Build-A-Bear Workshop 2012 Annual Report Download - page 42

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
common units at an exercise price of $0.50 per unit. The put
option was exercised for all 1.25 million shares on
February 13, 2012. We have no further obligations related to
our investment in Ridemakerz
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 29, 2012 for periods subsequent to this date are as follows:
Payments Due by Fiscal Period as of December 29, 2012
(In thousands) Total 2013 2014 2015 2016 2017 Beyond
Operating lease obligations $205,675 $45,264 $39,229 $33,587 $25,425 $18,518 $43,652
Purchase obligations 33,251 33,251 — — — — —
Total $238,926 $78,515 $39,229 $33,587 $25,425 $18,518 $43,652
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 29, 2012. During the next fiscal year,
unrecognized tax benefits are expected to remain unchanged.
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
2012, 2011 and 2010. 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 2012, 2011 and 2010, 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
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