Build-A-Bear Workshop 2013 Annual Report Download - page 35

and 2011 used cash of $0.2 million, $1.3 million and $15.0 million,
respectively. In fiscal 2013 and 2011, exercises of employee stock
options, net of shares used for withholding tax payments provided
cash of $0.3 million and used cash of $0.8 million, respectively. No
employee stock options were exercised in fiscal 2012; shares used for
withholding tax payments used $1.6 million in fiscal 2012.
Capital Resources. As of December 28, 2013, we had a cash balance
of $44.7 million, less than 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 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 January 22, 2014, we amended the existing
credit agreement, extending the term to December 31, 2015 and
increasing the fixed charge coverage ratio. As of December 28, 2013:
(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.
Our leases typically require us to pay personal property taxes, our
pro rata share of real property taxes of the shopping mall, our own
utilities, repairs and maintenance in our store, a pro rata share of the
malls’ common area maintenance and, in some instances, merchant
association fees and media fund contributions. 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. Rents are charged monthly and paid in
advance.
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 2014, we expect to spend approximately $15 to $18 million
on capital expenditures. Capital spending in fiscal 2013 totaled $19
million, primarily to support the refresh and repositioning of stores
and investment in infrastructure.
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.
Following a series of annual extensions, we announced on February
24, 2014, that our share repurchase program had been extended to
March 31, 2015. 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 7, 2014,
approximately 6.0 million shares at an average price of $7.25 per
share have been repurchased under this program for an aggregate
amount of $43.6 million, leaving $6.4 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, 2015.
Off-Balance Sheet Arrangements
None
BUILD- A-BEAR WORKSHOP, INC. 2013 FORM 10-K 25