Build-A-Bear Workshop 2013 Annual Report Download - page 37

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 2013 review, we determined that one store 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 $0.1 million in the fourth
quarter of fiscal 2013, 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 28, 2013, the changes in our assumptions would not have
resulted in additional impairment charges.
As a result of our reviews in 2012 and 2011, 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 and $0.4 million
in the fourth quarters of fiscal 2012 and 2011, respectively, which are
included in cost of merchandise sold.
Additionally, we consider a more likely than not assessment that an
individual location will close prior to the end of its lease term 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 $1.0 million were recorded in fiscal 2013, which are included in
selling, general and administrative expenses as a component of net
loss before income taxes in the Retail segment. As of December 28,
2013, the remaining net book value of the leasehold assets related
to these stores was $-0-. In fiscal 2012, we recorded $0.9 million in
similar charges.
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 $23.1 million as
of December 28, 2013), and certain other assets, such as trademarks
and intellectual property, net (approximately $0.6 million as of
December 28, 2013), have a broad applicability and are generally
considered to be recoverable, unless abandoned. Other long-lived
assets, including deferred franchise and lease costs (approximately
$0.6 million as of December 28, 2013), are monitored in relation to the
relevant franchisee or store location.
At December 28, 2013, 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 $0.3 million was recorded in
the fiscal 2013 fourth quarter and is included in selling, general and
administrative expenses as a component of net income before income
taxes in the Commercial segment. As of December 28, 2013, $0.7
million was included in prepaid expenses and other current assets
and $0.4 million was included in other assets, net, related to these
credits. In fiscal 2012, we recorded a similar charge of $2.2 million.
Revenue Recognition
Revenues from retail sales, net of discounts and excluding sales
tax, are recognized at the time of sale. Guest returns have not been
significant. Revenues from gift cards are recognized at the time of
redemption. Unredeemed gift cards are included in current liabilities
on the consolidated balance sheets.
We have a customer loyalty program, the Stuff Fur Stuff club, whereby
guests enroll in the program and receive one point for every dollar
spent. Points accumulate and expire after 12 months of inactivity. In
North America, guests receive a coupon for free merchandise after
reaching 50 points and a $10 reward certificate after reaching 100
points. Additional awards are earned for each additional 50 points
BUILD- A-BEAR WORKSHOP, INC. 2013 FORM 10-K 27