Build-A-Bear Workshop 2011 Annual Report Download

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Making
Friends
Count
2011 ANNUAL REPORT

Table of contents

  • Page 1
    Making Friends Count 2011 A N N UA L REP O RT

  • Page 2
    .... In fact, the idea to start Build-A-Bear Workshop sprang from a shopping trip with Maxine Clark and her neighbor and best friend, Katie, who was only 10 years old at the time. From their conversation that day, the idea for our first store took form and came to life, opening in October, 1997. The...

  • Page 3
    ... company that offers an interactive make-your-own stuffed animal retail-entertainment experience. There are more than 400 Build-A-Bear Workshop stores worldwide, including company-owned stores in The United States, Puerto Rico, Canada, the United Kingdom and Ireland, and franchise stores in Europe...

  • Page 4
    ... 15 years of friendsh connecting with a new generation of presence in the retail environment as w of mind for our Guests by staying at new areas of play and continuing THE UNITED KINGDOM In 2011, we opened five stores in the United Kingdom, which brings our company-owned store total to 58 stores in...

  • Page 5
    ..., present as well as unique Build-A-Bear Workshop furry friends. These collectible friends may be small, but they are packed with fun and play value. They are appealing to young children who like to play Mommy and Baby with their smallfrys and regular-sized stuffed animals, and they are popular with...

  • Page 6
    ... Build-A-Bear Workshop ® associates and stakeholders, particularly as 2011 brought us a milestone of over 100 million furry friends made in our company-owned stores. While our annual net retail sales were essentially flat in 2011 compared to 2010, we are not satisfied with our financial performance...

  • Page 7
    ... a helping paw 2003 FIRST INTERNATIONAL STORE The first Build-A-Bear Workshop store outside North America opened in Sheffield, England 2005 200TH STORE We cele-bear-ated our 200th store opening at the Mall of America in Minneapolis, Minnesota 2007 ONLINE WORLD STUFFED WITH FUN Buildabearville.com...

  • Page 8
    ...signature Build-A-Bear Workshop brand experience around the world and by adding new countries of operation to our portfolio. In fiscal 2011, our international franchisees grew their store base by 25 percent, net of closures, finishing the year with 79 stores. In 2012, our franchisees plan to open an...

  • Page 9
    ...There is no non-voting common equity. The aggregate market value of the common stock held by nonaffiliates (based upon the closing price of $6.33 for the shares on the New York Stock Exchange on July 1, 2011) was $87,573,917 as of July 2, 2011. As of March 12, 2012, there were 17,394,457 issued and...

  • Page 10
    ... and Director Independence Principal Accountant Fees and Services 40 41 41 41 41 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 11
    ... operating and growth strategies; • our future capital expenditures; • our anticipated rate of store closures, relocations and openings; • our anticipated costs related to store closures, relocations and openings, and • our franchisees' anticipated rate of international store openings...

  • Page 12
    ... the year. We also offer frequent shopper discounts associated with our Stuff Fur Stuff® club loyalty program and strategically use coupons and gift-withpurchase promotions to drive traffic to our stores. As a retailer whose signature product is a stuffed animal that is typically purchased as a toy...

  • Page 13
    ... United States, Canada, Puerto Rico, the United Kingdom and Ireland, as our international plans adjust to meet a variety of market conditions in additional countries. We believe there are also growth opportunities to sell Build-A-Bear Workshop products in other retail stores. Over the past 15 years...

  • Page 14
    ... site. All Friends 2B Made locations were closed by the end of fiscal 2009. Eight of these locations were in or adjacent to a Build-A-Bear Workshop store. We hold a minority interest in Ridemakerz, LLC (previously Retail Entertainment Concepts, LLC). Ridemakerz® offers a wholesale toy product line...

  • Page 15
    ...for the fourth time to feature limited edition, collectible mini Build-A-Bear Workshop animals in Happy Meals®. We also have had arrangements featuring product sampling, cross promotions and shared media with companies such as Dairy Queen in North America, BaskinRobbins in UK, Necco Sweethearts and...

  • Page 16
    ... are stuffed animals, including our flagship product, the teddy bear, a widely adored icon for over 100 years. According to data published by the Toy Industry Association and The NPD Group, sales of the traditional toy market were $21.2 billion in the United States (excluding video games) in 2011...

  • Page 17
    ...expect our current franchisees to open approximately ten to twelve new stores, net of closures, in fiscal 2012. SOURCING AND INVENTORY MANAGEMENT We do not own or operate any manufacturing facilities. Our animal skins, stuffing, clothing and accessories are produced by factories located primarily in...

  • Page 18
    ...other discount chains. Build-A-Bear Workshop was ranked by Playthings Magazine as the ninth largest toy retailer for retailers with continuing operations, based on 2008 revenues. Since we develop proprietary products, we also compete indirectly with a number of companies that sell stuffed animals in...

  • Page 19
    ...party use and wholesale product sales. The international franchising segment includes the activities under our franchise agreements with locations in Asia, Australia, Africa, the Middle East, Europe, Mexico and South America. Our reportable segments are primarily determined by the types of customers...

  • Page 20
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K co-tenants, the availability or cost of appropriate locations within existing or new shopping malls or the desirability, safety or success of shopping malls. In addition, customer mall traffic may be reduced due to a loss of consumer confidence because of...

  • Page 21
    ... strategy requires us to operate a significant number of stores in the United States, Canada, the United Kingdom and Ireland as well as close, relocate and open store locations in these countries. If we are not able to operate these stores or to effectively manage the overall portfolio of our stores...

  • Page 22
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K compliance with changing mall rules and the exercise of discretion by our landlords on various matters within the malls. In addition, the lease for our store in the Downtown Disney® District at the Disneyland® Resort in Anaheim, California provides that...

  • Page 23
    ...United States, opening company-owned stores in Canada and our first franchised location in the United Kingdom. We have continued to expand outside of our company-owned regions through franchising in a number of countries. As of December 31, 2011, there were 79 Build-A-Bear Workshop franchised stores...

  • Page 24
    ... site, buildabear.com, features e-cards and printable party invitations and thank-you notes and provides an opportunity for children under the age of 13 to sign up, with the consent of their parent or guardian, to receive our online newsletter. We currently obtain and retain personal information...

  • Page 25
    ... signature product is a stuffed animal that is typically purchased as a toy or gift, we also compete with toy retailers, such as Wal-Mart, Toys "R" Us, Target, Kmart and other discount chains, as well as with a number of manufacturers that sell plush toys in the United States and Canada, including...

  • Page 26
    ...store closures, relocations and 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...

  • Page 27
    ...to pay in the future for shares of our common stock. ITEM 2. STORES PROPERTIES ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. As of December 31, 2011, we operated 288 retail stores located primarily in major malls throughout the United States, Canada and Puerto Rico, 56 stores located in the...

  • Page 28
    ... five years in which the base rental rate is adjusted to current market rates if they are higher than the original rent agreed. Following is a list of our 346 company-owned stores in the United States, Canada, the United Kingdom and Ireland as of December 31, 2011: Number of Stores State 5 1 5 3 26...

  • Page 29
    ... the cumulative total return on the Russell 2000® Index and an SEC-defined peer group of companies identified as SIC Code 5600-5699 (the "Peer Group"). The Peer Group consists of companies whose primary business is the operation of apparel and accessory retail stores. Build-A-Bear Workshop is not...

  • Page 30
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K RECENT SALES OF UNREGISTERED SECURITIES There were no sales of unregistered securities during the fourth quarter of fiscal 2011. DIVIDEND POLICY We anticipate that we will retain any future earnings to support operations, to finance the growth and ...

  • Page 31
    ...Square footage 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...

  • Page 32
    ... States, Canada and Puerto Rico, 56 stores in the United Kingdom and two stores in Ireland, and had 79 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, buildabear.com and market...

  • Page 33
    ...-store locations), are net of discounts, exclude sales tax, include shipping and handling costs billed to customers, and are recognized at the time of sale. Revenues from gift cards are recognized at the time of redemption. Our guests use cash, checks, gift cards and third party credit cards to make...

  • Page 34
    ... 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. Revenue from wholesale product sales includes revenue from merchandise sold at stores operated by third...

  • Page 35
    ...to provide services to Ridemakerz in exchange for equity in 2010. The book value of our investment was $-0- at December 31, 2011 and January 1, 2011. EXPANSION AND GROWTH POTENTIAL Company-owned stores: The number of Build-A-Bear Workshop stores in the United States, Canada, Puerto Rico, the United...

  • Page 36
    ... future and terminating other such agreements. We expect our current franchisees to open ten to twelve stores in fiscal 2012, net of closures. We believe there is a market potential for approximately 300 international stores outside of the United States, Canada, the United Kingdom and Ireland, which...

  • Page 37
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K Fiscal Year Ended December 31, 2011 (52 weeks) Compared to Fiscal Year Ended January 1, 2011 (52 weeks) Total revenues. Net retail sales were $387.0 million for fiscal 2011, compared to $387.2 million for fiscal 2010, a decrease of $0.2 million. ...

