Barnes and Noble 2012 Annual Report Download - page 39

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 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-specifi c 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 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 April ,  and April ,
 was , and ,, respectively. These amounts
are classifi ed 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,
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.
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
pricing model in which the publishers set fi xed prices
for eBooks and NOOK receives a fi xed 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 off ers members
greater discounts and other benefi ts for products and
services, as well as exclusive off ers and promotions via
e-mail or direct mail for an annual fee of ., which is
non-refundable after the fi rst  days. Revenue is recog-
nized over the twelve-month period based upon historical
spending patterns for Barnes & Noble Members.
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.
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 fi scal
, fi scal , and fi scal , 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 classifi es certain co-op advertising
received as a reduction in costs of sales and occupancy. The
gross advertising expenses noted above were completely
off set by allowances received from vendors and the excess
allowances received were recorded as a reduction of cost of
goods sold or inventory, as appropriate.
Closed Store Expenses
When the Company closes or relocates a store, the
Company charges unrecoverable costs to expense. Such
costs include the net book value of abandoned fi xtures and
leasehold improvements and, when a store is closed prior
to the expiration of the lease, a provision for future lease
obligations, net of expected sublease recoveries. Costs
associated with store closings of , ,, and ,
during fi scal , fi scal  and fi scal , respectively,
are included in selling and administrative expenses in the
2012 Annual Report 37