Barnes & Noble Education, Inc.
Barnes & Noble Education, Inc. (Form: 8-K/A, Received: 05/08/2017 10:13:16)



 
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 8, 2017 (February 27, 2017)


BARNES & NOBLE EDUCATION, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
1-37499
 
46-0599018
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
 
 
120 Mountain View Blvd., Basking Ridge, NJ
 
07920
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (908) 991-2665
 
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


 
 





Explanatory Note
As previously reported in a Current Report on Form 8-K filed on February 28, 2017 (the “Initial Form 8-K”), Barnes & Noble Education, Inc. (the “Company” or “BNED”), Ellar LLC (“Ellar”), Leonard Riggio (“Mr. Riggio”) and the other unitholders of Ellar party thereto (the “Unitholders”) and Ellar, as the Designated Representative, entered into a Purchase Agreement (the “Purchase Agreement”) on February 27, 2017.
Pursuant to the terms and subject to the conditions of the Purchase Agreement, the Company acquired 100% of the equity interests of MBS Textbook Exchange, LLC (“MBS”) from Ellar (the “Transaction”), for cash consideration of $174.2 million. The Purchase Agreement was executed, and the Transaction closed, on the same day, and the Transaction was funded from cash on-hand and proceeds from the Company’s existing credit agreement, as amended.
This Form 8-K/A amends the Initial Form 8-K to include the financial statements and pro forma financial information required by Items 9.01(a) and 9.01(b) of Form 8-K and should be read in conjunction with the Initial Form 8-K.
Item 9.01. Financial Statements and Exhibits           
(a)
Financial Statements of Businesses Acquired.
The audited consolidated financial statements of MBS Textbook Exchange, Inc. at August 31, 2016 and 2015 and for the years ended August 31, 2016, 2015 and 2014 are filed as Exhibit 99.3 to this Form 8-K/A.
The unaudited consolidated financial statements of MBS Textbook Exchange, Inc. at November 30, 2016 and for the three months ended November 30, 2016 and 2015 are filed as Exhibit 99.4 to this Form 8-K/A.
(b)
Pro Forma Financial Information.
The unaudited pro forma condensed financial information is filed as Exhibit 99.5 to this Form 8-K/A and incorporated herein by reference.
(d) Exhibits.
The following exhibits are filed as a part of this Current Report:
Exhibit No.
 
Description
 
 
 
2.1
 
Purchase Agreement, dated as of February 27, 2017, by and among Barnes & Noble Education, Inc., Ellar LLC, Leonard Riggio and the other Unitholders party thereto, and Ellar LLC, as the Designated Representative*
 
 
 
10.1
 
First Amendment to Credit Agreement, dated as of February 27, 2017, by and among the Company, the Lenders and the Agent*
 
 
 
23.1
 
Consent of BDO USA, LLP
 
 
 
99.1
 
Press Release, issued February 28, 2017*
 
 
 
99.2
 
Investor Presentation, made available February 28, 2017*
 
 
 
99.3
 
Consolidated Financial Statements of MBS Textbook Exchange, Inc. at August 31, 2016 and 2015 and for the years ended August 31, 2016, 2015 and 2014
 
 
 
99.4
 
Unaudited Consolidated Financial Statements of MBS Textbook Exchange, Inc. at November 30, 2016 and for the three months ended November 30, 2016 and 2015
 
 
 
99.5
 
Unaudited Pro Forma Condensed Combined Financial Statements
* Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on February 28, 2017.












Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 8, 2017
BARNES & NOBLE EDUCATION, INC.,

By:     /s/ Barry Brover         
Name:     Barry Brover
Title:     Chief Financial Officer









BARNES & NOBLE EDUCATION, INC.

EXHIBIT INDEX

 
Exhibit No.
 
Description
 
 
 
2.1
 
Purchase Agreement, dated as of February 27, 2017, by and among Barnes & Noble Education, Inc., Ellar LLC, Leonard Riggio and the other Unitholders party thereto, and Ellar LLC, as the Designated Representative*
 
 
 
10.1
 
First Amendment to Credit Agreement, dated as of February 27, 2017, by and among the Company, the Lenders and the Agent*
 
 
 
23.1
 
Consent of BDO USA, LLP
 
 
 
99.1
 
Press Release, issued February 28, 2017*
 
 
 
99.2
 
Investor Presentation, made available February 28, 2017*
 
 
 
99.3
 
Consolidated Financial Statements of MBS Textbook Exchange, Inc. at August 31, 2016 and 2015 and for the years ended August 31, 2016, 2015 and 2014
 
 
 
99.4
 
Unaudited Consolidated Financial Statements of MBS Textbook Exchange, Inc. at November 30, 2016 and August 31, 2016 and for the three months ended November 30, 2016 and 2015
 
 
 
99.5
 
Unaudited Pro Forma Condensed Combined Financial Statements

 * Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on February 28, 2017.





Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
Barnes & Noble Education, Inc.
Basking Ridge, New Jersey

We hereby consent to the incorporation by reference in Registration Statements Nos. 333-206893 and 333-213673 on Form S-8 of Barnes & Noble Education, Inc. of our report dated November 29, 2016, relating to the consolidated financial statements of MBS Textbook Exchange, Inc. (an S Corporation), which appears in this Current Report on Form 8-K/A.


/s/ BDO USA, LLP


Chicago, Illinois
May 8, 2017








EXHIBIT 99.3









MBSLOGO.JPG
Consolidated Financial Statements
Years Ended August 31, 2016, 2015, and 2014































The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

MBSTEXTBOOKEXCHANGEIN_IMAGE2.JPG
















MBS Textbook Exchange, Inc.


Consolidated Financial Statements
Years Ended August 31, 2016, 2015, and 2014
































MBS Textbook Exchange, Inc.
Contents




Independent Auditor’s Report
 
3-4

 
 
 
Financial Statements
 
 
 
 
 
Consolidated Balance Sheets as of August 31, 2016 and 2015
 
5-6

 
 
 
Consolidated Statements of Income for the Years Ended
 
 
August 31, 2016, 2015, and 2014
 
7

 
 
 
Consolidated Statements of Stockholders’ Equity for the Years Ended
 
 
August 31, 2016, 2015, and 2014
 
8

 
 
 
Consolidated Statements of Cash Flows for the Years Ended
 
 
August 31, 2016, 2015, and 2014
 
9

 
 
 
Notes to Consolidated Financial Statements
 
10-16

 
 
 











2


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Tel: 312-856-9100                    330 N. Wabash Avenue, Suite 3200
Fax: 312-856-1379                    Chicago, IL 60611
www.bdo.com

Independent Auditor’s Report

To the Board of Directors MBS Textbook Exchange, Inc.
(an S Corporation)
Columbia, Missouri

We have audited the accompanying consolidated financial statements of MBS Textbook Exchange, Inc. (an “S Corporation”), which comprise the consolidated balance sheets as of August 31, 2016 and 2015, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended August 31, 2016, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.





BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
BDO is the brand name for the BDO network and for each of the BDO Member Firms.

3



MBSTEXTBOOKEXCHANGEIN_IMAGE2.JPG


Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MBS Textbook Exchange, Inc. as of August 31, 2016 and 2015, and the results of its operations and its cash flows for the three years in the period ended August 31, 2016, in accordance with accounting principles generally accepted in the United States of America.


/s/ BDO USA, LLP

Chicago, Illinois November 29, 2016































BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
BDO is the brand name for the BDO network and for each of the BDO Member Firms.


