Build-A-Bear Workshop 2009 Annual Report Download - 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 reputation.
In addition, there may be prior registrations or use of
intellectual property in the U.S. or foreign countries for similar
or competing marks or other proprietary rights of which we
are not aware. In all such countries it may be possible for any
third party owner of a national trademark registration or other
proprietary right to enjoin or limit our expansion into those
countries or to seek damages for our use of such intellectual
property in such countries. In the event a claim against us
were successful and we could not obtain a license to the
relevant intellectual property or redesign or rename our
products or operations to avoid infringement, our business,
financial condition or results of operations could be harmed.
Securing registrations does not fully insulate us against
intellectual property claims, as another party may have rights
superior to our registration or our registration may be
vulnerable to attack on various grounds.
Poor global economic conditions could have a material
adverse effect on our liquidity and capital resources.
In 2008 and 2009, the general economic and capital market
conditions in the United States and other parts of the world
deteriorated significantly. These conditions adversely affected
borrowers’ access to capital and increased the cost of capital.
Although we believe that our capital structure and credit
facilities will provide sufficient liquidity, there can be no
assurance that our liquidity will not be affected by changes in
the capital markets or that our capital resources will at all
times be sufficient to satisfy our liquidity needs. Capital market
conditions may affect the renewal or replacement of our credit
agreement, which was originally entered into in 2000 and
has been extended annually since then and currently expires
December 31, 2011.
If our affiliate, Ridemakerz LLC, continues to incur losses, our
financial condition and profitability could be adversely
affected.
We hold a minority interest in Ridemakerz, LLC, which is
accounted for under the equity method of accounting.
Ridemakerz is an early-stage company that has developed an
interactive retail concept that allows children and families to
build and customize their own personalized cars. Under
current agreements, we are the sole member of an equity
class that is allocated losses only following the allocation of
losses to all other common and preferred equity holders to the
extent of their capital contributions. All of the priority equity
members’ capital was reduced to zero in the fiscal 2009
second quarter. As a result, in fiscal 2009, we recorded
non-cash pre-tax charges of $7.5 million, included in “Losses
from investment in affiliate” in our Consolidated Statements of
Operations. Additional charges related to impairment and
bad debts of $2.1 million were recorded in the 2009 fourth
quarter. While as of January 2, 2010, the book value of our
investment in Ridemakerz had been reduced to zero, we
continue to provide services to Ridemakerz in exchange for
equity. This additional investment is subject to ongoing loss
allocations and impairment review.
RISKS RELATED TO OWNING OUR COMMON STOCK
Fluctuations in our quarterly results of operations could cause
the price of our common stock to substantially decline.
Retailers generally are subject to fluctuations in quarterly
results. Our operating results for one period may not be
indicative of results for other periods, and may fluctuate
significantly due to a variety of factors, including:
• the profitability of our stores;
• increases or decreases in comparable store sales;
• changes in general economic conditions and consumer
spending patterns;
• seasonal shopping patterns, including whether the Easter
holiday occurs in the first or second quarter and other
vacation schedules;
• the effectiveness of our inventory management;
• the timing and frequency of our marketing initiatives;
• changes in consumer preferences;
• the continued introduction and expansion of merchandise
offerings;
• actions of competitors or mall anchors and co-tenants;
• weather conditions;
• the timing of new store openings and related expenses;
and
• the timing and frequency of national media appearances
and other public relations events.
If our future quarterly results fluctuate significantly or fail
to meet the expectations of the investment community, then the
market price of our common stock could decline substantially.
Fluctuations in our operating results could reduce our cash
flow and we may be unable to repurchase shares at all or at
the times or in the amounts we desire or the results of the
share repurchase program may not be as beneficial as we
would like.
Our Board of Directors has implemented a $50 million share
repurchase program. The program does not require the
Company to repurchase any specific number of shares of our
common stock, and may be modified, suspended or
terminated at any time without prior notice. Shares
repurchased under the program will be subsequently retired. If
our cash flow decreases as a result of decreased sales,
increased expenses or capital expenditures or other uses of
cash, we may not be able to repurchase shares of our
common stock at all or at times or in the amounts we desire.
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