Build-A-Bear Workshop 2012 Annual Report Download - page 43

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
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
29, 2012, store assets represented approximately
$46.4 million, or approximately 65% 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 2012 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 $1.4 million in the fourth quarter
of fiscal 2012, 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 29, 2012, the changes in our assumptions would
have resulted in additional impairment charges of
approximately $0.1 million.
As a result of our reviews in 2011 and 2010, 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 and $0.6 million in
the fourth quarters of fiscal 2011 and 2010, respectively,
which are included in cost of merchandise sold.
In 2012, we made the decision to close a number of
stores. We consider a more likely than not assessment that an
individual location will close as a triggering event to review
the store asset group for recoverability. These assessments are
reviewed on a quarterly basis. As a result of these reviews, it
was determined that certain stores would not be able to
recover the carrying value of store leasehold improvements
through expected undiscounted cash flows over the shortened
remaining life of the related assets. Accordingly, the carrying
value of the assets was reduced to fair value, calculated as
the estimated future cash flows for each asset group, and
asset impairment charges of $0.9 million were recorded in
fiscal 2012, which are included in selling, general and
administrative expenses 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. As of December 29, 2012,
the remaining net book value related to these stores was
approximately $0.1 million.
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 $25.0 million as of December 29, 2012),
and certain other assets, such as trademarks and intellectual
property, net (approximately $0.6 million as of December 29,
2012), have a broad applicability and are generally
considered to be recoverable, unless abandoned. Other
long-lived assets, including deferred franchise and lease costs
(approximately $0.8 million as of December 29, 2012), are
monitored in relation to the relevant franchisee or store
location.
At December 29, 2012, we evaluated our trade credits
asset and determined that certain assumptions regarding
future utilization were no longer attainable. Accordingly, an
impairment review was performed. Based on current
utilization expectations, we determined that the full value of
the asset was not recoverable. Accordingly, the carrying
value of the trade credits was reduced to fair value,
calculated as the expected present value of estimated future
utilization. An impairment charge of $2.2 million was
recorded in the fiscal 2012 fourth quarter and is included in
selling, general and administrative expenses as a component
of net loss before income taxes in the Commercial segment.
The inputs used to determine the fair value of the asset are
level 3 inputs as defined by ASC 80-10. As of December 29,
2012, $0.7 million was included in prepaid expenses and
other current assets and $1.2 million was included in other
assets, net, related to these credits.
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