4









Financial Statements












































MBS Textbook Exchange, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)






August 31,
2016

2015

Assets
 
 
 
 
 
Current
 
 
Cash
$
1,314

$
1,506

Accounts receivable (less allowances of $61,997 in 2016 and $54,472 in 2015):
 
 
Trade
68,268

56,431

Affiliates (Note 10)
51,302

54,861

Inventory
110,684

113,242

Prepaid expenses and other current assets
1,348

3,148


Total Current Assets
232,916

229,188


Property and Equipment, at cost (Note 2)
64,103

63,522

Less accumulated depreciation and amortization
(53,217
)
(51,097
)

Net Property and Equipment
10,886

12,425


Other
 
 
Other long-term assets (Notes 1 and 5)
5,055

5,163


Total Other Assets
5,055

5,163

 
$
248,857

$
246,776







5

MBS Textbook Exchange, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)






August 31,
2016

2015


Liabilities and Stockholders’ Equity
 
 
Current Liabilities
 
 
Accounts payable
$
56,563

$
56,700

Accrued expenses and other liabilities (Note 3)
10,832

13,227

Line of credit (Note 4)
44,400

14,200

Distributions payable (Notes 6 and 12)
35,800

61,400


Total Current Liabilities

147,595


145,527


Deferred Compensation (Note 5)

5,785


5,840


Other Long-Term Liabilities (Note 7)

6,939


6,468


Total Liabilities

160,319


157,835


Commitments and Contingencies (Notes 5, 7, 9, and 13)
 
 

Stockholders’ Equity
 
 
Common stock and additional paid-in capital, $.01 par value – shares
authorized, 3,000; shares issued and outstanding, 73.5
1,005

1,005

Retained earnings
87,533

87,936

Total Stockholders’ Equity
88,538

88,941

 
$
248,857

$
246,776


See accompanying notes to consolidated financial statements.     





6

MBS Textbook Exchange, Inc.
Consolidated Statements of Income
(Dollars in Thousands)





Year ended August 31,
2016

2015

2014

Net Sales
 
 
 
Trade
$
422,510

$
436,613

$
466,311

Affiliates (Note 10)
79,335

113,579

92,945

Total Net Sales (Note 11)
501,845

550,192

559,256

Cost of Goods Sold
363,083

376,281

390,631

Gross Profit
138,762

173,911

168,625

Selling, General, and Administrative Expenses
91,456

100,738

103,724

Operating Income
47,306

73,173

64,901

Other Income (Expense)
 
 
 
Interest expense
(844
)
(612
)
(165
)
Other income, net
10,435

11,743

10,593

 
9,591

11,131

10,428

Net Income
$
56,897

$
84,304

$
75,329


See accompanying notes to consolidated financial statements.


7

MBS Textbook Exchange, Inc.
Consolidated Statements of Stockholders' Equity
(Dollars in Thousands)






 
Common Stock and
Additional Paid-in Capital
 
 
 
Number of
Shares

Amount
Retained Earnings

Total Stockholders'
Equity

Balance, at August 31, 2013
73.5
$
1,540

$
117,603

$
119,143

Net income
-
-

75,329

75,329

Other
-
(535
)
-

(535
)
Distributions declared and paid
-
-

(22,700
)
(22,700
)
Distributions payable
-
-

(82,200
)
(82,200
)
Balance, at August 31, 2014
73.5
1,005

88,032

89,037

Net income
-
-

84,304

84,304

Distributions declared and paid
-
-

(23,000
)
(23,000
)
Distributions payable
-
-

(61,400
)
(61,400
)
Balance, at August 31, 2015
73.5
1,005

87,936

88,941

Net income
-
-

56,897

56,897

Distributions declared and paid
-
-

(21,500
)
(21,500
)
Distributions payable
-
-

(35,800
)
(35,800
)
Balance, at August 31, 2016
73.5
$
1,005

$
87,533

$
88,538



See accompanying notes to consolidated financial statements.


8

MBS Textbook Exchange, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)






Year ended August 31,
2016

2015

2014

Operating Activities
 
 
 
Net Income
$
56,897

$
84,304

$
75,329

Adjustments to reconcile net income to net cash
provided by operating activities:
 
 
 
Depreciation and amortization of property and
equipment
2,822

3,313

3,651

Provision for (recovery of) accounts receivable
returns and allowances
7,525

(37,606
)
1,999

(Recovery of) provision for inventory returns and allowances
(3,148
)
19,249

886

(Gain) loss on disposal of property and equipment
(97
)
93

(65
)
Write-off of intangible assets
-

3,331

-

Deferred compensation
(55
)
395

408

Changes in assets and liabilities:
 
 
 
 Accounts receivable
(15,803)

14,851

3,914

Inventory
5,706

39,969

(30,268
)
Prepaid expenses and other current assets
1,800

1,196

(3,547
)
Other long-term assets (excluding amortization)
(58
)
(65
)
(31
)
Accounts payable, accrued expenses and other liabilities
(2,532
)
(46,204
)
39,425

Other long-term liabilities
471

(540
)
251

Net cash provided by operating activities
53,528

82,286

91,952

Investing Activities
Purchase of property and equipment
(1,760
)
(3,312
)
(3,750
)
Proceeds from sale of property and equipment
740

703

948

Net cash used in investing activities
(1,020
)
(2,609
)
(2,802
)
Financing Activities
Net advances under lines of credit agreements
30,200

14,200



-

Distributions paid
(82,900
)
(105,200
)
(105,000
)
Redemption of stock
-

-

(535
)
Net cash used in financing activities
(52,700
)
(91,000
)
(105,535
)
Net Decrease in Cash
(192
)
(11,323
)
(16,385
)
Cash, at beginning of year
1,506

12,829

29,214

Cash, at end of year
$
1,314

$
1,506

$
12,829


See accompanying notes to consolidated financial statements.


9

MBS Textbook Exchange, Inc.
Notes to Consolidated Financial Statements




1. Description of Business and Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of MBS Textbook Exchange, Inc., its subsidiaries and/or affiliates, MBS Direct, LLC, MBS Realty Partner, L.P., MBS Internet, LLC, TXTB.com, LLC, TextbookCenter, LLC, MBS Service Company, Inc., and MBS Automation Corp. (the “Company” or “MBS”). All intercompany accounts and transactions have been eliminated.

Description of Business

The Company is located in Columbia, Missouri and is a leading seller of new and used college textbooks. The Company is also a retailer of electronic books and computer hardware and software designed for use in the textbook industry.

The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10-15, “Consolidation of Variable Interest Entities.” MBS Realty Partner L.P. (“Realty”) is an entity under common ownership which leases the office and warehouse space solely to the Company. Realty’s operations are funded by the Company. The Company has evaluated its relationship with Realty and determined the Company is the primary beneficiary of Realty, a variable interest entity. The accounts of Realty are included in the consolidated financial statements of the Company for all years presented.

MBS Service Company, Inc. (“Service”) was an entity under common ownership, as well as through a related party, that hires sales representatives for the Company, as well as provides computer system related sales and services that benefit future supply of product to the Company. Service’s operations were funded by the Company. The Company had evaluated its relationship with Service and determined the Company was the primary beneficiary of Service, a variable interest entity. On August 31, 2014, the Company acquired all the stock of Service for $535,000. The accounts of Service are included in the consolidated financial statements of the Company for all years presented.

Accounts Receivable

An allowance for doubtful accounts is maintained at a level management believes is sufficient to cover potential losses based on historical trends and known current factors impacting the Company’s customers. All accounts are reviewed on an ongoing basis to determine collectability.

Revenue Recognition

Revenue is recognized in accordance with the provisions of Staff Accounting Bulletin— Topic 13, “Revenue Recognition .” Revenue is recorded once there is persuasive evidence of an arrangement, services have been rendered, the amount of revenue has become fixed or determinable and collectability is reasonably assured. Revenue from the sale of traditional textbooks is recognized at the time of shipment. Revenue from the sale of digital textbooks, for which the Company acts as an intermediary or agent, is recognized at the time the transaction is completed by the buyer online as the earnings process is culminated. The Company estimates, based on historical experience, a provision for sales returns where the right of return exists. Additional revenue is recognized for shipping charges billed to customers. The expenses related to these revenues are included in cost of goods sold.






10

MBS Textbook Exchange, Inc.
Notes to Consolidated Financial Statements



In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” which established a comprehensive revenue recognition standard for virtually all industries under generally accepted accounting principles (“U.S. GAAP”), including those that previously followed industry-specific guidance such as real estate, construction, and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The statement is effective for public business entities for annual periods beginning after December 15, 2017 and private entities for annual periods beginning after December 15, 2018. The Company is in the process of evaluating the potential impact of ASU 2014- 09 on the consolidated financial statements and has not yet determined the method by which the standard will be adopted.

Cost of Sales

The primary components of cost of sales include the cost of the product and inbound and outbound freight charges.  Certain overhead costs related to purchasing, receiving, inspections, warehousing, internal inventory transfers and other costs of our distribution network are included in selling, general and administrative expenses along with other operating costs.

As a result of different practices of categorizing costs associated with distribution networks throughout our industry, our gross margins may not necessarily be comparable to other distribution companies.

Inventory

Inventory consists of finished goods, primarily new and used college textbooks. Inventory is stated at the lower of cost or market under the first-in, first-out (“FIFO”) method.

Depreciation and Amortization

Depreciation of property and equipment is provided for over the estimated useful lives of the respective assets, ranging from three to 39 years, using the straight-line method. Leasehold improvements are amortized over the lesser of the lease periods or their useful lives using the straight-line method.

Income Taxes

The Company is considered a pass-through entity under the Internal Revenue Code (“IRC”). Instead of paying corporate income taxes, the stockholders of pass-through entities are taxed individually on their proportionate share of the Company’s taxable income. State income taxes incurred in states that do not recognize pass-through entities are not significant and are included in selling, general, and administrative expenses.

ASC 740-10-25 requires that realization of an uncertain income tax position must be “more likely than not” (i.e. greater than 50% likelihood of receiving benefit) before it can be recognized in the financial statements. Further, ASC 740-10-25 prescribes the benefit to be recorded in the financial statements as the amount most likely to be realized assuming a review by the tax authorities having all relevant information and applying current conventions. ASC 740-10-25 also clarifies the financial statement classification of tax related penalties and interest and sets forth new disclosures regarding unrecognized tax benefits. There are no such uncertain income tax positions held by the Company which are required to be recorded or disclosed. Tax years ended August 31, 2013 through August 31, 2016 remain open to examination by taxing authorities.


11

MBS Textbook Exchange, Inc.
Notes to Consolidated Financial Statements



Fair Value Measurements

Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Fair Value of Financial Instruments

The carrying values of financial instruments such as accounts receivable, accounts payable, accrued expenses, and line of credit obligation are reasonable estimates of their fair value because of the short maturity of these items.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Subsequent Events

The Company evaluated subsequent events through the date the accompanying consolidated financial statements were issued which was November 29, 2016. No material subsequent events have occurred through November 29, 2016 that required recognition or disclosure in the consolidated financial statements.


2.
Property and Equipment

The following is a summary of property and equipment at cost:
August 31,
2016

2015

 
(dollars in thousands)
Land
$
1,622

$
1,622

Building
11,453

11,453

Leasehold improvements
1,005

1,005

Machinery and equipment
26,388

26,174

Vehicles
2,316

2,386

Furniture and fixtures
2,224

2,224

Computer equipment
19,068

18,658

Assets not placed into service
27

-

 
$
64,103

$
63,522


Depreciation expense for the years ended August 31, 2016, 2015, and 2014 was $2,656,000, $3,033,000, and $3,145,000, respectively.

12

MBS Textbook Exchange, Inc.
Notes to Consolidated Financial Statements




3. Accrued Expenses and Other Liabilities

The following is a summary of accrued expenses and other liabilities:

August 31,

2016

2015

 
(dollars in thousands)

Accrued compensation
$
6,404

$
7,888

Accrued insurance
685

1,183

Sales & withholding tax payable
2,208

2,268

Other
1,535

1,888


Accrued Expenses and Other Liabilities
$
10,832

$
13,227



4. Lines of Credit
The Company has two unsecured lines of credit with two commercial banks for a maximum of $120,000,000 with both maturing on January 31, 2017. The total outstanding balance was $44,400,000 and $14,200,000 at August 31, 2016 and 2015, respectively. The average interest rate for outstanding borrowings under the lines of credit at August 31, 2016 and 2015 was 2% and 2.35%, respectively. The Company was in compliance with its debt covenants as of August 31, 2016 and 2015.

5.
Deferred Compensation Plan

The Company has agreements under a non-qualified deferred compensation plan with officer- stockholders and key employees to pay, upon death, disability, retirement, or attaining age 65, a monthly annuity amount based on the employee’s initial contribution plus interest earned which is specified in the funding schedules of the agreements.

The Company has accrued a liability of $5,785,000 and $5,840,000 at August 31, 2016 and 2015, respectively, for the above agreements.

The plan has been partially funded through the purchase of insurance on the lives of the individuals.

The book value of the life insurance policies is $3,471,000 and $3,325,000 at August 31, 2016 and 2015, respectively. This amount is included in other long-term assets.

6.
Stockholders’ Equity

Distributions

The Company has made cash distributions to stockholders for discretionary purposes and in order for the stockholders to pay income taxes related to the Company’s pass-through taxable income. These distributions are paid pro rata to each individual based on stock ownership.


13

MBS Textbook Exchange, Inc.
Notes to Consolidated Financial Statements




7.
Employee Benefit Plans

The Company maintains a Profit Sharing Plan covering all full-time employees of the Company who have one year of service and are 20-1/2 years of age or older. Each year, the Company contributes to the Plan the sum of (a) the amount each participant elects to defer from his compensation (up to a maximum set forth in the Plans) plus (b) a matching contribution (subject to limitations) equal to the percentage of deferred compensation (as defined in the Plan) of all participants plus (c) a discretionary amount determined each year by the Company. Individual accounts are established for each participant.

Participants become 20% vested in their account balance on the completion of two years of service, increasing 20% for each additional year of service until the fifth year of service, at which time a participant becomes fully vested. A participant is 100% vested upon reaching 65, retirement due to disability, or death. The nonvested portion of a terminated participant’s account is forfeited. Benefit distributions under the Plan are in the form of annuities or lump sums.

The Company’s contributions to the Plan of $3,233,000, $3,537,000, and $3,450,000 for the years ended August 31, 2016, 2015, and 2014, respectively, are included in selling, general and administrative expenses.

The Company provides employees a post-retirement medical benefit that covers eligible employees’ medical insurance upon retirement. Upon becoming eligible, the Plan requires participants to enroll in Medicare.

Eligible employees are defined as employees with medical insurance through the Company’s Plan who have reached the age of 55 and have at least 25 years of service as of January 1, 2016. The Company has not prefunded its post-retirement medical benefits.

The Company has recognized a liability of $6,939,000 and $6,468,000 related to this obligation at August 31, 2016 and 2015, respectively, which is included in other long-term liabilities. The Company’s expense related to this obligation of $471,000, $0, and $251,000 for the years ended August 31, 2016, 2015, and 2014, respectively, is included in selling, general, and administrative expenses.

The following is a summary of plan information as estimated by consulting actuaries.
August 31, 2016
Defined- Benefit Healthcare Plan

Projected benefit obligation
$
6,939,000

 
 
Weighted-average assumptions used to determine benefit
obligation at year-end and net periodic benefit costs
for the year then ended
 
Discount rate
2.29%
Current trend rate
6.00%
Ultimate trend rate
2.29%







14

MBS Textbook Exchange, Inc.
Notes to Consolidated Financial Statements




For the year ended August 31, 2016, the effect of a 1% increase in the trend rate would result in an increase of $1,158,000 on the post-retirement benefit obligation.

Expected Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in accordance with the Plans:
 
Defined- Benefit Healthcare Plan

2017
$
194,000

2018
208,000

2019
218,000

2020
237,000

2021
264,000

2022-2026
1,610,000

 
$
2,731,000



8.
Advertising Costs

Advertising costs, which are included in selling, general and administrative expenses, are expensed as incurred. Advertising costs were approximately $952,000, $985,000, and $1,072,000 for the years ended August 31, 2016, 2015, and 2014, respectively.

9.
Operating Leases
Rent expense for all operating leases was $795,000, $877,000, and $993,000 for the years ended August 31, 2016, 2015, and 2014, respectively.

At August 31, 2016, future minimum rental payments required under operating leases that have initial or remaining noncancelable terms in excess of one year are as follows:
Year ending August 31
Amount

2017
$
577,000

2018
251,000

2019
69,000

Total
$
897,000


10.
Related-Party Transactions
The Company is related through common ownership to Barnes & Noble, Inc. (“Inc.”) and its subsidiary, barnesandnoble.com, LLC (“.com”), an on-line retailer of textbooks. The Company is also related through common ownership to Barnes & Noble College Booksellers, LLC (“College”). College is a subsidiary of Barnes & Noble Education, Inc. College is a major customer and supplier of the Company.


