Barnes and Noble 2015 Annual Report Download - page 56

The impairments in fiscal  related to a certain pub-
lishing contract. The publishing contracts include the
value of long-standing relationships with authors, agents
and publishers established upon the Company’s acquisi-
tion of Sterling in . Given Sterling’s strong history of
maintaining such relationships, the Company believes they
produce value indefinitely without an identifiable remain-
ing useful life. However, given the continued declines in
the physical book business, certain of these contracts were
impaired.
The changes in the carrying amount of goodwill by segment
for fiscal  are as follows:
B&N
Retail
Segment
B&N
College
Segment
NOOK
Segment
Total
Company
Balance as of April 27, 2013 $ 221,426 274,070 — $ 495,496
Benefit of excess tax
amortizationa(2,307) — — (2,307)
Balance as of May 3, 2014 $ 219,119 274,070 — $ 493,189
Benefit of excess tax
amortizationa(3,922) — — (3,922)
Balance as of May 2, 2015 $ 215,197 274,070 — $ 489,267
a The tax basis of goodwill arising from an acquisition during the 52
weeks ended January 29, 2005 exceeded the related basis for financial
reporting purposes by approximately $96,576. In accordance with ASC
740-10-30, Accounting for Income Taxes, the Company is recognizing
the tax benefits of amortizing such excess as a reduction of goodwill as
it is realized on the Company’s income tax return.
11. MICROSOFT INVESTMENT
On April , , Barnes & Noble entered into an invest-
ment agreement pursuant to which Barnes & Noble
transferred to the LLC its digital device, digital content and
college bookstore businesses, and Morrison purchased
from the LLC, , convertible preferred membership
interests in the LLC (Series A Preferred) for an aggregate
purchase price of ,. Concurrently with its entry
into this agreement, Barnes & Noble also entered into a
commercial agreement with Microsoft, pursuant to which,
among other things, the LLC would develop and distribute
a Windows  application for eReading and digital content
purchases, and an intellectual property license and settle-
ment agreement with Microsoft and Microsoft Licensing
GP. The parties closed Morrison’s investment in the
LLC and the commercial agreement became effective on
October , .
On December , , Morrison, Microsoft, Barnes &
Noble and Barnes & Noble Education entered into agree-
ments pursuant to which Morrison’s interest in the LLC
was purchased by Barnes & Noble Education and the
Microsoft commercial agreement was terminated effec-
tive as of such date. Pursuant to the Purchase Agreement
(the Purchase Agreement) among Barnes & Noble, Barnes
& Noble Education, Morrison and Microsoft, Barnes &
Noble Education purchased from Morrison, and Morrison
sold, all of its , convertible Series A preferred
limited liability company interest in the LLC in exchange
for an aggregate purchase price of , consisting of
(i) , in cash and (ii) ,, shares of common
stock, par value . per share, of Barnes & Noble. The
Purchase Agreement closed on December , . The
Company accounted for this transaction in accordance
with ASC -, Non Controlling Interest (ASC -) and
accordingly was reflected as an equity transaction. In con-
nection with the closing, the parties entered into a Digital
Business Contingent Payment Agreement pursuant to
which Microsoft is entitled to receive . of the proceeds
from, among other events or transactions, () any future
dividends or other distributions received from Barnes &
Noble’s NOOK digital business at any time until the date
that is three years from the closing, subject to a one-year
extension under certain circumstances, and () the sale of
Barnes & Noble’s NOOK digital business at any time until
the date that is three years from the closing, subject to a
one-year extension under certain circumstances.
Investment Agreement
Microsoft’s investment represented approximately .
of the common membership interests in the LLC on an as-
converted basis as of closing, with Barnes & Noble retaining
the remaining ownership interests. This investment was
classified as temporary equity in the mezzanine section of
the balance sheet between liabilities and permanent equity,
net of investment fees. The temporary equity designation
was due to a potential put feature after five years from the
closing of the investment agreement on the preferred
membership interests. The preferred membership
interests had a liquidation preference equal to the original
investment. Upon the completion of the acquisition of
Microsoft’s interest in the LLC, the temporary equity was
converted to permanent equity.
Commercial Agreement
Under the commercial agreement, the LLC has developed
certain applications for Windows  for purchasing and
consumption of digital reading content and use efforts to
expand internationally.
54 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued