Build-A-Bear Workshop 2009 Annual Report Download - page 45

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
individually or in combination trigger an impairment review
include, but are not limited to, the following: (1) significant
underperformance relative to historical or projected future
operating results; (2) significant changes in the manner of our
use of the acquired assets or the strategy for our overall
business; and (3) significant changes in our business
strategies and/or negative industry or economic trends. We
assess events and changes in circumstances or strategy that
could potentially indicate that the carrying value of long-lived
assets may not be recoverable as they occur. Due to the
seasonality of operations, we assess store performance
annually, using the full year’s results. We consider a historical
and/or projected negative cash flow trend for a store location
to be an indicator that the carrying value of that asset group
may not be recoverable.
As a result of our 2009 review, we determined that
several stores would not be able to recover the carrying value
of certain store leasehold improvements through expected
undiscounted cash flows over the remaining life of the related
assets. Accordingly, we reduced the carrying value of the
assets to fair value, calculated as the present value of
estimated future cash flows for each asset group and recorded
asset impairment charges of $3.3 million in the fourth quarter
of fiscal 2009, which is included in cost of merchandise sold.
The calculation of fair value could increase or decrease
depending on changes in the inputs and assumptions used,
such as changes in the financial performance of the asset
group, future growth rate and discount rate. In order to
evaluate the sensitivity of the fair value assumptions on store
asset impairment, we applied a hypothetical decrease of 1%
in the comparable stores sales trend and in margin, which we
believe is appropriate. Based on the analysis performed as of
January 2, 2010, the changes in our assumptions would have
resulted in additional impairment charges of $0.8 million.
As a result of our 2008 review, we determined that
several stores would not be able to recover the carrying value
of certain store leasehold improvements through expected
undiscounted cash flows over the remaining life of the related
assets. Accordingly, we reduced the carrying value of the
assets to fair value, calculated as the present value of
estimated future cash flows for each asset group, and
recorded asset impairment charges of $1.8 million in the
fourth quarter of fiscal 2008, which is included in cost of
merchandise sold. No store assets were impaired in fiscal
2007.
In the event that we decide to close any or all of these
stores in the future, we may be required to record additional
impairment, lease termination charges, severance charges
and other charges. Impairment losses in the future are
dependent on a number of factors such as site selection and
general economic trends, and thus could be significantly
different than historical results. As we continue to face a
challenging retail environment and general uncertainty in the
global economy, the assumptions used in future calculations of
fair value may change significantly which could result in
further impairment charges in future periods.
In the fiscal 2008 third quarter, we announced plans to
close our Friends 2B Made concept. During the third quarter
of fiscal 2008, we recorded an impairment charge of $2.9
million, related to the closures. In 2009, we incurred
additional pre-tax charges of approximately $1.0 million,
primarily attributable to lease termination charges, inventory
write-offs and construction costs incurred to reformat locations
for return to the landlord.
Corporate assets, including computer hardware and
software and the Company-owned distribution center
(approximately $31.0 million as of January 2, 2010), and
certain intangible assets, such as trademarks and intellectual
property, net, (approximately $2.6 million as of January 2,
2010), have a broad applicability and generally considered
to be recoverable, unless abandoned. Other long-lived assets,
including deferred franchise and lease costs, key money and
long-term rent deposits, (approximately $5.7 million as of
January 2, 2010), are monitored in relation to the relevant
franchisee or store location. In 2009, we determined that
certain key money and long-term lease deposits were no
longer fully recoverable. Accordingly, we reduced the
carrying value of the assets to their estimated fair value and
recorded asset impairment charges of $1.8 million in the
fourth quarter of fiscal 2009, which is included in cost of
merchandise sold. None of these other long-lived assets were
impaired in fiscal 2008 or 2007.
Goodwill and Other Intangibles
We record goodwill related to the excess of the purchase
price over the fair value of net assets acquired. All of our
recorded goodwill, which is associated with our UK
Acquisition, is recorded in the European reporting unit. At
January 2, 2010 and January 3, 2009, our goodwill balance
was $33.8 million and $30.5 million, respectively. The
increase is due to foreign currency translation adjustments.
Goodwill is subject to periodic evaluation for impairment
when circumstances warrant, or at least once per year. We
perform our annual impairment assessment as of the end of
the fourth quarter of each year. Impairment is tested in
accordance with ASC section 350-20-35, by comparison of
the carrying value of the reporting unit to its estimated fair
value. As there are not quoted prices for our reporting unit,
fair value is estimated based upon a present value technique
using estimated discounted future cash flows, forecasted over
the reasonably assured lease terms for retail stores, with
growth rates forecasted for the reporting unit and using a
credit adjusted discount rate. We use current results, trends,
future prospects, and other economic factors as the basis for
expected future cash flows.
Assumptions in estimating future cash flows are subject to
a high degree of judgment and complexity. We make every
effort to forecast these future cash flows as accurately as
possible with the information available at the time the forecast
is developed. However, changes in the assumptions and
estimates may affect the carrying value of goodwill, and could
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