College has entered into an agreement with the Company whereby College will offer all of its textbooks not being used in the following semester’s curriculum to the Company provided that the Company pays prices that are competitive with those offered by other wholesalers. College has also agreed not to compete with the Company in the Company’s wholesale textbook operation.

Sales to College, Inc. and .com during the years ended August 31, 2016, 2015, and 2014, reflected as net sales to an affiliate in the accompanying consolidated statements of earnings, were $79,335,000, $113,579,000, and $92,945,000, respectively, representing 16%, 21% and 17%, respectively, of net sales. Purchases from College, Inc. and .com during the same periods were $17,877,000, $20,926,000, and $27,352,000, respectively.

At August 31, 2016 and 2015, the amount due from affiliates represents accounts receivable from College, Inc. and .com of $86,851,000 and $78,622,000, respectively, less return allowances of $35,549,000 and $23,761,000, respectively.


11. Gross Sales

Gross sales, sales returns and allowances, and net sales of the Company are as follows:


 
2016

2015

2014

 
(dollars in thousands)
Gross sales
$
629,821

$
610,060

$
677,517

Sales returns and allowances
(127,976
)
(59,868
)
(118,261
)
Net sales
$
501,845

$
550,192

$
559,256



12. Supplemental Cash Flow Information
Payments for interest, net of amounts capitalized, amounted to $809,000, $612,000, and $156,000 in 2016, 2015, and 2014, respectively.

The Company had distributions declared but not paid as of fiscal year end amounting to $35,800,000, $61,400,000, and $82,200,000 in 2016, 2015, and 2014, respectively.

13. Litigation

From time to time the Company is involved in legal proceedings, claims or investigations that are incidental to the conduct of the Company’s business. In future periods, the Company could be subjected to cash cost or non-cash charges to earnings if any of these matters are resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including management’s assessment of the merits of any particular claim, the Company does not expect that these legal proceedings or claims will have any material adverse impact on its future consolidated financial position or results of operations. As of August 31, 2016, the Company was not a party to any material legal proceedings.

15

EXHIBIT 99.4










MBSLOGO.JPG
Condensed Consolidated Financial
Statements
Three Months Ended November 30, 2016 and
2015




























The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

MBSTEXTBOOKEXCHANGEIN_IMAGE2.JPG

















MBS Textbook Exchange, Inc.


Condensed Consolidated Financial Statements
Three Months Ended November 30, 2016 and 2015


























Condensed Consolidated Financial Statements
 
 
 
 
 
Condensed Consolidated Balance Sheets as of November 30, 2016 (unaudited)
 
 
and August 31, 2016
 
3-4

 
 
 
Condensed Consolidated Statements of Income (unaudited)
 
 
For the Three Months Ended November 30, 2016, and 2015
 
5

 
 
 
Condensed Consolidated Statement of Stockholders’ Equity
 
 
For the Three Months Ended November 30, 2016 (unaudited)
 
6

 
 
 
Condensed Consolidated Statements of Cash Flows (unaudited)
 
 
For the Three Months Ended November 30, 2016, and 2015
 
7

 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
8-13

 
 
 






2












Condensed Consolidated Financial Statements















MBS Textbook Exchange, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands)






 
(unaudited)
November 30,
2016

August 31,
2016

Assets
 
 
 
 
 
Current
 
 
Cash
$
1,641

$
1,314

Accounts receivable (less allowances of $29,190 at November 30, 2016 and $61,997 at August 31, 2016):
 
 
Trade
30,671

68,268

Affiliates (Note 9)
4,277

51,302

Inventory
126,343

110,684

Prepaid expenses and other current assets
1,488

1,348


Total Current Assets
164,420

232,916


Net Property and Equipment (Note 2)
10,405

10,886


Other
 
 
Other long-term assets (Notes 1, 3, and 6)
5,027

5,055


Total Other Assets
5,027

5,055

Total Assets
$
179,852

$
248,857



3

MBS Textbook Exchange, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands)






 
(unaudited)
November 30,
2016

August 31,
2016


Liabilities and Stockholders’ Equity
 
 
Current Liabilities
 
 
Accounts payable
$
39,182

$
56,563

Accrued expenses and other liabilities (Note 4)
6,613

10,832

Line of credit (Note 5)
-

44,400

Distributions payable (Notes 7 and 11)
25,800

35,800


Total Current Liabilities
71,595

147,595


Deferred Compensation (Note 6)
5,760

5.785


Other Long-Term Liabilities (Note 8)
6,987

6.939


Total Liabilities
84,342

160,319


Commitments and Contingencies (Notes 5, 8, and 12)
 
 

Stockholders’ Equity
 
 
Common stock and additional paid-in capital, $.01 par value – shares
authorized, 3,000; shares issued and outstanding, 73.5
1,005

1,005

Retained earnings
94,505

87,533

Total Stockholders’ Equity
95,510

88,538

Total Liabilities and Stockholders' Equity
$
179,852

$
248,857


See accompanying notes to condensed consolidated financial statements.     



4

MBS Textbook Exchange, Inc.
Condensed Consolidated Statements of Income
(Dollars in Thousands)




 
(unaudited)
Three months
ended
November 30
2016

(unaudited)
Three months
ended
November 30
2015

Net Sales
 
 
Trade
$
55,359

$
68,305

Affiliates (Note 9)
17,005

9,544

Total Net Sales (Note 10)
72,364

77,849

Cost of Goods Sold
49,218

60,418

Gross Profit
23,146

17,431

Selling, General, and Administrative Expenses
18,923

18,229

Operating Income
4,223

(798
)
Other Income (Expense)
 
 
Interest expense
(147
)
(20
)
Other income, net
2,896

2,316

 
2,749

2,296

Net Income
$
6,972

$
1,498


See accompanying notes to condensed consolidated financial statements.


5

MBS Textbook Exchange, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(Dollars in Thousands)




 
Common Stock and
Additional Paid-in Capital
 
 
 
Number of
Shares

Amount
Retained Earnings

Total Stockholders'
Equity

Balance, at August 31, 2016
73.5
$
1,005

$
87,533

$
88,538

Net income
-
-

6,972

6,972

Distributions declared and paid
-
-

-

-

Distributions payable
-
-

-

-

Balance, at November 30, 2016 (unaudited)
73.5
$
1,005

$
94,505

$
95,510



See accompanying notes to condensed consolidated financial statements.


6

MBS Textbook Exchange, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)





 
(unaudited)
Three months
ended
November 30
2016

(unaudited)
Three months
ended
November 30
2015

Operating Activities
 
 
Net Income
$
6,972

$
1,498

Adjustments to reconcile net income to net cash
provided by operating activities:
 
 
Depreciation and amortization of property and
equipment
642

749

Recovery of accounts receivable
returns and allowances
(32,807
)
(29,001
)
Provision for inventory returns and allowances
14,511

14,970

Gain on disposal of property and equipment
(4
)
(22
)
Deferred compensation
(25
)
17

Changes in assets and liabilities:
 
 
 Accounts receivable
117,429

101,388

Inventory
(30,170
)
(19,914
)
Prepaid expenses and other current assets
(140
)
(315
)
Other long-term assets (excluding amortization)
(14
)
(12
)
Accounts payable, accrued expenses and other liabilities
(21,600
)
(26,074
)
Other long-term liabilities
48

64

Net cash provided by operating activities
54,842

43,348

Investing Activities
Purchase of property and equipment
(270
)
(384
)
Proceeds from sale of property and equipment
155

207

Net cash used in investing activities
(115
)
(177
)
Financing Activities
Net advances under lines of credit agreements
(44,400
)
(14,200
)
Distributions paid
(10,000
)
(11,000
)
Net cash used in financing activities
(54,400
)
(25,200
)
Net Increase in Cash
327

17,971

Cash, at beginning of year
1,314

1,506

Cash, at end of year
$
1,641

$
19,477


See accompanying notes to condensed consolidated financial statements.