  • Page 38
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K Gross margin. Total gross margin, calculated as net retail sales and commercial revenues less cost of merchandise sold, increased to $158.9 million for fiscal 2010 from $145.0 million for fiscal 2009, an increase of $13.8 million, or 9.5%. Retail gross ...

  • Page 39
    BUILD-A-BEAR WORKSHOP, INC. 2011 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 United Kingdom, Ireland and France (Europe) and ...

  • Page 40
    ... 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 41
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K Capital Resources. As of December 31, 2011, we had a cash balance of $46.4 million, nearly half of which was domiciled outside of the United States. We also have a line of credit, which we can use to finance capital expenditures and working capital needs ...

  • Page 42
    ... 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 and...

  • Page 43
    ... second quarter of fiscal 2010. As we had determined at this time that we would be closing the related stores, these charges are included in selling, general and administrative expenses. Goodwill We record goodwill related to the excess of the purchase price over the fair value of net identifiable...

  • Page 44
    ... used, such as changes in the financial performance of the reporting unit, future growth rate, and discount rate. In order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test, we applied a hypothetical decrease in cash flows as a 100 basis point reduction...

  • Page 45
    ... the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. As we have incurred a cumulative book loss over the three year period ended December 31, 2011, we evaluated the realizability of our deferred tax assets. We performed an...

  • Page 46
    ... as of December 31, 2011, the end of the period covered by this Annual Report. It should be noted that our management, including the Chief Executive Bear and the Chief Operations and Financial Bear, do not expect that our disclosure controls and procedures or internal controls will prevent all error...

  • Page 47
    ... standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Build-a-Bear Workshop, Inc. and Subsidiaries as of December 31, 2011 and the related consolidated statement of earnings, stockholders' equity, and cash flows for the year ended December 31...

  • Page 48
    ... Company in areas including merchandise development, merchandise planning, merchandise research, marketing and product development. Eric Fencl, 49, joined Build-A-Bear Workshop in July 2008 as Chief Bearrister-General Counsel. In March 2009, he assumed responsibility for international franchising...

  • Page 49
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K 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 ...

  • Page 50
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) Financial Statements The financial statements and schedules set forth below are filed on the indicated pages as part of this Annual Report on Form 10-K. Page Reports of Independent ...

  • Page 51
    ...of Build-a-Bear Workshop, Inc. and Subsidiaries (collectively, the Company) as of December 31, 2011, and the related consolidated statement of operations, stockholders' equity, and cash flows for the fiscal year ended December 31, 2011. Our audit also included the financial statement schedule listed...

  • Page 52
    ... sheet of Build-A-Bear Workshop, Inc. and subsidiaries (the Company) as of January 1, 2011, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the fiscal years in the two-year period ended January 1, 2011. These consolidated financial statements...

  • Page 53
    ... 10-K Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data) December 31, 2011 January 1, 2011 ASSETS Current assets: Cash and cash equivalents Inventories Receivables Prepaid expenses and other current assets Deferred tax assets Total...

  • Page 54
    BUILD-A-BEAR WORKSHOP, INC. 2011 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 Commercial revenue Franchise fees Total revenues Costs and expenses: Cost of...

  • Page 55
    ... plans, net of tax benefit Other comprehensive loss Net income Balance, January 1, 2011 Share repurchase Stock-based compensation Shares issued under employee stock plans, net of tax benefit Other comprehensive loss Net loss Balance, December 31, 2011 See accompanying notes to consolidated financial...

  • Page 56
    ... accrued expenses Lease related liabilities Gift cards and customer deposits Deferred revenue Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment, net Purchases of other assets and other intangible assets Proceeds from sale or maturity...

  • Page 57
    ... OF BUSINESS AND BASIS OF PREPARATION Build-A-Bear Workshop, Inc. (the Company) is a specialty retailer of plush animals and related products. At December 31, 2011, the Company operated 346 stores located in the United States, Canada, Puerto Rico, the United Kingdom and Ireland. The Company was...

  • Page 58
    ... 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 UK reporting unit as of December 31, 2011, the Company has determined...

  • Page 59
    BUILD-A-BEAR WORKSHOP, INC. 2011 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 60
    ...accrued expenses, approximates book value at December 31, 2011 and January 1, 2011. (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 61
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K Notes to Consolidated Financial Statements (continued) During 2011, the Company reviewed the operating performance and forecasts of future performance for the stores in its Retail segment. As a result of that review, it was determined that several stores ...

  • Page 62
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K Notes to Consolidated Financial Statements (continued) in prepaid expenses and other current assets and $3.9 million was included in other assets, net, related to these credits. As of January 1, 2011, $0.7 million was included in prepaid expenses and ...

  • Page 63
    ...) $ 213 The following tax years remain open in the Company's major taxing jurisdictions as of December 31, 2011: United States (Federal) United Kingdom Canada France Ireland 2008 2006 2009 2007 2007 through through through through through 2011 2011 2011 2011 2011 (10) LONG-TERM DEBT On December 30...

  • Page 64
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K Notes to Consolidated Financial Statements (continued) Future minimum lease payments at December 31, 2011, were as follows (in thousands): 2012 2013 2014 2015 2016 Subsequent to 2016 $ 45,755 39,051 34,159 28,900 21,253 36,231 $205,349 (b) Litigation In ...

  • Page 65
    ... expected life of 6.25 years. The total intrinsic value of options exercised in fiscal 2011 and fiscal 2010 was approximately $0.1 and $0.2 million. No options were exercised in 2009. The Company generally issues new shares to satisfy option exercises. Shares available for future option, non-vested...

  • Page 66
    ...(k) plans. The Build-A-Bear Workshop, Inc. Employees Savings Trust covers associates who work 1,000 hours or more in a year and have attained age 21. The Company, at the discretion of its board of directors, can provide for a Company match on the first 6% of employee deferrals. For 2011, the Company...

  • Page 67
    ...Company's franchise agreements with store locations in Europe, Asia, Australia, Africa, the Middle East, Mexico and South America. The commercial segment has been established to market the naming and branding rights of the Company's intellectual properties for third party use. The operating segments...

  • Page 68
    ... 2009 Net sales to external customers Property and equipment, net For purposes of this table only: (1) North America includes the United States, Canada, Puerto Rico and Mexico (2) Europe includes the United Kingdom, Ireland, franchise businesses in Europe and, prior to 2011, Company-owned stores in...

  • Page 69
    ...118142) 10.2* (a)(3) Exhibits. The following is a list of exhibits filed as a part of the Annual Report on Form 10-K: Exhibit Number Description 10.2.1* 2.1 Agreement and Plan of Merger dated April 3, 2000 between Build-A-Bear Workshop, L.L.C. and the Registrant (incorporated by reference from...

  • Page 70
    ... (incorporated by reference from Exhibit 10.1 on our Current Report on Form 8-K, filed on August 1, 2006) Second 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 20, 2009) Form of...

  • Page 71
    ... 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...

  • Page 72
    ..., Shirts Illustrated, LLC, Build-A-Bear Workshop Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC, and Build-A-Bear Retail Management, Inc., as Borrowers, in favor of U.S. Bank National Association (incorporated by reference from Exhibit 10.2 to our Current Report on Form 8-K, filed on...

  • Page 73
    ... Compensation Plan (incorporated by reference from Exhibit 10.42 to our Annual Report on Form 10-K, filed on March 15, 2007) Settlement Agreement between Build-A-Bear Workshop, Inc. and the United States Consumer Products Safety Commission, finally accepted effective January 4, 2012 (incorporated...

  • Page 74
    BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K Exhibits (continued) 11.1 Statement regarding computation of earnings per share (incorporated by reference from Note 12 of the Registrant's audited consolidated financial statements included herein) Annual Report to Shareholders for the Fiscal Year Ended ...

  • Page 75
    ..., 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 December 31, 2011 and any other documents and instruments incidental thereto, together with...

  • Page 76
    ...date of 2012 Annual Meeting SENIOR MANAGEMENT Maxine Clark Founder and Chief Executive Bear Paul Bundonis Chief Workshop Bear - North America Darlene Elder Chief Human Resources Bear Eric Fencl Chief Bearrister, General Counsel and International Franchising Dave Finnegan Chief Information Bear Tina...

  • Page 77
    ...for Build-A-Bear Workshop is also available at the company's investor relations website: http://ir.buildabear.com. Annual Meeting The annual meeting of shareholders will be held at 10:00 a.m. St. Louis time (CDT) on Thursday, May 10, 2012, at the company's World Bearquarters, 1954 Innerbelt Business...

  • Page 78
    ...made a friend a friend made a friend made a friend mad e a frien d mad e a frien d a frien d mad e a friend made a friend made a friend mad e a friend made a friend BUILD-A-BEAR WORKSHOP, INC. 1954 Innerbelt Business Center Drive St. Louis, Mo. 63114 buildabear.com® bearville.com™ 15 years of...