Build-A-Bear Workshop 2009 Annual Report Download - page 57

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
Notes to Consolidated Financial Statements (continued)
(f) Property and Equipment
Property and equipment consist of leasehold
improvements, furniture and fixtures, computer equipment and
software, building and land are stated at cost. Leasehold
improvements are depreciated using the straight-line method
over the shorter of the useful life of the assets or the life of the
lease which is generally ten years. Furniture and fixtures and
computer equipment are depreciated using the straight-line
method over the estimated service lives ranging from three to
seven years. Computer software is amortized using the
straight-line method over a period of three years. New store
construction deposits are recorded at the time the deposit is
made as construction-in-progress and reclassified to the
appropriate property and equipment category at the time of
completion of construction, when operations of the store
commence. Maintenance and repairs are expensed as
incurred and improvements are capitalized. Gains or losses
on the disposition of fixed assets are recorded upon disposal.
(g) Goodwill
In accordance with Financial Accounting Standards
Board Accounting Standards Codification (ASC) section
350-20-35, goodwill is tested for impairment annually or
more frequently if events or changes in circumstances indicate
that the asset might be impaired. This testing requires
comparison of the carrying value of the reporting unit to its
fair value, and when appropriate, the carrying value of
impaired assets is reduced to fair value. The calculation of fair
value requires multiple assumptions regarding our future
operations to determine future cash flows, including but not
limited to, sales volume, margin rates, store growth rates and
discount rates. Based on the annual impairment test
performed for the Company’s reporting unit as of January 2,
2010, the Company has determined that there was no
impairment of goodwill in 2009. If the assumptions used in
the analysis were less favorable, it is possible that the
Company may have been required to impair goodwill.
(h) Other Intangible Assets
Other intangible assets consist primarily of initial costs
related to trademarks and other intellectual property and key
money deposits. Trademarks and other intellectual property
represent third-party costs that are capitalized and amortized
over their estimated lives ranging from one to three years
using the straight-line method. Key money deposits represent
amounts paid to a tenant to acquire the rights of tenancy
under a commercial property lease for a property located in
France. These rights can be subsequently sold by us to a new
tenant. Key money deposits are amortized to their residual
value over the term of the lease.
(i) Other Assets
Other assets consist primarily of deferred leasing fees
and deferred costs related to franchise agreements. Deferred
leasing fees are initial, direct costs related to the Company’s
operating leases and are amortized over the term of the
related leases. Deferred franchise costs are initial costs related
to the Company’s franchise agreements that are deferred and
amortized over the life of the respective franchise agreement.
Amortization expense related to other assets was $0.5
million, $0.5 million and $0.4 million for 2009, 2008 and
2007, respectively.
(j) Long-lived Assets
Whenever facts and circumstances indicate that the
carrying value of a long-lived asset may not be recoverable,
the carrying value is reviewed. If this review indicates that the
carrying value of the asset will not be recovered, as
determined based on projected undiscounted cash flows
related to the asset over its remaining life, the carrying value
of the asset is reduced to its estimated fair value. See Note 4
– Property and Equipment and Note 6 – Other Intangible
Assets for further discussion regarding the impairment of long-
lived assets.
The calculation of fair value requires multiple assumptions
regarding our future operations to determine future cash
flows, including but not limited to, sales volume, margin rates
and discount rates. If different assumptions were used in the
analysis, it is possible that the amount of the impairment
charge may have been significantly different than what was
recorded.
(k) Deferred Rent
Certain of the Company’s operating leases contain
predetermined fixed escalations of minimum rentals during the
original lease terms. For these leases, the Company
recognizes the related rental expense on a straight-line basis
over the life of the lease and records the difference between
the amounts charged to operations and amounts paid as
deferred rent. The Company also receives certain lease
incentives in conjunction with entering into operating leases.
These lease incentives are recorded as deferred rent at the
beginning of the lease term and recognized as a reduction of
rent expense over the lease term. In addition, certain of the
Company’s leases contain future contingent increases in
rentals. Such increases in rental expense are recorded in the
period that it is probable that store sales will meet or exceed
the specified target that triggers contingent rental expense.
(l) Franchises
The Company defers initial, one-time nonrefundable
franchise fees and amortizes them over the life of the
respective franchise agreements, which extend for periods up
to 25 years. The Company’s obligations under the contract
are ongoing and include operations and product development
support and training, generally concentrated around new
store openings. Continuing franchise fees are recognized as
revenue as the fees are earned.
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