7

MBS Textbook Exchange, Inc.
Notes to Condensed Consolidated Financial Statements



1.
Description of Business and Summary of Significant Accounting Policies

Principles of Consolidation

The Condensed Consolidated financial statements include the accounts of MBS Textbook Exchange, Inc., its subsidiaries and/or affiliates, MBS Direct, LLC, MBS Realty Partner, L.P. (“Realty”), MBS Internet, LLC, TXTB.com, LLC, TextbookCenter, LLC, MBS Service Company, Inc., and MBS Automation Corp. (the “Company” or “MBS”). All intercompany accounts and transactions have been eliminated.

Basis of Presentation

The condensed consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position and the results of its operations and cash flows for the periods reported. These consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by U.S. GAAP.

Description of Business

The Company is located in Columbia, Missouri and is a leading seller of new and used college textbooks. The Company is also a retailer of electronic books and computer hardware and software designed for use in the textbook industry.

The Company applies Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10-15, “Consolidation of Variable Interest Entities.” Realty is an entity under common ownership which leases the office and warehouse space solely to the Company. Realty’s operations are funded by the Company. The Company has evaluated its relationship with Realty and determined the Company is the primary beneficiary of Realty, a variable interest entity. The accounts of Realty are included in the condensed consolidated financial statements of the Company for all periods presented.

Accounts Receivable

An allowance for doubtful accounts is maintained at a level management believes is sufficient to cover potential losses based on historical trends and known current factors impacting the Company’s customers. All accounts are reviewed on an ongoing basis to determine collectability.

Revenue Recognition

Revenue is recognized in accordance with the provisions of Staff Accounting Bulletin, “ Topic 13: Revenue Recognition.” Revenue is recorded once there is persuasive evidence of an arrangement, services have been rendered, the amount of revenue has become fixed or determinable, and collectability is reasonably assured. Revenue from the sale of traditional textbooks is recognized at the time of shipment. Revenue from the sale of digital textbooks, for which the Company acts as an intermediary or agent, is recognized at the time the transaction is completed by the buyer online as the earnings process is culminated. The Company estimates, based on historical experience, a provision for sales returns where the right of return exists. Additional revenue is recognized for shipping charges billed to customers. The expenses related to these revenues are included in cost of goods sold.

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” which established a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as real estate, construction, and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The statement is effective for public business entities for annual periods beginning after December 15, 2017. The Company is in the process of evaluating the potential impact of ASU 2014-09 on the condensed consolidated financial statements and has not yet determined the method by which the standard will be adopted.

8

MBS Textbook Exchange, Inc.
Notes to Condensed Consolidated Financial Statements




Cost of Sales

The primary components of cost of sales include the cost of the product and inbound and outbound freight charges.  Certain overhead costs related to purchasing, receiving, inspections, warehousing, internal inventory transfers and other costs of our distribution network are included in selling, general and administrative expenses along with other operating costs.

As a result of different practices of categorizing costs associated with distribution networks throughout our industry, our gross margins may not necessarily be comparable to other distribution companies.

Inventory

Inventory consists of finished goods, primarily new and used college textbooks. Inventory is stated at the lower of cost or market under the first-in, first-out method.

Depreciation and Amortization

Depreciation of property and equipment is provided for over the estimated useful lives of the respective assets, ranging from three to 39 years, using the straight-line method. Leasehold improvements are amortized over the lesser of the lease periods or their useful lives using the straight-line method.

Income Taxes

The Company is considered a pass-through entity under the Internal Revenue Code. Instead of paying corporate income taxes, the stockholders of pass-through entities are taxed individually on their proportionate share of the Company’s taxable income. State income taxes incurred in states that do not recognize pass-through entities are not significant and are included in selling, general, and administrative expenses.

ASC 740-10-25 requires that realization of an uncertain income tax position must be “more likely than not” (i.e. greater than 50% likelihood of receiving benefit) before it can be recognized in the financial statements. Further, ASC 740-10-25 prescribes the benefit to be recorded in the financial statements as the amount most likely to be realized assuming a review by the tax authorities having all relevant information and applying current conventions. ASC 740-10-25 also clarifies the financial statement classification of tax related penalties and interest and sets forth new disclosures regarding unrecognized tax benefits. There are no such uncertain income tax positions held by the Company which are required to be recorded or disclosed. Tax years ended August 31, 2013 through August 31, 2016 remain open to examination by taxing authorities.

Fair Value Measurements

Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Fair Value of Financial Instruments

The carrying values of financial instruments such as accounts receivable, accounts payable, accrued expenses, and lines of credit obligations are reasonable estimates of their fair value because of the short maturity of these items.


9

MBS Textbook Exchange, Inc.
Notes to Condensed Consolidated Financial Statements



Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Newly Issued Accounting Statements

In February 2016, the FASB issued ASU 2016-02, “ Leases, ” which establishes a comprehensive new lease accounting model. ASU 2016-02 clarifies the definition of a lease and causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease term of more than one year. ASU 2016-02 is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial application. The Company is currently evaluating the impact that ASU 2016-02 will have on its condensed consolidated financial statements.

In October 2016, the FASB issued ASU 2016-17, “ Interests Held through Related Parties that are under Common Control , which amends the variable interest entity (“VIE”) guidance within Topic 810. It does not change the two required characteristics for a single decision maker to be the primary beneficiary (“power” and “economics”), but it revises one aspect of the related analysis. The amendments change how a single decision maker of a VIE treats indirect variable interests held through related parties that are under common control when determining whether it is the primary beneficiary of that VIE. ASU 2016-17 requires consideration of such indirect interests on a proportionate basis, instead of being the equivalent of direct interests in their entirety, thereby making consolidation less likely. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact that ASU 2016-17 will have on its condensed consolidated financial statements.

2. Property and Equipment

The following is a summary of property and equipment:

 
November 30,
2016

August 31,
2016

 
(dollars in thousands)
Land
$
1,622

$
1,622

Building
11,453

11,453

Leasehold improvements
1,005

1,005

Machinery and equipment
26,401

26,388

Vehicles
2,264

2,316

Furniture and fixtures
2,224

2,224

Computer equipment
19,117

19,068

Assets not placed into service
27

27

Property and equipment, at cost
64,113

64,103

Less accumulated depreciation and amortization
(53,708
)
(52,217
)
Net Property, Plant, and Equipment
$
10,405

$
10,886


Depreciation expense for the three months ended November 30, 2016 and 2015 was approximately $600,000 and $707,000, respectively.


10

MBS Textbook Exchange, Inc.
Notes to Condensed Consolidated Financial Statements



3. Other Long-Term Assets
The following is a summary of other assets:
 
November 30,
2016

August 31,
2016

 
(dollars in thousands)
Deferred compensation - cash surrender value
$
3,508

$
3,471

Other
1,519

1,584


Other Long-Term Assets
$
5,027

$
5,055


4. Accrued Expenses and Other Liabilities
The following is a summary of accrued expenses and other liabilities:
 
November 30,
2016

August 31,
2016

 
(dollars in thousands)
Accrued compensation
$
5,432

$
6,404

Accrued insurance
642

685

Sales & withholding tax payable
101

2,208

Other
437

1,535


Accrued Expenses and Other Liabilities
$
6,613

$
10,832


5. Lines of Credit

The Company has two unsecured lines of credit with two commercial banks for a maximum of $120,000,000 with both maturing on January 31, 2017. The total outstanding balance was $0 and $44,400,000 at November 30, 2016 and August 31, 2016, respectively. The interest rate for outstanding borrowings under the lines of credit at November 30, 2016 and August 31, 2016 was based on LIBOR plus 1.25% with a floor of 2%, which was effectively 2% in both periods. The Company was in compliance with its debt covenants as of November 30, 2016.

6. Deferred Compensation Plan

The Company has agreements under a non-qualified deferred compensation plan with officers, stockholders, and key employees to pay, upon death, disability, retirement, or attaining age 65, a monthly annuity amount based on the employee’s initial contribution plus interest earned which is specified in the funding schedules of the agreements.

The Company has accrued a liability of $5,760,000 and $5,785,000 at November 30, 2016 and August 31, 2016, respectively, for the above agreements.

The plan has been partially funded through the purchase of insurance on the lives of the individuals.

The book value of the life insurance policies is $3,508,000 and $3,471,000 at November 30, 2016 and August 31, 2016, respectively. This amount is included in other long-term assets.

7. Stockholders’ Equity

Distributions

The Company has made cash distributions to stockholders for discretionary purposes and in order for the stockholders to pay income taxes related to the Company’s pass-through taxable income. These distributions are paid pro rata to each individual based on stock ownership.

11

MBS Textbook Exchange, Inc.
Notes to Condensed Consolidated Financial Statements




8. Employee Benefit Plans

The Company maintains a Profit Sharing Plan (the “Plan”) covering all full-time employees of the Company who have one year of service and are 20-1/2 years of age or older. Each year, the Company contributes to the Plan the sum of (a) the amount each participant elects to defer from his compensation (up to a maximum set forth in the Plan), plus (b) a matching contribution (subject to limitations) equal to the percentage of deferred compensation (as defined in the Plan) of all participants, plus (c) a discretionary amount determined each year by the Company. Individual accounts are established for each participant.

Participants become 20% vested in their account balance on the completion of two years of service, increasing 20% for each additional year of service until the fifth year of service, at which time a participant becomes fully vested. A participant is 100% vested upon reaching age 65, retirement due to disability, or death. The non-vested portion of a terminated participant’s account is forfeited. Benefit distributions under the Plan are in the form of annuities or lump sums.

The Company’s matching contributions to the Plan of $377,000 and $386,000 for the three months ended November 30, 2016 and 2015, respectively, are included in selling, general, and administrative expenses.

The Company provides employees a post-retirement medical benefit that covers eligible employees’ medical insurance upon retirement. Upon becoming eligible, the Plan requires participants to enroll in Medicare.

Eligible employees are defined as employees with medical insurance through the Company’s Plan who have reached the age of 55 and have at least 25 years of service as of January 1, 2016. The Company has not prefunded its post-retirement medical benefits.

The Company has recognized a liability of $6,987,000 and $6,939,000 related to this obligation at November 30, 2016 and August 31, 2016, respectively, which is included in other long-term liabilities. The Company’s expense related to this obligation of $48,000 and $64,000 for the three months ended November 30, 2016 and 2015, respectively, is included in selling, general, and administrative expenses.

9. Related-Party Transactions
The Company is related through common ownership to Barnes & Noble, Inc. (“Inc.”) and its subsidiary, barnesandnoble.com, LLC (“.com”), an on-line retailer of textbooks. The Company is also related through common ownership to Barnes & Noble College Booksellers, LLC (“College”). College is a subsidiary of Barnes & Noble Education, Inc. College is a major customer and supplier of the Company.

College has entered into an agreement with the Company whereby College will offer all of its textbooks not being used in the following semester’s curriculum to the Company provided that the Company pays prices that are competitive with those offered by other wholesalers. College has also agreed not to compete with the Company in the Company’s wholesale textbook operation.

Sales to College, Inc., and .com during the three months ended November 30, 2016 and 2015, reflected as net sales to an affiliate in the accompanying Condensed Consolidated Statements of Income, were $17,005,000 and $9,544,000, respectively, representing 24% and 12%, respectively, of net sales. Purchases from College, Inc., and .com during the same periods were $1,569,000 and $1,318,000, respectively.

At November 30, 2016 and August 31, 2016, the amount due from affiliates represents accounts receivable from College, Inc., and .com of $24,039,000 and $86,851,000, respectively, less return allowances of $19,762,000 and $35,549,000, respectively.


12

MBS Textbook Exchange, Inc.
Notes to Condensed Consolidated Financial Statements



10. Gross Sales

Gross sales, sales returns and allowances, and net sales of the Company are as follows:


 
November 30,
2016

November 30,
2015

 
(dollars in thousands)
Gross sales
$
94,293

$
97,409

Sales returns and allowances
(21,929
)
(19,560
)
Net Sales
$
72,364

$
77,849


11. Supplemental Cash Flow Information

Payments for interest amounted to $254,000 and $93,000 for the three months ended November 30, 2016 and 2015, respectively.

The Company had distributions declared but not paid as of fiscal year end amounting to $25,800,000 and $35,800,000 at November 30, 2016 and August 31, 2016, respectively.

12. Litigation

From time to time the Company is involved in legal proceedings, claims, or investigations that are incidental to the conduct of the Company’s business. In future periods, the Company could be subjected to cash cost or non-cash charges to earnings if any of these matters are resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including management’s assessment of the merits of any particular claim, the Company does not expect that these legal proceedings or claims will have any material adverse impact on its future condensed consolidated financial position or results of operations. As of November 30, 2016, the Company was not a party to any material legal proceedings.

13. Subsequent Events

On February 28, 2017, the Company was acquired by Barnes & Noble Education, Inc. (“BNED”), one of America's largest contract operators of bookstores on college and university campuses and a leading provider of digital education services, for $174.2 million in cash.


13


EXHIBIT 99.5

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
The following unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Barnes & Noble Education, Inc. (the “Company” or “BNED”) acquisition of MBS Textbook Exchange, LLC (“MBS”) (the “Acquisition”).
The following unaudited pro forma condensed combined financial statements give effect to the Acquisition under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”).
The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) with respect to the statements of operations, have a continuing impact on the combined results of BNED and MBS.
The unaudited pro forma condensed combined balance sheet is based on the individual historical consolidated balance sheets of BNED and MBS as of January 28, 2017 and January 31, 2017, respectively, and has been prepared to reflect the Acquisition as if it occurred on January 28, 2017. The unaudited pro forma condensed combined statement of operations for the year ended April 30, 2016 is based on the historical consolidated results of operations of BNED and MBS, giving effect to the Acquisition as if it occurred on May 3, 2015. The unaudited pro forma condensed combined statement of operations for the 39 weeks ended January 28, 2017 is based on the historical consolidated results of operations of BNED and MBS, giving effect to the Acquisition as if it occurred on May 1, 2016.
The unaudited pro forma condensed combined statements of operations do not reflect future events that may occur after the Acquisition, including, but not limited to, the anticipated realization of ongoing savings from operating synergies, and certain one-time charges BNED expects to incur in connection with the transaction, including, but not limited to, costs in connection with integrating the operations of BNED and MBS. These unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to indicate the results that would actually have been obtained had the Acquisition been completed on the assumed dates or for the periods presented, or which may be realized in the future.
MBS’s business is highly seasonal, with the major portion of sales and operating profit realized during BNED’s first, second and third fiscal quarters, when MBS supplies textbooks to its wholesale customers for the upcoming Fall and Spring semesters and to its virtual customers before the start of classes, and significantly lower operating profit or operating loss realized during BNED’s fourth quarter. Consequently, the unaudited pro forma condensed combined statement of operations of MBS  for the 39 weeks ended January 28, 2017 should not be construed to be indicative of the expected results for the 52 weeks ended, April 29, 2017.
Additionally, future results of MBS and the Company may be impacted by certain risks. For example, since the demand for used and new textbooks is typically greater than the available supply, and MBS’s financial results are highly dependent upon its ability to build its textbook inventory from suppliers in advance of the selling season, any negative impact on MBS's ability to build its textbook inventory could have an adverse impact on financial results. Other risk factors inherent to the transaction, include, but are not limited to: our ability to successfully integrate the operations of MBS into our Company; our ability to fully realize, or any delay in the expected realization of, the anticipated benefits of the MBS acquisition; and our inability to renew MBS's supply contracts or enter into new ones. These risks and uncertainties and others described in Exhibit 99.1 to the Form 8-K, as amended, could cause actual results or outcomes to vary materially from those reflected in the unaudited pro forma condensed combined financial statements presented. A general description of the risks and uncertainties impacting the Company is detailed in the section titled “ Risk Factors ” in Part I - Item 1A in our Annual Report on Form 10-K for the year ended April 30, 2016.
To produce the unaudited pro forma financial information, we adjusted MBS’s assets and liabilities to their estimated fair values. We have engaged a third-party valuation company to complete the valuation of the MBS assets acquired and liabilities assumed. However, we have not completed the detailed valuation work necessary to arrive at the required final estimates of the fair value of the MBS assets to be acquired and the liabilities to be assumed and the related allocation of purchase price. The preliminary purchase price allocation was based on an initial valuation. Any increases or decreases in the fair value of relevant statement of financial position amounts will result in adjustments to the statement of financial position and/or statements of operations until the purchase price allocation is finalized. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation included in the accompanying unaudited pro forma condensed combined financial statements.

1



Accordingly, the accompanying unaudited pro forma purchase price allocation is preliminary and is subject to further adjustments as additional information becomes available and as additional analyses are performed. The preliminary unaudited pro forma purchase price allocation has been made solely for the purpose of preparing the accompanying unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read in conjunction with:
The accompanying notes to the unaudited pro forma condensed combined financial statements;
BNED's audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the 52 weeks ended April 30, 2016;
BNED's unaudited condensed consolidated financial statements and related notes thereto contained in its Quarterly Report on Form 10-Q for the 39 weeks ended January 28, 2017;
MBS's audited consolidated financial statements and related notes thereto for the year ended August 31, 2016;
MBS's unaudited consolidated financial statements and related notes thereto for the three months ended November 30, 2016.


2



BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
52 Weeks Ended April 30, 2016
(Dollars in thousands, except per share data)

 
 
Historical
 
 
 
 
 
 
 
 
BNED
 
MBS
 
Note 2
 
Note 4
 
 
 
 
52 weeks ended,
April 30, 2016
 
12 months ended,
April 30, 2016
 
Reclassifications
 
Pro Forma and Other Adjustments
 
Pro Forma Condensed Combined
Sales:
 
 
 
 
 
 
 
 
 
 
Product sales and other
 
$
1,579,617

 
$
501,520

 
$
3,868

 
$
(96,789
)
a)
$
1,988,216

Rental income
 
228,412

 

 

 

 
228,412

Total sales
 
1,808,029

 
501,520

 
3,868

 
(96,789
)
 
2,216,628

Cost of sales:
 
 
 
 
 
 
 
 
 
 
Product and other cost of sales
 
1,224,955

 
360,804

 
39,775

 
(91,962
)
b)
1,533,572

Rental cost of sales
 
129,725

 

 

 

 
129,725

Total cost of sales
 
1,354,680

 
360,804

 
39,775

 
(91,962
)
 
1,663,297

Gross profit
 
453,349

 
140,716

 
(35,907
)
 
(4,827
)
 
553,331

Selling and administrative expenses
 
372,821

 
88,898

 
(41,675
)
 
1,330

c)
421,374

Depreciation and amortization expense
 
52,690

 
3,044

 

 
2,724

d)
58,458

Transaction costs
 
2,398

 

 

 

 
2,398

Restructuring costs
 
8,830

 

 

 

 
8,830

Impairment loss (non-cash)
 
11,987

 

 

 

 
11,987

Operating income
 
4,623

 
48,774

 
5,768

 
(8,881
)
 
50,284

Other income
 

 
(11,650
)
 
5,775

 
5,875

f)

Interest expense, net
 
1,872

 
681

 
(7
)
 
6,035

g)
8,581

Income before income taxes
 
2,751

 
59,743

 

 
(20,791
)
 
41,703

Income tax expense
 
2,667

 

 

 
14,014

h)
16,681

Net income
 
$
84

 
$
59,743

 
$

 
$
(34,805
)
 
$
25,022

 
 
 
 
 
 
 
 
 
 
 
Earnings per share of Common Stock:
 
 
 
 
 
 
 
 
 
 
Basic
 
$

 
 
 
 
 
 
 
$
0.54

Diluted
 
$

 
 
 
 
 
 
 
$
0.54

Weighted average shares of Common Stock outstanding:
 
 
 
 
 
 
 
 
 
 
Basic
 
46,238

 
 
 
 
 
 
 
46,238

Diluted
 
46,479

 
 
 
 
 
 
 
46,479


Refer to accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information











3



BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
39 Weeks Ended January 28, 2017
(Dollars in thousands, except per share data)

 
 
Historical
 
 
 
 
 
 
 
 
BNED
 
MBS
 
Note 2
 
Note 4
 
 
 
 
39 weeks ended,
Jan. 28, 2017
 
9 months ended,
Jan. 31, 2017
 
Reclassifications
 
Pro Forma and Other Adjustments
 
Pro Forma Condensed Combined
Sales:
 
 
 
 
 
 
 
 
 
 
Product sales and other
 
$
1,372,810

 
$
436,417

 
$
1,978

 
$
(86,102
)
a)
$
1,725,103

Rental income
 
158,722

 

 
377

 

 
159,099

Total sales
 
1,531,532

 
436,417

 
2,355

 
(86,102
)
 
1,884,202

Cost of sales:
 
 
 
 
 
 
 
 
 
 
Product and other cost of sales
 
1,098,682

 
288,772

 
30,948

 
(69,098
)
b)
1,349,304

Rental cost of sales
 
97,998

 

 
194

 

 
98,192

Total cost of sales
 
1,196,680

 
288,772

 
31,142

 
(69,098
)
 
1,447,496

Gross profit
 
334,852

 
147,645

 
(28,787
)
 
(17,004
)
 
436,706

Selling and administrative expenses
 
282,171

 
72,792

 
(33,264
)
 
1,165

c)
322,864

Depreciation and amortization expense
 
39,057

 
1,965

 

 
2,362

d)
43,384

Transaction costs
 
2,638

 

 

 

e)
2,638

Restructuring costs
 
1,790

 

 

 

 
1,790

Operating income
 
9,196

 
72,888

 
4,477

 
(20,531
)
 
66,030

Other income
 

 
(9,268
)
 
4,478

 
4,790

f)

Interest expense, net
 
1,975

 
841

 
(1
)
 
5,186

g)
8,001

Income before income taxes
 
7,221

 
81,315

 

 
(30,507
)
 
58,029

Income tax expense
 
2,087

 

 

 
21,705

h)
23,792

Net income
 
$
5,134

 
$
81,315

 
$

 
$
(52,212
)
 
$
34,237

 
 
 
 
 
 
 
 
 
 
 
Earnings per share of Common Stock:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.11

 
 
 
 
 
 
 
$
0.74

Diluted
 
$
0.11

 
 
 
 
 
 
 
$
0.73

Weighted average shares of Common Stock outstanding:
 
 
 
 
 
 
 
 
 
 
Basic
 
46,265

 
 
 
 
 
 
 
46,265

Diluted
 
46,716

 
 
 
 
 
 
 
46,716



Refer to accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information












4



BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
As of January 28, 2017
(Dollars in thousands)
 
 
Historical
 
 
 
 
 
 
 
 
BNED
 
MBS
 
Note 2
 
Note 4
 
 
 
 
As of
Jan. 28, 2017
 
As of
Jan. 31, 2017
 
Reclassifications
 
Pro Forma and Other Adjustments
 
Pro Forma Condensed Combined
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
132,061

 
$
909

 
$

 
$
(125,035
)
i)
$
7,935

Receivables, net
 
178,825

 
62,129

 
56,200

 
(45,354
)
j)
251,800

Merchandise inventories, net
 
494,032

 
124,171

 
(1,003
)
 
(9,692
)
k)
607,508

Textbook rental inventories
 
67,372

 

 
1,003

 

 
68,375

Prepaid expenses and other current assets
 
8,134

 
875

 
328

 

 
9,337

Total current assets
 
880,424

 
188,084

 
56,528

 
(180,081
)
 
944,955

Property and equipment, net
 
107,272

 
10,039

 

 
399

l)
117,710

Intangible assets, net
 
191,628

 

 

 
17,831

m)
209,459

Goodwill
 
281,346

 

 

 
48,646

n)
329,992

Other noncurrent assets
 
39,233

 
5,029

 
(125
)
 
79

o)
44,216

Total assets
 
$
1,499,903

 
$
203,152

 
$
56,403

 
$
(113,126
)
 
$
1,646,332

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
480,378

 
$
44,561

 
$
191

 
$
(45,708
)
p)
$
479,422

Accrued liabilities
 
207,731

 
7,438

 
56,212

 
23,093

q)
294,474

Short-term borrowings
 

 
22,800

 

