
Impairment loss (non-cash) (a) | $ | 313,130 |
| | $ | — |
| | $ | 313,130 |
| | $ | — |
|
Inventory valuation amortization (MBS) (non-cash) (a) | — |
| | — |
| | 3,273 |
| | — |
|
Restructuring and other charges (a) | — |
| | — |
| | 5,429 |
| | 1,790 |
|
Transaction costs (a) | 49 |
| | 467 |
| | 1,895 |
| | 2,638 |
|
| Reconciling items, pre-tax | 313,179 |
| | 467 |
| | 323,727 |
| | 4,428 |
|
Less: Pro forma income tax impact (b) | 10,300 |
| | 181 |
| | 14,323 |
| | 1,714 |
|
| Reconciling items, after-tax | $ | 302,879 |
| | $ | 286 |
| | $ | 309,404 |
| | $ | 2,714 |
|
| |
(a) | See Management Discussion and Analysis - Results of Operations discussion above.
|
| |
(b) | Represents the income tax effects of the non-GAAP items. |
Consolidated Adjusted EBITDA (non-GAAP) - Continuing Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
Net loss from continuing operations (a) | | $ | (9,928) | | | $ | (22,134) | | | $ | (35,045) | | | $ | (48,288) | |
| Add: | | | | | | | | |
| Depreciation and amortization expense | | 10,148 | | | 10,112 | | | 30,576 | | | 31,264 | |
Interest expense, net (b) | | 10,620 | | | 6,918 | | | 29,538 | | | 15,672 | |
| Income tax expense | | 229 | | | 139 | | | 532 | | | 603 | |
Impairment loss (non-cash) (c) | | 5,798 | | | 6,008 | | | 5,798 | | | 6,008 | |
| | | | | | | | |
| Content amortization (non-cash) | | — | | | — | | | — | | | 26 | |
Restructuring and other charges (c) | | 3,413 | | | 4,127 | | | 12,320 | | | 4,762 | |
| Adjusted EBITDA (Non-GAAP) - Continuing Operations | | $ | 20,280 | | | $ | 5,170 | | | $ | 43,719 | | | $ | 10,047 | |
| Adjusted EBITDA (Non-GAAP) - Discontinued Operations | | $ | (177) | | | $ | 1,253 | | | $ | (393) | | | $ | 2,322 | |
| Adjusted EBITDA (Non-GAAP) - Total | | $ | 20,103 | | | $ | 6,423 | | | $ | 43,326 | | | $ | 12,369 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 |
| Net (loss) income | $ | (283,235 | ) | | $ | 3,761 |
| | $ | (269,623 | ) | | $ | 5,134 |
|
| Add: | | | | | | | |
| Depreciation and amortization expense | 17,007 |
| | 13,149 |
| | 48,728 |
| | 39,057 |
|
| Interest expense, net | 2,954 |
| | 679 |
| | 7,828 |
| | 1,975 |
|
| Income tax expense | (15,344 | ) | | 758 |
| | (6,113 | ) | | 2,087 |
|
Impairment loss (non-cash) (a) | 313,130 |
| | — |
| | 313,130 |
| | — |
|
Inventory valuation amortization (MBS) (non-cash) (a) | — |
| | — |
| | 3,273 |
| | — |
|
Restructuring and other charges (a) | — |
| | — |
| | 5,429 |
| | 1,790 |
|
Transaction costs (a) | 49 |
| | 467 |
| | 1,895 |
| | 2,638 |
|
Adjusted EBITDA (non-GAAP) (a) | $ | 34,561 |
| | $ | 18,814 |
| | $ | 104,547 |
| | $ | 52,681 |
|
| |
(a) | See Management Discussion and Analysis - Results of Operations discussion 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 segmentSegment for the 13 and 39 weeks ended January 27, 2018. Prior2024 and January 28, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA - by Segment | | 13 weeks ended January 27, 2024 |
| Dollars in thousands | | Retail | | Wholesale | | Corporate Services(b) | | Eliminations | | Total |
Net income (loss) from continuing operations (a) | | $ | 3,235 | | | $ | 3,404 | | | $ | (19,364) | | | $ | 2,797 | | | $ | (9,928) | |
| Add: | | | | | | | | | | |
| Depreciation and amortization expense | | 8,817 | | | 1,321 | | | 10 | | | — | | | 10,148 | |
| Interest expense, net | | — | | | — | | | 10,620 | | | — | | | 10,620 | |
| Income tax expense | | — | | | — | | | 229 | | | — | | | 229 | |
Impairment loss (non-cash) (a) | | 5,798 | | | — | | | — | | | — | | | 5,798 | |
| | | | | | | | | | |
| Content amortization (non-cash) | | — | | | — | | | — | | | — | | | — | |
Restructuring and other charges (c) | | — | | | — | | | 3,413 | | | — | | | 3,413 | |
| Adjusted EBITDA (non-GAAP) | | $ | 17,850 | | | $ | 4,725 | | | $ | (5,092) | | | $ | 2,797 | | | $ | 20,280 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA - by Segment | | 13 weeks ended January 28, 2023 |
| Dollars in thousands | | Retail | | Wholesale | | Corporate Services(b) | | Eliminations | | Total |
Net (loss) income from continuing operations (a) | | $ | (10,036) | | | $ | 817 | | | $ | (14,379) | | | $ | 1,464 | | | $ | (22,134) | |
| Add: | | | | | | | | | | |
| Depreciation and amortization expense | | 8,749 | | | 1,357 | | | 6 | | | — | | | 10,112 | |
| Interest expense, net | | — | | | — | | | 6,918 | | | — | | | 6,918 | |
| Income tax benefit | | — | | | — | | | 139 | | | — | | | 139 | |
Impairment loss (non-cash) (a) | | 6,008 | | | — | | | — | | | — | | | 6,008 | |
| | | | | | | | | | |
| Content amortization (non-cash) | | — | | | — | | | — | | | — | | | — | |
Restructuring and other charges (c) | | 1,452 | | | 931 | | | 1,744 | | | — | | | 4,127 | |
| Adjusted EBITDA (non-GAAP) | | $ | 6,173 | | | $ | 3,105 | | | $ | (5,572) | | | $ | 1,464 | | | $ | 5,170 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA - by Segment | | 39 weeks ended January 27, 2024 |
| Dollars in thousands | | Retail | | Wholesale | | Corporate Services(b) | | Eliminations | | Total |
Net income (loss) from continuing operations (a) | | $ | 14,268 | | | $ | 5,351 | | | $ | (56,636) | | | $ | 1,972 | | | $ | (35,045) | |
| Add: | | | | | | | | | | |
| Depreciation and amortization expense | | 26,694 | | | 3,852 | | | 30 | | | — | | | 30,576 | |
| Interest expense, net | | — | | | — | | | 29,538 | | | — | | | 29,538 | |
| Income tax expense | | — | | | — | | | 532 | | | — | | | 532 | |
Impairment loss (non-cash) (a) | | 5,798 | | | — | | | — | | | — | | | 5,798 | |
| | | | | | | | | | |
| Content amortization (non-cash) | | — | | | — | | | — | | | — | | | — | |
Restructuring and other charges (c) | | 555 | | | 526 | | | 11,239 | | | — | | | 12,320 | |
| Adjusted EBITDA (non-GAAP) | | $ | 47,315 | | | $ | 9,729 | | | $ | (15,297) | | | $ | 1,972 | | | $ | 43,719 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA - by Segment | | 39 weeks ended January 28, 2023 |
| Dollars in thousands | | Retail | | Wholesale | | Corporate Services(b) | | Eliminations | | Total |
Net (loss) income from continuing operations (a) | | $ | (14,029) | | | $ | 2,454 | | | $ | (36,556) | | | $ | (157) | | | $ | (48,288) | |
| Add: | | | | | | | | | | |
| Depreciation and amortization expense | | 27,147 | | | 4,076 | | | 41 | | | — | | | 31,264 | |
| Interest expense, net | | — | | | — | | | 15,672 | | | — | | | 15,672 | |
| Income tax expense | | — | | | — | | | 603 | | | — | | | 603 | |
Impairment loss (non-cash) (a) | | 6,008 | | | — | | | — | | | — | | | 6,008 | |
| | | | | | | | | | |
| Content amortization (non-cash) | | 26 | | | — | | | — | | | — | | | 26 | |
Restructuring and other charges (c) | | 1,452 | | | 931 | | | 2,379 | | | — | | | 4,762 | |
| Adjusted EBITDA (non-GAAP) | | $ | 20,604 | | | $ | 7,461 | | | $ | (17,861) | | | $ | (157) | | | $ | 10,047 | |
| | | | | | | | | | |
(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 acquisition of MBSDSS 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 February 27, 2017, we had only one reportable segment.a consolidated basis.
|
| | | | | | | | | | | | | | | | |
| Adjusted EBITDA - by Segment | | 13 weeks ended, January 27, 2018 |
| Dollars in thousands | | BNC | | MBS | | Elimination (a) | | Total |
| Sales | | $ | 506,460 |
| | $ | 138,927 |
| | $ | (41,996 | ) | | $ | 603,391 |
|
| Cost of sales | | 389,047 |
| | 103,978 |
| | (36,169 | ) | | 456,856 |
|
| Gross profit | | 117,413 |
| | 34,949 |
| | (5,827 | ) | | 146,535 |
|
| Selling and administrative expenses | | 97,777 |
| | 14,197 |
| | — |
| | 111,974 |
|
| Adjusted EBITDA (non-GAAP) | | $ | 19,636 |
| | $ | 20,752 |
| | $ | (5,827 | ) | | $ | 34,561 |
|
|
| | | | | | | | | | | | | | | | |
| Adjusted EBITDA - by Segment | | 39 weeks ended, January 27, 2018 |
| Dollars in thousands | | BNC | | MBS | | Elimination (a) | | Total |
| Sales | | $ | 1,518,224 |
| | $ | 413,579 |
| | $ | (85,840 | ) | | $ | 1,845,963 |
|
Cost of sales (MBS excludes $3,273 related to inventory fair value amortization) (a) | | 1,180,349 |
| | 314,593 |
| | (80,058 | ) | | 1,414,884 |
|
| Gross profit | | 337,875 |
| | 98,986 |
| | (5,782 | ) | | 431,079 |
|
| Selling and administrative expenses | | 283,546 |
| | 42,986 |
| | — |
| | 326,532 |
|
| Adjusted EBITDA (non-GAAP) | | $ | 54,329 |
| | $ | 56,000 |
| | $ | (5,782 | ) | | $ | 104,547 |
|
(a)(c) See Management Discussion and Analysis -and Results of Operations discussion above.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA (non-GAAP) - Discontinued Operations | | 13 weeks ended | | 39 weeks ended |
| | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
Income (loss) from discontinued operations (a) | | $ | 289 | | | $ | (2,915) | | | $ | (802) | | | $ | (7,324) | |
| Add: | | | | | | | | |
| Depreciation and amortization expense | | — | | | 506 | | | 3 | | | 2,646 | |
| Income tax expense | | — | | | 128 | | | 20 | | | 297 | |
| Content amortization (non-cash) | | — | | | 1,686 | | | — | | | 4,855 | |
| Gain on sale of business | | (477) | | | — | | | (3,545) | | | — | |
| Impairment loss (non-cash) | | — | | | — | | | 610 | | | — | |
| Restructuring and other charges | | 11 | | | 1,848 | | | 3,308 | | | 1,848 | |
| Transaction costs | | — | | | — | | | 13 | | | — | |
| Adjusted EBITDA (Non-GAAP) - Discontinued Operations | | $ | (177) | | | $ | 1,253 | | | $ | (393) | | | $ | 2,322 | |
(a) During the fourth quarter of fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Net Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all years reported above. For additional information, see Note 2. Summary of Significant Accounting Policies.
Free Cash Flow (non-GAAP)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
Net cash flows used in operating activities from continuing operations (a) | | $ | (36,061) | | | $ | (31,321) | | | $ | (83,221) | | | $ | (21,248) | |
| Less: | | | | | | | | |
Capital expenditures (b) | | 3,263 | | | 4,877 | | | 11,459 | | | 21,700 | |
| Cash interest | | 5,668 | | | 6,105 | | | 19,640 | | | 13,406 | |
| Cash taxes | | (118) | | | 1 | | | 270 | | | (15,582) | |
| Free Cash Flow (non-GAAP) | | $ | (44,874) | | | $ | (42,304) | | | $ | (114,590) | | | $ | (40,772) | |
(a) See Liquidity and Capital Resources - Sources and Uses of Cash Flow discussion below. The increase in Net cash flows used in operating activities from continuing operations is due to higher accounts receivables and higher inventory levels primarily related to our increased adoption of our BNC First Day equitable and inclusive access sales; higher payments for interest expense; and higher payables due to delayed payments to vendors for inventory purchases and expenses, as a result of borrowing capacity limitations under our credit facility.
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.
(b) Purchases of property and equipment are also referred to as capital expenditures. Our investing activities consist principally of capital expenditures for contractual capital investments associated with renewing existing contracts, new store construction, and enhancements to internal systems and our website.
The following table provides the components of total purchases of property and equipment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital Expenditures | | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Physical store capital expenditures | | $ | 1,158 | | | $ | 1,700 | | | $ | 5,106 | | | $ | 12,248 | |
| Product and system development | | 1,588 | | | 2,691 | | | 5,048 | | | 7,866 | |
| | | | | | | | |
| Other | | 517 | | | 486 | | | 1,305 | | | 1,586 | |
| Total Capital Expenditures | | $ | 3,263 | | | $ | 4,877 | | | $ | 11,459 | | | $ | 21,700 | |
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 agreementCredit 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 January 27, 2018,2024, we had a total of $113.0$15.0 million of cash on hand, including $6.9 million of restricted cash primarily related to segregated funds for commission due to Lids for logo merchandise sales as per the F/L Relationship-related agreements.
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, including increased competition and disintermediation, 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 Loss from Continuing Operations of $(9.9) million and $(22.1) million for the 13 weeks ended January 27, 2024 and January 28, 2023, respectively, and a Net Loss from Continuing Operations of $(35.0) million and $(48.3) million for the 39 weeks ended January 27, 2024 and January 28, 2023, 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 $(83.2) million and $(21.2) million for the 39 weeks ended January 27, 2024 and January 28, 2023, 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 levels and the maturity of our Credit Facility, which becomes due on December 28, 2024, raises substantial doubt about our ability to continue as a going concern. The Company's ability to continue as a going concern is contingent upon the successful execution of management's plan to improve the Company’s liquidity, including (1) raising additional liquidity and (2) continuing to take additional operational restructuring actions to achieve the required levels of liquidity to support the operations of the business.
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). The Board continues its ongoing review of a broad range of strategic alternatives available to the Company, including but not limited to potential capital raises, asset divestitures, a sale of the business, and pursuit of standalone growth plans. The Board has not set a timetable for the conclusion of this review, nor has it made any decisions related to any further actions at this time. There can be no assurance that the review will result in any transaction or other strategic change or outcome.
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 borrowingsprincipal 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 $0.05million 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.
On December 12, 2023, we amended our existing Credit Agreement to, among other things: (i) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) at all times to be greater than the greater of (x) 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and (y) (A) $32.5 million or, subject to the satisfaction of certain conditions relating to the repayment of the Credit Agreement in full, (B) (a) $20 million for the period of December 8, 2023 through January 12, 2024, (b) $25 million for the period from January 26, 2024 through February 9, 2024, (c) $25 million for the period of April 1, 2024 through April 30, 2024 and (d) $30 million for the period of May 1, 2024 through May 31, 2024, and (ii) revise certain reporting requirements under the Credit Agreement. The amendment also revised the Specified Liquidity Transaction Fee introduced in the October 2023 Credit Agreement Amendment such that the $3.8 million became due, upon the effective date of the December 2023 amendment and was paid on January 31, 2024.
