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 February 1, 2020
OR
☐ 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)
43-1883836
(I.R.S. Employer
Identification No.)
63114
(Zip Code)
(314) 423-8000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Trading
Symbol
BBW
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically 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 such
files). ☒ Yes ☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected to not use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
There is no non-voting common equity. The aggregate market value of the common stock held by non-affiliates (based upon the closing price of $3.95 for the
shares on the New York Stock Exchange on August 2, 2019) was $60.1 million as of August 2, 2019, the last business day of the registrant’s most recently
completed second fiscal quarter.
As of April 13, 2020, there were 15,188,243 issued and outstanding shares of the registrant’s common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its June 11, 2020 Annual Meeting of Stockholders are incorporated herein by reference.
BUILD-A-BEAR WORKSHOP, INC.
INDEX TO FORM 10-K
Forward-Looking Statements
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosure
Part I
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Part IV
Exhibit Index
Signatures
Page
4
5
9
20
20
21
21
22
22
23
35
35
35
36
38
39
40
40
40
40
41
67
72
3
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,” “will,” “could,” “target,” “project,”
“contemplate,” 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 and the sufficiency of our cash generated from operations and borrowings under our credit
facilities;
•
the anticipated effects of the change in our fiscal year end;
•
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. For example, the
novel strain of coronavirus that was first identified in China has become a global pandemic and has resulted in significant uncertainty.
We have experienced a deterioration in our financial results as a result of the temporary closure of our retail stores in late March
2020, and may experience further deterioration depending on the duration or severity of the pandemic. 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.
Unless the context otherwise requires, references in this Annual Report on Form 10-K to the “Company,” “we,” “us,” and
“our” refer to Build-A-Bear Workshop, Inc. and, where appropriate, its subsidiaries.
The following discussion contains references to fiscal 2019 and fiscal 2018, which represent our fiscal years ending February
1, 2020 and February 2, 2019, respectively.
4
ITEM 1. BUSINESS
Overview
PART I
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 February 1, 2020, we operated 372 corporately-
managed locations, including 316 stores in the United States (“U.S.”) and Canada, 56 stores in the United Kingdom (“U.K.”),
Ireland, Denmark, and China and had 92 franchised stores operating internationally under the Build-A-Bear Workshop brand. In
addition to our stores, we sold product on our company-owned e-commerce sites, third-party marketplaces and franchisee sites and
through retailer’s wholesale agreements. There were also 60 locations operating through our "third-party retail" model in which we
sell our products on a wholesale basis to other companies that then in turn execute our retail experience.
Recent Developments
As described elsewhere in this Report, the COVID-19 pandemic has recently had far-reaching adverse impacts on many
aspects of our operation, directly and indirectly, including our people, consumer behavior, distribution, our suppliers, and the market
generally. The scope and nature of these impacts continue to evolve each day. For a discussion of remedial measures and other
key trends and uncertainties that have affected our business, see Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations, including the “Recent Developments,” “Revenues,” “Costs and Expenses” and “Stores”
subsections of the Overview, along with “Results of Operations” and “Liquidity and Capital Resources”, and Item 9B "Other
Information" as well as Item 1A “Risk Factors”, below.
Segments and Geographic Areas
Business is conducted through three reportable segments consisting of direct-to-consumer (“DTC”), commercial, and
international franchising. 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 stores that provide a “make your own stuffed animal” interactive entertainment
experience in which guests, with the help of our associates, visit a variety of stations to “assemble” and customize a stuffed animal.
Our 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 on trend. In
addition, products are sold through e-commerce sites, third-party retail locations, and franchise sites. Our store experience appeals
to a broad range of age groups and demographics, including children, as well as their parents and grandparents, teens, adult collectors
and gift givers as well as affinity consumers. We seek to provide outstanding guest service and experiences across all channels and
touch points including our stores, our e-commerce site, our mobile sites and apps as well as traditional and social media. Guests visit
our stores for multiple reasons including interactive family experiences, birthdays, parties and other milestone occasions as well as
to purchase gifts including the “gift of experience” that comes with a 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 to 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 through expanded programs including outbound branded licensing and entertainment, which may
positively impact other channels of distribution.
Operating Strategies
In fiscal 2019, we continued to evolve and execute our strategic plan with key initiatives in the areas outlined below, which
are intended to drive long-term shareholder value:
5
Channel Evolution through diversifying retail locations to broaden consumer accessibility to our brand
We continued to diversify our real estate portfolio beyond traditional malls to locations where families are increasingly going
to shop and for entertainment, such as tourist destinations, seasonal pop-up shops and mass merchandising locations in order to reach
a broader consumer base. We continue to strategically manage the traditional mall portfolio and renegotiate leases to optimize the
cash flow to fund investments needed to achieve our desired future state. Therefore, we have strategically used favorable short-term
extensions to maintain flexibility and optionality within our corporately-managed portfolio with over 70% of our leases across
geographies having a natural lease event in the next three years.
In 2019, we expanded locations through our third-party retail model in which we sell products on a wholesale basis to other
companies that then in turn execute our retail experience. These types of locations operate on cruise ships, in hotels and resorts and
other typically entertainment and hospitality-based venues.
Leveraging an enhanced platform and infrastructure to more effectively take advantage of growth in the digital economy
In the fall of 2017, we launched an upgraded e-commerce platform and have had double-digit sales increases through this
channel for nine consecutive quarters since the upgrade, including all four quarters of fiscal 2019. We have also been methodically
updating systems and processes in order to further improve our digital capabilities. For example, with over 85% of our website
traffic originating from a personal device, in 2019, we upgraded our mobile capabilities to reduce cart abandonment and improve
conversion rates. We also believe that a focus on gift-giving including adult-to-adult gifting occasions and web-exclusive affinity
products has contributed to our e-commerce growth. In addition, we shifted a significant level of marketing initiatives to digital
categories that not only drove e-commerce but also benefited our retail store base resulting in improved returns on advertisement
spending in the year.
Increasing acquisition, engagement and lifetime value of loyalty program members
Our Build-A-Bear Bonus Club loyalty program has over 4 million active members as well as a robust database with over 8
million consumers opted-in to receive marketing and promotional messages across geographies. In 2019, we focused on improving
our segmentation models, refining messaging and developing specific consumer journeys to increase engagement and shopping
frequency with a goal to build member lifetime value. With birthdays being a top occasion for visits to Build-A-Bear Workshop
locations, we continued our “Count Your Candles” campaign in which a Bonus Club member can bring a child into a store during
the month of their birthday and pay their age for a collectible teddy bear. We believe this program helps to add new members to
the loyalty program and delivers incremental repeat visits.
Monetizing the awareness and trust that consumers have for our brand to add incremental profitable revenue streams
We believe there are opportunities to leverage the strength of the Build-A-Bear brand and the emotional connection that
consumers have with our brand to generate incremental revenue and profits by adding revenue streams including outbound branded
licensing and entertainment. In 2019, we put agreements in place that cover multiple areas in entertainment that include music with
Warner Music Group’s Arts Music division, films with Sony Pictures Worldwide Acquisitions and Build-A-Bear radio on iHeart
media. In addition, we continued to further develop outbound licensed programs leveraging the power of the Build-A-Bear brand
and other owned intellectual properties. We also continued to expand our initiatives to sell pre-stuffed plush products for corporate
promotions or to other companies for resale.
Continued Focus on Delivering Long-Term Profitability Improvement
We remained focused on the execution of our stated strategies summarized above as well as disciplined expense management
and on-going investments to upgrade our processes, systems and infrastructure with the goal of achieving long-term profitability
improvement.
Merchandise Sourcing and Inventory Management
Our stores offer an extensive and coordinated selection of merchandise, including a wide range of different styles of plush
products to be stuffed, sounds and scents that can be added to the stuffed animals and a broad variety of clothing, shoes and
accessories, as well as other brand appropriate toy and novelty items, sourced from multiple vendors in China and Vietnam. Our
stuffed animal products and clothing are produced from high quality, man-made materials or natural fibers, and the stuffing is made
of a high-grade polyester fiber.
6
We believe we comply with governmental toy safety requirements specific to each country where we have stores. Specifically,
we believe all of the products in our stores and e-commerce sites meet Consumer Product Safety Commission (CPSC) requirements
including the Consumer Product Safety Improvement Act (CPSIA) for children’s products. We also believe we 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), Australian/New Zealand Standard (AS/NZS 8124), Canadian
Consumer Product Safety Act Toys Regulation (CCPSA) and India Safety of Toys (IS:9873). Our products are tested through
independent third-party testing labs for compliance with toy safety standards. Packaging and labels for each product indicate the age
grading for the product and any special warnings in accordance with guidelines established by the CPSC or other applicable authority.
We require our supplier factories to be compliant with the International Council of Toy Industries (ICTI) Ethical Toy Program
certification or with other third party social compliance programs. The ICTI Ethical Toy Program process is a social compliance
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 completes a rigorous evaluation performed by an
accredited ICTI agent on an annual basis.
The average time from product conception to the arrival in stores is approximately 12 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 without 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 January 2025, to fulfill our store and e-commerce fulfillment needs. This agreement contains clauses that
allow for termination if certain performance criteria are not met. In Asia, we contract with a third-party distribution center in
Shanghai, China which is currently on a month-to-month extension while negotiations for an agreement are on-going, which have
been slowed as a result of the COVID-19 pandemic.
Transportation from the warehouses to 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 every other week
or once a week on a regular schedule, which allows us to consolidate shipments in order to reduce distribution and shipping costs.
Back-up supplies, such as stuffing for the plush animals, are often stored in limited amounts at regional pool points.
On March 26, 2020, we announced the temporary closure of our warehouse and e-commerce fulfillment center in Ohio as we
reviewed our processes related to workplace safety and assessed the scope of the Ohio statewide "stay at home" order, including
social distancing and sanitation practices recommended by the Centers for Disease Control and Prevention and Ohio state health and
regulatory authorities. The Ohio warehouse was reopened on April 1, 2020 following the review and reconfiguration of workflow
and workspaces to further promote social distancing and minimize interaction as orders are fulfilled. Our third-party warehouse in
Selby, England, implemented with our guidance, updated policies to be in compliance with local social distancing guidelines.
Employees
As of February 1, 2020, we had approximately 1,000 full-time and 3,300 regular part-time employees in the U.S., Canada,
the U.K., Ireland, Denmark and China. 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.
As a result of the COVID-19 pandemic, on March 26, 2020, the Company announced the furlough of over 90% of its
workforce and pay reductions of 20% for those employees not placed on temporary leave, including the Company's executive officers
and each of its named executive officers, both effective March 29, 2020.
7
Competition
We view the Build-A-Bear Workshop store experience as a distinctive combination of entertainment and retail with limited
direct competition. Since we develop proprietary products, we compete indirectly with a number of brands that sell stuffed animals
or premium children’s toys in the United States, including, but not limited to, Ty, Fisher Price, Mattel, Ganz, Hasbro, Commonwealth
and Vermont Teddy Bear. In the U.K., we compete with a number of retailers including The Entertainer Toy Shop, Smyths Toys
Superstores and Hamleys Toy Store. 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. With the majority of our stores currently operating in
traditional shopping malls, we also compete with other mall-based retailers, including various apparel, footwear and specialty
retailers, for prime mall locations.
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 do not expire until the years 2032 and 2033.
We have developed licensing and strategic relationships with leading retail and cultural organizations. We plan to continue to
collaborate 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 are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). As a result, we file periodic reports and other information with the Securities and Exchange Commission (the
“SEC”). We make these filings available free of charge in the Investor Relations section of our corporate website, the URL of
which is http://ir.buildabear.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to,
the SEC. You may also request copies of these materials without charge by writing to our Investor Relations department at World
Headquarters, 1954 Innerbelt Business Center Drive, St. Louis, Missouri 63114. The SEC maintains a website, http://www.sec.gov,
that contains our annual, quarterly and current reports and other information we file electronically with the SEC. Information on
our website is not incorporated by reference into, and does not constitute a part of, this Annual Report on Form 10-K.
8
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
The COVID-19 pandemic could continue to materially adversely affect our business, financial condition, results of
operations and cash flows, and our ability to access current or obtain new lending facilities.
The novel strain of coronavirus, COVID-19, is believed to have been first identified in China in late 2019 and has spread
globally. The rapid spread has resulted in authorities implementing numerous measures to try to contain the virus, such as travel
bans and restrictions, quarantines, shelter in place orders and shutdowns. These measures may continue to impact all or portions
of our workforce, operations, suppliers and customers. We have corporately-managed stores throughout North America, the United
Kingdom, a store each in Denmark and China and franchise locations in twelve countries around the world. Each of these countries
has been affected by the pandemic and taken measures to try to contain the virus. Future restrictions on our access to our suppliers
and distribution facilities or on our support operations or workforce, and restrictions or disruptions of transportation, port closures
and increased border controls or closures, could continue to limit our ability to meet customer demand and have a material adverse
effect on our financial condition, cash flows and results of operations. There is no certainty that measures taken by government
authorities will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.
In recent weeks, the COVID-19 pandemic has also significantly increased economic uncertainty and has led to disruption
and volatility in the global capital markets, which could increase the cost of and accessibility to capital. Given that the COVID-19
pandemic has caused a significant economic slowdown it appears increasingly likely that it could cause a global recession, which
could be of an unknown duration. Risks related to negative economic conditions are described in our risk factor titled “A decline
in general global economic conditions could lead to disproportionately reduced discretionary consumer spending and a
corresponding reduction in demand for our products, and have an adverse effect on our liquidity and profitability. “
Given the interactive retail experience, our store based workforce comes into close contact with our customers as part of
their day-to-day responsibilities. This contact increases the likelihood that members of our workforce could contract COVID-19,
and as a result, could potentially adversely affect our ability to adequately staff our stores.
The ultimate magnitude of COVID-19, including the extent of its impact on our financial and operational results, which
could be material, will depend on the length of time that the pandemic continues, its effect on the demand for our products and our
supply chain, the effect of governmental regulations imposed in response to the pandemic, as well as uncertainty regarding all of
the foregoing. We cannot at this time predict the full impact of the COVID-19 pandemic, but it could have a larger material adverse
effect on our business, financial condition, results of operations and cash flows beyond what is discussed within this Annual Report
on Form 10-K for the year ended February 1, 2020.
We depend upon the shopping malls and tourist locations in which we are located to attract guests to our stores and a
decline in consumer 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 other retailers, we
rely to a great extent on consumer traffic in the malls and tourist locations in which our stores are located. Traffic to tourist locations
in general may be reduced by the COVID-19 pandemic, which might disproportionally affect our business relative to other retailers
that have located in more traditional settings or that have a greater mix of online sales ordering. We rely on the ability of the malls’
anchor tenants, generally large department stores, and on the continuing popularity of malls and tourist locations as shopping
destinations to attract high levels of consumer traffic. We cannot control the development of new shopping malls nor the closure
of existing 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. Additionally, in recent years, there has
9
been a trend of consumers preferring to purchase products from online merchants rather than traditional brick and mortar stores,
and while we have e-commerce sales with positive growth and are working to develop and strengthen our online business, we
continue to depend heavily on sales at our physical store locations. Consumer traffic may also be reduced due to factors such as
the economy, civil unrest, actual or threatened acts of terrorism to shopping locations, the impact of weather or natural disasters or
a decline in consumer confidence resulting from international conflicts or war. A decrease in consumer traffic could have an
adverse effect on our financial condition and profitability.
In particular, COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus,
especially when congregating in areas that attract dense crowds, such as shopping malls. As a result, our landlords have temporarily
closed certain of the malls in which our stores operate and we have temporarily closed our owned and operated stores in the United
States, Canada, the United Kingdom, Ireland and Denmark. On March 17, 2020, we temporarily closed all owned and operated
stores in the United States, Canada, the United Kingdom, Denmark and Ireland as a result of the COVID-19 pandemic and the
governments' recommendation to restrict crowds and social gatherings. The full extent and duration of such temporary closures
and their impacts over the longer term remain uncertain and are dependent on future developments that cannot be accurately
predicted at this time, such as the severity and transmission rate of COVID-19 and the extent and effectiveness of further
containment actions that may be taken.
A decline in general global economic conditions could lead to disproportionately reduced discretionary consumer spending
and a corresponding reduction in demand for our products, 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 U.S., 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. For example, the potential adverse effects of COVID-19 across
geographies and Brexit in the U.K. market may be underestimated and the actual effects are dependent on many factors that may
be beyond the control of the authorities in the countries in which we operate including the United States, the U.K. and the European
Union (“EU”). The potential adverse effects of 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. In addition, economic uncertainty can affect the credit and
capital markets and might impact our access to capital resources at an affordable cost to meet our needs. These capital market
conditions may affect the renewal or replacement of our credit agreement, which was originally entered in fiscal 2000 and has been
extended annually since then and currently expires December 31, 2020. The Company's liquidity may be negatively impacted if
stores do not resume normal operations and the Company may be required to pursue additional sources of financing to meet its
financial obligations. Obtaining such financing is not guaranteed and is largely dependent on market conditions and other factors.
Further actions may be required to improve the Company's cash position, including but not limited to, monetizing Company assets
including the Company owned warehouse in Ohio, inventory, implementing further employee furloughs, investigating government
relief programs, and foregoing capital expenditures and other discretionary expenses. In addition, the impacts of COVID-19 may
result in store impairments charges in 2020, affecting our profitability.
If we are unable to maintain compliance with covenants under our credit facility, we may become unable to borrow under
that facility. In addition, global economic conditions may make it more difficult to obtain new lending facilities.
Our liquidity position is dependent upon our ability to borrow under our current credit facility. As of February 1, 2020, total
borrowing availability under our credit agreement was $20.0 million. Although we have not borrowed on our credit facility as of
April 13, 2020 and have approximately $23.8 million in operating cash as of such date, failure to meet our debt covenants under
the credit facility may require us to seek waivers or amendments of the debt covenants, alternative or additional sources of
financing, or to reduce expenditures in order to maintain access to capital under the facility. Due to the impacts of COVID-19 and
the closure of our owned and operated stores, our financial performance in the first quarter of fiscal 2020 will be negatively
impacted. As a result, it is likely that we will be unable to comply with certain covenants in our existing line of credit. We are in
discussions with our current lender and we are exploring other options to access alternative liquidity sources which may include
other lenders, various government assistance programs and monetization of existing Company assets. However, given the capital
market conditions, it has become more difficult to obtain new credit facilities. In addition, the Company believes that its current
cash balance, along with the actions taken as discussed in this Report, provides it with sufficient liquidity for the next 12 months.
10
We may not be able to operate our international corporately-managed locations profitably.
In addition to our U.S. locations, we currently operate stores in the U.K., Canada, Ireland, Denmark and China. Our future
success in international markets may be impacted by differences in consumer demand, regulatory and cultural differences,
economic conditions, public health issues such as COVID-19, changes in foreign government policies and regulations, changes in
trading status, compliance with U.S. laws affecting operations outside the U.S., such as the Foreign Corrupt Practices Act, 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
U.K. and Ireland, we may be unable to continue to do so on a consistent basis. For example, in fiscal 2018, we recorded $3.5
million of asset impairment charges in the U.K. In 2016, we opened our first corporately-managed location in China and
subsequently recognized an impairment charge on a substantial portion of the store’s assets. In addition, the impacts of COVID-
19 on our internationally corporately-managed locations may result in store impairments charges in 2020 in those locations,
affecting our profitability, as well as jeopardizing our ability to realize our deferred tax assets which may result in additional
valuation allowances.
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. For example, we may purchase products in U.S. dollars but sell them to customers in local
currencies, which exposes us to foreign exchange risk, as described in “Our merchandise is manufactured by foreign manufacturers
and we transact business in various foreign countries, and 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”
below. In addition, we could experience restrictions on the transfer of funds to and from foreign countries, including potentially
negative tax consequences.
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 sales, financial condition and profitability could
be adversely affected.
We believe that our success depends in large part upon our ability to continue to attract new and repeat guests with our
interactive shopping experience, and our ability to anticipate, gauge and respond in a timely manner to changing consumer
preferences, including online buying, and fashion trends including licensed relationships. We cannot be certain that there will
continue to be a demand for our “make-your-own stuffed animal” interactive experience, including our store design and brand
appearance, or for our stuffed animals, related apparel and accessories. A decline in demand for our interactive shopping
experience, our stuffed animals, related 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. In addition, due to COVID-19, once stores reopen, we will likely need to
modify our interactive shopping experience in order to comply with social distancing guidelines and could have a negative impact
on the appeal of our interactive shopping experience. Such modifications may not sufficiently address the guidelines or make our
shopping experience appealing. Conversely, if we do not modify to a sufficient degree to address concerns, the perception that we
are not adequately addressing concerns relative to social distancing remediation may adversely affect our brand.
Our future success depends, in part, on the popularity and consumer demand for brands of licensors such as Disney,
LucasFilm, Marvel, Hasbro and The Pokémon Company. If we are not able to meet our contractual commitments or are unable to
maintain licensing agreements with key brands, our business would be adversely affected. There can be no certainty that our access
to licensed brands will continue to be successful or enable us to maintain high levels of sales in the future and the timing of future
entertainment projects may not coincide with the timing of previous successes 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.
11
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 revenue 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 option 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
shopping location rules and the exercise of discretion by our landlords on various matters within these locations. We may not be
able to maintain or obtain favorable locations within these desirable shopping locations. 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 that could negatively impact our profitability.
Additionally, several large landlords dominate the ownership of prime malls, particularly in the U.S. and Canada, and because of
our dependence on these landlords for a substantial number of our locations, any significant erosion in their financial conditions
or our relationships with these landlords could negatively affect our ability to obtain and retain store locations. Further landlord
consolidation may negatively impact our results of operations.
Our leases in the U.K. 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, COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, that
has caused us to recently enact widespread temporary store closures and our landlords to temporarily close certain of the malls in
which our stores operate. There is significant uncertainty surrounding the ultimate duration of these closures and consumer
willingness to visit shopping malls once they reopen. The impact of these temporary store and shopping mall closures on our
current rent obligations remains uncertain and we may be limited in our ability to obtain rent abatements or landlord concessions
of rent otherwise payable during this period of temporary store closures.
We rely on a few global supply chain 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 factories that produce our skins, clothing, shoes or accessories. For the past two years, we
purchased approximately 80% 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 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. Such disruptions may
result from public health issues such as the current COVID-19 pandemic (or other, future pandemics), weather related events,
natural disasters, trade restrictions, tariffs, work stoppages or slowdowns, shipping capacity constraints, supply or shipping
interruptions, or other factors beyond our control. 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.
12
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 be required to close and
operations may experience disruptions in their ability to support our stores or may operate inefficiently.
The operation of our stores is dependent on our ability to distribute merchandise to locations throughout the U.S., Canada,
Europe and China in a timely manner. We own a 350,000-square-foot distribution center in Groveport, Ohio and rely on this
warehouse to receive, store and distribute merchandise for the majority of our North America stores. To operate this location, our
ability to meet our changing labor needs while controlling our costs is subject to external factors such as labor laws, regulations,
unemployment levels, prevailing wage rates, and changing demographics. In addition, we rely on third parties to manage all of the
warehousing and distribution aspects of our business in the western U.S., Europe and in China. For example, as noted above, in
Europe, we contract with a third-party distribution center in Selby, England under an agreement that ends in January 2025, and
Brexit could adversely affect this distribution arrangement. Any significant interruption in the operation of the distribution centers
due to natural disasters or severe weather, events such as fire, accidents, power outages, system failures, public health issues such
as the current COVID-19 pandemic (or other future pandemics), 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.
On March 26, 2020, we announced the temporary closure of our warehouse and e-commerce fulfillment center in Ohio as
it reviewed its processes related to workplace safety and assessed the scope of the Ohio statewide "stay at home" order, including
social distancing and sanitation practices recommended by the Centers for Disease Control and Prevention and Ohio state health
and regulatory authorities. The Ohio warehouse was reopened on April 1, 2020 upon the review and reconfiguration of workflow
and workspaces to further promote social distancing and minimize interaction as orders are fulfilled. We cannot assure you that
additional closure will not be required or voluntarily adopted by us under federal and state law guidelines, and any such closure(s)
may be long term. In addition, the newly implemented changes to workflow and workspaces could slow our order processing times
and impact our ability to optimize the e-commerce channel.
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 and drive consumer demand for key products and services.
We continue to update and evaluate our marketing initiatives, which are focused 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, access to leading entertainment relationships in a profitable manner 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 both locally, nationally and
internationally; and
effectively manage marketing costs (including creative and media) to maintain acceptable operating margins and return on
marketing investment.
Moreover, our branding and marketing efforts could be undermined by the nature of our mall-based, interactive experience,
as consumers make different choices due to the COVID-19 pandemic in order to continue social distancing practices. The
perception that our experience may not be safe, in particular for vulnerable populations, could have a material adverse effect on
13
our branding, marketing, and financial results. Our planned marketing expenditures may not result in increased total sales or
generate sufficient levels of product and brand awareness, which could also 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 as well as 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 websites, 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, code anomalies, “Acts of God,” human error 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. In addition,
there have been initial media reports regarding increased cyber-security threats and potential breaches resulting from the COVID-
19 pandemic because of the increase in numbers of individuals working from home. 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 website users, store shoppers and loyalty program members.
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 websites. While we have implemented
programs and procedures designed to protect the privacy of people, including children, from whom we collect information, and
our websites are designed to be fully compliant with all applicable regulations including the Federal Children’s Online Privacy
Protection Act, there can be no assurance that such programs will conform to all applicable laws or regulations. If we fail to fully
comply, we may be subjected to liability and damage to our reputation. In addition, because our guest database primarily includes
personal information of young children and young children frequently interact with our websites, 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. For example, the EU’s General Data Protection
Regulation (“GDPR”), which became effective in May 2018, and the California Consumer Privacy Act (“CCPA”),
14
which became effective in January 2020, greatly increases the jurisdictional reach of EU and California law, respectively, and adds
a broad array of requirements related to personal data, including individual notice and opt-out preferences and the public disclosure
of significant data breaches. Additionally, violations of GDPR can result in fines calculated as a percentage of a company’s annual
revenue and CCPA provides civil penalty violations, as well as a private right of action for data breaches. Other governments have
enacted or are enacting similar data protection laws, and are considering data localization laws that require data to stay within their
borders. All of these evolving compliance and operational requirements impose significant costs and regulatory risks that are likely
to increase over time.
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. 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 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, websites 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
materialize, it could have a material adverse effect on our business.
We may not be able to evolve our store locations over time to align with market trends, successfully diversify our store
models and formats in accordance with our strategic goals or otherwise 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. For example, our strategy includes a focus on tourist locations due to changing consumer preferences and declining traditional
mall traffic and we cannot be certain that this strategy will be successful. Our ability to manage our portfolio of stores in future
years, in desirable locations as well as 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. For example, in January 2018, we closed a flagship store in Anaheim,
California. This store had much larger annual sales than our typical mall-based stores.
Additionally, in fiscal 2019 we operated 31 stores located within other retailers’ stores and 60 stores through our "third-
party wholesale" model 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; all of which could have a negative impact on our sales and operating
performance.
Our merchandise is manufactured by foreign manufacturers and we transact business in various foreign countries, and
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 the majority of our merchandise directly from manufacturers in foreign countries, primarily in China and
Vietnam. Any event causing a disruption of imports, including the imposition of import restrictions, taxes or fees, or labor strikes
or lock-outs and pandemics, could adversely affect our business. For example, our vendors in China were temporarily closed in
January and February as a result of the COVID-19 pandemic, ceasing production of inventory and supplies. The flow of
15
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 that would impact our revenue and profit in various markets. Additionally, because most
of our foreign subsidiaries buy their inventory in U.S. dollars, we are also exposed to risk when their functional currencies fluctuate
relative to the U.S. dollar. For example, we believe that the significant movement in the British pound sterling relative to the U.S.
dollar, as a result of the U.K.’s referendum vote to leave the EU in 2016 had a negative impact on our revenues and pre-tax income
with most of the impact resulting from higher cost of merchandise sold - retail. The precise nature and rules of the U.K.’s future
trading relationship with the EU is still uncertain as of the current date.
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 February 1, 2020, there were 92 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 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, public health (such as
COVID-19), or political factors in the countries in which they operate or foreign currency fluctuations. These challenges, as well
as others, could have a material adverse effect on our business, financial condition and results of operations.
The success of our franchising strategy 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, may not operate their stores profitably and may not pay
amounts due to us. As a result, our franchising operations may not be profitable. Moreover, our brand image and reputation may
suffer. If 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 2016, we consented to the sale of the franchise in South Africa 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 as well as compliance with U.S. laws affecting
operations outside the U.S., such as the Foreign Corrupt Practices Act, governs 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 be certain 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.
16
In addition, there may be prior registrations or use of intellectual property in the U.S. or foreign countries for similar or
competing marks or other proprietary rights of which we are not aware. In all such countries, it may be possible for any third-party
owner of a national trademark registration or other proprietary right to enjoin or limit our expansion into those countries or to seek
damages for our use of such intellectual property in such countries. In the event a claim against us were successful and we could
not obtain a license to the relevant intellectual property or redesign or rename our products or operations to avoid infringement,
our business, financial condition or results of operations could be harmed. Securing registrations does not fully insulate us against
intellectual property claims, as another party may have rights superior to our registration or our registration may be vulnerable to
attack on various grounds.
We may suffer negative publicity or be sued if the manufacturers of our merchandise or of Build-A-Bear branded
merchandise sold by our licensees ship any products that do not meet current safety standards or production requirements
or if such products are recalled or cause injuries.
Although we require our manufacturers to meet governmental safety standards, including food safety regulations for certain
locations, and our product specifications as well as submitting our products for testing, we cannot control the materials used by, or
the workmanship of, our manufacturers. Additionally, through our agreements, our licensees are required to ensure that their
manufacturers meet applicable safety and testing standards. If any of these manufacturers ship 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 ten years due to possible safety issues. While our 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. While our licensing agreements typically indemnify us against financial losses resulting from a safety or
quality issue from Build-A-Bear branded products sold by our licensees, our brand may be negatively impacted.
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 U.S., we could in turn experience negative publicity, reputational harm, increased compliance and
operating costs or be sued.
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 business 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
17
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 be certain 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 be certain 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 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.
We may be unsuccessful in acquiring businesses or engaging in other strategic transactions, which may negatively affect
our financial condition and profitability.
We may from time to time engage in discussions and negotiations regarding acquisitions or other strategic transactions that
could affect our financial condition, profitability or other aspects of our business. There can be no assurance that we will be able
to identify suitable acquisition targets that we believe may complement our existing business. There can also be no assurance that
if we acquire a business we will be successful in integrating it into our overall operations, or that any such acquired company will
operate profitably or will not otherwise adversely impact our financial condition.
Risks Related to Owning Our Common Stock
Fluctuations in our operating results could reduce our cash flow, or trigger restrictions under our credit agreement, and
we may be unable to repurchase shares at all or at the times or in the amounts we desire or the results of our share
repurchase program may not be as beneficial as we would like.
In August 2017, our Board of Directors authorized a $20 million share repurchase program. The program does not require
us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice.
Shares repurchased under the program will be subsequently retired. If our cash flow decreases as a result of decreased sales,
increased expenses or capital expenditures or other uses of cash, we may not be able to repurchase shares of our common stock at
all or at times or in the amounts we desire. As a result, the results of the share repurchase program may not be as beneficial as
expected. In addition, credit agreements may have clauses restricting our ability to repurchase shares when certain liquidity
conditions exist.
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 total revenues;
changes in general economic conditions and consumer spending patterns;
the timing and frequency of our marketing initiatives;
changes in foreign currency exchange rates;
18
•
•
•
•
•
•
seasonal shopping patterns;
the timing of store closures, relocations and openings and related expenses;
the effectiveness of our inventory management;
changes in consumer preferences;
the continued introduction and expansion of merchandise offerings;
actions of competitors or mall anchors and co-tenants;
• weather conditions and natural disasters;
•
•
the timing and frequency of national media appearances and other public relations events; and
the impact of a 53rd week in our fiscal year, which occurs approximately every six years, (e.g., one extra week in the
one fiscal month transition period, December 31, 2017 through February 3, 2018, for the fiscal year-end change and
fiscal 2023).
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.
The market price of our common stock is subject to volatility, which could in turn attract the interest of activist
shareholders.
During fiscal 2019, the price of our common stock fluctuated between $2.33 and $6.24 per share, but dropped to as low
as $1.02 per share after February 1, 2020. The market price of our common stock may be significantly affected by a number of
factors, including, but not limited to, actual or anticipated variations in our operating results or those of our competitors as
compared to analyst expectations, changes in financial estimates by research analysts with respect to us or others in the retail
industry, and announcements of significant transactions (including mergers or acquisitions, divestitures, joint ventures, stock
repurchases or other strategic initiatives) by us or others in the retail industry. In addition, the equity markets have experienced
price and volume fluctuations that affect the stock price of companies in ways that have been unrelated to an individual
company’s operating performance. The price of our common stock may continue to be volatile, based on factors specific to our
company and industry, as well as factors related to the equity markets overall. Moreover, such volatility could attract the interest
of activist shareholders. Responding to activist shareholders can be costly and time-consuming, and the perceived uncertainties
as to our future direction resulting from responding to activist strategies could itself then further affect the market price and
volatility of our common stock.
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;
19
•
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.
These provisions may:
•
discourage, delay or prevent a change in the control of our company or a change in our management, even if such change may
be in the best interests of our stockholders;
•
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Stores
We lease all of our store locations. As of February 1, 2020, we operated 372 retail stores located primarily in major malls
throughout the U.S., Canada, Puerto Rico, the U.K., Ireland, Denmark and China in our DTC segment.
Non-Store Properties
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 North American e-
commerce fulfillment site. In August 2019, we announced the decision to move our corporate headquarters to downtown St. Louis,
Missouri into a 51,600 square foot building with a lease of eleven years. The lease commences thirty days after delivery of premises
which is expected in late spring 2020. As of February 1, 2020 we continued to lease approximately 59,000 square feet for our
corporate headquarters in St. Louis, Missouri which houses our corporate staff, our call center and our on-site training facilities. The
lease was amended, effective January 2020, to extend the term on the full space until the end of June 2020 and then to lease an
approximately 9,250 square foot portion of this facility beginning in July 2020 through June 2023. In the U.K., we lease
approximately 6,500 square feet for our regional headquarters in Slough, England under a lease that commenced in March 2016 with
a term of 10 years. 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 January 2025. This agreement contains clauses that allow for termination if certain performance criteria
are not met. In Asia, we contract with a third-party distribution center in Shanghai, China which is currently on a month-to-month
extension while negotiations for an agreement are on-going, which have been slowed as a result of the COVID-19 pandemic.
20
ITEM 3. LEGAL PROCEEDINGS
From time to time we are involved in ordinary routine litigation typical for companies engaged in our line of business,
including actions seeking to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights
of others. As of the date of this Annual Report on Form 10-K, we are not involved in any pending legal proceedings that we believe
would be likely, individually or in the aggregate, to have a material adverse effect on our financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
21
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.
As of April 13, 2020, the number of holders of record of the Company’s common stock totaled approximately 1,924.
ISSUER PURCHASES OF EQUITY SECURITIES
(a) Total
Number of
Shares (or
Units)
Purchased (1)
(b) Average
Price Paid
Per Share (or
Unit) (2)
(c) Total Number
of Shares (or
Units) Purchased
as Part of
Publicly
Announced Plans
or Programs (3)
(d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs (3)
38 $
- $
7 $
45 $
2.95
-
4.49
3.19
- $
- $
- $
- $
8,795,529
8,795,529
8,795,529
8,795,529
Period
Nov. 3, 2019 – Nov. 30, 2019
Dec. 1, 2019 – Jan. 4, 2020
Jan. 5, 2020 – Feb. 1, 2020
Total
(1)
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.
(2) Average Price Paid Per Share includes commissions.
(3)
In August 2017, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $20 million of
our common stock. This program authorizes the Company to repurchase shares through September 30, 2020 and does not require
the Company to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without
prior notice. Shares repurchased under the program will be subsequently retired.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the past three years.
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable.
22
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.
Recent Developments
As described elsewhere in this Report, the COVID-19 pandemic has recently had far-reaching adverse impacts on many aspects of
our operation, directly and indirectly, including our employees, consumer behavior, distribution and logistics, our suppliers, and the
market overall. The scope and nature of these impacts continue to evolve each day. In light of the uncertain and rapidly evolving
situation relating to the COVID-19 pandemic, we have taken a number of precautionary measures to manage our resources
conservatively by reducing and/or deferring capital expenditures, inventory purchases and operating expenses to mitigate the adverse
impact of the pandemic, which is intended to help minimize the risk to our Company, employees, customers, and the communities
in which we operate. Such steps include the following:
• On March 17, 2020, we announced the temporary closure of all owned and operated stores in the United States, Canada, the
United Kingdom, Denmark and Ireland.
• On March 26, 2020, we announced the temporary closure of our warehouse and e-commerce fulfillment center in Ohio as we
reviewed our processes related to workplace safety, including social distancing and sanitation practices recommended by the
Centers for Disease Control and Prevention, among others. The Ohio warehouse was reopened on April 1, 2020 following
the review and reconfiguration of workflow and workspaces to further promote social distancing and minimize interaction as
orders are fulfilled.
• On March 26, 2020, we announced the furlough of over 90% of our workforce, effective March 29, 2020.
• On March 26, 2020, we announced pay reductions of 20% for those employees not placed on temporary leave, and that the
salaries of the Company's executive officers and each of its name executive officers would be reduced by 20% effective
March 29, 2020.
• On March 26, 2020, we announced that the annual cash retainers for all non-employee directors serving on our Board of
Directors will be eliminated for the first fiscal quarter of 2020.
• We are delaying the payment of 100% of the bonus earned by our executive officers for fiscal 2019 performance and 80% of
such bonuses earned by our non-executive officer associates.
In accordance with plan provisions, we are delaying the Company's contribution to its 401(k) plan.
•
• We are actively working with our landlords to minimize costs associated with closed retail facilities.
In addition to the effects described above, our supply chain has been affected by COVID-19. Vendors in China were
temporarily closed as a result of the pandemic. Although their operations ceased in January and February, the vendors resumed
production in March and are expected to continue to ramp up unless the pandemic comes back in China, causing our vendors to
cease production again. Seasonal merchandise supporting our sales plans for the Easter holiday and spring season, were produced
and delivered by our vendors prior to the temporary halt in their operations. As a result, we have sufficient inventory and supplies
to support our e-commerce demand and any stores which may reopen in the near future. For our vendors with operations in Vietnam,
the pandemic continues to evolve on a daily basis and we are in communication with these vendors to ensure we can respond as
needed to supply chain interruptions if they occur.
23
Although each of the remedial measures was taken by the Company to protect the business and preserve liquidity, each may
also have the potential to have a material adverse impact on our current business, financial condition and results of operations, and
may create additional risks for our Company. While we anticipate that the foregoing measures are temporary, we cannot predict the
specific duration for which these precautionary measures will stay in effect, and we may elect or need to take additional measures
as the information available to us continues to develop, including with respect to our employees, distribution centers, relationships
with our third-party vendors, and our customers. Subject to certain assumptions regarding the duration and severity of the COVID-
19 pandemic, and our responses thereto (including such actions we have taken or may take in the future as disclosed elsewhere in
this Report), based on our current projections we believe our cash and marketable securities on hand, ongoing cash generated from
e-commerce and eventual resumption and ramp up of store operations, will be sufficient to cover our working capital requirements
and anticipated capital expenditures for the next 12 months from the issuance of this Report. However, the extent to which the
COVID-19 pandemic and our precautionary measures in response thereto may impact our business will depend on future
developments, which are highly uncertain and cannot be precisely predicted at this time.
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 “Results of Operations” below and
in Item 1.A. “Risk Factors” above.
Business 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 guests participate in the stuffing, fluffing, dressing, accessorizing and naming of
their own teddy bears and other stuffed animals. As of February 1, 2020, we operated 372 stores globally and had 92 franchised
stores operating internationally under the Build-A-Bear Workshop brand. In addition to our stores, we sold product on our company-
owned e-commerce sites, third party marketplaces and franchisee sites and through retailer's wholesale agreements. There were also
60 locations operating through our "third-party retail" model in which we sell our products on a wholesale basis to other companies
that then in turn execute our retail experience.
We operate in three segments that share the same infrastructure, including management, systems, merchandising and
marketing, and generate revenues as follows:
• Direct to Consumer (“DTC”) – Corporately-managed retail stores located in the U.S., Canada, Puerto Rico, the U.K., Ireland,
Denmark and China and two e-commerce sites;
• Commercial – Transactions with other businesses, mainly comprised of wholesale product sales and licensing our intellectual
•
property, including entertainment properties, for third-party use; and
International franchising – Royalties as well as product and fixture sales from other international operations under franchise
agreements.
Selected financial data attributable to each segment for fiscal 2019 and 2018 are set forth in Note 15 — Segment
Information to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Our consolidated net income (loss) was $0.3 million in fiscal 2019, compared to $(17.9 million) in fiscal 2018. We believe that
we have a 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 $0.8 million and $0.9 million in fiscal 2019 and 2018, respectively. With retail as a significant driver of
our performance, in order to effectively measure our store operations, we use store contribution as the key performance metric. The
diversification of the real estate portfolio and shift to smaller more flexible store formats may result in lower average store revenue,
but is expected to improve store contribution. Consolidated store contribution as a percentage of net retail sales was 15.4%, and
10.4% for fiscal years 2019 and 2018, respectively. 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 revenues
and expenses associated with e-commerce sites, locations not open for the full fiscal year and adjustments to deferred revenue related
to gift card breakage and our loyalty program. See “Non-GAAP Financial Measures” for a reconciliation of store contribution to net
income. The increase in consolidated store contribution as a percent of net retail sales in fiscal 2019 was primarily due to the
expansion of our retail gross margin by $7.3 million or 5.2% as a percent of total revenue and our focus on reducing store level
expenses through strategic negotiations with our landlords that included rent reductions and moving toward percent of sales rent. In
addition, store contribution as a percent of net retail sales increased due to a decrease in advertising expense as we shifted our focus
to digital marketing and moved away from national TV advertising to a large degree.
24
We entered fiscal 2020 expecting it to be another transitional year as planned to continue to implement key aspects of our
longer-term strategies. Our ongoing plan was to address our retail store portfolio by diversifying locations and formats to focus on
places where families shop and go for entertainment. For example, through the end of fiscal 2019 we have opened 22 full service
stand-alone stores inside select Walmart locations and have several stores in seasonal and tourist locations. As part of our initiative
to diversify retail formats, we had planned to continue to opportunistically place a variety of new, lower capital, flexible formats,
like concourse shops, in traditional malls or in other high traffic shopping destinations to help navigate the market volatility. In
addition, we have significant flexibility in our mall lease portfolio with the negotiation of favorable rent deals and short-term
extensions which have resulted in now having over 70% of our leases coming up for renewal in the next three years including about
120 locations with natural lease events before the end of fiscal 2020. However, we are currently reassessing our plans in light of the
impacts of the COVID-19 pandemic on our business as described in "Recent Developments" above.
We ended fiscal 2019 with no borrowings under our bank loan agreement and with $26.7 million in cash and cash equivalents
after investing $12.4 million in capital projects throughout the year. We did not repurchase any shares during fiscal 2019. Although
the Company has $8.8 million remaining on our share repurchase authorization from August 2017, it does not plan to utilize its cash
in the near term to commence share repurchase in fiscal 2020.
Following is a description and discussion of the major components of our statement of operations:
Revenues
Net retail sales, commercial revenue and international franchising: See Note 3 — Revenue to the consolidated financial statements
for additional accounting information.
We use net retail sales per square foot as a performance measure for our business. The following table details net retail sales
per square foot for stores open throughout the fiscal year for the periods presented:
Net retail sales per square foot
North America (1)
United Kingdom (2)
Fiscal year ended
February 1, 2020
$ 343
£ 405
February 2, 2109
$ 346
£ 424
(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 the U.K. represents net retail sales from stores open throughout the entire period in the U.K.,
excluding e-commerce sales, divided by the total selling square footage of such stores.
Costs and Expenses
Cost of merchandise sold: Cost of merchandise sold is driven primarily by our retail segment. 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 (See Note 5 — Property and Equipment, net to the consolidated
financial statements for additional accounting information regarding store asset impairment); 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. For the commercial segment, cost of merchandise includes the
cost of merchandise sold to third-party retailers on a wholesale basis for sale within their stores. For the franchise segment, cost of
merchandise includes the sale of furniture, fixtures, and supplies to our franchise partners.
25
Selling, general and administrative expense (“SGA”): These expenses include store payroll and benefits, advertising, credit
card fees, store supplies and normal store pre-opening and closing expenses as well as central office general and administrative
expenses, including costs for management payroll, benefits, incentive 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 credit card fees historically have increased or decreased
proportionately with net retail sales. In addition, bad debt expenses and accounts receivable related charges are recorded. Further,
SGA expenses may include store impairment as we consider a more likely than not assessment that an individual location will close
or be remodeled prior to the end of its original lease term. See Note 5 — Property and Equipment, net to the consolidated financial
statements for additional accounting information regarding store asset impairment.
Stores
Corporately-managed locations:
The number of Build-A-Bear Workshop stores in the U.S., Canada and Puerto Rico (collectively, North America), the U.K., Ireland
and Denmark (collectively, Europe) and China for the last two fiscal years is summarized as follows:
February 1, 2020
February 2, 2019
North
North
Fiscal year ended
America Europe China Total America Europe China
1
Beginning of period
Opened
Closed
End of period
311
18
(13 )
316
59
1
(5 )
55
1
-
-
1
371
19
(18 )
372
292
50
(31 )
311
59
2
(2 )
59
1
Total
(1)
352
52
(33 )
371
During fiscal 2019, our retail business model continued to evolve to address changing shopping patterns by diversifying our
locations, formats and geographies. We are updating our store portfolio with the Discovery format, which represented 41% of our
store base as of February 1, 2020. During the second half of fiscal 2019, we opened 16 full service, stand-alone stores inside select
Walmart locations, resulting in a total of 22 shop-in-shops at Walmart locations at the end of the fiscal year. We also continued to
open concourse shops, stand-alone retail units that occupy approximately 200 square feet, in places where families go for
entertainment, including tourist destinations, as well as to convert certain existing locations, in conjunction with natural lease events,
to continue to generate profit while leveraging reduced cost structure of concourse shops. Through its third-party retail model, there
were 60 stores in operation with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's and Beaches
Family Resorts. As in prior years, we operated in a number of other non-traditional locations, such as ballparks, as well as shop-in-
shop arrangements within other retailers’ stores. In certain locations throughout the year, we deployed temporary stores, which
generally have lease terms of two to eighteen months. These specific sites are designed to capitalize on short-term opportunities.
Further, we expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management
and day-to-day operational plans.
International Franchise Locations:
Our first franchisee location was opened in November 2003. All franchised stores have similar signage, store layout and
merchandise assortments as our corporately-managed stores. As of February 1, 2020, we had nine master franchise agreements,
which typically grant franchise rights for a particular country or group of countries, covering an aggregate of 12 countries.
26
The number of international, franchised stores opened and closed for the periods presented below is summarized as follows:
Beginning of period
Opened
Closed
End of period
Fiscal year ended
February 1,
2020
February 2,
2019
97
32
(37 )
92
100
19
(22 )
97
As of February 1, 2020, the distribution of franchised locations among these countries was as follows:
Australia
South Africa
China (1)
India
Gulf States (2)
Thailand
Germany (3)
Mexico
Chile
Total
20
20
12
12
11
6
5
4
2
92
(1) China master franchise agreement includes Macau, where no stores are currently open, and the Hong Kong market.
(2) Gulf States master franchise agreement includes Kuwait, Bahrain, Qatar and the United Arab Emirates which all have
stores as well as Oman where there is not currently a store open.
(3) Germany master franchise agreement also includes Austria and Switzerland where no stores are currently opened.
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 total market potential for approximately 300 international stores outside of the U.S.,
Canada, the U.K., Ireland and Denmark. We source fixtures and other supplies for our franchisees from China which significantly
reduces the capital and lowers the expenses required to open franchises. We are leveraging new formats that have been developed
for our corporately-managed locations such as concourses and shop-in-shops with our franchisees. We expect to develop market
expansion through both new and existing franchisees in the future.
Results of Operations
2019 Overview
Although the 2019 year did not unfold on a by-quarter basis as expected, we ultimately delivered annual results that included
a return to profitability and a growth in total revenues. Revenue growth compared to the prior fiscal year was driven by a strong
growth in our Commercial segment and in our e-commerce sales. An increase in revenue of 81.3% in our Commercial segment was
primarily the result of expansion of our third-party retail locations to 60 locations as of February 1, 2020 from 40 locations as
of February 2, 2019. The strong growth from our e-commerce channel is the result of improved segmentation models as well as
targeted, digital advertising, including web-only exclusives, which increased website traffic. The return to profitability was primarily
driven by an expansion of retail gross margin, a reduction of lease costs through strategic negotiations with land lords, and through
a reduction of advertising expense by focusing our resources on digital marketing offsetting a reduction in national TV advertising.
27
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 immaterial rounding:
Revenues:
Net retail sales
Commercial revenue
International franchising
Total revenues
Costs and expenses:
Cost of merchandise sold - retail (1)
Store asset impairment (2)
Cost of merchandise sold - commercial (1)
Cost of merchandise sold - international franchising (1)
Total cost of merchandise sold
Consolidated gross profit
Selling, general and administrative
Interest expense (income), net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Fiscal year ended
February 1,
February 2,
2020
2019
95.6 %
3.5
0.9
100.0
54.6
0.0
45.7
89.7
54.6
45.4
44.9
0.0
0.5
0.4
0.1
97.0 %
1.9
1.1
100.0
57.3
1.6
50.6
66.8
58.8
41.2
46.7
0.0
(5.5 )
(0.2 )
(5.3 )
Retail gross margin
45.4 %
42.7 %
(1) Cost of merchandise sold – retail is expressed as a percentage of net retail sales. Cost of merchandise sold – commercial
is expressed as a percentage of commercial revenue. Cost of merchandise sold - international franchising is expressed as a
percentage of international franchising revenue.
(2)
Store asset impairment was disclosed as a separate line item in fiscal 2018 and expressed as a percentage of net retail sales.
(3) 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.
Fiscal Year Ended February 1, 2020 Compared to Fiscal Year Ended February 2, 2019
Total revenues. Net retail sales were $323.5 million for fiscal 2019, compared to $326.3 million for fiscal 2018, a decrease of
$2.8 million or 0.9%. The components of this decrease are as follows:
Decrease in existing store and e-commerce sales
Increase from new stores
Impact of store closures
Gift card breakage
Impact of foreign currency translation
Change in deferred revenue estimates
28
Fiscal year
ended
February 1,
2020
(dollars in
millions)
$
$
(4.4 )
10.1
(8.0 )
1.6
(1.8 )
(0.3 )
(2.8 )
The retail revenue decrease was driven primarily by store closures, reduced sales at existing stores due to continued mall traffic
declines, effects of foreign currency translation in our European operations, and an increase in our deferred revenue related to our
loyalty program as a result of a higher redemption rate on bonuses earned as part of the program. These were offset by strong e-
commerce growth for the year, the opening of 16 new shop-in-shops in select Walmart locations, and an update to the gift card
breakage rates based on the latest redemption data.
Commercial revenue was $11.9 million for fiscal 2019 compared to $6.6 million for fiscal 2018, an increase of $5.3 million
primarily due to growth in wholesale activity resulting from increase in third-party retail locations. Revenue from international
franchising was $3.2 million for fiscal 2019 compared to $3.7 million for fiscal 2018. This $0.5 million decrease was primarily the
result of the closure of franchise locations during the year.
Retail gross margin. Retail gross margin was $146.8 million in fiscal 2019 compared to $139.5 million in fiscal 2018, a
increase of $7.3 million. As a percentage of net retail sales, retail gross margin increased to 45.4% for fiscal 2019 from 42.7% for
fiscal 2018, or 270 basis points as a percentage of net retail sales and included 160 basis points related to the leverage of fixed
occupancy costs with the remainder driven by expansion of merchandise margin.
Selling, general and administrative. Selling, general and administrative expenses were $152.0 million for fiscal 2019 as
compared to $157.2 million for fiscal 2018, a decrease of $5.2 million. Selling, general and administrative expenses were lower
primarily due to less negative impact of foreign currency translation, decreased consulting costs relating to compliance matters (e.g.,
GDPR), decreased asset impairment charges related to store fixed assets and decreased receivable write-offs. In addition, selling,
general and administrative expenses were lower due to the aggressive switch to digital marketing away from national TV advertising
offset by an increase in incentive compensation resulting from the Company's profitable performance.
Interest expense (income), net. Interest expense, net of interest income, decreased an immaterial amount for fiscal 2019 as
compared to fiscal 2018.
Provision for income taxes. The provision for income taxes was $1.3 million in fiscal 2019 compared to an income tax benefit
of $0.6 million in fiscal 2018. The 2019 effective rate of 83.0% differed from the statutory rate of 21% primarily due to the valuation
allowance recorded in certain foreign jurisdictions and the $0.2 million tax impact of equity awards. The 2018 effective tax rate of
3.1% differed from the statutory rate of 21% primarily due to the valuation allowance recorded in certain foreign jurisdictions.
Non-GAAP Financial Measures
We use the term “store contribution” throughout this Annual Report on Form 10-K. Store contribution consists of income
(loss) 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. Additionally, store-level
performance measures are inherently limited in that they exclude certain expenses that are recurring in nature and are necessary to
support the operation and development of our stores. 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 (loss) for our corporately-managed stores,
open throughout the entire period, located in the U.S., Canada and Puerto Rico (collectively “North America”); stores located in the
U.K., Ireland and Denmark (collectively “Europe”); and China, for our consolidated store base (dollars in thousands).
29
Fiscal 2019
Europe
North
America and China
(3,416 )
3,677
North
America
Total
$
261 $
1,325
24
-
(25 )
(9 )
-
1,300
15
-
Fiscal 2018
Europe
and China
(15,240 )
$
Total
$
(17,933 )
769
(22 )
3,446
(574 )
85
5,195
(2,693 )
(1,343 )
107
1,749
50,566
3,653
54,219
41,851
8,012
49,863
(6,244 )
(4,563 )
44,785 $
(1,627 )
(274 )
(1,698 )
$
(7,871 )
(4,837 )
43,087 $
(3,804 )
(1,656 )
34,211
$
(656 )
(640 )
(4,331 )
$
(4,460 )
(2,296 )
29,880
$
290,883 $
47,660
$
338,543 $
286,544
$
50,041
$
336,585
(38,261 )
(5,400 )
(43,661 )
(34,445 )
(4,528 )
(38,973 )
(13,860 )
238,762 $
(1,192 )
41,068
$
(15,052 )
279,830 $
(8,118 )
243,981
$
(2,163 )
43,350
$
(10,281 )
287,331
18.8 %
(4.1 %)
15.4 %
14.0 %
(10.0 %)
10.4 %
Net income (loss)
Items excluded:
Income tax expense (benefit)
Interest expense (income)
Store asset impairment
General and administrative
expense (1)
Contribution from other retail
activities (2)
Other contribution (3)
Store contribution
$
Total revenues from external
customers
Items excluded:
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 income (loss) as a
percentage of total revenues
1.3 %
(7.2 %)
0.1 %
(0.9 %)
(30.5 %)
(5.3 %)
(1) General and administrative expense consists primarily of non-store related expenses such as management compensation, travel,
information systems, accounting, purchasing and legal costs. Additionally, non-store related depreciation and amortization,
store closing and pre-opening expenses are included within general and administrative expense as well as certain intercompany
charges in Europe. Further, general and administrative expenses include marketing costs, 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 commercial revenue, international franchising and intercompany revenues as well as all expenses
attributable to the commercial and international franchising segments, excluding interest expense (income) and income tax
expense (benefit).
(4) Other revenues from external customers are comprised of commercial revenue and international franchising.
30
Liquidity and Capital Resources
Our cash requirements are primarily for the opening, remodeling or reformatting of stores, installation and upgrades of
information systems and working capital. Over the past several years, we have met these requirements through cash generated from
operations.
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rates on cash
Net increase (decrease) in cash, cash equivalents and restricted
cash
Fiscal year ended
February 1,
2020
February 2,
2019
$ 21,609
(12,384)
(245)
(140)
$ 9,586
(11,253)
(2,359)
421
$ 8,840
$ (3,605)
Operating Activities. Cash flows provided by operating activities were $21.6 million and $9.6 million in fiscal years 2019 and
2018, respectively. Cash flows from operating activities increased in fiscal 2019 as compared to 2018 primarily due to an increase
in net income and lower inventory, partially offset by an increase in receivables and a decrease in accounts payable as of the end of
the fiscal year and lower gift cards and deposits balances as a result of higher redemption rates.
Investing Activities. Cash flows used in investing activities were $12.4 million and $11.3 million in fiscal years 2019 and 2018,
respectively. Cash used in investing activities in fiscal 2019 increased as compared to fiscal 2018 primarily related to upgrades of
central office information technology systems including construction-in-progress costs for a new warehouse management system.
Financing Activities. Financing activities used cash of $0.2 million and $2.4 million in fiscal years 2019 and 2018,
respectively. Cash used in financing activities in fiscal 2019 decreased as compared to fiscal 2018 as the Company did not borrow
on its credit facility and did not repurchase shares during the year, compared to stock repurchases of $2.2 million fiscal 2018.
Capital Resources. As of February 1, 2020, we had a cash balance of $26.7 million, of which 85% was domiciled within the
United States.
As of February 1, 2020, we had a bank line of credit that provides a maximum borrowing capacity of $20 million. Borrowings
under the credit agreement are secured by our assets and a pledge of 66% of our ownership interest in certain of our foreign
subsidiaries. The credit agreement expires on December 31, 2020 and contains various restrictions on indebtedness, liens, guarantees,
redemptions, mergers, acquisitions or sale of assets, loans, transactions with affiliates, investments and includes an anti-hoarding
clause, which precludes borrowings that would cause our cash balance to exceed $5 million. The agreement limits the conditions
under which we may declare dividends and repurchase shares. For example, we may not use the proceeds of the line of credit to
repurchase shares of our common stock. The commitment fee is 0.25% per annum and borrowings bear interest at LIBOR plus
3.25%. Financial covenants included maintaining a minimum fixed charge coverage ratio and not exceeding a maximum funded
debt to EBITDA ratio as of the end of the fourth quarter of fiscal 2019 (as defined in the credit agreement). In addition, our Company
has a $1.0 million letter of credit against the line at the end of fiscal 2019.
As of February 1, 2020: (i) our Company was in compliance with all covenants; (ii) there were no borrowings under the line
of credit; and (iii) there was $19.0 million available for borrowing under the line of credit. Due to the impacts of COVID-19 and
the closure of our owned and operated stores, our financial performance in the first quarter of fiscal 2020 will be negatively impacted.
As a result, it is likely that we will be unable to comply with certain covenants in our existing line of credit. With 120 locations with
natural lease events before the end of fiscal 2020 and over 70% lease optionality within the next three years, our flexible lease
portfolio provides us with a natural hedge during these unusual times and provides additional leverage in our discussion with our
landlords. In addition, we are in discussions with our current lender and we are exploring other options to access alternative liquidity
sources which may include other lenders, government assistance and monetization of existing Company assets.
31
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 have shifted to shorter term leases to provide flexibility in aligning stores with market trends. 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 leases contain incentives to help defray the cost of construction of a new store.
Typically, a portion of the incentive must be repaid to the landlord if we choose to terminate the lease. In 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 invoiced monthly and paid in advance.
COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, that has caused us
to recently enact widespread temporary store closures and our landlords to temporarily close certain of the malls in which our stores
operate. There is significant uncertainty surrounding the ultimate duration of these closures and consumer willingness to visit
shopping malls once they reopen. The impact of these temporary store and shopping mall closures on our current rent obligations
remains uncertain and we may be limited in our ability to obtain rent abatements or landlord concessions of rent otherwise payable
during this period of temporary store closures.
Our leases in the U.K. and Ireland typically have terms of ten 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
invoiced monthly and quarterly and paid in advance.
Capital spending in fiscal 2019 totaled $12.4 million, primarily to support new store openings, refresh of store formats or the
repositioning of locations and IT infrastructure.
In August 2017, our Board of Directors adopted a share repurchase program authorizing the repurchase of up to $20 million
of our common stock. From the date of the program approval through February 1, 2020, we repurchased a total of 1.3 million shares
at an average price of $8.75 per share for an aggregate amount of $11.2 million. As of February 1, 2020, we had $8.8 million of
availability under the 2017 Share Repurchase Program. Because of our determination to manage our resources conservatively, we
do not anticipate resuming share repurchases under the 2017 Share Repurchase Program in fiscal 2020.
We believe cash on hand will be sufficient to fund our working capital and other cash flow requirements for the near future.
If additional capital is needed, we may monetize Company assets including the Company owned warehouse in Ohio,
inventory, implement further employee furloughs, and forego capital expenditures and other discretionary expenses. In addition,
based on historical promotional activities, such as our Pay Your Age Day events and National Teddy Bear Day, we could quickly
and profitably convert inventory to cash in our stores when they reopen.
Off-Balance Sheet Arrangements
None.
Contractual Obligations and Commercial Commitments
Not applicable.
Inflation
We do not believe that inflation has had a material adverse impact on our business or operating results during the periods
presented. However, we can provide no assurance that our business will not be affected by inflation in the future.
32
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,
and could fall below book value due to the impact of the coronavirus outbreak or changes in the financial performance of the asset
group, future growth rate and discount rate, resulting in future impairments in 2020.
For purposes of evaluating store assets for impairment, we have determined that each store location is an asset group, inclusive
of the right-of-use asset attributable to each store. 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
quarterly, 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
typically included in cost of merchandise sold – retail as a component of income (loss) before income taxes in the DTC segment.
See Note 6 - Property and Equipment, Net to our consolidated financial statements for further discussion.
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.
When indicated, the carrying value of the assets is reduced to fair value, calculated as the estimated future cash flows for each asset
group.
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, general economic trends, public health issues (such as the COVID-19 pandemic) 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.
33
Revenue Recognition
For the Company’s gift cards, revenue is deferred for single transactions until redemption including any related gift card
discounts. Historically, most gift card redemptions have occurred within three years of acquisition and approximately 75% of gift
cards have been redeemed within the first twelve months. In addition, unredeemed gift cards or breakage revenue is recorded in
proportion to the customer’s redemption pattern using an estimated breakage rate based on historical experience.
For certain qualifying transactions, a portion of revenue transactions are deferred for the obligation related to the Company’s
loyalty program or when a material right in the form of a future discount is granted. In these transactions, the transaction price is
allocated to the separate performance obligations based on the relative standalone selling price. The standalone selling price for the
points earned for the Company’s loyalty program is estimated using the net retail value of the merchandise purchased, adjusted for
estimated breakage based on historical redemption patterns. The revenue associated with the initial merchandise purchased is
recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired. In regards
to the consolidated balance sheet, contract liabilities for gift cards are classified as gift cards and customer deposits, and contract
liabilities related to the loyalty program are classified as deferred revenue and other.
See Note 3 - Revenue for additional information.
Leases
On February 3, 2019, the Company adopted ASC 842, Leases. Under ASC 842, at lease commencement, the Company
recognizes an asset for the right to use the leased asset and a liability based on the present value of the unpaid fixed lease payments.
Operating lease costs are recognized on a straight-line basis as lease expense over the lease term. The adoption of ASC 842 resulted
in the recognition of right-of-use operating lease assets and operating lease liabilities of approximately $151.5 million and $176.2
million, respectively, as of February 3, 2019. The cumulative effect of adopting the standard resulted in an adjustment to retained
earnings of $7.4 million upon adoption, which represents impairment charges to the right-of-use assets associated with stores whose
fixed assets have been previously impaired or had indicators of impairment, and whose right-of-use-assets were determined to be
above fair market value.
Fair value of the right-of-use asset was determined using a discounted cash flow analysis, considering market rent and market
discount rates. The majority of our leases do not provide an implicit rate and therefore, the Company estimates the incremental
borrowing discount rate based on information available at lease commencement. The discount rates used are indicative of a synthetic
credit rating based on quantitative and qualitative analysis and adjusted one notch higher to estimate a secured credit rating. For non-
U.S. locations, a risk-free rate yield based on the currency of the lease is used to estimate the incremental borrowing rate.
The Company is a party to a significant number of lease contracts and certain aspects of adopting ASC 842, including the
estimates of the incremental borrowing rate and impairment of the right-of-use asset upon adoption, required significant management
judgment. Refer to Note 4 - Leases to the consolidated financial statements for additional information regarding ASC 842.
34
Income Taxes
We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the
tax basis of its assets and liabilities and the consolidated financial statement carrying amounts. Deferred tax assets generally represent
future tax benefits to be received when tax credit or net operating loss 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
consider the weight of all available evidence, both positive and negative, in assessing the realizability of the deferred tax assets by
each taxing jurisdiction. We consider the Company’s ability to carry back its tax losses or credits for refunds, reversals of existing
taxable temporary differences, the availability of tax planning strategies and projections of future taxable income. In light of the
negative impacts of COVID-19, the Company will continue to evaluate the realizability of deferred tax assets, which may result in
additional valuation allowances being recorded in certain jurisdictions in 2020. As we have incurred a cumulative book loss in the
U.K. over the three-year period ended February 2, 2019, we evaluated the realizability of our U.K. deferred tax assets based on an
analysis of all available positive and negative evidence. The three-year cumulative loss is a significant piece of negative evidence.
We are required to give objective historical evidence more weight than subjective evidence, such as forecasts of future
income. Accordingly, in the fourth quarter of fiscal 2018, the Company recorded a $3.7 million valuation allowance on its U.K.
deferred tax assets and continued to record valuation allowances against its U.K. deferred tax assets in fiscal 2019.
Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies for additional information.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules are listed under Item 15(a) and filed as part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
35
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our President and Chief Executive Officer 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 we are required to disclose 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 President and Chief
Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of February
1, 2020, the end of the period covered by this Annual Report.
It should be noted that our management, including the President and Chief Executive Officer 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 control
system, misstatements due to error or fraud may occur and not be detected.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in Rule 13a-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management,
including the President and Chief Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting as of February 1, 2020. Our management, with the participation of our President and
Chief Executive Officer 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 February 1, 2020 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 2019 fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
36
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Build-A-Bear Workshop, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Build-A-Bear Workshop, Inc. and Subsidiaries’ internal control over financial reporting as of February 1, 2020,
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). In our opinion, Build-A-Bear Workshop, Inc. and Subsidiaries
(collectively, the Company) maintained, in all material respects, effective internal control over financial reporting as of February
1, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Build-A-Bear Workshop, Inc. and Subsidiaries as of February 1, 2020 and February
2, 2019, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows
for each of the two years in the period ended February 1, 2020, and the related notes and the financial statement schedule listed in
the Index at Item 15(a)(2) and our report dated April 16, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
St. Louis, Missouri
April 16, 2020
37
ITEM 9B. OTHER INFORMATION
To mitigate the financial and short-term cash impact of the novel coronavirus (COVID-19) pandemic, on April 14, 2020, the
Compensation and Development Committee (the “Committee”) of the Board of Directors of the Company and each of Company’s
named executive officers (the “Executive Officers”) agreed to amend the Executive Officers’ employment agreements to (i) reduce
each Executive Officer’s annual base salary by 20% (the “Salary Reductions”) and (ii) defer bonus amounts owed to the Executive
Officers for the fiscal year ended February 1, 2020 under the Company’s Fiscal 2019 Bonus Plan (the “Bonus Deferrals”). The
Committee also approved an amendment to the Company’s Fiscal 2019 Bonus Plan providing for the Bonus Deferrals.
The Salary Reductions are effective from March 29, 2020 through and including the earliest of (A) December 31, 2020,
(B) the date on which the Committee approves the ending of the Salary Reductions, and (C) the date on which the then-current non-
Executive Officers of the Company who were employed by the Company as of March 15, 2020 and whose base salaries were reduced
as a result of the COVID-19 pandemic have had their respective annual base salaries returned to at or above their respective annual
base salary amounts as of March 15, 2020.
The Bonus Deferrals shall be paid by Company in a lump sum on December 31, 2020 or, if approved by the Committee, in
one or more installments on or prior to December 31, 2020. In the event the employment of an Executive Officer terminates prior to
payment of the Bonus Deferral due to death or disability, termination by Company without Cause, or pursuant to Employee’s right
to terminate the Agreement for Good Reason, as each term is defined in such Executive Officer’s employment agreement, as
amended, the Bonus Deferral for such Executive Officer will be paid at the time such bonus would have been paid pursuant to the
amended employment agreement as if the Executive Officer’s employment continued until the payment date.
Other than provisions relating to the Salary Reductions and Bonus Deferrals, the remaining terms of each Executive Officer’s
employment agreement remain unchanged.
On April 14, 2020, the Committee also awarded shares of time-based restricted stock to the Executive Officers as follow:
Sharon John: 70,000; Jennifer Kretchmar: 41,431; and J. Christopher Hurt: 40,980.
The terms of the time-based restricted stock are as set forth in the Company’s Restricted Stock Agreement (the “Award
Agreement”). Each Executive Officer’s restricted stock award vests in full on April 14, 2021 if such Executive Officer is still an
employee of the Company on that date or if the Executive Officer’s employment has been terminated by the Company without Cause
or the Executive has terminated his or her employment with the Company for Good Reason (as each term is defined in the Executive
Officer’s employment agreement with the Company, as amended) prior to April 14, 2021. Vesting will be accelerated upon a change
in control or, in certain circumstances, upon death or termination of employment with the Company due to disability, subject to the
terms set forth in the Award Agreement. The time-based restricted stock carries voting and dividend rights from the date of grant.
At the recommendation of the Committee, the Board of Directors of the Company ratified and approved the above-mentioned
employment agreement amendment and the award of time-based restricted stock to the President and Chief Executive Officer.
38
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,”
and “Committee Charters, Corporate Governance Guidelines, Business Conduct Policy and Code of Ethics” 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
June 11, 2020, 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 website at
http://ir.buildabear.com. We intend to satisfy the amendment and waiver disclosure requirements under applicable securities
regulations by posting any amendments of, or waivers to, the Business Conduct Policy on our website.
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, 56, 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. Effective March 2016, she now holds the title of President and Chief
Executive Officer. 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.
Eric Fencl, 57, 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 as an auditor with Arthur Young & Company.
J. Christopher Hurt, 54, 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 responsibility at companies including Polo Ralph Lauren and The Procter &
Gamble Company.
Jennifer Kretchmar, 47, joined Build-A-Bear Workshop in August 2014 as Chief Product Officer and Innovation Bear. Effective
March 2016, she now holds the title of Chief Merchandising Officer. 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.
39
Voin Todorovic, 45, 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.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the sections titled “Executive Compensation” and “Board of Directors Compensation” in the
Proxy Statement is incorporated herein by reference in response to this Item 11.
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
(a)
Number of
securities to
be issued upon
exercise of
outstanding
options,
warrants and
rights
(b)
Weighted-
average
exercise price of
outstanding
options,
warrants and
rights
(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
Plan category
Equity compensation plans approved by
security holders
Total
923,254 $
923,254 $
9.76
9.76
366,109
366,109
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.
40
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
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 February 1, 2020 and February 2, 2019
Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal years ended February
1, 2020and February 2, 2019
Consolidated Statements of Stockholders’ Equity for the fiscal years ended February 1, 2020and February 2,
2019
Consolidated Statements of Cash Flows for the fiscal years ended February 1, 2020and February 2, 2019
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Page
42
43
44
45
46
47
66
41
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Build-A-Bear Workshop, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Build-A-Bear Workshop, Inc. and Subsidiaries (collectively,
the Company) as of February 1, 2020 and February 2, 2019, the related consolidated statements of operations and comprehensive
income (loss), stockholders' equity and cash flows for each of the two years in the period ended February 1, 2020, and the related
notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company at February 1, 2020 and February 2, 2019, and the results of its operations and its cash flow for each of the two years
in the period ended February 1, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of February 1, 2020, 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 April 16, 2020 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases in the
year ended February 1, 2020 due to the adoption of ASU No. 2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2011.
St. Louis, Missouri
April 16, 2020
42
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
February 1,
February 2,
2020
2019
ASSETS
Current assets:
Cash and cash equivalents
Inventories, net
Receivables, net
Prepaid expenses and other current assets
Total current assets
Operating lease right-of-use asset
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
Operating lease liability short term
Gift cards and customer deposits
Deferred revenue and other
Total current liabilities
Operating lease liability long term
Deferred rent
Deferred franchise revenue
Other liabilities
Stockholders' equity:
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares
issued or outstanding at February 1, 2020 and February 2, 2019
Common stock, par value $0.01, Shares authorized: 50,000,000;
Issued and outstanding: 15,205,981 and 14,953,142 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.
26,726 $
53,381
11,526
7,117
98,750
126,144
65,855
3,411
-
3,102
297,262 $
15,680 $
16,536
30,912
20,231
2,605
85,964
119,625
-
1,325
1,717
17,894
58,356
10,588
12,960
99,798
-
66,368
3,099
731
2,050
172,046
22,551
10,047
-
21,643
1,936
56,177
-
18,440
1,625
1,490
-
-
152
70,633
(12,079 )
29,925
88,631
297,262 $
150
69,088
(12,018 )
37,094
94,314
172,046
43
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands, except share and per share data)
Revenues:
Net retail sales
Commercial revenue
International franchising
Total revenues
Costs and expenses:
Cost of merchandise sold - retail
Store asset impairment
Cost of merchandise sold - commercial
Cost of merchandise sold - international franchising
Total cost of merchandise sold
Consolidated gross profit
Selling, general and administrative expense
Interest expense, net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Foreign currency translation adjustment
Comprehensive income (loss)
Income (loss) per common share:
Basic
Diluted
Shares used in computing common per share amounts:
Basic
Diluted
Fiscal year ended
February 1,
February 2,
2020
2019
$
$
$
$
$
323,491 $
11,892
3,160
338,543
176,652
-
5,432
2,836
184,920
153,623
152,047
15
1,561
1,300
261 $
(60 )
201 $
326,304
6,560
3,721
336,585
186,834
5,195
3,317
2,485
197,831
138,754
157,176
85
(18,507 )
(574 )
(17,933 )
(1,218 )
(19,151 )
0.02 $
0.02 $
(1.23 )
(1.23 )
14,711,334
14,759,810
14,591,270
14,591,270
See accompanying notes to consolidated financial statements.
44
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Additional
Accumulated
other
Common paid-in
capital
stock
comprehensive Retained
income (loss) earnings
Total
Balance, February 3, 2018
$
150 $
66,843 $
(10,800 ) $
55,909 $
112,102
Share repurchase and retirement
Stock-based compensation
Shares issued under employee stock plans
Other comprehensive loss
Net loss
(2 )
-
2
-
-
(1,058 )
3,439
(136 )
-
-
-
-
-
(1,218 )
-
(868 )
-
(14 )
-
(17,933 )
(1,928 )
3,439
(148 )
(1,218 )
(17,933 )
Balance, February 2, 2019
$
150 $
69,088 $
(12,018 ) $
37,094 $
94,314
Stock-based compensation
Shares issued under employee stock plans
Adoption of new accounting standard
Other
Other comprehensive loss
Net income
-
2
-
-
-
1,793
(248 )
-
-
-
-
-
-
-
(1 )
(60 )
-
-
-
(7,431 )
1
-
261
1,793
(246 )
(7,431 )
-
(60 )
261
Balance, February 1, 2020
$
152 $
70,633 $
(12,079 ) $
29,925 $
88,631
See accompanying notes to consolidated financial statements.
45
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash flows provided by operating activities:
Net income (loss)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Asset impairment
Deferred taxes
Provision for doubtful accounts
(Gain)/Loss on disposal of property and equipment
Change in assets and liabilities:
Inventories, net
Receivables, net
Prepaid expenses and other assets
Accounts payable and accrued expenses
Operating leases
Gift cards and customer deposits
Deferred revenue
Net cash provided by operating activities
Cash flows used in investing activities:
Purchases of property and equipment
Purchases of other assets and other intangible assets
Proceeds from property insurance
Net cash used in investing activities
Cash flows used in financing activities:
Proceeds from the exercise of employee stock options, net of withholding tax payments
Borrowings under line of credit
Repayments under line of credit
Purchases of Company’s common stock
Net cash used in financing activities
Effect of exchange rates on cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
Supplemental disclosure of cash flow information:
Total cash, cash equivalents and restricted cash
Less: Restricted cash from long-term deposits (1)
Total cash and cash equivalents
Net cash paid (received) during the period for income taxes
$
$
$
$
(1) See cash, cash equivalents and restricted cash in Note 2 - Summary of Significant Accounting Policies for further discussion.
See accompanying notes to consolidated financial statements.
46
Fiscal year ended
February 1,
February 2,
2020
2019
$
261 $
(17,933 )
13,705
2,877
-
(318 )
(83 )
(7 )
5,053
(805 )
5,839
(2,439 )
(490 )
(1,369 )
(615 )
21,609
(12,384 )
-
-
(12,384 )
(245 )
-
-
-
(245 )
(140 )
8,840
19,555
28,395 $
28,395 $
(1,669 )
26,726 $
16,042
3,439
5,871
446
1,029
398
(1,116 )
(3,452 )
98
817
224
2,415
1,308
9,586
(11,253 )
-
-
(11,253 )
(131 )
7,250
(7,250 )
(2,228 )
(2,359 )
421
(3,605 )
23,160
19,555
19,555
(1,661 )
17,894
(1,800 ) $
1,675
Notes to Consolidated Financial Statements
(1) Description of Business and Basis of Preparation
Build-A-Bear Workshop, Inc. and subsidiaries (collectively, 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 372 corporately-
managed locations operated primarily in leased mall locations in the United States (“U.S.”), Canada, China, Denmark, Ireland, Puerto
Rico and the United Kingdom (“U.K.”) along with its e-commerce sites. With the exception of China, operations in foreign countries
where the Company does not have corporately-managed locations are through franchise agreements.
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the U.S. (“GAAP”). Certain amounts in prior fiscal periods have been reclassified to conform to current year presentation
with no impact to the consolidated statement of operations and comprehensive income (loss) (e.g., store preopening is included
within selling, general and administrative and store impairment is disclosed separately from cost of merchandise sold —retail).
(2) Summary of Significant Accounting Policies
For each accounting topic that is addressed in its own note, the description of the accounting policy may be found in the
related note. The Company’s other significant accounting policies applied in the preparation of the accompanying consolidated
financial statements are as 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 January 31. The periods presented in
these financial statements are fiscal 2019 (52 weeks ended February 1, 2020) and fiscal 2018 (52 weeks ended February 2,
2019). References to years in these financial statements relate to fiscal years or year ends rather than calendar years.
Cash, Cash Equivalents and Restricted Cash
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. In addition, the Company has long-term deposits at multiple institutions
to satisfy contractual terms with one landlord in China and the UK Customs Authority (unrelated to the matter discussed in Note 10
- Commitments and Contingencies). The Company presents these as long-term deposits within other non-current assets within the
consolidated balance sheet. These deposits are considered restricted cash and disclosed within the supplemental disclosure within
the condensed consolidated statement of cash flows. The change in the balance of these deposits from fiscal 2018 to fiscal 2019 is
the result of the foreign currency remeasurement of the British Pound.
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 net realizable value, with cost determined on an average-cost basis. Inventory
includes supplies of $3.2 million and $2.9 million as of February 1, 2020 and February 2, 2019, respectively. A reserve for estimated
shortage is accrued throughout the year based on detailed historical averages. The inventory reserve was $0.8 million and
$0.9 million as of February 1, 2020 and February 2, 2019, respectively.
47
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
$6.3 million and $5.4 million as of February 1, 2020 and February 2, 2019, 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.
Leases
In the first quarter of 2019, the Company adopted ASC 842, Leases, using the modified retrospective approach. Results for
2019 are presented under ASC 842, while the prior period consolidated financial statements have not been adjusted and continue
to be presented under the accounting standard in effect at that time.
The majority of the Company's leases relate to retail stores and corporate offices. For leases with terms greater than 12 months,
the Company records the related asset and obligation at the present value of lease payments over the term. Most retail store leases
have an original term of five to ten-year base period and include renewal options to extend the lease term beyond the initial base
period and are typically much shorter than the original lease term giving the Company lease optionality. The renewal options are not
included in the measurement of the right of use assets and right of use liabilities unless the Company is reasonably certain to exercise
the optional renewal periods. Some leases also include early termination options, which can be exercised under specific conditions.
Additionally, the Company may operate stores for a period of time on a month-to-month basis after the expiration of the lease term.
The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Additionally, certain leases contain incentives, such as construction allowances from landlords and/or rent abatements subsequent
to taking possession of the leased property. These incentives reduce the right-of-use asset related to the lease and are amortized
through the right-of-use asset as reductions of expense over the lease term.
The Company's leases typically contain rent escalations over the lease term and the Company recognizes expense for these
leases on a straight-line basis over the lease term. The Company recognizes the related rental expense on a straight-line basis and
records the difference between the recognized rental expense and amounts payable under the lease as part of the lease right-of-use
asset. Some of the Company's leases include rent escalations based on inflation indexes and fair market value adjustments. Certain
leases contain contingent rental provisions that include a fixed base rent plus an additional percentage of the store’s sales in excess
of stipulated amounts. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement.
Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses.
For leases entered into or reassessed after the adoption of the new standard, the Company has elected the practical expedient
allowed by the standard to account for all fixed consideration in a lease as a single lease component. Therefore, the lease payments
used to measure the lease liability for these leases include fixed minimum rentals along with fixed operating costs such as common
area maintenance and utilities.
Most of the Company’s leases do not provide a readily available implicit interest rate. Therefore, the Company estimates the
incremental borrowing discount rate based on information available at lease commencement. The discount rates used are indicative
of a synthetic credit rating based on quantitative and qualitative analysis and adjusted one notch higher to estimate a secured credit
rating. For non-U.S. locations, a risk-free rate yield based on the currency of the lease is used to adjust the estimate of the
incremental borrowing rate.
48
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 and deferred costs related to franchise
agreements. 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.
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 (“DTC”) segment, based on
operating performance and forecasts of future performance. Total impairment charges were immaterial for fiscal 2019 and $5.9
million in fiscal 2018. These impairment charges were recorded within cost of merchandise sold and selling, general and
administrative expenses (See Note 6 - 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. In addition, our impairment
assumptions to be made during fiscal 2020 are likely to be negatively impacted by COVID-19, which may result in additional
impairment charges.
Revenue
See Note 3 — Revenue for additional accounting information.
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 (See Note 5 – Property
and Equipment for further discussion regarding the impairment of long-lived assets); 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. In addition, bad
debt expenses and accounts receivable related charges are recorded. Further, it includes store preopening expenses which
represent 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.
Advertising
The costs of advertising and marketing programs are charged to operations in the first period the program takes place.
Advertising expense was $12.2 million and $16.5 million for fiscal years 2019 and 2018, respectively.
49
Income Taxes
Income taxes are accounted for using a balance sheet approach known as the liability method. The liability method accounts
for deferred income taxes by applying the rate, based on enacted tax law, that will be in effect in the period in which the temporary
differences between the book basis and the tax basis of assets and liabilities reverse or are settled. 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, available tax planning strategies and forecasted operating earnings. 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 negative impacts of COVID-19 may result in the establishment of
additional valuation allowances in certain jurisdictions in fiscal 2020.
The Company assesses its total liability for uncertain tax positions on a quarterly basis. The Company recognizes estimated
interest and penalties related to unrecognized tax benefits in income tax expense. See Note 8—Income Taxes for further discussion.
Income Per Share
Under the two-class method, basic income per share is determined by dividing net income 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 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 certain 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 and forfeitures as they occur. See Note
12 — Stock Incentive Plans for additional information.
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 February 1, 2020, the current portions of the assets and related liabilities of less than $0.1 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 $1.3 million are presented in other assets, net and other liabilities in the
accompanying consolidated balance sheets. As of February 2, 2019, the current portions of the assets and related liabilities of $0.1
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 $1.0 million are presented in other assets, net and other
liabilities in the accompanying consolidated balance sheets.
50
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 February 1, 2020 and February 2, 2019.
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 calculation of revenue from gift card breakage, valuation of long-lived assets, including
deferred income tax assets, and the determination of deferred revenue under the Company’s customer loyalty program.
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. The Company recorded a loss of $0.1
million and $1.0 million related to foreign currency in fiscal 2019 and 2018, respectively.
Subsequent Events
In March 2020, the World Health Organization announced that COVID-19 is a global pandemic. On March 17, 2020, the
Company announced the temporary closure of all owned and operated stores in the United States, Canada, the United Kingdom,
Denmark and Ireland as a result of the pandemic. In addition, on March 26, 2020, the Company announced the temporary closure of
its warehouse and e-commerce fulfillment center in Ohio as it reviewed its process related to workplace safety, including social
distancing and sanitation practices recommended by the Centers for Disease Control and Prevention. The Ohio warehouse was
reopened on April 1, 2020 following the review and reconfiguration of workflow and workspaces to further promote social distancing
and minimize interaction as orders are fulfilled. While the e-commerce business in the United States and the United Kingdom
continue to serve customers during this crisis, the Company has experienced a loss of sales and earnings as a result of the store
closures. In addition, many of the Company's wholesale customers have also closed their retail stores affecting their inventory
purchases. Although the store closures are expected to be temporary, the Company cannot estimate the duration of the store closures,
the impact on our interactive retail experience once stores are reopened, or the full financial effect as a result of COVID-19.
The Company is taking steps to manage its resources conservatively by reducing and/or deferring capital expenditures,
inventory purchases and operating expenses to mitigate the adverse impact of the pandemic. These steps include, but are not limited
to, the furlough of over 90% of its workforce, effective March 29, 2020; pay reductions of 20% for those employees not placed on
temporary leave, including the Company's executive officers and each of its named executive officers, effective March 29, 2020; the
elimination of the first fiscal quarter 2020 annual cash retainers for all non-employee directors serving on the Company's Board of
Directors; minimizing costs associated with closed retail facilities; reducing marketing expenses; reducing variable expenses during
the store closure period; and investigating government relief options and applying if and when the Company believes it would be
appropriate. In addition, the Company is working with its landlords to minimize costs associated with its closed retail facilities.
51
The Company has not borrowed on its credit facility as of April 13, 2020 and had approximately $23.8 million in operating
cash. Due to the impacts of COVID-19 and the closure of our owned and operated stores, our financial performance in the first
quarter of fiscal 2020 will be negatively impacted. As a result, it is likely that we will be unable to comply with certain covenants in
our existing line of credit. The Company's liquidity may be negatively impacted if stores do not resume normal operations and the
Company may be required to pursue additional sources of financing to meet its financial obligations. Obtaining such financing is
not guaranteed and is largely dependent on market conditions and other factors. The Company believes that its current cash balance,
along with the actions taken as outlined above, provides it with sufficient current liquidity. Future impact of COVID-19 may require
further actions by the Company to improve its cash position, including but not limited to, monetizing Company assets including the
Company owned warehouse in Ohio, inventory, implementing further employee furloughs, and foregoing capital expenditures and
other discretionary expenses.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act (the "Act") was enacted. The
CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the COVID-19 pandemic, which
among other things contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively
for years ending before the date of enactment. The Company is currently evaluating the implications of the Act.
Recent Accounting Pronouncements – Adopted in the current year
In February 2016, the FASB issued new guidance on leases (“Topic 842"), which replaced most existing lease accounting
guidance in U.S. GAAP. The core principle of Topic 842 is that an entity recognizes the rights and obligations resulting from leases
as assets and liabilities for all leases with terms greater than 12 months. The lease liability is measured at the present value of the
lease payments over the lease term. The right-of-use asset (“ROU”) is measured at the lease liability amount, adjusted for lease
prepayments, lease incentives received and the lessee’s initial direct costs (e.g., commissions). Presentation of leases within the
consolidated statements of operations, except for additional impairment of ROU assets, which could be material given the size of
ROU assets, and consolidated statements of cash flows is generally consistent with the historical lease accounting guidance.
Effective February 3, 2019, the Company adopted the FASB guidance on leases (“Topic 842”). The Company adopted Topic
842 using the modified retrospective transition approach, which includes a number of optional practical expedients that entities may
elect to apply. The Company has elected certain practical expedients, including the package of practical expedients to not reassess
prior conclusions related to contracts containing leases, lease classification and initial direct costs as well as an accounting policy to
account for lease and non-lease components as a single component. The Company also elected the optional transition method that
gives companies the option to use the effective date as the date of initial application on transition, and as a result, the Company will
not adjust its comparative period financial information or make the new required lease disclosures for periods before the effective
date. The Company has elected to make the accounting policy election for short-term leases. Consequently, short-term leases will
be recorded as an expense on a straight-line basis over the lease term. The Company did not elect the hindsight practical expedient.
Upon adoption and transition, the Company recognized a cumulative-effect charge of $7.4 million net of tax to the opening
balance of retained earnings which represents impairment charges to the right-of-use assets associated with stores whose fixed assets
have been previously impaired or had indicators of impairment, and whose right-of-use-assets were determined to be above fair
market value. The fair value of the right-of-use asset was determined using a discounted cash flow analysis, considering market rent
and market discount rates.
52
The table below presents the lease-related assets and liabilities recorded on the balance sheet as of adoption on February 3,
2019.
Assets
Operating lease right-of-use assets
Operating lease right-of-use assets
$
151,513
Classification on the Balance Sheet
February 3,
2019
Liabilities
Current - Operating
Noncurrent - Operating
Total lease liabilities
Operating lease liability short term
Operating lease liability long term
34,672
141,519
176,191
$
Recent Accounting Pronouncements – Pending adoption
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.” This ASU requires entities to report “expected” credit losses on financial instruments
and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial
assets held at the reporting date are to be based on historical experience, current conditions and reasonable and supportable
forecasts. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating
credit losses, as well as the credit quality. As the Company is currently filing as a Smaller Reporting Company, this ASU is not
effective until the fiscal year beginning after December 15, 2022. The Company is currently evaluating the impact the adoption
of this ASU will have on our consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes,” which simplifies the accounting for income taxes by eliminating certain exceptions related to intraperiod tax
allocation, simplifies certain elements of accounting for basis differences and deferred tax liabilities during a business
combination, and standardizes the classification of frachise taxes. The ASU is effective for fiscal years beginning after December
15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently
evaluating the impact the adoption of this ASU will have on our consolidated financial statements.
(3) Revenue
Nearly all of the Company’s revenue is derived from retail sales (including e-commerce sites) and is recognized when control
of the merchandise is transferred to the customer. The Company accounts for revenue in accordance with Topic 606. The Company's
disaggregated revenue is fully disclosed as net sales to external customers by reporting segment and by geographic area (See Note
15 — Segment Information for additional information). The Company's direct-to-consumer reporting segment represents nearly
96% of consolidated revenue. The majority of these sales transactions are single performance obligations that are recorded when
control is transferred to the customer.
The following is a description of principal activities from which the Company generates its revenue, by reportable segment.
The Company’s direct-to-consumer segment includes the operating activities of corporately-managed stores, other retail-
delivered operations and online sales. Direct-to-consumer revenue is recognized when control of the merchandise is transferred to
the customer and for the Company’s online sales, control generally transfers upon delivery to the customer. Revenue is measured as
the amount of consideration, including any discounts or incentives, the Company expects to receive in exchange for transferring the
merchandise. Product returns have historically averaged less than one-half of one percent due to the interactive nature of sales,
where consumers customize their own stuffed animal. The Company has elected to exclude from revenue all collected sales, value
add and other taxes paid by its customers.
53
For the Company’s gift cards, revenue is deferred for single transactions until redemption including any related gift card
discounts. Historically, most gift card redemptions have occurred within three years of acquisition and approximately 75% of gift
cards have been redeemed within the first twelve months. In addition, unredeemed gift cards or breakage revenue is recorded in
proportion to the customer’s redemption pattern using an estimated breakage rate based on historical experience. For certain
qualifying transactions, a portion of revenue transactions are deferred for the obligation related to the Company’s loyalty program
or when a material right in the form of a future discount is granted. In these transactions, the transaction price is allocated to the
separate performance obligations based on the relative standalone selling price. The standalone selling price for the points earned
for the Company’s loyalty program is estimated using the net retail value of the merchandise purchased, adjusted for estimated
breakage based on historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized
immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired. In regards to the
consolidated balance sheet, contract liabilities for gift cards are classified as gift cards and customer deposits, and contract liabilities
related to the loyalty program are classified as deferred revenue and other.
The Company’s commercial segment includes transactions with other businesses and are mainly comprised of licensing the
Company’s intellectual properties for third-party use and wholesale sales of merchandise, supplies and fixtures. Revenue for
wholesale sales is recognized when control of the merchandise or fixtures is transferred to the customer, which generally occurs
upon delivery to the customer. The license agreements provide the customer with highly interrelated rights that are not distinct in
the context of the contract and, therefore, have been accounted for as a single performance obligation and recognized as licensee
sales occur. If the contract includes a guaranteed minimum, the minimum guarantee is recognized as licensee sales occur over the
guarantee term until such time as royalties earned through licensee sales exceed the minimum guarantee. The Company classifies
these guaranteed minimum contract liabilities as deferred revenue and other on the consolidated balance sheet.
The Company’s international franchising segment includes the activities with franchisees who operate store locations in certain
countries and includes development fees, sales-based royalties, merchandise, supplies and fixture sales. The Company’s obligations
under the franchise agreement are ongoing and include operations and product development support and training, generally
concentrated around new store openings. These obligations are highly interrelated rights that are not distinct in the context of the
contract and, therefore, have been accounted for as a single performance obligation and recognized as franchisee sales occur. If the
contract includes an initial, one-time nonrefundable development fee, this fee is recognized on a straight-line basis over the term of
the franchise agreement, which may extend for periods up to 25 years. The Company classifies these initial, one-time nonrefundable
franchise fee contract liabilities as deferred revenue and other on the consolidated balance sheet. Revenue from merchandise and
fixture sales is recognized when control is transferred to the franchisee which generally occurs upon delivery to the customer.
The Company also incurs expenses directly related to the startup of new franchises, including finder’s fees, legal and travel
costs as well as expenses related to its ongoing support of the franchisees, predominantly travel and employee
compensation. Accordingly, the Company’s policy is to capitalize the finder’s fee, an incremental cost, and expense all other costs
as incurred. Additionally, the Company amortizes these capitalized costs into expense in the same pattern as the development fee's
recording of revenue as described previously.
54
(4) Leases
The table below presents information related to the lease costs for operating leases for the full year ended February 1, 2020
(in thousands).
Operating lease costs
Variable lease costs
Short term lease costs
Total Operating Lease costs
Other information
Year Ended
February 1, 2020
40,943
2,856
1,352
45,151
$
The table below presents supplemental cash flow information related to leases for the full year ended February 1, 2020 (in
thousands).
Operating cash flows for operating leases
Year Ended
February 1, 2020
43,687
$
As of February 1, 2020, the weighted-average remaining operating lease term was 5.9 years and the weighted-average discount
rate was 5.8% for operating leases recognized on the consolidated balance sheet.
Undiscounted cash flows
The table below reconciles the undiscounted cash flows for each of the first five years and total remaining years to the operating
lease liabilities recorded on the balance sheet (in thousands).
Operating Leases
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
Less: amount of lease payments representing interest
Present value of future minimum lease payments
Less: current obligations under leases
Long-term lease obligations
38,976
32,803
29,356
24,913
20,916
31,020
177,984
(27,447 )
150,537
(30,912 )
119,625
$
As of February 1, 2020, the Company had additional executed leases that have not yet commenced for retail locations with operating
lease liabilities of $2.5 million with leases that will commence in 2020 with lease terms ranging from three to five years. The
Company had additional executed leases related to a non-retail location of $12.6 million with a lease term of ten years and eleven
months.
55
As previously reported in the Company's Annual Report on Form 10-K for the year ended February 2, 2019, and in accordance with
the guidance in ASC 840, total office and retail store base rent expense was $45.9 million and contingent rent expense
was $1.5 million in fiscal 2018.
Also, as previously reported in the Company's Annual Report on Form 10-K for the year ended February 2, 2019, and in accordance
with the guidance in ASC 840, future minimum lease payments as of February 2, 2019, were as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
$
$
41,800
35,192
31,940
29,265
24,961
49,782
212,940
(5) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
Prepaid occupancy (1)
Prepaid income taxes
Prepaid insurance
Prepaid gift card fees
Other (2)
Total
February 1,
February 2,
2020
2019
$
$
1,097 $
164
628
1,413
3,815
7,117 $
5,497
2,245
336
1,488
3,394
12,960
(1) Prepaid occupancy consists of prepaid expense related to non-lease components for the balances as of February 1, 2020 and
prepaid rent and expenses related to non-lease components as of February 2, 2019.
(2) Other consists primarily of prepaid expense related to IT maintenance contracts.
56
(6) 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
Total, net
February 1,
February 2,
2020
2019
$
$
2,261 $
42,611
24,069
14,970
102,598
48,109
9,615
244,233
178,378
65,855 $
2,261
43,127
25,659
14,970
104,858
46,506
3,583
240,964
174,596
66,368
For fiscal 2019 and 2018, depreciation expense was $13.5 million and $15.3 million, respectively.
During 2019, the Company reviewed the operating performance and forecasts of future operations for the stores in its DTC
segment. As a result of that review, it was determined as of the financial statement date, that all stores would be able to recover the
carrying value of certain store assets through expected undiscounted cash flows over the remaining life of the related assets, and
therefore no store impairment charges were recorded. Store asset impairment charges of $5.2 million were recorded in fiscal 2018
within cost of merchandise sold and disclosed as a separate line in the statement of operations and comprehensive income (loss). The
inputs used to determine the fair value of the assets are Level 3 fair value inputs.
In the event that management decides to close any or all of these stores in the future, the Company may be required to record
additional impairment, lease termination fees, severance charges and other costs. In addition, the Company considers a more likely
than not assessment that an individual location will close or be remodeled prior to the end of its original lease term 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 assets through expected undiscounted cash flows over the shortened remaining life of
the related assets and immaterial asset impairment charges were made in both fiscal 2019 and fiscal 2018.
(7) Accrued Expenses
Accrued expenses consist of the following (in thousands):
Accrued wages, bonuses and related expenses
Sales tax payable
Accrued rent and related expenses (1)
Current income taxes payable
Total
February 1,
February 2,
2020
2019
$
$
13,373 $
1,489
726
948
16,536 $
5,453
1,286
3,233
75
10,047
(1) Accrued rent and related expenses consist of accrued costs associated with non-lease components for the balance at February
1, 2020 and the current portion of deferred rent and accrued tenant allowance at February 2, 2019.
57
(8)
Income Taxes
The Company’s income (loss) before income taxes from domestic and foreign operations (which include the U.K., Canada, China,
Denmark and Ireland), is as follows (in thousands):
Domestic
Foreign
Total income (loss) before income taxes
Fiscal year ended
February 1,
February 2,
2020
2019
$
$
4,862 $
(3,301 )
1,561 $
(4,175 )
(14,332 )
(18,507 )
The components of the income tax expense (benefit) are as follows (in thousands):
Current:
U.S. Federal
U.S. State
Foreign
Deferred:
U.S. Federal
U.S. State
Foreign
Income tax expense (benefit)
Fiscal year ended
February 1,
February 2,
2020
2019
$
$
1,068 $
498
(45 )
31
(311 )
59
1,300 $
(508 )
(263 )
(448 )
(836 )
239
1,242
(574 )
The provision for income taxes was $1.3 million in fiscal 2019 compared to an income tax benefit of $0.6 million in fiscal
2018. The 2019 effective rate of 83.0% differed from the statutory rate of 21% primarily due to the valuation allowance recorded
in certain foreign jurisdictions and the $0.2 million negative tax impact of equity awards. The 2018 effective rate of 3.1% differed
from the statutory rate of 21% primarily due to the valuation allowance recorded in certain foreign jurisdictions.
As the Company has incurred a cumulative book loss in the U.K. over the three-year period ended February 2,
2019, management evaluated the realizability of the Company’s U.K. deferred tax assets, including an analysis of all available
positive and negative evidence. The three-year cumulative loss is a significant piece of negative evidence. ASC 740 requires
objective historical evidence be given more weight than subjective evidence, such as forecasts of future income. Accordingly, in
the fourth quarter of fiscal 2018, the Company recorded a $3.7 million valuation allowance on its U.K. deferred tax assets, in
addition to a valuation allowance of $0.5 million in certain other foreign jurisdictions. In fiscal 2019, the Company recorded an
additional valuation allowance of $0.7 million on its deferred tax assets in certain foreign jurisdictions due to cumulative losses
and uncertainty about future earnings forecast. We continue to assess the realizability of our deferred tax assets and may record
additional valuation allowances during 2020 due to the negative impact of the COVID-19 pandemic.
58
Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
Operating lease liability
Net operating loss carryforwards
Deferred revenue
Deferred compensation
Accrued compensation
Investment in affiliates
Receivable write-offs
Inventories
Intangible assets
Carryforward of tax credits
Other
Total gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Operating lease right-of-use assets
Depreciation
Deferred revenue
Deferred expense
Other
Total deferred tax liabilities
Net deferred tax assets
February 1,
February 2,
2020
2019
$
$
36,301 $
3,049
2,693
1,893
1,340
1,202
664
593
588
87
853
49,263
(6,774 )
42,489
(31,062 )
(3,667 )
(2,726 )
(1,257 )
(366 )
(39,078 )
3,411 $
3,740
4,371
2,661
1,729
88
-
477
987
1,201
861
1,056
17,171
(5,079 )
12,092
-
(3,650 )
(4,088 )
(763 )
(492 )
(8,993 )
3,099
As of February 1, 2020, the Company had gross net operating loss (NOL) carryforwards of approximately $15.4 million,
most of which relate to the U.K. where NOLs have no expiration date.
The Company continues to assert its investments in foreign subsidiaries are permanent in duration and it is not practical to
estimate the income tax liability on the outside basis differences.
As of February 1, 2020, the Company had total unrecognized tax benefits of $0.2 million, of which approximately
$0.2 million would favorably impact the Company’s provision for income taxes if recognized. As of February 2, 2019, the Company
had total unrecognized tax benefits of $0.4 million, of which approximately $0.2 million would favorably impact the Company’s
provision for income taxes if recognized. The Company reviews its uncertain tax positions periodically and accrues interest and
penalties accordingly. Accrued interest and penalties included within other liabilities in the consolidated balance sheets were less
than $0.1 million for both years ended as of February 1, 2020 and February 2, 2019. The Company recognizes accrued interest and
penalties related to unrecognized tax benefits as a component of the provision for income taxes within the consolidated statement of
operations. For the years ended February 1, 2020 and February 2, 2019, the Company recognized an expense of less than $0.1
million for interest and penalties for each year.
59
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance as of December 30, 2017 (1)
Increases for prior year tax positions
Decreases for prior year tax positions
Settlements
Lapse of statute of limitations
Balance as of February 2, 2019
Increases for prior year tax positions
Decreases for prior year tax positions
Lapse of statute of limitations
Balance as of February 1, 2020
$
$
659
288
(333 )
(183 )
(13 )
418
67
(288 )
(19 )
178
(1) For the five-week transition period ending February 3, 2018, there was no activity.
Management estimates it is reasonably possible that the amount of unrecognized tax benefits could decrease by as much as
$0.2 million in the next twelve months as a result of the resolution of audits currently in progress involving issues common to
multinational corporations and the lapsing of the statute of limitations.
The following tax years remain open in the Company’s major taxing jurisdictions as of February 1, 2020:
United States (Federal)
United Kingdom
(9) Line of Credit
2016 through 2019
2017 through 2019
As of February 1, 2020, the Company had a bank line of credit that provides borrowing capacity of $20.0 million. Borrowings
under the credit agreement are secured by its assets and a pledge of 66% of the Company’s ownership interest in certain of its foreign
subsidiaries. The credit agreement expires on December 31, 2020 and contains various restrictions on indebtedness, liens, guarantees,
redemptions, mergers, acquisitions or sale of assets, loans, transactions with affiliates and investments. The agreement limits the
conditions under which the Company may declare dividends and repurchase shares. For example, we may not use the proceeds of
the line of credit to repurchase shares. The commitment fee is 0.25% per annum and borrowings bear interest at LIBOR plus 3.25%.
Financial covenants included maintaining a minimum fixed charge coverage ratio and not exceeding a maximum funded debt to
EBITDA ratio as of the end of the fourth quarter of fiscal 2019 (as defined in the credit agreement). The line of credit agreement
also includes an anti-hoarding clause, which precludes borrowings that would cause our cash balance to exceed $5 million. In
addition, the Company has a $1.0 million letter of credit against the line at the end of fiscal 2019.
As of February 1, 2020: (i) the Company was in compliance with all covenants and (ii) there were no borrowings under the
line of credit.
The Company has not borrowed on its credit facility as of April 13, 2020 and had approximately $23.8 million in operating
cash. Due to the impacts of COVID-19 and the closure of our owned and operated stores, our financial performance in the first
quarter of fiscal 2020 will be negatively impacted. As a result, it is likely that we will be unable to comply with certain covenants
in our existing line of credit. The Company's liquidity may be negatively impacted if stores do not resume normal operations and
the Company may be required to pursue additional sources of financing to meet its financial obligations. Obtaining such financing
is not guaranteed and is largely dependent on market conditions and other factors. The Company believes that its current cash
balance, along with the actions taken as outlined above, provides it with sufficient current liquidity. Future impact of COVID-19
may require further actions by the Company to improve its cash position, including but not limited to, monetizing Company assets
including the Company owned warehouse in Ohio, inventory, implementing further employee furloughs, and foregoing capital
expenditures and other discretionary expenses.
60
(10) Commitments and Contingencies
(a) Operating Leases
The Company leases its retail stores and corporate offices under agreements which expire at various dates through 2031. See
Note 4 — Leases for information related to our lease commitments.
(b) Litigation
In the normal course of business, the Company is subject to legal proceedings, government inquiries and claims, and other
commercial disputes. If one or more of these matters 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 these types of contingencies 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. Gain contingencies are recorded when the underlying uncertainty has been settled.
Assessments made by the U.K. customs authority in 2012 were appealed by the Company, which has paid the disputed duty,
strictly under protest, pending the outcome of the continuing dispute, and this is included in receivables, net in the DTC segment.
The U.K. customs authority contested the Company's appeal. On November 27, 2019, the trial court issued a ruling that duty was
due on some, but not all, of the products at issue. Both the Company and the U.K. customs authority have appealed that ruling. The
Company maintains a provision against the related receivable, based on a current evaluation of collectability, using the latest facts
available in the dispute. As of February 1, 2020, the Company had a gross receivable balance of $4.4 million and a reserve of $3.4
million, leaving a net receivable of $1.0 million. The Company 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.
(11) 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 income (loss) per share (in thousands, except share and per share
data):
Fiscal year ended
February 1,
February 2,
2020
2019
NUMERATOR:
Net income (loss) before allocation of earnings to participating
securities
Less: Earnings allocated to participating securities
Net income (loss)
$
$
261 $
-
261 $
(17,933 )
-
(17,933 )
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
$
$
14,711,334
48,476
14,591,270
-
14,759,810
14,591,270
0.02 $
0.02 $
(1.23 )
(1.23 )
In calculating diluted earnings per share for fiscal 2019 and 2018, options to purchase 927,831 and 572,239, respectively,
shares of common stock were outstanding at the end of the period, but were not included in the computation of diluted income per
share due to their anti-dilutive effect under provisions of ASC 260-10.
61
(12) Stock Incentive Plans
In 2004, the Company adopted the Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan which the Company amended
and restated in 2009 and 2014 (collectively, the Incentive Plans).
On March 14, 2017, the Company’s Board of Directors (the “Board”) adopted, subject to stockholder approval, the Build-A-
Bear Workshop, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”). On May 11, 2017, at the Company’s 2017 Annual Meeting
of Stockholders, the Company’s stockholders approved the 2017 Plan. The 2017 Plan, which is administered by the Compensation
and Development Committee of the Board, permits the grant of stock options (including both incentive and non-qualified stock
options), stock appreciation rights, restricted stock, cash and other stock-based awards, some of which may be performance-based
pursuant to the terms of the 2017 Plan. The Board may amend, modify or terminate the 2017 Plan at any time, except as otherwise
provided in the 2017 Plan. The 2017 Plan will terminate on March 14, 2027, unless earlier terminated by the Board. The number of
shares of the Company’s common stock authorized for issuance under the 2017 Plan is 1,000,000, plus shares of stock subject to
outstanding awards made under the Incentive Plans that on or after March 21, 2017 may be forfeited, expire or be settled for cash.
In April 2019, our board of directors approved amendments to the 2017 Restricted Stock & Non-Qualified Stock Option
Agreement and the 2018 Restricted Stock Agreement as a result of the unanticipated consolidated pre-tax loss in fiscal year 2018.
For the 2017 awards, the agreement amended the calculation of the fiscal 2019 performance section to increase the pre-tax income
achievement levels for the Performance-Based Restricted Stock Award. The modification of this award affected the six employees
who received the award, none of whom had forfeited their award as of February 1, 2020. For the 2018 award, the agreement increased
the pre-tax income achievement levels for the fiscal 2019 and provided that in the event the Company incurred a pre-tax loss in fiscal
2019, the fiscal 2020 pre-tax income achievement levels would likewise be increased. The modification of this award affected the
one employee who received the award and who had not forfeited the award as of February 1, 2020. There was no incremental cost
to the modification of either award.
(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, February 2, 2019
Granted
Exercised
Expired
Outstanding, February 1, 2020
Options Exercisable as of:
February 1, 2020
Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic
Value (in
thousands)
Shares
950,678
-
(5,980 )
(21,444 )
923,254 $
9.67
-
4.90
7.19
9.76
3.9 $
686,353 $
10.15
4.1 $
-
-
There were no options granted during fiscal 2019. The expense recorded related to options granted during fiscal 2018 was
determined using the Black-Scholes option pricing model and the provisions of SAB 107 and 110, which allow the use of a simplified
method to estimate the expected term of “plain vanilla” options.
62
The assumptions used in the option pricing model during fiscal 2018 were:
Dividend yield
Historical volatility
Risk-free rate
Expected life
Weighted average grant date fair value
2018
0 %
50 %
2 %
3.5
3.31
$
The total grant date fair value of options exercised in fiscal 2019 and 2018 was less than $0.1 million and approximately $0.2
million, respectively. The total intrinsic value of options exercised in fiscal 2019 and 2018 was less than $0.1 million and
approximately $0.2 million, respectively. The Company generally issues new shares to satisfy option exercises.
Future total shares available for option, non-vested stock and restricted stock grants were 366,109 and 529,098 at the end
of 2019 and 2018, respectively.
