Barnes & Noble Education, Inc. 10-Q

Item 1: Financial Statements BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (In thousands, except per share data) (unaudited) 13 weeks ended 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. 3 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except per share data) January 27, 2024 January 28, 2023 April 29, 2023 (unaudited) (unaudited) (audited) ASSETS Current assets: Cash and cash equivalents $ 8,123 $ 9,423 $ 14,219 Receivables, net 315,126 276,924 92,512 Merchandise inventories, net 341,544 408,924 322,979 Textbook rental inventories 44,521 35,468 30,349 Prepaid expenses and other current assets 54,337 53,316 49,512 Assets held for sale, current — 29,619 27,430 Total current assets 763,651 813,674 537,001 Property and equipment, net 57,273 72,075 68,153 Operating lease right-of-use assets 220,238 259,470 246,972 Intangible assets, net 97,947 114,269 110,632 Deferred tax assets, net — — 132 Other noncurrent assets 12,488 19,875 17,889 Total assets $ 1,151,597 $ 1,279,363 $ 980,779 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 343,100 $ 355,200 $ 267,923 Accrued liabilities 156,874 132,943 85,759 Current operating lease liabilities 125,545 116,051 99,980 Short-term borrowings 224,067 — — Liabilities held for sale — 5,384 8,423 Total current liabilities 849,586 609,578 462,085 Long-term deferred taxes, net 2,010 1,601 1,970 Long-term operating lease liabilities 155,226 188,466 184,754 Other long-term liabilities 17,451 19,375 19,068 Long-term borrowings 30,191 283,857 182,151 Total liabilities 1,054,464 1,102,877 850,028 Commitments and contingencies — — — Stockholders' equity: Preferred stock, $ 0.01 par value; authorized, 5,000 shares; 0 shares issued and 0 shares outstanding — — — Common stock, $ 0.01 par value; authorized, 200,000 shares; issued, 55,840 , 55,140 and 55,140 shares, respectively; outstanding, 53,156 , 52,604 and 52,604 shares, respectively 558 551 551 Additional paid-in capital 748,330 745,417 745,932 Accumulated deficit ( 629,203 ) ( 547,106 ) ( 593,356 ) Treasury stock, at cost ( 22,552 ) ( 22,376 ) ( 22,376 ) Total stockholders' equity 97,133 176,486 130,751 Total liabilities and stockholders' equity $ 1,151,597 $ 1,279,363 $ 980,779 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents 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 5 Table of Contents 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. 6 Table of Contents BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Equity (In thousands) (unaudited) Additional Common Stock Paid-In Accumulated Treasury Stock Total Shares Amount Capital Deficit Shares Amount Equity Balance at April 30, 2022 54,234 $ 542 $ 740,838 $ ( 491,494 ) 2,188 $ ( 21,512 ) $ 228,374 Stock-based compensation expense 1,791 1,791 Vested equity awards 540 5 ( 5 ) — Shares repurchased for tax withholdings for vested stock awards 238 ( 612 ) ( 612 ) Net loss ( 52,707 ) ( 52,707 ) Balance July 30, 2022 54,774 $ 547 $ 742,624 $ ( 544,201 ) 2,426 $ ( 22,124 ) $ 176,846 Stock-based compensation expense 1,719 1,719 Vested equity awards 357 4 ( 4 ) — Shares repurchased for tax withholdings for vested stock awards 107 ( 245 ) ( 245 ) Net income 22,144 22,144 Balance October 29, 2022 55,131 $ 551 $ 744,339 $ ( 522,057 ) 2,533 $ ( 22,369 ) $ 200,464 Stock-based compensation expense 1,078 1,078 Vested equity awards 9 — — — Shares repurchased for tax withholdings for vested stock awards 3 ( 7 ) ( 7 ) Net loss ( 25,049 ) ( 25,049 ) Balance January 28, 2023 55,140 $ 551 $ 745,417 $ ( 547,106 ) 2,536 $ ( 22,376 ) $ 176,486 Additional Common Stock Paid-In Accumulated Treasury Stock Total Shares Amount Capital Deficit Shares Amount Equity Balance at April 29, 2023 55,140 $ 551 $ 745,932 $ ( 593,356 ) 2,536 $ ( 22,376 ) $ 130,751 Stock-based compensation expense 794 794 Vested equity awards 179 2 ( 2 ) — Shares repurchased for tax withholdings for vested stock awards 78 ( 98 ) ( 98 ) Net loss (50,388) ( 50,388 ) Balance July 29, 2023 55,319 $ 553 $ 746,724 $ ( 643,744 ) 2,614 $ ( 22,474 ) $ 81,059 Stock-based compensation expense 799 799 Vested equity awards 499 5 ( 5 ) — Shares repurchased for tax withholdings for vested stock awards 67 ( 74 ) ( 74 ) Net income 24,180 24,180 Balance October 28, 2023 55,818 $ 558 $ 747,518 $ ( 619,564 ) 2,681 $ ( 22,548 ) $ 105,964 Stock-based compensation expense 812 812 Vested equity awards 22 — — — Shares repurchased for tax withholdings for vested stock awards 3 ( 4 ) ( 4 ) Net loss ( 9,639 ) ( 9,639 ) Balance January 27, 2024 55,840 $ 558 $ 748,330 $ ( 629,203 ) 2,684 $ ( 22,552 ) $ 97,133 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents 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) Unless the context otherwise indicates, references in these Notes to the accompanying condensed consolidated financial statements to “we,” “us,” “our” and “the Company” refer to Barnes & Noble Education or "BNED", Inc., a Delaware corporation. References to “Barnes & Noble College” refer to our college bookstore business operated through our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our virtual bookstore and wholesale textbook distribution business operated through our subsidiary MBS Textbook Exchange, LLC. This Form 10-Q should be read in conjunction with our Audited Consolidated Financial Statements and accompanying Notes to consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023, which includes consolidated financial statements for the Company as of April 29, 2023, and April 30, 2022 and for each of the three fiscal years ended April 29, 2023, April 30, 2022 and May 1, 2021 ("Fiscal 2023," "Fiscal 2022" and "Fiscal 2021", respectively) and the unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the quarter ended July 29, 2023 and for the quarter ended October 28, 2023. Note 1. Organization Description of Business Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States. We are also one of the largest textbook wholesalers, inventory management hardware and software providers. We operate 1,272 physical, virtual, and custom bookstores and serve more than 5.8 million students, delivering essential educational content, tools and general merchandise within a dynamic omnichannel retail environment. The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands. We provide product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes. We offer our BNC First Day ® equitable and inclusive access programs, consisting of First Day Complete and First Day , which provide faculty required course materials on or before the first day of class at 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 price directly by the institution as a course charge or included in tuition. During the 13 weeks ended January 27, 2024, BNC First Day total revenue increased by $ 63,371 , or 53 %, to $ 184,073 compared to $ 120,702 during the prior 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 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 introduce scalable and advanced solutions focused largely on the student and customer experience, expand our e-commerce capabilities and accelerate such capabilities through our merchandising and e-commerce service provider agreement with Fanatics Retail Group Fulfillment, LLC, Inc. (“Fanatics”) and Fanatics Lids College, Inc. D/B/A "Lids" (“Lids”) (collectively referred to herein as the “F/L Relationship”), win new accounts, and expand our revenue opportunities through strategic relationships. We expect gross comparable store general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the F/L Relationship. Through this relationship, Fanatics and Lids provide unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools on our behalf to drive increased value for customers and accelerate growth of our logo general merchandise business. The Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important to our relationship with leading publishers who rely on us as one of their primary distribution channels. During the fourth quarter of Fiscal 2023, assets related to our DSS Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. On May 31, 2023, we completed the sale of 8 Table of Contents 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) these assets related to our DSS Segment. We have two reportable segments: Retail and Wholesale. For additional information related to our strategies, operations and segments, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023 . BNC First Day Equitable and Inclusive Access Programs We provide product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes. We offer our BNC First Day ® equitable and inclusive access programs, consisting of First Day Complete and First Day , which provide faculty required course materials on or before the first day of class at below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte) and students are billed the below market rate, directly by the institution as a course charge or included in tuition. • First Day Complete is adopted by an institution and includes 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 9 Table of Contents 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 consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by GAAP. All material intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. Due to the seasonal nature of the business, the results of operations for the 13 and 39 weeks ended January 27, 2024 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, 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, 10 Table of Contents 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. 11 Table of Contents 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 . 12 Table of Contents 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), 13 Table of Contents 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) 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, which includes certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand. Cost is determined primarily by the retail inventory method for our Retail segment. Our textbook and trade book inventories, for Retail and Wholesale, are valued using the LIFO method and the related reserve was not material to the recorded amount of our inventories. There were no LIFO adjustments in Fiscal 2023, Fiscal 2022 and Fiscal 2021. For our physical bookstores, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends. The Retail Segment fulfillment order is directed first to our wholesale business before other sources of inventory are utilized. The products that we sell originate from a wide variety of domestic and international vendors. After internal sourcing, the bookstore purchases textbooks from outside suppliers and publishers. 14 Table of Contents 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 is recognized at the point in time when control of the products is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for the products. For additional information, see Note 3. Revenue. Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks at which point title passes and risk of loss is transferred to the customer. Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of goods sold. Revenue from the sale of digital textbooks, which contains a single performance obligation, is recognized at the point of sale as product revenue in our condensed consolidated financial statements. A software feature is embedded within the content of our digital textbooks, such that upon expiration of the term the customer is no longer able to access the content. While the sale of the digital textbook allows the customer to access digital content for a fixed period of time, once the digital content is delivered to the customer, our performance obligation is complete. Revenue from the rental of physical textbooks is deferred and recognized over the rental period based on the passage of time commencing at the point of sale, when control of the product transfers to the customer and is recognized as rental income in our condensed consolidated financial statements. Rental periods are typically for a single semester and are always less than one year in duration. We offer a buyout option to allow the purchase of a rented physical textbook at the end of the rental period if the customer desires to do so. We record the buyout purchase when the customer exercises and pays the buyout option price which is determined at the time of the buyout. In these instances, we accelerate any remaining deferred rental revenue at the point of sale. Revenue recognized for our BNC First Day offerings is consistent with our policies outlined above for product, digital and rental sales, net of an anticipated opt-out or return provision. Given the growth of BNC First Day programs, the timing of cash collection from our school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts our BNC First Day equitable and inclusive access offerings, cash collection from the school generally occurs after the institution's drop/add dates, which is later in the working capital cycle, particularly in our third quarter given the timing of the Spring Term and our quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor. We estimate returns based on an analysis of historical experience. A provision for anticipated merchandise returns is 15 Table of Contents 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 our condensed consolidated financial statements. We do not have gift card or customer loyalty programs. We do not treat any promotional offers as expenses. Sales tax collected from our customers is excluded from reported revenues. Our payment terms are generally 30 days and do not extend beyond one year. Service and other revenue Service and other revenue is primarily derived from brand partnership marketing services which includes promotional activities and advertisements within our physical bookstores and web properties performed on behalf of third-party customers, shipping and handling, and revenue from other programs. Brand partnership marketing agreements often include multiple performance obligations which are individually negotiated with our customers. For these arrangements that contain distinct performance obligations, we allocate the transaction price based on the relative standalone selling price method by comparing the standalone selling price (“SSP”) of each distinct performance obligation to the total value of the contract. The revenue is recognized as each performance obligation is satisfied, typically at a point in time for brand partnership marketing service and overtime for advertising efforts as measured based upon the passage of time for contracts that are based on a stated period of time or the number of impressions delivered for contracts with a fixed number of impressions. Cost of Sales Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses. Selling and Administrative Expenses Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting. Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses and other governance functions, are not allocated to a specific reporting segment and are recorded in Corporate Services. Evaluation of Long-Lived Assets 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. Goodwill on our condensed consolidated balance sheet as of January 28, 2023 related to our DSS 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 college, university, or K-12 schools, indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets . As of January 27, 2024, our other long-lived assets include property and 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. 16 Table of Contents 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) 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. During 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 December 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to improve annual income tax disclosure requirements, primarily to (1) disclose specific categories in the rate reconciliation (2) provide additional information for reconciling items that meet a quantitative threshold, and (3) enhance cash tax payment disclosures. This guidance will be effective for the Company for the annual report for the fiscal year ending April 26, 2025. Early adoption is permitted and the guidance is applied on a prospective basis. We are currently assessing this guidance and determining the impact 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 our products and services is recognized either at the point in time when control of the products is transferred to our customers or over time as services are provided in an amount that reflects the consideration we expect to be entitled to in exchange for the products or services. See Note 2. Summary of Significant Accounting Policies for additional information related to our revenue recognition policies and Note 4. Segment Reporting for a description of each segment's product and service offerings. 17 Table of Contents 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) Disaggregation of Revenue The following table disaggregates the revenue 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 Retail Segment are recognized on a net basis as commission revenue in the condensed consolidated financial statements. (b) Service and other revenue primarily relates to brand partnership marketing and other service revenues. (c) The sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale. Contract Liabilities Contract liabilities represent an obligation to transfer goods or services to a customer for which we have received consideration and consists of our deferred revenue liability (deferred revenue). Deferred revenue consists of the following: • advanced payments from customers related to textbook rental performance obligations, which are recognized ratably over the terms of the related rental period; • unsatisfied performance obligations associated with brand partnership marketing services, which are recognized when the contracted services are provided to our brand partnership marketing customers; and • unsatisfied performance obligations associated with the premium paid for the sale of treasury shares, which are expected to be recognized over the term of the e-commerce and merchandising contracts for Fanatics and Lids, respectively . The following table presents changes in deferred revenue associated with our contract 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 18 Table of Contents 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 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 have two reportable segments: Retail and Wholesale. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, are not allocated to a specific reporting segment and continue to be presented as “Corporate Services”. We identify our segments in accordance with the way our business is managed (focusing on the financial information distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance. The following summarizes the two segments. For additional information about each segment's operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023 . Retail Segment The Retail Segment operates 1,272 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 have school-branded e-commerce websites which we operate independently or along with our merchant service providers, and which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts. The Retail Segment offers our BNC First Day ® equitable and inclusive access programs, consisting of First Day Complete and First Day , which provide faculty required course materials on or before the first day of class at below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte) and students are billed the below market rate, directly by the institution as a course charge or included in tuition. Additionally, the Retail Segment offers a suite of digital content and services to colleges and universities, including a variety of open educational resource-based courseware. Wholesale Segment The Wholesale Segment is comprised of our wholesale textbook business and is one of the largest textbook wholesalers in the country. The Wholesale Segment centrally sources, sells, and distributes new and used textbooks to approximately 2,900 physical bookstores (including our Retail Segment's 717 physical bookstores) and sources and distributes new and used textbooks to our 555 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to approximately 325 college bookstores. Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources. Intercompany Eliminations The eliminations are primarily related to the following intercompany activities: • The sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale, and • These cost of sales eliminations represent (i) the recognition of intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the current period. Our international operations are not material, and the majority of the revenue and total assets are within the United States. 19 Table of Contents 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) 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 ) 20 Table of Contents 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 5. Equity and Earnings Per Share Equity Share Repurchases During the 13 and 39 weeks ended January 27, 2024, we did not repurchase shares of our Common Stock under the stock repurchase program and as of January 27, 2024, approximately $ 26,669 remains available under the stock repurchase program. During the 13 and 39 weeks ended January 27, 2024, we repurchased 3,135 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 weeks ended January 27, 2024 and January 28, 2023, average shares of 3,009,464 and 4,677,926 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. During the 39 weeks ended January 27, 2024 and January 28, 2023, average shares of 3,305,749 and 4,824,844 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. The following is a reconciliation of the basic and diluted earnings per share calculation: 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 6. Fair Value Measurements In accordance with ASC No. 820, Fair Value Measurements and Disclosures , the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. 21 Table of Contents 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 value of cash and cash equivalents, receivables, accrued liabilities and accounts payable approximates their carrying values because of the short-term nature of these instruments, which are all considered Level 1. The fair value of short-term and long-term debt approximates its carrying value. Non-Financial Assets and Liabilities Our non-financial assets include property and equipment, operating lease right-of-use assets, and intangible assets. Such assets are reported at their carrying values and are not subject to recurring fair value measurements. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets . During the 13 weeks ended January 27, 2024 and January 28, 2023, we evaluated certain of our store-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 . 