Build-A-Bear Workshop 2012 Annual Report Download - page 61

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
Notes to Consolidated Financial Statements (continued)
by management in future estimates could change significantly
due to changes in circumstances, including, but not limited to,
challenging 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, trade credits 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 U.S. 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.
(z) Investment in Affiliate
The Company holds a minority interest in Ridemakerz,
LLC of approximately 21%, which is accounted for under the
equity method. Ridemakerz has developed a wholesale toy
product line and selectively operates interactive retail stores,
primarily in tourist locations that allow children and families to
build and customize their own personalized cars. In 2009,
the carrying value of this investment was reduced to $-0-. In
2012, certain investors exercised a put option on 1.25 million
shares, requiring an additional investment of $0.5 million,
which was immediately impaired and is included in selling
general and administrative expenses as a component of net
loss before income taxes in the Retail segment. No income or
loss allocations, impairments or other charges related to
Ridemakerz were recorded in fiscal 2011 or 2010. Under the
current agreements, the Company could, at its discretion, own
up to approximately 28% of fully diluted equity in
Ridemakerz. The Company has no further obligations relating
to its investment in Ridemakerz.
(3) PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other current assets consist of the
following (in thousands):
December 29,
2012
December 31,
2011
Prepaid rent $ 8,736 $ 7,745
Prepaid income taxes —1,970
Other 5,480 8,139
$14,216 $17,854
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in
thousands):
December 29,
2012
December 31,
2011
Land $ 2,261 $ 2,261
Furniture and fixtures 40,516 39,306
Computer hardware 23,120 20,705
Building 14,970 14,970
Leasehold improvements 136,402 137,352
Computer software 40,943 35,326
Construction in progress 2,381 2,543
260,593 252,463
Less accumulated depreciation 189,134 175,018
$ 71,459 $ 77,445
For 2012, 2011 and 2010, depreciation expense was
$20.4 million, $22.8 million and $24.9 million, respectively.
In 2012, the Company made the decision to close a
number of stores. The Company considers a more likely than
not assessment that an individual location will close as a
triggering event to review the store asset group for
recoverability. 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.
Any remaining net book value is depreciated over the
shortened expected life.
Also during 2012, 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 $1.4 million were
recorded in the fourth quarter of fiscal 2012, 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
be required to record additional impairments, lease
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