Barnes and Noble 2011 Annual Report Download - page 28

and unamortizable intangible asset impairment losses.
However, if actual results are not consistent with estimates
and assumptions used in estimating future cash fl ows and
asset fair values, the Company may be exposed to losses
that could be material. A 10% decrease in the Company’s
estimated discounted cash fl ows would have no impact on
the Company’s evaluation of goodwill and unamortizable
intangible assets.
Gift Cards
The Company sells gift cards which can be used in its stores
or on Barnes & Noble.com. The Company does not charge
administrative or dormancy fees on gift cards, and gift
cards have no expiration dates. Upon the purchase of a gift
card, a liability is established for its cash value. Revenue
associated with gift cards is deferred until redemption
of the gift card. Over time, some portion of the gift cards
issued is not redeemed. The Company estimates the por-
tion of the gift card liability for which the likelihood of
redemption is remote based upon the Company’s historical
redemption patterns. The Company records this amount
in income on a straight-line basis over a 12-month period
beginning in the 13th month after the month the gift card
was originally sold. If actual redemption patterns vary from
the Company’s estimates, actual gift card breakage may dif-
fer from the amounts recorded. The Company recognized
gift card breakage of $25.9 million, $21.3 million, $5.4
million, $5.2 million and $21.4 million during fi scal 2011,
fi scal 2010, the transition period, the 13 weeks ended May
3, 2008 and fi scal 2008, respectively. The Company had
gift card liabilities of $311 million and $292 million, as of
April 30, 2011 and May 1, 2010, respectively, which amounts
are included in accrued liabilities. The Company does not
believe there is a reasonable likelihood that there will be
a material change in the estimates or assumptions used
to recognize revenue associated with gift cards. However,
if estimates regarding the Company’s history of gift card
breakage are incorrect, it may be exposed to losses or gains
that could be material. A 10% change in the Company’s gift
card breakage rate at April 30, 2011 would have aff ected net
earnings by approximately $2.6 million in fi scal 2011.
Income Taxes
Judgment is required in determining the provision for
income taxes and related accruals, deferred tax assets
and liabilities. In the ordinary course of business, tax
issues may arise where the ultimate outcome is uncertain.
Additionally, the Company’s tax returns are subject to
audit by various tax authorities. Consequently, changes in
the Company’s estimates for contingent tax liabilities may
materially impact the Company’s results of operations or
fi nancial position. A 1% variance in the Company’s eff ec-
tive tax rate would not have had a material impact to the
Company’s results of operations in fi scal 2011.
Recent Accounting Pronouncements
In December 2010, the FASB issued ASU 2010-28,
Intangibles—Goodwill and Other (Topic 350): When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units
with Zero or Negative Carrying Amounts (ASU 2010-28). ASU
2010-28 provides amendments to Topic 350 to modify Step
1 of the goodwill impairment test for reporting units with
zero or negative carrying amounts to clarify that, for those
reporting units, an entity is required to perform Step 2 of
the goodwill impairment test if it is more likely than not
that a goodwill impairment exists. In determining whether
it is more likely than not that goodwill impairment exists,
an entity should consider whether there are any adverse
qualitative factors indicating that impairment may exist.
For public entities, the amendments in this ASU are eff ec-
tive for fi scal years, and interim periods within those years,
beginning after December 15, 2010. Early adoption is not
permitted. The Company is still evaluating whether adop-
tion of ASU 2010-28 will have an impact on the Company’s
Fiscal 2012 Consolidated Financial Statements.
In May 2011, the FASB issued ASU 2011-04, Amendments
to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs (ASU 2011-04), which
amends ASC 820, Fair Value Measurement. ASU 2011-04
does not extend the use of fair value accounting, but
provides guidance on how it should be applied where its
use is already required or permitted by other standards
within U.S. GAAP or International Financial Reporting
Standards (IFRSs). ASU 2011-04 changes the wording used
to describe many requirements in U.S. GAAP for measuring
fair value and for disclosing information about fair value
measurements. Additionally, ASU 2011-04 clarifi es the
FASB’s intent about the application of existing fair value
measurements. ASU 2011-04 is eff ective for interim and
annual periods beginning after December 15, 2011 and
is applied prospectively. The Company is still evaluating
whether adoption of ASU 2011-04 will have an impact
on the Company’s Fiscal 2012 Consolidated Financial
Statements.
The FASB is currently working on amendments to exist-
ing accounting standards governing a number of areas
including, but not limited to, accounting for leases. In
August 2010, the FASB issued an exposure draft, “Leases”
(the Exposure Draft), which would replace the existing
guidance in ASC Topic 840, “Leases.” Under the Exposure
Draft, among other changes in practice, a lessee’s rights
26 Barnes & Noble, Inc. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued