Barnes and Noble 2013 Annual Report Download - page 40

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 $15,331 and $19,785, 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.
Research and Development Costs for Software Products
The Company follows the guidance in ASC 985-20, 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 720-35, Advertising Costs.
Advertising costs charged to selling and administrative
expenses were $110,878, $116,388 and $73,417 during fiscal
2013, fiscal 2012 and fiscal 2011, 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 605-50-25-10,
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. The
gross co-op advertising expenses noted above were com-
pletely offset 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 fixtures and
leasehold improvements and, when a store is closed prior
to the expiration of the lease, a provision for future lease
38 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued