Build-A-Bear Workshop 2011 Annual Report Download - page 43

BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K
asset group. If the carrying amount exceeds its estimated
undiscounted future cash flows, the carrying amount is
compared to its fair value and an impairment charge is
recognized to the extent of the difference. For purposes of
evaluating store assets for impairment, we have determined
that each store location is an asset group. As of
December 31, 2011, store assets represented approximately
$53.0 million, or approximately 68% of total property, plant
and equipment, net. Factors that we consider important which
could 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 significance of the fourth quarter to
individual store locations, 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 2011 review, we determined that
certain 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 $0.4 million in the fourth quarter
of fiscal 2011, 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
December 31, 2011, the changes in our assumptions would
not have resulted in additional impairment charges.
As a result of our 2010 review, we determined that
certain 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 $0.6 million in the fourth quarter
of fiscal 2010, which is included in cost of merchandise sold.
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.
In the event that we decide to close any or all of these
stores in the future, we may be required to record additional
impairments, lease termination fees, severance 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.
Corporate assets, including computer hardware and
software and the Company-owned distribution center
(approximately $17.0 million as of December 31, 2011),
and certain other assets, such as trade credits and
trademarks and intellectual property, net (approximately
$5.2 million as of December 31, 2011), have a broad
applicability and are generally considered to be recoverable,
unless abandoned. Other long-lived assets, including
deferred franchise and lease costs (approximately
$2.2 million as of December 31, 2011), 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. In the fiscal 2010 second quarter, we
reviewed the inputs used to determine the fair value of certain
key money deposits, included in other intangible assets and
other store deposits, included in other assets, net, 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 $0.3 million were
recorded in the second quarter of fiscal 2010. As we had
determined at this time that we would be closing the related
stores, these charges are included in selling, general and
administrative expenses.
Goodwill
We record goodwill related to the excess of the purchase
price over the fair value of net identifiable assets acquired.
All of our recorded goodwill, which is associated with our
UK Acquisition, is recorded in the European reporting unit.
At December 31, 2011 and January 1, 2011, our goodwill
balance was $32.3 million and $32.4 million, respectively.
The decrease is entirely due to foreign currency translation
adjustments. Goodwill is subject to periodic evaluation for
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