Barnes and Noble 2013 Annual Report Download - page 26

ECommerce revenue from sales of products ordered
through the Company’s internet site 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 605-25, Revenue Recognition,
Multiple Element Arrangements and Accounting Standards
Updates (ASU) 2009-13 and 2009-14, for multiple-
element arrangements that involve tangible products that
contain software that is essential to the tangible product’s
functionality, undelivered software elements that relate
to the tangible product’s essential software and other
separable elements, the Company allocates revenue to all
deliverables using the relative selling-price method. Under
this method, revenue is allocated at the time of sale to all
deliverables 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 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
2-year estimated life of NOOK®.
The average percentage of a NOOK®’s sales price that is
deferred for undelivered items and recognized over its
2-year estimated life ranges between 2% and 6%, depend-
ing on the type of device sold. The amount of NOOK®-
related deferred revenue as of April 27, 2013 and April 28,
2012 was $15.3 million and $19.8 million, 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,
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 605-45-
45, 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 physical textbooks is deferred and recog-
nized over the rental period commencing at point of sale.
Revenue for digital textbooks is deferred and recognized
over the rental period commencing the earlier of when the
textbook has been downloaded or one year from 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
pricing model in which the publishers set fixed prices
for eBooks and NOOK receives a fixed 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
services, as well as exclusive offers and promotions via
e-mail or direct mail for an annual fee of $25.00, which is
non-refundable after the first 30 days. Revenue is recog-
nized over the twelve-month period based upon historical
spending patterns for Barnes & Noble Members.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or
market. Cost is determined primarily by the retail inven-
tory method under both the first-in, first-out (FIFO) basis
and the last-in, first-out (LIFO) basis. B&N College’s
24 Barnes & Noble, Inc. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued