Build-A-Bear Workshop 2012 Annual Report Download

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2012 ANNUAL REPORT
Building
Our
future

Table of contents

  • Page 1
    Building Our future 2012 A N N UA L REP O RT

  • Page 2
    ...Me Love Me Stuff Me The heart of our business remains the same Build-A-Bear Workshop is synonymous with fun, creativity and self-expression, and we are the leader in experiential retail. In 2012, we opened six newly imagined stores that feature a bold new design. The heightened experience in these...

  • Page 3
    ... their parents worked closely with our team, testing the new stations and providing suggestions to help perfect the working model of the design and experience. CONNECTING WITH OUR GUESTS We've brought the same qualities that parents value and kids love about a Build-A-Bear Workshop store into the...

  • Page 4
    Love is the stuff inside ® It is only fitting that a heart has become a symbol for our business. We offered hearts for our animals the day we opened our first store. But it was one dedicated associate who elevated the process and interaction that has helped make our concept truly unique. During ...

  • Page 5
    ... strategic initiatives take hold and start to gain traction. It is clear to me that our associates worldwide are highly engaged in our business, take great pride in working for our Company and above all, have the skill and talent to return Build-A-Bear Workshop® to the high productivity and profit...

  • Page 6
    ... by net retail sales. 2012 Financial Results • Total revenues were $380.9 million compared to $394.4 million in fiscal 2011. • Consolidated net retail sales to impair the goodwill associated with our United Kingdom business. Adjusted net loss was $10.1 million, or $0.62 per share compared...

  • Page 7
    ... 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 8
    ... Workshop. When I founded Build-A-Bear Workshop, my vision was to redefine retail. I am proud that 16 years later our Company has become a favorite brand of families worldwide and is THE leading and only international company providing a "make your own stuffed animal" interactive retail experience...

  • 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 $4.78 for the shares on the New York Stock Exchange on June 29, 2012) was $58,084,108 as of June 30, 2012. As of March 8, 2013, there were 17,150,840 issued and...

  • Page 10
    ... 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 Quantitative and Qualitative...

  • Page 11
    ... regarding: • our future financial performance; • our anticipated 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...

  • Page 12
    ...company providing a "make your own stuffed animal" interactive retail-entertainment experience. As of December 29, 2012, we operated 351 company-owned retail stores in the United States, Canada, the United Kingdom and Ireland, including 283 traditional and eight non-traditional Build-A-Bear Workshop...

  • Page 13
    ...250 Build-A-Bear Workshop stores in North America. We believe our potential in the United Kingdom and Ireland is 60 to 70 stores. In 2012, we also introduced a new store design which we believe enhances our interactive experience and better showcases our products. In 2012, we successfully opened six...

  • Page 14
    ... to the United Kingdom. In 2012, we rebalanced our advertising strategy in the United States to showcase the unique Build-A-Bear Workshop brand and experience in addition to featuring new products and selected seasonal promotions. Build-A-Bear Workshop has a community of highly engaged advocates...

  • Page 15
    ... Build-A-Bear Workshop offers consumers an interactive and personalized experience, our tangible products 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...

  • Page 16
    ...good. INTERNATIONAL FRANCHISES In 2003, we began to expand Build-A-Bear Workshop stores outside of the United States, opening company-owned stores in Canada and our first franchised location in the United Kingdom. As of December 29, 2012, there were 91 Build-A-Bear Workshop franchised stores located...

  • Page 17
    .... 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 the United States...

  • Page 18
    ...consisting of retail, international franchising, and commercial. The retail segment includes the operating activities of company-owned stores in the United States, Canada, the United Kingdom and Ireland, and other retail operations, including our web-store and non-traditional store locations such as...

  • Page 19
    ....gov. Our Annual Reports to shareholders, press releases and investor updates are also available on our website, free of charge, in the Investor Relations section or by writing to the Investor Relations department at World Bearquarters, 1954 Innerbelt Business Center Dr., St. Louis, MO 63114. ITEM...

  • Page 20
    ... charges. Our 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...

  • Page 21
    ... impact on the Build-A-Bear Workshop brand and consumer perception of our brand. We may not be able to operate our foreign company-owned stores in the United Kingdom and Ireland profitably. In April 2006, we acquired The Bear Factory Limited, a stuffed animal retailer in the United Kingdom owned by...

  • Page 22
    ... of our business, in particular the operation of our stores and the design, procurement and allocation of our merchandise. Also, because guest service is a defining feature of the Build-A-Bear Workshop experience, we must be able to hire and train qualified managers and Bear Builder associates to...

  • Page 23
    ..., 2012, there were 91 Build-A-Bear Workshop franchised stores located outside of the United States, Canada, the United Kingdom and Ireland. We cannot assure you that our franchisees will be successful in identifying and securing desirable locations or in operating their stores. International markets...

  • Page 24
    ... 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 about our Web site users, store shoppers and Stuff Fur...

  • 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
    ... merchandise offerings; • actions of competitors or mall anchors and co-tenants; • weather conditions; • the timing of 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...

  • Page 27
    ... PROPERTIES As of December 29, 2012, we operated 291 retail stores located primarily in major malls throughout the United States, Canada and Puerto Rico, 58 stores located in the United Kingdom and two stores in Ireland in our Retail segment. Our North American stores generally range in size from...

  • Page 28
    BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K Following is a list of our 351 company-owned stores in the United States, Canada, the United Kingdom and Ireland as of December 29, 2012: Number of Stores State 5 1 5 3 27 6 5 1 1 20 8 1 9 7 3 2 3 5 2 6 9 4 2 2 Missouri ...Montana ...Nebraska ...Nevada ...

  • 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
    ... of our business and to repurchase shares of our common stock from time to time and we do not expect, at this time, to pay cash dividends in the future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of...

  • Page 31
    ... for stores located in Europe is estimated selling square footage and includes stores in the United Kingdom, Ireland and France. Average net retail sales per store represents net retail sales from traditional stores open throughout the entire period in North America divided by the total number of...

  • Page 32
    ...in the United States, Canada and Puerto Rico, 58 stores in the United Kingdom and two stores in Ireland, and had 91 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...

  • Page 33
    ... have closed 15 stores. Our current plans also include the relocation or remodel of approximately 25 locations in 2013 with the complete new design that feature a bold new look and enhanced experience as we continue to lead in the interactive experiential retail space. While Build-A-Bear Workshop in...

  • Page 34
    ... 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. Revenue from wholesale product sales includes...

  • Page 35
    ...is to improve our stores' sales productivity and profitability. Today we believe that the optimal number of Build-A-Bear Workshop stores in North America is between 225 and 250 and approximately 60 to 70 in the United Kingdom and Ireland for a total of 285 to 320 stores. We currently expect to reach...

  • Page 36
    .... We expect our current franchisees to open eight to twelve stores in fiscal 2013. We believe there is a market potential for approximately 300 international stores outside of the United States, Canada, the United Kingdom and Ireland, which we expect to be operated primarily by new and existing...

  • Page 37
    BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K Fiscal 2013 will be a year of significant transition as we expect to hire a new chief executive bear and execute significant real estate strategy with the closure of approximately 35 to 40 stores and the remodeling or relocation of approximately 25 stores...

  • Page 38
    BUILD-A-BEAR WORKSHOP, INC. 2012 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 39
    BUILD-A-BEAR WORKSHOP, INC. 2012 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, prior to 2011, France...

  • Page 40
    BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K SEASONALITY AND QUARTERLY RESULTS The following is a summary of certain unaudited quarterly results of operations data for each of the last two fiscal years. Fiscal 2012 (Dollars in millions, except per share data) Total revenues Retail gross margin(1) ...

  • Page 41
    ... developed a wholesale toy product line and selectively operates interactive retail stores, primarily in tourist locations that allow children and families to build and customize their own personalized cars. In 2006, we purchased a call option from a group of other Ridemakerz investors for $150,000...

  • Page 42
    BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K common units at an exercise price of $0.50 per unit. The put option was exercised for all 1.25 million shares on Contractual Obligations and Commercial Commitments February 13, 2012. We have no further obligations related to our investment in Ridemakerz...

  • Page 43
    ... to be recoverable, unless abandoned. Other long-lived assets, including deferred franchise and lease costs (approximately $0.8 million as of December 29, 2012), are monitored in relation to the relevant franchisee or store location. At December 29, 2012, we evaluated our trade credits asset and...

  • Page 44
    ... in the 2012 fourth quarter. This does not change our long-term outlook for the UK reporting unit. Revenue Recognition Revenues from retail sales, net of discounts and excluding sales tax, are recognized at the time of sale. Guest returns have not been significant. Revenues from gift cards are...

  • Page 45
    ... as of December 29, 2012, 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 46
    BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. ...

  • Page 47
    ... respects, effective internal control over financial reporting as of December 29, 2012, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Build-A-Bear Workshop, Inc...

  • Page 48
    ... merchandise planning, merchandise research, marketing and product development. Eric Fencl, 50, joined Build-A-Bear Workshop in July 2008 as Chief Bearrister - General Counsel. In March 2009, he assumed responsibility for international franchising and human resources. He now holds the title of Chief...

  • Page 49
    ... Marketing for Montgomery Ward Holding Corp., a department store retailer. From 1980 to 1994 Ms. Kroll held various administrative and marketing positions for Venture Stores, Inc. Kenneth Wine, 50, joined Build-A-Bear Workshop in December 2012 as Chief Merchandise Bear. Prior to joining the Company...

  • Page 50
    BUILD-A-BEAR WORKSHOP, INC. 2012 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
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), Build-A-Bear Workshop, Inc. and subsidiaries' internal control over financial reporting as of December 29, 2012, based on criteria established in Internal Control - Integrated Framework issued by the...

  • Page 52
    ... Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 53
    ...-K Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data) December 29, 2012 December 31, 2011 ASSETS Current assets: Cash and cash equivalents Inventories Receivables Prepaid expenses and other current assets Deferred tax assets Total...

  • Page 54
    .... 2012 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 merchandise sold Selling...

  • Page 55
    BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Statements Comprehensive Income (Loss) Fiscal Year (Dollars in thousands) Net income (loss) Foreign currency translation adjustment: Reclass realized gain on liquidation of investment in a foreign...

  • Page 56
    ... comprehensive loss Net loss Balance, December 31, 2011 Share repurchase Stock-based compensation Shares issued under employee stock plans, net of tax benefit Other comprehensive income Net loss Balance, December 29, 2012 See accompanying notes to consolidated financial statements. Total $164,780...

  • Page 57
    ... 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 58
    ...Build-A-Bear Workshop, Inc. (the Company) is a specialty retailer of plush animals and related products. The Company began operations in October 1997. The Company sells its products through its 351 company-owned stores located in the United States, Canada, Puerto Rico, the United Kingdom and Ireland...

  • Page 59
    ... operations. The Company has a customer loyalty program, the Stuff Fur Stuff club, whereby guests enroll in the program and receive one point for every dollar and receive awards for various discounts on future purchases after acheiving defined point thresholds. An estimate of the obligation related...

  • Page 60
    ... expenses include store payroll and related benefits, advertising, credit card fees, store supplies and store closing costs, as well as central office management payroll and related benefits, travel, information systems, accounting, insurance, legal, and public relations. It also includes...

  • Page 61
    ... as defined by ASC section 820-10. Any remaining net book value is depreciated over the shortened expected life. Also during 2012, 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...

  • Page 62
    ... and related expenses Current income taxes payable $ 5,455 5,216 811 88 $11,570 2011 $ 5,200 5,678 454 796 $12,128 Due primarily to the decline in the market value of the Company's share price at the impairment testing date of December 29, 2012, the fair value related to the UK reporting unit was...

  • Page 63
    ... total $11.7 million and $4.3 million as of December 29, 2012, respectively, and do not expire. Also included in the deferred tax asset is $4.6 million related to tax credits for which a valuation allowance of $4.6 million has been recorded. The Company has not provided for United States...

  • Page 64
    ...205,675 The following tax years remain open in the Company's major taxing jurisdictions as of December 29, 2012: United States (Federal) United Kingdom Canada France Ireland 2008 2006 2009 2007 2007 through through through through through 2012 2012 2012 2012 2012 (10) LONG-TERM DEBT On December 21...

  • Page 65
    ... restricted shares would be anti-dilutive. (13) STOCK INCENTIVE PLANS On April 3, 2000, the Company adopted the 2000 Stock Option Plan (the Plan). In 2003, the Company adopted the Build-A-Bear Workshop, Inc. 2002 Stock Incentive Plan, in 2004, the Company adopted the Build-A-Bear Workshop, Inc...

  • Page 66
    BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K Notes to Consolidated Financial Statements (continued) (a) Stock Options The following table is a summary of the balance and activity for the Plans related to stock options for the periods presented: Weighted Average Remaining Contractual Term Aggregate ...

  • Page 67
    BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K Notes to Consolidated Financial Statements (continued) During 2012, 278,308 shares of restricted stock were granted to employees of the Company. The shares vest over a period of four years from the grant date at grant date fair values ranging from $3.59 ...

  • Page 68
    ... operating segments consisting of retail, international franchising, and commercial. The retail segment includes 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...

  • Page 69
    ...as of December 29, 2012 $ 561 15,565 - - 16,126 4,739 - - $ 20,865 (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 2.1 Agreement and Plan of Merger dated April 3, 2000 between Build-A-Bear Workshop, L.L.C. and the...

  • Page 70
    ... our Current Report on Form 8-K, filed on August 1, 2006) Form of Restricted Stock Grant Agreement under the Company's 2004 Stock Incentive Plan (incorporated by reference from Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed on May 8, 2008) Second Amended and Restated Build-A-Bear Workshop...

  • Page 71
    ... No. 333-118142) Third Amendment to Loan Documents among the Registrant, Shirts Illustrated, LLC, Build-A-Bear Workshop Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Retail Management, LLC (incorporated by reference from Exhibit 10.12 to our Registration Statement on Form...

  • Page 72
    ...Current Report on Form 8-K, filed on January 4, 2012) 10.11.6 Tenth Amendment to 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., as Borrowers, and U.S. Bank National Association...

  • Page 73
    ... the Registrant, Build-A-Bear Workshop Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Retail Management, Inc., as borrowers, and U.S. Bank National Association, as lender, dated as of August 11, 2008 (incorporated by reference from Exhibit 10.1 to our Current Report on Form...

  • Page 74
    BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K Exhibits (continued) 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE XBRL Instance XBRL Extension Schema XBRL Extension Calculation XBRL Extension Definition XBRL Extension Label XBRL Extension Presentation * Management contract or compensatory plan or ...

  • 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 29, 2012 and any other documents and instruments incidental thereto, together with...

  • Page 76
    ... International Franchising Dave Finnegan Chief Information Bear Tina Klocke Chief Operations and Financial Bear, Treasurer and Secretary Teresa Kroll Chief Marketing and Entertainment Bear Ken Wine Chief Merchandise Bear MANAGING DIRECTORS Jeff Fullmer Managing Director, Bear Merchandise Planning...

  • Page 77
    ... financial information 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 9, 2013, at the company's World Bearquarters...

  • Page 78
    BUILD-A-BEAR WORKSHOP, INC. 1954 Innerbelt Business Center Drive St. Louis, MO 63114 buildabear.com® bearville.com™ 10 years of huggable heroes ! ® More than 100 kids have been named Huggable Heroes by Build-A-Bear Workshop! Many started their own nonprofit organizations and inspired others ...