Build-A-Bear Workshop 2013 Annual Report Download

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BUILD -A-BEAR WORKSHOP, INC.
GETTING TO
THE HEART OF THE MATTER
2013 ANNUAL REPORT

Table of contents

  • Page 1
    G E T TING TO THE HE ART OF THE MAT TER 2013 ANNUAL REPOR T BUILD - A - BEAR WORKSHOP, INC.

  • Page 2
    "It is clear that this is a company with heart."

  • Page 3
    ... profitability and, thereby, increase shareholder value throughout the fiscal year. Because of our strong plan and strong brand, we are optimistic about our outlook for fiscal 2014 and beyond. Sharon Price John Chief Executive Officer BUILD - A - BE AR WORKSHOP, INC. 2013 ANNUAL REPORT 1

  • Page 4
    25% OF SALES ARE gifts over 125 M ILLION furry friends made over 2.5 MILLION KIDS CHOOSE TO SPEND THEIR birthdays WITH US EACH YEAR 4.4 MILLION LOYALTY MEMBERS fpo 32% OF GUESTS ARE boys

  • Page 5
    ... and trusted by parents. Our stores offer an engaging experience, customizable products and high touch service model. While other companies seem to be seeking ways to add experience to attract consumers to their stores, we are elevating our destination-based interactive retail model that is already...

  • Page 6
    ... balanced on a quarterly basis and gives us multiple platforms to develop to drive incremental future visits. LOYAL BRAND ADVOCATES BROAD DEMOGRAPHIC APPEAL BAL ANCED SEASONAL SALES Brand Loyalty Index Distribution by Age and Gender Consolidated Net Retail Sales by Quarter Build-A-Bear...

  • Page 7
    ... and business was recognized for the 6th year in a row as we were named to the 2014 FORTUNE 100 Best Companies to Work For ® List. 1. Optimize Real Estate our threepronged strategy 2. Reset Consumer Value Equation 3. Rationalize Expenses BUILD - A - BE AR WORKSHOP, INC. 2013 ANNUAL REPORT 5

  • Page 8
    ... Net Retail Sales in Millions Retail Gross Margin as a Percentage of Net Retail Sales 2011 2012 2013 $387.0 $374.6 $373.2 70% of North America comparable store sales improvement from organic growth. 2011 2012 2013 39.9% 38.9% 41.1% 6 BUILD - A - BE AR WORKSHOP, INC. 2013 ANNUAL REPORT

  • Page 9
    ... 17% 252 * Store contribution represents store location net retail sales minus cost of product, marketing and store related expenses (excludes store depreciation, amortization & impairment and non-store general and administrative expenses). BUILD - A - BE AR WORKSHOP, INC. 2013 ANNUAL REPORT 7

  • Page 10
    ... by net retail sales. As part of our real estate optimization we closed 37 stores in 2013 ending the year with 28 fewer stores. STOCK PERFORMANCE BBW vs. S&P 500 Retailing Index vs. S&P 500 Index for Fiscal Year 2013 160% 140% 120% 100% 80% 60% 40% 20% 0% Dec 2012 Build-A-Bear Workshop S&P 500...

  • Page 11
    ... of 1934 Commission file number: 001-32320 BUILD-A-BEAR WORKSHOP, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 1954 Innerbelt Business Center Drive St. Louis, Missouri (Address of Principal Executive Offices...

  • Page 12
    ... Related Stockholder Matters Certain Relationships and Related Transactions and Director Independence Principal Accountant Fees and Services 30 31 32 32 32 PART IV Item 15. Exhibits and Financial Statement Schedules 32 Exhibit Index Signatures 49 54 2 BUILD - A - BE AR WORKSHOP, INC. 2013 FORM...

  • Page 13
    ...: • our future financial performance; • our anticipated operating and growth strategies; • our future capital expenditures; • our anticipated rate of store closures, relocations and openings; and • our anticipated costs related to store closures, relocations and openings. These statements...

  • Page 14
    ...1. BUSINESS Overview Build-A-Bear Workshop, Inc., a Delaware corporation, was formed in 1997 and is primarily a specialty retailer offering a "make your own stuffed animal" interactive retail-entertainment experience. As of December 28, 2013, we operated 323 company-owned retail stores in the United...

  • Page 15
    ... our relationship with our employees is good. Competition We view the Build-A-Bear Workshop store experience as a distinctive combination of entertainment and retail with limited direct competition. Because our signature product is a stuffed animal, we compete with toy retailers, such as Wal-Mart...

  • Page 16
    ....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 17
    ... technology is a critically important part of our business operations. We depend on information systems to process transactions, manage inventory, operate our Web sites, purchase, sell and ship goods on a timely basis, and maintain cost-efficient operations. There is a risk that we could experience...

  • Page 18
    ... count in North America. We closed 37 stores in 2013 in addition to the 10 locations closed in 2012 and 12 locations closed in 2011. We currently expect to close an additional 10 to 15 locations in 2014. Our ability to manage our portfolio of stores in future years in desirable locations and operate...

  • Page 19
    ... store locations. Further landlord consolidation may negatively impact our results of operations. Our leases in the United Kingdom and Ireland also typically contain provisions requiring rent reviews every five years in which the base rent that we pay is adjusted to current market rates. These...

  • Page 20
    .... 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 succeed. We closed 47 stores in 2012 and 2013 and expect to close an additional ten to fifteen stores in 2014. Having fewer...

  • Page 21
    ..., we could in turn experience negative publicity or be sued. Our company-owned distribution center which services the majority of our stores in North America and our third-party distribution center providers used in the western United States and Europe may experience disruptions in their ability to...

  • Page 22
    ... operate "make your own" teddy bear and stuffed animal experiences in retail stores and kiosks. Although we believe that currently none of these companies offers the breadth and depth of the Build-A-Bear Workshop products and experience, we cannot assure you that they will not compete directly with...

  • Page 23
    ... 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 leases in the United Kingdom and Ireland typically have rent reviews every five years in which the base rental rate is adjusted to current market...

  • Page 24
    ... 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 strictly a merchandise retailer $150 $100 $50 $0 1/3/09 100.00 100.00 100.00 * 1/2/10 104.94...

  • Page 25
    ...nancial statements and related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K. Fiscal Year 2013 2012 2011 2010 2009 (Dollars in thousands, except share, per share, per store and per gross...

  • Page 26
    ..., Canada and Puerto Rico. In Europe, stores are located in the United Kingdom, Ireland and, prior to 2011, France. (6) Square footage for stores located in Europe is estimated selling square footage. (7) Average net retail sales per store represents net retail sales only from stores open throughout...

  • Page 27
    ...own teddy bears and other stuffed animals. As of December 28, 2013, we operated 323 Company-owned stores and had 86 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 28
    ... (2.1)% (1) Comparable store sales percentage changes are based on net retail sales and stores are considered comparable beginning in their thirteenth full month of operation. (2) Excludes our web store and temporary and seasonal locations. 18 BUILD - A - BE AR WORKSHOP, INC. 2013 FORM 10 -K

  • Page 29
    ... third parties manufacture merchandise carrying the Build-A-Bear Workshop trademark and sell it to other retailers. Stores Company-owned stores: The number of Build-A-Bear Workshop stores in the United States, Canada, Puerto Rico, the United Kingdom and Ireland for the last two fiscal years along...

  • Page 30
    ...our company-owned stores. The number of international, franchised stores opened and closed for the periods presented below are summarized as follows: Fiscal Year 2013 Beginning of period Opened Closed End of period 91 10 (15) 86 2012 79 17 (5) 91 2011 63 19 (3) 79 In the ordinary course of business...

  • Page 31
    ...) Fiscal 2013 Fiscal 2012 Fiscal 2011 Revenues: Net retail sales Franchise fees Commercial revenues Total revenues 98.4% 0.9 0.6 100.0 98.3% 0.9 0.7 100.0 98.1% 0.9 1.0 100.0 Revenue from international franchise fees were $3.6 million for fiscal 2013 and fiscal 2012. Commercial revenue was...

  • Page 32
    ... to net (loss) income for our company-owned stores located in the United States, Canada and Puerto Rico (North America), stores located in the United Kingdom and Ireland (Europe) and for our consolidated store base (dollars in thousands): 22 BUILD - A - BE AR WORKSHOP, INC. 2013 FORM 10...

  • Page 33
    ... to franchising and commercial activities is included in the interest expense (income) caption. (5) Non-store activities include our web stores and temporary and seasonal locations. Non-store activity contribution also includes intercompany revenues. BUILD - A - BE AR WORKSHOP, INC. 2013 FORM 10...

  • Page 34
    ....8 million 2012 and 2011, respectively. Purchases of our stock in fiscal 2013, 2012 Liquidity and Capital Resources Our cash requirements are primarily for the opening of new stores, installation and upgrades of information systems and working 24 BUILD - A - BE AR WORKSHOP, INC. 2013 FORM 10 -K

  • Page 35
    ... to government time schedules to reï¬,ect current market rental rates for the locations we lease. Rents are charged quarterly and paid in advance. In fiscal 2014, we expect to spend approximately $15 to $18 million on capital expenditures. Capital spending in fiscal 2013 totaled $19 million...

  • Page 36
    ... 2013, 2012 and 2011, the timing of the physical inventory has been in the fourth quarter so that no material amount of shortage was required to be estimated on activity between the date of the physical count and year-end. However, future physical counts of merchandise may not be at times at or near...

  • Page 37
    ... quarter of fiscal 2013, which is included in cost of merchandise sold. The calculation of fair value could increase or decrease depending on changes in the inputs and assumptions used, such as changes in the financial performance of the asset group, future growth rate and discount rate. In order...

  • Page 38
    ...the historical rates are generally made no more often than annually in order to allow time for more definite trends to emerge. Based on this assessment at the end of fiscal 2013, the deferred revenue liability was adjusted downward by $0.1 million, with a corresponding increase to net retail sales...

  • Page 39
    ... 28, 2013, the end of the period covered by this Annual Report. It should be noted that our management, including the Chief Executive Officer and Chief President Bear and the Chief Operations and Financial Bear, do not expect that our disclosure controls and procedures or internal controls will...

  • Page 40
    ...years in the period ended December 28, 2013, and our report dated March 13, 2014, expressed an unqualified opinion thereon. /s/ Ernst & Young LLP St. Louis, Missouri March 13, 2014 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Build-A-Bear Workshop...

  • Page 41
    ... Policy The Board of Directors has adopted a Business Conduct Policy applicable to our directors, officers and employees, including all executive officers. The Business Conduct Policy has been posted in the Investor Relations section of our corporate website at http:// ir.buildabear.com. We intend...

  • Page 42
    ... as part of this Annual Report on Form 10-K. PAGE Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 28, 2013 and December 29, 2012 Consolidated Statements of Operations for the fiscal years ended December 28, 2013, December 29, 2012 and December 31...

  • Page 43
    ...all material respects the information set forth therein. We also have audited, 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 28, 2013, based on...

  • Page 44
    Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data) December 29, 2013 ASSETS Current assets: Cash and cash equivalents Inventories Receivables Prepaid expenses and other current assets Deferred tax assets Total current assets $ 44,665 $ ...

  • Page 45
    ..., except share and per share data) Fiscal Year 2013 2012 2011 Revenues: Net retail sales Franchise fees Commercial revenue Total revenues $ 373,173 3,564 2,332 379,069 $ 374,553 3,598 2,790 380,941 $ 387,041 3,391 3,943 394,375 Costs and expenses: Cost of merchandise sold Selling, general...

  • Page 46
    ... Stock-based compensation Shares issued under employee stock plans Other comprehensive income Net loss Balance, December 29, 2012 Share repurchase Stock-based compensation Shares issued under employee stock plans Other comprehensive income Net loss Balance, December 28, 2013 $ 196 (25) 3 174...

  • Page 47
    ...ï¬,ows from financing activities: Proceeds from the exercise of employee stock options, net of withholding tax payments Purchases of Company's common stock Cash ï¬,ow provided by (used in) financing activities Effect of exchange rates on cash Net decrease in cash and cash equivalents Cash and cash...

  • Page 48
    ...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 323 company-owned stores operated primarily in leased locations in malls in the United States, Canada, Puerto Rico...

  • Page 49
    ... new store openings. Continuing franchise fees are recognized as revenue as the fees are earned. (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 retail...

  • Page 50
    ...Selling, general, and administrative 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...

  • Page 51
    ... of estimated future cash ï¬,ows for each asset group, and asset impairment charges of $0.1 million were recorded in the fourth quarter of fiscal 2013, which are included in cost of merchandise sold as a component of net loss before income taxes in the Retail segment. The inputs used to determine...

  • Page 52
    ... of estimated future cash ï¬,ows for each asset group, and asset impairment charges of $0.1 million were recorded in the fourth quarter of fiscal 2013, which are included in cost of merchandise sold as a component of net loss before income taxes in the Retail segment. The inputs used to determine...

  • Page 53
    ... asset is $6.5 million related to federal, state and foreign net operating loss carryforwards for which a valuation allowance of $6.5 million has been recorded. US federal net operating loss carryforwards total $14.0 million as of December 28, BUILD - A - BE AR WORKSHOP, INC. 2013 FORM 10 -K 43

  • Page 54
    ... tax years remain open in the Company's major taxing jurisdictions as of December 28, 2013: United States (Federal) United Kingdom Canada Ireland 2010 through 2013 2007 through 2013 2010 through 2013 2008 through 2013 2014 2015 2016 2017 2018 $ 43,551 37,617 28,809 21,573 15,889 53,330 (9) Long...

  • Page 55
    ... share and per share data): 2013 NUMERATOR: Net loss DENOMINATOR: Weighted average number of common shares outstanding - basic Dilutive effect of share-based awards: Weighted average number of common shares outstanding - dilutive Basic loss per common share attributable to Build-A-Bear Workshop...

  • Page 56
    ... were exercised in 2012. The Company generally issues new shares to satisfy option exercises. Shares available for future option, non-vested stock and restricted stock grants were 471,327 and 608,864 at the end of 2013 and 2012, respectively. 48 BUILD - A - BE AR WORKSHOP, INC. 2013 FORM 10 -K

  • Page 57
    ...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 delivery operations, including the Company's web store, temporary stores and non...

  • Page 58
    ... North America includes the United States, Canada, Puerto Rico and franchise business in Mexico (2) Europe includes the United Kingdom, Ireland, franchise businesses in Europe (3) Other includes franchise businesses outside of North America and Europe 48 BUILD - A - BE AR WORKSHOP, INC. 2013 FORM...

  • Page 59
    ... 28, 2013 $ $ 16,126 4,739 20,865 122 20,987 10.2* 10.2.1* 10.2.2* (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 2.1 Agreement and Plan of Merger dated April 3, 2000 between Build-A-Bear Workshop, L.L.C. and...

  • Page 60
    ...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 61
    ... from Exhibit 10.1 to our Current Report on Form 8-K, filed on July 26, 2012) Eleventh 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...

  • Page 62
    ... from Exhibit 10.1 to our Current Report on Form 8-K, filed on February 14, 2013) Thirteenth 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...

  • Page 63
    ...Exhibit 21.1 to our Annual Report on Form 10-K, for the year ended December 29, 2012) Consent of Ernst & Young LLP Rule 13a-14(a)/15d-14(a) certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by the Chief Executive Officer and Chief President Bear) Rule 13a-14(a)/15d...

  • Page 64
    ... resubstitution, 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 28, 2013 and any other documents and instruments incidental thereto, together...

  • Page 65
    [THIS PAGE INTENTIONALLY LEFT BLANK] BUILD - A - BE AR WORKSHOP, INC. 2013 FORM 10 -K 55

  • Page 66
    ... SHAREHOLDER INFORMATION Maxine Clark Founder Build-A-Bear Workshop, Inc. Paul Bundonis Chief Workshop Bear - North America Build-A-Bear Workshop World Bearquarters 1954 Innerbelt Business Center Drive St. Louis, Mo. 63114-5760 888.560.2327 314.423.8000 Fax: 314.423.8188 Web: buildabear.com...

  • Page 67
    ... with heart. INTERNATIONAL LOCATIONS 17 1 15 7 24 5 1 11 1 1 2 2 5 2 6 58 3 Australia Bahrain Canada* Denmark Germany Japan Kuwait Mexico Norway Oman Republic of Ireland* Singapore South Africa Sweden Thailand The United Kingdom* United Arab Emirates * Company owned Build-A-Bear Workshop has...

  • Page 68
    BUIL D - A - BE AR WORK SHOP, INC. World Bearquarters 1954 Innerbelt Business Center Drive St. Louis, MO 63114-5760 www.buildabear.com