On March 12, 2024, we amended our existing Credit Agreement to, among other things, (i) revise certain reporting requirements under the Credit Agreement and (ii) set certain milestones for liquidity and refinancing contingency plans, with respect to which we must execute a binding commitment no later than April 3, 2024 (as may be extended by the administrative agent to April 10, 2024).
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.
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 course of Fiscal 2024, we have achieved annualized savings of approximately $30 million to $35 million from the Fiscal 2023 cost savings initiatives. Additionally, during Fiscal 2024, Management's plan to implement further cost savings measures, including reduction of gross capital expenditures, amounting to approximately $25 million, of which approximately $18 million has been achieved during the 39 weeks ended January 27, 2024. Management believes that these plans are within its control and will be focused on implementing these cost savings measures.
During the 13 weeks ended January 27, 2024, Net Loss from Continuing Operations improved by $12.2 million, or 55%, compared to the prior year period. Net Income (Loss) from Continuing Operations, Excluding interest expense, impairment loss (non-cash) and restructuring and other charges, improved by $15.0 million during the 13 weeks ended January 27, 2024 compared to the prior year period. During the 39 weeks ended January 27, 2024, Net Loss from Continuing Operations improved by $13.3 million, or 28%, compared to the prior year period. Net Income (Loss) from Continuing Operations, excluding interest expense, impairment loss (non-cash) and restructuring and other charges, improved by $34.4 million during the 39 weeks ended January 27, 2024 compared to the prior year period. The improvements in Net Loss from Continuing Operations during the 13 and 39 weeks are primarily due to operational improvements including successful implementation of our BNC First Day programs, and cost savings initiatives.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in millions | January 27, 2024 | | January 28, 2023 | | Var $ | | Var % | | January 27, 2024 | | January 28, 2023 | | Var $ | | Var % |
Net loss from continuing operations | $ | (9.9) | | | $ | (22.1) | | | $ | 12.2 | | | 55% | | $ | (35.0) | | | $ | (48.3) | | | $ | 13.3 | | | 28% |
| | | | | | | | | | | | | | | |
| Reconciling items: | | | | | | | | | | | | | | | |
Interest Expense (a) | $ | 10.6 | | | $ | 6.9 | | | $ | 3.7 | | | 54% | | $ | 29.5 | | | $ | 15.7 | | | $ | 13.8 | | | 88% |
| Impairment loss (non-cash) | 5.8 | | | 6.0 | | | (0.2) | | | (3)% | | 5.8 | | | 6.0 | | | (0.2) | | | (3)% |
| Restructuring and other charges | 3.4 | | | 4.1 | | | (0.7) | | | (17)% | | 12.3 | | | 4.8 | | | 7.5 | | | 156% |
| Total Reconciling items | $ | 19.8 | | | $ | 17.0 | | | $ | 2.8 | | | 16% | | $ | 47.6 | | | $ | 26.5 | | | $ | 21.1 | | | 80% |
| Net Income (Loss) from Continuing Operations Excluding Interest Expense, Impairment Loss and Restructuring and Other Charges | $ | 9.9 | | | $ | (5.1) | | | $ | 15.0 | | | 294% | | $ | 12.6 | | | $ | (21.8) | | | $ | 34.4 | | | 158% |
| | | | | | | | | | | | | | | |
(a) Interest expense increased by $13.9 million compared to the prior year period, comprised of $7.2 million resulting from higher borrowings and higher interest rates and $6.3 million resulting from increased amortization of deferred financing costs. For additional information, see Deferred Financing Arrangements discussion Costs and Interest Expense below.
Sources and Uses of Cash Flow - Continuing Operations
| | | | | | | | | | | | | | |
| | | 39 weeks ended |
| Dollars in thousands | | January 27, 2024 | | January 28, 2023 |
| Net cash flows used in operating activities from continuing operations | | $ | (83,221) | | | $ | (21,248) | |
| Net cash flows used in investing activities from continuing operations | | (11,381) | | | (21,128) | |
| Net cash flows provided by financing activities from continuing operations | | 59,893 | | | 56,422 | |
| | | | |
| Net change in cash, cash equivalents, and restricted cash from continuing operations | | $ | (34,709) | | | $ | 14,046 | |
|
| | | | | | | | |
| | | 39 weeks ended |
| Dollars in thousands | | January 27, 2018 | | January 28, 2017 |
| Cash, cash equivalents, and restricted cash at beginning of period | | $ | 21,697 |
| | $ | 30,866 |
|
| Net cash flows provided by operating activities | | 141,440 |
| | 145,002 |
|
| Net cash flows used in investing activities | | (89,839 | ) | | (33,651 | ) |
| Net cash flows used in financing activities | | (48,230 | ) | | (7,858 | ) |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 25,068 |
| | $ | 134,359 |
|
Cash Flow from Operating Activities from Continuing Operations
Our business is highly seasonal. For our retail operations, (BNC and MBS Direct), 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.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. For MBS Wholesale,our wholesale operations, cash flows from operating activities are typically a source of cash in the second and fourththird fiscal quarters, as payments are received from the summer and winter selling season when theyour wholesale business sell textbooks and other course materials for retail distribution. For both BNCretail and MBS,wholesale, cash flows from operating activities are typically a use of cash in the fourth fiscal quarter, when sales volumes are materially lower than the other quarters. Our quarterly cash flows also may fluctuate depending on the timing of the start of the various schools'school’s semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods.
