Barnes and Noble 2015 Annual Report Download - page 42

History of B&N Education, Inc.
On September , , Barnes & Noble acquired Barnes
& Noble College Booksellers, LLC (B&N College) from
Leonard and Louise Riggio. From that date until October
, , B&N College was wholly owned by Barnes & Noble
Booksellers, Inc. B&N Education was initially incorpo-
rated under the name NOOK Media Inc. in July  to
hold Barnes & Noble’s B&N College and NOOK digital
businesses. On October , , Microsoft Corporation
(Microsoft) acquired a . non-controlling preferred
membership interest in B&N Education’s subsidiary B&N
Education, LLC (formerly NOOK Media LLC) (the LLC),
and through B&N Education, Barnes & Noble maintained
an . controlling interest of the B&N College and
NOOK digital businesses.
On January , , Pearson Education, Inc. (Pearson)
acquired a  non-controlling preferred membership
interest in the LLC, entered into a commercial agreement
with the LLC relating to the B&N College business and
received warrants to purchase an additional preferred
membership interest in the LLC.
On December , , B&N Education re-acquired
Microsoft’s interest in the LLC in exchange for cash and
common stock of Barnes & Noble and the Microsoft com-
mercial agreement was terminated effective as of such date.
On December , , B&N Education also re-acquired
Pearson’s interest in the LLC and certain related warrants
previously issued to Pearson. In connection with these
transactions, Barnes & Noble entered into contingent pay-
ment agreements with Microsoft and Pearson providing for
additional payments upon the occurrence of certain events,
including upon a sale of the NOOK digital business. As a
result of these transactions, Barnes & Noble owns, and will
own prior to the Spin-Off,  of B&N Education.
On May , , B&N Education distributed to Barnes &
Noble all of the membership interests in B&N Education’s
NOOK digital business. As a result, B&N Education ceased
to own any interest in the NOOK digital business, which
will remain a wholly owned subsidiary of Barnes & Noble.
The Company expects that the completion of the potential
separation of the Company’s businesses could occur by the
end of August , although there can be no assurances
regarding the timing of such potential separation or that
such separation will be completed.
Consolidation
The consolidated financial statements include the accounts
of Barnes & Noble, Inc. and its wholly and majority-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
In preparing financial statements in conformity with
generally accepted accounting principles, the Company is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclo-
sure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid
instruments purchased with an original maturity of three
months or less to be cash equivalents.
Merchandise Inventories
Merchandise inventories, which primarily consist of fin-
ished goods, are stated at the lower of cost or market. Cost
is determined primarily by the retail inventory method
under both the first-in, first-out (FIFO) basis and the last-
in, first-out (LIFO) basis. B&N College’s textbook and trade
book inventories are valued using the LIFO method, where
the related reserve was not material to the recorded amount
of the Company’s inventories at May , . There were
no LIFO adjustments in fiscal  compared to a favorable
adjustment of , in fiscal , respectively. NOOK
merchandise inventories are recorded based on the average
cost method.
Market is determined based on the estimated net realiz-
able value, which is generally the selling price. Reserves
for non-returnable inventory are based on the Company’s
history of liquidating non-returnable inventory.
The Company also estimates and accrues shortage for the
period between the last physical count of inventory and
the balance sheet date. Shortage rates are estimated and
accrued based on historical rates and can be affected by
changes in merchandise mix and changes in actual shortage
trends.
Property and Equipment, and Other Long-Lived Assets
Property and equipment are carried at cost, less accu-
mulated depreciation and amortization. For financial
reporting purposes, depreciation is computed using the
straight-line method over estimated useful lives. For tax
purposes, different methods are used. Maintenance and
40 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued