Build-A-Bear Workshop 2011 Annual Report Download - page 42

BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K
balance sheet date, we could own up to approximately
24% of fully diluted equity in Ridemakerz. The put option was
exercised on all 1.25 million shares on February 13,
2012. After the exercise, our ownership interest was
approximately 18%. Under the current agreements, as of the
exercise date, we could own up to approximately 24% of fully
diluted equity in Ridemakerz. See Note 17 – Investment in
Affiliate to the Consolidated Financial Statements for
additional information.
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. The future
minimum payments for these obligations as of December 31, 2011 for periods subsequent to this date are as follows:
Payments Due by Fiscal Period as of December 31, 2011
(In thousands) Total 2012 2013 2014 2015 2016 Beyond
Operating lease obligations $205,349 $45,755 $39,051 $34,159 $28,900 $21,253 $36,231
Purchase obligations 40,690 40,690 — — — — —
Total $246,039 $86,445 $39,051 $34,159 $28,900 $21,253 $36,231
Our total liability for uncertain tax positions under the
Financial Accounting Standards Board Accounting Standards
Codification (ASC) section 740-10-25 was $0.2 million as of
December 31, 2011. During the next fiscal year, it is
reasonably possible that the unrecognized tax benefits will
be reduced by $8,000 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 9—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
and, accordingly, have no significant lower of cost or market
reserve recorded.
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
2011, 2010 and 2009. 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 2011, 2010 and 2009, 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
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