Barnes and Noble 2014 Annual Report Download - page 43

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 reflect, in
periods in which they have a dilutive effect, 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 differences between the financial
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 effect
when the differences 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 significant 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 different
assumptions, stock-based compensation expense could be
materially different 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 different
from its estimate, the stock-based compensation expense
could be significantly different 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, 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, 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 beginning in the th month after the
month the gift card was originally sold. 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 redemp-
tions continue to run lower than historical patterns. The
Company recognized gift card breakage of ,, ,
and , during fiscal , fiscal  and fiscal
, respectively. The Company had gift card liabilities
of , and , as of May ,  and April ,
, respectively.
Accounts Receivable
Accounts receivable, as presented on the Company’s
Consolidated Balance Sheets, is net of allowances. An
allowance for doubtful accounts is determined through
an analysis of the aging of accounts receivable and assess-
ments of collectibility based on historic trends, the
financial condition of the Company’s customers and an
evaluation of economic conditions. The Company writes
off uncollectible trade receivables once collection efforts
have been exhausted. Costs associated with allowable
2014 Annual Report 41