A Little More Heart
Goes A Long Way
BUILD-A-BEAR WORKSHOP, INC. | 2015 ANNUAL REPORT
Since 1997, our Guests have made more than 150 million furry friends
at Build-A-Bear Workshop stores around the globe. Our now iconic
heart ceremony that occurs at the “Stuff Me” station builds an
emotional connection with consumers that has become an earmark
of our powerful brand. The Build-A-Bear experience elicits great
memories for kids of all ages and our brand consistently posts strong
numbers on metrics such as recognition, advocacy and loyalty.
We believe we can leverage our brand equity into new revenue
streams and evolve our business model to be MORE than ever before.
Letter to
Shareholders
It has been almost three years since I took the helm at
important initiatives for our future with the introduction and
Build-A-Bear Workshop with the goal of returning retail to
opening of 11 stores in a re-invented retail format called the
profitability while simultaneously setting the stage to further
“Discovery Store.” This new design, which we expect to rapidly
monetize our powerful brand across new revenue streams.
deploy over the next few years, features a refreshed brand look
It was clear to me at the time that, although the “business was
and has delivered double-digit sales growth versus heritage
broken,” we did not have a “broken brand.”
stores since opening.
With this insight in mind, we laid out a clear path to reach our
I want to thank you, our shareholders, for your support and belief
goals, and I am pleased to report that 2015 marks our third
through this transitional period. I would also like to acknowledge
consecutive year of posi tive consolidated comparable sales,
the dedication and hard work of our associates around the globe.
margin growth and profit expansion. I believe this consistent
I remain grateful to our board of directors for their continued
performance demonstrates our potential to continue to evolve
support while acknowledging James Gould, one of our founding
our business model by leveraging our powerful brand to drive
board members, who is stepping away from his position this year.
growth through the diversification and development of more
consumers, categories and locations. Internally, we simply
refer to this effort as our “MORE” strategy as it reflects our
goal to systematically and profitably move Build-A-Bear
beyond its traditional specialty mall retail focus by appealing
to MORE PEOPLE with MORE PRODUCT made available
through MORE PLACES.
MORE People
Extend the brand by driving our primary consumer segments
while increasing demand for our teen-plus and giftables business.
MORE Product
Enhance consumer engagement with our brand by offering
products that feature multi-media, “play beyond the plush” options
while leveraging our brand strength to expand outbound licensing.
MORE Places
Diversify, expand and elevate our real estate portfolio while
upgrading e-commerce and launching enterprise selling
capabilities.
In order to execute our MORE strategy, we have deployed capital
to improve the effectiveness and efficiency of systems and
infrastructure while strengthening our leadership team by adding
new skills and talent. In late 2015, we launched one of the most
I am pleased to say our strategy is delivering results and we
believe our company is well positioned to begin generating
sustained profitable growth as we leverage the strength of this
very special brand. Transforming a business is never easy, and
I am proud of this company for taking on every challenge over
the past three years in what I have come to know is the typical
Build-A-Bear way—with heart.
Best regards,
Sharon Price John
Chief Executive Officer
01
Return to
Profitability
In 2013, we began our turnaround plans
to return our company to sustained
profitability through the execution of
our MORE strategic plan.
+820 Our MORE Plan
Retail gross margin has improved
820 basis points since 2012.
We believe we can increasingly monetize the Build-A-Bear brand by evolving our
business model to appeal to MORE people with MORE products made available
through MORE places. Since 2013, when our turnaround plan was initiated, we
have been in the process of improving the effectiveness and efficiency of our
infrastructure while securing a talented leadership team to execute our strategies.
02
t o r e
y s
EW disco v e r
N
MORE Places
We plan to continue to diversify, expand and elevate our real estate portfolio
while upgrading e-commerce and launching enterprise selling capabilities.
In 2015, we introduced our new Discovery Store format, which was designed to
drive overall sales productivity and refresh an aged brand look. We created a
focal point using our most unique selling proposition, the stuffing process and
heart ceremony, by placing our new high-impact round stuffer at the front and
center of our store, opening up valuable wall space for more merchandise. With
11 Discovery Stores operating, we have seen double-digit sales growth compared
to our heritage stores. Through a combination of new stores and remodeled
locations, we expect to have 45 to 55 Discovery Stores by the end of 2016.
We also continued to diversify our stores by opening our first ever value-based
outlet concept, increasing our shop-in-shop presence and expanding our seasonal
pop-up locations. Separately, our international model evolved as we converted
a previously franchised store in Denmark’s Tivoli Gardens tourist attraction to an
owned location. In addition, our franchisees adopted our successful real estate
strategies adding shop-in-shop and seasonal locations in key territories.
+10%
We opened 11 Discovery Stores
in 2015 that have delivered sales
increases of more than 10%
compared to the norm as well
as higher dollars and units
per transaction.
new “
s
t
u
f
f
M
E
”
N
E
W
“
C
h
o
o
se me”
NORTH AMERICAN STORE CONTRIBUTION*
2012
2013
2014
2015
8.9%
13.7%
18.4%
20.3%
* For reconciliation of this non-GAAP measure, please see the fiscal 2015
Annual Report on Form 10-K.
BUILD-A-BEAR WORKSHOP, INC. | 2015 ANNUAL REPORT
03
Creating Sustained
Profitability
MORE Product
Our goal is to increase consumer engagement with our
brand with products that offer “play beyond the plush” using
multi-media platforms while we also leverage our brand strength
with growth in outbound licensing. In 2015, we introduced two
new intellectual properties with the Honey Girls collection that
targets older girls and our Promise Pets collection that appeals
across segments. We also updated our Merry Mission property,
introduced in 2014, with our new Glisten reindeer character.
In 2015 in North America, our dollars
per transaction reached its highest
level ever at more than $44, and units
per transaction reached almost 4, our
highest level since 2008.
Glisten became our top selling product in the 2015 fourth quarter.
These collections were supported with “play beyond the plush,”
MORE People
We plan to extend our brand by driving our primary consumer
segments while increasing demand for our teen-plus and
giftables business. We have strengthened our core consumer
segments of young girls, older girls and boys with a balanced
offering of licensed and internally developed programs while
improving our infrastructure and technology to drive sales with
improved inventory positions. We also broadened our teen-plus
consumer segment by leveraging a compelling assortment of
affinity, collectible, entertainment, sports and fashion properties
to appeal to this generally less price-sensitive demographic that
is more likely to purchase online.
26%
of furry friends sold were to our
teen-plus segment in 2015.
including related apps, games, music or videos that have garnered
more than 10 million digital interfaces. Through the end of fiscal
2015, these properties have collectively contributed almost $60
million in revenue and we plan to expand the collections in the
future. We also grew our wholesale business and our outbound
licensing programs by securing 10 new agreements spanning a
variety of consumer categories.
S
T
E
PROMISE P
04
H
o
n
e
y
g
i
r
l
s
RETAIL GROSS MARGIN AS A PERCENTAGE
OF NET RETAIL SALES
2012
2013
2014
2015
38.9%
41.1%
45.6%
47.1%
BUILD-A-BEAR WORKSHOP, INC. | 2015 ANNUAL REPORT
05
Build-A-Bear is a powerful brand with the
potential to be MORE than it has ever been.
87%*
The Brand Appeal rating for
Build-A-Bear Workshop reached
87% in 2015, the highest level ever
reported for our brand.
*E-Poll Marketing (2015, U.S.)
06
Creating Sustained Profitable
Growth
In 2015, we delivered our third consecutive year of consolidated comparable
sales growth, margin improvement and profit expansion. Simultaneously, we
have fundamentally changed our company by strengthening the senior leadership
team with the addition of new skills and talent, restructuring our organization
to focus on key consumer segments and investing in system and infrastructure
additions and upgrades. We have a clear strategy that is delivering results and
an organizational structure that supports driving that strategy to the next phase.
To maximize our potential, we must pivot from a retailer that built a powerful
brand to a BRAND company that’s more than a retailer. As we prepare to
celebrate our 20th birthday in 2017 and become a multi-generational brand,
we believe we are positioned to begin generating sustained profitable growth
with a continued disciplined focus and the execution of our MORE strategy.
PRE-TAX INCOME (LOSS)
(dollars in millions)
2012
2013
2014
2015
$(48.4)
$(2.1)
$16.0
$17.9
M
u
l
t
i
-
g
e
n
e
r
a
t
i
o
n
a
l
b
r
a
n
d
“
D
r
e
s
s
M
E
”
E
N
W “
H
EAR ME”
BUILD-A-BEAR WORKSHOP, INC. | 2015 ANNUAL REPORT
07
NYSE | BBW
2015 BBW Financial Highlights(1)
(Dollars in thousands, except per share and per square foot data)
2015
2014(2)
2013
REVENUES
Net retail sales
Franchise fees
Commercial revenue
Total revenues
NET INCOME (LOSS)
Net income (loss)
Net income (loss) per common share
Basic
Diluted
OTHER FINANCIAL AND STORE DATA
Retail gross margin (dollars)(3)
Retail gross margin (percent)(3)
Number of company-owned stores at end of period
North American average net retail sales per store
North American net retail sales per square foot
$ 372,715
$ 387,725
$ 373,173
2,196
2,783
2,531
2,098
3,564
2,332
377,694
392,354
379,069
27,345
14,362
(2,112)
$
$
1.61
1.59
$
$
0.82
0.81
$
$
(0.13)
(0.13)
$ 175,614
$ 176,838
$ 153,477
47.1%
45.6%
41.1%
329
1,075
394
324
1,158
409
323
1,080
381
1. For description of this financial and store data, please see the fiscal 2015 Annual Report on Form 10-K.
2. Fiscal 2014 includes 53rd week.
3. Retail gross margin represents net retail sales less cost of retail merchandise sold. Retail gross margin percentage represents retail gross margin dividend by net retail sales.
COMPANY-OWNED STORES
(Number of stores as of January 2, 2016)
U.S. & P.R. 256
U.K.
Canada
Ireland
57
13
2
Denmark 1
Total
329
We started to execute our real estate
optimization strategy as a part of our
turnaround plans in late 2012. As a
continuation of that plan, in fiscal 2015
we opened 25 stores and closed 20
stores to finish the year with 329
company-owned stores at fiscal 2015
year end, including 11 stores in the new
Discovery format.
329
COMPANY-OWNED
STORES AT FISCAL
2015 YEAR END
BBW STOCK PRICE PERFORMANCE
BBW vs. S&P 500 Retailing Index vs. S&P 500 Index for Fiscal Years 2013–2015
● BBW ● S&P 500 Retailing ● S&P 500
500%
400%
300%
200%
100%
0
08
12/12
02/13
04/13
06/13
08/13
10/13
12/13
02/14
04/14
06/14
08/14
10/14
12/14 02/15
04/15
06/15
08/15 10/15
12/15
+220%
+97%
+43%
FINANCIAL RESULTS
Form 10-K
BUILD-A-BEAR WORKSHOP, INC. | 2015 ANNUAL REPORT
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 January 2, 2016
OR
(cid:134) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________to___________
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)
(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
43-1883836
(I.R.S. Employer Identification No.)
63114
(Zip Code)
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. (cid:134) 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. (cid:134) 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 (cid:134) 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 (cid:134)
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. (cid:134)
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 (cid:134) Accelerated filer ⌧ Non-accelerated filer (cid:134) Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). (cid:134) 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 $15.76 for the shares on the New York Stock
Exchange on July 2, 2015) was $223,366,732 as of July 4, 2015.
As of March 11, 2016, there were 15,829,725 issued and outstanding shares of the registrant’s common stock.
Portions of the registrant’s Proxy Statement for its May 12, 2016 Annual Meeting are incorporated herein by reference.
DOCUMENTS INCORPORATED BY REFERENCE
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
1
BUILD-A-BEAR WORKSHOP, INC.
INDEX TO FORM 10-K
Forward-Looking Statements
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
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
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Exhibit Index
Signatures
PAGE
3
4
6
13
13
13
13
13
14
17
27
28
28
28
29
29
30
30
30
30
31
47
51
2
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
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 strategies and future strategic
expansion initiatives;
our future capital expenditures;
our anticipated rate of store relocations, openings and closures;
and
our anticipated costs related to store relocations, openings and
closures.
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-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
3
PART I
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
January 2, 2016, we operated 329 company-owned retail stores in the
United States, Canada, the United Kingdom, Ireland and Denmark,
including 269 Build-A-Bear Workshop® stores in the United States and
Canada and 60 Build-A-Bear Workshop stores in the United Kingdom,
Ireland and Denmark. In addition, franchisees operated 77 Build-A-
Bear Workshop stores in other international locations.
Segments and Geographic Areas
We conduct our operations through three reportable segments
consisting of direct-to-consumer (“DTC”), 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 15 – 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 a variety of stations within a store in order to
make and customize a stuffed animal. 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 a relevant selection of premium products that meet high
quality standards and are trend-right. In addition, we sell products
through our e-commerce sites. Our store experience appeals to a
broad range of age groups and demographics, including children, as
well as their parents and grandparents, teens, and adult collector and
affinity consumers. 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. 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
occasions 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 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 has been executing a multi-year turnaround plan since
2013 to improve both consolidated comparable sales and profitability
with the goals of achieving sustained profitability. In 2015, we delivered
our third consecutive year of consolidated comparable sales growth
and improved profitability and believe that we are positioned to evolve
our goal to sustained profitable growth. In 2016, as we continue to
execute our strategic plan with the key initiatives outlined below that
we refer to as our MORE Strategy, we expect to deliver both
incremental revenue and profit. The four key areas that we are
focused on are:
1. More places: We plan to continue to diversify, expand and
elevate our real estate portfolio while upgrading e-commerce
and launching enterprise-selling capabilities. In 2015, we
introduced our new “Discovery” store format which was designed
to drive overall sales productivity and refresh an aged brand
look. We opened eleven Discovery stores in 2015 and have seen
double-digit sales growth compared to our heritage stores since
the introduction. Through a combination of new stores and
remodeled locations, we expect to have 45 to 55 Discovery stores
by the end of 2016. We also continued to diversify our stores by
opening our first ever value-based outlet concept, increased our
shop-in-shop presence and expanded our seasonal pop-up
locations. Separately, our international model evolved as we
converted a previously franchised store in Denmark at
Copenhagen’s Tivoli Gardens tourist attraction to an owned
location while our franchisees adopted our successful real estate
strategies adding shop-in-shop and seasonal locations in key
territories.
2. More product: Our goal is to increase consumer engagement
with our brand with products that offer “play beyond the plush”
using multi-media platforms while we also leverage our brand
strength by growing outbound licensing. In 2015, we introduced
two new intellectual properties, with the Honey Girls collection
that targets older girls and our Promise Pets collection that
appeals across segments, and also updated the Merry Mission
property that was introduced in 2014 with our new Glisten
reindeer character. Glisten became our top selling product in the
2015 fourth quarter. Each of these collections was supported with
play beyond the plush including related apps, games, music and
videos that have garnered over 10 million digital interfaces.
Through the end of fiscal 2015, these properties have collectively
contributed almost $60 million in revenue and we plan to expand
the collections in the future. We also grew our wholesale business
and our outbound licensing programs as we secured ten new
agreements spanning a variety of consumer categories.
4
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
3. More people: We plan to extend our brand by driving our primary
consumer segments while increasing demand for our teen-plus
and giftables business. We expect to grow our core consumer
segments of young girls, older girls and boys with a balanced
offering of licensed and internally developed programs while
improving our infrastructure and technology in order to drive
sales with improved inventory positions. We also plan to continue
to broaden our teen-plus segment by leveraging a compelling
assortment of affinity, collectible, entertainment, sports and
fashion properties to appeal to this generally less price-sensitive
demographic that is more likely to purchase online.
4. More profitability: We expect to increase our 2016 pretax profit
by 15% to 25% over our fiscal 2015 results by the disciplined
execution of our stated strategies including those initiatives
detailed above as well as our on-going efforts in process
improvement, system upgrades, value engineering and strategic
pricing to enhance merchandise margins.
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, and the stuffing is made of a
high-grade polyester fiber. We believe all of our products in our stores
and on our e-commerce sites meet Consumer Product Safety
Commission (CPSC) requirements including the Consumer Product
Safety Improvement Act (CPSIA) for Children’s Products. We also
comply with American Society for Testing and Materials (ASTM-F963),
European Toy Safety Standards (EN71), China National Toy Standards
(GB6675/GB5296.5), China Compulsory Certification (CCC) and
Canadian Consumer Product Safety Act Toys Regulation (CCPSA). 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 a 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 2019. This agreement contains clauses that allow for
termination if certain performance criteria are not met.
Transportation from the warehouses to our 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.
Shipments from our distribution centers are scheduled throughout the
week in order to smooth workflow and stores are grouped together by
shipping route 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 or twice 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
regional pool points.
Employees
As of January 2, 2016, we had approximately 900 full-time and 3,200
part-time employees in the United States, Canada, the United
Kingdom, Ireland and Denmark. 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 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, 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.
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
5
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 of
assortment nor depth of 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. Our patents
have expirations ranging from 2016 to 2033.
We have developed licensing and strategic relationships with 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®,
DreamWorks Animation, Hasbro, and major professional and
collegiate sports along with other culturally relevant brands.
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 Web site,
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 Web site, 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 slowdown in the United States, Canadian or
European economies or in the economies of the countries in which our
franchisees operate 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.
We depend upon the shopping malls in which we are located to
attract guests to our stores and a decline in mall traffic could
adversely affect our financial performance and profitability.
While we invest in integrated marketing efforts and believe we are
more of a destination location than traditional retailers, we rely to a
great extent on consumer traffic in the malls in which our stores are
located. We rely on the ability of the malls’ anchor tenants, generally
large department stores, and on the continuing popularity of malls as
shopping destinations to attract high levels of consumer traffic. 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, consumer mall traffic
may be reduced due to factors such as the economy, civil unrest,
actual or threatened acts of terrorism to shopping malls, the impact of
weather or natural disasters or a decline in consumer confidence
resulting from international conflicts or war. A decrease in shopping
mall traffic could have an adverse effect on our financial condition and
profitability.
If we are unable to generate interest in and demand for our
interactive retail experience and products, 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, fashion trends
or the demand for licensed products including those that are
associated with new movie releases could have a negative impact on
our business, financial condition and results of operations. Our future
success depends, in part, on the popularity and consumer demand for
brands of partner companies such as Disney, Marvel, Hasbro
and Nickelodeon. If we are not able to meet our contractual
commitments or are unable to maintain licensing agreements with key
6
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
partner brands, our business would be adversely affected. There can
be no certainty that licensed brands will continue to be successful or
maintain high levels of sales in the future and the timing of future
entertainment projects may not coincide with historical dates
impacting our ability to maintain sales levels. 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.
Consumer interests change rapidly and our success depends on the
ongoing effectiveness of our marketing and online initiatives to build
consumer affinity for our brand, drive consumer demand for key
products and generate traffic for our stores.
We continue to update and evaluate our marketing initiatives, focusing
on building our brand, sharing relevant product news, executing timely
promotions and adapting to rapidly changing consumer preferences.
Our future growth and profitability will depend in large part upon the
effectiveness and efficiency of our integrated 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;
convert consumer awareness into store visits and product
purchases;
identify the most effective and efficient level of marketing spend;
select the right geographic areas in which to market;
determine the appropriate creative message and media mix for
marketing expenditures; and
effectively manage marketing costs (including creative and
media) to maintain acceptable operating margins and return on
marketing investment.
Our planned marketing expenditures may not result in increased
total or comparable sales or generate sufficient levels of product and
brand awareness which could have a material adverse effect on our
financial condition and profitability.
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.
Our business involves the storage and transmission of consumers’
personal information, such as personal 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 may 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 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.
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 consumer 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
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
7
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, 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 sites. 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.
If we are unable to increase our total and comparable sales, our
results of operations and financial condition could be adversely
affected.
Our consolidated comparable sales increased by 1.0% in 2015, 1.7% in
2014 and 4.9% in 2013 following a multi-year decline. We believe the
principal factors that will affect comparable sales 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;
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 trend of consumers preferring to purchase products from
online merchants rather than traditional brick and mortar stores;
the impact of updates to our brand appearance and our store
design;
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 achieve
comparable 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 may not be able to evolve our store locations to align with market
trends or to effectively manage our overall portfolio of stores which
could adversely affect our ability to grow and could significantly
harm our profitability.
Our future results will largely depend on our ability to optimize store
productivity and profitability by strategically evolving our real estate
portfolio to align with market trends while selectively opening new
locations and systematically refreshing our store base. In 2012, we
announced a plan to reduce our store count in North America and
substantially completed this plan in 2014, closing 61 stores in North
America in the three years. Our ability to manage our portfolio of
stores in future years and position stores in desirable locations and
operate stores profitably, particularly in multi-store markets, is a key
factor in our ability to achieve sustained 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 may decide to close other stores in the future.
In June 2015, we closed a flagship store in New York City. Because this
store had much larger annual sales than our typical mall-based stores,
closing this store had an adverse impact on our revenues.
Additionally, in 2015 we operated twelve stores located within other
retailers’ stores and as such are subject to the operational risks of
these retailers, including but not limited to, ineffective store operations,
labor disputes and negative publicity. If other retailers in which we
have stores are impacted by these factors, it could have a negative
impact on our sales and operating performance.
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, which could cause an increase in
store expenses negatively 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.
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BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
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
projected. 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 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.
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 both domestic vendors who
contract with manufacturers in foreign countries and directly from
factories in foreign countries, primarily in China and Vietnam. 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 governmental safety
standards and our product specifications and submit our products for
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 six products in the past seven 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 our international company-owned
stores profitably.
We currently operate company-owned stores in the United Kingdom,
Canada, Ireland and Denmark. Our future success in international
markets may be impacted by differences in consumer demand,
regulatory and cultural differences, 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. Brand awareness in international markets may
be lower than in the U.S. and we may face higher labor and rent costs,
as well as 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 February
2015, we converted a previously franchised store in Denmark into a
company-owned location. In 2013 and 2014, we closed eight stores in
Canada. 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.
Additionally, we conduct business globally in many different
jurisdictions with currencies other than U.S. dollars. Our results could
be negatively impacted by changes or fluctuations in currency
exchange rates since we report our consolidated financial results in
U.S. dollars.
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 and our ability to attract and retain
qualified key employees. In June 2013, we hired a new Chief Executive
Officer who replaced our retiring Founder and Chief Executive Bear.
Since then, four other executive officers left the Company and four
executive officers joined the Company. The success of our business
depends on effective transition of these positions. During these
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
9
transitions, organizational changes are likely to occur and we may not
be able to retain key managers or associates. We may incur expenses
related to the transition in these positions that could negatively impact
the profitability of our business. 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 between 80% and 85% of our merchandise
from four vendors. These vendors in turn contract for the production of
merchandise with multiple manufacturing facilities, located primarily in
China and, beginning in 2014, in Vietnam. 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.
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 unable to effectively manage our international franchises,
attract new franchisees 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 January 2, 2016, there were 77 Build-A-Bear Workshop
international franchised stores. We cannot ensure 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 owned and
operated markets, which impact the performance of these stores.
Additionally, our franchisees may experience financing, merchandising
and distribution expenses and challenges that are different from those
we 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. For example, we incurred $1.4 million and $1.1 million of
bad debt expense related to receivables from our franchisees in fiscal
2014 and 2013, respectively.
The success of our franchising strategy depends upon our ability to
attract and maintain qualified franchisees with sufficient financial
resources to develop and grow their operations and upon the ability of
those franchisees to successfully develop and operate 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 operations may not be
profitable. Moreover, our brand image and reputation may suffer.
When franchisees perform below expectations we may transfer those
agreements to other parties, take over the operations directly or
discontinue the franchise agreement. For example, in 2015, we
terminated the franchise agreement in Scandinavia leading to the
closure of stores in Norway and Sweden. In early 2016 we consented to
the sale of the South African franchise to new owners. Furthermore,
the interests of franchisees might sometimes conflict with our interests.
For example, whereas franchisees are concerned with their individual
business objectives, we are responsible for ensuring the success of the
Build-A-Bear 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.
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BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
We are subject to risks associated with technology and digital
operations.
Our operations are subject to numerous technology related risks,
including risks related to the failure of the computer systems that
operate our point of sale and inventory systems, Web sites and mobile
sites and their related support systems. We are also subject to risks
related to computer viruses, telecommunications failures, and similar
disruptions. Also, we may require additional capital in the future to
sustain or grow our technological infrastructure and digital commerce
capabilities.
Business risks related to technology and 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
consumers 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 or 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.
Our profitability could be adversely affected by fluctuations in
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. 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 plans to leverage the Build-A-Bear brand to drive strategic
expansion into new sales and profit streams may not be successful.
Our objective to achieve sustained profitable growth depends in part
on our ability to use our brand and existing infrastructure as a
foundation to drive new lines of business. For example, we initiated an
outbound licensing program in 2015 and currently expect to expand
this business in the future. If we are unable to develop these new lines
of business profitably, we may not be able to achieve our long-term
objectives.
Our market share may be adversely impacted at any time by a
significant variety of competitive threats.
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 none of these companies
currently offer 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 products from other companies that 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 products
manufactured by other companies. If sales of such products do not
meet our expectations or are impacted by competitors’ pricing, we
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
11
may have to take markdowns or employ other strategies to liquidate
the product. If other companies do not meet quality or safety
standards or violate any manufacturing or labor laws, we may suffer
negative publicity and may 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, 2016.
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 sales;
increases or decreases in total revenues;
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 a 53rd week in our fiscal year which occurs
approximately every six years, including fiscal 2014;
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;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
amounts we desire or the results of the share repurchase program
may not be as beneficial as we would like.
In 2015, our Board of Directors terminated the previously existing $50
million share repurchase plan under which we had repurchased 6.2
million shares of our common stock for an aggregate price of $46.2
million since February 2007 and adopted three share repurchase
programs for an aggregate of $35 million. The new 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 a
decline in 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. Therefore, 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;
limit the right of stockholders to act by written consent and to call
a special meeting of stockholders or propose other actions;
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.
the timing of store closures, relocations and openings and related
expenses; and
These provisions may:
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.
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
•
•
•
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;
adversely affect the voting power of holders of common
stock; and
limit the price that investors might be willing to pay in the future
for shares of our common stock.
12
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Stores
We lease all of our store locations. As of January 2, 2016, we operated
329 retail stores located primarily in major malls throughout the United
States, Canada, Puerto Rico, the United Kingdom, Ireland and
Denmark in our DTC 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
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 under a lease that commenced in August 2003. In
December 2015, we gave notice of our intent to terminate this lease in
2016.
ITEM 3. LEGAL PROCEEDINGS
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.
In addition to leasing all of our store locations, we own a warehouse
and distribution center in Groveport, Ohio, which is utilized primarily by
our DTC segment. The facility is approximately 350,000 square feet
and includes our e-commerce fulfillment site. We also lease
approximately 59,000 square feet for our corporate headquarters in
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$ 23.00 $
$ 20.96 $
$
21.69 $
$
19.44 $
Fiscal 2015
Low
18.25 $
15.29 $
15.60 $
11.18 $
Fiscal 2014
High
Low
9.49 $ 7.30
15.43 $ 9.34
14.53 $ 10.07
21.22 $ 12.17
As of March 11, 2016, the number of holders of record of the Company’s
common stock totaled approximately 2,620.
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.
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.
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 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 1, 2011 and ends on
December 31, 2015, the last trading day prior to January 2, 2016, the
end of our fiscal 2015. The graph assumes that $100 was invested on
January 1, 2011 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
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
13
Issuer Purchases of Equity Securities
Period
Oct. 4, 2015 – Oct. 31, 2015
Nov. 1, 2015 – Nov. 28, 2015
Nov. 29, 2015 – Jan. 2, 2016
Total
(a)
Total Number of Shares
(or Units) Purchased (1)
(b)
Average Price Paid
Per Share (or Unit)
(c)
Total Number of Shares
(or Units) Purchased as Part
of Publicly Announced
Plans or Programs (2)
163,141
527,473
383,321
1,073,935
$
$
$
$
15.80
14.34
12.23
13.81
163,078
527,473
383,242
$
$
$
1,073,793
(d)
Maximum Number
(or Approximate
Dollar Value) of Shares (or
Units) that May Yet
Be Purchased Under the
Plans or Programs (2)
6,340,043
13,776,425
9,090,585
(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.
In February 2015 and July 2015, the board of directors adopted new repurchase programs, each authorizing the repurchase of up to $10 million of our common
stock. In November 2015, the board adopted a new repurchase program authorizing the repurchase of up to an additional $15 million of our common stock until
March 31, 2016, subject to further extension by the board, resulting in an aggregate authorization in 2015 to repurchase $35 million of our common stock. Shares
repurchased under these programs will be subsequently retired.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the past three years.
Dividend Policy
No dividends were paid in 2015, 2014 or 2013. 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. 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 Financia l Condition and Results of Operations —
Liquidity and Capital Resources.”
14
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
ITEM 6. SELECTED FINANCIAL DATA
Throughout this Annual Report on Form 10-K, we refer to our fiscal years ended January 2, 2016, January 3, 2015, December 28, 2013, December 29,
2012 and December 31, 2011, as fiscal years 2015, 2014, 2013, 2012 and 2011, respectively. Our fiscal year consists of 52 or 53 weeks, and ends on the
Saturday nearest December 31 in each year. The 2014 fiscal year included 53 weeks and fiscal years 2015, 2013, 2012 and 2011included 52 weeks. All
of our fiscal quarters presented in this Annual Report on Form 10-K included 13 weeks, with the exception of the fourth quarter of fiscal 2014, which
included 14 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 or
14-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 2015 and 2014 and the statement of operations and other financial data for fiscal 2015, 2014 and 2013 are derived from our audited
financial statements included elsewhere in this Annual Report on Form 10-K. The balance sheet data for fiscal 2013, 2012 and 2011, and the
statement of operations and other financial data for fiscal 2012 and 2011 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 and per share data)
2015
2014
2013
2012
2011
Fiscal Year(1)
Statement of operations data:
Total revenues
Costs and expenses:
Cost of merchandise sold - retail
Cost of merchandise sold - commercial
Selling, general and administrative
Goodwill impairment
Interest expense (income), net
Total costs and expenses
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Income (loss) per common share:
Basic
Diluted
Shares used in computing common per share amounts:
Basic
Diluted
Other financial data:
Retail gross margin ($) (2)
Retail gross margin (%) (2)
Capital expenditures, net (3)
Depreciation and amortization
Cash flow data:
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows (used in) provided by financing activities
$
377,694
$
392,354
$
379,069
$
380,941
$
394,375
197,101
1,375
161,463
—
(143)
210,887
945
164,445
—
53
359,796
376,330
17,898
(9,447)
27,345
1.61
1.59
16,642,269
16,867,356
175,614
47.1 %
24,388
16,419
32,047
(25,146)
(26,390)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
16,024
1,662
14,362
0.82
0.81
16,908,001
17,133,811
176,838
45.6 %
10,890
18,128
34,884
(11,789 )
(1,783 )
$
$
$
$
$
$
$
$
219,696
1,042
160,708
—
(259 )
381,187
(2,118 )
(6 )
228,866
1,315
165,516
33,670
3
429,370
(48,429 )
866
(2,112 )
$
(49,295 )
(0.13 )
(0.13 )
$
$
(3.02)
(3.02)
16,465,138
16,465,138
16,331,672
16,331,672
153,477
$
145,687
41.1 %
19,362
$
19,216
38.9 %
17,268
21,422
19,058
(19,362 )
132
$
$
$
16,542
(15,096 )
(2,902)
$
$
$
$
$
$
$
$
232,573
1,654
162,881
—
(81)
397,027
(2,652)
14,410
(17,062)
(0.98 )
(0.98 )
17,371,315
17,371,315
154,468
39.9 %
12,248
24,232
17,234
(13,318 )
(15,811)
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
15
Selected Financial Data (continued)
(Dollars in thousands, except share and per share data)
2015
2014
2013
2012
2011
Fiscal Year
Store data:
Number of stores at end of period (4)
North America
Europe
Total stores
Square footage at end of period (5)
North America
Europe
Total square footage
Average net retail sales per store: (6)
North America
Europe
Net retail sales per square foot:
North America (7)
Europe (8)
Consolidated comparable sales change (%) (9)
Balance sheet data:
269
60
329
719,535
85,908
805,443
265
59
324
725,942
84,789
810,731
$
£
$
£
$
£
$
£
1,075
781
394
551
1.0%
$
£
$
£
1,158
809
409
567
1.7 %
263
60
323
735,605
86,859
822,464
1,080
755
381
525
4.9 %
$
£
$
£
291
60
351
818,380
86,331
904,711
1,003
736
350
511
(2.9 )%
298
58
356
848,405
83,911
932,316
$
£
$
£
1,021
810
354
562
(1.8 )%
Cash and cash equivalents
$
45,196
$
65,389
$
44,665
$
45,171
$
46,367
Working capital
Total assets
Total stockholders’ equity
28,870
213,334
99,414
45,313
212,054
97,625
30,353
195,611
84,390
30,503
192,102
83,137
37,610
241,571
129,243
(1)
Fiscal 2015, 2013, 2012 and 2011 included 52 weeks; fiscal 2014 included 53
weeks.
(2) Retail gross margin represents net retail sales less cost of merchandise
(6) Average net retail sales per store represents net retail sales only from
stores open throughout the entire period, excluding e-commerce
locations, divided by the total number of such stores.
sold - retail. Retail gross margin percentage represents retail gross margin
divided by net retail sales.
(3) 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.
(4) Excludes our e-commerce sites. North American stores are located in the
United States, Canada and Puerto Rico. In Europe, stores are located in
the United Kingdom, Ireland and, beginning in 2015, Denmark.
(5) Square footage for stores located in North America is leased square
footage. Square footage for stores located in Europe is estimated selling
square footage.
(7) Net retail sales per square foot in North America represents net retail sales
from stores open throughout the entire period in North America, excluding
e-commerce location, divided by the total leased square footage of such
stores.
(8) Net retail sales per square foot in Europe represents net retail sales from
stores open throughout the entire period in Europe, excluding e-
commerce location, divided by the total selling square footage of such
stores.
(9) Consolidated comparable sales percentage changes are based on net
retail sales, including e-commerce, and exclude the impact of foreign
exchange. Store locations are considered comparable beginning in their
thirteenth full month of operation. Comparable sales percentage changes
for 2015 are based on net retail sales as compared to the 52-week period
ended January 3, 2015.
16
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
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 January 2, 2016, we operated 329 Company-owned
stores and had 77 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 sites, buildabear.com and
buildabear.co.uk.
We operate in three segments that share the same infrastructure,
including management, systems, merchandising and marketing, and
generate revenues as follows:
• DTC – Company-owned retail stores located in the United States,
Canada, Puerto Rico, the United Kingdom, Ireland and Denmark,
and two e-commerce sites;
•
International franchising – Other international stores operated
under franchise agreements; and
• Commercial – Transactions with other businesses, 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 2015,
2014 and 2013, are set forth in Note 15 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 has
broad demographic appeal which, for North American stores open for
the entire year, averaged net retail sales per store of $1.1 million in
fiscal 2015, $1.2 million in fiscal 2014 and $1.1 million in fiscal 2013.
Consolidated store contribution consists of store location net retail
sales less cost of product, marketing and store related expenses. Non-
store general and administrative expenses are excluded as are our e-
commerce sites, locations not open for the full fiscal year and
adjustments to deferred revenue related to our loyalty program and
gift card breakage. See “— Non-GAAP Financial Measures” for a
reconciliation of store contribution to net income (loss). Consolidated
store contribution as a percent of store location net retail sales was
18.2%, 16.3% and 12.1% for fiscal 2015, 2014 and 2013, respectively.
Consolidated net income (loss) as a percentage of total revenues was
7.2%, 3.7% and (0.6)% for 2015, 2014 and 2013, respectively.
We believe that the improvement in consolidated store contribution in
fiscal 2015 was the result of the disciplined execution of our stated
strategies as we expanded our real estate portfolio, with our new
Discovery store design and first ever value-driven outlet format stores,
extended engagement with our core consumer segment, expanded
our business with the teen-plus affinity and gift-giving segment,
introduced new intellectual property collections and drove e-
commerce sales while making investments in infrastructure and
personnel. Through these efforts, we delivered the third consecutive
year of improved profitability and increased consolidated comparable
sales, with higher units per transaction and the highest dollars per
transaction in our history.
In 2014, the successful and consistent implementation of our key
strategies of optimizing real estate, resetting the consumer value
equation and rationalizing our expense structure resulted in improved
North American sales per square foot, expanded consolidated retail
gross margin and a reduction in the number of unprofitable stores in
North America to less than 2%. Our 2013 performance demonstrated
progress on our turnaround plan and our objective to return to
profitability as we hired a new chief executive officer, executed a
significant real estate repositioning strategy and implemented
stringent cost controls throughout the organization.
Our 2016 plan builds on the successes of the last three years. We plan
to continue to improve our real estate portfolio through a combination
of remodels and new locations in the U.S. and internationally in our
new Discovery format, including remodeling select flagship locations
and opening a new flagship store in Shanghai, China, and diversifying
our real estate portfolio to include more stores in new formats
including outlets, shop-in-shops and seasonal pop-up locations. As we
continue to evolve our international franchise model, we expect our
franchisees to open additional stores throughout the year. Additionally,
we intend to increase revenues and profit by developing new licensed
relationships and products and expanding our own intellectual
property to extend our core consumer business, while leveraging the
strength of the Build-A-Bear brand to expand wholesale and
outbound licensing programs. We expect to do this more profitably as
we continue to realize efficiencies and expand our capabilities through
our ongoing efforts in process improvement, system upgrades, value
engineering and strategic pricing actions.
We ended fiscal 2015 with no borrowings under our bank loan
agreement and with $45.2 million in cash and cash equivalents after
investing $24.4 million in capital projects. Throughout the year, we
spent $25.9 million repurchasing shares of our common stock.
Following is a description and discussion of the major components of
our statement of operations:
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
17
Revenues
Net retail sales: Net retail sales are revenues from retail sales
(including our e-commerce sites), 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 sales calculation in their thirteenth full month of
operation. Our temporary and seasonal locations are not included in
our comparable calculations. Non-comparable stores also result from
a store relocation or remodel that results in a significant change in
square footage or temporary closure. The net retail sales for that
location are excluded from comparable sales calculations until the
thirteenth full month of operation after the date of the change.
Beginning in 2015, we began to recognize breakage revenue on
unredeemed gift cards sold in the U.S. using the redemption
recognition method. Revenue is recognized in net retail sales when the
likelihood of the gift card being redeemed is considered remote, based
on historical redemption patterns. 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. Gift cards can be purchased and
redeemed and awards can be earned or redeemed at any of our store
locations. Accordingly, we account for gift card breakage and 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 gift
card breakage or any changes in deferred revenue. See “-Critical
Accounting Estimates” for additional information on the accounting for
gift card breakage and the deferred revenue related to our customer
loyalty program.
We use net retail sales per square foot and comparable 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 square foot
North America (1)
Europe (2)
Fiscal
2015 (3)
Fiscal
2014 (3)
Fiscal
2013 (3)
$
£
394 $
409 $
551 £
567 £
381
525
(1) Net retail sales per square foot in North America represents net retail
sales from stores open throughout the entire period in North America,
excluding e-commerce sales, divided by the total leased square footage
of such stores.
(2) Net retail sales per square foot in Europe represents net retail sales from
stores open throughout the entire period in Europe, excluding e-
commerce sales, divided by the total selling square footage of such stores.
Fiscal 2015 and 2013 included 52 weeks; fiscal 2014 included 53 weeks.
(3)
The percentage increase (or decrease) in comparable sales for the
periods presented below is as follows:
Comparable sales change (%) (1)
North America
Europe
Consolidated
Stores
E-commerce
Consolidated
Fiscal
2015
Fiscal
2014
Fiscal
2013
(0.0)%
4.8%
1.0%
0.5%
11.8%
1.0%
1.4%
2.6%
1.7%
1.6%
3.5%
1.7%
5.5 %
2.7 %
4.9 %
5.1%
0.3 %
4.9 %
(1) Comparable sales percentage changes are based on net retail sales and
exclude the impact of foreign exchange. Stores are considered
comparable beginning in their thirteenth full month of operation.
Comparable sales percentage changes for 2015 are based on net
retail sales as compared to the 52-week period ended January 3, 2015.
We believe the increase in comparable sales for the year is primarily
attributable to the balanced product assortment that simultaneously
and consistently focused on our four key consumer segments
supported by elevated marketing programs. We believe this drove
improvements in key metrics including dollars and units per transaction
across geographies that were able to offset a decrease in transactions
due to a challenging retail environment in North America and the
success of certain licensed product in the fourth quarter of fiscal 2014.
Fiscal 2014 consolidated comparable sales for the full year are
compared to the 53-week period ended January 4, 2014. We believe
the increase in comparable sales for fiscal 2014 was primarily driven
by:
• High-impact product launches supported by well-executed,
elevated marketing programs which led to robust sales of key
licensed products, continued strength in our core collections and
successful proprietary launches;
•
Improvement in key operational levers as we saw increases in
dollars per transaction, units per transaction and average unit
selling price for the year; and
• Strategic store closures, primarily in North American multi-store
markets, which transferred approximately 15% of their sales to
remaining stores in the market.
• Additionally, we believe fiscal 2014 was negatively impacted by a
decrease in traffic partially attributable to the extreme weather
patterns in the first quarter of 2014 in North America and its
lingering effects. In the first quarter of 2014, extreme weather
decreased overall mall traffic for many markets in North America
impacting the retail sector overall. In the second quarter of 2014,
we saw the lingering effect of the first quarter weather patterns as
school vacations were cancelled and the school year was
extended in many markets impacting experiential children’s retail
such as ours whose traffic benefits when kids are out of school. We
believe that consumer traffic in many of the malls in which we
operate stores decreased from historical levels impacting overall
consumer traffic to our stores.
18
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
Franchise fees: Typically, 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 agreement, which may
extend for 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. 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 historically entered into a
number of licensing arrangements whereby third parties manufacture
merchandise carrying the Build-A-Bear trademark and sell it to other
retailers.
Costs and Expenses
Cost of merchandise sold - retail and retail gross margin: Cost of
merchandise sold – retail 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 merchandise sold - retail.
Selling, general and administrative expense: These expenses include
store payroll and benefits, advertising, credit card fees, store supplies,
normal store closings and preopening expenses as well as central
office general and administrative expenses, including costs for
management payroll, benefits, stock-based compensation, travel,
information systems, accounting, insurance, legal and public relations.
These expenses also include depreciation of central office assets as
well as the amortization of intellectual property and other assets.
Certain store expenses such as store payroll and credit card fees
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 (collectively, North America), the United Kingdom,
Ireland and Denmark (collectively, Europe) for the last three fiscal
years can be summarized as follows:
December 29, 2012
Opened
Closed
December 28, 2013
Opened
Closed
January 3, 2015
Opened
Closed
January 2, 2016
North
America
Europe
Total
291
9
(37)
263
16
(14)
265
22
(18)
269
60
1
(1)
60
—
(1)
59
3
(2)
60
351
10
(38)
323
16
(15)
324
25
(20)
329
During 2016, we expect to expand our owned and operated locations
by adding approximately 10 stores, net of closures. Through a
combination of remodels and new openings, we expect to end the year
with between 45 and 55 stores in our Discovery format, including
select flagship locations, both domestic and internationally. We also
expect to continue to diversify our real estate portfolio with the
addition of more outlet format stores, shop-in-shops and seasonal
pop-up locations. We plan to update stores primarily in conjunction
with natural lease events including new store openings, relocations
and lease required remodels. We also expect to close select stores in
accordance with natural lease events as an ongoing part of our real
estate management and day-to-day operational plans. The majority
of store relocations and in-place remodels in fiscal 2016 are expected
to begin in the first half of the year.
Non-traditional Store Locations:
We also operate in a number of non-traditional locations, such as a
ballpark, a zoo and science center. Additionally, we had eight locations
within other retailers’ stores. Six of these shop-in-shop locations closed
in the first week of fiscal 2016 as planned due to the seasonal nature of
the locations. 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. In 2015, we opened our
first true outlet format stores, in which we offer a value-oriented
merchandise assortment, targeting locations near kid-centric tourist
destinations. We expect these locations to drive incremental sales and
to play an important role in the management of our product lifecycle.
As of January 2, 2016, we operated 15 temporary and six outlet stores.
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
19
International Franchise Locations:
Results of Operations
Our first franchisee location was opened in November 2003. All
franchised stores have similar signage, store layout and merchandise
assortments as our company-owned heritage stores. As of January 2,
2016, we had eight master franchise agreements, which typically grant
franchise rights for a particular country or group of countries, covering
an aggregate of 14 countries. 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
2015
2014
2013
73
10
(6)
77
86
12
(25)
73
95
11
(20)
86
The distribution of stores among these countries is as follows:
Australia
Germany (1)
Mexico
Gulf States (2)
Thailand
South Africa
Turkey
Singapore
Total
19
18
14
8
6
6
4
2
77
(1) Germany agreement includes Austria and Switzerland where stores have
not yet opened
(2) Gulf States agreement includes Kuwait, Bahrain, Qatar, Oman and the
United Arab Emirates
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, Ireland and Denmark. In 2016, our international
strategy is to leverage the improving strength in our company-owned
stores to restructure and extend our international footprint. Key
franchisees have started to apply our successful real estate strategies
including opening pop-up stores to assess long-term potential and
adding shop-in-shops with select partners. We expect to develop
market expansion through both new and existing franchisees and a
company-owned store model.
2015 Overview
Our 2015 performance demonstrated successful and consistent
implementation of key strategies toward our objective to achieve
sustained profitability. Our accomplishments included:
•
Increased consolidated comparable sales of 1.0%, on top of a 1.7%
increase in 2014;
• Expanded retail gross margin of 150 basis points on top of a 450
point expansion in 2014; and
•
Increased pre-tax income 11.7% to $17.9 million.
In fiscal 2016, we expect to continue to build on these successes to
reach more people, in more places, with more products and do it more
profitably as we continue to deliver on our MORE Strategy by
refreshing our brand with our Discovery store, international expansion,
developing new licensed and internally developed programs to extend
our core consumer business and expanding our wholesale and
outbound licensing programs to drive incremental, margin-accretive
business.
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:
Revenues:
Net retail sales
Franchise fees
Commercial revenue
Total revenues
Costs and expenses:
Cost of merchandise sold - retail (1)
Cost of merchandise sold - commercial (1)
Selling, general and administrative
Interest expense (income), net
Total costs and expenses
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Retail Gross Margin% (2)
Fiscal
2015
Fiscal
2014
Fiscal
2013
98.7%
98.8%
98.4 %
0.6
0.7
0.6
0.5
0.9
0.6
100.0
100.0
100.0
52.9
49.4
42.7
(0.0)
95.3
4.7
(2.5)
54.4
45.0
41.9
0.0
58.9
44.7
42.4
(0.1)
95.9
100.6
4.1
0.4
(0.6 )
(0.0)
7.2%
3.7%
-0.6 %
47.1%
45.6%
41.1%
(1) Cost of merchandise sold – retail and cost of merchandise sold –
commercial are expressed as a percentage of net retail sales and
commercial revenue, respectively.
(2) Retail gross margin represents net retail sales less cost of merchandise
sold – retail; retail gross margin percentage represents retail gross
margin divided by net retail sales.
20 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
Results of Operations (continued)
Fiscal Year Ended January 2, 2016 (52 weeks) Compared to Fiscal
Year Ended January 3, 2015 (53 weeks)
Total revenues. Net retail sales were $372.7 million for fiscal 2015,
compared to $387.7 million for fiscal 2014, a decrease of $15.0 million.
The components of this decrease are as follows:
(dollars in millions)
Decrease from other retail, including the impact of calendar shift $
Impact of store closures
Impact of foreign currency translation
Increase from new stores
Increase in non-comparable stores, primarily remodels and
relocations
Increase in comparable sales
Change in deferred revenue estimates, including breakage
Fiscal
2015
(12.5)
(8.2)
(7.4)
6.5
4.2
3.3
(0.9)
$ (15.0)
Revenue from international franchise fees was $2.2 million for fiscal
2015 compared to $2.5 million for fiscal 2014. This $0.3 million decrease
was primarily the result of having fewer franchise locations open
throughout the majority of the year. Commercial revenue was $2.8
million for fiscal 2015 compared to $2.1 million for fiscal 2014, an
increase of $0.7 million. This increase was primarily due to an increase
in wholesale activity in 2015.
Retail gross margin. Retail gross margin was $175.6 million in fiscal
2015 compared to $176.8 million in fiscal 2014, a decrease of $1.2
million, or 0.7%. As a percentage of net retail sales, retail gross margin
increased to 47.1% for fiscal 2015 from 45.6% for fiscal 2014, an increase
of 150 basis points as a percentage of net retail sales. This
improvement in margin was primarily attributable to 150 points of
expansion in merchandise margin while efficiencies in the supply chain
were offset by deleverage on fixed occupancy expenses.
Selling, general and administrative. Selling, general and administrative
expenses were $161.5 million for fiscal 2015 as compared to $164.4
million for fiscal 2014, a decrease of $3.0 million, or 1.8%. As a
percentage of total revenues, selling, general and administrative
expenses were 42.7% for fiscal 2015, compared to 41.9% in fiscal 2014.
The decrease in dollars was primarily attributable to lower variable
costs related to the 53rd week and lower management transition
expenses in fiscal 2015, partially offset by investments to advance the
Company’s long-term strategy. As a result of the calendar shift in fiscal
2014, fiscal 2015 had one less week of sales which deleveraged selling,
general and administrative expense as a percent of total revenues.
Interest expense (income), net. Interest income, net of interest
expense, was $0.1 million for fiscal 2015 compared to $0.1 million of
expense for fiscal 2014.
Provision for income taxes. Income tax benefit was $9.4 million in fiscal
2015, compared to a tax expense of $1.7 million in fiscal 2014. The
effective rate was (52.8)% in fiscal 2015 and 10.4% in fiscal 2014. The
fluctuation in the effective rate was primarily attributable to the
reversal of all of the valuation allowance on U.S. deferred tax assets at
January 2, 2016. In 2011, a full valuation allowance was established on
all U.S. deferred taxes due to significant losses and uncertainty about
future earnings forecast. The valuation allowance was reduced in
fiscal 2015 because the weight of evidence regarding the future
realizability of the deferred tax assets had become predominately
positive. The positive evidence considered in our assessment of the
realizability of the deferred tax assets included the generation of
significant positive cumulative income in the U.S. for the three-year
period ending with fiscal 2015, the implementation of tax planning
strategies, and projections of future taxable income, based on its
positive earnings performance trend, expected continued profitability
and improvements in our financial condition. The negative evidence
considered included historical losses in certain prior years; however,
the positive evidence outweighed this negative evidence. Accordingly,
management determined it was more likely than not that all of the U.S.
deferred tax assets would be realized.
For 2014, the rate was impacted by the full valuation allowance in the
U.S. as well as tax expense recorded for state and withholding taxes,
adjustments to tax position reserves, and tax expense recorded in
foreign jurisdictions.
Fiscal Year Ended January 3, 2015 (53 weeks) Compared to Fiscal
Year Ended December 28, 2013 (52 weeks)
Total revenues. Net retail sales were $387.7 million for fiscal 2014,
compared to $373.2 million for fiscal 2013, an increase of $14.5 million.
The components of this increase are as follows:
(dollars in millions)
Increase in comparable sales
Impact of store closures
Increase in non-comparable stores, primarily remodels and
relocations
Increase from new stores
Impact of foreign currency translation
Change in deferred revenue estimate
Increase from other retail
Fiscal
2014
17.1
(16.6)
$
5.1
4.7
1.9
1.7
0.6
$
14.5
Revenue from international franchise fees was $2.5 million for fiscal
2014 compared to $3.6 million for fiscal 2013. This $1.0 million decrease
was the result of having fewer franchise locations open throughout the
year. Commercial revenue was $2.1 million for fiscal 2014 compared to
$2.3 million for fiscal 2013, a decrease of $0.2 million. This decrease
was primarily due to an overall decrease in licensing activity in 2014.
Retail gross margin. Retail gross margin increased to $176.8 million in
fiscal 2014 compared to $153.5 million in fiscal 2013, an increase of
$23.4 million, or 15.2%. As a percentage of net retail sales, retail gross
margin increased to 45.6% for fiscal 2014 from 41.1% for fiscal 2013, an
increase of 450 basis points as a percentage of net retail. This
improvement in margin was primarily attributable to 370 points of
expansion in merchandise margin and improved efficiencies in the
supply chain. The remaining 80 basis points of expansion came from
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
21
Results of Operations (continued)
leverage on fixed occupancy expenses driven by improved sales
performance, including the impact of the 53rd week, and the deferred
revenue adjustment related to our loyalty program.
Selling, general and administrative. Selling, general and administrative
expenses were $164.4 million for fiscal 2014 as compared to $160.7
million for fiscal 2013, an increase of $3.7 million, or 2.3%. As a
percentage of total revenues, selling, general and administrative
expenses were 41.9% for fiscal 2014, compared to 42.4% in fiscal 2013.
Fiscal 2014 included $2.2 million in management transition, asset
impairment and store closing expenses, compared to $5.3 million in
management transition, asset impairment and store closing expenses
in fiscal 2013. Excluding these costs in both periods, selling, general
and administrative expenses increased 30 basis points to 41.3% of total
revenues in fiscal 2014. The increase in dollars was driven by increased
performance-based compensation and higher investment in elevated
brand marketing.
Interest expense (income), net. Interest expense, net of interest
income, was $0.1 million for fiscal 2014 compared to $0.3 million of
income for fiscal 2013.
Provision for income taxes. Income tax expense was $1.7 million in
fiscal 2014 compared to an income tax benefit of $6,000 in fiscal 2013.
The effective rate was 10.4% in 2014 and 0.3% in 2013. The fluctuation in
the effective rate was primarily attributable to state and withholding
taxes, return-to-provision adjustments, adjustments to tax position
reserves and tax expense recorded in foreign jurisdictions, partially
offset by the reversal of valuation allowances in the U.S. and foreign
jurisdictions. See Note 7 – Income Taxes to our Consolidated Financial
Statements for information regarding our valuation allowances and
their impact on the effective tax rate in fiscal 2014.
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, general and administrative expense, excluding income from franchise and commercial activities and contribution from our e-commerce
sites, locations not open for the full fiscal year and adjustments to deferred revenue related to our loyalty program and gift card breakage. 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 income for our company-owned stores located in the United States,
Canada and Puerto Rico (North America), stores located in the United Kingdom, Ireland and Denmark (Europe) and for our consolidated store base
(dollars in thousands). Fiscal 2015 and 2013 included 52 weeks; fiscal 2014 included 53 weeks.
Fiscal 2015
North
America
Europe
Total
North
America
Fiscal 2014
Europe
Net income
$
24,472
$
2,873
$
27,345
$
12,035
$
2,327
$
Income tax expense (benefit)
Interest expense (income)
General and administrative expense (1)
Contribution from other retail activities(2)
Other contribution (3)
Store contribution
Total revenues from external customers
Revenues from other retail activities (2)
Other revenues from external customers (4)
(10,276)
(40)
49,509
(2,301 )
(6,980)
54,384
299,210
(26,549)
(4,979)
$
$
829
(103)
4,645
(1,314)
—
6,930
78,484
(9,830)
—
$
$
(9,447)
(143)
54,154
(3,615)
(6,980)
61,314
377,694
(36,379)
(4,979)
$
$
1,062
9
48,029
(5,693 )
(4,281 )
51,161
310,863
(28,112 )
(4,629 )
$
$
600
44
5,288
(1,490)
67
6,836
81,491
(4,360)
—
$
$
$
$
Total
14,362
1,662
53
53,317
(7,183 )
(4,214 )
57,997
392,354
(32,472)
(4,629 )
Store location net retail sales
$
267,682
$
68,654
$
336,336
$
278,122
$
77,131
$
355,253
Store contribution as a percentage of store
location net retail sales
Total net income as a percentage of total
revenues
20.3%
8.2%
10.1%
3.7%
18.2%
7.2%
18.4 %
3.9 %
8.9 %
2.9 %
16.3 %
3.7 %
22 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
Non-GAAP Financial Measures (continued)
Net loss
Income tax expense (benefit)
Interest expense (income)
General and administrative expense (1)
Contribution from other retail activities(2)
Other contribution (3)
Store contribution
Total revenues from external customers
Revenues from other retail activities (2)
Other revenues from external customers (4)
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
North
America
Fiscal 2013
Europe
$
(1,953 )
$
(159 )
$
241
(172 )
47,803
(4,630 )
(5,510 )
(247 )
(87 )
5,146
(207 )
—
35,779
$
4,446
304,956
$
74,113
(37,886 )
(5,896 )
(4,077 )
—
$
$
$
$
$
Total
(2,112)
(6 )
(259 )
52,949
(4,837 )
(5,510)
40,225
379,069
(41,963 )
(5,896 )
261,174
$
70,036
$
331,210
13.7 %
(0.6 )%
6.3 %
(0.2)%
12.1%
(0.6 )%
(1) 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, depreciation of central office assets as well as the amortization of intellectual property and
other assets, store closing and pre-opening expenses. Certain intercompany charges are included in general and administrative expenses in Europe. General
and administrative expenses also include a central office marketing department, primarily payroll and related benefits expense, but exclude advertising
expenses, which are included in store contribution.
(2) Other retail activities are comprised primarily of our e-commerce sites, stores not open for the full year and adjustments to deferred revenue related to our
loyalty program and gift card breakage.
(3) Other contribution includes franchising, commercial revenues and intercompany revenues and all expenses attributable to the international franchising and
commercial segments, excluding interest expense/income and income tax expense/benefit. Interest expense/income and income tax expense/benefit related
to franchising and commercial activities are included in their respective captions.
(4) Other revenues from external customers are comprised of international franchising and commercial revenues.
Seasonality and Quarterly Results
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 (2)
Fiscal 2015
Fiscal 2014
Total revenues
Retail gross margin(1)
$
Income tax expense (benefit)
Net income (loss)
Income (loss) per common share:
Basic
Diluted
Number of stores (end of quarter)
$
93.4
42.9
0.2
6.8
0.41
0.40
317
$
81.0
34.9
0.2
(0.6)
(0.04)
(0.04)
315
85.6
38.2
0.3
1.1
0.06
0.06
317
$
117.7
$
59.7
(10.2 )
20.1
1.23
1.21
329
$
97.9
42.1
0.3
5.0
0.29
0.29
316
$
$
76.2
29.4
0.3
(4.3)
(0.25)
(0.25)
313
86.7
37.4
0.2
1.8
0.10
0.10
313
131.5
67.9
0.8
11.8
0.68
0.67
324
Retail gross margin represents net retail sales less cost of retail merchandise sold.
(1)
(2) The fiscal 2014 fourth quarter included 14 weeks. All other quarters presented included 13 weeks.
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
23
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, but not limited to: (1) changes in general
economic conditions and consumer spending patterns; (2) increases or
decreases in our comparable sales; (3) fluctuations in the profitability
of our stores; (4) changes in foreign currency exchange rates; (5) the
timing and frequency of our marketing initiatives, including national
media and other public relations events; (6) the timing of our store
openings and closings and related expenses; (7) changes in consumer
preferences; (8) the effectiveness of our inventory management;
(9) the actions of our competitors or mall anchors and co-tenants;
(10) seasonal shopping patterns and holiday and vacation schedules;
and (11) weather conditions.
The timing of store openings, closures and remodels may cause
fluctuations in quarterly results due to the changes in revenues and
expenses associated with each store location. We typically incur most
preopening costs for a new store, remodeled or relocated store in the
three months immediately preceding the store’s opening. Expenses
related to store closings are typically incurred in stages: when the
decision is made to close the store, when the closure is communicated
to store associates and at the time of closure.
As a specialty 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. We cannot ensure that this
will continue to be the case. In addition, 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 2014 fiscal
fourth quarter had 14 weeks.
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
$32.0 million in fiscal 2015, $34.9 million in fiscal 2014 and $19.1 million
in fiscal 2013. Cash flows from operating activities decreased in fiscal
2015 as compared to 2014 primarily due to the timing of inventory
receipts and payments and the increase in receivables partially offset
by increased store contribution. Cash flows from operating activities
increased in fiscal 2014 as compared to 2013 primarily due to
increased store contribution.
Investing Activities. Cash flows used in investing activities were $25.1
million in fiscal 2015, $11.8 million in fiscal 2014 and $19.4 million in fiscal
2013. Cash used in investing activities in 2015 related primarily to the
continued installation and upgrades of central office information
technology systems, the opening of 25 new stores, the remodeling or
relocation of eight stores and the net purchases of short-term
investments. Cash used in investing activities in 2014 related primarily
to the opening of five new traditional stores and eleven non-traditional
stores, the continued installation and upgrades of central office
information technology systems and the purchase of short-term
investments. 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 ten new locations.
Financing Activities. Financing activities used cash of $26.4 million and
$1.8 million in 2015 and 2014, respectively, and provided cash of $0.1
million in 2013. Purchases of our stock used cash of $25.9 million, $3.4
million and $0.2 million, in fiscal 2015, 2014 and 2013, respectively. In
fiscal 2015, the exercises of employee stock options, net of shares used
for withholding tax payments related to vesting of restricted stock used
cash of $0.5 million. In fiscal 2014 and 2013, the exercises of employee
stock options, net of shares used for withholding tax payments related
to vesting of restricted stock provided cash of $1.6 million and $0.3
million, respectively.
Capital Resources. As of January 2, 2016, we had a cash balance of
$45.2 million, more 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 bank line provides availability of up to $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 expires on December 31, 2016 and contains
various restrictions on indebtedness, liens, guarantees, redemptions,
mergers, acquisitions or sale of assets, loans, transactions with
affiliates and investments. It also 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
repurchase of shares would not violate any terms of the credit
agreement; we may not use the 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. As of
January 2, 2016: (i) we were in compliance with these covenants; (ii)
there were no borrowings under our line of credit; and (iii) there was
$35.0 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
24 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
be repaid to the landlord if we choose to terminate the lease. In
addition, some of these leases contain various restrictions relating to
change in 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.
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 2016, we expect to spend approximately $25 million to $30
million on capital expenditures. Capital spending in fiscal 2015 totaled
$24.4 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 (the “2008 Share
Repurchase Program”). Following a series of annual extensions, as of
February 25, 2015, under the 2008 Share Repurchase Program, we
had repurchased approximately 6,245,000 shares at an average price
of $7.40 per share for an aggregate amount of $46.2 million, leaving
Off-Balance Sheet Arrangements
None.
Contractual Obligations and Commercial Commitments
$3.8 million of availability under the program. On February 25, 2015,
we announced the termination of the 2008 Share Repurchase
Program. In February 2015 and July 2015, the board of directors
adopted new repurchase programs, each authorizing the repurchase
of up to $10 million of our common stock, and in November 2015, the
board adopted a new repurchase program (collectively, the “2015
Share Repurchase Programs”) authorizing the repurchase of up to an
additional $15 million of our common stock until March 31, 2016, subject
to further extension by the board. Collectively, the 2015 Share
Repurchase Programs authorized us to purchase up to $35 million of
our common stock in the open market (including through 10b5-1
trading plans), through privately negotiated transactions, or through
an accelerated repurchase transaction. The primary source of funding
has been, and 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 2015 Share
Repurchase Programs do 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 2015
Share Repurchase Programs will be subsequently retired. As of March
11, 2016, we had repurchased approximately 1.8 million shares at an
average price of $14.89 per share for an aggregate amount of $27.4
million, leaving $7.6 million of availability under the 2015 Share
Repurchase Programs.
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, 2016.
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
January 2, 2016 for periods subsequent to this date are as follows:
(In thousands)
Operating lease obligations
Purchase obligations
Total
Payments Due by Fiscal Period as of January 2, 2016
Total
$
202,088
38,386
$
240,474
2016
39,005
38,386
77,391
$
$
$
$
2017
2018
2019
2020
Beyond
30,884
$ 24,695
$
21,722
—
—
—
30,884
$ 24,695
$
21,722
$
$
21,033
$
64,749
—
—
21,033
$
64,749
Our total liability for uncertain tax positions under the Financial Accounting Standards Board Accounting Standards Codification (ASC) 740-10-25
was $0.7 million as of January 2, 2016. Currently, we do not anticipate that the total amount of unrecognized tax benefits will increase or decrease
significantly, nor do we expect a significant payment related to these obligations within the next twelve months. See Note 7 – 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.
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
25
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:
Long-Lived Assets
In accordance with ASC 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. Fair value is calculated as the present
value of estimated future cash flows for each asset group. 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.
For purposes of evaluating store assets for impairment, we have
determined that each store location is an asset group. Factors that we
consider important which could individually or in combination trigger
an impairment review 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. Impairment charges related
to this assessment are included in cost of merchandise sold – retail as
a component of net income (loss) before income taxes in the DTC
segment.
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. Asset
impairment charges resulting from this assessment are included in
selling, general and administrative expenses as a component of
income (loss) before income taxes in the DTC segment. 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. The assumptions used in future calculations of fair
value may change significantly which could result in further
impairment charges in future periods.
Revenue Recognition
While revenue recognition for the Company does not involve significant
judgment, it represents an important accounting policy. Revenues from
retail sales, net of discounts and excluding sales tax, are recognized at
the time of sale. Merchandise returns have not been significant. For e-
commerce sales, revenue is recognized at the time of shipment. We
sell gift cards to our customers in our retail stores, through our e-
commerce sites, and through select third parties. We do not charge
administrative fees on unused gift cards and our gift cards do not have
an expiration date. A current liability is recorded upon purchase of a
gift card, and revenue is recognized when the gift card is redeemed
for merchandise. Revenue from various licensing and international
franchising arrangements is recognized when earned in accordance
with the terms of the underlying agreement, generally based upon the
greater of the contractually earned or guaranteed minimum levels.
In 2015, we established a new legal entity, Build-A-Bear Card Services
LLC (“Card Services”), to issue and administer all gift cards in the
United States. The escheatment requirements of the jurisdiction where
Card Services was established differ from those that the Company has
historically been subject to. Given the change in legal requirements,
we evaluated our accounting treatment of unredeemed gift cards and
determined that the change in our legal obligations indicated that a
change in our accounting treatment was necessary. Accordingly, in
December 2015 when Card Services began issuing gift cards, we
began to recognize breakage income on unredeemed gift cards using
the redemption recognition method. Revenue is recognized in net
retail sales when the likelihood of the gift card being redeemed is
considered remote, based on historical redemption patterns. In the
fourth quarter of fiscal 2015, our estimate of breakage resulted in a
$0.5 million increase in net retail sales. We have no reason to believe
that there will be a material change in the future estimates or
assumptions we use to measure gift card breakage. However, if actual
results are not consistent with our estimates or assumptions, we may
be exposed to losses or gains that could be material. A 100 basis point
change in our gift card breakage rate as of January 2, 2016 would not
have had a material impact on our results. For gift cards issued prior to
the establishment of Card Services, the company escheats a portion of
unredeemed gift cards according to the escheatment regulations of
the relevant authority and the remaining amount is recorded as
income in the consolidated statement of operations in a manner
consistent with the delayed recognition method.
26 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
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 twelve months of
inactivity. In North America, guests receive a coupon for free
merchandise after reaching their first 50 points and a $10 reward
certificate for every 100 points earned in a twelve 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 2015,
2014 and 2013, the deferred revenue liability was adjusted downward
by $0.1 million, $1.3 million and $0.1 million, respectively, with a
corresponding increase to net retail sales.
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. Based on the analysis performed as of January 2, 2016, the
change in our assumptions would have resulted in a $0.2 million
change in the deferred revenue liability and net retail sales.
Income Taxes
We recognize deferred tax assets resulting from tax credit
carryforwards and deductible temporary differences between taxable
income on our income tax returns and income before taxes under
GAAP. Deferred tax assets generally represent future tax benefits to
be received when these carryforwards can be applied against future
taxable income or when expenses previously reported in our
Consolidated Financial Statements become deductible for income tax
purposes. A deferred tax asset valuation allowance is required when
some portion or all of the deferred tax assets may not be realized. We
are required to estimate taxable income in future years or develop tax
strategies that would enable tax asset realization in each taxing
jurisdiction and use significant judgment to determine whether to
record a deferred tax asset valuation allowance for part or all of a
deferred tax asset. We also consider the weight of all available
evidence, both positive and negative, in assessing the realizability of
the deferred tax assets. The need for a valuation allowance is
assessed by tax jurisdiction. We consider the reversals of existing
taxable temporary differences as well as projections of future taxable
income. We consider the future reversals of existing taxable temporary
differences to the extent they were of the same character as the
temporary differences giving rise to the deferred tax assets. We also
consider whether the future reversals of existing taxable temporary
differences will occur in the same period and jurisdiction as the
temporary differences giving rise to the deferred tax assets. We have
deferred tax assets in the U.S. on which we no longer have recorded a
valuation allowance. The realization of these deferred tax assets is
dependent upon the recognition of future jurisdictional income. After
weighing all the evidence, management determined that it was more
likely than not that the Company would be able to realize all of its
domestic deferred tax assets and, therefore, the valuation allowance
was no longer required. Management’s decision was based upon
evidence including its earnings performance trend, expected
continued profitability, and improvement in the Company’s financial
condition.
Significant judgment is required in evaluating our uncertain tax
positions. We establish accruals for uncertain tax positions when we
believe that the full amount of the associated tax benefit may not be
realized. In the future, if we prevail in matters for which accruals have
been established previously or pay amounts in excess of reserves,
there could be an effect on our income tax provisions in the period in
which such determination is made. 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 January 2, 2016 and January 3, 2015.
Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies.
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 2015. 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. 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. We do not engage
in financial transactions for trading or speculative purposes.
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
control system, misstatements due to error or fraud may occur and not
be detected.
The financial statements and schedules are listed under Item 15(a) and
filed as part of this Annual Report on Form 10-K.
Management’s Report on Internal Control Over Financial
Reporting
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 our Chief President Bear and Chief Financial Officer, 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
Financial Officer, concluded that our disclosure controls and
procedures were effective as of January 2, 2016, 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 Financial Officer, does
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
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
Financial Officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting as of January 2, 2016. Our
management, with the participation of our Chief Executive Officer and
Chief President Bear and our Chief Financial Officer, 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 (2013
framework). Based upon this evaluation, our management has
concluded that our internal control over financial reporting as of
January 2, 2016 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.
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 2015 fourth quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over
financial reporting.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Build-A-Bear Workshop, Inc.
We have audited Build-A-Bear Workshop, Inc. and subsidiaries
(collectively, the Company’s) internal control over financial reporting
as of January 2, 2016, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 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
28 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
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.
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.
In our opinion, Build-A-Bear Workshop, Inc. and subsidiaries,
maintained, in all material respects, effective internal control over
financial reporting as of January 2, 2016, based on the COSO criteria.
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 January 2, 2016 and January 3, 2015, and the related
consolidated statements of operations, comprehensive income (loss),
stockholders’ equity, and cash flows for each of the three years in the
period ended January 2, 2016, and our report dated March 17, 2016,
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 17, 2016
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Information concerning directors, appearing in the sections titled
“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 Stockholders
scheduled to be held on May 12, 2016 is incorporated by reference in
response to this Item 10.
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 Web site 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 in the sections titled “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, 52, 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. 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 Hershey’s and the
Snickers/M&M Mars business. Ms. John serves on the Board of
Directors of Jack in the Box Inc., a publicly traded restaurant company.
Gina Collins, 43, 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
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
29
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, 53, joined Build-A-Bear Workshop in July 2008 as Chief
Bearrister—General Counsel. Effective October 2015, he now holds the
title of Chief Administrative Officer, General Counsel 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 at Monsanto Company, McDonnell Douglas Corporation and
Bryan Cave LLP. Mr. Fencl began his career in 1984 as an auditor with
Arthur Young & Company.
J. Christopher Hurt, 49, joined Build-A-Bear Workshop in April 2015 as
Chief Operations Officer. Prior to joining the Company, Mr. Hurt was at
American Eagle Outfitters, Inc. from 2002 to April 2015 in various senior
leadership roles of increasing responsibility, including Senior Vice
President, North America and Vice President/General Manager—
Factory, Canada, Mexico Retail from 2011 to April 2015, and East Zone
Vice President and Regional Director from 2002 to 2011. Before joining
American Eagle Outfitters, Mr. Hurt held positions of increasing
ITEM 11. EXECUTIVE COMPENSATION
responsibility at companies including Polo Ralph Lauren and The
Procter & Gamble Company.
Jennifer Kretchmar, 42, joined Build-A-Bear Workshop in August 2014
as Chief Product Officer and Innovation Bear. Prior to joining the
Company, Ms. Kretchmar was Senior Vice President of Product and
Brand Management with the Stride Rite Children’s Group of Wolverine
World Wide, Inc. where since 2004 she was responsible for the global
product creation strategy for a diverse portfolio of children’s footwear
brands including Stride Rite, Sperry Top- Sider®, Saucony®, Keds®,
Merrell®, Robeez®, Jessica Simpson® and Hush Puppies®. Before
joining Stride Rite, Ms. Kretchmar held positions of increasing
responsibility at The Timberland Company, Goldbug, and the United
States Department of Agriculture Foreign Service.
Voin Todorovic, 41, joined Build-A-Bear Workshop in September 2014
as Chief Financial Officer. Prior to joining the Company, Mr. Todorovic
was employed at Wolverine World Wide, Inc., a leading global
footwear and apparel company, where since September 2013 he
served as the head of finance and operations for its Lifestyle Group
which includes a portfolio of iconic brands such as Sperry Top-Sider®,
Hush Puppies®, Keds®, and Stride Rite®. From 2011 to 2013 he was
Vice President—Finance and Administration of the Stride Rite Children’s
Group business, operating in wholesale, direct to consumer and
international franchising, and from 2010 to 2011 he was Vice President
of the Performance + Lifestyle Group. Prior to his tenure at Wolverine
World Wide he held positions of increasing responsibility at Collective
Brands, Inc. and Payless ShoeSource.
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.
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
574,851
574,851
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
8.30
8.30
$
$
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
1,271,884
1,271,884
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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 sections 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.
30 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
PART IV
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
Consolidated Balance Sheets as of January 2, 2016 and January 3, 2015
Consolidated Statements of Operations for the fiscal years ended January 2, 2016, January 3, 2015 and December 28, 2013
Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended January 2, 2016, January 3, 2015 and
December 28, 2013
Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 2, 2016, January 3, 2015 and December 28, 2013
Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2016, January 3, 2015 and December 28, 2013
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Build-A-Bear Workshop, Inc.
Page
31
32
33
34
34
35
36
46
We have audited the accompanying consolidated balance sheets of Build-A-Bear Workshop, Inc. and subsidiaries (collectively, the Company) as of
January 2, 2016 and January 3, 2015, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and
cash flows for each of the three years in the period ended January 2, 2016. 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 January 2, 2016 and January 3, 2015, and the consolidated results of their operations and their cash flows for each
of the three years in the period ended January 2, 2016, 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 January 2, 2016, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated
March 17, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 17, 2016
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
31
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
Total current assets
Property and equipment, net
Deferred tax assets
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 rent
Deferred franchise revenue
Other liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares issued or outstanding at January 2, 2016 and
January 3, 2015
Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and outstanding: 15,795,891 and 17,360,635
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.
January 2,
January 3,
2016
2015
$
45,196
$
53,877
13,346
16,312
128,731
67,741
10,864
1,738
4,260
65,389
51,939
11,461
15,611
144,400
62,766
2,807
304
1,777
$
213,334
$
212,054
$
42,551
$
19,286
35,391
2,633
99,861
12,156
728
1,175
—
158
66,009
(9,971 )
43,218
99,414
38,107
24,058
34,268
2,654
99,087
13,353
945
1,044
—
174
69,362
(8,698 )
36,787
97,625
$
213,334
$
212,054
32 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
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 - retail
Cost of merchandise sold - commercial
Selling, general and administrative
Interest expense (income), net
Total costs and expenses
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Income (loss) per common share:
Basic
Diluted
Shares used in computing common per share amounts:
Basic
Diluted
See accompanying notes to consolidated financial statements.
Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
Net income (loss)
Foreign currency translation adjustment
Other comprehensive (loss) income
Comprehensive income (loss)
See accompanying notes to consolidated financial statements.
Fiscal Year
2015
2014
2013
$
372,715
$
387,725
$
373,173
2,196
2,783
2,531
2,098
3,564
2,332
377,694
392,354
379,069
197,101
1,375
161,463
(143 )
359,796
17,898
(9,447 )
210,887
945
164,445
53
376,330
16,024
1,662
27,345
$
14,362
$
219,696
1,042
160,708
(259 )
381,187
(2,118 )
(6 )
(2,112)
1.61
1.59
$
$
0.82
0.81
$
$
(0.13 )
(0.13 )
16,642,269
16,867,356
16,908,001
17,133,811
16,465,138
16,465,138
Fiscal Year
2015
2014
27,345
$
14,362
$
(1,273 )
(1,273 )
(1,395 )
(1,395 )
2013
(2,112)
380
380
26,072
$
12,967
$
(1,732)
$
$
$
$
$
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
33
Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands)
Balance, December 29, 2012
Share repurchase and retirement
Stock-based compensation
Shares issued under employee stock plans
Other comprehensive income
Net loss
Balance, December 28, 2013
Share repurchase and retirement
Stock-based compensation
Shares issued under employee stock plans
Other comprehensive loss
Net income
Balance, January 3, 2015
Share repurchase and retirement
Stock-based compensation
Shares issued under employee stock plans
Other comprehensive loss
Net income
Balance, January 2, 2016
See accompanying notes to consolidated financial statements.
Accumulated
other
Common
Additional
comprehensive
stock
capital
income (loss)
Retained
earnings
$
171
$
66,112
$
(7,683)
$
24,537
$
(0)
—
3
—
—
174
(3 )
—
3
—
—
(216 )
2,849
349
—
—
69,094
(3,361)
2,051
1,578
—
—
—
—
—
380
—
(7,303)
—
—
—
(1,395)
—
—
—
—
—
(2,112)
22,425
—
—
—
—
14,362
Total
83,137
(216)
2,849
352
380
(2,112)
84,390
(3,364)
2,051
1,581
(1,395)
14,362
$
174
$
69,362
$
(8,698)
36,787
$
97,625
(17)
—
1
—
—
(4,978)
2,111
(486)
—
—
—
—
—
(1,273)
—
—
—
—
27,345
(20,914)
(25,909)
2,111
(485)
(1,273)
27,345
99,414
$
158
$
66,009
$
(9,971)
$
43,218
$
34 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Deferred taxes
Provision for doubtful accounts
Asset impairment
Trade credit utilization
Loss on disposal of property and equipment
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
Purchases of short term investments
Proceeds from sale or maturity of short term investments
Cash flow used in investing activities
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 (used in) provided by financing activities
Effect of exchange rates on cash
Net (decrease) increase 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 during the period for income taxes
See accompanying notes to consolidated financial statements.
Fiscal Year
2015
2014
2013
$
27,345
$
14,362
$
(2,112)
16,419
2,111
(8,123 )
19
296
185
282
(2,466 )
(2,118 )
(2,998 )
1,458
(1,182 )
1,037
(218 )
32,047
18,128
2,051
(2,043 )
1,432
1,107
548
120
(2,323 )
1,411
(3,745 )
11,131
(5,986 )
645
(1,954 )
34,884
(22,466 )
(10,790)
(1,922 )
(1,551 )
793
(100)
(899 )
—
19,216
2,849
76
1,109
1,408
498
715
(2,987 )
(5,836 )
2,778
695
(1,863 )
2,910
(398 )
19,058
(19,055 )
(307 )
—
—
(25,146 )
(11,789 )
(19,362)
(481 )
(25,909 )
(26,390 )
(704 )
(20,193 )
65,389
45,196
$
1,581
(3,364 )
(1,783 )
(588 )
20,724
44,665
65,389
2,175
$
1,024
$
$
348
(216 )
132
(334 )
(506 )
45,171
44,665
1,113
$
$
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
35
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 329
company-owned stores operated primarily in leased mall locations in
the United States, Canada, Puerto Rico, the United Kingdom, Ireland
and Denmark along with its e-commerce sites. Operations in foreign
countries where the Company does not have company-owned stores
are through franchise agreements.
A reclassification was made in the current year presentation of the
consolidated balance sheet as of January 2, 2016. The Company
adjusted the classification of the impact of shares repurchased, which
had previously been recorded as a deduction to additional paid-in
capital, to a deduction which was allocated between additional paid-
in capital and retained earnings. As a result of this reclassification,
retained earnings were reduced by $2.1 million and additional paid-in
capital was increased by the same amount.
Additionally, reclassification of prior year amounts related to the break
out of cost of merchandise sold between retail and commercial have
been made in the statement of operations to conform to current year
presentation with no impact to net income or 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:
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.
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 2015 (52 weeks ended January 2,
2016), fiscal 2014 (53 weeks ended January 3, 2015) and fiscal 2013 (52
weeks ended December 28, 2013). References to years in these
financial statements relate to fiscal years or year ends rather than
calendar years.
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.
Inventories
Inventories are stated at the lower of cost or market, with cost
determined on an average-cost basis. Inventory includes supplies of
$2.7 million as of both January 2, 2016 and January 3, 2015. A reserve
for estimated shortage is accrued throughout the year based on
detailed historical averages.
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
established an allowance for doubtful accounts of $3.0 million and $3.2
million as of January 2, 2016 and January 3, 2015, respectively.
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 includes certain costs, including internal
payroll costs incurred in connection with the development or
acquisition of software for internal use and 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.
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.
Other Assets
Other assets consist primarily of the non-current portion of prepaid
income taxes, deferred leasing fees and deferred costs related to
franchise agreements. The prepaid income taxes will amortize through
income tax expense over the life of the related asset. 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 $0.1 million, $0.2 million and $0.2 million for 2015, 2014 and
2013, respectively.
36 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
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. The Company
performs an annual assessment of the store assets in the direct–to-
consumer segment, based on operating performance and forecasts of
future performance. Impairment charges related to this assessment
were immaterial in fiscal 2015, 2014 and 2013. See Note 4 – Property
and Equipment 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.
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.
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.
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. For gift cards
issued prior to the establishment of Build-A-Bear Card Services LLC in
December 2015, 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. Beginning in
December 2015, for gift cards issued through Build-A-Bear Card
Services, gift card breakage revenue is recorded based on historical
redemption patterns and represents the balance of gift cards for
which the likelihood of redemption by a customer is considered
remote. Breakage recorded in 2015 was $0.5 million.
The Company has a customer loyalty program, the Stuff Fur Stuff club,
whereby guests enroll in the program and receive points based on the
value of the transaction and receive awards for various discounts on
future purchases after achieving defined point thresholds. Historical
patterns for points converting into awards and ultimate award
redemption are applied to actual points and awards outstanding at
the respective balance sheet date to calculate the liability and
corresponding adjustment to net retail sales. In 2014, the Company
changed the program to eliminate certain discounts and reduced its
liability by $0.5 million with a corresponding increase to net retail sales
and a $0.4 million increase to net income.
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 2015, 2014 and 2013, the deferred revenue
liability was adjusted downward by $0.1 million, $1.3 million and $0.1
million, respectively, with corresponding increases to net retail sales.
Net income was increased by $0.1 million and $1.2 million in 2015 and
2014, respectively, and net loss was decreased by $0.1 million in 2013.
Cost of Merchandise Sold
Cost of merchandise sold - retail 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. Cost of merchandise
sold - commercial includes the cost of the merchandise, including
royalties paid to licensors of third party branded merchandise; cost of
warehousing and distribution; packaging; stuffing; damages and
shortages; and shipping and handling costs incurred in shipment to
customers.
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.
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
37
Notes to Consolidated Financial Statements (continued)
Store Preopening Expenses
Store preopening expenses consist of costs incurred prior to store
openings, remodels and relocations including certain store set-up,
labor and hiring costs, rental charges, payroll, marketing, travel and
relocation costs. They are expensed as incurred and are included in
selling, general and administrative expenses.
Advertising
The costs of advertising and marketing programs are charged to
operations in the first period the program takes place. Advertising
expense was $25.3 million, $25.8 million and $23.7 million for fiscal
years 2015, 2014 and 2013, respectively.
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.
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 740-10-25. The Company
recognizes estimated interest and penalties related to uncertain tax
positions in income tax expense. See Note 7—Income Taxes for further
discussion.
Income (Loss) Per Share
Under the two-class method, basic income (loss) per share is
determined by dividing net income or loss allocated to common
stockholders by the weighted average number of common shares
outstanding during the period. 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. Diluted income 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.
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 718. The Company recognizes
compensation cost for equity awards over the requisite service period
for the entire award. See Note 11 – Stock Incentive Plans. For fiscal
2015, 2014 and 2013, selling, general and administrative expense
includes $2.1 million, $2.1 million and $2.8 million, respectively, of stock-
based compensation expense.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and
foreign currency translation adjustments.
Deferred Compensation Plan
The Company maintains a Deferred Compensation Plan for the benefit
of certain management employees. The investment funds offered to
the participant generally correspond to the funds offered in the
Company’s 401(k) plan, and the account balance fluctuates with the
investment returns on those funds. The fair value of the assets,
classified as trading securities, and corresponding liabilities are based
on unadjusted quoted market prices for the funds in active markets
with sufficient volume and frequency (Level 1). As of January 2, 2016,
the assets and related liabilities of the Deferred Compensation Plan of
$0.6 million are all non-current and are presented in other assets, net
and other liabilities in the accompanying consolidated balance sheets.
As of January 3, 2015, the current portions of the assets and related
liabilities of $0.3 million are presented in prepaid expenses and other
current assets and accrued expenses in the accompanying
consolidated balance sheets, and the non-current portions of the
assets and the related liabilities of $0.5 million are presented in other
assets, net and other liabilities in the accompanying consolidated
balance sheets.
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, short term investments, accounts payable
and accrued expenses, approximates book value at January 2, 2016
and January 3, 2015.
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
deferred income tax assets and the determination of deferred revenue
under the Company’s customer loyalty program.
38 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
Sales Tax Policy
The Company’s revenues in the consolidated statement of operations
are net of sales taxes.
Foreign Currency
Assets and liabilities of the Company’s foreign operations with
functional currencies other than the U.S. dollar are translated at the
exchange rate in effect at the balance sheet date, while revenues and
expenses are translated at average rates prevailing during the year.
Translation adjustments are reported in accumulated other
comprehensive income, a separate component of stockholders’ equity.
Gains and losses resulting from foreign exchange transactions,
including the impact of the re-measurement of the Company’s balance
sheet, are recorded as a component of selling, general and
administrative expenses. Losses in fiscal 2015 and 2014 were $2.3
million and $1.6 million, respectively. Foreign exchange transactional
gains and losses were immaterial in 2013.
Recent Accounting Pronouncements – Adopted in the current year
In November 2015, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update No. 2015-17, Balance Sheet
Classification of Deferred Taxes (ASU 2015-17), which requires that all
deferred tax assets and liabilities be classified as noncurrent in a
classified statement of financial position. The standard is effective for
fiscal years beginning after December 15, 2016, including interim
periods within that reporting period. Early adoption is permitted for
any interim and annual financial statements that have not yet been
issued. The Company early adopted ASU 2015-17 effective January 2,
2016, retrospectively. Adoption resulted in a $1.4 million decrease in
total current assets, a $2.8 million increase in non-current deferred tax
assets and a $1.4 million decrease in non-current other assets, net
on the Consolidated Balance Sheet as of January 3, 2015 compared to
the prior period presentation. The adoption had no impact on results of
operations.
Recent Accounting Pronouncements – Pending adoption
In May 2014, the FASB issued Accounting Standards Update No. 2014-
09, Revenue from Contracts with Customers (ASU 2014-09), which will
replace most existing revenue recognition guidance in U.S. GAAP. The
core principle of the ASU is that an entity should recognize revenue for
the transfer of goods or services equal to the amount that it expects to
be entitled to receive for those goods or services. ASU 2014-09
requires additional disclosure about the nature, amount, timing and
uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments. ASU 2014-
09 will be effective for the Company beginning in fiscal 2018, and
allows for both retrospective and modified retrospective methods of
adoption. Early adoption beginning fiscal 2017 is permitted. The
Company is in the process of determining the method and timing of
adoption and assessing the impact of ASU 2014-09 on its consolidated
financial statements.
In August 2014, the FASB issued disclosure guidance that requires the
Company to evaluate, at each annual and interim period, whether
substantial doubt exists about its ability to continue as a going concern,
and if applicable, to provide related disclosures. The new guidance will
be effective for the Company for the year ending December 31, 2016.
This guidance is not currently expected to have a material effect on
our financial statement disclosures upon adoption, although the
ultimate impact will be dependent on our financial condition and
expected operating outlook at such time.
In February 2016, the FASB issued Accounting Standards Update No.
2016-02, Leases (ASU 2016-02), which will replace most existing lease
accounting guidance in U.S. GAAP. The core principle of the ASU is that
an entity should recognize the rights and obligations resulting from
leases as assets and liabilities. ASU 2016-02 requires qualitative and
specific quantitative disclosures to supplement the amounts recorded
in the financial statements so that users can understand more about
the nature of an entity’s leasing activities, including significant
judgments and changes in judgments. ASU 2016-02 will be effective for
the Company beginning in fiscal 2019, and requires the modified
retrospective method of adoption. Early adoption is permitted. The
Company is in the process of determining the method and timing of
adoption and assessing the impact of ASU 2016-02 on its consolidated
financial statements.
(3) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in
thousands):
Prepaid rent
Short-term investments
Other
Total
2015
2014
$ 7,852 $ 7,848
1,458
1,121
7,002
6,642
$ 16,312 $ 15,611
(4) Property and Equipment, net
Property and equipment, net consist of the following (in thousands):
Land
Furniture and fixtures
Computer hardware
Building
Leasehold improvements
Computer software
Construction in progress
Less accumulated depreciation
2015
$
2,261 $
40,322
26,277
14,970
113,981
46,745
6,871
251,427
183,686
2014
2,261
39,391
22,720
14,970
119,894
43,540
5,034
247,810
185,044
Total, net
$
67,741 $
62,766
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
39
Notes to Consolidated Financial Statements (continued)
For 2015, 2014 and 2013, depreciation expense was $15.8 million, $17.6
million and $18.6 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 $0.3 million, $0.4 million and $1.0 million were recorded in 2015, 2014
and 2013, respectively, which are included in selling, general and
administrative expenses as a component of income (loss) before
income taxes in the direct-to-consumer (DTC) 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 820-10.
(5) Other Intangible Assets
Other intangible assets consist of the following (in thousands):
Trademarks and other intellectual property
$
14,429 $
Less accumulated amortization
12,691
Total, net
$
1,738 $
2015
2014
12,517
12,213
304
Trademarks and intellectual property are amortized over three years.
Amortization expense related to trademarks and intellectual property
was $0.5 million, $0.3 million and $0.4 million in 2015, 2014 and 2013,
respectively. Estimated amortization expense related to other
intangible assets in the subsequent five year period is: 2016 - $0.7
million; 2017 - $0.6 million; 2018 - $0.4 million; 2019 - $-0-; and 2020 -
$-0-.
(6) Accrued Expenses
Accrued expenses consist of the following (in thousands):
2015
Accrued wages, bonuses and related expenses
$
8,035 $
Sales tax payable
Accrued rent and related expenses
Current income taxes payable
6,374
4,307
570
2014
11,858
7,694
3,365
1,141
Total
$
19,286 $
24,058
(7) Income Taxes
The components of the provision for income taxes are as follows (in
thousands):
2015
2014
2013
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
$
—
$
— $
24
1,189
304
3,293
(9,697)
(1,308)
—
26
345
(1,961)
Income tax expense (benefit)
$
(9,447) $ 1,662 $
—
(68)
6
—
56
—
(6)
A reconciliation between the statutory federal income tax rate and the
effective income tax rate is as follows (in thousands):
2015
2014
2013
Income (loss) before income taxes
$
17,898
$
16,024 $ (2,118 )
Statutory federal income tax rate
34 %
34%
34 %
Income tax expense (benefit) at
statutory federal rate
State income taxes, net of federal tax
benefit
Valuation allowance
Effect of lower foreign taxes
Adjustment for unrecognized tax
positions
Other items, net
6,085
5,448
(720)
371
(15,572)
(622)
67
224
310
(5,415)
(372)
151
386
497
397
(70)
1,294
(250)
Income tax expense (benefit)
$
(9,447)
$
1,662 $
(6 )
Effective tax rate
(52.8)%
10.4%
0.3 %
In 2011, the Company established a full valuation allowance on its
deferred taxes in the U.S. due to significant losses and uncertainty
about future earnings forecast. As of January 2, 2016, the Company
recorded an income tax benefit of $9.4 million primarily due to the
reduction in the valuation allowances in the U.S. The valuation
allowance in the U.S. was reduced because the weight of evidence
regarding the future realizability of the deferred tax assets had
become predominately positive and realization of the deferred tax
assets was more likely than not. The positive evidence considered in
our assessment of the realizability of the deferred tax assets included
the generation of significant positive cumulative income in the U.S. for
the three-year period ending with fiscal 2015, the implementation of
tax planning strategies, and projections of future taxable income.
40 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
Based on its earnings performance trend, expected continued
profitability and improvements in the Company’s financial condition;
management determined it was more likely than not that all of our U.S.
deferred tax assets would be realized. The negative evidence
considered included historical losses in certain prior years; however,
the positive evidence outweighed this negative evidence. In fiscal 2014,
the Company released approximately $4.4 million of U.S. related
valuation allowance, consistent with the level of income generated.
Additionally, in fiscal 2014, the Company recorded an income tax
benefit of $1.1 million due to the release of the valuation allowances in
foreign jurisdictions, primarily the UK and Canada.
Temporary differences that gave rise to deferred tax assets and
liabilities are as follows (in thousands):
Deferred tax assets:
Deferred revenue
Accrued rents
Net operating loss carryforwards
Intangible assets
Deferred compensation
Accrued compensation
Carryforward of tax credits
Receivable write-offs
Inventories
Other
Less: Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Other
Total deferred tax liabilities
$
2015
2014
5,129 $
1,704
306
1,349
1,022
1,545
928
1,317
656
3,306
17,262
—
17,262
4,833
1,746
613
1,489
1,019
3,058
4,250
1,436
661
3,270
22,375
15,572
6,803
(3,494)
(2,904)
(6,398)
(1,021)
(2,975)
(3,996)
Net deferred tax asset
$
10,864 $
2,807
Income taxes and remittance taxes have not been recorded on
approximately $14.0 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
U.S.
As of January 2, 2016, the Company had total unrecognized tax
benefits of $1.1 million compared to $1.0 million as of January 3, 2015.
The Company reviews its uncertain tax positions periodically and
accrues interest and penalties accordingly. Included in the
unrecognized tax benefits are interest and penalties of $0.4 million
and $0.3 million for 2015 and 2014, respectively.
A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows (in thousands):
Balance as of December 28, 2013
$
Addition to reserve
Audit settlement release
Lapse of statute
Balance as of January 3, 2015
Addition to reserve
Audit settlement release
Lapse of statute
Balance as of January 2, 2016
$
560
200
(29 )
(12)
719
—
—
—
719
As of January 2, 2016, approximately $0.7 million of the unrecognized
tax benefits would impact the Company’s provision for income taxes
and effective tax rate if recognized. Management does not anticipate
that the total amount of unrecognized tax benefits will increase or
decrease significantly in the next twelve months.
The Company’s income before income taxes from domestic and
foreign operations (which include the United Kingdom, Canada,
Ireland and Denmark), are as follows (in thousands):
Domestic
Foreign
Total
2015
2014
2013
$
13,854 $
12,973 $ (1,134)
4,044
3,051
(984)
$
17,898 $
16,024 $ (2,118)
The following tax years remain open in the Company’s major taxing
jurisdictions as of January 2, 2016:
United States (Federal)
United Kingdom
Canada
Ireland
Denmark
(8) Line of Credit
2012 through 2015
2009 through 2015
2012 through 2015
2007 through 2015
2015
As of January 2, 2016, 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 expires on December 31, 2016 and contains various
restrictions on indebtedness, liens, guarantees, redemptions, mergers,
acquisitions or sale of assets, loans, transactions with affiliates, and
investments. It prohibits the Company from declaring dividends
without the bank’s prior consent, unless such payment of dividends
would not violate any terms of the credit agreement. The Company is
also prohibited from repurchasing shares of its common stock unless
such purchase would not violate any terms of the credit agreement;
the Company may not use proceeds of the line of credit to repurchase
shares. Borrowings bear interest at LIBOR plus 1.8%. Financial
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
41
Notes to Consolidated Financial Statements (continued)
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. As of
January 2, 2016: (i) the Company was in compliance with these
covenants; (ii) there were no borrowings under the line of credit; and
(iii) there was approximately $35.0 million available for borrowing
under the line of credit.
(9) Commitments and Contingencies
(a) Operating Leases
The Company leases its retail stores and corporate offices under
agreements which expire at various dates through 2030. The majority
of leases contain provisions for base rent plus contingent payments
based on defined sales as well as scheduled escalations. Total office
and retail store base rent expense was $45.3 million, $46.7 million and
$46.5 million, and contingent rents were $1.2 million, $1.8 million and
$1.3 million for 2015, 2014 and 2013, respectively.
Future minimum lease payments at January 2, 2016, were as follows (in
thousands):
2016
2017
2018
2019
2020
Subsequent to 2020
Total
$
39,005
30,884
24,695
21,722
21,033
64,749
$ 202,088
(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 limitation periods. If one or more of these examinations has
an unfavorable resolution, it is possible that the results of operations,
liquidity or financial position of the Company could be materially
affected in any particular period. 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. Assessments made by the United Kingdom customs
authority in 2012 have been appealed by the Company, which has paid
$3.8 million in disputed duty, strictly under protest, pending the
outcome of the continuing dispute, and this is included in receivables in
the DTC segment. The United Kingdom customs authority is contesting
the Company’s appeal. In the 2015 fourth quarter, the Company further
evaluated its position and, based on the latest facts available in the
dispute, recorded its best estimate of probable loss as a provision
against the related receivable. However, the Company continues to
vigorously dispute the customs audit findings and believes that the
outcome of this dispute will not have a material adverse impact on the
results of operations, liquidity or financial position of the Company.
(10) Net Income (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 income (loss) before allocation of earnings to participating securities
Less: Earnings allocated to participating securities
Net income (loss)
DENOMINATOR:
Weighted average number of common shares outstanding - basic
Dilutive effect of share-based awards:
Weighted average number of common shares outstanding - dilutive
Basic income (loss) per common share attributable to Build-A-Bear Workshop, Inc. stockholders
Diluted income (loss) per common share attributable to Build-A-Bear Workshop, Inc. stockholders
2015
2014
2013
27,345
$
14,362
520
439
26,825
$
13,923
$
$
(2,112)
—
(2,112)
16,642,269
16,908,001
16,465,138
225,087
225,810
—
16,867,356
17,133,811
16,465,138
1.61
1.59
$
$
0.82
0.81
$
$
(0.13 )
(0.13 )
$
$
$
$
42 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
In calculating diluted earnings per share for fiscal 2015, 2014 and 2013, options to purchase 65,040; 44,144; and 1,065,012 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, the denominator for diluted loss per common share is the same as the denominator for basic loss per common
share for those periods because the inclusion of stock options would have been anti-dilutive.
(11) Stock Incentive Plans
In 2003, the Company adopted the Build-A-Bear Workshop, Inc. 2002 Stock Incentive Plan (the 2002 Plan). In 2004, the Company adopted the
Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan (the 2004 Plan) which the Company amended and restated in 2009 and 2014 (collectively,
the Plans).
Under the Plans, as amended, up to 1,475,000 shares of common stock, in addition to shares of stock subject to awards outstanding under the 2002
Plan and the 2004 Plan that may lapse, terminate, be forfeited or otherwise expire were reserved and may be granted to employees and
nonemployees of the Company. The Plans allow for the grant of awards including incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock and other stock-based and cash-based awards. Options granted under the Plans expire no later than 10 years
from the date of the grant. The exercise price of all options, including 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 vesting provision of individual awards is at the discretion of the Compensation and
Development Committee of the Company’s Board of Directors and generally ranges from one to four years.
(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, December 29, 2012
Granted
Exercised
Forfeited
Canceled or expired
Outstanding, December 28, 2013
Granted
Exercised
Forfeited
Canceled or expired
Outstanding, January 3, 2015
Granted
Exercised
Forfeited
Canceled or expired
Outstanding, January 2, 2016
Options Exercisable As Of:
January 2, 2016
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in thousands)
8.53
6.56
5.60
8.20
9.10
8.72
9.59
6.64
21.54
8.78
8.14
20.58
6.07
12.15
32.95
8.30
6.4
$
2,826
Number of
Shares
1,155,239
$
195,512
204,658
39,931
41,150
1,065,012
104,064
351,856
96,019
6,750
714,451
71,517
150,409
19,003
41,705
574,851
$
365,596
$
6.36
5.3
$
2,151
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
43
Notes to Consolidated Financial Statements (continued)
The expense recorded related to options granted during fiscal 2015,
2014 and 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 2015, 2014 and 2013 were:
Dividend yield
Historical volatility
Risk-free rate
Expected life (years)
2015
2014
2013
0%
51%—58%
0%
65%
1.5—1.8%
1.7—2.1%
6%
6—6.25
0%
65%
1.3%
6.25
The total grant date fair value of options exercised in fiscal 2015, 2014
and 2013 was approximately $0.6 million, $0.6 million and $0.7 million,
respectively. The total intrinsic value of options exercised in fiscal 2015,
2014 and 2013 was approximately $2.1 million, $1.6 million and $0.4
million, respectively. The Company generally issues new shares to
satisfy option exercises.
Shares available for future option, non-vested stock and restricted
stock grants were 1,271,884 and 1,323,925 at the end of 2015 and 2014,
respectively.
(b) Restricted Stock
Recipients of time-based restricted stock awards have the right to vote
and receive dividends as to all unvested shares. The following table is
a summary of the balance and activity for the Plans related to
unvested time-based restricted stock granted as compensation to
employees and directors for the periods presented:
Weighted
Average
Grant Date
Fair Value
Number of
Shares
Outstanding, December 29, 2012
860,325 $
Granted
Vested
Forfeited
Outstanding, December 28, 2013
Granted
Vested
Forfeited
Outstanding, January 3, 2015
Granted
Vested
Forfeited
321,664
399,405
62,386
720,198
202,274
345,577
157,221
419,674
107,004
205,137
44,988
Outstanding, January 2, 2016
276,553 $
5.78
6.00
5.39
5.78
5.91
10.31
6.25
6.21
7.64
19.59
7.84
8.89
11.93
In 2015, the Company also awarded performance-based restricted
stock subject to the achievement of pre-established pre-tax income
objectives for fiscal 2015. These shares of performance-based
restricted stock had a payout opportunity ranging from 50% to 200% of
the target number of shares. The target number of shares awarded
was 36,222 with a weighted average grant date fair value of $20.58
per share. Based on the Company’s pre-tax income results for fiscal
2015, the number of shares earned was 22,458. Additionally, the
Company awarded three-year performance-based restricted stock
subject to the achievement of pre-established cumulative pre-tax
income goals for fiscal 2015, 2016 and 2017. These shares of three-year
performance-based restricted stock also had a payout opportunity
ranging from 50% to 200% of the target number of shares. The target
number of shares awarded was 50,000 with a weighted average
grant date fair value of $20.80 per share. The Company is currently
unable to estimate the number of these shares expected to be earned.
The vesting date fair value of shares that vested in fiscal 2015, 2014
and 2013 was $4.0 million, $3.7 million and $2.2 million, respectively.
The aggregate unearned compensation expense related to options
and restricted stock was $3.5 million as of January 2, 2016 and is
expected to be recognized over a weighted average period of 1.4
years.
(12) Stockholders’ Equity
The following table summarizes the changes in outstanding shares of
common stock for fiscal 2013, 2014 and 2015:
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
Shares issued under employee stock plans, net of shares
withheld in lieu of tax withholding
Repurchase of shares
Shares as of January 3, 2015
Shares issued under employee stock plans, net of shares
withheld in lieu of tax withholding
Repurchase of shares
Shares as of January 2, 2016
Common
Stock
17,068,182
346,271
(27,533 )
17,386,920
300,705
(326,990)
17,360,635
141,827
(1,706,571 )
15,795,891
(13) 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 $0.9 million, $0.7
million and $1.3 million, in fiscal 2015, 2014 and 2013, respectively. The
total amount due to this related party as of January 2, 2016 and
January 3, 2015 was immaterial.
44 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
The Company collected $0.5 million, $1.2 million and $2.1 million in
2015, 2014 and 2013, respectively, from its guests on behalf of
charitable foundations controlled by a member of the Company’s
board of directors and 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 January 2, 2016 was
immaterial and was $0.4 million as of January 3, 2015.
(14) Major Vendors
Four vendors, each of whose primary manufacturing facilities are
located in Asia, accounted for approximately 85% of inventory
purchases in fiscal 2015. Three such vendors accounted for
approximately 75% and 79% of inventory purchases in 2014 and 2013,
respectively.
(15) Segment Information
The Company’s operations are conducted through three operating segments consisting of DTC, formerly retail, international franchising, and
commercial. The DTC segment includes the operating activities of company-owned stores in the United States, Canada, the United Kingdom,
Ireland and Denmark and other retail delivery operations, including the Company’s e-commerce sites and temporary stores. 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 a separate reportable segment. The reportable segments follow the same accounting
policies used for the Company’s consolidated financial statements.
Following is a summary of the financial information for the Company’s reporting segments (in thousands):
Fifty-two weeks ended January 2, 2016
Net sales to external customers
Net income before income taxes
Capital expenditures
Depreciation and amortization
Fifty-three weeks ended January 3, 2015
Net sales to external customers
Net income (loss) before income taxes
Capital expenditures
Depreciation and amortization
Fifty-two weeks ended December 28, 2013
Net sales to external customers
Net income (loss) before income taxes
Capital expenditures
Depreciation and amortization
Total Assets as of:
January 2, 2016
January 3, 2015
Direct-to
Consumer
International
Franchising
Commercial
Total
$
372,715
$
2,196
$
2,783
$
377,694
16,053
24,307
16,284
868
74
134
977
7
1
17,898
24,388
16,419
$
387,725
$
2,531
$
2,098
$
392,354
15,791
10,851
17,981
(454 )
39
147
687
—
—
16,024
10,890
18,128
$
373,173
$
3,564
$
2,332
$
379,069
(5,028 )
19,178
19,016
2,018
184
200
892
—
—
(2,118)
19,362
19,216
$
$
206,878
204,758
$
$
1,696
2,312
$
$
4,760
4,984
$
$
213,334
212,054
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
45
Notes to Consolidated Financial Statements (continued)
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):
Fifty-two weeks ended January 2, 2016
Net sales to external customers
Property and equipment, net
Fifty-three weeks ended January 3, 2015
Net sales to external customers
Property and equipment, net
Fifty-two weeks ended December 28, 2013
Net sales to external customers
Property and equipment, net
North America (1)
Europe (2)
Other (3)
Total
$
$
$
297,554
$
78,788
$
1,352
$
377,694
61,211
6,459
71
67,741
308,939
$
81,848
$
1,567
$
392,354
56,400
6,366
—
62,766
302,216
$
75,133
$
1,720
$
379,069
62,152
8,011
—
70,163
For purposes of this table only:
(1) North America includes the United States, Canada, Puerto Rico and franchise business in Mexico
(2) Europe includes the United Kingdom, Ireland, Denmark and franchise businesses in Europe
(3) Other includes franchise businesses outside of North America and Europe
(16) Subsequent Event
In the period after January 2, 2016, the Company repurchased approximately 132,500 shares for an aggregate of $1.5 million under share
repurchase programs it adopted in 2015. As of March 11, 2016, there was approximately $7.6 million of availability under the programs.
(a)(2) Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts
Deferred Tax Asset Valuation Allowance
Receivables Allowance for Doubtful Accounts
Beginning
Balance
Charged to
cost
and expenses
Deductions (1) (2)
$
15,572
$
368
$
(15,940) $
20,987
20,865
—
122
(5,415)
—
$
3,248
$
19
$
(223) $
1,889
1,316
1,432
1,109
(73)
(536)
Ending
Balance
—
15,572
20,987
3,044
3,248
1,889
2015
2014
2013
2015
2014
2013
(1) Deductions from deferred tax asset valuation allowance represent reversals of previously established allowances
(2) Deductions from the receivables allowance for doubtful accounts represent uncollectible accounts written off and recoveries
46 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
(a)(3) Exhibits.
The following is a list of exhibits filed as a part of the Annual Report on Form 10-K:
Exhibit
Number
2.1
3.1
3.2
4.1
10.2*
10.2.1*
Description
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)
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, as amended through
February 23,2016 (incorporated by reference from Exhibit 3.1
to our Current Report on Form 8-K, filed on February 24,
2016)
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. 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)
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)
10.2.2* Model Incentive Stock Option Agreement Under the
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)
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)
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)
10.2.3*
10.2.4*
10.2.5*
10.2.6*
10.2.7*
10.2.8*
10.2.9*
Second Amended and Restated Build-A-Bear Workshop, Inc.
2004 Stock Incentive Plan (incorporated by reference from
Exhibit 99.1 on our Registration Statement on Form S-8, filed
on May 18, 2009)
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)
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)
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)
10.2.10* Third Amended and Restated Build-A-Bear Workshop, Inc.
2004 Stock Incentive Plan (incorporated by reference from
Exhibit 10.1 on our Current Report on Form 8-K, filed on May
12, 2014)
10.2.11*
10.2.12*
Form of the Restricted Stock and Non-Qualified Stock Option
Agreement under the Registrant’s Third Amended and
Restated 2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.2 on our Current Report on
Form 8-K, filed on May 12, 2014)
Form of the Restricted Stock and Non-Qualified Stock Option
Agreement under the Registrant’s Third Amended and
Restated 2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.2 on our Current Report on
Form 8-K, filed on May 12, 2014)
10.2.13*
2016 Performance Objectives for Chiefs (incorporated by
reference from Exhibit 10.6 on our Current Report on
Form 8-K, filed on March 11, 2016)
10.2.14* Form of Restricted Stock and Non-Qualified Stock Option
Agreement under the Registrant’s Third Amended and
Restated 2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.7 on our Current Report on
Form 8-K, filed on March 11, 2016)
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)
10.2.15* Form of Restricted Stock Agreement under the Registrant’s
Third Amended and Restated 2004 Stock Incentive Plan
(incorporated by reference from Exhibit 10.7 on our Current
Report on Form 8-K, filed on March 11, 2016)
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
47
Exhibits (continued)
10.3*
10.4*
10.4.1*
10.4.2*
10.5*
10.5.1*
10.6*
10.6.1*
10.7*
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)
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)
First Amendment dated February 22, 2006 to the
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)
Separation Agreement and General Release by and
between Tina Klocke and the Registrant dated September
15, 2014 (incorporated by reference from Exhibit 10.2 to our
Current Report on Form 8-K, filed on September 15, 2014)
Amended and Restated Employment, Confidentiality and
Noncompete Agreement dated April 14, 2015 between Eric
Fencl and the Registrant (incorporated by reference from
Exhibit 10.3 to our Quarterly Report on Form 10-Q, filed on
May 14, 2015)
Amended and Restated Employment, Confidentiality and
Noncompete Agreement, dated March 7, 2016, by and
between Eric Fencl and Build-A-Bear Workshop, Inc.
(incorporated by reference from Exhibit 10.7 on our Current
Report on Form 8-K, filed on March 11, 2016)
Employment, Confidentiality and Noncompete Agreement
dated December 3, 2012 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)
Amended and Restated Employment, Confidentiality and
Noncompete Agreement, dated March 7, 2016, by and
between Sharon Price John and Build-A-Bear Workshop, Inc.
(incorporated by reference from Exhibit 10.7 on our Current
Report on Form 8-K, filed on March 11, 2016)
Employment, Confidentiality and Noncompete Agreement
dated January 20, 2014 between Gina Collins and the
Registrant(incorporated by reference from Exhibit 10.10 to
our Annual Report on Form 10-K for the year ended
December 28, 2013)
10.7.1*
Amended and Restated Employment, Confidentiality and
Noncompete Agreement, dated March 7, 2016, by and
between Gina Collins and Build-A-Bear Workshop, Inc.
10.8*
10.8.1*
10.9*
10.9.1*
Employment, Confidentiality and Noncompete Agreement
dated September 15, 2014 between Vojin Todorovic and the
Registrant (incorporated by reference from Exhibit 10.1 to
our Current Report on Form 8-K, filed on September 15,
2014)
Amended and Restated Employment, Confidentiality and
Noncompete Agreement, dated March 7, 2016, by and
between Vojin Todorovic and Build-A-Bear Workshop, Inc.
(incorporated by reference from Exhibit 10.7 on our Current
Report on Form 8-K, filed on March 11, 2016)
Employment, Confidentiality and Noncompete Agreement
dated August 12, 2014 between Jennifer Kretchmar and the
Registrant (incorporated by reference from Exhibit 10.1 to
our Quarterly Report on Form 10-Q, filed on November 6,
2014)
Amended and Restated Employment, Confidentiality and
Noncompete Agreement, dated March 7, 2016, by and
between Jennifer Kretchmar and Build-A-Bear Workshop,
Inc. (incorporated by reference from Exhibit 10.7 on our
Current Report on Form 8-K, filed on March 11, 2016)
10.10*
Employment, Confidentiality and Noncompete Agreement
dated April 15, 2015 between J. Christopher Hurt and the
Registrant (incorporated by reference from Exhibit 10.4 to
our Quarterly Report on Form 10-Q, filed on May 14, 2015)
10.10.1* Amended and Restated Employment, Confidentiality and
Noncompete Agreement, dated March 7, 2016, by and
between J. Christopher Hurt and Build-A-Bear Workshop,
Inc. (incorporated by reference from Exhibit 10.7 on our
Current Report on Form 8-K, filed on March 11, 2016)
10.11*
10.12
10.12.1
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)
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)
48 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
Exhibits (continued)
10.12.2
10.12.3
10.12.4
10.12.5
10.12.6
10.12.7
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)
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)
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)
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)
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)
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)
10.12.8
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
10.12.9
10.12.10
10.12.11
10.12.12
10.12.13
10.12.14
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)
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)
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)
Fifteenth 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 2, 2015 (incorporated by reference from Exhibit 10.1
to our Current Report on Form 8-K, filed on January 7, 2015)
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)
10.12.15
Fourth Amended And Restated Revolving Credit Note dated
as of October 28, 2009 by the Registrant, Franchise
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
49
Exhibits (continued)
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)
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)
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)
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)
10.13
10.13.1
10.13.2
10.13.3
Fifth Amendment to Lease between First Industrial, L.P. and
Registrant, dated as of October 3, 2013
10.14
10.15
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)
10.16*
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 10 of the Registrant’s
audited consolidated financial statements included herein)
21.1
List of Subsidiaries of the Registrant
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 Financial Officer)
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 Financial
Officer)
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
50 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
BUILD-A-BEAR WORKSHOP, INC.
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 17, 2016
By: /s/ Sharon John
Sharon John
Chief Executive Officer and Chief President Bear
By: /s/ Voin Todorovic
Voin Todorovic
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sharon John and Voin Todorovic,
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 January 3, 2015 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
Title
/s/ Mary Lou Fiala
Mary Lou Fiala
/s/ Maxine Clark
Maxine Clark
/s/ James M. Gould
James M. Gould
/s/ Timothy Kilpin
Timothy Kilpin
/s/ Braden Leonard
Braden Leonard
/s/ Sarah Personette
Sarah Personette
/s/ Coleman Peterson
Coleman Peterson
/s/ Michael Shaffer
Michael Shaffer
/s/ Sharon John
Sharon John
/s/ Voin Todorovic
Voin Todorovic
Non-Executive Chairman
Director
Director
Director
Director
Director
Director
Director
Director and Chief Executive Officer and Chief President Bear
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date
March 17, 2016
March 17, 2016
March 17, 2016
March 17, 2016
March 17, 2016
March 17, 2016
March 17, 2016
March 17, 2016
March 17, 2016
March 17, 2016
BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
51
A formal notice of the meeting and a
proxy statement will be sent to each
shareholder as of March 22, 2016.
Build-A-Bear Workshop
common stock is traded on the
New York Stock Exchange.
Our symbol is BBW.
As of March 22, 2016, 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)
Gina Collins
Chief Marketing Officer
Darlene Elder
Chief Human Resources Officer
Eric Fencl
Chief Administrative Officer,
General Counsel and Secretary
J. Christopher Hurt
Chief Operations Officer
Sharon Price John
President and Chief Executive Officer
Jennifer Kretchmar
Chief Merchandising Officer
Voin Todorovic
Chief Financial Officer
SR. MANAGING DIRECTORS
Sharon Price John
President and Chief Executive Officer
Build-A-Bear Workshop, Inc.
Mike Early
Sr. Managing Director,
Information Technology
Jennifer Guinn
Sr. Managing Director, Finance and
Corporate Treasurer
Dorrie Krueger
Sr. Managing Director, International
& Strategic Assistant to CEO
Roger Parry
Sr. Managing Director,
Europe
Brian Sawyer
Sr. Managing Director,
Digital Marketing
Timothy Kilpin (1, 2)
Retired President/Chief Commercial
Officer
Mattel, Inc. (a publicly traded designer,
manufacturer and marketer of toys and
family products)
Braden Leonard (1, 3)
Managing Member and Founder
BML Capital Management, LLC
Sarah Personette (2, 3)
Vice President of Global Business
Marketing
Facebook, Inc. (a publicly traded
online social networking company)
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.
Michael Shaffer (1, 3)
Executive Vice President and Chief
Operating and Financial Officer
PVH Corp. (a publicly traded branded
lifestyle apparel company)
Board Committees:
(1) Audit Committee
(2) Compensation and
Development Committee
(3) Nominating and Corporate
Governance Committee
* Board Member Emeritus
since 2006
** Non-Executive Chairman
***Not Standing for re-election at 2016
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
12, 2016, at the company’s World
Bearquarters, 1954 Innerbelt
Business Center Drive, St. Louis,
Missouri 63114.
52 BUILD-A-BEAR WORKSHOP, INC.
2015 ANNUAL REPORT
406 LOCATIONS WORLDWIDE
COMPANY-OWNED 329
United States 256
United Kingdom 57
Canada 13
Republic of Ireland 2
Denmark 1
FRANCHISED 77
Australia 19
Germany 18
Mexico 14
South Africa 6
Thailand 6
United Arab Emirates 5
Turkey 4
Singapore 2
Bahrain 1
Kuwait 1
Qatar 1
Our Global Brand
There are currently Build-A-Bear Workshop stores in 16 countries, including both company-owned and franchised operations.
We expect to open our first store in China in the summer of 2016 at the new Shanghai Disney Resort. We plan to continue to
grow our international operations and have MORE stores in existing and new countries in the future.
BUILD-A-BEAR WORKSHOP, INC.
1954 Innerbelt Business Center Drive | St. Louis, MO 63114-5760 | www.buildabear.com