Barnes Noble Education Inc
For the period ended Apr 27, 2024. Filed Jul 1, 2024.
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FY2024 · Filed Jul 1, 2024
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| FINANCIAL STATEMENT INDEX | |||
|---|---|---|---|
| Page No. | |||
| Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on the consolidated financial statements of Barnes & Noble Education, Inc. for the years ended April 27, 2024, and April 29, 2023 (PCAOB ID 42) | 62 | ||
| Consolidated Statements of Operations for the years ended April 27, 2024 and April 29, 2023 | 64 | ||
| Consolidated Balance Sheets as of April 27, 2024 and April 29, 2023 | 65 | ||
| Consolidated Statements of Cash Flows for the years ended April 27, 2024 and April 29, 2023 | 66 | ||
| Consolidated Statements of Equity for the years ended April 27, 2024 and April 29, 2023 | 68 | ||
| Notes to Consolidated Financial Statements | |||
| Note 1. | Organization | 69 | |
| Note 2. | Summary of Significant Accounting Policies | 70 | |
| Note 3. | Revenue | 79 | |
| Note 4. | Segment Reporting | 80 | |
| Note 5. | Equity and Earnings Per Share | 83 | |
| Note 6. | Fair Value Measurements | 85 | |
| Note 7. | Debt | 86 | |
| Note 8. | Leases | 91 | |
| Note 9. | Supplementary Information | 93 | |
| Note 10. | Related Party Transactions | 93 | |
| Note 11. | Employees Benefit Plans | 94 | |
| Note 12. | Long-Term Incentive Compensation Expense | 94 | |
| Note 13. | Income Taxes | 96 | |
| Note 14. | Legal Proceedings | 99 | |
| Note 15. | Commitments and Contingencies | 99 | |
| Note 16. | Selected Quarterly Financial Information (Unaudited) | 99 | |
| Note 17. | Subsequent Events | 101 | |
| Financial Statement Schedule | |||
| Schedule II Valuation and Qualifying Accounts | 104 | ||
To the Stockholders and the Board of Directors of Barnes & Noble Education, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Barnes & Noble Education, Inc. and subsidiaries (the Company) as of April 27, 2024 and April 29, 2023, the related consolidated statements of operations, equity and cash flows for each of the two years in the period ended April 27, 2024 and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 27, 2024 and April 29, 2023, and the results of its operations and its cash flows for each of the two years in the period ended April 27, 2024, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Non-Returnable Inventory Reserve | |
| Description of the Matter | As described in Note 2 to the consolidated financial statements, the Company reserves for non-returnable inventory based on its history of liquidating non-returnable inventory. |
|---|---|
| Auditing management’s estimate of the reserves for non-returnable inventory involved especially subjective auditor judgment as such estimates are based on various factors that are affected by current and future market and economic conditions. In particular, the reserve calculations are sensitive to certain significant assumptions, including markdowns, sales below cost, inventory aging and expected demand. | |
| How We Addressed the Matter in Our Audit | Our procedures included, among others, evaluating the significant assumptions, identified above, and testing the accuracy and completeness of the underlying data used in management’s inventory reserve calculation. We recalculated the reserve using management’s methodology and assumptions, and we evaluated the methodology and the significant assumptions for reasonableness by comparing them to the related actual historical activity and expected future market and economic conditions. We also analyzed the impact of reasonable changes to the significant assumptions on the recorded inventory reserves. |
| Long-Lived Asset Impairment | |
| Description of the Matter | As described in Note 2 to the consolidated financial statements, the Company tests its long-lived assets for impairment if an event occurs or circumstances change that would indicate the carrying amount may not be recoverable. If the carrying amount of a long-lived asset (group) exceeds its fair value, the asset (group) is written down to its fair value and an impairment charge is recognized. During the fiscal year 2024, the Company recognized an impairment charge of $7.2 million related to long-lived assets at certain of its stores. |
|---|---|
| Auditing the Company's impairment of store long-lived assets was complex and highly judgmental due to the significant estimation required to determine recoverability of each asset group and to determine the fair value of asset groups that were not recoverable, as well as the fair values of certain operating right-of-use assets included within the asset groups that were not recoverable. The significant assumptions used included annual revenue growth rates, gross margin rates and the estimated relationship of selling and administrative costs to revenue used to estimate the projected cash-flow directly related to the future operation of the stores as well as the weighted average cost of capital used to calculate the fair value. Significant assumptions used to determine the fair values of certain operating right-of-use assets included the current market rent and discount rate. These assumptions are subjective in nature and are affected by expectations about future market or economic conditions. | |
| How We Addressed the Matter in Our Audit | Our testing of the Company's impairment analysis included, among other procedures, evaluating the significant assumptions described above and the operating data used to calculate the estimated future cash flows of the stores and to determine fair values. We tested the completeness and accuracy of the data used by the Company in its analysis. We also compared the significant assumptions used to determine the projected cash flows to historical operating results of the stores, management’s expectations related to recovery from the pandemic and published third-party information regarding overall college and university enrollment trends; and, we obtained an understanding of the business initiatives supporting the assumptions used to estimate the future cash flows through inquiries of management and inspection of internal and external communications. |
/s/Ernst & Young LLP
We have served as the Company's auditor since 2015.
Iselin, New Jersey
July 1, 2024
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