Cash flows provided byused in operating activities from continuing operations during the 39 weeks ended January 27, 20182024 were $141.4$(83.2) million compared to $145.0$(21.2) million during the 39 weeks ended January 28, 2017.2023. This decreaseincrease in cash flows used in operating activities from continuing operations of $3.6$62.0 million was primarily due to changes in working capital, (including cash income tax payment),including higher accounts receivables of $81.7 million and changes in other long-term liabilitieshigher inventory levels of $88.2 million primarily related to our increased adoption of our BNC First Day equitable and deferred tax balances (primarily driven inclusive access sales; higher payments for interest expense of $6.2 million; offset
by the December 22, 2017 enactmenthigher payables of the U.S. Tax Cuts$78.0 million due to delayed payments to vendors for inventory purchases and Jobs Act).expenses, as a result of borrowing capacity limitations under our credit facility.
Cash Flow from Investing Activities
Our investing activities consist principally of capital expenditures for contractual capital investments associated with renewing existing contracts, new store construction, digital initiatives and enhancements to internal systems and our website. from Continuing Operations
Cash flows used in investing activities from continuing operations during the 39 weeks ended January 27, 20182024 were $(89.8)$(11.4) million compared to $(33.7)$(21.1) million during the 39 weeks ended January 28, 2017.2023. The increasedecrease in cash used in investing activities is primarily due to the acquisition of Student Brands for $57.4 million (cash consideration of $62.0 million, including cash acquired of $4.6 million) during the 39 weeks ended January 27, 2018, higherlower capital expenditures primarily for MBS and contractual capital investments, associated with renewing existing contracts,enhancements to internal systems and websites, and new store construction for BNC, offset by lower deferred contract costs related to our bookstore contracts.construction. Capital expenditures totaled $30.1$11.5 million and $26.5$21.7 million during the 39 weeks ended January 27, 20182024 and January 28, 2017,2023, respectively.
Cash Flow from Financing Activities from Continuing Operations
Cash flows used inprovided by financing activities from continuing operations during the 39 weeks ended January 27, 20182024 were $(48.2)$59.9 million compared $(7.9)to $56.4 million during the 39 weeks ended January 28, 2017.2023. This net change of $40.3$3.5 million is primarily due to increasedhigher net borrowings under the credit agreement of $46.6$10.0 million, (primarily to fund recent acquisitions), and decreasedpartially offset by higher payments for Common Stock repurchaseddeferred financing costs of $6.2 million during the 39 weeks ended January 27, 2018.$7.2 million.
Financing Arrangements
On August 3, 2015, we | | | | | | | | | | | | | | | | | |
| | | As of |
| Maturity Date | | January 27, 2024 | | January 28, 2023 |
| Credit Facility | December 28, 2024 | | $ | 224,067 | | | $ | 255,600 | |
| | | | | |
| Term Loan | April 7, 2025 | | 31,750 | | | 30,000 | |
| sub-total | | | 255,817 | | | 285,600 | |
Less: Deferred financing costs, Term Loan (a) | | | (1,559) | | | (1,743) | |
| Total debt | | | $ | 254,258 | | | $ | 283,857 | |
| Balance Sheet classification: | | | | | |
| Short-term borrowings | | | $ | 224,067 | | | $ | — | |
| Long-term borrowings | | | 30,191 | | | 283,857 | |
| Total debt | | | $ | 254,258 | | | $ | 283,857 | |
(a) For additional information on Credit Facility and certain of our subsidiaries, entered intoTerm Loan deferred financing costs, see Deferred Financing Costs below.
Credit Facility
We have a credit agreement (the “Credit Agreement”), amended from time to time including on December 12, 2023, October 10, 2023, July 28, 2023, May 24, 2023, March 8, 2023, March 31, 2021 and March 1, 2019, under which the lenders originally committed to provide us with a five-year5 year asset-backed revolving credit facility in an aggregate committed principal amount of $400.0 million (the “Credit Facility”). The Company has 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. On February 27, 2017, in connection withProceeds from the acquisition of MBS, we amended our existing Credit Agreement to add a new $100 millionFacility 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, no later than May 31, 2023 (see discussion below) and (y) by an additional 500 basis points on September 29, 2023, (v) amend certain negative covenants and add certain additional covenants, (vi) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) to be at all times greater than the greater of 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and $32.5 million 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 required the achievement of a Special Event by no later than May 31, 2023 (as such date may be extended pursuant to the terms of the Credit Agreement). See Note 2. Summary of Significant Accounting Policies for information related to the sale of our DSS segment on May 31, 2023.
We paid a fee of 0.25% of the outstanding principal amount of the commitments under the Credit Agreement on the amendment closing date and we will pay an additional fee of 1.00% of the outstanding principal amount of the commitments under the Credit Agreement on September 29, 2023.
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 39 weeks ended January 27, 2024, 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
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 39 weeks ended January 27, 2024, we incurred debt issuance costs totaling $1.4 million related to the October 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets, and subsequently amortized ratably over the term of the Credit Agreement.
