G E T TING TO
THE HE ART OF THE MAT TER
2013 ANNUAL REPOR T
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BUILD - A - BEAR WORKSHOP, INC.
BUILD-A-BEAR WORKSHOP, INC.World Bearquarters1954 Innerbelt Business Center DriveSt. Louis, MO 63114-5760www.buildabear.com
“It is clear that this is
a company with heart.”
76247_Cover.indd 2
A Global Paw Print
At the end of fiscal 2013, we operated 323 company-owned stores
in the United States, Canada, the United Kingdom and the Republic
of Ireland, and our franchisees operated 86 stores in 14 additional
countries. As we expand internationally, we will remain consistent
in our presentation, iconography and execution to deliver a strong
brand experience with heart.
INTERNATIONAL LOCATIONS
17 Australia
1 Bahrain
15 Canada*
7 Denmark
24 Germany
5
Japan
1 Kuwait
11 Mexico
1 Norway
1 Oman
2 Republic of Ireland*
2
5
2
Singapore
South Africa
Sweden
6 Thailand
58 The United Kingdom*
3 United Arab Emirates
* Company owned
Build-A-Bear Workshop
has over 400 stores
in 18 countries
58 The United Kingdom*
2
Republic of Ireland*
15 Canada*
248 The United States*
86
Franchised stores
2013 ANNUAL REPORT
3/24/14 5:14 PM
LETTER TO SHAREHOLDERS
Since my first day at Build-A-Bear Workshop, Inc. in June 2013, I could tell this
was a special company. From the gracious passing of the baton from the dynamic
founder, Maxine Clark, after 16 years at the helm, to the employee passion for
the brand, it is clear that this is a company with heart.
As you may know, “heart” has been an
important part of the company since its
very beginning. The now iconic Heart
Ceremony that occurs at the “Stuff Me”
station in all of our stores around the world
has been a part of the creation of more than
125 million furry friends — and certainly
even more smiles.
That heart has taken this company from
a spark of an idea in 1997 to a $400 million
dollar business in less than a decade. Heart
has made the brand a household name that
immediately conjures up great memories
for kids of all ages. And, heart has given
this organization the tenacity to fight
through the early days of a turn-around
in a tough economy.
In 2013, we stayed true to our stated
three-pronged strategy:
1) Optimizing our real estate,
2) Resetting our consumer value
equation and,
3) Rationalizing expenses.
I am encouraged by the progress in the year,
delivering four consecutive quarters of
improved operating results. Our annual
consolidated comparable store sales
increased by 5.1%, retail gross margin
expanded by 220 basis points and we had
a $13 million shift in profitability with
adjusted net income of $3 million from
an adjusted net loss of $10 million in 2012.
With this momentum, the strength of the
brand and the emerging path to sustainable
long-term profitability for retail, I believe we
have a tremendous opportunity to expand
our business model.
We have the opportunity to see our strong
brand through a fresh set of eyes, the way our
consumers do as we attain skills sets that
will allow us to monetize the existing brand
equity via new profit and revenue streams.
This next step in our plan will, no doubt,
take heart — but that is something I know
we have.
As we turn the page to 2014 and beyond,
I would like to thank our board, in particular
Mary Lou Fiala, our non-executive chair,
and, of course, Maxine, for their support and
guidance. I would also like to say “thank-
you” for the years of service that Lou Mucci
and Ginger Kent have provided the company
as board members, as they will be stepping
down from their positions this year. Finally,
I would like to extend my appreciation to
our associates, partners and investors. Your
passionate commitment to the Build-A-Bear
brand and business is key to our success.
Our objective is to continue with our overall
strategies, to deliver sustainable long-
term profitability and, thereby, increase
shareholder value throughout the fiscal
year. Because of our strong plan and strong
brand, we are optimistic about our outlook
for fiscal 2014 and beyond.
Best Regards,
Sharon Price John
Chief Executive Officer
BUILD - A - BE AR WORKSHOP, INC.
2013 ANNUAL REPORT 1
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25%
OF
SALES
ARE
gifts
over
2.5 MILLION
KIDS CHOOSE TO SPEND THEIR
birthdays
WITH US EACH YEAR
125
M ILLION
furry friends made
over
4.4 MILLION
LOYALTY MEMBERS
fpo
32%
OF
GUESTS
ARE
boys
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THE RETURN TO SUSTAINABLE LONG -TERM PROFITABILIT Y IS BUILT ON OUR
Strong Brand
In 2013, we started to contemporize our
brand imagery by introducing the first
update to our logo in the company’s history.
At the heart of everything we do is a focus
on our consumer and building our brand.
A BRAND THAT EXTENDS
BEYOND OUR STORES
The earmarks of a strong brand include
high recognition, emotional connection,
consumer trust and appeal to a loyal
consumer base. Build-A-Bear Workshop
had these objectives in mind when it was
founded in 1997 with the mission to connect
emotionally with Guests and add fun back
to retail. What emerged over the next decade
was a strong brand that has high awareness,
stirs positive emotions with consumers
and is loved by kids and trusted by parents.
Our stores offer an engaging experience,
customizable products and high touch
service model. While other companies seem
to be seeking ways to add experience to
attract consumers to their stores, we are
elevating our destination-based interactive
retail model that is already a core
competency. Additionally, we have the
potential to reach more people by actively
engaging a broader consumer base that is
already selecting into our brand including
gift givers and the demographic segments
that are “over 14” and “under 3.” As we evolve
our brand and see it through fresh eyes, the
way our consumers do, we will expand the
seasons, reasons and occasions that drive
visitation and add incremental purchases …
in retail and beyond.
HIGHLY RECOGNIZED, TRUSTED
AND EMOTIONALLY CONNECTED
A strong brand is recognized by consumers
and has a distinct personality and unique
identity that connects emotionally.
Independent research gives the Build-A-Bear
brand high scores on a recognition basis
and relative to other family-oriented retail
brands that have much longer histories and
larger physical footprints. In addition, key
brand perceptions of Moms show that
a trip to one of our stores is viewed as fun,
evoking happiness and making special
memories. We have a premium brand and
as such, our brand is viewed as high quality
and one that parents trust. Build-A-Bear
empowers kids to be creative, make their
own choices and share in a fun, heartfelt
BUILD - A - BE AR WORKSHOP, INC.
2013 ANNUAL REPORT 3
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experience. The result is a one-of-a-kind
furry friend that kids feel is “more special”
than stuffed animals from any other place.
LOYAL BRAND ADVOCATES
Build-A-Bear is strongly positioned against
our competition on key factors including
likelihood to repurchase, likelihood to
recommend, overall satisfaction and
as a preferred company. We have over
4.4 million active members in our retail
loyalty program including our top tier
“VIBs” (Very Important Bears) who
over-index on visit frequency and spend.
Because emotional brands like Build-A-Bear
connect with consumers beyond utility,
many of our top tier Guests are also our
strongest brand advocates. Our elevated and
integrated marketing programs empower
consumers to engage and promote our
brand on social media sites such as Twitter,
Pinterest, YouTube and Red Stamp.
In addition, we had over 25 million unique
visitors to buildabear.com in 2013 and have
over 2.5 million Facebook fans giving us
platforms to further engage a broader base
as we evolve our brand building programs.
BROAD DEMOGRAPHIC APPEAL
Indicative of the strength of our brand and
its potential is its broad demographic appeal
in terms of age, gender and family focus.
Over 20% of stuffed animals are made by
someone over 14 years old, in part reflecting
the gift-giving segment of our business
model. Guests are likely to visit our stores
in conjunction with milestone moments
and rites of passage in their lives including
birthdays, the first day of school or
graduation, as well as key holidays including
Valentine's Day, Easter and Christmas.
That results in a business that is relatively
balanced on a quarterly basis and gives us
multiple platforms to develop to drive
incremental future visits.
LOYAL BRAND ADVOCATES
BROAD DEMOGRAPHIC APPEAL
BAL ANCED SEASONAL SALES
Brand Loyalty Index
Distribution by Age and Gender
Consolidated Net Retail Sales by Quarter
Build-A-Bear
Competitor 1
Competitor 2
Competitor 3
Competitor 4
85%
82%
81%
78%
76%
13% 0–2
23% 3–5
26% 6–8
17% 9–12
21% Teen +
68% Girls
32% Boys
Q1
Q2
Q3
Q4
26%
21%
23%
30%
68
85
Source: Burke, Inc. 2013
Our sales are balanced throughout the year.
2011–2013 Average
30
#1
OV ER 20 %
47% OF SA LES
Build-A-Bear has the highest
of furry friends are registered
occur during the 1st half of the year.
Brand Loyalty Index among key competitors.
to someone age 14 or older.
4 BUILD - A - BE AR WORKSHOP, INC.
2013 ANNUAL REPORT
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THE RETURN TO SUSTAINABLE LONG -TERM PROFITABILIT Y IS BUILT ON OUR
Strong Plan
In 2013, we made significant strides on our stated
three-pronged strategy to return North American
retail to sustainable long-term profitable growth.
Recent research validated that our core
interactive, experiential retail concept was
just as relevant as when the company started
and as highlighted in the previous section the
Build-A-Bear brand is strong. We identified
the key aspects of our business that needed
to be fixed in order to return to profitability
with three areas of focus: optimizing our real
estate, resetting the consumer value equation
and rationalizing our expenses.
New leadership in the CEO role was brought
in to improve results and to develop an
expanded strategic business model to drive
future growth. As we move forward, we will
evolve our current strategies to deliver our
broader objectives employing a consumer-
centric, brand-focused, data-informed
business approach.
our
three-
pronged
strategy
1. Optimize Real Estate
2. Reset Consumer Value Equation
3. Rationalize Expenses
The passion and commitment of our
associates to our brand and business
was recognized for the 6th year in a row
as we were named to the 2014 FORTUNE
100 Best Companies to Work For® List.
BUILD - A - BE AR WORKSHOP, INC.
2013 ANNUAL REPORT 5
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OUR THREE-PRONGED STRATEGY
Optimize
Real Estate
Reset Consumer
Value Equation
Rationalize
Expenses
In 2012, we faced the situation of 22% of
During the economic downturn, we had
While our topline sales have stabilized over
North American traditional stores having
tactically increased discounts and price
recent years, we faced the need to reduce our
negative four-wall contribution. We developed
promotions as a means to bring traffic to our
expense structure and expand retail gross
a multi-dimensional approach which
stores. In 2012, optimization models showed
margin in order to return to profitability.
included expanded plans to close stores,
that the highest ROI’s were associated with
On the selling, general and administrative
primarily in multi-store markets in which we
brand building programs that focused on
(SG&A) expense side, we renegotiated
could transfer a portion of sales to other stores
our experience and new product offerings.
agreements with our vendors and suppliers,
in the same markets, while also aggressively
Therefore, in 2013, we set in motion a plan
adjusted store labor models to more closely
renegotiating the rent structures of our stores.
to reset the consumer value equation, use
align with overall traffic patterns and reduced
To elevate our store experience, we introduced
discounts more strategically and to elevate and
expenses as we closed stores. To improve retail
a new design that added key technological
integrate marketing across all consumer touch
gross margin, we strategically modified our
elements which are highly relevant to today’s
points with a focus on enhancing our brand.
pricing structure, began the process to value
generation of kids. We also selectively
downsized the square footage of key stores.
engineer our product design and initiated
an end-to-end review of our supply chain.
RESULTS
RESULTS
RESULTS
By the end of the year, over 90% of North
American stores were profitable and,
reversing a multi-year decline, our store
productivity improved with sales per square
foot increasing by 9% to $381. Consolidated
net retail sales decreased by 0.4% with
28 fewer stores.
During the year, discounts in North America
decreased by 30% while comparable store
sales increased by 5.7%. Organic growth
in the base business drove 70% of the
comparable stores sales improvement
with the balance due to real estate
optimization activities.
For fiscal year 2013, we reduced SG&A
(excluding management transition, store
closing and asset impairment expenses)
as a percent of total revenues by 170 bps
to 41.0% and increased retail gross margin
as a percent of net retail sales by 220 bps
to 41.1%.
North America Sales per Square Foot in Dollars
SG&A Expenses as a Percentage of Total Revenues*
2011
2012
2013
$354
$350
$381
-30%
discounts
versus
prior year
+5.7%
North America
consolidated
comparable
store sales
2011
2012
2013
41.5%
42.7%
41.0%
304.8
381.0
Consolidated Net Retail Sales in Millions
34.16000142.700001
* Excluding management transition, store closing
and asset impairment expenses
Retail Gross Margin as a Percentage of Net Retail Sales
%
5
.
1
4
%
7
.
2
4
%
0
.
1
4
2011
2012
2013
$387.0
$374.6
$373.2
70%
of North America comparable store sales
improvement from organic growth.
2011
2012
2013
39.9%
38.9%
41.1%
%
9
.
9
3
%
9
.
8
3
309.6
387.0
6 BUILD - A - BE AR WORKSHOP, INC.
32.87999941.099998
2013 ANNUAL REPORT
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BUILDING A BIGGER BETTER BEAR
Strong Future
We have an opportunity to become a powerful
multi-generational, multi-dimensional global brand.
We are driving towards an important
milestone: our 20th birthday in 2017.
This marks a transition point for a family-
oriented company like ours when the
children that first discovered our concept
become parents themselves and will
introduce their own kids into our brand
experience. We are encouraged by the
progress that we have made in our turn-
around plans. The combination of a strong
brand and a strong plan that delivers
consistent sales growth and profitability
will pave the way to a strong future. We
have the opportunity to give Build-A-Bear
new shape and fresh form as we extend our
reach to more consumers in more places with
more products. As we evolve into a multi-
generational, multi-dimensional branded
company, we have set specific goals for our
business and believe we have the right plans
in place — and the heart to achieve them —
over the next two to five years.
TARGET STORE ECONOMICS (2–5 YEARS) TO RETURN
NORTH AMERICA TO PROFITABILIT Y
Key North America Metrics
Average Store Sales (in millions)
Average Gross Square Feet
Average Sales / Gross Square Feet
Store Contribution*
Number of Traditional Stores
Target
$1.2–$1.4
2,600–2,800
$450–$500
20–22%
240–260
2013
$1.1
2,800
$381
17%
252
* Store contribution represents store location net retail sales minus cost of product, marketing and store related expenses
(excludes store depreciation, amortization & impairment and non-store general and administrative expenses).
BUILD - A - BE AR WORKSHOP, INC.
2013 ANNUAL REPORT
7
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2013 Financial Highlights
Dollars in thousands, except per share, per store and per gross square foot data
REVENUES
Net retail sales
Franchise fees
2013
2012
2011
TOTAL REVENUE
$ 373,173
$ 374,553
$ 387,041
Dollars in millions
$ 3,564
$
3,598
$
3,391
Commercial revenue
$ 2,332
$
2,790
$
3,943
Total revenues
Net loss
$ 379,069
$ 380,941
$ 394,375
$ (2,112)
$ (49,295)
$ (17,062)
LOSS PER COMMON SHARE
321.2
401.5
Basic
Diluted
$
(0.13)
$
(3.02)
$
(0.98)
$
(0.13)
$
(3.02)
$
(0.98)
2009
2010
2011
2012
2013
$395.9
$401.5
$394.4
$380.9
$379.1
5
.
1
0
4
$
9
.
5
9
3
$
Total revenue declined 0.5%
with 28 fewer stores at year's end.
1
.
9
7
3
$
9
.
0
8
3
$
4
.
4
9
3
$
OTHER FINANCIAL AND STORE DATA (1)
NUMBER OF COMPANY-OWNED STORES
Retail gross margin (dollars) (2)
$ 153,477
$ 145,687
$ 154,468
At end of period
09
10
11
12
Retail gross margin (percent) (2)
41.1%
38.9%
39.9%
Number of company-owned stores
at end of period
323
351
356
North American average net retail sales per store
$ 1,080
$
1,003
$
1,021
North American net retail sales per gross square foot
$
381
$
350
$
354
2009
2010
2011
2012
2013
359.0
287.2
350
359
356
351
323
1. For description of this financial and store data, please see the fiscal 2014 Annual Report on Form 10-K.
2. Retail gross margin represents net retail sales less cost of retail merchandise sold. Retail gross margin
percentage represents retail gross margin divided by net retail sales.
As part of our real estate optimization
we closed 37 stores in 2013 ending
the year with 28 fewer stores.
STOCK PERFORMANCE
BBW vs. S&P 500 Retailing Index vs. S&P 500 Index for Fiscal Year 2013
Build-A-Bear Workshop
S&P 500 Retailing
S&P 500
160%
140%
120%
100%
80%
60%
40%
20%
0%
Dec
2012
Jan
2013
Feb
2013
Mar
2013
Apr
2013
May
2013
June
2013
July
2013
Aug
2013
Sept
2013
Oct
2013
Nov
2013
Dec
2013
BBW stock ended the fiscal
year at $7.74, +98% higher
than the start of the year
while the S&P 500 finished
the year +31% and the
S&P 500 Retailing finished
+46% compared to the
start of the year.
8 BUILD - A - BE AR WORKSHOP, INC.
2013 ANNUAL REPORT
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 28, 2013
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number: 001-32320
BUILD-A-BEAR WORKSHOP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
1954 Innerbelt Business Center Drive
St. Louis, Missouri
(Address of Principal Executive Offices)
43-1883836
(I.R.S. Employer Identification No.)
63114
(Zip Code)
(314) 423-8000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Name of Each Exchange on Which Registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
There is no non-voting common equity. The aggregate market value of the common stock held by nonaffiliates (based upon the closing price of $6.07
for the shares on the New York Stock Exchange on June 28, 2013) was $72,341,234 as of June 29, 2013.
As of March 7, 2014, there were 17,400,528 issued and outstanding shares of the registrant’s common stock.
Portions of the registrant’s Proxy Statement for its May 8, 2014 Annual Meeting are incorporated herein by reference.
DOCUMENTS INCORPORATED BY REFERENCE
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BUILD-A-BEAR WORKSHOP, INC.
INDEX TO FORM 10-K
Forward-Looking Statements
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosure
PART II
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Exhibit Index
Signatures
PAGE
3
4
6
13
13
13
13
14
15
17
28
29
29
29
30
30
31
32
32
32
32
49
54
2
BUILD - A - BE AR WORKSHOP, INC.
2013 FORM 10 -K
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain statements that
are, or may be considered to be, “forward-looking statements” for
the purpose of federal securities laws, including, but not limited to,
statements that reflect our current views with respect to future events
and financial performance. We generally identify these statements by
words or phrases such as “may,” “might,” “should,” “expect,” “plan,”
“anticipate,” “believe,” “estimate,” “intend,” “predict,” “future,”
“potential” or “continue,” the negative or any derivative of these
terms and other comparable terminology. These forward-looking
statements, which are subject to risks, uncertainties and assumptions
about us, may include, among other things, projections or statements
regarding:
• our future financial performance;
• our anticipated operating and growth strategies;
• our future capital expenditures;
• our anticipated rate of store closures, relocations
and openings; and
• our anticipated costs related to store closures, relocations and
openings.
These statements are only predictions based on our current
expectations and projections about future events. Because these
forward-looking statements involve risks and uncertainties, there
are important factors that could cause our actual results, level of
activity, performance or achievements to differ materially from the
results, level of activity, performance or achievements expressed or
implied by these forward-looking statements, including those factors
discussed under the caption entitled “Risk Factors” as well as other
places in this Annual Report on Form 10-K.
We operate in a competitive and rapidly changing environment.
New risk factors emerge from time to time and it is not possible
for management to predict all the risk factors, nor can it assess the
impact of all the risk factors on our business or the extent to which
any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, you should not place
undue reliance on forward-looking statements, which speak only
as of the date of this Annual Report on Form 10-K, as a prediction of
actual results.
You should read this Annual Report on Form 10-K completely and
with the understanding that our actual results may be materially
different from what we expect. Except as required by law, we
undertake no duty to update these forward-looking statements, even
though our situation may change in the future. We qualify all of our
forward-looking statements by these cautionary statements.
BUILD - A - BE AR WORKSHOP, INC.
2013 FORM 10 -K
3
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Part 1
ITEM 1. BUSINESS
Overview
Build-A-Bear Workshop, Inc., a Delaware corporation, was formed
in 1997 and is primarily a specialty retailer offering a “make your
own stuffed animal” interactive retail-entertainment experience.
As of December 28, 2013, we operated 323 company-owned retail
stores in the United States, Canada, the United Kingdom and Ireland,
including 252 traditional and 11 non-traditional Build-A-Bear
Workshop® stores in the United States and Canada and 58 traditional
and two non-traditional Build-A-Bear Workshop stores in the
United Kingdom and Ireland. In addition, franchisees operated
86 Build-A-Bear Workshop stores in other international locations.
Segments and Geographic Areas
We conduct our operations through three reportable segments
consisting of retail, international franchising, and commercial.
Our reportable segments are primarily determined by the types
of customers they serve and the types of products and services
that they offer. Each reportable segment may operate in many
geographic areas. Financial information related to our segments
and the geographic areas in which we operate is contained in “Item
7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.” See Note 16 – Segment Information to the
Consolidated Financial Statements for information regarding sales,
results of operations and identifiable assets of the Company
by business segment and geographic area.
Description of Operations
Currently, we primarily operate specialty retail stores that provide
a “make your own stuffed animal” interactive entertainment
experience in which our guests visit eight stuffed animal making
stations: Choose Me, Hear Me, Stuff Me, Stitch Me, Fluff Me, Dress
Me, Name Me, and Take Me Home®. In our new store design, we have
added an additional Love Me station to our signature process. Our
retail concept is a unique combination of experience and product
and we are focused on enhancing our brand equity while meeting
the needs of consumers by offering premium products that meet
high quality standards, offer a relevant selection and are trend-
right. We seek to provide outstanding guest service and experiences
across all channels and touch points including our stores, our Web
sites, our mobile sites and apps as well as traditional and social
media. Our store experience appeals to a broad range of age groups
and demographics, including children, teens, their parents and
grandparents. We have relatively balanced seasonality on a quarterly
basis and guests visit our stores for multiple reasons including
interactive family experiences, birthdays, parties and other milestone
occasion celebrations and to purchase gifts including the “gift of
experience” that comes with a Bear Bucks® gift card. We believe
the hands-on and interactive nature of our store and high touch
service model result in guests forming an emotional connection
with our brand.
We believe there are opportunities in the future to leverage the
strength of the Build-A-Bear brand and generate incremental
revenue and profits given the high consumer recognition and strong
positioning as a trusted, high quality brand that is emotionally
connected with both kids and their parents.
Operating Strategies
Our company is in the midst of a multi-year turnaround plan that
builds on a strong base of profitable stores and focuses on four key
strategies:
1. Optimize our real estate portfolio: In North America, we are
closing stores, primarily in multi-store markets where we can
transfer a portion of sales to other stores in the same markets.
Additionally, in conjunction with lease renewals, we will
strategically refresh and upgrade other stores with key features.
In 2013, we closed 37 stores and transferred approximately 20%
of sales from closed stores to other ongoing stores in the same
markets and remodeled 20 stores in a new design;
2. Refine the consumer value equation: We continue to reposition
and integrate our marketing programs to focus on brand
building and new product launches while also reducing
discounts and price promotions. We believe that our brand
building initiatives drove approximately 70% of North America’s
5.7% annual comparable store sales increase in 2013 with
the balance coming from real estate optimization actions.
Additionally, in 2013, we reduced discounts in North America
by 30%;
3. Rationalize our expense structure: We are in the ongoing
process of value engineering our product designs and we have
initiated an end-to-end review of our supply chain to identify
opportunities to improve product margins and leverage
selling, general and administrative expenses. In 2013, we
expanded product margins and decreased selling, general and
administrative expenses. The expense savings resulted from
closed stores, renegotiation of terms with vendors and suppliers,
and adjustments to our store labor model to better align to guest
traffic patterns; and
4. Build on our core competencies: We continue to focus on
improving our high touch retail service model and customizable
product offerings. We are also laying the groundwork to further
leverage the strength of the Build-A-Bear brand and generate
incremental revenue and profits.
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Merchandise Sourcing and Inventory Management
Our retail stores offer an extensive and coordinated selection of
merchandise, including over 30 different styles of animals to be
stuffed, sounds and scents that can be added to the stuffed animals
and a wide variety of clothing, shoes and accessories, as well as other
brand appropriate toy and novelty items. We believe we comply with
governmental toy safety requirements specific to each country
where we have stores.
Our stuffed animal skins and clothing are produced from high
quality man-made materials or natural fibers such as cotton, and the
stuffing is made of a high-grade polyester fiber. We believe all of our
products in our stores and online at buildabear.com meet Consumer
Product Safety Commission requirements including the Consumer
Product Safety Improvement Act (CPSIA) for Children’s Products.
We also comply with American Society for Testing and Materials
(ASTM), EN71 (European standards) and Canadian specifications for
toy safety in all material respects. Our products are tested through
independent third-party testing labs for compliance with toy safety
standards. Packaging and labels for each product indicate to our
guests the age grading for the product and any special warnings in
accordance with guidelines established by the Consumer Product
Safety Commission. We believe that our supplier factories are
compliant with the International Council of Toy Industries (ICTI)
CARE certification or with other third party social compliance
programs. The CARE (Caring, Awareness, Responsible, Ethical)
process is the ICTI program to promote ethical manufacturing in the
form of fair labor treatment, as well as employee health and safety
in the toy industry supply chain worldwide. In order to obtain this
certification, each factory completed a rigorous evaluation performed
by an accredited ICTI agent.
The average time from product conception to the arrival of the
products into our stores is approximately twelve months, including
approximately 90 to 120 days from the beginning of production to
in-store delivery. Through an ongoing analysis of selling trends, we
regularly update our product assortment by increasing quantities
of productive styles and eliminating less productive items. Our
relationships with our vendors generally are on a purchase order
basis and do not provide a contractual obligation to provide adequate
supply or acceptable pricing on a long-term basis.
Distribution and Logistics
We own our 350,000 square-foot distribution center near Columbus,
Ohio which serves the majority of our stores in the United States and
Canada. We also contract with a third-party warehouse in southern
California to service our West Coast stores. The contract has a one
year term and is renewable. In Europe, we contract with a third-party
distribution center in Selby, England under an agreement that ends
in December 2014. This agreement contains clauses that allow for
termination if certain performance criteria are not met.
Transportation from the warehouses to the stores is managed by
several third-party logistics providers. In the United States, Canada
and Europe, merchandise is shipped by a variety of distribution
methods, depending on the store and seasonal inventory demand.
Key delivery methods are direct trucks through third-party pool
points, “LTL’ (less-than truck load) deliveries, and direct parcel
deliveries. Shipments from our third-party distribution centers are
scheduled throughout the week in order to smooth workflow and
stores that are part of the same shipping route are grouped together
to reduce freight costs. All items in our assortment are eligible for
distribution, depending on allocation and fulfillment requirements,
and we typically distribute merchandise and supplies to each store
once a week on a regular schedule, which allows us to consolidate
shipments in order to reduce distribution and shipping costs. Back-
up supplies, such as Cub Condo® carrying cases and stuffing for the
animals, are often stored in limited amounts at local pool points.
Employees
As of December 28, 2013, we had approximately 900 full-time and
3,300 part-time employees in the United States, Canada, the United
Kingdom and Ireland. The number of part-time employees at all
locations fluctuates depending on our seasonal needs. None of our
employees are represented by a labor union, and we believe our
relationship with our employees is good.
Competition
We view the Build-A-Bear Workshop store experience as a distinctive
combination of entertainment and retail with limited direct
competition. Because our signature product is a stuffed animal, we
compete with toy retailers, such as Wal-Mart, Toys “R” Us, Target,
Kmart and other discount chains. Since we develop proprietary
products, we also compete indirectly with a number of companies
that sell stuffed animals in the United States, including, but not
limited to, Ty, Fisher Price, Mattel, Ganz, Applause, Boyd’s, Hasbro,
Commonwealth, Gund and Vermont Teddy Bear. Since we sell a
product that integrates merchandise and experience, we also view
our competition as any company that competes for family time and
entertainment dollars, such as movie theaters, amusement parks
and arcades, other mall-based entertainment venues and online
entertainment. Being a mall-based retailer, we also compete with
other mall-based retailers for prime mall locations, including various
apparel, footwear and specialty retailers.
We are aware of several small companies that operate “make
your own” teddy bear and stuffed animal stores or kiosks in retail
locations, but we believe none of those companies offer the breadth
and depth of the Build-A-Bear Workshop experience or operate as a
national or international retail company.
Intellectual Property and Trademarks
We believe our copyrights, service marks, trademarks, trade secrets,
patents and similar intellectual property are critical to our success,
and we intend, directly or indirectly, to maintain and protect these
marks and, where applicable, license the intellectual property and
the registrations for the intellectual property. Our patents have
expirations ranging from 2014 to 2020.
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We have developed licensing and strategic relationships with some of
the leading retail and cultural organizations. We plan to continue to
add partnerships with companies that have strong, family-oriented
brands and provide us with attractive marketing and merchandising
opportunities. These relationships for specific products are generally
reflected in contractual arrangements for limited terms that are
terminable by either party upon specified notice. Specifically, we
have key strategic relationships with select companies in which we
feature their brands on products sold in our stores, including Disney®,
Hasbro, Sanrio®, Star Wars, and major professional and collegiate
sports along with other culturally relevant brands. Additionally, we
have developed promotional arrangements with select organizations.
Our arrangements with Major League Baseball teams, including the
Chicago Cubs®, St. Louis Cardinals™ and Pittsburg Pirates® have
featured stuffed animal giveaways at each club’s ballpark on a day
when our brand is highly promoted within the stadium. In 2013,
we partnered with McDonald’s® for the fifth time to feature limited
edition, collectible mini Build-A-Bear Workshop animals in Happy
Meals® . We also have had arrangements featuring product sampling,
cross promotions and shared media with companies such as Dairy
Queen in North America and Betty Crocker’s Fruit Roll-ups.
Availability of Information
We make certain filings with the Securities and Exchange
Commission (the “SEC”), including our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
all amendments and exhibits to those reports, available free of charge
in the Investor Relations section of our corporate website, http://
ir.buildabear.com, as soon as reasonably practicable after they are
filed with the SEC. The filings are also available through the SEC at
the SEC’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549 or by calling 1-800-SEC-0330. Also, these filings are
available on the internet at http://www.sec.gov. Our Annual Reports
to shareholders, press releases and investor updates are also available
on our website, free of charge, in the Investor Relations section or by
writing to the Investor Relations department at World Bearquarters,
1954 Innerbelt Business Center Dr., St. Louis, MO 63114.
ITEM 1A. RISK FACTORS
We operate in a changing environment that involves numerous known
and unknown risks and uncertainties that could materially affect our
operations. The risks, uncertainties and other factors set forth below
may cause our actual results, performances or achievements to be
materially different from those expressed or implied by our forward-
looking statements. If any of these risks or events occur, our business,
financial condition or results of operations may be adversely affected.
Risks Related to Our Business
A decline in general global economic conditions could lead to
disproportionately reduced consumer demand for our products,
which represent relatively discretionary spending, and have an
adverse effect on our liquidity and profitability.
Since purchases of our merchandise are dependent upon
discretionary spending by our guests, our financial performance
is sensitive to changes in overall economic conditions that affect
consumer spending. Consumer spending habits are affected by,
among other things, prevailing economic conditions, levels of
employment, salaries and wage rates, consumer confidence and
consumer perception of economic conditions. A continued slowdown
in the United States, Canadian or European economies or uncertainty
as to the economic outlook could reduce discretionary spending or
cause a shift in consumer discretionary spending to other products.
Any of these factors would likely result in lower net retail sales and
could also result in excess inventories, which could, in turn, lead
to increased merchandise markdowns and related costs associated
with higher levels of inventory and adversely affect our liquidity and
profitability. For example, for fiscal 2008 through 2010 and again in
2012, we attributed a portion of our decline in comparable store sales
to the slower economy in the United States and Europe.
A decrease in the customer traffic generated by the shopping malls
in which we are located, which we depend upon to attract guests
to our stores, could adversely affect our financial condition and
profitability.
While we invest heavily in integrated marketing efforts and believe
we are more of a destination location than traditional retailers, we
rely to a great extent on customer traffic in the malls in which our
stores are located. In order to generate guest traffic, we generally
attempt to locate our stores in prominent locations within high
traffic shopping malls. We rely on the ability of the malls’ anchor
tenants, generally large department stores, and on the continuing
popularity of malls as shopping destinations. We cannot control the
development of new shopping malls, the addition or loss of anchors
and co-tenants, the availability or cost of appropriate locations within
existing or new shopping malls or the desirability, safety or success
of shopping malls. In addition, customer mall traffic may be reduced
due to a loss of consumer confidence because of the economy,
terrorism or war. If we are unable to generate sufficient guest traffic,
our sales and results of operations will be harmed. A significant
decrease in shopping mall traffic could have a material adverse effect
on our financial condition and profitability. For example, we have
experienced flat or declining transactions at comparable locations for
the last three years.
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If we are unable to generate interest in and demand for our
interactive retail experience, including being able to identify and
respond to consumer preferences in a timely manner, our financial
condition and profitability could be adversely affected.
We believe that our success depends in large part upon our ability to
continue to attract guests with our interactive shopping experience
and our ability to anticipate, gauge and respond in a timely manner
to changing consumer preferences and fashion trends. We cannot
assure you that there will continue to be a demand for our “make-
your-own stuffed animal” interactive experience, or for our stuffed
animals, animal apparel and accessories. A decline in demand for
our interactive shopping experience, our animals, animal apparel
or accessories, or a misjudgment of consumer preferences or fashion
trends, could have a negative impact on our business, financial
condition and results of operations. In addition, if we miscalculate
the market for our merchandise or the purchasing preferences of
our guests, we may be required to sell a significant amount of our
inventory at discounted prices or even below costs, thereby adversely
affecting our financial condition and profitability.
Our future growth and profitability could be adversely affected if
our marketing and online initiatives are not effective in generating
sufficient levels of brand awareness and guest traffic or if consumer
preferences change significantly.
We continue to update and evaluate our marketing initiatives,
focusing on brand awareness, new product news, timely promotions
and rapidly changing consumer preferences. Our future growth and
profitability will depend in large part upon the effectiveness and
efficiency of our marketing and advertising programs and future
marketing and advertising efforts that we undertake, including our
ability to:
• create greater awareness of our brand, interactive shopping
experience and products;
• identify the most effective and efficient level of spending in each
market;
• determine the appropriate creative message and media mix for
marketing expenditures;
• effectively manage marketing costs (including creative and media)
in order to maintain acceptable operating margins and return on
marketing investment;
• select the right geographic areas in which to market; and
• convert consumer awareness into actual store visits and product
purchases.
Our planned marketing expenditures may not result in increased
total or comparable store sales or generate sufficient levels of product
and brand awareness which could have a material adverse effect on
our financial condition and profitability.
If we are unable to increase our comparable store sales trends, our
results of operations and financial condition could be adversely
affected.
Our consolidated comparable store sales increased by 5.1% in 2013
following a multi-year decline. We believe the principal factors that
will affect comparable store results include the following:
• the continuing appeal of our concept;
• the effectiveness of our marketing efforts to attract new and repeat
guests;
• consumer confidence and general economic conditions;
• the impact of changes in governmental policies on consumer
sentiment and discretionary spending levels;
• the impact of store closures, relocations and openings in existing
markets;
• the impact of our new store design;
• our ability to anticipate and to respond, in a timely manner, to
consumer trends;
• the continued introduction and expansion of our merchandise
offerings;
• mall traffic;
• competition for product offerings including in the online space;
• the timing and frequency of national media appearances and other
public relations events; and
• weather conditions.
As a result of these and other factors, we may not be able to generate
or achieve comparable stores sales growth in the future. If we are
unable to do so, our results of operations could be significantly
harmed and we may be required to record significant impairment
charges.
We are subject to a number of risks related to disruptions, failures
or security breaches of our information technology infrastructure.
If we improperly obtain, or are unable to protect, our data or violate
privacy or security laws or expectations, we could be subject to
liability and damage to our reputation.
Information technology is a critically important part of our
business operations. We depend on information systems to process
transactions, manage inventory, operate our Web sites, purchase,
sell and ship goods on a timely basis, and maintain cost-efficient
operations. There is a risk that we could experience a business
interruption, theft of information, or reputational damage as a
result of a cyber-attack, such as an infiltration of a data center, or
data leakage of confidential information either internally or at our
third-party providers. We may experience operational problems
with our information systems as a result of system failures, system
implementation issues, viruses, malicious hackers, sabotage, or other
causes.
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Our Web sites, primarily for children, allow social interaction
between users. We currently obtain and retain personal information
about our Web site users, store shoppers and loyalty program
members. In addition, we obtain personal information about our
guests as part of their registration in our Find-A-Bear® identification
system. Federal, state and foreign governments have enacted or
may enact laws or regulations regarding the collection and use of
personal information, with particular emphasis on the collection
of information regarding minors. Such regulation may also include
enforcement and redress provisions.
We have a stringent, comprehensive privacy policy covering the
information we collect from our guests and have established security
features to protect our guest database and Web sites. While we
have implemented programs and procedures designed to protect
the privacy of people, including children, from whom we collect
information, and our Web sites are designed to be fully compliant
with the Federal Children’s Online Privacy Protection Act, there can
be no assurance that such programs will conform to all applicable
laws or regulations. If we fail to fully comply, we may be subjected
to liability and damage to our reputation. In addition, because our
guest database primarily includes personal information of young
children and young children frequently interact with our Web sites,
we are potentially vulnerable to charges from parents, children’s
organizations, governmental entities, and the media of engaging in
inappropriate collection, distribution or other use of data collected
from children. Additionally, while we have security features and chat
monitoring, our security measures may not protect users’ identities
and our online safety measures may be questioned which may result
in negative publicity or a decrease in visitors to our site. If site users
act inappropriately or seek unauthorized contact with other users of
the site, it could harm our reputation and, therefore, our business and
we could be subject to liability.
Our business involves the storage and transmission of customers’
personal information, such as consumer preferences and credit card
information. We invest in industry-standard security technology
to protect the Company’s data and business processes against the
risk of data security breaches and cyber-attacks. Our data security
management program includes identity, trust, vulnerability and
threat management business processes, as well as enforcement of
standard data protection policies such as Payment Card Industry
compliance. We measure our data security effectiveness through
industry accepted methods and remediate critical findings.
Additionally, we certify our major technology suppliers and any
outsourced services through accepted security certification
measures. We maintain and routinely test backup systems and
disaster recovery, along with external network security penetration
testing by an independent third party as part of our business
continuity preparedness. Internet privacy is a rapidly changing area
and we may be subject to future requirements and legislation that are
costly to implement and negatively impact our results.
While we believe that our security technology and processes are
adequate in preventing security breaches and in reducing cyber
security risks, given the ever-increasing abilities of those intent on
breaching cyber security measures and given our reliance on the
security and other efforts of third-party vendors, the total security
effort at any point in time may not be completely effective, and
any such security breaches and cyber incidents could adversely
affect our business. Failure of our systems, including failures due to
cyber-attacks that would prevent the ability of systems to function
as intended, could cause transaction errors, loss of customers and
sales, and could have negative consequences to us, our employees,
and those with whom we do business. Any security breach involving
the misappropriation, loss, or other unauthorized disclosure of
confidential information by us could also severely damage our
reputation, expose us to the risks of litigation and liability, and harm
our business. While we carry insurance that would mitigate the losses
to an extent, such insurance may be insufficient to compensate us for
potentially significant losses.
Our strategy requires us to operate a significant number of stores
in the United States, Canada, the United Kingdom and Ireland, as
well as close, relocate and open store locations in these countries. If
we are not able to operate these stores or to effectively manage the
overall portfolio of our stores, it could adversely affect our ability to
grow and could significantly harm our profitability.
Our future results will largely depend on our ability to operate our
stores successfully in the United States, Canada, the United Kingdom
and Ireland and optimize store productivity and profitability by
closing select stores, relocating and downsizing other stores and
selectively upgrading stores with key features in conjunction with
lease renewals. In 2012, we announced a plan to reduce our store
count in North America. We closed 37 stores in 2013 in addition to
the 10 locations closed in 2012 and 12 locations closed in 2011. We
currently expect to close an additional 10 to 15 locations in 2014. Our
ability to manage our portfolio of stores in future years in desirable
locations and operate stores profitably, particularly in multi-store
markets, is a key factor in our ability to achieve sustainable profitable
growth. We cannot be certain when or whether desirable locations
will become available, the number of Build-A-Bear Workshop stores
that we can or will ultimately open, or whether any such new or
relocated stores can be profitably operated. We have not always
succeeded in identifying desirable locations or in operating our stores
successfully in those locations. We may decide to close other stores in
the future.
In July 2005, we opened a flagship store in New York City. Because this
store is much larger than our typical mall-based stores, it requires us
to generate revenues at a higher level to justify keeping the store open.
Closing this store could have an adverse impact on sales.
Increased demands on our operational, managerial and
administrative resources as a result of our store strategy could cause
us to operate our business less effectively, which in turn could cause
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deterioration in our profitability. Additionally, closing multiple stores
could have an adverse impact on the Build-A-Bear Workshop brand
and consumer perception of our brand.
We may not be able to operate our foreign company-owned stores in
the United Kingdom and Ireland profitably.
If we are unable to renew, renegotiate or replace our store leases or
enter into leases for new stores on favorable terms, or if we violate
any of the terms of our current leases, our growth and profitability
could be harmed.
We lease all of our store locations. The majority of our store leases
contain provisions for base rent plus percentage rent based on sales
in excess of an agreed upon minimum annual sales level. A number
of our leases include a termination provision which applies if we do
not meet certain sales levels during a specified period, typically in
the third to fourth year and the sixth to seventh year of the lease,
which may be at either the landlord’s options or ours. Furthermore,
some of our leases contain various restrictions relating to change of
control of our company. Our leases also subject us to risks relating to
compliance with changing mall rules and the exercise of discretion
by our landlords on various matters within the malls. We may not be
able to maintain or obtain favorable locations in desirable malls. The
terms of new leases may not be as favorable, increasing store expenses
and impacting overall profitability. If we execute termination rights,
we may have expenses and charges associated with those closures
which could negatively impact our profitability. Additionally, several
large landlords dominate the ownership of prime malls, particularly
in the United States and Canada, and because of our dependence
on these landlords for a substantial number of our locations, any
significant erosion in their financial conditions or our relationships
with these landlords could negatively affect our ability to obtain and
retain store locations. Further landlord consolidation may negatively
impact our results of operations.
Our leases in the United Kingdom and Ireland also typically contain
provisions requiring rent reviews every five years in which the
base rent that we pay is adjusted to current market rates. These
rent reviews require that base rents cannot be reduced if market
conditions have deteriorated but can be changed “upwards only”.
We may be required to pay base rents that are significantly higher
than we have forecast. For example, past rent reviews have resulted
in increases as high as 30% in select locations within the United
Kingdom. As a result of these and other factors, we may not be able to
operate our European store locations profitably. If we are unable to do
so, our results of operations and financial condition could be harmed
and we may be required to record significant additional impairment
charges.
In addition, the lease for our store in the Downtown Disney® District
at the Disneyland® Resort in Anaheim, California expired in January
2014. We have not reached agreement on renewal terms and are
currently operating on a month to month basis. This lease provides
that the landlord may terminate the lease at any time. As a result,
we cannot be assured that the landlord will not exercise its right to
terminate this lease.
In our foreign operations, we face business, regulatory and
cultural differences from our domestic business, such as economic
conditions, changes in foreign government policies and regulations
and potential restrictions and costs to convert and repatriate
currency, as well as other risks that we may not anticipate. We
also face difficulties realizing benefits because we have less brand
awareness than in the U.S., face higher labor and rent costs, and have
different holiday schedules. Although we have realized benefits from
our operations in the United Kingdom and Ireland, we may be unable
to continue to do so on a consistent basis. In 2012, we recognized an
impairment charge on all of the goodwill associated with our UK
acquisition along with the store assets at certain store locations with
poor operating results. In 2010, we closed all three of our company-
owned stores in France as we were unable to operate them profitably.
Our merchandise is manufactured by foreign manufacturers and
we transact business in various foreign countries; therefore the
availability and costs of our products, as well as our product pricing,
may be negatively affected by risks associated with international
manufacturing and trade and foreign currency fluctuations.
We purchase our merchandise from domestic vendors who contract
with manufacturers in foreign countries, primarily in China. Any
event causing a disruption of imports, including the imposition of
import restrictions or labor strikes or lock-outs, could adversely
affect our business. The flow of merchandise from our vendors could
also be adversely affected by financial or political instability in any
of the countries in which the goods we purchase are manufactured,
especially China, if the instability affects the production or export
of merchandise from those countries. We are subject to trade
restrictions in the form of tariffs or quotas, or both, applicable to the
products we sell as well as to raw material imported to manufacture
those products. Such tariffs or quotas are subject to change.
Our compliance with the regulations is subject to interpretation
and review by applicable authorities. Change in regulations or
interpretation could negatively impact our operations by increasing
the cost of and reducing the supply of products available to us. In
addition, decreases in the value of the U.S. dollar against foreign
currencies, particularly the Chinese renminbi, could increase the
cost of products we purchase from overseas vendors. The pricing of
our products in our stores may also be affected by changes in foreign
currency rates and require us to make adjustments which would
impact our revenue and profit in various markets.
We may suffer negative publicity or be sued if the manufacturers of
our merchandise ship any products that do not meet current safety
standards or production requirements or if our products are recalled
or cause injuries.
Although we require our manufacturers to meet our product
specifications and safety standards and submit our products for
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testing, we cannot control the materials used by our manufacturers.
If one of these manufacturers ships merchandise that does not
meet our required standards, we could in turn experience negative
publicity or be sued.
Many of our products are used by small children and infants who may
be injured from usage if age grading or warnings are not followed.
We may decide or be required to recall products or be subject to
claims or lawsuits resulting from injuries. For example, we have
voluntarily recalled five products in the past five years due to possible
safety issues. While the vendors have historically reimbursed us
for certain, related expenses, negative publicity in the event of any
recall or if any children are injured from our products could have a
material adverse effect on sales of our products and our business, and
related recalls or lawsuits with respect to such injuries could have
a material adverse effect on our financial position. Additionally, we
could incur fines related to consumer product safety issues from the
regulatory authorities in the countries in which we operate. Although
we currently have liability insurance, we cannot assure you that it
would cover product recalls or related fines, and we face the risk that
claims or liabilities will exceed our insurance coverage. Furthermore,
we may not be able to maintain adequate liability insurance in the
future.
We may not be able to operate successfully if we lose key personnel,
are unable to hire qualified additional personnel, or experience
turnover of our management team.
The success of our business depends upon the quality of associates
throughout our organization. Because guest service is a defining
feature of the Build-A-Bear Workshop experience, we must be able
to hire and train qualified managers and Bear Builder® associates
to succeed. We closed 47 stores in 2012 and 2013 and expect to close
an additional ten to fifteen stores in 2014. Having fewer stores may
limit promotion opportunities in the future for current associates,
which may have a negative impact on our ability to retain quality
employees, which may in turn have a negative impact on our results
of operations. Additionally, our Founder and Chief Executive Bear
retired from the Company in July 2013 six weeks after we hired a
new Chief Executive Officer. The success of our business depends
on an effective transition. During this transition period, however,
organizational changes are likely to occur, and we may not be able
to retain key senior managers or associates. The loss of certain key
employees, our inability to attract and retain other qualified key
employees or a labor shortage that reduces the pool of qualified
candidates could have a material adverse effect on our business,
financial condition and results of operations.
We rely on a few vendors to supply substantially all of our
merchandise, and significant price increases or any disruption in
their ability to deliver merchandise could harm our ability to source
products and supply inventory to our stores.
We do not own or operate any manufacturing facilities. For the past
three years, we purchased approximately 80% of our merchandise
from three vendors. These vendors in turn contract for our orders
with multiple manufacturing facilities located primarily in China
for the production of merchandise. Our relationships with our
vendors generally are on a purchase order basis and do not provide
a contractual obligation to provide adequate supply or acceptable
pricing on a long-term basis. Our vendors could discontinue sourcing
merchandise for us at any time. If any of our significant vendors
were to discontinue their relationship with us, or if the factories with
which they contract were to suffer a disruption in their production,
we may be unable to replace the vendors in a timely manner, which
could result in short-term disruption to our inventory flow or quality
of the inventory as we transition our orders to new vendors or
factories which could, in turn, disrupt our store operations and have
an adverse effect on our business, financial condition and results
of operations. For example in 2011, one factory used by one of our
vendors closed unexpectedly, causing us to quickly switch factories
for one product, affecting the quality and flow of the product.
Additionally, in the event of a significant price increase from these
suppliers, we may not be able to find alternative sources of supply in
a timely manner or raise prices to offset the increases, which could
have an adverse effect on our business, financial condition and
results of operations.
If we are not able to franchise new stores outside of the United
States, Canada, the United Kingdom and Ireland, if we are unable
to effectively manage our international franchises or if the laws
relating to our international franchises change, our growth and
profitability could be adversely affected and we could be exposed to
additional liability.
As of December 28, 2013, there were 86 Build-A-Bear Workshop
franchised stores located outside of the United States, Canada,
the United Kingdom and Ireland. We cannot assure you that our
franchisees will be successful in identifying and securing desirable
locations or in operating their stores. International markets
frequently have different demographic characteristics, competitive
conditions, consumer tastes and discretionary spending patterns
than our existing North American and European markets, which may
cause these stores to be less successful than those in our existing
markets. Additionally, our franchisees may experience financing,
merchandising and distribution expenses and challenges that are
different from those we currently encounter in our existing markets.
The operations and results of our franchisees could be negatively
impacted by the economic or political factors in the countries
in which they operate or foreign currency fluctuations. These
challenges, as well as others, could have a material adverse effect on
our business, financial condition and results of operations.
The success of our franchising strategy will depend upon our ability
to attract and maintain qualified franchisees with sufficient financial
resources to develop and grow the franchise operation and upon
the ability of those franchisees to successfully develop and operate
10
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their franchised stores. Franchisees may not operate stores in a
manner consistent with our standards and requirements, may not
hire and train qualified managers and other store personnel and
may not operate their stores profitably. As a result, our franchising
strategy may not be profitable to us. Moreover, our brand image and
reputation may suffer. When franchisees perform below expectations
we may transfer those agreements to other parties or discontinue
the franchise agreement. Furthermore, even if our international
franchising strategy is successful, the interests of franchisees
might sometimes conflict with our interests. For example, whereas
franchisees are concerned with their individual business strategies
and objectives, we are responsible for ensuring the success of the
Build-A-Bear Workshop brand and all of our stores.
The laws of the various foreign countries in which our franchisees
operate govern our relationships with our franchisees. These laws,
and any new laws that may be enacted, may detrimentally affect the
rights and obligations between us and our franchisees and could
expose us to additional liability.
We may fail to renew, register or otherwise protect our trademarks
or other intellectual property and may be sued by third parties for
infringement or, misappropriation of their proprietary rights, which
could be costly, distract our management and personnel and which
could result in the diminution in value of our trademarks and other
important intellectual property.
Other parties have asserted in the past, and may assert in the future,
trademark, patent, copyright or other intellectual property rights
that are important to our business. We cannot assure you that others
will not seek to block the use of or seek monetary damages or other
remedies for the prior use of our brand names or other intellectual
property or the sale of our products or services as a violation of their
trademark, patent or other proprietary rights. Defending any claims,
even claims without merit, could be time-consuming, result in costly
settlements, litigation or restrictions on our business and damage our
reputation.
In addition, there may be prior registrations or use of intellectual
property in the U.S. or foreign countries for similar or competing
marks or other proprietary rights of which we are not aware. In all
such countries it may be possible for any third party owner of a
national trademark registration or other proprietary right to enjoin
or limit our expansion into those countries or to seek damages for
our use of such intellectual property in such countries. In the event a
claim against us were successful and we could not obtain a license to
the relevant intellectual property or redesign or rename our products
or operations to avoid infringement, our business, financial condition
or results of operations could be harmed. Securing registrations does
not fully insulate us against intellectual property claims, as another
party may have rights superior to our registration or our registration
may be vulnerable to attack on various grounds.
We are subject to risks associated with technology and digital
operations.
Our digital operations are subject to numerous risks, including
risks related to the failure of the computer systems that operate our
websites and mobile sites and their related support systems, point of
sale systems, computer viruses, telecommunications failures, and
similar disruptions. Also, we may require additional capital in the
future to sustain or grow our digital commerce. Business risks related
to digital commerce include risks associated with the need to keep
pace with rapid technological change, Internet security risks, risks
of system failure or inadequacy, governmental regulation and legal
uncertainties with respect to the Internet, and collection of sales
or other taxes by additional states or foreign jurisdictions. If any of
these risks materializes, it could have a material adverse effect on our
business.
We may suffer negative publicity or be sued if the manufacturers of
our merchandise violate labor laws or engage in practices that our
guests believe are unethical.
We rely on our sourcing personnel to select manufacturers with legal
and ethical labor practices, but we cannot control the business and
labor practices of our manufacturers. If one of these manufacturers
violates labor laws or other applicable regulations or is accused
of violating these laws and regulations, or if such a manufacturer
engages in labor or other practices that diverge from those typically
acceptable in the United States, we could in turn experience negative
publicity or be sued.
Our company-owned distribution center which services the majority
of our stores in North America and our third-party distribution
center providers used in the western United States and Europe may
experience disruptions in their ability to support our stores or they
may operate inefficiently.
The operation of our stores is dependent on our ability to distribute
merchandise to locations throughout the United States, Canada
and Europe in a timely manner. We have a 350,000-square-foot
distribution center in Groveport, Ohio. We rely on this company-
owned distribution center to receive, store and distribute
merchandise for the majority of our North America stores. We rely
on third parties to manage all of the warehousing and distribution
aspects of our business on the West Coast of the United States and
in Europe. Any significant interruption in the operation of the
distribution centers due to natural disasters and severe weather, as
well as events such as fire, accidents, power outages, system failures
or other unforeseen causes could damage a significant portion of our
inventory. These factors may also impair our ability to adequately
stock our stores and could decrease our sales and increase our costs
associated with our supply chain.
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Our profitability could be adversely affected by high petroleum
products prices.
The profitability of our business depends to a certain degree
upon the price of petroleum products, both as a component of the
transportation costs for delivery of inventory from our vendors
to our stores and as a raw material used in the production of our
animal skins and stuffing. For example, our results in fiscal 2011were
impacted by significant increases in fuel surcharges due to higher
petroleum products prices. We are unable to predict what the price of
crude oil and the resulting petroleum products will be in the future.
We may be unable to pass along to our customers the increased
costs that would result from higher petroleum prices. Therefore, any
such increase could have an adverse impact on our business and
profitability.
Our market share may be adversely impacted at any time by a
significant number of competitors.
We operate in a highly competitive environment characterized by low
barriers to entry. We compete against a diverse group of competitors.
Because we are primarily mall-based, we see our competition as
those mall-based retailers that compete for prime mall locations,
including various apparel, footwear and specialty retailers. As a
retailer whose signature product is a stuffed animal that is typically
purchased as a toy or gift, we also compete with big box retailers
and toy stores, as well as manufacturers that sell plush toys. Since
we offer our guests an experience as well as merchandise, we also
view our competition as any company that competes for our guests’
time and entertainment dollars, such as movie theaters, restaurants,
amusement parks and arcades. In addition, there are several small
companies that operate “make your own” teddy bear and stuffed
animal experiences in retail stores and kiosks. Although we believe
that currently none of these companies offers the breadth and depth
of the Build-A-Bear Workshop products and experience, we cannot
assure you that they will not compete directly with us in the future.
Many of our competitors have longer operating histories, significantly
greater financial, marketing and other resources, and greater name
recognition. We cannot assure you that we will be able to compete
successfully with them in the future, particularly in geographic
locations that represent new markets for us. If we fail to compete
successfully, our market share and results of operations could be
materially and adversely affected.
We may suffer negative publicity or a decrease in sales or
profitability if the non-proprietary toy products we sell in our
stores do not meet our quality standards or fail to achieve our sales
expectations.
We may expand our product assortment to include interactive
toy products manufactured by other toy companies. If sales of
such products do not meet our expectations or are impacted by
competitors’ pricing, we may have to take markdowns or employ
other strategies to liquidate the product. If other toy companies do
not meet quality standards or violate any manufacturing or labor
laws, we suffer negative publicity and not realize our sales plans.
Poor global economic conditions could have a material adverse
effect on our liquidity and capital resources.
Although we believe that our capital structure and credit facilities
will provide sufficient liquidity, there can be no assurance that our
liquidity will not be affected by changes in the capital markets or that
our capital resources will at all times be sufficient or at an acceptable
cost to satisfy our liquidity needs. Capital market conditions may
affect the renewal or replacement of our credit agreement, which was
originally entered into in 2000 and has been extended annually since
then and currently expires December 31, 2015.
Risks Related to Owning Our Common Stock
Fluctuations in our quarterly results of operations could cause the
price of our common stock to substantially decline.
Retailers generally are subject to fluctuations in quarterly results.
Our operating results for one period may not be indicative of results
for other periods, and may fluctuate significantly due to a variety of
factors, including:
• the profitability of our stores;
• increases or decreases in comparable store sales;
• changes in general economic conditions and consumer spending
patterns;
• seasonal shopping patterns, including whether the Easter holiday
occurs in the first or second quarter and other school holiday
schedules;
• the impact of the 53rd week;
• the effectiveness of our inventory management;
• the timing and frequency of our marketing initiatives;
• changes in consumer preferences;
• the continued introduction and expansion of merchandise
offerings;
• actions of competitors or mall anchors and co-tenants;
• weather conditions;
• the timing of store closures, relocations and openings and related
expenses; and
• the timing and frequency of national media appearances and other
public relations events.
If our future quarterly results fluctuate significantly or fail to meet the
expectations of the investment community, then the market price of
our common stock could decline substantially.
12
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Fluctuations in our operating results could reduce our cash flow and
we may be unable to repurchase shares at all or at the times or in the
amounts we desire or the results of the share repurchase program
may not be as beneficial as we would like.
Our Board of Directors has implemented a $50 million share
repurchase program. The program does not require the Company to
repurchase any specific number of shares of our common stock, and
may be modified, suspended or terminated at any time without prior
notice. Shares repurchased under the program will be subsequently
retired. If our cash flow decreases as a result of decreased sales,
increased expenses or capital expenditures or other uses of cash, we
may not be able to repurchase shares of our common stock at all or at
times or in the amounts we desire. As a result, the results of the share
repurchase program may not be as beneficial as we would like.
Our certificate of incorporation and bylaws and Delaware law
contain provisions that may prevent or frustrate attempts to replace
or remove our current management by our stockholders, even if such
replacement or removal may be in our stockholders’ best interests.
Our basic corporate documents and Delaware law contain provisions
that might enable our management to resist a takeover. These
provisions:
• restrict various types of business combinations with significant
stockholders;
• provide for a classified board of directors;
• limit the right of stockholders to remove directors or change the
size of the board of directors;
• limit the right of stockholders to fill vacancies on the board of
directors;
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Stores
We lease all of our store locations. As of December 28, 2013,
we operated 263 retail stores located primarily in major malls
throughout the United States, Canada and Puerto Rico, 58 stores
located in the United Kingdom and two stores in Ireland in our Retail
segment. Our leases in the United Kingdom and Ireland typically
have rent reviews every five years in which the base rental rate is
adjusted to current market rates if they are higher than the original
rent agreed.
Non-Store Properties
In addition to leasing all of our store locations, we own a warehouse
and distribution center, or Bearhouse, in Groveport, Ohio, which is
utilized primarily by our Retail segment. The facility is approximately
350,000 square feet and includes our web fulfillment site. We
also lease approximately 59,000 square feet for our corporate
headquarters, or World Bearquarters, in St. Louis, Missouri which
houses our corporate staff, our call center and our on-site training
facilities. The lease was amended, effective January 1, 2014 with
a five-year term. In the United Kingdom, we lease approximately
2,500 square feet for our regional headquarters in Windsor, England.
The lease commenced in August 2003 and can be terminated at any
time by either party giving notice of termination six months prior to
cancellation.
• limit the right of stockholders to act by written consent and to call a
special meeting of stockholders or propose other actions;
ITEM 3. LEGAL PROCEEDINGS
• require a higher percentage of stockholders than would otherwise
be required to amend, alter, change or repeal our bylaws and
certain provisions of our certificate of incorporation; and
• authorize the issuance of preferred stock with any voting rights,
dividend rights, conversion privileges, redemption rights and
liquidation rights and other rights, preferences, privileges, powers,
qualifications, limitations or restrictions as may be specified by our
board of directors.
• These provisions may:
• discourage, delay or prevent a change in the control of our
company or a change in our management, even if such change may
be in the best interests of our stockholders;
From time to time we are involved in ordinary routine litigation
typical for companies engaged in our line of business. We are
involved in several court actions seeking to enforce our intellectual
property rights or to determine the validity and scope of the
proprietary rights of others. As of the date of this Annual Report on
Form 10-K, we are not involved in any pending legal proceedings
that we believe would be likely, individually or in the aggregate, to
have a material adverse effect on our financial condition or results of
operations.
ITEM 4. MINE SAFETY DISCLOSURE
• adversely affect the voting power of holders of common stock; and
• limit the price that investors might be willing to pay in the future
Not applicable
for shares of our common stock.
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Part II
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange (NYSE)
under the symbol “BBW.” Our common stock commenced trading on
the NYSE on October 28, 2004. The following table sets forth the high
and low sale prices of our common stock for the periods indicated.
and there is a strong interactive, entertainment component to our
business which differentiates us from retailers in the Peer Group.
However, in the absence of any other readily identifiable peer group,
we believe the use of the Peer Group is appropriate.
The performance graph starts on January 3, 2009 and ends on
December 27, 2013, the last trading day prior to December 28, 2013,
the end of our fiscal 2013. The graph assumes that $100 was invested
on January 3, 2009 in each of our common stock, the Russell 2000
Index and the Peer Group, and that all dividends were reinvested.
These indices are included only for comparative purposes as
required by SEC rules and do not necessarily reflect management’s
opinion that such indices are an appropriate measure of the relative
performance of our common stock. They are not intended to forecast
the possible future performance of our common stock.
Comparison of 5 Year Cumulative Total Return
Fiscal 2013
Fiscal 2012
High
Low
High
Low
5.49 $
3.70 $
8.73 $
5.01
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
$
$
7.10 $
4.90 $
5.41 $
4.03
7.39 $
6.07 $
5.24 $
3.82
Build-A-Bear Workshop, Inc
Russell 2000
SIC Codes 5600-5699
10.35 $
6.97 $
4.31 $
3.10
As of March 7, 2014, the number of holders of record of the Company’s
common stock totaled approximately 2,864.
Performance Graph
The following performance graph compares the 60-month
cumulative total stockholder return of our common stock, with the
cumulative total return on the Russell 2000® Index and an SEC-
defined peer group of companies identified as SIC Code 5600-5699
(the “Peer Group”). The Peer Group consists of companies whose
primary business is the operation of apparel and accessory retail
stores. Build-A-Bear Workshop is not strictly a merchandise retailer
Issuer Purchase of Equity Securities
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
1/3/09
100.00
100.00
100.00
1/2/10
104.94
125.56
175.85
1/1/11
12/31/11
12/29/12
12/28/13
163.95
159.28
226.86
181.55
152.63
256.77
83.91
173.98
303.41
166.09
245.97
388.57
*
$100 invested on 1/3/09 in stock or index, including reinvestment of dividends.
450
400
350
300
250
200
150
100
50
0
Period
Sep. 29, 2013 – Oct. 26, 2013
Oct. 27, 2013 – Nov. 23, 2013
Nov. 24, 2013 – Dec. 28, 2013
Total
(a)
Total Number of Shares
(or Units) Purchased (1)
(b)
Average Price Paid Per Share
(or Unit)
-
27,553
680
28,233
$
$
$
$
-
7.85
8.85
7.88
(c)
Total Number of Shares
(or Units) Purchased as Part
of Publicly Announced
Plans or Programs (2)
(d)
Maximum Number
(or Approximate
Dollar Value) of Shares (or
Units) that May Yet
Be Purchased Under the
Plans or Programs (2)
-
27,553
-
27,553
$
$
$
$
7,364,562
7,148,180
7,148,180
7,148,180
(1)
(2)
Includes shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of restricted shares which vested during the quarter. Our equity
incentive plans provide that the value of shares delivered to us to pay the withholding tax obligations is calculated at the closing trading price of our common stock on the date
the relevant transaction occurs.
On February 24, 2014, we announced the further extension of our $50 million share repurchase program of our outstanding common stock until March 31, 2015. The program
was authorized by our board of directors. Purchases may be made in the open market or in privately negotiated transactions, with the level and timing of activity depending
on market conditions, applicable regulatory requirements, and other factors. Purchase activity may be increased, decreased or discontinued at any time without notice. Shares
purchased under the program are subsequently retired. As of March 7, 2014, we had approximately $6.4 million of availability under the program.
14
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Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the past
three years.
Dividend Policy
No dividends were paid in 2013, 2012 or 2011. We anticipate that we
will retain any future earnings to support operations, to finance the
growth and development of our business and to repurchase shares
of our common stock from time to time and we do not expect, at this
time, to pay cash dividends in the future. Any future determination
relating to our dividend policy will be made at the discretion of our
board of directors and will depend on a number of factors, including
future earnings, capital requirements, financial conditions, future
prospects and other factors that the board of directors may deem
relevant. Additionally, under our credit agreement, we are prohibited
from declaring dividends without the prior consent of our lender,
subject to certain exceptions, as described in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Liquidity and Capital Resources.”
ITEM 6. SELECTED FINANCIAL DATA
Throughout this Annual Report on Form 10-K, we refer to our fiscal years ended December 28, 2013, December 29, 2012, December 31, 2011,
January 1, 2011 and January 2, 2010, as fiscal years 2013, 2012, 2011, 2010 and 2009, respectively. Our fiscal year consists of 52 or 53 weeks, and
ends on the Saturday nearest December 31 in each year. Fiscal years 2013, 2012, 2011, 2010 and 2009 included 52 weeks. All of our fiscal quarters
presented in this Annual Report on Form 10-K included 13 weeks. When we refer to our fiscal quarters, or any three month period ending as of a
specified date, we are referring to the
13-week period prior to that date.
The following table sets forth, for the periods and dates indicated, our selected consolidated financial and operating data. The balance sheet
data for fiscal 2013 and 2012 and the statement of operations and other financial data for fiscal 2013, 2012 and 2011 are derived from our audited
financial statements included elsewhere in this Annual Report on Form 10-K. The balance sheet data for fiscal 2011, 2010 and 2009, and the
statement of operations and other financial data for fiscal 2010 and 2009 are derived from our audited consolidated financial statements that are
not included in this Annual Report on Form 10-K. You should read our selected consolidated financial and operating data in conjunction with
our consolidated financial statements and related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” appearing elsewhere in this Annual Report on Form 10-K.
(Dollars in thousands, except share, per share,
per store and per gross square foot data)
Statement of operations data:
Total revenues
Costs and expenses:
Cost of merchandise sold
Selling, general and administrative
Goodwill impairment
Store closing (1)
Losses from investment in affiliate (2)
Interest expense (income), net
Total costs and expenses
Loss before income taxes
Income tax expense (benefit)
Net income (loss)
Earnings (loss) per common share:
Basic
Diluted
2013
2012
2011
2010
2009
Fiscal Year
$
379,069
$
380,941
$
394,375
$
401,452
$
395,906
220,738
160,708
-
-
-
(259)
381,187
(2,118)
(6)
230,181
165,516
33,670
-
-
3
429,370
(48,429)
866
234,227
162,881
239,556
164,618
-
-
-
(81)
397,027
(2,652)
14,410
-
-
-
(250)
403,924
(2,472)
(2,576)
$
$
$
(2,112)
$
(49,295)
$
(17,062)
$
104
$
(0.13)
(0.13)
$
$
(3.02)
(3.02)
$
$
(0.98)
(0.98)
$
$
0.01
0.01
$
$
247,511
161,782
-
981
9,615
(143)
419,746
(23,840)
(11,367)
(12,473)
(0.66)
(0.66)
Shares used in computing common per share amounts:
Basic
Diluted
16,465,138
16,465,138
16,331,672
16,331,672
17,371,315
17,371,315
18,601,465
18,653,012
18,874,352
18,874,352
(1)
(2)
Store closing represents expenses related to the closure of the friends 2B made concept.
In 2012, $475 in losses from investment in affiliate is included in selling, general and administrative expenses.
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Selected Financial Data (continued)
(Dollars in thousands, except share, per share,
per store and per gross square foot data)
Other financial data:
Retail gross margin ($) (3)
Retail gross margin (%) (3)
Capital expenditures, net (4)
Depreciation and amortization
Cash flow data:
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows provided by (used in) financing activities
$
$
$
$
$
Store data (5):
Number of stores at end of period
North America - Traditional
North America - Non-traditional
Total North America
Europe - Traditional
Europe - Non-traditional
Total Europe
Total stores
Square footage at end of period (6)
North America - Traditional
North America - Non-traditional
Total North America
Europe - Traditional
Europe - Non-traditional
Total Europe
Total square footage
2013
2012
2011
2010
2009
Fiscal Year
153,477
$
145,687
$
154,468
$
155,128
$
142,572
41.1%
38.9%
39.9%
40.1%
19,362
$
17,268
$
12,248
$
14,649
$
19,216
21,422
24,232
26,976
19,058
(19,362)
132
$
$
$
16,542
(15,096)
(2,902)
$
$
$
17,234
(13,318)
(15,811)
$
$
$
22,021
$
(13,766) $
(7,216) $
252
11
263
58
2
60
323
716,098
19,507
735,605
84,933
1,926
86,859
822,464
283
8
291
58
2
60
351
805,770
12,610
818,380
84,405
1,926
86,331
904,711
287
11
298
56
2
58
356
829,449
18,956
848,405
81,705
2,206
83,911
932,316
290
15
305
52
2
54
359
841,600
32,950
874,550
75,588
2,206
77,794
952,344
Average net retail sales per store - North America (7) (11)
$
Net retail sales per gross square foot - North America (8) (11) $
Net retail sales per selling square foot - Europe (9) (11)
Consolidated comparable store sales change (%) (10) (11)
Balance sheet data:
Cash and cash equivalents
Working capital
Total assets
Total stockholders' equity
£
$
1,080
381
$
$
525 £
5.1%
1,003
350
$
$
511 £
(3.3)%
1,021
354
$
$
562 £
(2.1)%
1,030
356
$
$
551 £
(2.0)%
44,665
$
45,171
$
46,367
$
58,755
$
31,925
194,642
84,390
30,503
192,102
83,137
37,610
241,571
129,243
51,671
275,794
157,713
36.7%
8,148
28,487
23,990
(8,898)
-
291
5
296
53
1
54
350
846,373
4,533
850,906
76,163
1,281
77,444
928,350
1,044
358
592
(13.4)%
60,399
53,865
284,273
164,780
(3)
(4)
(5)
(6)
(7)
Retail gross margin represents net retail sales less cost of retail merchandise sold,
which excludes cost of wholesale merchandise sold. Retail gross margin percentage
represents retail gross margin divided by net retail sales.
Capital expenditures consist of leasehold improvements, furniture and fixtures,
land, buildings, computer equipment and software purchases, as well as trademarks,
intellectual property and deferred leasing fees.
Excludes our web stores. North American stores are located in the United States,
Canada and Puerto Rico. In Europe, stores are located in the United Kingdom,
Ireland and, prior to 2011, France.
Square footage for stores located in Europe is estimated selling square footage.
Average net retail sales per store represents net retail sales only from stores open
throughout the entire period in North America divided by the total number of
such stores.
(8)
(9)
Net retail sales per gross square foot in North America represents net retail sales from
stores open throughout the entire period in North America divided by the total gross
square footage of such stores.
Net retail sales per selling square foot in Europe represents net retail sales from stores
open throughout the entire period in Europe divided by the total selling square
footage of such stores.
(10) Comparable store sales percentage changes are based on net retail sales. Stores are
considered comparable beginning in their thirteenth full month of operation.
(11) Excludes our web store and temporary and seasonal locations
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management’s Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking
statements that involve risks and uncertainties. Our actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but
are not limited to, those discussed in “Risk Factors” and elsewhere in
this Annual Report on Form 10-K. The following section is qualified in
its entirety by the more detailed information, including our financial
statements and the notes thereto, which appears elsewhere in this
Annual Report on Form 10-K.
Overview
We are the only global company that offers an interactive “make
your own stuffed animal” retail entertainment experience under the
Build-A-Bear Workshop brand, in which our guests stuff, fluff, dress,
accessorize and name their own teddy bears and other stuffed animals.
As of December 28, 2013, we operated 323 Company-owned stores and
had 86 franchised stores operating in international locations under
the Build-A-Bear Workshop brand. In addition to our stores, we sell our
products on our e-commerce Web site, buildabear.com.
We operate in three segments that share the same infrastructure,
including management, systems, merchandising and marketing, and
generate revenues as follows:
• Retail – Company-owned retail stores located in the United States,
Canada, Puerto Rico, the United Kingdom and Ireland, and a web
store;
• International Franchising – Other international stores operated
under franchise agreements; and
• Commercial – Transactions with other business partners, mainly
comprised of wholesale product sales and licensing our intellectual
property, including entertainment properties, for third-party use.
Selected financial data attributable to each segment for fiscal 2013,
2012 and 2011, are set forth in Note 16 to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.
For a discussion of the key trends and uncertainties that have affected
our revenues, income and liquidity, see the “— Revenues,” “— Costs and
Expenses” and “— Stores” subsections of this Overview, along with the
"Risk Factors" and "Results of Operations."
We believe that we have an appealing retail store concept that, for
North American stores open for the entire year, averaged $1.1 million
in fiscal 2013, and $1.0 million in fiscal 2012 and 2011in net retail sales
per store. Consolidated store contribution consists of store location net
retail sales less cost of product, marketing and store related expenses.
Store depreciation, amortization and impairment and non-store
general and administrative expenses are excluded as are our web store
and temporary and seasonal locations. See “— Non-GAAP Financial
Measures” for a reconciliation of store contribution to net loss. Store
contribution as a percent of store location net retail sales was 15.8% for
fiscal 2013, 12.7% for fiscal 2012 and 14.7% for fiscal 2011. Total company
net loss as a percentage of total revenues was 0.6% for fiscal 2013, 12.9%
for fiscal 2012 and 4.3% for fiscal 2011.
Our 2013 performance demonstrated progress on our turnaround
plan and our objective to achieve sustainable, long-term profitable
growth as we hired a new chief executive, executed a significant real
estate strategy and implemented stringent cost controls throughout
the organization. In 2012, our results were negatively impacted by the
declining sales in the UK. In North America, the 2012 results reflected
the early results of turnaround efforts, increased costs for marketing,
newly imagined store design remodels and openings and store closings.
In 2011, our results reflected stabilizing economic trends and modest
mall traffic increases but continuing low levels of consumer confidence.
In 2011, our store contribution percentage was essentially flat with
2010, as declining sales were offset by lower store expenses, specifically
payroll and supplies.
Our 2014 plan builds on the progress we made in 2013 in implementing
our key strategies. We plan to continue to improve store productivity
and profitability through our real estate optimization efforts, reposition
our marketing programs to refine the consumer value equation and
build on core competencies to lay the groundwork to further leverage
the strength of our Build-A-Bear brand. Additionally we intend to work
aggressively on expense rationalization as we continue to align our cost
structure with our smaller store base and value engineer our products,
along with an end to end review of our supply chain.
In 2013, we reduced cost of sales and selling, general and administrative
expenses by $14 million, including one-time charges. These savings
resulted from our real estate optimization strategies, aligning overhead
costs with a smaller store base and continued aggressive expense
rationalization. This comes after savings of $25 million in 2009, $3
million in 2011 and $7.5 million in 2012. We ended fiscal 2013 with no
borrowings under our bank loan agreement and with $45 million in
cash and cash equivalents after investing $19 million in capital projects.
Following is a description and discussion of the major components of
our statement of operations:
Revenues
Net retail sales: Net retail sales are revenues from retail sales (including
our web store and other non-store locations), are net of discounts,
exclude sales tax, include shipping and handling costs billed to
customers, and are recognized at the time of sale. Revenues from gift
cards are recognized at the time of redemption. Our guests use cash,
checks, gift cards and third party credit cards to make purchases. We
classify stores as new, non-comparable and comparable stores. Stores
enter the comparable store calculation in their thirteenth full month
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of operation. Our web store and temporary and seasonal locations are
not included in our comparable store calculations. Non-comparable
stores also result from a store relocation or remodel that results in
a significant change in square footage. The net retail sales for that
location are excluded from comparable store sales calculations until
the thirteenth full month of operation after the date of the change.
We have a loyalty program with a frequent shopper reward feature,
the Stuff Fur Stuff® club. Members of the program receive one point
for every dollar spent and receive awards after reaching certain point
thresholds. On a quarterly basis, an estimate of the obligation related
to the program, based on actual points, awards outstanding and
historical point conversion and award redemption patterns, is recorded
as an adjustment to the deferred revenue liability and net retail sales.
As the awards can be earned or redeemed at any of our store locations,
we account for changes in the deferred revenue account at the total
company level only. Therefore, when we refer to net retail sales by
location, such as comparable stores or new stores, these amounts do
not include any changes in deferred revenue. See “-Critical Accounting
Estimates” for additional details on the accounting for the deferred
revenue related to our customer loyalty program.
We use net retail sales per square foot and comparable store sales as
performance measures for our business. The following table details
net retail sales per square foot for the periods presented:
Net retail sales per gross square foot -
North America (1) (2)
Net retail sales per selling square foot -
Europe (2) (3)
Fiscal
2013
Fiscal
2012
Fiscal
2011
$
381
£
525
$
£
350
$ 354
511
£
562
(1)
Net retail sales per gross square foot in North America represents net retail sales
from stores open throughout the entire period in North America divided by the
total gross square footage of such stores.
(2)
Excludes our web store and temporary and seasonal locations.
(3)
Net retail sales per selling square foot in Europe represents net retail sales from
stores open throughout the entire period in Europe divided by the total selling
square footage of such stores.
The percentage increase (or decrease) in comparable store sales for
the periods presented below is as follows:
Comparable store sales change -
North America (%) (1) (2)
Comparable store sales change -
Europe (%) (1) (2)
Comparable store sales change -
Consolidated (%) (1) (2)
Fiscal
2013
Fiscal
2012
Fiscal
2011
5.7%
(2.0)%
(2.5)%
2.9%
(8.4)%
(0.2)%
5.1%
(3.3)%
(2.1)%
Fiscal 2013 consolidated comparable store sales for the full year
are compared to the 52 week period ended December 29, 2012. We
attribute the increase in comparable store sales for the periods
presented primarily to the impact of our brand marketing and
product strategies which have improved results in our overall store
base and our real estate optimization strategies which have driven
sales in selective markets impacted by store closures and remodels.
• The growth in our base business accounted for approximately 70%
of the overall comparable store sales increases in 2013 which we
believe were driven by:
• A 30% reduction in discounts in North America which
contributed to higher transaction value in 2013; and
• Our brand building marketing initiatives, including
national television advertising in the United States, along
with a balance of proprietary and licensed product, which
we believe increased traffic to our stores and contributed to
an increase in transactions.
• We believe that our real estate optimization strategies drove the
remaining 30% of the overall comparable store sales increase in
2013. The real estate optimization plans include selective store
closures, primarily in North American multi-store markets, as well
as updates and remodels of select other stores. These actions drove
a 9% increase in sales per square foot in North America, reversing a
multi-year decline.
Fiscal 2012 consolidated comparable store sales for the full year are
compared to the 52 week period ended December 31, 2011 We believe
the primary drivers of the overall decline in consolidated comparable
store sales for the full year were as follows:
• In the first half of 2012, we had benefit from higher redemption
rates and transaction value of our holiday gift cards and from a
promotion in the United States with McDonald’s Happy Meals®
that drove awareness of our brand and brought traffic to our stores
resulting in slightly positive comparable store sales in North
American through the first twenty-six weeks.
• In the fiscal 2012 third quarter, we experienced a decline in the
number of transactions compared to the 2011 third quarter which
benefited from a strong product offering that was tied to a major
theatrical release supported by studio marketing and advertising.
• In the fiscal 2012 fourth quarter, we believe our new brand building
marketing campaign in the United States along with a return to
traditional holiday product offerings resulted in an increase in
North American comparable store sales.
• In the United Kingdom, we believe the negative economic
conditions contributed to a continued decline in consumer
sentiment and a corresponding decline in spending that negatively
impacted our comparable store sales throughout the year.
(1)
Comparable store sales percentage changes are based on net retail sales and stores
are considered comparable beginning in their thirteenth full month of operation.
(2)
Excludes our web store and temporary and seasonal locations.
Franchise fees: We receive an initial, one-time franchise fee for each
master franchise agreement which is amortized to revenue over the
initial term of the respective franchise agreements, which extend for
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periods up to 25 years and include a renewal option if certain
conditions are met. Master franchise rights are typically granted to a
franchisee for an entire country or countries. Continuing franchise
fees are based on a percentage of sales made by the franchisees’
stores and are recognized as revenue at the time of those sales.
Commercial revenue: Commercial revenue includes the company’s
transactions with other businesses, mainly through wholesale
and licensing transactions. Revenue from wholesale product sales
includes revenue from merchandise sold at stores operated by
third parties under licensing agreements like Landry’s restaurants.
Revenue from licensing activities is generally based on a percentage
of sales made by licensees to third parties and is recognized at the
time the product is shipped by the licensee or at the point of sale.
We have entered into a number of licensing arrangements whereby
third parties manufacture merchandise carrying the Build-A-Bear
Workshop trademark and sell it to other retailers.
Costs and Expenses
Cost of merchandise sold and retail gross margin: 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. Retail gross
margin is defined as net retail sales less the cost of retail merchandise
sold, which excludes cost of wholesale merchandise sold.
Selling, general and administrative expense: These expenses
include store payroll and benefits, advertising, credit card fees, store
supplies and preopening expenses as well as central office general
and administrative expenses, including costs for management
payroll, benefits, stock-based compensation, normal store closings,
travel, information systems, accounting, insurance, legal and public
relations. These expenses also include depreciation and amortization
of central office leasehold improvements, furniture, fixtures and
equipment as well as the amortization of intellectual property costs.
In 2009, we achieved $22 million in savings in selling, general and
administrative expenses including marketing, central office payroll
and outside services. We were able to maintain these savings in 2010
and 2011. In 2012, we saved an additional $4 million in selling, general
and administrative expenses that were used to support sales driving
marketing initiatives. In 2013, we continued to reduce expenses as
we reduced selling, general and administrative expenses in both
dollars and as a percent of revenue. Other store expenses such as
credit card fees and supplies historically have increased or decreased
proportionately with net retail sales.
Stores
Company-owned stores: The number of Build-A-Bear Workshop
stores in the United States, Canada, Puerto Rico, the United Kingdom
and Ireland for the last two fiscal years along with the projections for
fiscal 2014 can be summarized as follows:
Fifty-three Weeks Ended January 3, 2015 - Projected
December 28,
2013
Opened
Closed
January 3,
2015
North America
Traditional
Non-traditional
Europe
Traditional
Non-traditional
Total
North America
Traditional
Non-traditional
Europe
Traditional
Non-traditional
Total
North America
Traditional
Non-traditional
Europe
Traditional
Non-traditional
Total
252
11
263
58
2
60
323
1
3
4
-
-
-
4
(12)
(1)
(13)
-
-
-
(13)
241
13
254
58
2
60
314
Fifty-two Weeks Ended December 28, 2013
December 29,
2012
Opened
Closed
December 28,
2013
283
8
291
58
2
60
351
3
5
8
1
-
1
9
(34)
(2)
(36)
(1)
-
(1)
(37)
252
11
263
58
2
60
323
Fifty-two Weeks Ended December 29, 2012
December 31,
2011
Opened
Closed
December 29,
2012
287
11
298
56
2
58
356
2
1
3
2
-
2
5
(6)
(4)
(10)
-
-
-
(10)
283
8
291
58
2
60
351
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In the ordinary course of business, we anticipate signing additional
master franchise agreements in the future and terminating
other such agreements. We believe there is a market potential for
approximately 300 international stores outside of the United States,
Canada, the United Kingdom and Ireland, which we expect to be
operated primarily by new and existing franchisees.
Results of Operations
2013 Overview
Our 2013 performance demonstrated progress on our turnaround
plan and our objective to achieve sustainable, profitable growth as
we hired a new chief executive, executed a significant real estate
strategy and implemented stringent cost controls throughout the
organization. Our accomplishments included:
• Consolidated comparable store sales increased by 5.1%, led by a
5.7% increase in North America;
• Improved North American store productivity to $381 per square
foot, a 9% increase, reversing a multi-year decline; and
• We expanded retail gross margin and reduced selling, general
and administrative expenses both in dollars and as a percent of
revenue.
In fiscal 2014, we expect to continue to build on these successes,
reposition our marketing programs, including our loyalty program,
and begin to lay the groundwork to further leverage the strength of
our Build-A-Bear brand.
The following table sets forth, for the periods indicated, selected
statement of operations data expressed as a percentage of total
revenues, except where otherwise indicated. Percentages will not
total due to cost of merchandise sold being expressed as a percentage
of net retail sales and commercial revenue and immaterial rounding:
Our long term store real estate goal is to improve our stores’
sales productivity and profitability. We currently intend to close
approximately 10 to 15 locations in 2014, primarily in North America.
We also intend to strategically refresh and upgrade stores with select
features from the new store design, while driving down the cost of
capital required for these improvements. We also expect to open new
locations selectively as opportunities arise.
Non-traditional Store Locations: As of December 28, 2013, we had
one location each in a ballpark, a zoo, a science center and an airport.
Additionally, we had three locations located within other retailers’
stores. We also operate temporary stores, which generally have lease
terms of six to eighteen months and are excluded from our traditional
store count. These locations are intended to capitalize on short-term
opportunities in specific locations. As of December 28, 2013, we
operated seven temporary stores.
International Franchise Locations: Our first franchisee location was
opened in November 2003. All franchised stores have similar signage,
store layout and merchandise characteristics to our company-owned
stores. The number of international, franchised stores opened and
closed for the periods presented below are summarized as follows:
Beginning of period
Opened
Closed
End of period
Fiscal Year
2013
2012
2011
91
10
(15)
86
79
17
(5)
91
63
19
(3)
79
As of December 28, 2013, we had 12 master franchise agreements,
which typically grant franchise rights for a particular country
or group of countries, covering an aggregate of 16 countries. The
distribution of stores among these countries is as follows:
Germany ..........................................................................................................................24
Australia .......................................................................................................................... 17
Mexico .............................................................................................................................. 11
Denmark ........................................................................................................................... 7
Gulf States (1) ..................................................................................................................... 6
Thailand ........................................................................................................................... 6
Japan ................................................................................................................................. 5
South Africa ...................................................................................................................... 5
Singapore .......................................................................................................................... 2
Sweden ............................................................................................................................... 2
Norway .............................................................................................................................. 1
Total .............................................................................................................................86
(1)
Gulf States agreement includes Kuwait, Bahrain, Qatar, Oman and the United
Arab Emirates
20
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Results of Operations (continued)
Revenues:
Net retail sales
Franchise fees
Commercial revenues
Fiscal
2013
Fiscal
2012
Fiscal
2011
98.4%
98.3%
98.1%
0.9
0.6
0.9
0.7
0.9
1.0
Total revenues
100.0
100.0
100.0
Costs and expenses:
Cost of merchandise sold (1)
Selling, general, and administrative
Goodwill impairment
Interest expense (income), net
58.8
42.4
-
(0.1)
61.0
43.4
8.8
0.0
59.9
41.3
-
(0.0)
Total costs and expenses
100.6
112.7
100.7
Loss before income taxes
Income tax expense (benefit)
Net loss
(0.6)
(0.0)
(0.6)
(12.7)
0.2
(12.9)
(0.7)
3.7
(4.3)
Retail gross margin (%) (2)
41.1%
38.9%
39.9%
(1) Cost of merchandise sold is expressed as a percentage of net
(2)
Retail gross margin represents net retail sales less cost of retail merchandise
sold, which excludes cost of wholesale merchandise sold. Retail gross margin
was $153.5 million, $145.7 million and $154.5 million in 2013, 2012 and 2011,
respectively. Retail gross margin percentage represents retail gross margin
divided by net retail sales.
Fiscal Year Ended December 28, 2013 (52 weeks)
Compared to Fiscal Year Ended December 29, 2012 (52 weeks)
Total revenues. Net retail sales were $373.2 million for fiscal 2013,
compared to $374.6 million for fiscal 2012, a decrease of $1.4 million.
The components of this decrease are as follows:
(dollars in millions)
Fiscal 2013
Impact of store closures
$ (21.7)
Increase in comparable store sales
Increase in non-comparable stores,
primarily remodels and relocations
Increase from new stores
Change in deferred revenue estimate
Increase from non-traditional locations,
including web sales
Impact of foreign currency translation
16.3
4.3
1.3
(0.7)
0.2
(1.1)
$ (1.4)
Revenue from international franchise fees were $3.6 million for
fiscal 2013 and fiscal 2012. Commercial revenue was $2.3 million in
fiscal 2013 compared to $2.8 million in fiscal 2012, a decrease of $0.5
million. This decrease was primarily due to an overall decrease in
licensing activity in 2013.
Gross margin. Total gross margin, calculated as net retail sales
and commercial revenues less cost of merchandise sold, was $154.8
million for fiscal 2013 compared to $147.2 million for fiscal 2012, an
increase of $7.6 million, or 5.2%. Retail gross margin increased to
$153.5 million in fiscal 2013 compared to $145.7 million in fiscal 2012,
an increase of $7.8 million, or 5.4%. As a percentage of net retail sales,
retail gross margin increased to 41.1% for fiscal 2013 from 38.9% for
fiscal 2012, an increase of 220 basis points as a percentage of net retail
sales (bps). This improvement in margin was primarily attributable to
160 basis points in improved leverage on fixed occupancy costs and a
60 basis point improvement in merchandise margin driven primarily
by an increase in average transaction value.
Selling, general and administrative. Selling, general and
administrative expenses were $160.7 million for fiscal 2013 as
compared to $165.5 million for fiscal 2012, a decrease of $4.8 million,
or 2.9%. As a percentage of total revenues, selling, general and
administrative expenses were 42.4% for fiscal 2013, compared to
43.4% in fiscal 2012. Fiscal 2013 included $5.3 million in management
transition, store closing and asset impairment expenses, compared
to $2.7 million in store closing and asset impairment expenses in
fiscal 2012. Excluding these costs in both periods, selling, general and
administrative expenses improved 170 basis points to 41.0% of total
revenues in fiscal 2013. This improvement was driven by reduced
store payroll, other store expenses and corporate overhead, partially
offset by increases in corporate payroll primarily related to bonus.
Interest expense (income), net. Interest income, net of interest
expense, was $0.3 million for fiscal 2013 compared to $3,000 of
expense for fiscal 2012.
Provision for income taxes. Income tax benefit $6,000 in fiscal 2013
compared to expense of $0.9 million in fiscal 2012. The effective
rate was 0.3% in 2013 and (1.8)% in 2012. The fluctuation in the
effective rate was primarily attributable to benefits resulting from
the favorable resolution of tax matters, the expiration of statutes in
various jurisdictions, and favorable adjustments from the filing of
amended tax returns.
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Goodwill impairment. In 2012, the goodwill associated with the UK
business was fully impaired, resulting in a $33.7 million non-cash
charge.
Interest expense (income), net. Interest expense, net of interest
income, was $3,000 for fiscal 2012 as compared to $0.1 million of
income for fiscal 2011.
Provision for income taxes. Income tax expense was $0.9 million in
fiscal 2012, compared to $14.4 million for fiscal 2011. The effective
rate was (1.8)% in 2012 and (543.4)% in 2011. The fluctuation in
the effective rate was primarily attributable to the recording of a
valuation allowance in 2011 on the US deferred tax assets.
Non-GAAP Financial Measures
We use the term “store contribution” throughout this Annual
Report on Form 10-K. Store contribution consists of income before
income tax expense, interest, store depreciation, amortization and
impairment, goodwill impairment, general and administrative
expense, excluding franchise fees, income from licensing activities
and contribution from our web store and temporary and seasonal
locations. This term, as we define it, may not be comparable to
similarly titled measures used by other companies and is not a
measure of performance presented in accordance with U.S. generally
accepted accounting principles (GAAP).
We use store contribution as a measure of our stores’ operating
performance. Store contribution should not be considered a
substitute for net income, net income per store, cash flows provided
by operating activities, cash flows provided by operating activities per
store, or other income or cash flow data prepared in accordance with
U.S. GAAP.
We believe store contribution is useful to investors in evaluating our
operating performance because it, along with the number of stores in
operation, directly impacts our profitability.
The following table sets forth a reconciliation of store contribution to
net (loss) income for our company-owned stores located in the United
States, Canada and Puerto Rico (North America), stores located in the
United Kingdom and Ireland (Europe) and for our consolidated store
base (dollars in thousands):
Fiscal Year Ended December 29, 2012 (52 weeks)
Compared to Fiscal Year Ended December 31, 2011 (52 weeks)
Total revenues. Net retail sales were $374.6 million for fiscal 2012,
compared to $387.0 million for fiscal 2011, a decrease of $12.5 million.
The components of this decrease are as follows:
(dollars in millions)
Impact of store closures
Decrease in comparable store sales
Increase in non-comparable stores, primarily remodels
and relocations
Increase from new stores
Change in deferred revenue estimate
Decrease from non-traditional locations,
including web sales
Impact of foreign currency translation
Fiscal 2012
(4.8)
(11.6)
7.1
5.0
(1.0)
(6.3)
(0.9)
(12.5)
$
$
Revenue from international franchise fees increased to $3.6 million
for fiscal 2012 from $3.4 million for fiscal 2011, an increase of $0.2
million. This increase was primarily due to the increase in the
number of franchise locations from 79 at the end of fiscal 2011 to 91
at the end of fiscal 2012. Commercial revenue was $2.8 million in
fiscal 2012 compared to $3.9 million in fiscal 2011, a decrease of $1.2
million. This decrease was primarily due to an overall decrease in
licensing activity in 2012.
Gross margin. Total gross margin, calculated as net retail sales
and commercial revenues less cost of merchandise sold, was $147.2
million for fiscal 2012 compared to $156.8 million for fiscal 2011,
a decrease of $9.6 million, or 6.1%. Retail gross margin was $145.7
million in fiscal 2012 compared to $154.5 million in fiscal 2011, a
decrease of $8.8 million, or 5.7%. As a percentage of net retail sales,
retail gross margin decreased to 38.9% for fiscal 2012 from 39.9%
for fiscal 2011, a decrease of 100 bps. This decline in margin was
primarily attributable to decreased leverage on fixed occupancy
costs, including store asset impairment charges and decreased
merchandise margin, partially offset by cost savings in distribution
and packaging costs.
Selling, general and administrative. Selling, general and
administrative expenses were $165.5 million for fiscal 2012 as
compared to $162.9 million for fiscal 2011, an increase of $2.6 million,
or 1.6%. As a percentage of total revenues, selling, general and
administrative expenses were 43.4% for fiscal 2012, compared to
41.3% in fiscal 2011. The dollar increase was primarily attributable to
$3 million in asset impairment charges and investment in marketing
and store-related costs as part of our long-term initiatives. Excluding
the impairment charges, selling general and administrative expenses
were 42.6% of total revenues.
22
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Non-GA AP Financial Measures (continued)
Net loss
Income tax expense (benefit)
Interest expense (income)
Store depreciation, amortization and impairment (1)
Goodwill impairment (2)
General and administrative expense (3)
Franchising and commercial contribution (4)
Non-store activity contribution (5)
Store contribution
Total revenues from external customers
Franchising and commercial revenues from
external customers
Revenues from non-store activities (5)
Store location net retail sales
Fiscal 2013
Fiscal 2012
North
America
Europe
Total
North
America
Europe
Total
$
(1,953)
$
(159)
$
(2,112)
$
(13,955)
$
(35,340)
$
(49,295)
241
(172)
11,319
-
49,133
(3,110)
(6,719)
(247)
(87)
2,114
-
6,275
-
(953)
(6)
(259)
(85)
63
13,433
13,436
-
55,408
(3,110)
(7,672)
$
48,739
$ 304,956
$
$
6,943
$
55,682
74,113
$ 379,069
$
$
(5,896)
(16,361)
-
(5,896)
(3,468)
(19,829)
951
(60)
3,597
33,670
4,751
-
(1,094)
6,475
71,800
-
(3,576)
866
3
17,033
33,670
48,905
(966)
(5,095)
45,121
380,941
(6,388)
(20,424)
$
$
-
44,154
(966)
(4,001)
38,646
309,141
(6,388)
(16,848)
$
$
$ 282,699
$ 70,645
$ 353,344
$
285,905
$
68,224
$
354,129
Store contribution as a percentage of store location
net retail sales
17.2 %
9.8 %
15.8 %
13.5 %
9.5 %
Total net loss as a percentage of total revenues
(0.6)%
(0.2)%
(0.6)%
(4.5 )%
(49.2 )%
12.7 %
(12.9 )%
Net Income (loss)
Income tax expense (benefit)
Interest expense (income)
Store depreciation, amortization and impairment (1)
Goodwill impairment (2)
General and administrative expense (3)
Franchising and commercial contribution (4)
Non-store activity contribution (5)
Store contribution
Total revenues from external customers
Franchising and commercial revenues from
external customers
Revenues from non-store activities (5)
Store location net retail sales
Store contribution as a percentage of store location
net retail sales
Total net loss as a percentage of total revenues
Fiscal 2011
North
America
Europe
Total
$
(19,232)
$
2,170
13,607
56
15,233
-
43,867
(4,142)
(4,708)
$
$
44,681
319,810
$
$
(7,334)
(16,765)
803
(137)
2,514
-
5,043
-
(1,109)
9,284
74,565
-
(3,313)
(17,062)
14,410
(81)
17,747
-
48,910
(4,142)
(5,817)
53,965
394,375
(7,334)
(20,078)
$
$
$
295,711
$
71,252
$
366,963
15.1 %
13.0 %
(6.0 )%
2.9 %
14.7 %
(4.3 )%
(1)
Store depreciation, amortization and impairment includes depreciation and amortization of all capitalized assets in store locations, including leasehold improvements,
furniture and fixtures, and computer hardware and software and store asset impairment charges.
(2) Goodwill impairment represents the write-off of the goodwill associated with the UK reporting unit.
(3) General and administrative expenses consist of non-store, central office general and administrative functions such as management payroll and related benefits, travel,
information systems, accounting, purchasing and legal costs as well as the depreciation and amortization of central office leasehold improvements, furniture and fixtures,
computer hardware and software, including intellectual property, store closing and pre-opening expenses, and intercompany charges. General and administrative expenses also
include a central office marketing department, primarily payroll and related benefits expense, but exclude advertising expenses, such as television advertising, virtual world
costs and direct mail catalogs, which are included in store contribution.
(4) Franchising and commercial contribution includes franchising and commercial revenues and all expenses attributable to the international franchising and commercial
segments, including asset impairments but excluding depreciation, amortization and interest expense/income. Depreciation and amortization related to franchising and
licensing is included in the general and administrative expense caption. Interest expense/income related to franchising and commercial activities is included in the interest
expense (income) caption.
(5) Non-store activities include our web stores and temporary and seasonal locations. Non-store activity contribution also includes intercompany revenues.
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The following is a summary of certain unaudited quarterly results of operations data for each of the last two fiscal years.
(Dollars in millions,
except per share data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal 2013
Fiscal 2012
Total revenues
Retail gross margin(1)
Goodwill impairment
Net (loss) income(2)
Earnings (loss) per common share:
Basic
Diluted
Number of stores (end of quarter)
$
104.3
$
81.9
$
42.7
-
0.0
0.00
0.00
333
29.6
-
(6.2)
(0.38)
(0.38)
323
84.8
33.5
-
(1.4)
(0.08)
(0.08)
320
$
108.1
$
96.4
$
47.7
-
5.4
0.31
0.31
323
38.0
-
(1.0)
(0.06)
(0.06)
357
80.4
27.7
-
(7.6)
(0.46)
(0.46)
354
$
86.0
30.8
-
(4.3)
(0.26)
(0.26)
351
$
118.1
49.2
33.7
(36.4)
(2.23)
(2.23)
351
(1) Retail gross margin represents net retail sales less cost of retail merchandise sold.
(2) The fourth quarter of 2012 included a $4.7 million charge related to the recording of a valuation allowance on deferred tax assets.
As a toy retailer, our sales are highest in our fourth quarter, followed
by the first quarter. The timing of holidays and school vacations
can impact our quarterly results. Our European-based stores have
historically been more heavily weighted in the fourth quarter as
compared to our North American stores. We cannot ensure that this
will continue to be the case.
Our operating results for one period may not be indicative of results
for other periods, and may fluctuate significantly because of a variety
of factors, including those discussed under “Risk Factors — Risks
Related to Owning Our Common Stock - Fluctuations in our quarterly
results of operations could cause the price of our common stock to
substantially decline.”
The timing of permanent store closures and temporary closures for
remodels and relocations may result in fluctuations in quarterly
results due to the revenues and expenses associated with each store
location. We incur costs to close stores, typically in the three to six
months prior to the closure. We typically incur most preopening costs
for a store in the three months immediately preceding the store’s
opening or reopening.
For accounting purposes, the quarters of each fiscal year consist of
13 weeks, although we will have a 14-week quarter approximately
once every six years. The fiscal 2014 fourth quarter will be a 14-
week quarter. Quarterly fluctuations and seasonality may cause our
operating results to fall below the expectations of securities analysts
and investors, which could cause our stock price to fall.
Liquidity and Capital Resources
Our cash requirements are primarily for the opening of new stores,
installation and upgrades of information systems and working
capital. Over the past several years, we have met these requirements
through capital generated from cash flow provided by operations. We
have access to additional cash through a revolving line of credit that
has been in place since 2000.
Operating Activities. Cash flows provided by operating activities
were $19.1 million in fiscal 2013, $16.5 million in fiscal 2012 and $17.2
million in fiscal 2011. Cash flows from operating activities increased
in fiscal 2013 as compared to 2012 primarily due to increased store
contribution partially offset by the timing of inventory receipts and
payments and the increase in receivables. Cash flows from operating
activities decreased in fiscal 2012 as compared to 2011, primarily due
to decreased store contribution.
Investing Activities. Cash flows used in investing activities were
$19.4 million in fiscal 2013, $15.1 million in fiscal 2012 and $13.3
million in fiscal 2011. Cash used in investing activities in 2013 related
primarily to the continued installation and upgrades of central office
information technology systems, the remodeling or relocation of 20
stores and the opening of nine new locations. Cash used in investing
activities in 2012 related primarily to the continued installation
and upgrades of central office information technology systems,
the opening of five new stores, the remodeling or relocation of 14
stores, offset by the maturity of short-term investments. Cash used
in investing activities in 2011 related primarily to the continued
installation and upgrades of central office information technology
systems, the opening of eight new stores, the relocation of four stores
and the purchase of short-term investments, offset by the maturity of
those investments.
Financing Activities. Financing activities provided cash of $0.1
million in 2013 and used cash of $2.9 million and $15.8 million 2012
and 2011, respectively. Purchases of our stock in fiscal 2013, 2012
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and 2011 used cash of $0.2 million, $1.3 million and $15.0 million,
respectively. In fiscal 2013 and 2011, exercises of employee stock
options, net of shares used for withholding tax payments provided
cash of $0.3 million and used cash of $0.8 million, respectively. No
employee stock options were exercised in fiscal 2012; shares used for
withholding tax payments used $1.6 million in fiscal 2012.
addition, some of these leases contain various restrictions relating to
change of control of our company. Our leases also subject us to risks
relating to compliance with changing mall rules and the exercise of
discretion by our landlords on various matters, including rights of
termination in some cases. Rents are charged monthly and paid in
advance.
Capital Resources. As of December 28, 2013, we had a cash balance
of $44.7 million, less than half of which was domiciled outside of
the United States. We also have a line of credit, which we can use to
finance capital expenditures and working capital needs throughout
the year. The credit agreement is with U.S. Bank National Association.
On December 21, 2012, we amended the existing bank line of credit
that now provides borrowing capacity of $35 million. Borrowings
under the credit agreement are secured by our assets and a pledge of
65% of our ownership interest in our foreign subsidiaries. The credit
agreement contains various restrictions on indebtedness, liens,
guarantees, redemptions, mergers, acquisitions or sale of assets,
loans, transactions with affiliates, and investments. It prohibits us
from declaring dividends without the bank’s prior consent, unless
such payment of dividends would not violate any terms of the credit
agreement. We are also prohibited from repurchasing shares of
our common stock unless such purchase would not violate any
terms of the credit agreement; we 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 January 22, 2014, we amended the existing
credit agreement, extending the term to December 31, 2015 and
increasing the fixed charge coverage ratio. As of December 28, 2013:
(i) we were in compliance with these covenants; (ii) there were no
borrowings under our 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.
Most of our retail stores are located within shopping malls and all
are operated under leases classified as operating leases. Our leases in
North America typically have a ten-year term and contain provisions
for base rent plus percentage rent based on defined sales levels.
Our leases typically require us to pay personal property taxes, our
pro rata share of real property taxes of the shopping mall, our own
utilities, repairs and maintenance in our store, a pro rata share of the
malls’ common area maintenance and, in some instances, merchant
association fees and media fund contributions. Many of the leases
contain a provision whereby either we or the landlord may terminate
the lease after a certain time, typically in the third or fourth year and
sixth or seventh year of the lease, if a certain minimum sales volume
is not achieved. Many leases contain incentives to help defray the cost
of construction of a new store. Typically, a portion of the incentive
must be repaid to the landlord if we choose to terminate the lease. In
Our leases in the United Kingdom and Ireland typically have terms of
ten to fifteen years and generally contain a provision whereby every
fifth year the rental rate can be adjusted to reflect the current market
rates. The leases typically provide the lessee with the first right for
renewal at the end of the lease. We may also be required to make
deposits and rent guarantees to secure new leases as we expand. Real
estate taxes also change according to government time schedules to
reflect current market rental rates for the locations we lease. Rents are
charged quarterly and paid in advance.
In fiscal 2014, we expect to spend approximately $15 to $18 million
on capital expenditures. Capital spending in fiscal 2013 totaled $19
million, primarily to support the refresh and repositioning of stores
and investment in infrastructure.
On February 20, 2007, we announced that our board of directors
had authorized a $25 million share repurchase program of our
outstanding common stock. On March 10, 2008, we announced
an expansion of our share repurchase program to $50 million.
Following a series of annual extensions, we announced on February
24, 2014, that our share repurchase program had been extended to
March 31, 2015. We currently intend to purchase up to an aggregate
of $50 million of our common stock in the open market (including
through 10b5-1 plans), through privately negotiated transactions or
through an accelerated repurchase transaction. As of March 7, 2014,
approximately 6.0 million shares at an average price of $7.25 per
share have been repurchased under this program for an aggregate
amount of $43.6 million, leaving $6.4 million of availability under
the program. The primary source of funding for the program has
been, and is expected to be, cash on hand. The timing and amount
of additional share repurchases, if any, will depend on price, market
conditions, applicable regulatory requirements, and other factors.
The program does not require us to repurchase any specific number
of shares and may be modified, suspended or terminated at any time
without prior notice. Shares repurchased under the program have
been, and will continue to be, subsequently retired.
We believe that cash generated from operations and borrowings
under our credit agreement will be sufficient to fund our working
capital and other cash flow requirements for the near future. Our
credit agreement expires on December 31, 2015.
Off-Balance Sheet Arrangements
None
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Contractual Obligations and Commercial Commitments
Our contractual obligations and commercial commitments include future minimum obligations under operating leases and purchase
obligations. Our purchase obligations primarily consist of purchase orders for merchandise inventory. The future minimum payments for these
obligations as of December 28, 2013 for periods subsequent to this date are as follows:
(In thousands)
Operating lease obligations
Purchase obligations
Total
Payments due by Fiscal Period as of December 28, 2013
Total
2014
2015
2016
2017
2018
Beyond
$ 200,769
$
43,551
$
37,617
$
28,809
$
21,573
$
15,889
$
53,330
31,032
31,032
-
-
-
-
-
$ 231,801
$
74,583
$
37,617
$
28,809
$
21,573
$
15,889
$
53,330
Our total liability for uncertain tax positions under the Financial
Accounting Standards Board Accounting Standards Codification
(ASC) section 740-10-25 was $0.2 million as of December 28, 2013.
During the next fiscal year, unrecognized tax benefits are expected
to remain unchanged. At this time, we do not expect a significant
payment related to these obligations within the next year. See Note 8 -
Income Taxes to the Consolidated Financial Statements for additional
information.
Inflation
We do not believe that inflation has had a material adverse impact on
our business or operating results during the periods presented. We
cannot assure you, however, that our business will not be affected by
inflation in the future.
Critical Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the appropriate application
of certain accounting policies, which require us to make estimates
and assumptions about future events and their impact on amounts
reported in our financial statements and related notes. Since future
events and their impact cannot be determined with certainty,
the actual results will inevitably differ from our estimates. Such
differences could be material to the financial statements.
We believe application of accounting policies, and the estimates
inherently required therein, are reasonable. These accounting
policies and estimates are periodically reevaluated, and adjustments
are made when facts and circumstances dictate a change.
Historically, we have found our application of accounting policies to
be appropriate, and actual results have not differed materially from
those determined using necessary estimates.
Our accounting policies are more fully described in Note 2 to our
Consolidated Financial Statements, which appear elsewhere in this
Annual Report on Form 10-K. We have identified the following critical
accounting estimates:
Inventory
Inventory is stated at the lower of cost or market, with cost
determined on an average cost basis. Historically, we have not
conducted sales whereby we offer products below cost and,
accordingly, have no significant lower of cost or market reserve
recorded.
Throughout the year we record an estimated cost of shortage
based on past experience. The amount accrued for shortage each
period is based on detailed historical averages. The accrual rate
remained unchanged for fiscal 2013, 2012 and 2011. Periodic physical
inventories are taken and any difference between the actual physical
count of merchandise and the recorded amount in our records are
adjusted and recorded as shortage. Historically, including fiscal years
2013, 2012 and 2011, the timing of the physical inventory has been
in the fourth quarter so that no material amount of shortage was
required to be estimated on activity between the date of the physical
count and year-end. However, future physical counts of merchandise
may not be at times at or near the end of a fiscal quarter or fiscal
year-end, and our estimate of shortage for the intervening period
may be material based on the amount of time between the date of the
physical inventory and the date of the fiscal quarter or year-end.
Long-Lived Assets
In accordance with ASC section 360-10-35 we assess the potential
impairment of long-lived assets annually or when events or changes
in circumstances indicate that the carrying value may not be
recoverable. Recoverability is measured by comparing the carrying
amount of an asset, or asset group, to expected future net cash flows
generated by the asset, or asset group. If the carrying amount exceeds
its estimated undiscounted future cash flows, the carrying amount
is compared to its fair value and an impairment charge is recognized
to the extent of the difference. For purposes of evaluating store
assets for impairment, we have determined that each store location
is an asset group. As of December 28, 2013, store assets represented
approximately $47.1 million, or approximately 67% of total property,
plant and equipment, net. Factors that we consider important which
could individually or in combination trigger an impairment review
26
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include, but are not limited to, the following: (1) significant
underperformance relative to historical or projected future
operating results; (2) significant changes in the manner of our use
of the acquired assets or the strategy for our overall business; and
(3) significant changes in our business strategies and/or negative
industry or economic trends. We assess events and changes in
circumstances or strategy that could potentially indicate that the
carrying value of long-lived assets may not be recoverable as they
occur. Due to the significance of the fourth quarter to individual store
locations, we assess store performance annually, using the full year’s
results. We consider a historical and/or projected negative cash flow
trend for a store location to be an indicator that the carrying value of
that asset group may not be recoverable.
As a result of our 2013 review, we determined that one store would
not be able to recover the carrying value of certain store leasehold
improvements through expected undiscounted cash flows over
the remaining life of the related assets. Accordingly, we reduced
the carrying value of the assets to fair value, calculated as the
present value of estimated future cash flows for each asset group
and recorded asset impairment charges of $0.1 million in the fourth
quarter of fiscal 2013, which is included in cost of merchandise sold.
The calculation of fair value could increase or decrease depending
on changes in the inputs and assumptions used, such as changes in
the financial performance of the asset group, future growth rate and
discount rate. In order to evaluate the sensitivity of the fair value
assumptions on store asset impairment, we applied a hypothetical
decrease of 1% in the comparable stores sales trend and in margin,
which we believe is appropriate. Based on the analysis performed as
of December 28, 2013, the changes in our assumptions would not have
resulted in additional impairment charges.
As a result of our reviews in 2012 and 2011, we determined that certain
stores would not be able to recover the carrying value of certain store
leasehold improvements through expected undiscounted cash flows
over the remaining life of the related assets. Accordingly, we reduced
the carrying value of the assets to fair value, calculated as the
present value of estimated future cash flows for each asset group and
recorded asset impairment charges of $1.4 million and $0.4 million
in the fourth quarters of fiscal 2012 and 2011, respectively, which are
included in cost of merchandise sold.
Additionally, we consider a more likely than not assessment that an
individual location will close prior to the end of its lease term as a
triggering event to review the store asset group for recoverability.
These assessments are reviewed on a quarterly basis. As a result of
these reviews, it was determined that certain stores would not be
able to recover the carrying value of store leasehold improvements
through expected undiscounted cash flows over the shortened
remaining life of the related assets. Accordingly, the carrying value
of the assets was reduced to fair value, calculated as the estimated
future cash flows for each asset group, and asset impairment charges
of $1.0 million were recorded in fiscal 2013, which are included in
selling, general and administrative expenses as a component of net
loss before income taxes in the Retail segment. As of December 28,
2013, the remaining net book value of the leasehold assets related
to these stores was $-0-. In fiscal 2012, we recorded $0.9 million in
similar charges.
In the event that we decide to close any or all of these stores in the
future, we may be required to record additional impairments, lease
termination fees, severance and other charges. Impairment losses in
the future are dependent on a number of factors such as site selection
and general economic trends, and thus could be significantly
different than historical results. As we continue to face a challenging
retail environment and general uncertainty in the global economy,
the assumptions used in future calculations of fair value may change
significantly which could result in further impairment charges in
future periods.
Corporate assets, including computer hardware and software and the
Company-owned distribution center (approximately $23.1 million as
of December 28, 2013), and certain other assets, such as trademarks
and intellectual property, net (approximately $0.6 million as of
December 28, 2013), have a broad applicability and are generally
considered to be recoverable, unless abandoned. Other long-lived
assets, including deferred franchise and lease costs (approximately
$0.6 million as of December 28, 2013), are monitored in relation to the
relevant franchisee or store location.
At December 28, 2013, we evaluated our trade credits asset and
determined that certain assumptions regarding future utilization
were no longer attainable. Accordingly, an impairment review was
performed. Based on current utilization expectations, we determined
that the full value of the asset was not recoverable. Accordingly,
the carrying value of the trade credits was reduced to fair value,
calculated as the expected present value of estimated future
utilization. An impairment charge of $0.3 million was recorded in
the fiscal 2013 fourth quarter and is included in selling, general and
administrative expenses as a component of net income before income
taxes in the Commercial segment. As of December 28, 2013, $0.7
million was included in prepaid expenses and other current assets
and $0.4 million was included in other assets, net, related to these
credits. In fiscal 2012, we recorded a similar charge of $2.2 million.
Revenue Recognition
Revenues from retail sales, net of discounts and excluding sales
tax, are recognized at the time of sale. Guest returns have not been
significant. Revenues from gift cards are recognized at the time of
redemption. Unredeemed gift cards are included in current liabilities
on the consolidated balance sheets.
We have a customer loyalty program, the Stuff Fur Stuff club, whereby
guests enroll in the program and receive one point for every dollar
spent. Points accumulate and expire after 12 months of inactivity. In
North America, guests receive a coupon for free merchandise after
reaching 50 points and a $10 reward certificate after reaching 100
points. Additional awards are earned for each additional 50 points
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earned up to 250 points in the 12 month period. In the UK, guests
receive a £5 certificate for every 50 points they earn. An estimate of
the obligation related to the program, based on historical redemption
patterns, is recorded as deferred revenue and a reduction of net retail
sales
We assess the adequacy of the deferred revenue liability based upon
our review of point conversion and award redemption patterns at
the end of each fiscal quarter. Due to the estimates involved in these
assessments, adjustments to the historical rates are generally made
no more often than annually in order to allow time for more definite
trends to emerge. Based on this assessment at the end of fiscal 2013,
the deferred revenue liability was adjusted downward by $0.1 million,
with a corresponding increase to net retail sales, and a $0.1 million
decrease in net loss.
Based on this assessment at the end of fiscal 2012 and 2011, the
deferred revenue liability was adjusted downward by $0.5 million
and $1.5 million, respectively, with a corresponding increase to net
retail sales, and a $0.5 million and $1.5 million decrease in net loss,
respectively.
The calculation of fair value could increase or decrease depending on
changes in the inputs and assumptions used, specifically, expected
conversion and redemption rates. In order to evaluate the sensitivity
of the estimates used in the recognition of deferred revenue, we
applied a hypothetical increase of 100 bps in the conversion and
redemption rates which we believe is appropriate. Based on the
analysis performed as of December 28, 2013, the change in our
assumptions would have resulted in a $0.3 million reduction of net
retail sales.
Income Taxes
Our income tax expense is based on our income, statutory tax rates,
and tax planning opportunities available in the various jurisdictions
in which we operate. Tax laws are complex and subject to different
interpretations by the taxpayer and respective governmental taxing
authorities. Significant judgment is required in determining our
income tax expense and in evaluating our tax positions, including
evaluating uncertainties. Management assesses the valuation
allowance recorded against deferred tax assets at the end of each
reporting period. Deferred tax assets and liabilities are recognized
for the expected tax consequences of temporary differences between
the tax bases of assets and liabilities and their reported amounts. We
performed an analysis of all available evidence, consistent with the
provisions under the Income Taxes topic of the ASC. As of December
28, 2013, we continue to maintain a valuation allowance on most of
our deferred tax assets. The remaining net deferred tax assets as of
December 28, 2013, represent the estimated future tax benefits to be
received from taxing authorities or future reductions of taxes payable.
Under the Income Taxes topic of the ASC, in order to recognize an
uncertain tax benefit, the taxpayer must be more likely than not
of sustaining the position, and the measurement of the benefit is
calculated as the largest amount that is more than 50 percent likely
to be realized upon resolution of the benefit. Tax authorities regularly
examine the Company’s returns in the jurisdictions in which the
Company does business. Management regularly assesses the tax risk
of the Company’s return filing positions and believes its accruals
for uncertain tax benefits are adequate as of December 28, 2013 and
December 29, 2012.
Recent Accounting Pronouncements
In July 2013, the FASB issued accounting guidance requiring entities
to present unrecognized tax benefits as a reduction to any related
deferred tax assets for net operating losses, similar tax losses, or tax
credit carryforwards if such settlement is required or expected in
the event an uncertain tax position is disallowed. Currently effective
U.S. GAAP does not provide explicit guidance on the topic. This
new presentation guidance will become effective prospectively for
fiscal years, and interim periods within those years, beginning after
December 15, 2013. Accordingly, we will adopt this standard in the
first quarter of fiscal 2014. While we are evaluating the impact this
standard will have on the presentation of unrecognized tax benefits
in our consolidated balance sheet, it will not affect our results of
operations, financial condition or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Our market risks relate primarily to changes in interest rates, and
we bear this risk in two specific ways. First, our revolving credit
facility carries a variable interest rate that is tied to market indices
and, therefore, our results of operations and our cash flows can
be impacted by changes in interest rates. Outstanding balances
under our credit facility bear interest at LIBOR plus 1.8%. We had no
borrowings during fiscal 2013. Accordingly, a 100 basis point change
in interest rates would result in no material change to our annual
interest expense. The second component of interest rate risk involves
the short term investment of excess cash in short term, investment
grade interest-bearing securities. If there are changes in interest
rates, those changes would affect the investment income we earn on
these investments and, therefore, impact our cash flows and results of
operations.
We conduct operations in various countries, which expose us to
changes in foreign exchange rates. The financial results of our
foreign subsidiaries and franchisees may be materially impacted by
exposure to fluctuating exchange rates. Reported sales, costs and
expenses at our foreign subsidiaries, when translated into U.S. dollars
for financial reporting purposes, can fluctuate due to exchange rate
movement. While exchange rate fluctuations can have a material
impact on reported revenues, costs and expenses, and earnings, this
impact is principally the result of the translation effect and does not
materially impact our short-term cash flows.
Although we enter into a significant amount of purchase obligations
outside of the U.S., these obligations are settled primarily in U.S.
28
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dollars and, therefore, we believe we have only minimal exposure
at present to foreign currency exchange risks for our purchase
obligations. Historically, we have not hedged our currency risk and do
not currently anticipate doing so in the future.
We do not engage in financial transactions for trading or speculative
purposes.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The financial statements and schedules are listed under Item 15(a)
and filed as part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief President Bear and our Chief Operations and
Financial Bear, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)), as of the end of the period covered by this
report. Our disclosure controls and procedures are designed to
ensure that information required to be disclosed by us in the reports
filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in
the SEC’s rules and forms and is accumulated and communicated
to management, including our certifying officers, as appropriate
to allow timely decisions regarding required disclosure. Based on
the foregoing evaluation, our management, including the Chief
Executive Officer and Chief President Bear and the Chief Operations
and Financial Bear, concluded that our disclosure controls and
procedures were effective as of December 28, 2013, the end of the
period covered by this Annual Report.
It should be noted that our management, including the Chief
Executive Officer and Chief President Bear and the Chief Operations
and Financial Bear, do not expect that our disclosure controls and
procedures or internal controls will prevent all error and all fraud.
A control system, no matter how well conceived or operated, can
provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion
of two or more people, or by management override of the controls.
The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; over time, controls may
become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Management’s Report on Internal Control Over
Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934. Under the
supervision and with the participation of our management, including
the Chief Executive Officer and Chief President Bear and the Chief
Operations and Financial Bear, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of
December 28, 2013. Our management, with the participation of
our Chief Executive Officer and Chief President Bear and our Chief
Operations and Financial Bear, also conducted an evaluation of our
internal control over financial reporting to determine whether any
changes occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. All internal control systems
have inherent limitations, including the possibility of circumvention
and overriding the control. Accordingly, even effective internal
control can provide only reasonable assurance as to the reliability of
financial statement preparation and presentation. Further, because
of changes in conditions, the effectiveness of internal control may
vary over time.
