Barnes and Noble 2015 Annual Report Download - page 45

sales of third-party extended warranties, service contracts
and other products, for which the Company is not obligated
to perform, and for which the Company does not meet the
criteria for gross revenue recognition under ASC --
, Reporting Revenue Gross as a Principal versus Net as an
Agent, on a net basis. All other revenue is recognized on a
gross basis.
The Company rents both physical and digital textbooks.
Revenue from the rental of physical textbooks is deferred
and recognized over the rental period commencing at point
of sale. Revenue from the rental of digital textbooks is
recognized at time of sale. A software feature is imbedded
within the content of our digital textbooks, such that upon
expiration of the rental term the customer is no longer
able to access the content. While the digital rental allows
the customer to access digital content for a fixed period of
time, once the digital content is delivered to the customer
our obligation is complete. The Company offers a buyout
option to allow the purchase of a rented book at the end of
the semester. The Company records the buyout purchase
when the customer exercises and pays the buyout option
price. In these instances, the Company would accelerate
any remaining deferred rental revenue at the point of sale.
NOOK acquires the rights to distribute digital content from
publishers and distributes the content on barnesandnoble.
com, NOOK® devices and other eBookstore platforms.
Certain digital content is distributed under an agency pric-
ing model in which the publishers set prices for eBooks and
NOOK receives a commission on content sold through the
eBookstore. The majority of the Company’s eBook sales are
sold under the agency model.
The Barnes & Noble Member Program offers members
greater discounts and other benefits for products and ser-
vices, as well as exclusive offers and promotions via e-mail
or direct mail generally for an annual fee of ., which
is non-refundable after the first  days. Revenue is recog-
nized over the twelve-month period based upon historical
spending patterns for Barnes & Noble Members.
In May , the Financial Accounting Standards Board
(FASB) issued ASU No. -, Revenue from Contracts
with Customers (ASU -). The standard provides
companies with a single model for use in accounting for
revenue arising from contracts with customers and super-
sedes current revenue recognition guidance, including
industry-specific revenue guidance. The core principle of
the model is to recognize revenue when control of the goods
or services transfers to the customer, as opposed to recog-
nizing revenue when the risks and rewards transfer to the
customer under the existing revenue guidance. ASU -
 is effective for annual reporting periods beginning after
December , . Early adoption is not permitted. The
guidance permits companies to either apply the require-
ments retrospectively to all prior periods presented, or
apply the requirements in the year of adoption, through a
cumulative adjustment. The Company has not yet selected
a transition method nor has it determined the impact of
adoption on its consolidated financial statements.
Research and Development Costs for Software Products
The Company follows the guidance in ASC -, Cost of
Software to Be Sold, Leased or Marketed, regarding software
development costs to be sold, leased, or otherwise mar-
keted. Capitalization of software development costs begins
upon the establishment of technological feasibility and
is discontinued when the product is available for sale. A
certain amount of judgment and estimation is required to
assess when technological feasibility is established, as well
as the ongoing assessment of the recoverability of capital-
ized costs. The Company’s products reach technological
feasibility shortly before the products are released and
therefore research and development costs are generally
expensed as incurred.
Internal-use Software and Website Development Costs
Direct costs incurred to develop software for internal-use
and website development costs are capitalized and amor-
tized over an estimated useful life of three to seven years.
During fiscal  and , the Company capitalized costs,
primarily related to labor, consulting, hardware and soft-
ware of , and ,, respectively. Amortization of
previously capitalized amounts was ,, , and
, for fiscal ,  and , respectively. Costs
related to the design or maintenance of internal-use soft-
ware and website development are expensed as incurred.
Advertising Costs
The costs of advertising are expensed as incurred dur-
ing the year pursuant to ASC -, Advertising Costs.
Advertising costs charged to selling and administrative
expenses were ,, , and , during fiscal
, fiscal  and fiscal , respectively.
The Company receives payments and credits from vendors
pursuant to co-operative advertising and other programs,
including payments for product placement in stores, cata-
logs and online. In accordance with ASC ---,
Customer’s Accounting for Certain Consideration Received from
a Vendor, the Company classifies certain co-op advertising
received as a reduction in costs of sales and occupancy.
Allowances received from vendors exceeded gross advertis-
ing costs in each of the fiscal years noted above.
2015 Annual Report 43