December 2023 Credit Agreement Amendment
On December 12, 2023, we amended our existing Credit Agreement to, among other things: (i) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) at all times to be greater than the greater of (x) 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and (y) (A) $32.5 million or, subject to the satisfaction of certain conditions relating to the repayment of the Credit Agreement in full, (B) (a) $20 million for the period of December 8, 2023 through January 12, 2024, (b) $25 million for the period from January 26, 2024 through February 9, 2024, (c) $25 million for the period of April 1, 2024 through April 30, 2024 and (d) $30 million for the period of May 1, 2024 through May 31, 2024, and (ii) revise certain reporting requirements under the Credit Agreement. The amendment also revised the Specified Liquidity Transaction Fee introduced in the October 2023 Credit Agreement Amendment such that the $3.8 million became due and was paid on January 31, 2024. During the 39 weeks ended January 27, 2024, we incurred debt issuance costs totaling $4.1 million related to the December 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets, and subsequently amortized ratably over the term of the Credit Agreement. For additional information related to the Credit Agreement amendment, see the Company’s Report on Form 8-K dated December 12, 2023 and filed with the SEC on December 13, 2023.
March 2024 Credit Agreement Amendment
On March 12, 2024, we amended our existing Credit Agreement to, among other things, (i) revise certain reporting requirements under the Credit Agreement and (ii) set certain milestones for liquidity and refinancing contingency plans, with respect to which we must execute a binding commitment no later than April 3, 2024 (as may be extended by the administrative agent to April 10, 2024).
As of January 27, 2024, 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 39 weeks ended January 27, 2018,2024, we borrowed $481.6$454.5 million and repaid $528.2$384.5 million under the Credit Agreement. Net totalAgreement, and had outstanding borrowings of $113.0$224.1 million as of January 27, 2018 is2024, comprised entirely of borrowings under the Credit Facility. During the 39 weeks ended January 28, 2023, we borrowed $482.0 million and repaid $452.1 million under the Credit Agreement, and had outstanding borrowings of $255.6 million as of January 28, 2023, comprised entirely of borrowings under the Credit Facility. As of January 27, 2018,2024 and January 28, 2023, we have issued $3.6 million and $4.8 million, respectively, in letters of credit under the facility.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 39 weeks ended January 27, 2024, we incurred $1.8 million for interest in kind on the Term Loan and repaid $0 under the Term Loan Credit Agreement, with $31.8 million of outstanding borrowings as of January 27, 2024. During the 39 weeks ended January 28, 2017,2023, we borrowed $30.0 million and repaid $116.1$0 under the Term Loan Credit Agreement, with $30.0 million of outstanding borrowings as of January 28, 2023.
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 Facility.
Agreement, but no later than August 31, 2023 without consent from lenders under the Term Loan Credit Agreement). For additional information, including interest termssee the Company's Report on Form 8-K dated March 8, 2023 and covenant requirementsfiled 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 a reduction to long-term borrowings in the consolidated balance sheets, and subsequently amortized ratably over the term of the Term Loan Facility.
July 2023 Term Loan Credit Agreement Amendment
On July 28, 2023, we amended our Term Loan to (i) extend the maturity date of the Term Loan Agreement to April 7, 2025, (ii) allow for interest to be paid in kind until September 2, 2024, (iii) amend the 1.50% anniversary fee to recur on June 7 of each year that the Term Loan Agreement remains outstanding, with 2024 fee deferred to the earlier of September 2, 2024 and the Termination Date (as defined in the Term Loan Agreement) and (iv) amend certain negative covenants and affirmative and add certain additional covenants. We must pay a fee of $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 39 weeks ended January 27, 2024, 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.
The Term Loans accrue interest at a rate equal to 11.25%, payable quarterly. All interest on the Term Loan prior to July 29, 2023 was paid in cash. During the 13 weeks ended October 28, 2023 and 13 weeks ended January 27, 2024, 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 FILO Facility, referalso 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.
Deferred Financing Costs
The debt issuance costs have been deferred and are presented as noted below in the consolidated balance sheets, and are subsequently amortized ratably over the term of respective debt.
| | | | | | | | | | | | | | | | | |
| Dollars in thousands | | | As of |
| Balance Sheet Location | Maturity Date/ Amortization Term | | January 27, 2024 | | January 28, 2023 |
| Credit Facility - Prepaid and Other Current Assets | December 28, 2024 | | $ | 14,570 | | | $ | 1,583 | |
| Credit Facility - Other noncurrent assets | | | — | | | 132 | |
| Credit Facility - sub-total | | | 14,570 | | | 1,715 | |
| Term Loan - Contra Debt | April 7, 2025 | | 1,559 | | | 1,743 | |
| Total deferred financing costs | | | $ | 16,129 | | | $ | 3,458 | |
Interest Expense
During the 13 weeks ended January 27, 2024 and January 28, 2023, we recognized interest expense of $10.6 million and $6.9 million, respectively, and during the 39 weeks ended January 27, 2024 and January 28, 2023, we recognized interest expense of $29.5 million and $15.7 million, respectively. The following table disaggregates interest expense for the 13 and 39 week periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 weeks ended | | 39 weeks ended |
| Dollars in thousands | | January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
| Interest Incurred | | | | | | | | |
| Credit Facility | | $ | 5,747 | | | $ | 5,215 | | | $ | 18,286 | | | $ | 11,910 | |
| Term Loan | | 907 | | | 853 | | | 3,074 | | | 2,213 | |
| Total Interest Incurred | | $ | 6,654 | | | $ | 6,068 | | | $ | 21,360 | | | $ | 14,123 | |
| Amortization of Deferred Financing Costs | | | | | | | | |
| Credit Facility | | $ | 3,662 | | | $ | 396 | | | $ | 7,456 | | | $ | 1,187 | |
| Term Loan | | 312 | | | 462 | | | 924 | | | 871 | |
| Total Amortization of Deferred Financing Costs | | $ | 3,974 | | | $ | 858 | | | $ | 8,380 | | | $ | 2,058 | |
| Interest Income, net of expense | | $ | (8) | | | $ | (8) | | | $ | (202) | | | $ | (509) | |
| Total Interest Expense | | $ | 10,620 | | | $ | 6,918 | | | $ | 29,538 | | | $ | 15,672 | |
Cash interest paid during the 39 weeks ended January 27, 2024 and January 28, 2023 was $19.6 million and $13.4 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 January 27, 2024, 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 received an $8.5 million refund (including $0.9 million in interest) on February 16, 2024 and we expect to receive additional refunds of approximately $2.4 million.
Share Repurchases
During the 13 and 39 weeks ended January 27, 2024, we did not repurchase any of our Common Stock under the stock repurchase program. As of January 27, 2024, approximately $26.7 million remains available under the stock repurchase program.
During the 13 and 39 weeks ended January 27, 2024, we repurchased 3,135 and 147,885 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, 2017.
We believe that our future cash from operations, access to borrowings under the Credit Agreement and short-term vendor financing will provide adequate resources to fund our operating and financing needs for the foreseeable future. Our access to, and the availability of, financing in the future will be impacted by many factors, including the liquidity of the overall capital markets and the current state of the economy. There can be no assurances that we will have access to capital markets on acceptable terms.
Income Tax Implications on Liquidity
As of January 27, 2018, other long-term liabilities includes $54.4 million related to the long-term tax payable associated with the LIFO reserve. The LIFO reserve is impacted by changes in the consumer price index ("CPI") and is dependent on the inventory levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling cycle. At the end of the most recent tax year, inventory levels within our BNC segment declined as compared to the prior year resulting in approximately $13.8 million of the LIFO reserve becoming currently payable. Given recent trends relating to the pricing and rental of textbooks, management believes that an additional portion of the remaining long-term tax payable associated with the LIFO reserve could be payable within the next twelve months. We are unable to predict future trends for CPI and inventory levels, therefore it is difficult to project with reasonable certainty how much of this liability will become payable within the next twelve months.
Share Repurchases
On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50 million, in the aggregate, of our outstanding Common Stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. During the 39 weeks ended January 27, 2018, we did not repurchase any of our Common Stock. As of January 27, 2018, approximately $26.7 million remains available under the stock repurchase program.
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 year ended April 29, 2017.2023.
Off-Balance Sheet Arrangements
As of January 27, 2018,2024, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
Critical Accounting Policies
With the exception of the Evaluation of Goodwill Impairment discussion, ourOur policies regarding the use of estimates and other critical accounting policies are consistent with the disclosures in Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the fiscal year ended April 29, 2017. For current information related to our Evaluation2023.
1. Financial Statements - Note 2. Summary of Significant Accounting Policies in this Form 10-Q.
Recent Accounting Pronouncements
See Item 1. Financial Statements — Note 3. Recent Accounting Pronouncements of this Form 10-Q for information related to new accounting pronouncements.
Disclosure Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and information relating to us and our business that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. When used in this communication, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will,” “forecasts,” “projections,” and similar expressions, as they relate to us or our management, identify forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Such statements reflect our current views with respect to future events, the outcome of which is subject to certain risks, including, among others:
general competitive conditions, including actions our competitors and content providers may take to grow their businesses;
a decline in college enrollment or decreased funding available for students;
decisions by colleges and universities to outsource their physical and/or online bookstore operations or change the operation of their bookstores;
the general economic environment and consumer spending patterns;
decreased consumer demand for our products, low growth or declining sales;
the strategic objectives, successful integration, anticipated synergies, and/or other expected potential benefits of various acquisitions, including MBS Textbook Exchange, LLC and Student Brands, LLC, may not be fully realized or may take longer than expected;
the integration of MBS Textbook Exchange, LLC’s operations into our own may also increase the risk of our internal controls being found ineffective;
implementation of our digital strategy may not result in the expected growth in our digital sales and/or profitability;
risk that digital sales growth does not exceed the rate of investment spend;
the performance of our online, digital and other initiatives, integration of and deployment of, additional products and services including new digital channels, and enhancements to higher education digital products, and the inability to achieve the expected cost savings;
our ability to successfully implement our strategic initiatives including our ability to identify, compete for and execute upon additional acquisitions and strategic investments;
risks associated with operation or performance of MBS Textbook Exchange, LLC’s point-of-sales systems that are sold to college bookstore customers;
changes to purchase or rental general terms, payment terms, return policies, the discount or margin on products or other terms with our suppliers;
technological changes;
risks associated with counterfeit and piracy of digital and print materials;
our international operations could result in additional risks;
our ability to attract and retain employees;
the risk of price reduction or change in format of course materials by publishers, which could negatively impact revenues and margin;
risks associated with data privacy, information security and intellectual property;
trends and challenges to our business and in the locations in which we have stores;
non-renewal of managed bookstore, physical and/or online store contracts and higher-than-anticipated store closings;
disruptions to our information technology systems, infrastructure and data due to computer malware, viruses, hacking and phishing attacks, resulting in harm to our business and results of operations;
disruption of or interference with third party web service providers and our own proprietary technology;
work stoppages or increases in labor costs;
possible increases in shipping rates or interruptions in shipping service;
product shortages, including risks associated with merchandise sourced indirectly from outside the United States;
changes in domestic and international laws or regulations, including U.S. tax reform, changes in tax rates, laws and regulations, as well as related guidance;
enactment of laws which may restrict or prohibit our use of emails or similar marketing activities;
•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 continue as a going concern;
•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 United States Department of Education has recently proposed regulatory changes that, if adopted as proposed, could impact equitable and inclusive access models across the higher education industry;
•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;
•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 the potential loss of control over personal information;
•risks associated with the potential misappropriation of our 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 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, 2017.