(b) Restricted Stock
The Company granted restricted stock awards that vest over a one to three-year period. Recipients of time-based restricted
stock awards have the right to vote and receive dividends as to all unvested shares. Recipients of performance-based restricted stock
awards have the right to vote and receive dividends upon satisfaction of the performance criteria and certain of these awards’ dividend
rights are also subject to time-based vesting. The following table is a summary of the balance and activity for the Plans related to
unvested time-based and performance-based restricted stock granted as compensation to employees and directors for the periods
presented:
Time-Based Restricted
Stock
Performance-Based
Restricted Stock
Weighted
Average
Grant Date
Fair Value
Shares
Shares
Weighted
Average
Grant Date
Fair Value
8.73
5.61
-
-
7.59
Outstanding, February 2, 2019
Granted
Vested
Forfeited
Outstanding, February 1, 2020
379,778 $
319,831
(217,972 )
(28,234 )
453,403 $
9.31
5.64
9.76
6.04
6.71
167,153 $
95,811
-
-
262,964 $
In fiscal 2019, the Company awarded three-year performance-based restricted stock subject to the achievement of pre-
established consolidated pre-tax income growth objectives for fiscal 2019, 2020, and 2021. The target number of shares awarded
was 95,811 with a weighted average grant date fair value of $5.61 per share. This performance-based restricted stock award had a
payout opportunity ranging from 25% to 200% of the target number of shares. Based on the Company’s pre-tax income results for
fiscal 2019, the Company currently estimates the minimum number of shares that will be earned is approximately 12,460, assuming
no forfeitures. The Company is currently unable to estimate the total number of these shares expected to be earned.
63
In fiscal 2018, the Company awarded three-year performance-based restricted stock subject to the achievement of pre-
established consolidated pre-tax income growth objectives for fiscal 2018, 2019 and 2020. The target number of shares awarded
was 62,500 with a weighted average grant date fair value of $8.60 per share. In addition, the Company awarded three-year
performance-based restricted stock subject to the achievement of pre-established consolidated revenue growth objectives for fiscal
2018, 2019 and 2020. The target number of shares awarded was 20,756 with a weighted average grant date fair value of $8.60 per
share. Both of these performance-based restricted stock awards had a payout opportunity ranging from 25% to 200% of the target
number of shares. Based on the Company’s financial results for fiscal 2018 and 2019, the Company currently estimates the
minimum number of shares that will be earned is approximately 16,260, assuming no forfeitures. The Company is currently unable
to estimate the total number of these shares expected to be earned.
In fiscal 2017, the Company awarded three-year performance-based restricted stock subject to the achievement of pre-
established pre-tax income growth objectives for fiscal 2017, 2018 and 2019. The target number of shares awarded was 83,897 with
a weighted average grant date fair value of $8.85 per share. These shares of performance-based restricted stock had a payout
opportunity ranging from 25% to 200% of the target number of shares. Based on the Company’s pre-tax income results for fiscal
2017, 2018 and 2019, the number of shares expected to be earned is 28,189, assuming no forfeitures, resulting in 55,708 shares being
cancelled on the vesting date.
The vesting date fair value of shares that vested in fiscal 2019 and 2018 was $2.1 million and $2.2 million, respectively.
(13) Stockholders’ Equity
The following table summarizes the changes in outstanding shares of common stock for fiscal 2018 and fiscal 2019:
Shares as of February 3, 2018
Shares issued under employee stock plans, net of shares withheld in lieu of tax
withholding
Repurchase of shares
Shares as of February 2, 2019
Shares issued under employee stock plans, net of shares withheld in lieu of tax
withholding
Repurchase of shares
Shares as of February 1, 2020
Common
Stock
14,983,694
207,406
(237,958 )
14,953,142
252,839
-
15,205,981
64
(14) Major Vendors
Four vendors, each of whose primary manufacturing facilities are located in Asia, accounted for approximately 79% and 78%
of inventory purchases in 2019 and 2018, respectively.
(15) Segment Information
The Company’s operations are conducted through three operating segments consisting of DTC, commercial and international
franchising. The DTC segment includes the operating activities of corporately-managed locations and other retail delivery operations
in the U.S., Canada, China, Denmark, Ireland and the U.K., including the Company’s e-commerce sites and temporary stores. The
commercial segment includes the Company’s transactions with other businesses, mainly comprised of licensing the Company’s
intellectual properties for third party use and wholesale activities. The international franchising segment includes the licensing
activities of the Company’s franchise agreements with store locations in Europe (outside of the U.K., Ireland and Denmark), Asia,
Australia, the Middle East, Africa and Mexico. 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 reportable segment. The
three 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 February 1, 2020
Net sales to external customers
Income (loss) before income taxes
Capital expenditures
Depreciation and amortization
Fifty-two weeks ended February 2, 2019
Net sales to external customers
Income before income taxes
Capital expenditures
Depreciation and amortization
Total Assets as of:
February 1, 2020 (1)
February 2, 2019
Direct-to-
International
Consumer Commercial Franchising
Total
$
$
323,491 $
(3,276 )
12,384
13,699
326,304 $
(20,801 )
11,253
16,013
11,892 $
4,995
-
-
6,560 $
2,293
-
1
3,160 $
(158 )
-
6
3,721 $
1
-
28
338,543
1,561
12,384
13,705
336,585
(18,507 )
11,253
16,042
$
280,543 $
159,269
8,931 $
7,283
7,788 $
5,494
297,262
172,046
(1)The increase in total assets when Comparing February 1, 2020 to February 2, 2019 is mainly the result of the adoption
of Topic 842 on leases effective February 3, 2019.
65
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 February 1, 2020
Net sales to external customers
Property and equipment, net
Fifty-two weeks ended February 2, 2019
Net sales to external customers
Property and equipment, net
North
America (1) Europe (2) Other (3)
Total
$
286,968 $
60,386
48,532 $
5,459
3,043 $
10
338,543
65,855
283,347
60,490
51,231
5,860
2,007 $
18
336,585
66,368
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 U.K., Ireland, Denmark and franchise businesses in Europe
(3) Other includes franchise businesses outside of North America and Europe and a corporately-managed location in China
(a)(2) Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts
Beginning
Balance
Charged to
cost and
expenses
Other (1) (2)
Ending
Balance
Deferred Tax Asset Valuation Allowance
2019
2018
Receivables Allowance for Doubtful Accounts
2019
2018
$
$
5,079 $
1,279
517 $
4,228
1,178 $
(428 )
6,774
5,079
5,400 $
3,260
959 $
1,029
(79 ) $
1,111
6,280
5,400
(1) Other deferred tax asset valuation allowance represent reserves utilized, ASC842 adoption, and the impact of
currency translation
(2) Other receivables allowance for doubtful accounts represent uncollectible accounts written off, recoveries and the
impact of currency translation
66
(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
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)
3.1
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)
3.2
Amended and Restated Bylaws, as amended through January 4, 2018 (incorporated by reference from Exhibit 3.1 to our
Current Report on Form 8-K, filed on January 4, 2018)
4.1
Specimen Stock Certificate (incorporated by reference from Exhibit 4.1 to Amendment No. 3 to our Registration
Statement on Form S-1, filed on October 1, 2004, Registration No. 333-118142)
4.2
Description of Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
10.1*
Build-A-Bear Workshop, Inc. Amended and Restated 2004 Stock Incentive Plan (incorporated by reference from Exhibit
10.1 to our Current Report on Form 8-K, filed on August 1, 2006)
10.1.1*
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)
10.1.2*
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)
10.1.3*
Form of the Restricted Stock and Non-Qualified Stock Option Agreement under the Registrant’s Second Amended and
Restated 2004 Stock Incentive Plan (incorporated by reference from Exhibit 10.1 on our Quarterly Report on Form 10-
Q, filed on May 14, 2009)
10.1.4*
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)
10.1.5*
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)
10.1.6*
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 10.1 on our Current Report on Form 8-K,
filed on March 20, 2015)
10.1.7*
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)
10.1.8*
Form of Restricted Stock Agreement under the Registrant’s Third Amended and Restated 2004 Stock Incentive Plan
(incorporated by reference from Exhibit 10.8 on our Current Report on Form 8-K, filed on March 11, 2016)
67
10.1.9*
Form of Restricted Stock Agreement under the Registrant’s Third Amended and Restated 2004 Stock Incentive Plan
(incorporated by reference from Exhibit 10.1.11 on our Annual Report on Form 10-K, for the year ended December 31,
2016)
10.1.10*
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 10.2 on our Current Report on Form 8-K,
filed on March 17, 2017)
10.1.11*
Build-A-Bear Workshop, Inc. 2017 Omnibus Incentive Plan (incorporated by reference from Exhibit 10.1 to our Current
Report on Form 8-K, filed on May 12, 2017)
10.1.12*
Description of Build-A-Bear Workshop, Inc. Cash Bonus Program for Chiefs (incorporated by reference from Exhibit
10.1 on our Current Report on Form 8-K, filed on March 21, 2018)
10.1.13*
Form of Restricted Stock and Non-Qualified Stock Option Award Agreement under Registrant's 2017 Omnibus
Incentive Plan (incorporated by reference from Exhibit 10.2 on our Current Report on Form 8-K, filed on March 21,
2018)
10.1.14*
Description of Build-A-Bear Workshop, Inc. Long-term Performance-Based Cash Incentive Program for
Chiefs (incorporated by reference from Exhibit 10.3 on our Current Report on Form 8-K, filed on March 21, 2018)
10.1.15*
Description of Build-A-Bear Workshop, Inc. Cash Bonus Program for C-Level Employees (incorporated by reference
from Exhibit 10.1 on our Current Report on Form 8-K, filed on April 19, 2019)
10.1.16*
Form of Restricted Stock Agreement (incorporated by reference from Exhibit 10.2 on our Current Report on Form 8-
K, filed on April 19, 2019)
10.1.17*
Description of Build-A-Bear Workshop, Inc. Long-Term Performance-Based Cash Incentive Program for C-Level
Employees (incorporated by reference from Exhibit 10.3 on our Current Report on Form 8-K, filed on April 19, 2019)
10.2 *
10.3*
10.4*
10.5*
10.6*
10.7*
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)
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 10.1 on our Current
Report on Form 8-K, filed on March 11, 2016)
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 10.2 on our
Current Report on Form 8-K, filed on March 11, 2016)
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 10.3 on our
Current Report on Form 8-K, filed on March 11, 2016)
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 10.4 on our
Current Report on Form 8-K, filed on March 11, 2016)
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 10.5 on our
Current Report on Form 8-K, filed on March 11, 2016)
68
10.8*
10.9
10.10
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)
Cooperation Agreement, dated as of as of July 26, 2019, by and between Build-A-Bear Workshop, Inc., David L. Kanen,
Kanen Wealth Management, LLC and Philotimo Fund, LP (incorporated by reference from Exhibit 10.1 on our Current
Report on Form 8-K, filed on July 29, 2019)
Third Amendment to Loan Documents among the Registrant, Shirts Illustrated, LLC, Build-A-Bear Workshop Franchise
Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Retail Management, LLC (incorporated by reference
from Exhibit 10.12 to our Registration Statement on Form S-1, filed on August 12, 2004, Registration No. 333-118142)
10.10.1
Fifth Amendment to Loan Documents among the Registrant, Shirts Illustrated, LLC, Build-A-Bear Workshop Franchise
Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Retail Management, LLC (incorporated by reference
from Exhibit 10.1 of our Current Report on Form 8-K, filed on July 10, 2006)
10.10.2
Sixth Amendment to Loan Documents between Build-A-Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc. Build-A-Bear Entertainment, LLC, Build-A-Bear Retail Management, Inc., and Build-A-Bear Workshop
UK Holdings Ltd., as borrowers, Build-A-Bear Workshop Canada, Ltd. and US Bank National Association, as lender
entered into on and effective as of on June 19, 2007 (incorporated by reference from Exhibit 10.1 to our Current Report
on Form 8-K filed on June 20, 2007)
10.10.3
Seventh Amendment to Loan Documents between Build-A-Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc. Build-A-Bear Entertainment, LLC, and Build-A-Bear Retail Management, Inc., as borrowers, and US
Bank National Association, as lender entered into as of on October 28, 2009 (incorporated by reference from Exhibit
10.1 to our Current Report on Form 8-K filed on October 29, 2009)
10.10.4
Eighth Amendment to Loan Documents between Build-A-Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Retail Management, Inc., as Borrowers, and U.S. Bank
National Association, as Lender, entered into effective as of December 31, 2010 (incorporated by reference to Exhibit
10.1 to our Current Report on Form 8-K filed on January 4, 2011)
10.10.5
Ninth Amendment to Loan Documents between Build-A-Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Retail Management, Inc., as Borrowers, and U.S. Bank
National Association, as Lender, entered into effective as of December 30, 2011 (incorporated by reference from Exhibit
10.1 to our Current Report on Form 8-K, filed on January 4, 2012)
10.10.6
10.10.7
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)
69
10.10.8
10.10.9
10.10.10
10.10.11
10.10.12
10.10.13
10.10.14
10.10.15
10.10.16
10.10.17
Twelfth Amendment to Loan Documents between Build-A-Bear Workshop, Inc., Build-A-Bear Workshop Franchise
Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Retail Management, Inc., as Borrowers, and U.S. Bank
National Association, as Lender, entered into effective as of February 13, 2013 (incorporated by reference from Exhibit
10.1 to our Current Report on Form 8-K, filed on February 14, 2013)
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)
Joinder and Sixteenth 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 25, 2016 (incorporated by
reference from Exhibit 10.1 to our Current Report on Form 8-K, filed on April 28, 2016)
Seventeenth 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
Card Services, LLC, as Borrowers, and U.S. Bank National Association, as Lender, entered into effective as of May 4,
2017 (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K, filed on May 8, 2017)
Letter Agreement amending 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
Card Services, LLC, as Borrowers, and U.S. Bank National Association, as Lender, entered into effective as of March
1, 2018 (incorporated by reference from Exhibit 10.10.14 to our Annual Report on Form 10-K, filed on March 15, 2018)
Eighteenth 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 Card
Services, LLC, as Borrowers, and U.S. Bank National Association, as Lender, entered into effective as of December
14, 2018 (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K, filed on December 19, 2018)
Nineteenth 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 Card
Services, LLC, as Borrowers, and U.S. Bank National Association, as Lender, entered into effective as of April 16,
2019 (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K, filed on April 17, 2019)
Twentieth 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 Card
Services, LLC as Borrowers, and U.S. Bank National Association, as Lender, entered into effective as of September
11, 2019
10.10.18
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)
70
10.10.19
Fourth Amended And Restated Revolving Credit Note dated as of October 28, 2009 by the Registrant, Franchise
Holdings, Inc., Build-A-Bear Entertainment, LLC (“BABE”), and Build-A-Bear Retail Management, Inc., as
borrowers, in favor of U.S. Bank National Association (incorporated by reference from Exhibit 10.2 to our Current
Report on Form 8-K, filed on August 13, 2008)
10.11
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)
10.12
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)
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
Rule 13a-14(a)/15d-14(a) certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by the
President and Chief Executive Officer)
31.2
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)
32.1
Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the President and
Chief Executive Officer)
32.2
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
71
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.
Date: April 16, 2020
BUILD-A-BEAR WORKSHOP, INC.
(Registrant)
By: /s/ Sharon John
Sharon John
President and Chief Executive Officer
By: /s/ Voin Todorovic
Voin Todorovic
Chief Financial Officer
KNOW ALL PERSONS 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 February 1, 2020 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.
72
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
/s/ Craig Leavitt
Craig Leavitt
/s/ Maxine Clark
Maxine Clark
/s/ George Carrara
George Carrara
/s/ Robert L. Dixon, Jr.
Robert L. Dixon, Jr.
/s/ David Kanen
David Kanen
/s/ Sarah Personette
Sarah Personette
/s/ Sharon John
Sharon John
/s/ Voin Todorovic
Voin Todorovic
Title
Date
Non-Executive Chairman
April 16, 2020
Director
Director
Director
Director
Director
April 16, 2020
April 16, 2020
April 16, 2020
April 16, 2020
April 16, 2020
Director and President and Chief Executive
April 16, 2020
Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
April 16, 2020
73
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Build-A-Bear Workshop, Inc.
1954 Innerbelt Business Center Dr.
St. Louis, MO 63114
buildabear.com