22 Table of Contents 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 5 year asset-backed revolving credit facility in an aggregate committed principal amount of $ 400,000 (the “Credit Facility”) effective from the March 1, 2019 amendment. We had the option to request an increase in commitments under the Credit Facility of up to $ 100,000 , subject to certain restrictions. Proceeds from the Credit Facility are used for general corporate purposes, including seasonal working capital needs. The agreement included an incremental first in, last out seasonal loan facility (the “FILO Facility”) for a $ 100,000 maintaining the maximum availability under the Credit Agreement at $ 500,000 . As of July 31, 2022, the FILO Facility was repaid and eliminated according to its terms and future commitments under the FILO Facility were reduced to $ 0 . March 2023 Credit Agreement Amendment On March 8, 2023, we amended our existing Credit Agreement to (i) extend the maturity date of the Credit Agreement by six months to August 29, 2024, (ii) reduce the commitments under the Credit Agreement by $20,000 to $380,000, (iii) increase the applicable margin with respect to the interest rate under the Credit Agreement to 3.375% per annum, in the case of interest accruing based on a Secured Overnight Financing Rate, and 2.375%, in the case of interest accruing based on an alternative base rate, in each case, without regard to a pricing grid, (iv) reduce advance rates with respect to the borrowing base (x) by 500 basis points upon the achievement of certain liquidity events, which may include a sale of equity interests or of assets (a “Specified Event”), or, if such a Specified Event shall not have occurred, no later than May 31, 2023 (see discussion below) and (y) by an additional 500 basis points on September 29, 2023, (v) amend certain negative covenants and add certain additional covenants, (vi) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) to be at all times greater than the greater of 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and $32,500 and (vii) require repayment of the loans under the Credit Agreement upon a Specified Event. For additional information related to the 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 $4,081 related to the March 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets 23 Table of Contents 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, 2024, we incurred debt issuance costs totaling $11,516 related to the July 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets, and subsequently amortized ratably over the term of the Credit Agreement. October 2023 Credit Agreement Amendment On October 10, 2023, we amended our existing Credit Agreement to revise certain reporting requirements to the administrative agent and lenders under the Credit Agreement. The amendment introduced a Specified Liquidity Transaction Fee of $3,800 that would become due and payable at the earlier to occur of (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. 24 Table of Contents 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 $ 224,067 as of January 27, 2024, 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, 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 25 Table of Contents 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 26 Table of Contents 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. 27 Table of Contents 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 During the 13 and 39 weeks ended January 27, 2024, we recognized restructuring and other charges totaling $ 3,413 and $ 12,320 , respectively, comprised primarily of $ 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 other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($ 921 is included in accrued liabilities in the condensed consolidated balance sheet as of 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 28 Table of Contents 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) 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, 2023, we recognized restructuring and other charges totaling $ 4,127 and $ 4,762 , respectively, comprised primarily of $ 2,848 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 $ 1,279 and $ 1,914 , respectively, for costs primarily associated with professional service costs for restructuring and process improvements. Note 10. Long-Term Incentive Plan Compensation Expense During the 13 and 39 weeks ended January 27, 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 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 unvested awards as of January 27, 2024 was $ 3,173 and is expected to be recognized over a weighted-average period of 1.3 years. Note 11. Employee Benefit Plans We sponsor defined contribution plans for the benefit of substantially all of the employees of BNC. MBS maintains a profit sharing plan covering substantially all full-time employees of MBS. For all plans, we are responsible to fund the employer contributions directly. Total employee benefit expense for these plans was $ 0 and $ 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, 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 29 Table of Contents 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 would not realize all deferred tax assets and our tax rate for the current fiscal year reflects this determination. We will continue to evaluate this position. Note 13. Legal Proceedings We are involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of our business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on our condensed consolidated financial position, results of operations, or cash flows. 30 Table of Contents