Build-A-Bear Workshop 2013 Annual Report Download - page 49

represented the entire balance of the Company’s goodwill. There was
no tax-deductible goodwill as of December 28, 2013 and December
29, 2012. This does not change our long-term outlook for the UK
reporting unit.
(h) Other Intangible Assets
Other intangible assets consist primarily of initial costs related to
trademarks and other intellectual property. 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.
(i) Other Assets
Other assets consist primarily of deferred leasing fees, deferred costs
related to franchise agreements and trade credits. Deferred leasing
fees are initial, direct costs related to the Company’s operating
leases and are amortized over the term of the related leases. Deferred
franchise costs are initial costs related to the Company’s franchise
agreements that are deferred and amortized over the life of the
respective franchise agreement. Amortization expense related to
other assets was $0.2 million, $0.3 million and $0.5 million for 2013,
2012 and 2011, respectively. See Note 6 – Other Non-current Assets for
further discussion regarding trade credits.
(j) Long-lived Assets
Whenever facts and circumstances indicate that the carrying value
of a long-lived asset may not be recoverable, the carrying value
is reviewed. If this review indicates that the carrying value of the
asset will not be recovered, as determined based on projected
undiscounted cash flows related to the asset over its remaining life,
the carrying value of the asset is reduced to its estimated fair value.
See Note 4 – Property and Equipment and Note 6 – Other Non-current
Assets for further discussion regarding the impairment of long-lived
assets.
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 and discount rates. If
different assumptions were used in the analysis, it is possible that
the amount of the impairment charge may have been significantly
different than what was recorded.
(k) Deferred Rent
Certain of the Company’s operating leases contain predetermined
fixed escalations of minimum rentals during the original lease terms.
For these leases, the Company recognizes the related rental expense
on a straight-line basis over the life of the lease and records the
difference between the amounts charged to operations and amounts
paid as deferred rent. The Company also receives certain lease
incentives in conjunction with entering into operating leases. These
lease incentives are recorded as deferred rent at the beginning of the
lease term and recognized as a reduction of rent expense over
the lease term. In addition, certain of the Company’s leases contain
future contingent increases in rentals. Such increases in rental
expense are recorded in the period that it is probable that store sales
will meet or exceed the specified target that triggers contingent rental
expense.
(l) Franchises
The Company defers initial, one-time nonrefundable franchise
fees and amortizes them over the initial term of the respective
franchise agreements, which extend for periods up to 25 years. The
Company’s obligations under the contract are ongoing and include
operations and product development support and training, generally
concentrated around new store openings. Continuing franchise fees
are recognized as revenue as the fees are earned.
(m) Retail Revenue Recognition
Net retail sales are net of discounts, exclude sales tax, and are
recognized at the time of sale. Shipping and handling costs billed to
customers are included in net retail sales.
Revenues from the sale of gift cards are recognized at the time
of redemption. Unredeemed gift cards are included in gift cards
and customer deposits on the consolidated balance sheets. The
company escheats a portion of unredeemed gift cards according to
the escheatment regulations of the relevant authority that generally
require remittance of the cost of merchandise portion of unredeemed
gift cards over five years old. The difference between the value of
gift cards and the amount escheated is recorded as income in the
consolidated statement of operations.
The Company has a customer loyalty program, the Stuff Fur Stuff
club, whereby guests enroll in the program and receive one point for
every dollar spent and receive awards for various discounts on future
purchases after achieving defined point thresholds. An estimate of
the obligation related to the program, based on historical redemption
patterns, is recorded as deferred revenue and a reduction of net retail
sales.
For 2013, 2012 and 2011, historical rates for points converting into
awards and ultimate award redemption were applied to actual
points and awards outstanding at the respective balance sheet date
to calculate the liability and corresponding adjustment to net retail
sales. Management reviews these patterns and assesses the adequacy
of the deferred revenue liability at the end of each fiscal quarter. Due
to the estimates involved in these assessments, adjustments to the
historical rates are generally made no more often than annually in
order to allow time for more definite trends to emerge.
Based on the assessment at the end of 2013, 2012 and 2011, the
deferred revenue liability was adjusted downward by $0.1 million,$0.5
million and $1.5 million, respectively, with corresponding increases
to net retail sales, and net loss was decreased by $0.1 million, $0.5
million and $1.5 million, respectively.
Notes to Consolidated Financial Statements (continued)
BUILD- A-BEAR WORKSHOP, INC. 2013 FORM 10-K 39