Build-A-Bear Workshop 2009 Annual Report Download - page 59

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
Notes to Consolidated Financial Statements (continued)
inclusion of such instruments is anti-dilutive, the effect of such
securities is not given consideration.
(t) Stock-Based Compensation
The Company has share-based compensation plans
covering the majority of its management groups and its Board
of Directors. The Company accounts for share-based
payments utilizing the fair value recognition provisions of ASC
section 718. The Company recognizes compensation cost for
equity awards on a straight-line basis over the requisite
service period for the entire award. See Note 12 – Stock
Incentive Plans.
For fiscal 2009, 2008 and 2007, selling, general and
administrative expense includes $4.3 million ($2.6 million net
of tax), $3.6 million ($2.2 million net of tax) and $3.1 million
($1.9 million net of tax), respectively, of stock-based
compensation expense. As of January 2, 2010, there was
$8.2 million of total unrecognized compensation expense
related to nonvested restricted stock awards and options
which is expected to be recognized over a weighted-average
period of 1.6 years.
(u) Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income
or loss and foreign currency translation adjustments.
(v) Fair Value of Financial Instruments
For purposes of financial reporting, management has
determined that the fair value of financial instruments,
including cash and cash equivalents, receivables, accounts
payable and accrued expenses, approximates book value at
January 2, 2010 and January 3, 2009.
(w) Use of Estimates
The preparation of the consolidated financial statements
requires management of the Company to make a number of
estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and
expenses during the reporting period. The assumptions used
by management in future estimates could change significantly
due to changes in circumstances, including, but not limited to,
challenging current economic conditions. Accordingly, future
estimates may change significantly. Significant items subject
to such estimates and assumptions include the valuation of
long-lived assets, including goodwill and deferred income tax
assets, inventories, and the determination of deferred revenue
under the Company’s customer loyalty program.
(x) Sales Tax Policy
The Company’s revenues in the consolidated statement of
operations are net of sales taxes.
(y) Foreign Currency Translation
Assets and liabilities of the Company’s foreign operations
with functional currencies other than the US Dollar are
translated at the exchange rate in effect at the balance sheet
date, while revenues and expenses are translated at average
rates prevailing during the years. Translation adjustments are
reported in accumulated other comprehensive income, a
separate component of stockholders’ equity.
(3) PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other current assets consist of the
following (in thousands):
January 2,
2010
January 3,
2009
Prepaid rent $ 9,736 $ 8,918
Prepaid income taxes 6,600 2,538
Other 2,993 4,695
$19,329 $16,151
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in
thousands):
January 2,
2010
January 3,
2009
Land $ 2,261 $ 2,261
Furniture and fixtures 41,135 41,054
Computer hardware 22,146 21,665
Building 14,970 14,970
Leasehold improvements 138,894 139,723
Computer software 24,165 20,153
Construction in progress 1,886 2,820
245,457 242,646
Less accumulated depreciation 144,413 119,453
$101,044 $123,193
For 2009, 2008 and 2007, depreciation expense was
$26.7 million, $27.1 million and $24.9 million, respectively.
During 2009, the Company reviewed the operating
performance and forecasts of future performance for the stores
in its Retail segment. As a result of that review, it was
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, the carrying value of
the assets was reduced to fair value, calculated as the net
present value of estimated future cash flows for each asset
group, and asset impairment charges of $3.3 million were
recorded in the fourth quarter of fiscal 2009, which are
included in cost of merchandise sold as a component of net
loss before income taxes in the Retail segment. The inputs
used to determine the fair value of the assets are Level 3
inputs as defined by ASC section 820-10. In the event that we
decide to close any or all of these stores in the future, we may
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