Barnes & Noble Education(BNED)2022-12-05 16:00Financial Position and Borrowings - The company has a credit facility with a committed principal amount of $400,000, with an option to request an increase of up to $100,000[81]. - As of October 29, 2022, the company had $222,000 in outstanding borrowings under the credit facility, compared to $183,300 as of October 30, 2021, reflecting an increase of 21.1% year-over-year[81]. - The company borrowed $318,200 and repaid $321,900 under the credit agreement during the 26 weeks ended October 29, 2022[81]. - The term loan credit agreement provides for term loans of $30,000, with an interest rate of 11.25%, maturing on June 7, 2024[82]. - The company incurred debt issuance costs of $1,964 related to the term loan credit agreement, which will be amortized over the term of the loan[85]. - The company had $222.0 million and $30.0 million in outstanding borrowings under the Credit Agreement and Term Loan Agreement, respectively, as of October 29, 2022[184]. - The company borrowed $30.0 million under the Term Loan Credit Agreement during the 26 weeks ended October 29, 2022, with an outstanding balance of $30.0 million as of the same date[194]. Revenue and Sales Performance - Total sales for the 13 weeks ended October 29, 2022, were $617.1 million, a decrease of 1.4% from $627.0 million for the same period in 2021[126]. - Total sales for the 13 weeks ended October 29, 2022, were $617,098, a decrease of 1.6% compared to $626,977 for the same period in 2021[134]. - Total sales for the 26 weeks ended October 29, 2022, increased to $880,956, up 1.5% from $867,771 in the prior year[134]. - Product sales and other for the 13 weeks ended October 29, 2022, were $575,764, down 0.3% from $577,329 in the prior year[134]. - Total course material product sales decreased by $13.9 million, or 3.2%, to $419.9 million during the 13 weeks ended October 29, 2022[139]. - Revenue from First Day models increased by $47.2 million to $143.2 million, or 49%, during the 13 weeks ended October 29, 2022, compared to $96.0 million during the same period in 2021[142]. - Retail sales decreased by $10.3 million, or 1.7%, to $598.6 million during the 13 weeks ended October 29, 2022, compared to $608.9 million during the same period in 2021[139]. - Retail sales increased by $15.7 million, or 1.9%, during the 26 weeks ended October 29, 2022, compared to the same period in 2021[139]. Expenses and Cost Management - The company recognized restructuring and other charges totaling $635 during the 26 weeks ended October 29, 2022, a decrease of 78.9% compared to $3,021 in the same period of the previous year[90]. - Lease expenses for the 26 weeks ended October 29, 2022, totaled $116,325, an increase of 7.5% from $107,803 in the same period of the previous year[89]. - Selling and administrative expenses as a percentage of total sales were 17.4% for the 13 weeks ended October 29, 2022, compared to 17.2% for the same period in 2021[129]. - Selling and administrative expenses for the 13 weeks ended October 29, 2022, decreased by $0.8 million, or 0.8%, to $107.1 million from $107.9 million during the same period in 2021[153]. - DSS selling and administrative expenses increased by $0.8 million, or 11.3%, to $8.1 million during the 13 weeks ended October 29, 2022, driven by increased operating costs and compensation expenses[158]. - Corporate Services' selling and administrative expenses decreased by $1.7 million, or 25.5%, to $5.1 million during the 13 weeks ended October 29, 2022, due to lower incentive plan compensation costs[159]. Profitability and Income - Net income for the 13 weeks ended October 29, 2022, was $22.1 million, compared to $22.5 million for the same period in 2021, reflecting a decrease of 1.7%[126]. - Adjusted Earnings (non-GAAP) was $24.0 million during the 13 weeks ended October 29, 2022, compared with $25.0 million during the same period in 2021, a decrease of 4.0%[168]. - Adjusted EBITDA for the 13 weeks ended October 29, 2022, was $39.4 million, slightly up from $39.0 million in the same period last year[126]. - Operating income was $26.7 million during the 13 weeks ended October 29, 2022, compared to $24.6 million during the same period in 2021, representing an increase of 8.6%[163]. - The effective income tax rate for the 26 weeks ended October 29, 2022, was (2.1)% on a pre-tax loss of $(29,930) million[98]. - The effective income tax rate for the 13 weeks ended October 29, 2022, was (1.4)%, compared to (0.9)% for the same period in 2021[166]. Operational Challenges and Market Conditions - The company is experiencing downward enrollment trends, particularly at community colleges, which correlate with economic conditions and unemployment rates[121]. - The impact of COVID-19 has led to a challenging labor market, affecting the company's ability to recruit employees and resulting in increased borrowings[119]. - The company continues to face significant price competition in the textbook and course materials market, with students being highly price sensitive[121]. - The company is exposed to risks related to counterfeit and piracy of digital and print materials[204]. - The company may face challenges related to attracting and retaining employees[204]. - The company faces risks associated with potential disruptions to information technology systems and third-party web service providers[204]. - The company is subject to various risks from international operations, including regulatory changes and supply chain disruptions[204]. Cash Flow and Capital Expenditures - Free cash flow for the 26 weeks ended October 29, 2022, was $38,864, compared to $37,738 for the same period in the previous year[181]. - Capital expenditures for the 26 weeks ended October 29, 2022, totaled $20,573, an increase from $21,264 in the prior year[183]. - Cash flows provided by operating activities during the 26 weeks ended October 29, 2022 were $9.4 million, a decrease of $14.9 million compared to $24.3 million during the same period in 2021[188]. - Cash flows used in investing activities were $(20.3) million for the 26 weeks ended October 29, 2022, compared to $(20.9) million in the prior year, primarily due to lower capital expenditures[189]. - Cash flows provided by financing activities increased to $23.7 million during the 26 weeks ended October 29, 2022, up from $3.4 million in the same period of 2021, driven by higher net borrowings[190]. Internal Controls and Compliance - A material weakness in internal controls was identified due to insufficient precision in the analysis of deferred tax asset valuation allowance[209]. - The company is in the process of implementing a remediation plan for the identified material weakness, expected to occur in Q4 of Fiscal 2023[209]. - The effectiveness of the company's disclosure controls and procedures was evaluated, concluding they were not effective at the reasonable assurance level[209]. - The company has not identified any changes in internal control over financial reporting that materially affected its operations during the second quarter[210].