Build-A-Bear Workshop 2012 Annual Report Download - page 63

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
Notes to Consolidated Financial Statements (continued)
A reconciliation between the statutory federal income tax
rate and the effective income tax rate is as follows
(in thousands):
2012 2011 2010
Loss before income taxes $(48,429) $ (2,652) $(2,472)
Statutory federal income tax rate 34% 34% 34%
Income tax expense (benefit)
at statutory federal rate (16,466) (902) (840)
State income taxes, net of
federal tax benefit 124 2 (74)
Permanent difference—Goodwill
impairment 11,448 ——
Valuation allowance 4,739 15,565 (1,249)
Effect of lower foreign taxes 296 (231) (174)
Release of state tax reserves (23) (47) (174)
Other items, net 748 23 (65)
Income tax expense (benefit) $ 866 $14,410 $(2,576)
Effective tax rate (1.8)% (543.4)% 104.2%
Temporary differences that gave rise to deferred tax
assets and liabilities are as follows (in thousands):
2012 2011
Deferred tax assets:
Deferred revenue $ 4,676 $ 4,711
Accrued rents 1,884 2,414
Net operating loss carryforwards 4,336 1,770
Intangible assets 1,799 1,837
Deferred compensation 2,089 2,218
Carryforward of tax credits 4,585 2,251
Receivable write-offs 641 840
Stock compensation 179 179
Depreciation 1,871 743
Other 2,054 1,925
24,114 18,888
Less: Valuation allowance 20,865 16,126
Total deferred tax assets 3,249 2,762
Deferred tax liabilities:
Depreciation ——
Other (2,321) (1,925)
Total deferred tax liabilities (2,321) (1,925)
Net deferred tax asset $ 928 $ 837
We evaluate the realizability of our deferred tax assets
on a quarterly basis. As the Company has incurred a
cumulative book loss over the three year period ended
December 31, 2011, management evaluated the realizability
of the Company’s deferred tax assets. The Company
performed an analysis of all available evidence, both positive
and negative, consistent with the provisions of ASC
740-10-30-17. Some of the evidence evaluated includes our
historical operating performance, the macroeconomic factors
contributing to the recent fiscal loss for which the tax benefits
have been fully realized by the carryback availability, and
our forecast of future taxable income, including the
availability of prudent and feasible tax planning strategies.
The three-year cumulative loss is a significant piece of
negative evidence and while management believes that it is
primarily a result of losses that were primarily attributable to
the significant economic conditions experienced in 2009 and
not an indication of continuing operations, ASC 740 requires
that objective historical evidence be given more weight than
subjective evidence, such as forecasts of future income.
Accordingly, in the fiscal 2011 fourth quarter, the Company
recorded a $15.6 million valuation allowance on its US
deferred tax assets.
The valuation allowance on US deferred tax assets will
continue to increase as a result of temporary differences
between the financial reporting and tax basis of the assets
and liabilities as well as the generation of net operating loss
and tax credit carryforwards. Accordingly, the Company
recorded an additional valuation allowance of $3.2 million
on it US deferred tax assets in 2012. The Company also
evaluated the realizability of deferred tax assets in foreign
jurisdictions and , upon determining that it was more likely
than not that the assets were not realizable, recorded a
$1.5 million valuation allowance of foreign deferred tax
assets in 2012.
Included in the deferred tax asset is $4.3 million related
to federal, state and foreign net operating loss carryforwards
for which a valuation allowance of $4.3 million has been
recorded. US federal and foreign net operating loss
carryforwards total $11.7 million and $4.3 million as of
December 29, 2012, respectively, and do not expire. Also
included in the deferred tax asset is $4.6 million related to tax
credits for which a valuation allowance of $4.6 million has
been recorded.
The Company has not provided for United States income
taxes on the accumulated but undistributed earnings of its
non-U.S. subsidiaries of $9.0 million and $20.5 million as of
December 29, 2012 and December 31, 2011, respectively,
as the Company intends to indefinitely 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.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
Balance as of January 1, 2011 $263
Lapse of statute (50)
Balance as of December 31, 2011 213
Lapse of statute (28)
Balance as of December 29, 2012 $ 185
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