Build-A-Bear Workshop 2009 Annual Report Download

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making
smiles
2009 ANNUAL REPORT
ts
ile

Table of contents

  • Page 1
    making smiles 20 0 9 A N N UA L REP O RT

  • Page 2
    ... States, Puerto Rico, Canada, the United Kingdom, Ireland and France, and franchise stores in Europe, Asia, Australia, Africa and the Middle East. The company extends its in-store interactive experience online with its award winning virtual world at ® buildabearville.com. Build-A-Bear Workshop...

  • Page 3
    BUILD-A-BEAR WORKSHOP, INC. LETTER TO SHAREHOLDERS financial highlights (dollars in thousands, except per share, per store, and per gross square foot data) Fiscal year (1) Revenues: 2009 2008 2007 Net retail sales ...$ 388,552 Franchise fees ...$ Licensing revenue ...$ 3,353 2,470 $ 460,963 ...

  • Page 4
    ...the year at non-holiday times. Choose M e ENHANCING OUR EXPERIENCE Christmas 2009, Build-A-Bear Workshop ® officially became Santa's Workshop! This fully integrated marketing program engaged d shoppers in holiday fun and our brand while e they found personalized gifts for everyone on n their list...

  • Page 5
    ...stuffed animal gifts and also our easy to shop ® Web site at buildabear.com. INTERNATIONAL We are a powerful global gl brand with broad appeal across many m demographics, ages and cultures. We W believe continued strength in our Europe European operations and opportunities in both existing and new...

  • Page 6
    ...money, we delivered millions of smiles by giving Moms more value with product that was priced right, by offering special promotions during periods of high mall traffic, and by engaging kids in fun and exciting new products and events. As a company, we focused on cost savings and cash management, as...

  • Page 7
    ...Build-A-Bear Workshop® is an affordable, fun and creative place to go. At a time when families were making fewer trips to the mall, we focused our marketing and events around times when kids were out of school to capitalize on mall traffic. Also, knowing that kids were not able to come to the mall...

  • Page 8
    ... adults to shop at buildabear.com® and even more engaging for kids to play in Build-A-Bearville. Our third strategy is to give people more reasons to come to Build-A-Bear Workshop ®! We are expanding our leadership in the experiential toy business with products that reinforce our brand values and...

  • Page 9
    ... 2009 our capital allocation strategy was to use our cash prudently, and stay both unleveraged and liquid in order to position us strongly for the future. We believe this strategy enabled us to end 2009 in a strong financial position. In 2010, we have planned a modest number of new store openings...

  • Page 10

  • Page 11
    ... the registrant is a shell company (as defined in Rule 12b-2 of the Act). There is no non-voting common equity. The aggregate market value of the common stock held by nonaffiliates (based upon the closing price of $4.28 for the shares on the New York Stock Exchange on July 2, 2009) was $73,328,996...

  • Page 12
    ... and Director Independence Principal Accountant Fees and Services 39 40 40 40 40 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 13
    ...anticipated operating and growth strategies; • our future capital expenditures; • our anticipated rate of store openings; • our anticipated store opening costs; and • our franchisees' anticipated rate of international store openings. These statements are only predictions based on our current...

  • Page 14
    ... periods in the year. We expect to build upon our product and store promotions to drive store visits and conversion of shoppers. We also offer frequent shopper discounts associated with our Stuff Fur Stuff® club loyalty program and selectively use coupons and gift-with-purchase promotions to drive...

  • Page 15
    ...existing and new franchise agreements, and through the development of third party licensed products that promote Build-A-Bear Workshop as a lifestyle brand and build overall brand awareness. We have increased our company-owned store locations throughout the United States, Canada and Puerto Rico from...

  • Page 16
    ...products which are sold on-line and in our stores and in 2009 we expanded the offerings to include additional game cards as well as monthly and annual subscriptions to the site. Game cards can be used to buy exclusive virtual items, including rides, homes, furniture, clothing and accessories. Online...

  • Page 17
    ... an integral part of our business strategy. Unlike other mall-based retailers that frequently use markdowns or sale events to drive sales, at Build-A-Bear Workshop we use value-added marketing to raise brand awareness and drive traffic to our stores and make strategic use of markdowns. Our goal is...

  • Page 18
    ... 1,100 full-time and 5,000 part-time employees. We divide our store base into four geographic regions, with the United Kingdom, Ireland and France representing one of those regions. The regions are supervised by our Chief Operations and Financial Bear and four Regional Workshop Directors...

  • Page 19
    ...-A-BEAR WORKSHOP, INC. 2009 FORM 10-K INTERNATIONAL FRANCHISES In 2003, we began to expand the Build-A-Bear Workshop brand outside of the United States, opening company-owned stores in Canada and our first franchised location in the United Kingdom. As of January 2, 2010, there were 65 Build-A-Bear...

  • Page 20
    ... bear and stuffed animal stores or kiosks in retail locations, but we believe none of those companies offer the breadth and depth of the Build-A-Bear Workshop experience or operate as a national or international retail company. We also believe that there is an emerging trend within children's play...

  • Page 21
    ... Europe, outside of the United Kingdom, Ireland and France. The licensing and entertainment segment has been established to market the naming and branding rights of our intellectual properties for third party use. Our reportable segments are primarily determined by the types of products and services...

  • Page 22
    ... virtual world website with large numbers of unique visitors with frequent visitation that drives visits to our retail stores resulting in purchases. Our planned marketing expenditures may not result in increased total or comparable store sales or generate sufficient levels of product and brand name...

  • Page 23
    ... strategy requires us to operate a significant number of stores in the United States, Canada, the United Kingdom, Ireland and France each year as well as open new store locations in these countries. If we are not able to operate these stores or to effectively manage the growth of additional stores...

  • Page 24
    ...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. In 2003, we began to expand the Build-A-Bear Workshop brand outside of the United States, opening our own stores in Canada and our...

  • Page 25
    ... 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...

  • Page 26
    ... that diverge from those typically acceptable in the United States, we could in turn experience negative publicity or be sued. We may suffer negative publicity or negative sales if the non-proprietary toy products we sell in our stores do not meet our quality standards or fails to achieve our...

  • Page 27
    ..." teddy bear and stuffed animal experiences in retail stores and kiosks. Although we believe that currently none of these companies offers the breadth and depth of the Build-A-Bear Workshop products and experience, we cannot assure you that they will not compete directly with us in the future. Many...

  • Page 28
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K 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 ...

  • Page 29
    ... to pay in the future for shares of our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2. STORES As of January 2, 2010, we operated 291 retail stores located primarily in major malls throughout the United States, Canada and Puerto Rico, 50 stores located in the United Kingdom...

  • Page 30
    ... to secure lease assignments from current tenants. French leases also are subject to annual indexation increases that are typically tied to French economic metrics. Following is a list of our 345 company-owned stores in the United States, Canada, the United Kingdom, Ireland and France as of January...

  • Page 31
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K 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...

  • Page 32
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K ISSUER PURCHASES OF EQUITY SECURITIES (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs $30,987,872 $30,987,872 $30,987,872 $30,987,872 Period Oct. 4, 2009 - Oct. 31, 2009 Nov. 1, ...

  • Page 33
    ...for stores located in Europe is estimated selling square footage and includes stores in the United Kingdom, Ireland and France. (5) Average net retail sales per store represents net retail sales from stores open throughout the entire period in North America divided by the total number of such stores...

  • Page 34
    ...United States, Canada and Puerto Rico, 50 stores in the United Kingdom, one store in Ireland and three stores in France, and had 65 franchised stores operating in international locations under the Build-A-Bear Workshop brand. In addition to our stores, we sell our products on our e-commerce Web site...

  • Page 35
    ...at improving our comparable stores sales performance, while also building our long term brand value. Our growth strategy is to develop and expand the reach of the Build-A-Bear Workshop brand through product innovation and the full integration of product, marketing and operations to create a sense of...

  • Page 36
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K We use net retail sales per gross square foot and comparable store sales as performance measures for our business. The following table details net retail sales per gross square foot by age of store for the periods presented: Fiscal 2009 Net retail sales ...

  • Page 37
    ... EXPANSION AND GROWTH POTENTIAL Company-owned stores: The number of Build-A-Bear Workshop stores in the United States, Canada, Puerto Rico, the United Kingdom, Ireland and France for the last three fiscal years can be summarized as follows: Fiscal 2009 Beginning of period Opened Closed End of period...

  • Page 38
    ...we anticipate opening one Build-A-Bear Workshop store in North America and two in the United Kingdom. We believe there is a market potential for at least 350 Build-A-Bear Workshop stores in the United States, Puerto Rico and Canada and 70 stores in the United Kingdom and Ireland. Non-store locations...

  • Page 39
    ..., or 14.0%. Other changes in net retail sales totaled $6.9 million and included the impact of the 53rd week in fiscal 2008, the impact of currency exchange rates, sales from non-store locations, and sales over the Internet. Revenue from international franchise fees increased to $4.2 million for...

  • Page 40
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K selling, general and administrative expenses increased to 39.7% for fiscal 2008 as compared to 37.4% for fiscal 2007, an increase of 230 bps. The dollar increase was primarily due to 25 more stores in operation at January 3, 2009 as compared to December ...

  • Page 41
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K The following table sets forth a reconciliation of store contribution to net income for our company-owned stores located in the United States, Canada and Puerto Rico (North America), stores located in the U.K., Ireland and France (Europe) and for our ...

  • Page 42
    ... Cash used in investing activities in 2009 related primarily to the continued installation and upgrades of central office information technology systems, acquisition of intangible assets, repurposing existing Friends 2B Made locations to Build-A-Bear Workshop stores, the opening of one new store and...

  • Page 43
    ... locations to Build-A-Bear Workshop stores, the opening of one new store and the relocation of one store. On February 20, 2007, we announced a $25 million share repurchase program of our outstanding common stock over the following twelve months. The program was authorized by our board of directors...

  • Page 44
    ...in this Annual Report on Form 10-K. We have identified the following critical accounting estimates: Inventory Inventory is stated at the lower of cost or market, with cost determined on an average cost basis. Historically, we have not conducted sales whereby we offer products below cost. Throughout...

  • Page 45
    ... upon a present value technique using estimated discounted future cash flows, forecasted over the reasonably assured lease terms for retail stores, with growth rates forecasted for the reporting unit and using a credit adjusted discount rate. We use current results, trends, future prospects, and...

  • Page 46
    ... shopper program in North America, the Stuff Fur Stuff club, whereby guests enroll in the program and receive one point for every dollar or partial dollar spent and after reaching 100 points receive a $10 discount on a future purchase. An estimate of the obligation related to the program, based...

  • Page 47
    ...of our internal control over financial reporting, as stated in its report which is included herein. None. ITEM 9A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Our management, with the participation of our Chief Executive Bear and Chief Operations and Financial Bear, has...

  • Page 48
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Build-A-Bear Workshop, Inc.: We have audited Build-A-Bear Workshop, Inc. and subsidiaries' (the Company's) internal control over financial reporting as of ...

  • Page 49
    ... St. Louis Regional Chief Information Officer Forum and the NSB Executive Client Advisory Board. He was instrumental in the development of buildabearville.com-the company's virtual world stuffed with fun. The online community received a 2009 "Best of the Web" award from WiredSafety at the 9th Annual...

  • Page 50
    ... plans not approved by security holders Total Number of securities to be issued upon exercise of outstanding options, warrants and rights 805,347 - 805,347 Weighted-average exercise price of outstanding options, warrants and rights $9.51 - $9.51 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED...

  • Page 51
    ... of Cash Flows for the fiscal years ended January 2, 2010, January 3, 2009 and December 29, 2007 Notes to Consolidated Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Build-A-Bear Workshop, Inc. We have audited the accompanying...

  • Page 52
    ...Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data) January 2, 2010 January 3, 2009 ASSETS Current assets: Cash and cash equivalents Inventories Receivables Prepaid expenses and other current assets Deferred tax assets Total current...

  • Page 53
    .... 2009 FORM 10-K Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Statements of Operations Fiscal Year (Dollars in thousands, except share and per share data) Revenues: Net retail sales Franchise fees Licensing revenue Total revenues Costs and expenses: Cost of merchandise sold Selling...

  • Page 54
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity Common stock $205 (2) - 4 - - $207 (17) - 5 - - Balance, January 3, 2009 Stock-based compensation Shares issued under employee stock plans, net...780 Total ...

  • Page 55
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Statements of Cash Flows Fiscal Year (Dollars in thousands) Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating ...

  • Page 56
    ... OF PREPARATION Build-A-Bear Workshop, Inc. (the Company) is a specialty retailer of plush animals and related products. At January 2, 2010, the Company operated 345 stores (unaudited) located in the United States, Canada, Puerto Rico, the United Kingdom, Ireland and France. The Company was formed...

  • Page 57
    ... of fair value requires multiple assumptions regarding our future operations to determine future cash flows, including but not limited to, sales volume, margin rates, store growth rates and discount rates. Based on the annual impairment test performed for the Company's reporting unit as of...

  • Page 58
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K Notes to Consolidated Financial Statements (continued) (m) Retail Revenue Recognition Net retail sales are net of discounts, exclude sales tax, and are recognized at the time of sale. Shipping and handling costs billed to customers are included in net ...

  • Page 59
    ... accrued expenses, approximates book value at January 2, 2010 and January 3, 2009. (w) Use of Estimates The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities...

  • Page 60
    ... Accrued rent and related expenses component of net loss before income taxes in the Retail segment. The inputs used to determine the fair value of the assets are Level 3 inputs as defined by ASC section 820-10. In the event that we decide to close any or all of these stores in the future, we may be...

  • Page 61
    ...057 $35,023 The following tax years remain open in the Company's major taxing jurisdictions as of January 2, 2010: United States (Federal) United Kingdom Canada France Ireland 2006 2006 2005 2007 2007 through through through through through 2009 2009 2009 2009 2009 (9) LONG-TERM DEBT On October 28...

  • Page 62
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K Notes to Consolidated Financial Statements (continued) interest at LIBOR plus 2.05%. Financial covenants include maintaining a minimum tangible net worth, maintaining a minimum fixed charge cover ratio (as defined in the credit agreement) and not ...

  • Page 63
    ... used in the option pricing model during fiscal 2009 were: (a) dividend yield of 0%; (b) volatility of 65%; (c) risk-free interest rates ranging from 2.3% to 3.1%; and (d) an expected life of 6.25 years. There were no new stock options granted in fiscal 2008 or 2007. The grant date fair value...

  • Page 64
    ...Stock Purchase Plan In October 2004, the Company adopted an Associate Stock Purchase Plan (ASPP). Under the ASPP, substantially all full-time employees were given the right to purchase shares of the Company's common stock, subject to certain limitations, at 85% of the lesser of the fair market value...

  • Page 65
    BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K Notes to Consolidated Financial Statements (continued) expected life of 0.25 years. The assumptions used in the option pricing model for fiscal 2007 were: (a) dividend yield of 0%; (b) volatility of 50%; (c) risk-free interest rate of 6.0%; and (d) an ...

  • Page 66
    ... the operating activities of company-owned stores in the United States, Canada, the United Kingdom, Ireland, France and other retail delivery operations, including the Company's web store and non-traditional store locations such as baseball ballparks. The international franchising segment includes...

  • Page 67
    ... sales to external customers Property and equipment, net (1) North America includes the United States, Canada and Puerto Rico (2) Europe includes company-owned stores in the United Kingdom, Ireland and France (3) Other includes franchise businesses outside of the United States, Canada, Puerto Rico...

  • Page 68
    .... The following is a list of exhibits filed as a part of the Annual Report on Form 10-K: Exhibit Number 10.3* 10.3.1* Description 2.1 3.1 3.2 4.1 10.1* 10.1.1* 10.1.2* 10.2* 10.2.1* 10.2.2* Agreement and Plan of Merger dated April 3, 2000 between Build-A-Bear Workshop, L.L.C. and the...

  • Page 69
    ... 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...

  • Page 70
    ... by reference from Exhibit 10.36 to our Annual Report on Form 10-K for the year ended December 31, 2005) Rules of the Build-A-Bear Workshop, Inc. U.K. Share Option Scheme (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed on February 9, 2007) Nonqualified Deferred...

  • Page 71
    ... and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities to sign the Annual Report on Form 10-K of Build-A-Bear Workshop, Inc. (the "Company") for the fiscal year ended January 2, 2010 and any other documents and instruments incidental thereto...

  • Page 72
    ... Managing Director, Strategic Bear Planning Rick Levine Managing Director, Stores - West Region Roger Parry Bear Trading Director - Europe Nancy Schwartz Managing Director, Bear Marketing Michael Segura Managing Director, Inbearmation Technology Shari Stout Managing Director, Bear Stuff Development...

  • Page 73
    ... Build-A-Bear Workshop is also available at the company's investor relations Web site: http://ir.buildabear.com. Annual Meeting The annual meeting of shareholders will be held at 10:00 a.m. St. Louis time (CDT) on Thursday, May 13, 2010, at the company's World Bearquarters, 1954 Innerbelt Business...

  • Page 74
    Build-A-Bear Workshop, Inc. 1954 Innerbelt Business Center Drive St. Louis, MO 63114 buildabear.com® buildabearville.com® s t r a e h g n i k a m Build-A-Bear Workshop® supports causes related to children, animals and the environment. And through our Huggable Heroes® program, we recognize young...