Build-A-Bear Workshop 2012 Annual Report Download - page 58

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
Notes to Consolidated Financial Statements
(1) DESCRIPTION OF BUSINESS AND BASIS OF PREPARATION
Build-A-Bear Workshop, Inc. (the Company) is a specialty
retailer of plush animals and related products. The Company
began operations in October 1997. The Company sells its
products through its 351 company-owned stores located in the
United States, Canada, Puerto Rico, the United Kingdom and
Ireland along with its Web sites. Operations in foreign
countries where the Company does not have company-owned
stores are through franchise agreements.
Certain reclassifications of prior year amounts have been
made to conform to current year presentation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company’s significant accounting policies
applied in the preparation of the accompanying consolidated
financial statements follows:
(a) Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of Build-A-Bear Workshop, Inc. and its
wholly-owned subsidiaries. All significant intercompany
accounts are eliminated in consolidation.
(b) Fiscal Year
The Company operates on a 52-or 53-week fiscal year
ending on the Saturday closest to December 31. The periods
presented in these financial statements are the fiscal years
ended December 29, 2012 (fiscal 2012), December 31,
2011 (fiscal 2011) and January 1, 2011 (fiscal 2010). All
fiscal years presented included 52 weeks. References to years
in these financial statements relate to fiscal years or year ends
rather than calendar years.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term
highly liquid investments with an original maturity of three
months or less held in both domestic and foreign financial
institutions.
The majority of the Company’s cash and cash equivalents
exceed federal deposit insurance limits. The Company has not
experienced any losses in such accounts and management
believes that the Company is not exposed to any significant
credit risk on cash and cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost or market, with
cost determined on an average-cost basis. Inventory includes
supplies of $3.5 million and $3.7 million as of December 29,
2012 and December 31, 2011, respectively.
(e) Receivables
Receivables consist primarily of amounts due to the
Company in relation to tenant allowances, corporate product
sales, franchisee royalties and product sales, and licensing
revenue. The Company assesses the collectability of all
receivables on an ongoing basis by considering its historical
credit loss experience, current economic conditions, and other
relevant factors. Based on this analysis, the Company has
determined that no material allowance for doubtful accounts
was necessary at either December 29, 2012 or
December 31, 2011.
(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
a reconciliation to the Company’s total market capitalization,
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,
all of which are Level 3 inputs. Based on the annual
impairment test performed for the Company’s UK reporting
unit as of December 29, 2012, the Company has determined
that the fair value of the reporting unit was less than its
carrying value, which resulted in an impairment of the entire
goodwill balance in 2012.
(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
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