Barnes and Noble 2010 Annual Report Download - page 44

As a result of the Acquisition, the Company expects to
capitalize on the revenue stream derived from the sale
of textbooks and course-related materials, emblematic
apparel and gifts, trade books, school and dorm supplies,
and convenience and café items. Combining both busi-
nesses under a unified brand will enable the Company
to benefit from the growing online college textbook and
eBook markets.
On September 30, 2009, in connection with the closing
of the Acquisition described above, the Company issued
the Sellers (i) a senior subordinated note in the principal
amount of $100,000, payable in full on December 15, 2010,
with interest of 8% per annum payable on the unpaid
principal amount (the Senior Seller Note), and (ii) a junior
subordinated note in the principal amount of $150,000,
payable in full on the fifth anniversary of the closing of the
Acquisition, with interest of 10% per annum payable on
the unpaid principal amount (the Junior Seller Note; and
together with the Senior Seller Note, the Seller Notes). On
December 22, 2009, the Company consented to the pledge
and assignment of the Senior Seller Note by the Sellers as
collateral security.
The purchase price paid to the Sellers was $596,000,
consisting of $346,000 in cash and $250,000 in Seller
Notes. However, the cash paid to the Sellers was reduced by
$82,352 in cash bonuses paid by B&N College to 192 mem-
bers of its management team and employees, not including
Leonard Riggio. The Company financed the Acquisition
through $250,000 of seller financing, $150,000 from the
Credit Facility and the remainder from both the Company’s
and B&N College’s cash on hand.
The Acquisition was accounted for as a business purchase
pursuant to Accounting Standards Codification (ASC) 805,
Business Combinations (ASC 805). Acquisition-related
expenses totaled $10,400 and have been recorded as selling
and administrative expenses in the Company’s consoli-
dated statement of operations for the 52 weeks ended May
1, 2010. As required by ASC 805-20, the Company allocated
the purchase price to assets and liabilities based on their
estimated fair value at the Acquisition date. The following
table represents the allocation of the purchase price to the
acquired net assets and resulting adjustment to goodwill:
Cash Paid $ 263,648
Seller Notes 250,000
Fair value of total consideration $ 513,648
Allocation of purchase price:
Current assets $ 609,786
Non-current assets 114,683
Trade name 245,000
Customer relationships 255,000
Goodwill 274,070
Total assets acquired $ 1,498,539
Deferred taxes 234,631
Liabilities assumed 750,260
$ 513,648
Acquired intangible assets consisted primarily of the trade
name and customer relationships.
Trade Name
The Company previously licensed the “Barnes & Noble”
trade name from B&N College under certain agreements.
The Acquisition gave the Company exclusive ownership
of its trade name. The estimated fair value ascribed to the
trade name of $245,000 represents solely the estimated
incremental value acquired as part of the Acquisition,
which is not representative of the value of the “Barnes &
Noble” trade name taken as a whole. The trade name has
been classified as an indefinite life intangible asset.
Customer Relationships
The estimated fair value of customer relationships of B&N
College is $255,000. Customers are comprised of existing
college and university contractual relationships at the date
of the Acquisition.
Amortization of Fair Value Ascribed to Customer
Relationships
Historical customer attrition rates imply a life of 50 years;
however, the useful life was shortened to 25 years since the
majority of the value of discounted cash flows are captured
in this period. The $255,000 will be amortized evenly
over the 25-year period. The Company recorded $5,950
in amortization during the 52 weeks ended May 1, 2010,
related to these intangibles.
The Company also recorded a short-term deferred tax
liability of $26,810 and a long-term deferred tax liability of
$207,821 related to the difference between the book basis
and the tax basis of the net assets acquired. In addition,
the Company stepped up the value of other assets and
liabilities, resulting in goodwill of $272,879, which is not
deductible for income tax purposes.
42 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued