Barnes and Noble 2011 Annual Report Download - page 51

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
members of its management team and employees, not
including Leonard Riggio. The Company fi nanced the
Acquisition through $250,000 of seller fi nancing, $150,000
from the 2009 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 Codifi cation (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 in fi scal 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 classifi ed as an indefi nite 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 fl ows are captured
in this period. The $255,000 is being amortized evenly
over the 25-year period. The Company recorded $10,200
and $5,950 in amortization related to these intangibles
during the 52 weeks ended April 30, 2011 and May 1, 2010,
respectively.
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 diff erence 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.
The following audited condensed fi nancial information
of B&N College since the date of the Acquisition on
September 30, 2009 was included in the Company’s
consolidated results of operations for fi scal 2010:
52 weeks ended
May 1, 2010
Sales $ 833,648
Net loss $ 3,344
The following unaudited pro forma condensed fi nancial
information assumes that the Acquisition was accounted
for using the acquisition method of accounting for business
combinations in accordance with ASC 805 and represents
a pro forma presentation based upon available information
of the combining companies giving eff ect to the Acquisition
as if it had occurred on May 4, 2008, the fi rst date of B&N
College’s prior fi scal year from the Acquisition date, with
adjustments for amortization expense of intangible assets,
depreciation expense for the fair value of property and
equipment above its book value, termination or changes
2011 Annual Report 49