 
55,700

r)
78,500

Total current liabilities
 
688,109

 
74,799

 
56,403

 
33,085

 
852,396

Long-term deferred taxes, net
 
22,709

 

 

 

 
22,709

Deferred compensation
 

 
5,743

 
(5,743
)
 

 

Other long-term liabilities
 
76,196

 
7,019

 
5,743

 

 
88,958

Total liabilities
 
787,014

 
87,561

 
56,403

 
33,085

 
964,063

Commitments and contingencies
 

 

 

 

 

Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock
 

 

 

 

 

Common stock
 
490

 
1,001

 

 
(1,001
)
s)
490

Additional paid-in capital
 
706,736

 
5,352

 

 
(5,352
)
s)
706,736

Retained earnings
 
32,136

 
109,238

 

 
(139,858
)
s)
1,516

Treasury stock, at cost
 
(26,473
)
 

 

 

 
(26,473
)
Total stockholders' equity
 
712,889

 
115,591

 

 
(146,211
)
 
682,269

Total liabilities and stockholders' equity
 
$
1,499,903

 
$
203,152

 
$
56,403

 
$
(113,126
)
 
$
1,646,332



Refer to accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information


5


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

1.
DESCRIPTION OF TRANSACTIONS AND BASIS OF PRESENTATION
On February 27, 2017, Barnes & Noble Education, Inc. (the “Company” or “BNED”), Ellar LLC (“Ellar”), Leonard Riggio (“Mr. Riggio”) and the other unitholders of Ellar party thereto (the “Unitholders”) and Ellar, as the Designated Representative, entered into a Purchase Agreement (the “Purchase Agreement”). Ellar and the Unitholders are referred to herein, collectively, as the “Seller” or “MBS Parties.”
Pursuant to the terms and subject to the conditions of the Purchase Agreement, we acquired 100% of the equity interests of MBS Textbook Exchange, LLC (“MBS”) from Ellar (the “Acquisition”), for cash consideration of $174,200. The Purchase Agreement was executed, and the Transaction closed, on the same day, and the Transaction was funded from cash on-hand and proceeds from our existing credit agreement, as amended.
The consolidated financial statements for MBS include its subsidiaries and/or affiliates, all of which were included in the Acquisition, except for MBS Realty Partner, L.P. ("MBS Realty"). MBS Realty is majority-owned by Mr. Riggio, who also owns approximately 16% of BNED’s outstanding shares. MBS Realty leases office and warehouse space solely to MBS. See pro forma footnote Note 4(c), 4(l) and 4(m).
The Acquisition is reflected in the unaudited pro forma condensed combined financial statements as being accounted for under the acquisition method in accordance with ASC 805, Business Combinations. Under the acquisition method, the total estimated purchase price is calculated as described in pro forma footnote Note 3. In accordance with ASC 805, the assets acquired and the liabilities assumed have been measured at fair value based on an initial valuation, which has been prepared by a third-party valuation company. However, we have not completed the detailed valuation work necessary to arrive at the required final estimates of the fair value of the MBS assets to be acquired and the liabilities to be assumed and the related allocation of purchase price. Due to the fact that the unaudited pro forma condensed combined financial information has been prepared based on preliminary estimates, the final amounts recorded for the Acquisition may differ materially from the information presented herein. These estimates are subject to change pending further review of the fair value of assets acquired and liabilities assumed. The final determination of the purchase price allocation is expected to be substantially complete in the second quarter of Fiscal Year 2018. The final determination of the recognition and measurement of the identified assets acquired and liabilities assumed will be based on the fair market value of actual net tangible and intangible assets and liabilities of MBS at the closing date of the acquisition.
For purposes of measuring the estimated fair value, where applicable, of the assets acquired and the liabilities assumed as reflected in the unaudited pro forma condensed combined financial information, we have applied the guidance in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which establishes a framework for measuring fair value. In accordance with ASC 820, fair value is an exit price and is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Under ASC 805, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred.
The unaudited pro forma condensed combined financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States and pursuant to U.S. Securities and Exchange Commission Regulation S-X Article 11, and present the pro forma financial position and results of operations of the consolidated companies based upon the historical information after giving effect to the Acquisition and adjustments described in these pro forma footnotes.
The unaudited pro forma condensed combined balance sheet is based on the individual historical consolidated balance sheets of BNED and MBS as of January 28, 2017 and January 31, 2017, respectively, and has been prepared to reflect the Acquisition as if it occurred on January 28, 2017. The unaudited pro forma condensed combined statement of operations for the year ended April 30, 2016 is based on the historical consolidated results of operations of BNED and MBS, giving effect to the Acquisition as if it occurred on May 3, 2015. The unaudited pro forma condensed combined statement of operations for the 39 weeks ended January 28, 2017 is based on the historical consolidated results of operations of BNED and MBS, giving effect to the Acquisition as if it occurred on May 1, 2016.
2.
ACCOUNTING POLICIES AND RECLASSIFICATIONS
We performed certain procedures for the purpose of identifying any material differences in significant accounting policies between BNED and MBS, and any accounting adjustments that would be required in connection with adopting uniform policies. Procedures performed by BNED involved a review of MBS’s summary of significant accounting policies in their audited financial statements for the year ended August 31, 2016 and their unaudited financial statements for the three months ended November 30, 2016, and discussion with MBS's management regarding our significant accounting policies to identify material adjustments. The identified differences in the accounting policies has resulted in material reclassifications to MBS’s consolidated financial statements as a result of conforming MBS’s accounting policies to those of BNED.

6


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

Additionally, the historical consolidated financial statements of MBS presented herein have been adjusted by reclassifying certain line items in order to conform to our financial statement presentation; these reclassifications are reflected in the column “Reclassifications.”
The reclassification adjustments on the statements of operations pertain to the following: (1) reclassification of product and other sales to rental income; (2) reclassification of product and other cost of sales to rental cost of sales; (3) reclassification of selling and administrative expenses to sales and cost of sales; and (4) reclassification of other income to sales, cost of sales, selling and administrative expenses, and interest expense. The reclassification of selling and administrative expenses to cost of sales was primarily comprised of payroll and warehouse costs related to inventory management and order fulfillment.
The reclassification adjustments on the balance sheet pertain to the following: (1) reclassification of the sales return allowance to accrued liabilities; (2) reclassification of merchandise inventory to textbook rental inventories; (3) reclassification of prepaid expenses and other current assets to accrued liabilities; (4) reclassification of other noncurrent assets to current assets; and (5) reclassification of accounts payable to accrued liabilities.

3.
PRELIMINARY CONSIDERATION TRANSFERRED AND PRELIMINARY FAIR VALUE OF NET ASSETS ACQUIRED
The Acquisition has been accounted for using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill.
We acquired 100% of the equity interests of MBS for cash consideration of $174,200. The following is a summary of consideration paid by BNED in the Acquisition:
Cash paid to Seller or escrow
 
$
165,499

Consideration to Seller for pre-closing costs
 
4,657

Cash paid for Seller closing costs
 
4,044

Contract purchase price
 
$
174,200

Consideration for payment to settle Seller's outstanding short-term borrowings
 
24,437

Consideration for reimbursement of pre-acquisition tax liability to Seller
 
14,668

Less: Consideration to Seller for pre-closing costs
 
(4,657
)
Less: Consideration for settlement of pre-existing payable to Seller
 
(44,453
)
Total value of consideration transferred
 
$
164,195

 
 
 

The following is a summary of the preliminary estimated fair values of the net assets acquired:
Total estimated consideration transferred
 
$
164,195

Cash and cash equivalents
 
$
472

Accounts receivable, net
 
3,675

Merchandise inventory
 
129,299

Prepaid assets
 
722

Property and equipment
 
12,403

Intangible assets
 
21,576

Other assets
 
4,390

Total assets
 
$
172,537

Accounts payable
 
$
35,383

Other accrued liabilities
 
8,836

Deferred compensation
 
5,734

Other long-term liabilities
 
7,035

Total liabilities
 
$
56,988

Net assets to be acquired
 
$
115,549

Goodwill
 
$
48,646