Build-A-Bear Workshop 2012 Annual Report Download - page 60

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
Notes to Consolidated Financial Statements (continued)
(n) Cost of Merchandise Sold
Cost of merchandise sold includes the cost of the
merchandise, including royalties paid to licensors of third
party branded merchandise; store occupancy cost, including
store depreciation and store asset impairment charges; cost of
warehousing and distribution; packaging; stuffing; damages
and shortages; and shipping and handling costs incurred in
shipment to customers.
(o) Selling, General, and Administrative Expenses
Selling, general, and administrative expenses include
store payroll and related benefits, advertising, credit card
fees, store supplies and store closing costs, as well as central
office management payroll and related benefits, travel,
information systems, accounting, insurance, legal, and public
relations. It also includes depreciation and amortization of
central office leasehold improvements, furniture, fixtures,
and equipment, as well as amortization of trademarks and
intellectual property.
(p) Store Preopening Expenses
Store preopening expenses, including store set-up, certain
labor and hiring costs, and rental charges incurred prior to
store openings are expensed as incurred.
(q) Advertising
The costs of advertising and marketing programs are
charged to operations in the first period the program takes place.
Advertising expense was $23.0 million, $19.3 million and $18.5
million for fiscal years 2012, 2011 and 2010, respectively.
(r) Income Taxes
Income taxes are accounted for using a balance sheet
approach known as the asset and liability method. The asset
and liability method accounts for deferred income taxes by
applying the statutory tax rates in effect at the date of the
consolidated balance sheets to differences between the book
basis and the tax basis of assets and liabilities. Deferred taxes
are reported on a jurisdictional basis. Noncurrent deferred
tax assets are included in other assets, net and noncurrent
deferred tax liabilities are included in other liabilities.
Tax positions are reviewed at least quarterly and
adjusted as new information becomes available. The
recoverability of deferred tax assets is evaluated by assessing
the adequacy of future expected taxable income from all
sources, including reversal of taxable temporary differences,
forecasted operating earnings and available tax planning
strategies. These estimates of future taxable income inherently
require significant judgment. To the extent it is considered
more likely than not that a deferred tax asset will be not
recovered, a valuation allowance is established.
The Company accounts for its total liability for uncertain
tax positions according to the provisions of ASC section
740-10-25. The Company recognizes estimated interest and
penalties related to uncertain tax positions in income tax
expense. See Note 9 — Income Taxes for further discussion.
(s) Earnings (Loss) Per Share
Under the two-class method, basic earnings (loss) per share
is determined by dividing net income or loss allocated to
common stockholders by the weighted average number
of common shares outstanding during the period. Diluted
earnings or loss per share reflects the potential dilution that
could occur if options to issue common stock were exercised. In
periods in which the inclusion of such instruments is anti-dilutive,
the effect of such securities is not given consideration.
(t) Stock-Based Compensation
The Company has share-based compensation plans
covering the majority of its management groups and its
Board of Directors. The Company accounts for share-based
payments utilizing the fair value recognition provisions of ASC
section 718. The Company recognizes compensation cost for
equity awards over the requisite service period for the entire
award. See Note 13 — Stock Incentive Plans.
For fiscal 2012, 2011 and 2010, selling, general and
administrative expense includes $3.6 million, $4.6 million
and $4.8 million, respectively, of stock-based compensation
expense. As of December 29, 2012, there was $4.3 million
of total unrecognized compensation expense related to
non-vested restricted stock awards and options which is
expected to be recognized over a weighted-average period
of 1.5 years.
(u) Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income
or loss and foreign currency translation adjustments.
(v) Fair Value of Financial Instruments
For purposes of financial reporting, management has
determined that the fair value of financial instruments,
including cash and cash equivalents, receivables, accounts
payable and accrued expenses, approximates book value at
December 29, 2012 and December 31, 2011.
(w) Use of Estimates
The preparation of the consolidated financial statements
requires management of the Company to make a number of
estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and
expenses during the reporting period. The assumptions used
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