Barnes and Noble 2012 Annual Report Download - page 40

accompanying consolidated statements of operations.
Net Earnings (Loss) Per Common Share
Basic earnings per share represent net earnings (loss)
attributable to common shareholders divided by the
weighted-average number of common shares outstand-
ing for the period. Diluted earnings per share refl ect, in
periods in which they have a dilutive eff ect, the impact of
common shares issuable upon exercise of the Company’s
outstanding stock options. The Company’s unvested
restricted shares, unvested restricted stock units and
common shares issuable under the Company’s deferred
compensation plan are deemed participating securities
and are excluded from the dilutive impact of common
equivalent shares outstanding under the two-class method
since these shares are entitled to participate in dividends
declared on common shares. Under the two-class method,
earnings (loss) attributable to unvested restricted shares,
unvested restricted stock units and common shares issu-
able under the Company’s deferred compensation plan are
excluded from net earnings (loss) attributable to common
shareholders for purposes of calculating basic and diluted
earnings (loss) per common share. See Note  for further
information regarding the calculation of basic and diluted
earnings (loss) per common share.
Income Taxes
The provision for income taxes includes federal, state and
local income taxes currently payable and those deferred
because of temporary diff erences between the fi nancial
statement and tax bases of assets and liabilities. The
deferred tax assets and liabilities are measured using the
enacted tax rates and laws that are expected to be in eff ect
when the diff erences reverse. The Company regularly
reviews its deferred tax assets for recoverability and estab-
lishes a valuation allowance, if determined to be necessary.
Stock-Based Compensation
The calculation of stock-based employee compensation
expense involves estimates that require management’s
judgment. These estimates include the fair value of each of
the stock option awards granted, which is estimated on the
date of grant using a Black-Scholes option pricing model.
There are two signifi cant inputs into the Black-Scholes
option pricing model: expected volatility and expected
term. The Company estimates expected volatility based
on traded option volatility of the Company’s stock over a
term equal to the expected term of the option granted. The
expected term of stock option awards granted is derived
from historical exercise experience under the Company’s
stock option plans and represents the period of time that
stock option awards granted are expected to be outstand-
ing. The assumptions used in calculating the fair value of
stock-based payment awards represent management’s best
estimates, but these estimates involve inherent uncertain-
ties and the application of management’s judgment. As a
result, if factors change and the Company uses diff erent
assumptions, stock-based compensation expense could be
materially diff erent in the future. In addition, the Company
is required to estimate the expected forfeiture rate, and
only recognize expense for those shares expected to vest. If
the Company’s actual forfeiture rate is materially diff erent
from its estimate, the stock-based compensation expense
could be signifi cantly diff erent from what the Company
has recorded in the current period. See Note  to the
Consolidated Financial Statements for a further discussion
on stock-based compensation.
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 associ-
ated 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 portion 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 -month period begin-
ning in the th 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 diff er
from the amounts recorded. The Company recognized gift
card breakage of ,, , and , during
fi scal , fi scal  and fi scal , respectively. The
Company had gift card liabilities of , and ,
as of April ,  and April , , respectively.
Reclassifi cations
Certain prior-period amounts have been reclassifi ed for
comparative purposes to conform with the fi scal 
presentation.
Reporting Period
The Company’s fi scal year is comprised of  or  weeks,
ending on the Saturday closest to the last day of April. The
reporting periods ended April , , April ,  and
May ,  all contained  weeks.
Recent Accounting Pronouncements
In June , the Financial Accounting Standards Board
(FASB) issued ASU -, Presentation of Comprehensive
Income (ASU -). ASU - eliminates the option
38 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued