Build-A-Bear Workshop 2012 Annual Report Download - page 41

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
Capital Resources. As of December 29, 2012, we had
a cash balance of $45.2 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. On
December 21, 2012, we amended the existing bank line of
credit that now provides borrowing capacity of $35 million.
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, 2014 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 purchase 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.
On February 13, 2013, we amended our existing bank line
of credit to reduce the fixed charge coverage ratio for the
fiscal year ending December 29, 2012, returning to its
previous requirement thereafter. As of December 29, 2012:
(i) we were in compliance with these covenants; (ii) there
were no borrowings under our line of credit; and (iii) there
was a standby letter of credit of approximately $1.1 million
outstanding under the credit agreement. Giving effect to this
standby letter of credit, there was approximately
$33.9 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. In addition, some of these leases contain various
restrictions relating to change of control of our company.
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 2013, we expect to spend approximately $20 to
$25 million on capital expenditures. Capital spending in
fiscal 2012 totaled $17 million. Capital spending in fiscal
2012 was primarily for continued installation and upgrades
of central office information technology systems, the opening
of five new stores, the remodeling or relocation of 14 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 28, 2013, we
announced that our share repurchase program had been
extended to March 31, 2014. 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. As of March 8, 2013,
approximately 5.9 million shares at an average price of
$7.24 per share have been repurchased under this program
for an aggregate amount of $42.6 million, leaving
$7.4 million of availability under the program. The primary
source of funding for the program has been, and is expected
to be, cash on hand. The timing and amount of additional
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 have been, and will continue
to be, subsequently retired.
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, 2014.
Off-Balance Sheet Arrangements
We hold a minority interest in Ridemakerz, LLC, which is
accounted for under the equity method. Ridemakerz has
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 for
1.25 million Ridemakerz common units at an exercise price of
$1.25 per unit. Simultaneously, the Company granted a put
option to the same group of investors for 1.25 million
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