Build-A-Bear Workshop 2014 Annual Report Download - page 50

(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 324
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.
Reclassifications of prior year amounts related to the presentation
of the provision for doubtful accounts in the statement of cash flows
have been made to conform to current year presentation which do
not impact total net cash provided by operating activities 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 January 3, 2015 (fiscal
2014), December 28, 2013 (fiscal 2013) and December 29, 2012 (fiscal
2012). Fiscal 2014 included 53 weeks. Fiscal 2013 and 2012 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 $2.7 million and $2.9 million as of January 3, 2015 and December
28, 2013, 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
established an allowance for doubtful accounts of $3.2 million and
$1.9 million as of January 3, 2015 and December 28, 2013, respectively.
(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 a 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
loss before income taxes in the Retail segment. This represented the
entire balance of the Company’s goodwill. There was no goodwill as
of January 3, 2015 and December 28, 2013. This does not change our
long-term outlook for the UK reporting unit.
Notes to Consolidated Financial Statements
38 BUILD-A-BEAR WORKSHOP, INC. 2014 ANNUAL REPORT