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, 2017.2023.
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.level as of January 27, 2024.
Management has not identified any changes in the Company’s internal control over financial reporting that occurred during the third quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting other than changes in controls that may be required as a resultreporting.
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, except as noted below, during the 39 weeks ended January 27, 20182024 to the risk factors discussed in Part I - Item1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended April 29, 2017.2023.
We are not in compliance with the NYSE’s minimum share price requirement and thus are at risk of the NYSE delisting shares of our Common Stock, which would have an adverse impact on the trading volume, liquidity and market price of shares of our Common Stock. On February 27, 2024, we received a letter from NYSE notifying us that, for the last 30 consecutive business days, the bid price of our common stock had closed below $1.00 per share, the minimum closing bid price required by the continued listing requirements of Rule 802.01C of the NYSE Listed Company Manual. Pursuant to Rule 802.01C of the NYSE Listed Company Manual, a company will be considered to be below compliance standards if the average closing price of a security fell below $1.00 over a period of 30 consecutive trading days. A company can regain compliance with the minimum share price requirement at any time during the six-month cure period if, on the last trading day of any calendar month during the cure period, the company has (i) a closing share price of at least $1.00 and (ii) an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month. In the event that at the expiration of the six-month cure period, both a $1.00 closing share price on the last trading day of the cure period and a $1.00 average closing share price over the 30 trading-day period ending on the last trading day of the cure period are not attained, the NYSE will commence suspension and delisting procedures. We intend to take remedial actions to cure such deficiency, including, but not limited to, undertaking a reverse stock split, should such action be necessary, subject to approval of our stockholders. However, we cannot assure you that these remedial actions will be successful and that we will be able to cure this deficiency or comply with other NYSE continued listing standards. A delisting of shares of our Common Stock from the NYSE could negatively impact us as it would likely reduce the liquidity and market price of shares of our Common Stock, reduce the number of investors willing to hold or acquire shares of our Common Stock, and negatively impact our ability to access equity markets and obtain financing.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information as of January 27, 20182024 with respect to shares of Common Stock we purchased during the third quarter of Fiscal 2018:2024:
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| Period | Total Number of Shares Purchased | | Average Price Paid per Share (a) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs |
| October 29, 2017 - November 25, 2017 | — |
| | $ | — |
| | — |
| | $ | 26,669,324 |
|
| November 26, 2017 - December 30, 2017 | — |
| | $ | — |
| | — |
| | $ | 26,669,324 |
|
| December 31, 2017 - January 27, 2018 | — |
| | $ | — |
| | — |
| | $ | 26,669,324 |
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| | — |
| | $ | — |
| | — |
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| 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 |
(a)October 29, 2023 - November 25, 2023 | This amount represents the average price paid per common share. This price includes a per share commission paid for all repurchases.— | | | $ | — | | | — | | | $ | 26,669,324 | |
| November 26, 2023 - December 30, 2023 | — | | | $ | — | | | — | | | $ | 26,669,324 | |
| December 31, 2023 - January 27, 2024 | — | | | $ | — | | | — | | | $ | 26,669,324 | |
| — | | | $ | — | | | — | | | |
On December 14, 2015, our Board of Directors authorized(a) This amount represents the average price paid per common share. This price includes a stock repurchase program of up to $50 million, in the aggregate, of our outstanding Common Stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be availableper share commission paid for general corporate purposes. all repurchases.
During the 13 and 39 weeks ended January 27, 2018,2024, we did not repurchase any shares of our Common Stock.Stock under the stock repurchase program.
During the 13 and 39 weeks ended January 27, 2018,2024, we also repurchased 259,3483,135 and 147,885 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.
Item 6. Exhibits
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| | Tenth Amendment, dated as of December 12, 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, filed as Exhibit 10.1 to the Company’s Current Form on Form 8-K filed with the SEC on December 13, 2023, and incorporated herein by reference. |
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| 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. |
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| 101.SCH | | XBRL Taxonomy Extension Schema Document |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
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| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Filed herewith.
**Furnished herewith.
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.
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| BARNES & NOBLE EDUCATION, INC. | |
| (Registrant) | |
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| By: | | /S/ BARRY BROVERKEVIN WATSON | |
| | Kevin Watson | | Barry Brover |
| | | Chief Financial Officer | |
| | | (principal financial officer) | |
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| By: | | /S/ SEEMA C. PAUL | |
| | Seema C. Paul | | Seema Paul |
| | | Chief Accounting Officer | |
| | | (principal accounting officer) | |
March 1, 201812, 2024
EXHIBIT INDEX
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101.INS | | XBRL Instance Document |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |