Build-A-Bear Workshop 2011 Annual Report Download - page 58

BUILD-A-BEAR WORKSHOP, INC. 2011 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 and 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 to five 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
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 UK reporting unit as of December 31, 2011, the
Company has determined that there was no impairment of
goodwill in 2011. 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. All key money deposits were sold in 2010.
(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, $0.7 million and $0.5 million for 2011, 2010
and 2009, 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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