Barnes and Noble 2015 Annual Report Download - page 44

ing useful life. However, given the continued declines in
the physical book business, certain of these contracts were
impaired.
During the fourth quarter of , the Company deter-
mined that goodwill impairment indicators arose in its
NOOK reporting unit as recurring losses have led to revi-
sions in its strategic plans. As a result, during the fourth
quarter of fiscal , the Company recorded a non-cash
goodwill impairment charge of , in selling and
administrative expenses, which represented all the good-
will in the NOOK reporting unit.
In fiscal , the Company decided to shut down the
operations of Tikatok. Tikatok was an online platform
where parents and their children and others can write,
illustrate and publish stories into hardcover and paperback
books. This decision resulted in an impairment charge of
,, including the write-off of goodwill of , and
intangible assets of  during the second quarter of fiscal
. The effect of Tikatok operations is not material to the
overall results of the Company.
Deferred Charges
Costs incurred to obtain long-term financing are amortized
over the terms of the respective debt agreements using the
straight-line method, which approximates the interest
method. Unamortized costs included in other noncurrent
assets as of May ,  and May ,  were , and
,, respectively. Amortization expense included in
interest and amortization of deferred financing fees was
,, , and , during fiscal , fiscal 
and fiscal , respectively.
Revenue Recognition
Revenue from sales of the Company’s products is recog-
nized at the time of sale or shipment, other than those
with multiple elements and Free On Board (FOB) destina-
tion point shipping terms. Certain of the Company sales
agreements with its distribution partners contain rights of
inspection or acceptance provisions as is standard in the
Company’s industry. The Company accrues for estimated
sales returns in the period in which the related revenue
is recognized based on historical experience and industry
standards. ECommerce revenue from sales of products
ordered through the Company’s websites is recognized
upon delivery and receipt of the shipment by its customers.
Sales taxes collected from retail customers are excluded
from reported revenues. All of the Company’s sales are
recognized as revenue on a “net” basis, including sales
in connection with any periodic promotions offered to
customers. The Company does not treat any promotional
offers as expenses.
In accordance with ASC No. -, Revenue Recognition,
Multiple Element Arrangements and Accounting Standards
Updates (ASU) - and -, for multiple-element
arrangements that involve tangible products that contain
software that is essential to the tangible product’s func-
tionality, undelivered software elements that relate to the
tangible product’s essential software and other separable
elements, the Company allocates revenue to all deliver-
ables using the relative selling-price method. Under this
method, revenue is allocated at the time of sale to all deliv-
erables based on their relative selling price using a specific
hierarchy. The hierarchy is as follows: vendor-specific
objective evidence, third-party evidence of selling price,
or best estimate of selling price. NOOK® device revenue is
recognized at the segment point of sale.
The Company includes post-service customer sup-
port (PCS) in the form of software updates and potential
increased functionality on a when-and-if-available basis,
as well as wireless access and wireless connectivity with the
purchase of a NOOK® from the Company. Using the rela-
tive selling price described above, the Company allocates
revenue based on the best estimate of selling price for
the deliverables as no vendor-specific objective evidence
or third-party evidence exists for any of the elements.
Revenue allocated to NOOK® and the software essential to
its functionality is recognized at the time of sale, provided
all other conditions for revenue recognition are met.
Revenue allocated to the PCS and the wireless access is
deferred and recognized on a straight-line basis over the
-year estimated life of a NOOK®.
The average percentage of a NOOK®’s sales price that is
deferred for undelivered items and recognized over its
-year estimated life ranges between  and , depend-
ing on the type of device sold. The amount of NOOK®-
related deferred revenue as of May ,  and May ,
 was , and ,, respectively. These amounts
are classified on the Company’s balance sheet in accrued
liabilities for the portion that is subject to deferral for one
year or less and other long-term liabilities for the portion
that is subject to deferral for more than one year.
The Company also pays certain vendors who distribute
NOOK® a commission on the content sales sold through
that device. The Company accounts for these transactions
as a reduction in the sales price of the NOOK® based on
historical trends of content sales and a liability is estab-
lished for the estimated commission expected to be paid
over the life of the product. The Company recognizes
revenue of the content at the point of sale of the content.
The Company records revenue from sales of digital content,
42 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued