Build-A-Bear Workshop 2013 Annual Report Download - page 53

Notes to Consolidated Financial Statements (continued)
Temporary differences that gave rise to deferred tax assets and
liabilities are as follows (in thousands):
We evaluate the realizability of our deferred tax assets on a quarterly
basis. The Company performed an analysis of all available evidence,
both positive and negative, consistent with the provisions under
the Income Taxes topic of the ASC. Some of the evidence evaluated
includes our historical operating performance, the macroeconomic
factors contributing to the recent fiscal loss and our forecast of future
taxable income, including the availability of prudent and feasible tax
planning strategies. In fiscal 2013, the Company remained in a three-
year cumulative loss position, which represents negative evidence.
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 recent significant
economic conditions 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 fiscal 2013, the Company continues to maintain a
valuation allowance on most of its deferred tax assets. The valuation
allowance on deferred tax assets will continue to fluctuate 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.
Included in the deferred tax asset is $6.5 million related to federal,
state and foreign net operating loss carryforwards for which a
valuation allowance of $6.5 million has been recorded. US federal net
operating loss carryforwards total $14.0 million as of December 28,
2013, and expire in 2032 and 2033. As of December 28, 2013, foreign
net operating loss carry forwards total $2.0 million, of which $1.2
million expire in 2034 and $0.8 million do not expire. Also included in
the deferred tax asset is $5.5 million related to tax credits for which a
valuation allowance of $5.5 million has been recorded.
Income taxes and remittance taxes have not been recorded on
approximately $8.0 million of undistributed earnings of foreign
operations of the Company, because the Company intends to reinvest
those earnings indefinitely. It is not practicable to estimate the
income tax liability that might be incurred if such earnings were
remitted to the United States.
The Company had total unrecognized tax benefits of $0.2 million as
of December 28, 2013 and December 29, 2012. The Company reviews
its uncertain tax positions periodically and accrues interest and
penalties accordingly in income tax expense.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
As of December 28, 2013, approximately $0.2 million of the
unrecognized tax benefits would impact the Company’s provision
for income taxes and effective tax rate if recognized. Management
estimates that it is reasonably possible that the total amount of
uncertain tax benefits could decrease by as much as $0.1 million
within the next 12 months, primarily as a result of the resolution
of audits currently in progress and the lapsing of the statute of
limitations in certain jurisdictions.
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):
2013 2012
Deferred tax assets:
Deferred revenue $4,516 $4,676
Accrued rents 1,682 1,884
Net operating loss carryforwards 6,462 4,336
Intangible assets 1,639 1,799
Deferred compensation 2,040 2,089
Carryforward of tax credits 5,453 4,585
Receivable and investment
write-offs 624 641
Stock compensation 179 179
Depreciation - 1,871
Other 2,555 2,054
25,150 24,114
Less: Valuation allowance 20,987 20,865
Total deferred tax assets 4,163 3,249
Deferred tax liabilities:
Depreciation (184) -
Other (3,106)(2,321)
Total deferred tax liabilities (3,290)(2,321)
Net deferred tax asset $ 873 $928
Tax Reserve
Balance as of December 31, 2011 $ 213
Lapse of statute (28)
Addition to reserve -
Balance as of December 29, 2012 185
Lapse of statute (139)
Audit settlement release (4)
Addition to reserve 7
Balance as of December 28, 2013 $ 49
BUILD- A-BEAR WORKSHOP, INC. 2013 FORM 10-K 43