Barnes and Noble 2014 Annual Report Download - page 31

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The . million of impairments in fiscal  relate to
a certain publishing contract. The publishing contracts
include the value of long-standing relationships with
authors, agents and publishers established upon the
Company’s acquisition of Sterling in . Given Sterling’s
strong history of maintaining such relationships, the
Company believes they produce value indefinitely without
an identifiable remaining useful life. However, given the
continued declines in the physical book business, certain
of these contracts were impaired as of its most recent
impairment testing date.
A  decrease in the Company’s estimated discounted
cash flows would have no impact on the Company’s evalu-
ation of goodwill and unamortizable intangible assets,
except for the Company’s publishing contracts. A 
decrease in the Company’s publishing contracts would have
resulted in an additional . million impairment charge
on the Company’s results of operations in fiscal .
During the fourth quarter of , the Company deter-
mined that goodwill impairment indicators arose in its
NOOK reporting unit as recurring losses led to revisions
in its strategic plans. As a result, during the fourth quarter
of fiscal , the Company recorded a non-cash goodwill
impairment charge of . million in selling and adminis-
trative expenses, which represented all the goodwill in the
NOOK reporting unit.
In fiscal , the Company also decided to shut down
the operations of Tikatok. Tikatok was an online platform
where parents and their children and others can write,
illustrate and publish stories into hardcover and paperback
books. This decision resulted in an impairment charge of
. million, including the write-off of goodwill of .
million and intangible assets of . million during the
second quarter of fiscal . The effect of Tikatok opera-
tions is not material to the overall results of the Company.
Gift Cards
The Company sells gift cards, which can be used in its
stores, on barnesandnoble.com and NOOK devices. 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, a portion of
the gift cards issued is typically 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 beginning 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 differ from the amounts
recorded. The Company recognized gift card breakage
of . million, . million and . million dur-
ing fiscal , fiscal  and fiscal , respectively.
The Company had gift card liabilities of . million
and . million as of May ,  and April , ,
respectively. 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, additional breakage
may be required if gift card redemptions continue to run
lower than historical patterns. 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
 basis point change in the Company’s gift card breakage
rate at May ,  would have affected pre-tax earnings by
approximately . million in fiscal .
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
financial position. A  variance in the Company’s effec-
tive tax rate would have affected the Company’s results of
operations in fiscal  by . million.
2014 Annual Report 29