INCOME TAXES

6 Months Ended

Jun. 30, 2024

INCOME TAXES

INCOME TAXES

12.  INCOME TAXES 

Provision for income taxes for the three and six months ended June 30, 2024 and 2023 consisted of the following (in thousands):

		Three Months Ended June 30,						Six Months Ended June 30,
		2024			2023			2024			2023
Income before provision for income taxes	$	29,114		$	9,872		$	53,834		$	19,657
Provision for income taxes		(8,178	)		(2,844)			(14,243)			(4,351)
Effective tax rate		28.1	%		28.8	%		26.5	%		22.1	%

Provision for income taxes for the three and six months ended June 30, 2024 and 2023 resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate.

We provided no valuation allowance for federal deferred tax assets, whose future realization is more likely than not and continue to maintain full valuation allowance for certain state deferred tax assets in the United States as well as federal tax assets in Canada. Changes in provision for income taxes resulted primarily from the change in income from continuing operations across various tax jurisdictions.

In the event that we determine the deferred tax assets are realizable based on an assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made. The valuation allowance does not impact our ability to utilize the underlying net operating loss carryforwards. We also maintain liabilities for uncertain tax positions.

As of June 30, 2024, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $7.6 million of which $4.9 million could be payable in cash. In addition, interest and penalty of $0.3 million could also be payable in cash in relation to unrecognized tax benefits. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $4.9 million. We account for interest and penalties related to uncertain tax positions as a component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months.

As of June 30, 2024, we had net deferred income tax assets of $3.3 million and deferred income tax liabilities of $0. Because we have net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state, and foreign taxing authorities may examine our tax returns for all years from 2008 through the current period.

Barnes & Noble Education

Barnes & Noble Education recorded an income tax provision of $0.1 million during the period of June 10, 2024 to June 30, 2024, which represented an effective income tax rate of (0.1)%.

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 June 30, 2024, Barnes & Noble Education determined that it was more likely than not that it would not realize all deferred tax assets and its tax rate for the current fiscal year reflects this determination. Barnes & Noble Education will continue to evaluate this position.    

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change” (generally defined as a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period), the corporation’s ability to use its pre-change net operating losses and certain other pre-change tax attributes to offset its post-change income and taxes may be limited. Similar rules may apply under state tax laws. As a result of the rights offering, backstop commitment, private investment, and debt term loan conversion completed on June 10, 2024, Barnes & Noble Education may have experienced an ownership change as defined by Sections 382 and 383. Barnes & Noble Education intends to perform a study to determine if an ownership change has occurred. If it is determined that an ownership change has occurred under Section 382 and 383, Barnes &Noble Education expects any corresponding annual limitations to severely impact the future utilization of its tax attributes including its $265.5 million NOL carryforward.