Build-A-Bear Workshop 2013 Annual Report Download - page 48

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 323
company-owned stores operated primarily in leased locations in
malls 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, none of which impact net loss
in any period.
(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 28, 2013
(fiscal 2013), December 29, 2012 (fiscal 2012) and December 31, 2011
(fiscal 2011). 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
$2.9 million and $3.5 million as of December 28, 2013 and December
29, 2012, respectively. A reserve for estimated shortage is accrued
throughout the year based on detailed historical averages.
(e) Receivables
Receivables consist primarily of amounts due to the Company in
relation to tenant allowances, wholesale and corporate product sales,
franchisee royalties and product sales, certain amounts due from
taxing authorities 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 28, 2013 and December 29, 2012.
(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 fair value inputs. In 2012, we
performed our annual evaluation of our goodwill as of December 29,
2012. As a result of the sustained decline in the market price of our
common stock, coupled with the decline in the performance of the
UK reporting unit, we determined that the fair value of the reporting
unit, estimated using discounted cash flow analysis and reconciled to
our market capitalization, was less than its carrying value. As a result,
an impairment charge of $33.7 million was recorded as a component
of net loss before income taxes in the Retail segment. This
38 BUILD- A-BEAR WORKSHOP, INC. 2013 FORM 10 -K