Build-A-Bear Workshop 2012 Annual Report Download - page 64

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
Notes to Consolidated Financial Statements (continued)
As of December 29, 2012 and December 31, 2011,
approximately $0.2 million 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, unrecognized tax
benefits are expected to remain unchanged.
The Company recognizes interest and penalties related
to uncertain tax positions in income tax expense. There was
approximately $50,000 and $40,000 of accrued interest
related to uncertain tax positions as of December 29, 2012
and December 31, 2011, respectively.
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):
2012 2011 2010
Domestic $(11,550) $(6,200) $(8,744)
Foreign (36,879) 3,548 6,272
Total $(48,429) $(2,652) $(2,472)
The following tax years remain open in the Company’s
major taxing jurisdictions as of December 29, 2012:
United States (Federal) 2008 through 2012
United Kingdom 2006 through 2012
Canada 2009 through 2012
France 2007 through 2012
Ireland 2007 through 2012
(10) LONG-TERM DEBT
On December 21, 2012, the Company amended its existing
bank line of credit that provides borrowing capacity of $35
million. Borrowings under the credit agreement are secured
by our assets and a pledge of 65% of the Company’s
ownership interest in foreign subsidiaries. The credit
agreement expires on December 31, 2014 and contains
various restrictions on indebtedness, liens, guarantees,
redemptions, mergers, acquisitions or sale of assets, loans,
transactions with affiliates, and investments. It prohibits the
Company from declaring dividends without the bank’s prior
consent, unless such payment of dividends would not violate
any terms of the credit agreement. The Company is also
prohibited from repurchasing shares of its common stock
unless such purchase would not violate any terms of the credit
agreement; the Company may not use proceeds of the line of
credit to repurchase shares. Borrowings bear interest at LIBOR
plus 1.8%. Financial covenants include maintaining a
minimum tangible net worth, maintaining a minimum fixed
charge coverage ratio (as defined in the credit agreement)
and not exceeding a maximum funded debt to earnings
before interest, depreciation and amortization ratio. On
February 13, 2013, the Company amended its existing bank
line of credit to reduce the fixed charge coverage ratio for
the fiscal year ending December 29, 2012, returning to its
previous requirement for thereafter. As of December 29,
2012: (i) the Company was in compliance with these
covenants; (ii) there were no borrowings under the line of
credit; and (iii) there was a standby letter of credit of
approximately $1.1 million outstanding under the credit
agreement. Giving effect to this standby letter of credit, there
was approximately $33.9 million available for borrowing
under the line of credit.
(11) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company leases its retail stores and corporate offices
under agreements which expire at various dates through
2030. The majority of leases contain provisions for base rent
plus contingent payments based on defined sales as well as
scheduled escalations. Total office and retail store base rent
expense was $48.2 million, $48.2 million and $47.7 million,
and contingent rents were $1.2 million, $1.2 million and
$1.0 million for 2012, 2011 and 2010, respectively.
Future minimum lease payments at December 29, 2012,
were as follows (in thousands):
2013 $ 45,264
2014 39,229
2015 33,587
2016 25,425
2017 18,518
Subsequent to 2017 43,652
$205,675
(b) Litigation
In the normal course of business, the Company is subject
to certain claims or lawsuits. Except as noted below,
management is not aware of any claims or lawsuits that may
have a material adverse effect on the consolidated financial
position or results of operations of the Company.
In the normal course of business, the Company is subject
to regular examination by various taxing authorities for years
not closed by the statute of limitations, including an ongoing
customs audit in the United Kingdom in which the Company is
contesting audit findings. The Company accrues a liability for
this type of contingency when it believes that it is both
probable that a liability has been incurred and that it can
reasonably estimate the amount of the loss. In October 2012,
the Company received notification from the customs authority
that it intends to assess approximately £1.2 million, or
US$2.0 million at the exchange rate at the end of the quarter,
for unpaid taxes, penalties and interest. The Company intends
to appeal this determination and continues to believe that the
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