In making its evaluation, our management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control-Integrated Framework
(1992 framework). Based upon this evaluation, our management has
concluded that our internal control over financial reporting as of
December 28, 2013 is effective.
Our independent registered public accounting firm, Ernst & Young
LLP, has audited the effectiveness of our internal control over
financial reporting, as stated in its report which is included herein.
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Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred
during the fiscal 2013 fourth quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Build-A-Bear Workshop, Inc.
In our opinion, Build-A-Bear Workshop, Inc. and subsidiaries,
maintained, in all material respects, effective internal control over
financial reporting as of December 28, 2013, based on the COSO
criteria.
We have audited Build-A-Bear Workshop, Inc. and subsidiaries
(collectively, the Company’s) internal control over financial
reporting as of December 28, 2013, based on criteria established in
Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (1992
framework) (the COSO criteria). The Company's management is
responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles and that
receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the
financial statements.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Build-A-Bear Workshop, Inc. and
subsidiaries as of December 28, 2013 and December 29, 2012, and the
related consolidated statements of operations, comprehensive loss,
stockholders’ equity, and cash flows for the each of the three years in
the period ended December 28, 2013, and our report dated March
13, 2014, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 13, 2014
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Information concerning directors, appearing under the caption
“Directors”, “The Board of Directors and its Committees”,
“Committee Charters, Corporate Governance Guidelines, Business
Conduct Policy and Code of Ethics” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in our Proxy Statement (the
“Proxy Statement”) to be filed with the SEC in connection with our
Annual Meeting of Shareholders scheduled to be held on May 8, 2014
is incorporated by reference in response to this Item 10.
30
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Business Conduct Policy
The Board of Directors has adopted a Business Conduct Policy
applicable to our directors, officers and employees, including all
executive officers. The Business Conduct Policy has been posted
in the Investor Relations section of our corporate website at http://
ir.buildabear.com. We intend to satisfy the amendment and waiver
disclosure requirements under applicable securities regulations by
posting any amendments of, or waivers to, the Business Conduct
Policy on our Web site.
The information appearing under the caption “Committee Charters,
Corporate Governance Guidelines, Business Conduct Policy and
Code of Ethics” in the Proxy Statement is incorporated by reference in
response to this Item 10.
Executive Officers and Key Employees
Sharon Price John, 50, was appointed to the Board of Directors on
June 3, 2013 in connection with her employment as Chief Executive
Officer and Chief President Bear of the Company after being
recommended to our Board by a third-party search firm. From
January 2010 through May 2013, Ms. John served as President of Stride
Rite Children's Group LLC, a division of Wolverine World Wide, Inc.,
which designs and markets footwear for children. From 2002 through
2009, she held positions of broadened portfolio and increased
responsibility at Hasbro, Inc., a multinational toy and board game
company, including as General Manager & Senior Vice President of
its U.S. Toy Division from 2006 to 2008 and General Manager & Senior
Vice President of its Global Preschool unit from June 2008 through
2009. Ms. John also founded and served as Chief Executive Officer of
Checkerboard Toys; served as Vice President, U.S. Toy Division with
VTech Industries, Inc.; and served in a range of roles at Mattel, Inc.
She started her career in advertising, overseeing accounts such as
Hersey and the Snickers/M&M Mars business.
Gina Collins, 41, joined Build-A-Bear Workshop in January 2014
as Chief Marketing Officer and Brand Bear. Prior to joining the
Company, Ms. Collins was at The Coca-Cola Company from
December 2001 to January 2014 in various senior leadership roles
of increasing responsibility, including Area Vice President, North
America, Entertainment Marketing from April 2012 to January 2014,
Group Director, North America, Strategic Marketing from April 2010
to March 2012, and Global Director, Media and Interactive Marketing
Procurement from January 2008 to March 2010. Before joining The
Coca-Cola Company, Ms. Collins was a Principal/Senior Analyst at
American Management Systems (CapGemini).
Eric Fencl, 51, joined Build-A-Bear Workshop in July 2008 as Chief
Bearrister—General Counsel. In 2009 he assumed responsibility for
international franchising and human resources and in November
2013 was appointed Corporate Secretary. He now holds the title of
Chief Bearrister, General Counsel, International Franchising and
Secretary. Prior to joining the Company, Mr. Fencl was Executive Vice
President, General Counsel and Secretary for Outsourcing Solutions
Inc., a national accounts receivable management firm from August
1998 to June 2008. From September 1990 to August 1998, he held legal
positions for Monsanto Company, McDonnell Douglas Corporation
and Bryan Cave LLP. Mr. Fencl began his career in 1984 as an auditor
with Arthur Young & Company.
Dave Finnegan, 44, joined Build-A-Bear Workshop in December
1999 as Director Inbearmation Technology and was named Chief
Information Bear in January 2007, adding logistics responsibilities
in March 2009 to become Chief Information and Logistics Bear, and
in March 2010 he became Chief Information Bear. Prior to joining
the Company, Mr. Finnegan held information systems management
positions at Novell, Inc and Interchange Technologies Inc.
Tina Klocke, 54, has been our Chief Financial Bear since November
1997, our Treasurer since April 2000, and served as our Secretary from
February 2004 until November 2013. In March 2009, she assumed
responsibility for store operations and in July 2011, she assumed
responsibility for logistics and warehousing. From July 2011 until
March 2013, she was responsible for merchandise planning. She
now holds the title of Chief Operations and Financial Bear. Prior
to joining the Company, Ms. Klocke was the Controller for Clayton
Corporation, a manufacturing company, where she supervised all
accounting and finance functions as well as human resources. Prior
to joining Clayton Corporation in 1990, she was the controller for
Love Real Estate Company, a diversified investment management and
development firm. Ms. Klocke began her career in 1982 with Ernst &
Young LLP.
Kenneth Wine, 51, joined Build-A-Bear Workshop in December 2012
as Chief Merchandise Bear. Prior to joining the Company, Mr. Wine
was Senior Vice President of Merchandising at Weissman Designs for
Dance, a national dancewear retailer, from June 2008 to December
2012, and Director of Merchandising at Oriental Trading Company, a
direct retailer of value-priced party supplies, arts and crafts, school
supplies, toys and novelties, from January 2007 to May 2008. Prior to
that Mr. Wine held senior merchandising positions with Lands’ End,
American Girl, Woolrich, Inc. and Polo Ralph Lauren.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the sections titled “Executive
Compensation” and “Board of Directors Compensation” in the
Proxy Statement is incorporated herein by reference in response
to this Item 11.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information contained in the section titled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement
is incorporated herein by reference in response to this Item 12.
Equity Compensation Plan Information
Plan category
Equity compensation plans approved by security holders
Total
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(b)
Weighted-average exercise
price of outstanding options,
warrants and rights
(c)
Number of securitiesremaining available for
future issuance under equity compensation
plans(excluding securities
reflected in column (a))
1,065,012
1,065,012
$
$
8.72
8.72
471,327
471,327
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PART IV
The information contained in the section titled “Related Party
Transactions” in the Proxy Statement is incorporated herein by
reference in response to this Item 13.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
The information contained in the section titled “Principal
Accountant Fees” and “Policy Regarding Pre-Approval of Services
Provided by the Independent Registered Public Accounting Firm” in
the Proxy Statement is incorporated herein by reference in response
to Item 14.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a)(1) Financial Statements
The financial statements and schedules set forth below are filed on
the indicated pages as part of this Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm
33
PAGE
Consolidated Balance Sheets as of December 28, 2013
and December 29, 2012
Consolidated Statements of Operations for the fiscal
years ended December 28, 2013, December 29, 2012
and December 31, 2011
Consolidated Statements of Comprehensive Loss
for the fiscal years ended December 28, 2013,
December 29, 2012 and December 31, 2011
Consolidated Statements of Stockholders’ Equity
for the fiscal years ended December 28, 2013,
December 29, 2012 and December 31, 2011
Consolidated Statements of Cash Flows for the
fiscal years ended December 28, 2013, December 29, 2012
and December 31, 2011
Notes to Consolidated Financial Statements
34
35
36
36
37
38
32
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Build-A-Bear Workshop, Inc.
We have audited the accompanying consolidated balance sheets of Build-A-Bear Workshop, Inc. and subsidiaries (collectively, the Company) as
of December 28, 2013 and December 29, 2012, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity,
and cash flows for each of the three years in the period ended December 28, 2013. Our audits also included the financial statement schedule listed
in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Build-A-
Bear Workshop, Inc. and subsidiaries at December 28, 2013 and December 29, 2012, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 28, 2013, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Build-A-Bear
Workshop, Inc. and subsidiaries’ internal control over financial reporting as of December 28, 2013, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our
report dated March 13, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 13, 2014
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Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Inventories
Receivables
Prepaid expenses and other current assets
Deferred tax assets
Total current assets
Property and equipment, net
Other intangible assets, net
Other assets, net
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Gift cards and customer deposits
Deferred revenue
Total current liabilities
Deferred franchise revenue
Deferred rent
Other liabilities
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares issued or
outstanding at December 28, 2013 and December 29, 2012
Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and
outstanding: 17,386,920 and 17,068,182 shares, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders' equity
Total Liabilities and Stockholders' Equity
See accompanying notes to consolidated financial statements.
December 29,
2013
December 29,
2012
$
44,665 $
$
$
50,248
14,542
11,547
753
121,755
70,163
518
2,206
194,642 $
34,977 $
16,380
33,786
4,687
89,830
905
19,357
160
-
174
69,094
(7,303)
22,425
84,390
45,171
46,904
9,428
14,216
987
116,706
71,459
633
3,304
192,102
38,984
11,570
30,849
4,800
86,203
1,177
20,843
742
-
171
66,112
(7,683)
24,537
83,137
$
194,642 $
192,102
34
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Cash and cash equivalents
$
44,665 $
Prepaid expenses and other current assets
ASSETS
Current assets:
Inventories
Receivables
Deferred tax assets
Total current assets
Property and equipment, net
Other intangible assets, net
Other assets, net
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Gift cards and customer deposits
Deferred revenue
Total current liabilities
Deferred franchise revenue
Deferred rent
Other liabilities
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares issued or
outstanding at December 28, 2013 and December 29, 2012
Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and
outstanding: 17,386,920 and 17,068,182 shares, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders' equity
Total Liabilities and Stockholders' Equity
See accompanying notes to consolidated financial statements.
December 29,
December 29,
2013
2012
$
$
50,248
14,542
11,547
753
121,755
70,163
518
2,206
194,642 $
34,977 $
16,380
33,786
4,687
89,830
905
19,357
160
-
174
69,094
(7,303)
22,425
84,390
45,171
46,904
9,428
14,216
987
116,706
71,459
633
3,304
192,102
38,984
11,570
30,849
4,800
86,203
1,177
20,843
742
-
171
66,112
(7,683)
24,537
83,137
$
194,642 $
192,102
Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share and per share data)
Revenues:
Net retail sales
Franchise fees
Commercial revenue
Total revenues
Costs and expenses:
Cost of merchandise sold
Selling, general, and administrative
Goodwill impairment
Interest expense (income), net
Total costs and expenses
Loss before income taxes
Income tax expense (benefit)
Net loss
Loss per common share:
Basic
Diluted
Shares used in computing per common share amounts:
Basic
Diluted
See accompanying notes to consolidated financial statements.
Fiscal Year
2013
2012
2011
$
373,173
$
374,553
$
387,041
3,564
2,332
379,069
220,738
160,708
-
(259)
381,187
(2,118)
(6)
(2,112)
(0.13)
(0.13)
$
$
$
3,598
2,790
380,941
230,181
165,516
33,670
3
429,370
(48,429)
866
(49,295)
(3.02)
(3.02)
$
$
$
3,391
3,943
394,375
234,227
162,881
-
(81)
397,027
(2,652)
14,410
(17,062)
(0.98)
(0.98)
16,465,138
16,465,138
16,331,672
16,331,672
17,371,315
17,371,315
$
$
$
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Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(Dollars in thousands)
Net loss
Foreign currency translation adjustment
Reclass realized gain on liquidation of investment in a foreign entity
Other comprehensive income (loss)
Comprehensive loss
See accompanying notes to consolidated financial statements.
Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
Fiscal Year
2013
2012
(2,112)
$
(49,295)
$
380
-
380
2,889
(407)
2,482
2011
(17,062)
(206)
-
(206)
(1,732)
$
(46,813)
$
(17,268)
$
$
Common Stock
Additional
paid-in capital
Accumulated
other comprehensive
income (loss)
Retained Earnings
Total
Balance, January 1, 2011
$
Share repurchase
Stock-based compensation
Shares issued under employee stock plans
Other comprehensive loss
Net loss
Balance, December 31, 2011
Share repurchase
Stock-based compensation
Shares issued under employee stock plans
Other comprehensive income
Net loss
Balance, December 29, 2012
$
Share repurchase
Stock-based compensation
Shares issued under employee stock plans
Other comprehensive income
Net loss
196
(25)
-
3
-
-
174
(4)
-
1
-
-
171
(0)
-
3
-
-
$
76,582
$
(9,959)
$
90,894
$
(14,977)
4,605
(808)
-
-
65,402
(1,343)
3,611
(1,558)
-
-
-
-
-
(206)
-
(10,165)
-
-
-
2,482
-
-
-
-
-
(17,062)
73,832
-
-
-
-
(49,295)
$
66,112
$
(7,683)
$
24,537
$
(216)
2,849
349
-
-
-
-
-
380
-
-
-
-
-
(2,112)
Balance, December 28, 2013
$
174
$
69,094
$
(7,303)
$
22,425
$
See accompanying notes to consolidated financial statements.
157,713
(15,002)
4,605
(805
(206)
(17,062)
129,243
(1,347)
3,611
(1,557)
2,482
(49,295)
83,137
(216)
2,849
352
380
(2,112)
84,390
36
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Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
$
(2,112)
$
(49,295)
$
(17,062)
Fiscal Year
2013
2012
2011
Depreciation and amortization
Goodwill impairment
Asset impairment
Deferred taxes
Losses from investment in affiliate
Loss on disposal of property and equipment
Stock-based compensation
Trade credit utilization
Change in assets and liabilities:
Inventories
Receivables
Prepaid expenses and other assets
Accounts payable and accrued expenses
Lease related liabilities
Gift cards and customer deposits
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of other assets and other intangible assets
Proceeds from sale or maturity of short term investments
Purchases of short term investments
Investment in unconsolidated affiliate
19,216
-
1,408
76
-
715
2,849
498
(2,987)
(4,727)
2,778
695
(1,863)
2,910
(398)
19,058
(19,055)
(307)
-
-
-
21,422
33,670
4,486
109
475
292
3,611
515
5,298
(1,520)
1,263
(2,363)
(3,120)
2,445
(746)
16,542
(16,633)
(635)
2,647
-
(475)
Cash flow used in investing activities
(19,362)
(15,096)
Cash flows from financing activities:
Proceeds from the exercise of employee stock options, net of withholding
tax payments
Purchases of Company's common stock
Cash flow provided by (used in) financing activities
Effect of exchange rates on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Net cash paid (received) during the period for income taxes
See accompanying notes to consolidated
348
(216)
132
(334)
(506)
45,171
44,665
1,113
$
$
(1,555)
(1,347)
(2,902)
260
(1,196)
46,367
45,171
182
$
$
$
$
24,232
-
416
14,560
-
624
4,605
253
(5,477)
35
1,279
737
(4,743)
(561)
(1,664)
17,234
(12,035)
(213)
4,829
(5,899)
-
(13,318)
(809)
(15,002)
(15,811)
(493)
(12,388)
58,755
46,367
(98)
BUILD - A - BE AR WORKSHOP, INC.
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Notes to Consolidated Financial Statements
(1) Description of Business and Basis of Preparation
Build-A-Bear Workshop, Inc. (the Company) is a specialty retailer of
plush animals and related products. The Company began operations
in October 1997. The Company sells its products through its 323
company-owned stores operated primarily in leased locations in
malls in the United States, Canada, Puerto Rico, the United Kingdom
and Ireland along with its Web sites. Operations in foreign countries
where the Company does not have company-owned stores are
through franchise agreements.
Certain reclassifications of prior year amounts have been made to
conform to current year presentation, none of which impact net loss
in any period.
(2) Summary of Significant Accounting Policies
A summary of the Company’s significant accounting policies applied
in the preparation of the accompanying consolidated financial
statements follows:
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Build-A-Bear Workshop, Inc. and its wholly-owned
subsidiaries. All significant intercompany accounts are eliminated in
consolidation.
(b) Fiscal Year
The Company operates on a 52- or 53-week fiscal year ending on the
Saturday closest to December 31. The periods presented in these
financial statements are the fiscal years ended December 28, 2013
(fiscal 2013), December 29, 2012 (fiscal 2012) and December 31, 2011
(fiscal 2011). All fiscal years presented included 52 weeks. References
to years in these financial statements relate to fiscal years or year
ends rather than calendar years.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term highly liquid
investments with an original maturity of three months or less held in
both domestic and foreign financial institutions.
The majority of the Company’s cash and cash equivalents exceed
federal deposit insurance limits. The Company has not experienced
any losses in such accounts and management believes that the
Company is not exposed to any significant credit risk on cash and
cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost or market, with cost
determined on an average-cost basis. Inventory includes supplies of
$2.9 million and $3.5 million as of December 28, 2013 and December
29, 2012, respectively. A reserve for estimated shortage is accrued
throughout the year based on detailed historical averages.
(e) Receivables
Receivables consist primarily of amounts due to the Company in
relation to tenant allowances, wholesale and corporate product sales,
franchisee royalties and product sales, certain amounts due from
taxing authorities and licensing revenue. The Company assesses the
collectability of all receivables on an ongoing basis by considering
its historical credit loss experience, current economic conditions,
and other relevant factors. Based on this analysis, the Company has
determined that no material allowance for doubtful accounts was
necessary at either December 28, 2013 and December 29, 2012.
(f) Property and Equipment
Property and equipment consist of leasehold improvements,
furniture and fixtures, computer equipment and software, building
and land and are stated at cost. Leasehold improvements are
depreciated using the straight-line method over the shorter of the
useful life of the assets or the life of the lease which is generally
ten years. Furniture and fixtures and computer equipment are
depreciated using the straight-line method over the estimated
service lives ranging from three to seven years. Computer software
is amortized using the straight-line method over a period of
three to five years. New store construction deposits are recorded
at the time the deposit is made as construction-in-progress and
reclassified to the appropriate property and equipment category at
the time of completion of construction, when operations of the store
commence. Maintenance and repairs are expensed as incurred and
improvements are capitalized. Gains or losses on the disposition of
fixed assets are recorded upon disposal.
(g) Goodwill
Goodwill is tested for impairment annually or more frequently if
events or changes in circumstances indicate that the asset might
be impaired. This testing requires comparison of the carrying
value of the reporting unit to its fair value and a reconciliation to
the Company’s total market capitalization, and when appropriate,
the carrying value of impaired assets is reduced to fair value. The
calculation of fair value requires multiple assumptions regarding
our future operations to determine future cash flows, including but
not limited to, sales volume, margin rates, store growth rates and
discount rates, all of which are Level 3 fair value inputs. In 2012, we
performed our annual evaluation of our goodwill as of December 29,
2012. As a result of the sustained decline in the market price of our
common stock, coupled with the decline in the performance of the
UK reporting unit, we determined that the fair value of the reporting
unit, estimated using discounted cash flow analysis and reconciled to
our market capitalization, was less than its carrying value. As a result,
an impairment charge of $33.7 million was recorded as a component
of net loss before income taxes in the Retail segment. This
38
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Notes to Consolidated Financial Statements (continued)
represented the entire balance of the Company’s goodwill. There was
no tax-deductible goodwill as of December 28, 2013 and December
29, 2012. This does not change our long-term outlook for the UK
reporting unit.
(h) Other Intangible Assets
Other intangible assets consist primarily of initial costs related to
trademarks and other intellectual property. Trademarks and other
intellectual property represent third-party costs that are capitalized
and amortized over their estimated lives ranging from one to three
years using the straight-line method.
(i) Other Assets
Other assets consist primarily of deferred leasing fees, deferred costs
related to franchise agreements and trade credits. Deferred leasing
fees are initial, direct costs related to the Company’s operating
leases and are amortized over the term of the related leases. Deferred
franchise costs are initial costs related to the Company’s franchise
agreements that are deferred and amortized over the life of the
respective franchise agreement. Amortization expense related to
other assets was $0.2 million, $0.3 million and $0.5 million for 2013,
2012 and 2011, respectively. See Note 6 – Other Non-current Assets for
further discussion regarding trade credits.
(j) Long-lived Assets
Whenever facts and circumstances indicate that the carrying value
of a long-lived asset may not be recoverable, the carrying value
is reviewed. If this review indicates that the carrying value of the
asset will not be recovered, as determined based on projected
undiscounted cash flows related to the asset over its remaining life,
the carrying value of the asset is reduced to its estimated fair value.
See Note 4 – Property and Equipment and Note 6 – Other Non-current
Assets for further discussion regarding the impairment of long-lived
assets.
The calculation of fair value requires multiple assumptions regarding
our future operations to determine future cash flows, including
but not limited to, sales volume, margin rates and discount rates. If
different assumptions were used in the analysis, it is possible that
the amount of the impairment charge may have been significantly
different than what was recorded.
(k) Deferred Rent
Certain of the Company’s operating leases contain predetermined
fixed escalations of minimum rentals during the original lease terms.
For these leases, the Company recognizes the related rental expense
on a straight-line basis over the life of the lease and records the
difference between the amounts charged to operations and amounts
paid as deferred rent. The Company also receives certain lease
incentives in conjunction with entering into operating leases. These
lease incentives are recorded as deferred rent at the beginning of the
lease term and recognized as a reduction of rent expense over
the lease term. In addition, certain of the Company’s leases contain
future contingent increases in rentals. Such increases in rental
expense are recorded in the period that it is probable that store sales
will meet or exceed the specified target that triggers contingent rental
expense.
(l) Franchises
The Company defers initial, one-time nonrefundable franchise
fees and amortizes them over the initial term of the respective
franchise agreements, which extend for periods up to 25 years. The
Company’s obligations under the contract are ongoing and include
operations and product development support and training, generally
concentrated around new store openings. Continuing franchise fees
are recognized as revenue as the fees are earned.
(m) Retail Revenue Recognition
Net retail sales are net of discounts, exclude sales tax, and are
recognized at the time of sale. Shipping and handling costs billed to
customers are included in net retail sales.
Revenues from the sale of gift cards are recognized at the time
of redemption. Unredeemed gift cards are included in gift cards
and customer deposits on the consolidated balance sheets. The
company escheats a portion of unredeemed gift cards according to
the escheatment regulations of the relevant authority that generally
require remittance of the cost of merchandise portion of unredeemed
gift cards over five years old. The difference between the value of
gift cards and the amount escheated is recorded as income in the
consolidated statement of operations.
The Company has a customer loyalty program, the Stuff Fur Stuff
club, whereby guests enroll in the program and receive one point for
every dollar spent and receive awards for various discounts on future
purchases after achieving defined point thresholds. An estimate of
the obligation related to the program, based on historical redemption
patterns, is recorded as deferred revenue and a reduction of net retail
sales.
For 2013, 2012 and 2011, historical rates for points converting into
awards and ultimate award redemption were applied to actual
points and awards outstanding at the respective balance sheet date
to calculate the liability and corresponding adjustment to net retail
sales. Management reviews these patterns and assesses the adequacy
of the deferred revenue liability at the end of each fiscal quarter. Due
to the estimates involved in these assessments, adjustments to the
historical rates are generally made no more often than annually in
order to allow time for more definite trends to emerge.
Based on the assessment at the end of 2013, 2012 and 2011, the
deferred revenue liability was adjusted downward by $0.1 million,$0.5
million and $1.5 million, respectively, with corresponding increases
to net retail sales, and net loss was decreased by $0.1 million, $0.5
million and $1.5 million, respectively.
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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 and are included in selling, general and
administrative expenses.
(q) Advertising
The costs of advertising and marketing programs are charged to
operations in the first period the program takes place. Advertising
expense was $23.7 million, $23.0 million and $19.3 million for fiscal
years 2013, 2012 and 2011, 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 8—Income
Taxes for further discussion.
(s) Loss Per Share
Under the two-class method, basic loss per share is determined by
dividing net loss allocated to common stockholders by the weighted
average number of common shares outstanding during the period
since our participating securities do not contractually participate
in losses. 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 12 – Stock Incentive Plans. For fiscal
2013, 2012 and 2011, selling, general and administrative expense
includes $2.8 million, $3.6 million and $4.6 million, respectively, of
stock-based compensation expense.
(u) Comprehensive Loss
Comprehensive loss is comprised of net 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 28, 2013 and December 29,
2012.
(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 by management in future estimates could change significantly
due to changes in circumstances, including, but not limited to,
challenging economic conditions. Accordingly, future estimates may
change significantly. Significant items subject to such estimates and
assumptions include the valuation of long-lived assets, including
trade credits and deferred income tax assets, inventories, and the
determination of deferred revenue under the Company’s customer
loyalty program.
(x) Sales Tax Policy
The Company’s revenues in the consolidated statement of operations
are net of sales taxes.
(y) Foreign Currency Translation
Assets and liabilities of the Company’s foreign operations with
functional currencies other than the U.S. dollar are translated at
40
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Notes to Consolidated Financial Statements (continued)
the exchange rate in effect at the balance sheet date, while revenues
and expenses are translated at average rates prevailing during the
years. Translation adjustments are reported in accumulated other
comprehensive income, a separate component of stockholders’
equity.
(z) Investment in Affiliate
The Company holds a minority interest in Ridemakerz, LLC of
approximately 21%, which is accounted for under the equity method.
In 2009, the carrying value of this investment was reduced to $-0-.
No income or loss allocations, impairments or other charges related
to Ridemakerz were recorded in fiscal 2013 or 2011. In 2012, certain
investors exercised a put option on 1.25 million shares, requiring
an additional investment of $0.5 million, which was immediately
impaired and included in selling, general and administrative
expenses as a component of net loss before income taxes in the Retail
segment. Under the current agreements, the Company could, at its
discretion, own up to approximately 28% of fully diluted equity in
Ridemakerz. The Company has no further obligations relating to its
investment in Ridemakerz.
(3) Prepaid Expenses and Other Assets
Prepaid expenses and other current assets consist of the following
(in thousands):
Prepaid rent
Prepaid income taxes
Other
2013
4,608
$
280
6,659
11,547
$
$
$
2012
8,736
-
5,480
14,216
For 2013, 2012 and 2011, depreciation expense was $18.6 million, $20.4
million and $22.8 million, respectively.
In 2012, the Company made the decision to close a number of stores.
The Company considers a more likely than not assessment that an
individual location will close as a triggering event to review the
store asset group for recoverability. As a result of these reviews, it
was determined that certain stores would not be able to recover the
carrying value of store leasehold improvements through expected
undiscounted cash flows over the shortened remaining life of the
related assets. Accordingly, the carrying value of the assets was
reduced to fair value, calculated as the net present value of estimated
future cash flows for each asset group, and asset impairment
charges of $1.0 million and $0.9 million were recorded in fiscal 2013
and fiscal 2012, respectively, which are included in selling, general
and administrative expenses as a component of net loss before
income taxes in the Retail segment. Any remaining net book value
is depreciated over the shortened expected life. The inputs used to
determine the fair value of the assets are Level 3 fair value inputs as
defined by ASC section 820-10.
During 2013, the Company reviewed the operating performance and
forecasts of future performance for the stores in its Retail segment.
As a result of that review, it was determined that several stores would
not be able to recover the carrying value of certain store leasehold
improvements through expected undiscounted cash flows over the
remaining life of the related assets. Accordingly, the carrying value
of the assets was reduced to fair value, calculated as the net present
value of estimated future cash flows for each asset group, and asset
impairment charges of $0.1 million were recorded in the fourth
quarter of fiscal 2013, which are included in cost of merchandise sold
as a component of net loss before income taxes in the Retail segment.
The inputs used to determine the fair value of the assets are Level 3
fair value inputs as defined by ASC section 820-10. In the event that
we decide to close any or all of these stores in the future, we may
be required to record additional impairments, lease termination
charges, severance charges and other charges. The Company
recorded asset impairment charges of $1.4 million in the fourth
quarter of fiscal 2012 and $0.4 million in the fourth quarter of fiscal
2011.
(4) Property and Equipment
Property and equipment consist of the following (in thousands):
Land
Furniture and fixtures
Computer hardware
Building
Leasehold improvements
Computer software
Construction in progress
Less accumulated depreciation
2013
$
2,261
$
39,723
21,722
14,970
124,068
42,276
2,655
247,675
177,512
2012
2,261
40,516
23,120
14,970
136,402
40,943
2,381
260,593
189,134
$
70,163
$
71,459
In 2012, the Company made the decision to close a number of stores.
The Company considers a more likely than not assessment that an
individual location will close as a triggering event to review the
store asset group for recoverability. As a result of these reviews, it
was determined that certain stores would not be able to recover the
carrying value of store leasehold improvements through expected
undiscounted cash flows over the shortened remaining life of the
related assets. Accordingly, the carrying value of the assets was
reduced to fair value, calculated as the net present value of estimated
future cash flows for each asset group, and asset impairment
charges of $1.0 million and $0.9 million were recorded in fiscal 2013
and fiscal 2012, respectively, which are included in selling, general
and administrative expenses as a component of net loss before
income taxes in the Retail segment. Any remaining net book value
is depreciated over the shortened expected life. The inputs used to
determine the fair value of the assets are Level 3 fair value inputs as
defined by ASC section 820-10.
BUILD - A - BE AR WORKSHOP, INC.
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Notes to Consolidated Financial Statements (continued)
During 2013, the Company reviewed the operating performance and
forecasts of future performance for the stores in its Retail segment.
As a result of that review, it was determined that several stores would
not be able to recover the carrying value of certain store leasehold
improvements through expected undiscounted cash flows over the
remaining life of the related assets. Accordingly, the carrying value
of the assets was reduced to fair value, calculated as the net present
value of estimated future cash flows for each asset group, and asset
impairment charges of $0.1 million were recorded in the fourth
quarter of fiscal 2013, which are included in cost of merchandise sold
as a component of net loss before income taxes in the Retail segment.
The inputs used to determine the fair value of the assets are Level 3
fair value inputs as defined by ASC section 820-10. In the event that
we decide to close any or all of these stores in the future, we may
be required to record additional impairments, lease termination
charges, severance charges and other charges. The Company
recorded asset impairment charges of $1.4 million in the fourth
quarter of fiscal 2012 and $0.4 million in the fourth quarter of fiscal
2011.
(5) Other Intangible Assets
Other intangible assets consist of the following (in thousands):
Trademarks and other intellectual property
Less accumulated amortization
Total, net
2013
12,389
11,871
518
$
$
$
$
2012
12,151
11,518
633
(6) Other Non-current Assets
In 2010, certain other non-current assets were obtained through a
series of wholesale transactions whereby the Company exchanged
$6.4 million of inventory, at cost, with a third-party vendor for $4.9
million of trade credits and $1.5 million in cash. The transaction was
accounted for based upon the fair values of the assets involved in the
transaction. In accordance with Accounting Standards Codification
(ASC) Section 845-10, in an exchange transaction for trade credits, the
fair value of the asset being surrendered cannot exceed its carrying
value, meaning that the sale of the inventory was recorded at its cost
in the Commercial segment. The trade credits expire in 2015.
The Company evaluated its trade credits to determine if an
impairment existed at December 28, 2013. Based on current
utilization expectations, the Company determined that the full value
of the asset was not recoverable. Accordingly, the carrying value of
the trade credits was reduced to fair value, calculated as the expected
present value of estimated future utilization. An impairment charge
of $0.3 million was recorded in the fiscal 2013 fourth quarter and
is included in selling, general and administrative expenses as a
component of net income before income taxes in the Commercial
segment. The inputs used to determine the fair value of the asset are
level 3 fair value inputs as defined by ASC 820-10. As of December
28, 2013 and December 29, 2012, $0.7 million and $0.7 million,
respectively was included in prepaid expenses and other current
assets and $0.4 million and $1.2 million, respectively, was included
in other assets, net, related to these credits. An impairment charge of
$2.2 million was recorded in the fiscal 2012 fourth quarter.
(7) Accrued Expenses
Accrued expenses consist of the following (in thousands)
(8) Income Taxes
2013
Accrued wages, bonuses and related expenses $
9,745
$
Sales tax payable
Accrued rent and related expenses
Current income taxes payable
5,979
429
227
2012
5,455
5,216
811
88
$
16,380
$
11,570
The components of the provision for income taxes are as follows
(in thousands):
2013
2012
2011
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
$
-
$
-
$
(68)
6
-
56
-
(6)
$
165
790
-
(928)
839
866
-
(439)
906
11,592
2,281
70
$
14,410
Income tax expense (benefit)
$
A reconciliation between the statutory federal income tax rate and the effective
income tax rate is as follows (in thousands):
2013
2012
2011
Loss before income taxes
$ (2,118)
$ (48,429)
$
(2,652)
Statutory federal income tax rate
34%
34%
Income tax expense (benefit)
at statutory federal rate
State income taxes, net of federal tax
benefit
Permanent difference - Goodwill
impairment
(720)
(16,466)
151
124
-
11,448
34%
(902)
2
-
Valuation allowance
Effect of lower foreign taxes
Release of state tax reserves
Other items, net
386
497
(70)
(250)
Income tax expense (benefit)
$
(6)
$
4,739
15,565
296
(23)
748
866
(231)
(47)
23
$
14,410
Effective tax rate
0.3%
(1.8)%
(543.4)%
42
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Notes to Consolidated Financial Statements (continued)
Temporary differences that gave rise to deferred tax assets and
liabilities are as follows (in thousands):
2013
2012
Deferred tax assets:
Deferred revenue
Accrued rents
Net operating loss carryforwards
Intangible assets
Deferred compensation
Carryforward of tax credits
Receivable and investment
write-offs
Stock compensation
Depreciation
Other
Less: Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Other
Total deferred tax liabilities
$
4,516
$
1,682
6,462
1,639
2,040
5,453
624
179
-
2,555
25,150
20,987
4,163
(184)
(3,106)
(3,290)
Net deferred tax asset
$
873
$
4,676
1,884
4,336
1,799
2,089
4,585
641
179
1,871
2,054
24,114
20,865
3,249
-
(2,321)
(2,321)
928
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):
Balance as of December 31, 2011
Lapse of statute
Addition to reserve
Balance as of December 29, 2012
Lapse of statute
Audit settlement release
Addition to reserve
Balance as of December 28, 2013
Tax Reserve
213
(28)
-
185
(139)
(4)
7
49
$
$
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Notes to Consolidated Financial Statements (continued)
The following tax years remain open in the Company’s major taxing
jurisdictions as of December 28, 2013:
(10) Commitments and Contingencies
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):
Domestic
Foreign
Total
2013
2012
2011
$
(1,134) $ (11,550)
$
(6,200)
(984)
(36,879)
3,548
$
(2,118) $ (48,429)
$
(2,652)
(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 $46.5 million, $48.2 million
and $48.2 million, and contingent rents were $1.3 million, $1.2 million
and $1.2 million for 2013, 2012 and 2011, respectively.
The following tax years remain open in the Company’s major taxing jurisdictions
as of December 28, 2013:
Future minimum lease payments at December 28, 2013, were as
follows (in thousands):
United States (Federal)
United Kingdom
Canada
Ireland
2010 through 2013
2007 through 2013
2010 through 2013
2008 through 2013
2014
2015
2016
2017
2018
(9) Long-Term Debt
Subsequent to 2018
$
43,551
37,617
28,809
21,573
15,889
53,330
$
200,769
As of December 28, 2013, the Company has a 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 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 January 22, 2014, the Company amended the
existing credit agreement, extending the term to December 31, 2015
and increasing the fixed charge coverage ratio. As of December 28,
2013: (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.
(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 2012,
the Company received notification from the customs authority
that it intended to make an assessment for unpaid duty, penalties
and interest. The assessment was made in 2013. The Company
has appealed this determination and continues to believe that the
ultimate outcome of these matters will not have a material adverse
impact on the results of operations, liquidity or financial position
of the Company. However, if one or more of these examinations has
an unfavorable resolution, it is possible that the results of operation,
liquidity or financial position of the Company could be materially
affected in any particular period. Since the date of the notification in
the third quarter of fiscal 2012, the Company has been required to pay
the disputed duty, pending resolution of the appeal. As of December
28, 2013, $2.9 million had been paid in respect of the disputed duty
and is included in receivables in the Retail segment.
44
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Notes to Consolidated Financial Statements (continued)
(11) Loss Per Share
The Company uses the two-class method to compute basic and diluted earnings per common share. In periods of net loss, no effect is given to
the Company’s participating securities as they do not contractually participate in the losses of the Company. The following table sets forth the
computation of basic and diluted earnings per share (in thousands, except share and per share data):
NUMERATOR:
Net loss
DENOMINATOR:
2013
2012
2011
$
(2,112)
$
(49,295)
$
(17,062)
Weighted average number of common shares outstanding - basic
16,465,138
16,331,672
17,371,315
Dilutive effect of share-based awards:
-
-
-
Weighted average number of common shares outstanding - dilutive
16,465,138
16,331,672
17,371,315
Basic loss per common share attributable to Build-A-Bear Workshop, Inc., stockholders
Diluted loss per common share attributable to Build-A-Bear Workshop, Inc., stockholders
$
$
(0.13)
(0.13)
$
$
(3.02)
(3.02)
$
$
(0.98)
(0.98)
In calculating diluted earnings per share for fiscal 2013, 2012
and 2011, options to purchase 1,065,012; 1,155,239 and 1,210,816,
respectively, shares of common stock were outstanding at the end
of the period, but were not included in the computation of diluted
earnings per share due to their anti-dilutive effect under provisions of
ASC 260-10.
Due to the net loss in fiscal 2013, 2012 and 2011, the denominator for
diluted earnings per common share is the same as the denominator
for basic earnings per common share for those periods because the
inclusion of stock options and unvested restricted shares would be
anti-dilutive.
(12) Stock Incentive Plans
On April 3, 2000, the Company adopted the 2000 Stock Option Plan.
In 2003, the Company adopted the Build-A-Bear Workshop, Inc. 2002
Stock Incentive Plan, in 2004, the Company adopted the Build-A-Bear
Workshop, Inc. 2004 Stock Incentive Plan and in 2009, the Company
amended and restated the Build-A-Bear Workshop, Inc. 2004 Stock
Incentive Plan (collectively, the Plans).
Under the Plans, as amended, from January 3, 2009, up to 3,230,000
shares of common stock were reserved and may be granted to
employees and nonemployees of the Company. The Plans allow for
the grant of incentive stock options, nonqualified stock options, stock
appreciation rights (SAR) and restricted stock. Options granted under
the Plans expire later than 10 years from the date of the grant. The
exercise price of each incentive stock option shall not be less than
100% of the fair value of the stock subject to the option on the date
the option is granted. The exercise price of all options shall be the
fair market value on the date of the grant. The vesting provision of
individual awards is at the discretion of the compensation committee
of the board of directors and generally ranges from one to four years.
Each share of stock awarded pursuant to an option or subject to the
exercised portion of a SAR reduces the number of shares available by
one share. Each share of stock awarded pursuant to any other stock-
based awards, including restricted stock grants, reduces the number
of shares available by 1.27 shares.
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Notes to Consolidated Financial Statements (continued)
(a) Stock Options
The following table is a summary of the balance and activity for the Plans related to stock options for the periods presented:
Outstanding, January 1, 2011
Granted
Exercised
Forfeited
Outstanding, December 31, 2011
Granted
Exercised
Forfeited
Outstanding, December 29, 2012
Granted
Exercised
Forfeited
Canceled or expired
Number of Shares
1,125,223 $
305,727
55,501
164,633
1,210,816
228
-
55,805
1,155,239
195,512
204,658
39,931
41,150
Outstanding, December 28, 2013
1,065,012 $
Weighted Average
Exercise Price
Weighted
Average Remaining
Contractual Term
Aggregate
Intrinsic Value
(in thousands)
8.73
6.22
5.13
7.04
8.49
8.32
-
7.79
8.53
6.56
5.60
8.20
9.10
8.72
5.9 $
1,339
Options Exercisable As Of:
December 28, 2013
678,794 $
10.00
4.7 $
938
The expense recorded related to options granted during fiscal 2013
was determined using the Black-Scholes option pricing model and
the provisions of Staff Accounting Bulletin (SAB) 107 and 110, which
allow the use of a simplified method to estimate the expected term
of “plain vanilla” options. The assumptions used in the option
pricing model during fiscal 2013 were: (a) dividend yield of 0%; (b)
historical volatility of 65%; (c) risk-free interest rates of 1.3%; and (d)
an expected life of 6.25 years. The grant date fair value of options
granted in 2013 was approximately $0.7 million.
The expense recorded related to options granted during fiscal
2012 was immaterial. The assumptions used in the option pricing
model during fiscal 2011 were: (a) dividend yield of 0%; (b) historical
volatility of 65%; (c) risk-free interest rates ranging from 1.2% to 2.5%;
and (d) an expected life of 6.25 years. The grant date fair value of
options granted in 2011 was approximately $1.2 million. The total
intrinsic value of options exercised in fiscal 2013 and fiscal 2011 was
approximately $0.4 million and $0.1 million, respectively. No options
were exercised in 2012. The Company generally issues new shares to
satisfy option exercises.
Shares available for future option, non-vested stock and restricted
stock grants were 471,327 and 608,864 at the end of 2013 and 2012,
respectively.
46
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Notes to Consolidated Financial Statements (continued)
(b) Restricted Stock
The following table is a summary of the balance and activity for the
Plans related to unvested restricted stock granted as compensation to
employees and directors for the periods presented:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Outstanding, January 1, 2011
1,468,373
$
Granted
Vested
Forfeited
Outstanding, December 31, 2011
Granted
Vested
Forfeited
Outstanding, December 29, 2012
Granted
Vested
Forfeited
532,791
394,766
168,267
1,438,131
366,270
874,852
69,224
860,325
321,664
399,405
62,386
Outstanding, December 28, 2013
720,198
$
6.32
6.46
8.52
5.68
5.85
4.97
5.53
6.03
5.78
6.00
5.39
5.78
5.91
The vesting date fair value of shares that vested in fiscal 2013, 2012
and 2011was $2.2 million, $4.6 million and $2.5 million, respectively.
The aggregate unearned compensation expense related to options
and restricted stock was $3.3 million as of December 28, 2013 and is
expected to be recognized over a weighted average period of 1.1 years
(13) Stockholders’ Equity
The following table summarizes the changes in outstanding shares of
common stock for fiscal 2011, 2012 and 2013:
Shares as of January 1, 2011
Shares issued under employee stock plans, net of shares
withheld in lieu of tax withholding
Repurchase of shares
Shares as of December 31, 2011
Shares issued under employee stock plans, net of shares
withheld in lieu of tax withholding
Repurchase of shares
Shares as of December 29, 2012
Shares issued under employee stock plans, net of shares
withheld in lieu of tax withholding
Repurchase of shares
Shares as of December 28, 2013
Common Stock
19,631,623
302,007
(2,528,360)
17,405,270
29,612
(366,700)
17,068,182
346,271
(27,533)
17,386,920
(14) Related-Party Transactions
The Company bought fixtures for new stores and furniture for the
corporate offices from a related party. The total payments to this
related party for fixtures and furniture amounted to $1.3 million, $0.9
million and $0.5 million, in fiscal 2013, 2012 and 2011, respectively.
The total amount due to this related party as of December 28, 2013
and December 29, 2012 was immaterial.
The Company collected $2.1 million, $2.2 million and $2.4 million
in 2013, 2012 and 2011, respectively, from its guests on behalf of
charitable foundations controlled by certain executive officers of the
Company. Substantially all of the contributions are collected from
guests at the point of sale via pin pad prompts or as a portion of the
proceeds of specifically identified products. The foundations support
a variety of children’s causes, domestic animal shelters, disaster relief
and other concerns. The foundations distribute grants to qualifying
charitable organizations based upon decisions of their respective
contribution committees most of whose members are employees
of the Company. The total due to the charitable foundations as of
December 28, 2013 and December 29, 2012 was $0.5 million and $0.7
million, respectively.
(15) Major Vendors
Three vendors, each of whose primary manufacturing facilities are
located in China, accounted for approximately 79%, 80% and 81% of
inventory purchases in fiscal 2013, 2012 and 2011, respectively.
(16) Segment Information
The Company’s operations are conducted through three operating
segments consisting of retail, international franchising, and
commercial. The retail segment includes the operating activities
of company-owned stores in the United States, Canada, the United
Kingdom and Ireland and other retail delivery operations, including
the Company’s web store, temporary stores and non-traditional
store locations. The international franchising segment includes the
licensing activities of the Company’s franchise agreements with
store locations in Europe, Asia, Australia, Africa, the Middle East and
Mexico. The commercial segment has been established to market
the naming and branding rights of the Company’s intellectual
properties for third party use. The operating segments have discrete
sources of revenue, different capital structures and different cost
structures. These operating segments represent the basis on which
the Company’s chief operating decision maker regularly evaluates
the business in assessing performance, determining the allocation
of resources and the pursuit of future growth opportunities.
Accordingly, the Company has determined that each of its operating
segments represent one reportable segment. The reportable segments
follow the same accounting policies used for the Company’s
consolidated financial statements.
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Notes to Consolidated Financial Statements (continued)
Following is a summary of the financial information for the Company’s reporting segments (in thousands):
Fiscal 2013
Net sales to external customers
$
373,173
$
3,564
$
2,332
$
379,069
Retail
International
Franchising
Commercial
Total
Net income (loss) before income taxes
Capital expenditures
Depreciation and amortization
Fiscal 2012
(5,028)
19,178
19,016
2,018
184
200
892
-
-
(2,118)
19,362
19,216
Net sales to external customers
$
374,553
$
3,598
$
2,790
$
380,941
Net income (loss) before income taxes
Capital expenditures
Depreciation and amortization
Fiscal 2011
(49,215)
17,116
21,243
1,993
152
179
(1,207)
-
-
(48,429)
17,268
21,422
Net sales to external customers
$
387,041
$
3,391
$
3,943
$
394,375
Net income (loss) before income taxes
Capital expenditures
Depreciation and amortization
Total Assets as of:
December 28, 2013
December 29, 2012
(6,553)
12,137
23,992
1,961
111
240
1,940
-
-
(2,652)
12,248
24,232
$
$
185,943
182,186
$
$
2,712
2,818
$
$
5,987
7,098
$
$
194,642
192,102
The Company’s reportable segments are primarily determined by the types of products and services that they offer. Each reportable segment
may operate in many geographic areas. Revenues are recognized in the geographic areas based on the location of the customer or franchisee.
The following schedule is a summary of the Company’s sales to external customers and long-lived assets by geographic area (in thousands):
Fiscal 2013
Net sales to external customers
Property and equipment, net
Fiscal 2012
Net sales to external customers
Property and equipment, net
Fiscal 2011
Net sales to external customers
Property and equipment, net
For purposes of this table only:
North America (1)
Europe (2)
Other (3)
Total
$
$
$
302,216
$
75,133
$
1,720
$
379,069
62,152
8,011
-
70,163
306,049
$
72,788
$
2,104
$
380,941
61,995
9,464
-
71,459
316,853
$
75,469
$
2,053
$
394,375
65,902
11,543
-
77,445
(1) North America includes the United States, Canada, Puerto Rico and franchise business in Mexico
(2) Europe includes the United Kingdom, Ireland, franchise businesses in Europe
(3) Other includes franchise businesses outside of North America and Europe
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Notes to Consolidated Financial Statements (continued)
(17) Subsequent Event
On February 24, 2014, the Company announced the extension of
its previously announced $50 million share repurchase program
until March 31, 2015, subject to further extension by the Company’s
Board of Directors. The Company currently intends to purchase up
to $50 million of its common stock in the open market (including
through 10b5-1 plans), through privately negotiated transactions or
through an accelerated repurchase transaction. The primary source
of funding for the program is expected to be cash on hand. The
timing and amount of share repurchases, if any, will depend on price,
market conditions, applicable regulatory requirements, and other
factors. The program does not require the Company to repurchase
any specific number of shares and may be modified, suspended or
terminated at any time without prior notice. Shares repurchased
under the program will be subsequently retired. As of March 7, 2014,
there was $6.4 million of availability remaining under the program.
(a)(2) Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts
Deferred Tax Asset Valuation Allowance -
Balance as of December 31, 2011
$
Charged to cost and expenses
Charged to other accounts
Deductions
Balance as of December 29, 2012
Charged to cost and expenses
Charged to other accounts
Deductions
16,126
4,739
-
-
20,865
122
-
-
Balance as of December 28, 2013
$
20,987
(a)(3) Exhibits.
The following is a list of exhibits filed as a part of the Annual Report
on Form 10-K:
Exhibit Number Description
2.1
Agreement and Plan of Merger dated April 3, 2000 between
Build-A-Bear Workshop, L.L.C. and the Registrant
(incorporated by reference from Exhibit 2.1 to our
Registration Statement on Form S-1, filed on August 12,
2004, Registration No. 333-118142)
3.1
3.2
Third Amended and Restated Certificate of Incorporation
(incorporated by reference from Exhibit 3.1 of our Current
Report on Form 8-K, filed on November 8, 2004)
Amended and Restated Bylaws (incorporated by reference
from Exhibit 3.4 to our Registration Statement on Form S-1,
filed on August 12, 2004, Registration No. 333-118142)
4.1
10.1*
10.1.1*
Specimen Stock Certificate (incorporated by reference from
Exhibit 4.1 to Amendment No. 3 to our Registration
Statement on Form S-1, filed on October 1, 2004, Registration
No. 333-118142)
Build-A-Bear Workshop, Inc. 2000 Stock Option Plan
(incorporated by reference from Exhibit 10.1 to our
Registration Statement on Form S-1, filed on August 12,
2004, Registration No. 333-118142)
Form of Incentive Stock Option Agreement under the
Build-A-Bear Workshop, Inc. 2000 Stock Option Plan
(incorporated by reference from Exhibit 10.1.1 to Pre-
Effective Amendment No. 3 to our Registration Statement on
Form S-1, filed on October 1, 2004, Registration No. 333-
118142)
10.1.2* Form of Nonqualified Stock Option Agreement under the
Build-A-Bear Workshop, Inc. 2000 Stock Option Plan
(incorporated by reference from Exhibit 10.1.2 to Pre-
Effective Amendment No. 3 to our Registration Statement on
Form S-1, filed on October 1, 2004, Registration No. 333-
118142)
10.2*
Build-A-Bear Workshop, Inc. 2002 Stock Incentive Plan, as
amended (incorporated by reference from Exhibit 10.2 to
our Registration Statement on Form S-1, filed on August 12,
2004, Registration No. 333-118142)
10.2.1* Form of Manager-Level Incentive Stock Option Agreement
under the Build-A-Bear Workshop, Inc. 2002 Stock Option
Plan (incorporated by reference from Exhibit 10.2.1 to
Pre-Effective Amendment No. 3 to our Registration
Statement on Form S-1, filed on October 1, 2004, Registration
No. 333-118142)
10.2.2* Form of Nonqualified Stock Option Agreement under the
Build-A-Bear Workshop, Inc. 2002 Stock Option Plan
(incorporated by reference from Exhibit 10.2.2 to Pre-
Effective Amendment No. 3 to our Registration Statement on
Form S-1, filed on October 1, 2004, Registration No. 333-
118142)
10.3*
Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan
(incorporated by reference from Exhibit 10.3 to Pre-Effective
Amendment No. 3 to our Registration Statement on Form
S-1, filed on October 1, 2004, Registration No. 333-118142)
10.3.1* Form of Incentive Stock Option Agreement under the
Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan
(incorporated by reference from Exhibit 10.3.1 to Pre-
Effective Amendment No. 3 to our Registration Statement on
Form S-1, filed on October 1, 2004, Registration No. 333-
118142)
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Exhibits (continued)
10.3.2* Model Incentive Stock Option Agreement Under the
10.4.1*
Registrant’s 2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.3.3 to Pre-Effective Amendment
No. 5 to our Registration Statement on Form S-1, filed on
October 12, 2004, Registration No. 333-118142)
First Amendment dated February 22, 2006 to the
Employment, Confidentiality and Noncompete Agreement
dated May 1, 2004 between Maxine Clark and the Registrant
(incorporated by reference from Exhibit 10.4.1 to our Annual
Report on Form 10-K for the year ended December 31, 2005)
10.3.3*
Form of Employee Nonqualified Stock Option Under the
Registrant’s 2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.3.4 to Pre-Effective Amendment
No. 5 to our Registration Statement on Form S-1, filed on
October 12, 2004, Registration No. 333-118142)
10.4.2* Second Amendment dated March 22, 2011 to Employment,
Confidentiality and Noncompete Agreement dated May 1,
2004 between Maxine Clark and the Registrant
(incorporated by reference from Exhibit 10.1 on our Current
Report on Form 8-K, filed on March 28, 2011)
10.3.4*
Form of Restricted Stock Grant Agreement under the
Company’s 2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.1 to our Current Report on Form
8-K, filed on August 1, 2006)
10.3.5* Form of Restricted Stock Grant Agreement under the
Company’s 2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.1 to our Quarterly Report on Form
10-Q, filed on May 8, 2008)
10.3.6*
Second Amended and Restated Build-A-Bear Workshop, Inc.
2004 Stock Incentive Plan (incorporated by reference from
Exhibit 99.1 to our Registration Statement on Form S-8, filed
on May 18, 2009)
10.5*
10.3.8* Form of the Restricted Stock and Non-Qualified Stock
Option Agreement under the Registrant’s Second Amended
and Restated 2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.1 on our Quarterly Report on Form
10-Q, filed on May 14, 2009)
10.3.9* Form of the Restricted Stock Agreement under the
Registrant’s Second Amended and Restated 2004 Stock
Incentive Plan (incorporated by reference from Exhibit 10.3
on our Current Report on Form 8-K, filed on May 20, 2009)
10.6*
10.3.10* Form of the Restricted Stock and Non-Qualified Stock
Option Agreement under the Registrant’s Second Amended
and Restated 2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.2 on our Current Report on Form
8-K, filed on March 28, 2011)
10.4*
Employment, Confidentiality and Noncompete Agreement
dated May 1, 2004 between Maxine Clark and the Registrant
(incorporated by reference from Exhibit 10.4 to Pre-Effective
Amendment No. 2 to our Registration Statement on Form
S-1, filed on September 20, 2004, Registration No. 333-
118142)
10.4.3* Retirement, Separation Agreement and General Release by
and between Maxine Clark and Build-A-Bear Workshop,
Inc., dated January 28, 2013 (incorporated by reference from
Exhibit 10.1 to our Current Report on Form 8-K, filed on
January 31, 2013)
10.4.4* Consulting Agreement by and between Maxine Clark and
10.5.1* First Amendment dated February 22, 2006 to the
Build-A-Bear Workshop, Inc., dated January 28, 2013
(incorporated by reference from Exhibit 10.2 to our Current
Report on Form 8-K, filed on January 31, 2013)
Employment, Confidentiality and Noncompete Agreement
dated March 7, 2004 between Tina Klocke and the Registrant
(incorporated by reference from Exhibit 10.6 to Pre-Effective
Amendment No. 2 to our Registration Statement on Form
S-1, filed on September 20, 2004, Registration No. 333-
118142)
Employment, Confidentiality and Noncompete Agreement
dated March 7, 2004 between Tina Klocke and the Registrant
(incorporated by reference from Exhibit 10.6.1 to our Annual
Report on Form 10-K for the year ended December 31, 2005)
Employment, Confidentiality and Noncompete Agreement
dated as of January 10, 2007 between Dave Finnegan and the
Registrant (incorporated by reference from Exhibit 10.6 to
our Annual Report on Form 10-K for the year ended January
2, 2010)
10.7*
10.8*
Employment, Confidentiality and Noncompete Agreement
dated July 1, 2008 between Eric Fencl and the Registrant
(incorporated by reference from Exhibit 10.1 to our
Quarterly Report on Form 10-Q, filed on November 6, 2008)
Employment, Confidentiality and Noncompete Agreement
dated December 3, 2012 between Kenneth Wine and the
Registrant (incorporated by reference from Exhibit 10.9 to
our Annual Report on Form 10-K for the year ended
December 29, 2012)
50
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Exhibits (continued)
10.9*
10.10*
10.11*
Employment, Confidentiality and Noncompete Agreement
dated June 3, 2013 between Sharon Price John and the
Registrant (incorporated by reference from Exhibit 10.1 to
our Quarterly Report on Form 10-Q, filed on August 8, 2013)
Employment, Confidentiality and Noncompete Agreement
dated January 20, 2014 between Gina Collins and the Registrant
Employment, Confidentiality and Noncompete Agreement
dated September 10, 2001 between Teresa Kroll and the
Registrant (incorporated by reference from Exhibit 10.9 to
Pre-Effective Amendment No. 2 to our Registration
Statement on Form S-1, filed on September 20, 2004,
Registration No. 333-118142)
10.11.1* First Amendment dated February 22, 2006 to the
Employment, Confidentiality and Noncompete Agreement
dated September 10, 2001 between Teresa Kroll and the
Registrant (incorporated by reference from Exhibit 10.9.1 to
our Annual Report on Form 10-K for the year ended
December 31, 2005)
10.11.2* Separation Agreement and General Release by and between
Teresa Kroll and the Registrant, dated November 11, 2013
(incorporated by reference from Exhibit 10.1 to our
Quarterly Report on Form 10-Q, filed November 12, 2013)
10.12*
10.13
Form of Indemnification Agreement between the Registrant
and its directors and executive officers (incorporated by
reference from Exhibit 10.11 to our Registration Statement
on Form S-1, filed on August 12, 2004, Registration No.
333-118142)
Third Amendment to Loan Documents among the
Registrant, Shirts Illustrated, LLC, Build-A-Bear Workshop
Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC,
Build-A-Bear Retail Management, LLC (incorporated by
reference from Exhibit 10.12 to our Registration Statement
on Form S-1, filed on August 12, 2004, Registration No.
333-118142)
10.13.1 Fifth Amendment to Loan Documents among the
Registrant, Shirts Illustrated, LLC, Build-A-Bear Workshop
Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC,
Build-A-Bear Retail Management, LLC (incorporated by
reference from Exhibit 10.1 of our Current Report on Form
8-K, filed on July 10, 2006)
10.13.2 Sixth Amendment to Loan Documents between Build-A-
Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc. Build-A-Bear Entertainment, LLC, Build-A-
Bear Retail Management, Inc., and Build-A-Bear Workshop
UK Holdings Ltd., as borrowers, Build-A-Bear Workshop
Canada, Ltd. and US Bank National Association, as lender
entered into on and effective as of on June 19, 2007
(incorporated by reference from Exhibit 10.1 to our Current
Report on Form 8-K filed on June 20, 2007)
10.13.3 Seventh Amendment to Loan Documents between Build-A-
Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc. Build-A-Bear Entertainment, LLC, and
Build-A-Bear Retail Management, Inc., as borrowers, and US
Bank National Association, as lender entered into as of on
October 28, 2009 (incorporated by reference from Exhibit
10.1 to our Current Report on Form 8-K filed on October 29,
2009)
10.13.4 Eighth Amendment to Loan Documents between Build-A-
Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-
Bear Retail Management, Inc., as Borrowers, and U.S. Bank
National Association, as Lender, entered into effective as of
December 31, 2010 (incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K filed on January 4, 2011)
10.13.5 Ninth Amendment to Loan Documents between Build-A-
Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-
Bear Retail Management, Inc., as Borrowers, and U.S. Bank
National Association, as Lender, entered into effective as of
December 30, 2011 (incorporated by reference from Exhibit
10.1 to our Current Report on Form 8-K, filed on January 4,
2012)
10.13.6 Tenth Amendment to Loan Documents between Build-A-
Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-
Bear Retail Management, Inc., as Borrowers, and U.S. Bank
National Association, as Lender, entered into effective as of
June 30, 2012 (incorporated by reference from Exhibit 10.1 to
our Current Report on Form 8-K, filed on July 26, 2012)
10.13.7 Eleventh Amendment to Loan Documents between
Build-A-Bear Workshop, Inc., Build-A-Bear Workshop
Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC,
Build-A-Bear Retail Management, Inc., as Borrowers, and
U.S. Bank National Association, as Lender, entered into
effective as of December 21, 2012 (incorporated by reference
from Exhibit 10.1 to our Current Report on Form 8-K, filed on
December 21, 2012)
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Exhibits (continued)
10.13.8 Twelfth Amendment to Loan Documents between Build-A-
Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-
Bear Retail Management, Inc., as Borrowers, and U.S. Bank
National Association, as Lender, entered into effective as of
February 13, 2013 (incorporated by reference from Exhibit
10.1 to our Current Report on Form 8-K, filed on February 14,
2013)
10.13.9 Thirteenth Amendment to Loan Documents between
Build-A-Bear Workshop, Inc., Build-A-Bear Workshop
Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC,
Build-A-Bear Retail Management, Inc., as Borrowers, and U.S.
Bank National Association, as Lender, entered into effective
as of April 30, 2013 (incorporated by reference from Exhibit
10.1 to our Current Report on Form 8-K, filed on May 2, 2013)
10.13.10 Fourteenth Amendment to Loan Documents between
Build-A-Bear Workshop, Inc., Build-A-Bear Workshop
Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC,
Build-A-Bear Retail Management, Inc., as Borrowers, and
U.S. Bank National Association, as Lender, entered into
effective as of January 22, 2014 (incorporated by reference
from Exhibit 10.1 to our Current Report on Form 8-K, filed on
January 23, 2014)
10.14
10.15
10.16
Third Amended and Restated Loan Agreement between the
Registrant, Shirts Illustrated, LLC, Build-A-Bear Workshop
Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC,
and Build-A-Bear Retail Management, Inc., as borrowers, and
U.S. Bank National Association, as Lender, entered into on
September 27, 2005 with an effective date of May 31, 2005
(incorporated by reference from Exhibit 10.1 to our Current
Report on Form 8-K, filed on October 3, 2005)
Second Amended and Restated Revolving Credit Note dated
May 31, 2005 by the Registrant, Shirts Illustrated, LLC,
Build-A-Bear Workshop Franchise Holdings, Inc., Build-A-
Bear Entertainment, LLC, and Build-A-Bear Retail
Management, Inc., as Borrowers, in favor of U.S. Bank
National Association (incorporated by reference from Exhibit
10.2 to our Current Report on Form 8-K, filed on October 3,
2005)
Fourth Amended and Restated Loan Agreement between the
Registrant, Build-A-Bear Workshop Franchise Holdings, Inc.,
Build-A-Bear Entertainment, LLC, Build-A-Bear Retail
Management, Inc., as borrowers, and U.S. Bank National
Association, as lender, dated as of August 11, 2008
(incorporated by reference from Exhibit 10.1 to our Current
Report on Form 8-K, filed on August 13, 2008)
10.16.1 Fourth Amended And Restated Revolving Credit Note dated
as of October 28, 2009 by the Registrant, Franchise Holdings,
Inc., Build-A-Bear Entertainment, LLC (“BABE”), and
Build-A-Bear Retail Management, Inc., as borrowers, in favor
of U.S. Bank National Association (incorporated by reference
from Exhibit 10.2 to our Current Report on Form 8-K, filed on
August 13, 2008)
10.17
10.18
Agreement dated July 19, 2001 between the Registrant and
Adrienne Weiss Company (incorporated by reference from
Exhibit 10.32 to our Registration Statement on Form S-1, filed
on August 12, 2004, Registration No. 333-118142)
Standard Form Industrial Building Lease dated August 28,
2004 between First Industrial, L.P. and the Registrant
(incorporated by reference from Exhibit 10.35 to Pre-Effective
Amendment No. 4 to our Registration Statement on Form S-1,
filed on October 5, 2004, Registration No. 333-118142)
10.18.1 Third Amendment to Lease between First Industrial, L.P. and
Registrant, dated as of November 21, 2007 (incorporated by
reference from Exhibit 10.19.1 to our Annual Report on Form
10-K, filed on March 15, 2012)
10.18.2 Fourth Amendment to Lease between First Industrial, L.P. and
Registrant, dated as of November 21, 2007 (incorporated by
reference from Exhibit 10.19.2 to our Annual Report on Form
10-K, filed on March 15, 2012)
10.19
10.20
Facility Construction Agreement dated December 22, 2005
between the Registrant and Duke Construction Limited
Partnership (incorporated by reference from Exhibit 10.35 to
our Annual Report on Form 10-K, for the year ended December
31, 2005)
Real Estate Purchase Agreement dated December 19, 2005
between Duke Realty Ohio and the Registrant (incorporated by
reference from Exhibit 10.36 to our Annual Report on Form
10-K, for the year ended December 31, 2005)
10.21* Nonqualified Deferred Compensation Plan (incorporated by
reference from Exhibit 10.42 to our Annual Report on Form
10-K, for the year ended December 30, 2006)
11.1
Statement regarding computation of earnings per share
(incorporated by reference from Note 11 of the Registrant’s
audited consolidated financial statements included herein)
52
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Exhibits (continued)
21.1
List of Subsidiaries of the Registrant (incorporated by reference
from Exhibit 21.1 to our Annual Report on Form 10-K, for the
year ended December 29, 2012)
23.1
Consent of Ernst & Young LLP
31.1
31.2
32.1
32.2
Rule 13a-14(a)/15d-14(a) certification (pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, executed by the Chief
Executive Officer and Chief President Bear)
Rule 13a-14(a)/15d-14(a) certification (pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, executed by the Chief
Operations and Financial Bear)
Section 1350 Certification (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, executed by the Chief Executive
Officer and Chief President Bear)
Section 1350 Certification (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, executed by the Chief Operations
and Financial Bear)
101.INS XBRL Instance
101.SCH XBRL Extension Schema
101.CAL XBRL Extension Calculation
101.DEF XBRL Extension Definition
101.LAB XBRL Extension Label
101.PRE XBRL Extension Presentation
* Management contract or compensatory plan or arrangement
BUILD - A - BE AR WORKSHOP, INC.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BUILD-A-BEAR WORKSHOP, INC.
(Registrant)
Date: March 13, 2014
By:
/s/ Sharon John
Sharon John
Chief Executive Officer and
Chief President Bear
By:
/s/ Tina Klocke
Tina Klocke
Chief Operations and Financial Bear,
Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sharon John and Tina Klocke,
and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities to sign the Annual Report on Form 10-K of Build-A-Bear Workshop, Inc. (the
“Company”) for the fiscal year ended December 28, 2013 and any other documents and instruments incidental thereto, together with any and all
amendments and supplements thereto, to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission in respect thereof, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents and/
or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signatures
/s/ Mary Lou Fiala
Mary Lou Fiala
/s/ Maxine Clark
Maxine Clark
/s/ James M. Gould
James M. Gould
/s/ Virginia Kent
Virginia Kent
/s/ Braden Leonard
Braden Leonard
/s/ Louis M. Mucci
Louis M. Mucci
Title
Non-Executive Chairman
Director
Director
Director
Director
Director
/s/ Coleman Peterson
Director
Director
Coleman Peterson
/s/ Thomas Pinnau
Thomas Pinnau
/s/ Sharon John
Sharon John
/s/ Tina Klocke
Tina Klocke
Date
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
Director and Chief Executive Officer and Chief President Bear
March 13, 2014
(Principal Executive Officer)
Chief Operations and Financial Bear, Treasurer
March 13, 2014
(Principal Financial and Accounting Officer)
54
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2013 FORM 10 -K
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A formal notice of the meeting and a
proxy statement will be sent to each
shareholder as of March 25, 2014.
Build-A-Bear Workshop
common stock is traded
on the New York Stock
Exchange. Our symbol
is BBW.
As of March 25, 2014, there were
approximately 10,000 shareholders.
That number is based on the actual
number of holders of record and an
estimated number of beneficial
holders of the company’s common
stock.
Certifications
The most recent certifications by our
Chief Executive Officer and Chief
Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of
2002 are filed as exhibits to our Form
10-K. We have also filed with the
New York Stock Exchange the most
recent Annual CEO Certification,
as required by the New York Stock
Exchange.
BOARD OF DIRECTORS
SENIOR MANAGEMENT
SHAREHOLDER INFORMATION
Maxine Clark
Founder
Build-A-Bear Workshop, Inc.
Barney Ebsworth*
Founder and CEO
Windsor, Inc. (a corporation
that provides financing for venture
capital, real estate, and other
investments)
Mary Lou Fiala(1, 2)**
Retired Vice Chairman
and Chief Operating Officer
Regency Centers Corporation (a real
estate investment trust specializing
in the ownership and operation of
grocery-anchored shopping centers)
James M. Gould (2, 3)
Managing General Partner
The Walnut Group (a group of
affiliated private equity funds)
Sharon Price John
Chief Executive Officer
and Chief President Bear
Build-A-Bear Workshop, Inc.
Virginia Kent (1, 2)***
Independent Management
Consultant (primary focus on
marketing strategy, global branding,
and product development)
Braden Leonard (1,3)
Managing Member and Founder
BML Capital Management, LLC
Louis Mucci (1, 3)***
Retired Partner
PricewaterhouseCoopers LLP
Coleman Peterson (2, 3)
President and CEO
Hollis Enterprises LLC
(a human resources consulting firm)
Former Executive
Vice President of People
Wal-Mart Stores, Inc.
Thomas Pinnau (1, 2)
Chief Executive Officer
Knowledge Universe,
Global Work-Life Solutions
(a provider of corporately sponsored
employee work life support
product services)
Board Committees:
(1) Audit Committee
(2)
(3)
*
Compensation and
Development Committee
Nominating and Corporate
Governance Committee
Board Member Emeritus
since 2006
** Non-Executive Chairman
*** Not Standing for re-election
at 2014 Annual Meeting
Build-A-Bear Workshop
World Bearquarters
1954 Innerbelt Business Center Drive
St. Louis, Mo. 63114-5760
888.560.2327
314.423.8000
Fax: 314.423.8188
Web: buildabear.com®
Transfer Agent and Registrar
Mailing Addresses
Shareholder correspondence should
be mailed to:
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Overnight correspondence should
be sent to:
Computershare
211 Quality Circle, Suite 210
College Station TX 77845
Shareholder website:
www.computershare.com/investor
Shareholder online inquiries:
https://www-us.computershare.
com/investor/Contact
Auditors
Ernst & Young, LLP
St. Louis, Mo.
Counsel
Bryan Cave LLP
St. Louis, Mo.
Form 10-K
The Build-A-Bear Workshop
Form 10-K may be requested by
a letter to the Investor Relations
department at the World
Bearquarters, by a phone call to
the Investor Relations department
at 314.423.8000, or by an e-mail
to invest@buildabear.com.
Comprehensive financial information
for Build-A-Bear Workshop is
also available at the company’s
investor relations website:
http://ir.buildabear.com.
Annual Meeting
The annual meeting of shareholders
will be held at 10:00 a.m. St. Louis
time (CDT) on Thursday, May 8, 2014,
at the company’s World Bearquarters,
1954 Innerbelt Business Center Drive,
St. Louis, Missouri 63114.
Paul Bundonis
Chief Workshop Bear —
North America
Gina Collins
Chief Marketing Officer
and Brand Bear
Darlene Elder
Chief Human Resources Bear
Eric Fencl
Chief Bearrister, General Counsel,
International Franchising,
and Secretary
Dave Finnegan
Chief Information Bear
Sharon Price John
Chief Executive Officer
and Chief President Bear
Build-A-Bear Workshop, Inc.
Tina Klocke
Chief Operations and Financial Bear,
and Treasurer
Ken Wine
Chief Merchandise Bear
MANAGING DIRECTORS
Jeff Fullmer
Managing Director,
Bear Merchandise Planning
and Allocation
Scott Gower
Managing Director,
Stores — East Region
Jennifer Guinn
Managing Director,
Corbearate Controller
Dorrie Krueger
Managing Director, Strategic
Planning and Customer Exbearience
Rick Levine
Managing Director, Stores —
West Region
Karen Moore
Managing Director,
Divisional Merchandising Manager
Roger Parry
Managing Director,
Stores — The United Kingdom
and Republic of Ireland
Brian Sawyer
Managing Director,
Digital Marketing
56
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“It is clear that this is
a company with heart.”
76247_Cover.indd 2
A Global Paw Print
At the end of fiscal 2013, we operated 323 company-owned stores
in the United States, Canada, the United Kingdom and the Republic
of Ireland, and our franchisees operated 86 stores in 14 additional
countries. As we expand internationally, we will remain consistent
in our presentation, iconography and execution to deliver a strong
brand experience with heart.
INTERNATIONAL LOCATIONS
17 Australia
1 Bahrain
15 Canada*
7 Denmark
24 Germany
5
Japan
1 Kuwait
11 Mexico
1 Norway
1 Oman
2 Republic of Ireland*
2
5
2
Singapore
South Africa
Sweden
6 Thailand
58 The United Kingdom*
3 United Arab Emirates
* Company owned
Build-A-Bear Workshop
has over 400 stores
in 18 countries
58 The United Kingdom*
2
Republic of Ireland*
15 Canada*
248 The United States*
86
Franchised stores
2013 ANNUAL REPORT
3/24/14 5:14 PM
G E T TING TO
THE HE ART OF THE MAT TER
2013 ANNUAL REPOR T
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76247_Cover.indd 1
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BUILD - A - BEAR WORKSHOP, INC.
BUILD-A-BEAR WORKSHOP, INC.World Bearquarters1954 Innerbelt Business Center DriveSt. Louis, MO 63114-5760www.buildabear.com