Build-A-Bear Workshop 2009 Annual Report Download - page 61

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
Notes to Consolidated Financial Statements (continued)
Temporary differences that gave rise to deferred tax
assets and liabilities are as follows (in thousands):
2009 2008
Deferred tax assets:
Deferred revenue $ 5,198 $ 4,681
Accrued rents 3,228 3,659
Deferred compensation 1,397 1,108
Intangible assets 1,597 1,886
Stock compensation 179 179
Receivable and investment write-offs 949 —
Net operating loss carryforwards 3,550 3,038
Other 1,002 557
17,100 15,108
Less: Valuation allowance 1,877 1,773
Total deferred tax assets 15,223 13,335
Deferred tax liabilities:
Depreciation (3,006) (5,072)
Other (649) (688)
Total deferred tax liabilities (3,655) (5,760)
Net deferred tax asset $11,568 $ 7,575
The Company has not made a provision for United States
income taxes on the accumulated but undistributed earnings
of its non-U.S. subsidiaries of $16.2 million and $11.5 million
as of January 2, 2010 and January 3, 2009, respectively, as
the Company intends to permanently reinvest these
undistributed earnings. However, if any portion were to be
distributed, the related U.S. tax liability may be reduced by
foreign income taxes paid on these earnings. Determination of
the unrecognized deferred tax liability related to these
undistributed earnings is not practicable because of the
complexities with its hypothetical calculation.
The Company has net operating loss carryforwards in
foreign jurisdictions which do not expire of $11.6 million and
$10.4 million as of January 2, 2010 and January 3, 2009,
respectively. It is more likely than not that some portion of the
related deferred tax asset will not be realized. Therefore, a
valuation allowance of $1.9 million and $1.8 million was
recorded at January 2, 2010 and January 3, 2009,
respectively. In addition, in 2009, the Company recorded a
$2.8 million reduction in the valuation allowance on net
operating losses associated with its UK operations as a result
of management determination that it is more likely than not
that the benefit of these losses will be recognized.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
Balance as of January 3, 2009 $ 993
Increases related to current year tax positions 149
Lapse of statute (512)
Settlements (60)
Balance as of January 2, 2010 $ 570
As of January 2, 2010 and January 3, 2009,
approximately $0.6 million and $1.0 million respectively, of
the unrecognized tax benefits would impact the Company’s
provision for income taxes and effective tax rate if
recognized. In the normal course of business, the Company
provides for uncertain tax positions and the related interest
and penalties and adjusts its unrecognized tax benefits and
accrued interest and penalties accordingly. During the next
fiscal year, it is reasonably possible to reduce unrecognized
tax benefits by $0.3 million either because the tax positions
are sustained on audit or expiration of statute of limitations.
The Company recognizes interest and penalties related to
uncertain tax positions in income tax expense. There was
approximately $0.1 million and $0.2 million of accrued
interest related to uncertain tax positions as of January 2,
2010 and January 3, 2009, respectively. In 2009, the
accrued interest decreased by $0.1 million upon the
expiration of statute of limitations and audit settlement and
was partially offset by the accrual of additional interest for the
current year. In 2008, accrued interest remained unchanged.
The Company’s income before income taxes from
domestic and foreign operations (which include the United
Kingdom, Canada, France and Ireland), are as follows (in
thousands):
2009 2008 2007
Domestic $(23,500) $3,046 $30,966
Foreign (340) 4,181 4,057
Total $(23,840) $7,227 $35,023
The following tax years remain open in the Company’s
major taxing jurisdictions as of January 2, 2010:
United States (Federal) 2006 through 2009
United Kingdom 2006 through 2009
Canada 2005 through 2009
France 2007 through 2009
Ireland 2007 through 2009
(9) LONG-TERM DEBT
On October 28, 2009, the Company amended its previous
line of credit with a bank that provides borrowing capacity for
the first half of the fiscal year of $40 million and a seasonal
overline of $50 million. The seasonal overline is in effect from
July 1 to December 31 each year. Borrowings under the
credit agreement are secured by our assets and a pledge of
65% of our ownership interest in our foreign subsidiaries. The
credit agreement expires on December 31, 2011 and
contains various restrictions on indebtedness, liens,
guarantees, redemptions, mergers, acquisitions or sale of
assets, loans, transactions with affiliates, and investments. It
also prohibits us from declaring dividends without the bank’s
prior consent, unless such payment of dividends would not
violate any terms of the credit agreement. Borrowings bear
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