Build-A-Bear Workshop 2014 Annual Report Download - page 55

Temporary dierences that gave rise to deferred tax assets and
liabilities are as follows (in thousands):
As of January 3, 2015, the Company maintained a valuation allowance
on its deferred tax assets of $15.6 million. In fiscal 2014, the Company
generated significant U.S. income and was approximately break-
even on a three-year cumulative pre-tax income (loss) basis in
the U.S. The historical losses are considered a significant piece of
negative evidence and while management believes these losses are
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. While the current year
income results are considered positive evidence, the Company does
not believe this positive evidence outweighs the recent losses and as
such, continues to maintain this valuation allowance. The Company
released approximately $4.4 million of U.S. related valuation
allowance in fiscal 2014 consistent with the level of income generated.
In addition to this release of valuation allowance in the U.S., in fiscal
2014, the Company recorded an income tax benefit of $1.1 million
due to reductions in valuation allowances in foreign jurisdictions,
primarily the UK and Canada. The Company reduced the valuation
allowance in the UK and Canada because the weight of evidence
regarding the future realizability of the deferred tax assets had
become predominately positive and realization of the deferred tax
assets was more likely than not. The positive evidence considered
in our assessment of the realizability of the deferred tax assets
included: 1) the generation of positive cumulative income in the
respective UK legal entities for the three-year period ending with
fiscal 2014, and 2) the implementation of tax planning strategies that
would reduce certain management and royalty fees for Canada and
generate increased future income in Canada. The negative evidence
considered included historical losses in certain prior years; however,
the positive evidence outweighed this negative evidence.
The fiscal 2013 income tax provision was impacted by the full
valuation allowance position in most major jurisdictions.
Included in the deferred tax asset is $4.3 million related to tax credits
for which a valuation allowance of $4.3 million has been recorded.
The valuation allowance for the tax credits includes amounts for
which subsequently recognized tax benefits will be applied directly to
contributed capital. The valuation allowance on the U.S. deferred tax
assets will continue to fluctuate as a result of temporary dierences
between the financial reporting and tax basis of the assets and
liabilities.
Income taxes and remittance taxes have not been recorded on
approximately $11.0 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.
As of January 3, 2015, the Company had total unrecognized tax
benefits of $1.0 million compared to $0.7 million as of December 28,
2013. The Company reviews its uncertain tax positions periodically
and accrues interest and penalties accordingly. In fiscal 2014, $0.3
million of interest and penalties were included in the unrecognized
tax benefits, compared to $0.1 million in fiscal 2013.
A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows (in thousands):
As of January 3, 2015, approximately $0.7 million of the unrecognized
tax benefits would impact the Company’s provision for income taxes
and eective 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 $0.5 million within the next 12 months.
2014 2013
Deferred tax assets:
Deferred revenue $ 4,833 $ 4,516
Accrued rents 1,746 1,682
Net operating loss carryforwards 613 6,462
Intangible assets 1,489 1,639
Deferred compensation 1,019 2,040
Accrued compensation 3,058 283
Carryforward of tax credits 4,250 5,453
Receivable and investment
write-os 1,436 624
Stock compensation - 179
Inventories 661 414
Other 3,270 1,858
22,375 25,150
Less: Valuation allowance 15,572 20,987
Total deferred tax assets 6,803 4,163
Deferred tax liabilities:
Depreciation (1,021)(184)
Other (2,975)(3,106)
Total deferred tax liabilities (3,996)(3,290)
Net deferred tax asset $ 2,807 $873
Balance as of December 29, 2012 $ 185
Lapse of statute (139)
Audit settlement release (4)
Addition to reserve 518
Balance as of December 28, 2013 560
Addition to reserve 200
Audit settlement release (29)
Lapse of statute (12
)
Balance as of January 3, 2015 $ 719
Notes to Consolidated Financial Statements (continued)
BUILD-A-BEAR WORKSHOP, INC. 2014 ANNUAL REPORT 43