Build-A-Bear Workshop 2009 Annual Report Download - page 37

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
As of January 2, 2010, we had 65 stores, including 10
opened and seven closed in fiscal 2009, operating under
franchise arrangements in the following countries:
Japan ................................... 10
South Africa .............................. 9
Denmark . ................................ 9
Australia . ................................ 8
Germany . . .............................. 7
Thailand . ................................ 6
Singapore . . .............................. 4
Russia ................................... 3
Norway . ................................ 3
Other ................................... 6
Licensing revenue: Licensing revenue is based on a
percentage of sales made by licensees to third parties and is
recognized at the time the product is shipped by the licensee
or at the point of sale. We have entered into a number of
licensing arrangements whereby third parties manufacture
and sell to other retailers merchandise carrying the
Build-A-Bear Workshop trademark. Licensing revenue also
includes revenue from merchandise sold at stores operated
by Landry’s restaurants.
COSTS AND EXPENSES
Cost of merchandise sold and gross margin: Cost of
merchandise sold includes the cost of the merchandise,
including royalties paid to licensors of third party branded
merchandise; store occupancy cost, including store
depreciation and store asset impairment charges; freight costs
from the manufacturer to the warehouse; cost of warehousing
and distribution; packaging; stuffing; damages and shortages;
and shipping and handling costs incurred in shipment to
customers. Gross margin is defined as net retail sales less the
cost of merchandise sold.
Selling, general and administrative expense: These
expenses include store payroll and benefits, advertising, credit
card fees, and store supplies, as well as central office general
and administrative expenses, including costs associated with
the review of strategic alternatives, virtual world maintenance
costs, management payroll, benefits, stock-based
compensation, travel, information systems, accounting,
insurance, legal and public relations. These expenses also
include depreciation and amortization of central office
leasehold improvements, furniture, fixtures and equipment
as well as the amortization of intellectual property costs.
Central office general and administrative expenses grew
over time in order to support the increased number of stores
in operation. In 2009, we achieved $22 million in savings in
selling, general and administrative expenses including
marketing, central office payroll and outside services.
Advertising increased significantly with the introduction in
fiscal 2004 of our national television and online advertising
campaign. We decreased the level of advertising expense as
a percentage of net retail sales in fiscal 2009 as compared to
fiscal 2008 and fiscal 2007. We anticipate continued
reductions in advertising expense as a percentage of net retail
sales in 2010. Other store expenses such as credit card fees
and supplies historically have increased or decreased
proportionately with net retail sales.
We have share-based compensation plans covering
the majority of our management groups and our Board of
Directors. We account for share-based payments utilizing
the fair value recognition provisions of Accounting Standards
Codification (ASC) Section 718. We recognize compensation
cost for equity awards on a straight-line basis over the
requisite service period for the entire award. In 2009, we
recorded stock-based compensation of approximately $4.3
million ($2.6 million net of taxes). In 2008, we recorded stock
based compensation of $3.6 million ($2.2. million net of tax).
In 2007, we recorded stock based compensation of
approximately $3.0 million ($1.9 million net of tax).
Store preopening: Preopening costs are expensed as
incurred and include store set-up, certain labor and hiring
costs, and rental charges incurred prior to a store’s opening.
Store closing: Store closing costs include costs associated
with the closure of our Friends 2B Made concept including,
but not limited to, long-lived asset impairment, lease
termination and other costs.
Losses from investment in affiliate: Equity losses from
investment in affiliate are the result of the allocation of losses
related to our investment in Ridemakerz, LLC. Ridemakerz, an
early-stage company still in its start-up phase, has incurred
substantial losses including charges resulting from a major
restructuring of its operations that included store closings.
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. While as of January 2, 2010,
the book value of the Company’s investment in Ridemakerz,
including receivables, 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.
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
Fiscal
2008
Fiscal
2007
Beginning of period 346 321 271
Opened 125 50
Closed (2) ——
End of period 345 346 321
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