Build-A-Bear Workshop 2011 Annual Report Download - 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 throughout the year. The credit
agreement is with U.S. Bank, National Association and was
amended effective December 30, 2011. The bank line
continues to provide availability of $40 million for the first half
of the fiscal year and a seasonal overline of $50 million. The
seasonal overline is in effect from July 1 to December 31 each
year. Borrowings under the credit agreement are secured by
our assets and a pledge of 65% of our ownership interest in
our foreign subsidiaries. The credit agreement expires on
December 31, 2013 and contains various restrictions on
indebtedness, liens, guarantees, redemptions, mergers,
acquisitions or sale of assets, loans, transactions with
affiliates, and investments. It prohibits us from declaring
dividends without the bank’s prior consent, unless such
payment of dividends would not violate any terms of the credit
agreement. We are also prohibited from repurchasing shares
of our common stock unless such repurchase of shares would
not violate any terms of the credit agreement; we may not use
proceeds of the line of credit to repurchase
shares. Borrowings bear interest at LIBOR plus
1.8%. Financial covenants include maintaining a minimum
tangible net worth, maintaining a minimum fixed charge
coverage ratio (as defined in the credit agreement) and not
exceeding a maximum funded debt to earnings before
interest, depreciation and amortization ratio. As of
December 31, 2011: (i) we were in compliance with these
covenants; (ii) there were no borrowings under our line of
credit; (iii) there was a standby letter of credit of
approximately $1.1 million outstanding under the credit
agreement and (iv) there was approximately $48.9 million
available for borrowing under the line of credit.
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 typically have
a ten-year term and contain provisions for base rent plus
percentage rent based on defined sales levels. Many of the
leases contain a provision whereby either we or the landlord
may terminate the lease after a certain time, typically in the
third or fourth year and sixth or seventh year of the lease, if a
certain minimum sales volume is not achieved. 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 of 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.
Our leases in the United Kingdom and Ireland typically
have terms of ten to fifteen 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 charged quarterly
and paid in advance.
In fiscal 2012, we expect to spend approximately $20 to
$25 million on capital expenditures. Capital spending in
fiscal 2011 totaled $12.2 million. Capital spending in fiscal
2011 was primarily for continued installation and upgrades
of central office information technology systems, the opening
of eight new stores and the relocation of four stores.
On February 20, 2007, we announced that our board of
directors had authorized a $25 million share repurchase
program of our outstanding common stock. On March 10,
2008, we announced an expansion of our share repurchase
program to $50 million. On February 23, 2012, we
announced that our share repurchase program had been
extended to March 31, 2013. We currently intend to
purchase up to an aggregate of $50 million of our common
stock in the open market (including through 10b5-1 plans),
through privately negotiated transactions or through an
accelerated repurchase transaction. The primary source of
funding for the program is expected to be cash on hand. The
timing and amount of share repurchases, if any, will depend
on price, market conditions, applicable regulatory
requirements, and other factors. 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. As of March 12, 2012, approximately
5.5 million shares at an average price of $7.47 per share
have been repurchased under this program for an aggregate
amount of $41.3 million, leaving $8.7 million of availability
under the program.
We believe that cash generated from operations and
borrowings under our credit agreement will be sufficient to
fund our working capital and other cash flow requirements for
the near future. Our credit agreement expires on
December 31, 2013.
Off-Balance Sheet Arrangements
We hold a minority interest in Ridemakerz, which is
accounted for under the equity method. We purchased a call
option from a group of other Ridemakerz investors for
$150,000 for 1.25 million Ridemakerz common units at an
exercise price of $1.25 per unit. The call option was
immediately exercisable and expires April 30, 2012.
Simultaneously, we granted a put option to the same group of
investors for 1.25 million common units at an exercise price of
$0.50 per unit. The put option was exercisable on April 30,
2008 and expires on April 30, 2012. As of December 31,
2011, the book value of our investment in Ridemakerz was
zero, but we still retained an ownership interest of
approximately 15%. Under the current agreements, as of the
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