Build-A-Bear Workshop 2009 Annual Report Download - page 44

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
Contractual Obligations and Commercial Commitments
Our contractual obligations and commercial commitments include future minimum obligations under operating leases and
purchase obligations. Our purchase obligations primarily consist of purchase orders for merchandise inventory and obligations
associated with building out our stores. The future minimum payments for these obligations as of January 2, 2010 for periods
subsequent to this date are as follows:
Payments Due by Fiscal Period as of January 2, 2010
(In thousands) Total 2010 2011 2012 2013 2014 Beyond
Operating lease obligations $282,577 $50,651 $47,107 $42,345 $35,469 $31,319 $75,686
Purchase obligations 29,384 28,884 250 250 — — —
Total $311,961 $79,535 $47,357 $42,595 $35,469 $31,319 $75,686
Our total liability for uncertain tax positions under the
Financial Accounting Standards Board Accounting Standards
Codification (ASC) section 740-10-25 was $0.6 million as of
January 2, 2010. During the next fiscal year, it is reasonably
possible that the unrecognized tax benefits will be reduced by
$0.3 million either because the tax positions are sustained on
audit or expiration of statute of limitations. At this time, we do
not expect a significant payment related to these obligations
within the next year. See Note 8 - Income Taxes to the
Consolidated Financial Statements for additional information.
INFLATION
We do not believe that inflation has had a material adverse
impact on our business or operating results during the periods
presented. We cannot assure you, however, that our business
will not be affected by inflation in the future.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires the
appropriate application of certain accounting policies, which
require us to make estimates and assumptions about future
events and their impact on amounts reported in our financial
statements and related notes. Since future events and their
impact cannot be determined with certainty, the actual results
will inevitably differ from our estimates. Such differences could
be material to the financial statements.
We believe application of accounting policies, and the
estimates inherently required therein, are reasonable. These
accounting policies and estimates are periodically
reevaluated, and adjustments are made when facts and
circumstances dictate a change. Historically, we have found
our application of accounting policies to be appropriate, and
actual results have not differed materially from those
determined using necessary estimates.
Our accounting policies are more fully described in
Note 2 to our Consolidated Financial Statements, which
appear elsewhere in this Annual Report on Form 10-K. We
have identified the following critical accounting estimates:
Inventory
Inventory is stated at the lower of cost or market, with cost
determined on an average cost basis. Historically, we have
not conducted sales whereby we offer products below cost.
Throughout the year we record an estimated cost of
shortage based on past experience. The amount accrued for
shortage each period is based on detailed historical
averages. The accrual rate remained unchanged for fiscal
2009, 2008 and 2007. Periodic physical inventories are
taken and any difference between the actual physical count of
merchandise and the recorded amount in our records are
adjusted and recorded as shortage. Historically, including
fiscal years 2009, 2008 and 2007, the timing of the physical
inventory has been in the fourth quarter so that no material
amount of shortage was required to be estimated on activity
between the date of the physical count and year-end.
However, future physical counts of merchandise may not be at
times at or near the end of a fiscal quarter or fiscal year-end,
and our estimate of shortage for the intervening period may
be material based on the amount of time between the date of
the physical inventory and the date of the fiscal quarter or
year-end.
Long-Lived Assets
In accordance with ASC section 360-10-35 we assess the
potential impairment of long-lived assets annually or when
events or changes in circumstances indicate that the carrying
value may not be recoverable. Recoverability is measured by
comparing the carrying amount of an asset, or asset group, to
expected future net cash flows generated by the asset, or
asset group. If the carrying amount exceeds its estimated
undiscounted future cash flows, the carrying amount is
compared to its fair value and an impairment charge is
recognized to the extent of the difference. For purposes of
evaluating store assets for impairment, we have determined
that each store location is an asset group. As of January 2,
2010, store assets represented approximately $70.0 million,
or approximately 70% of total property, plant and equipment,
net. Factors that we consider important which could
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