Build-A-Bear Workshop 2010 Annual Report Download

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making
connections
2010 ANNUAL REPORT

Table of contents

  • Page 1
    making connections 2010 A N N UA L REP O RT

  • Page 2
    Build-A-Bear Workshop® is a beary special place where new friendships are brought to life. We welcome Guests into our playful world and connect with them through every part of the bear-making experience. Parents know our stores as a place where the whole family can have fun at an affordable price. ...

  • Page 3
    ... make-your-own stuffed animal retail-entertainment experience. Founded in 1997, the company and its franchisees currently operate more than 400 stores worldwide, including company-owned stores in the United States, Puerto Rico, Canada, the United Kingdom and Ireland, and franchise stores in Europe...

  • Page 4
    ...in 12 countries delivered the signature Build-A-Bear Workshop ® brand experience in 2010. We will maximize our international development by focusing on our existing franchisees, which offer great future growth potential, and strategically adding new countries. and accessories, she will be featured...

  • Page 5
    ... Build-A-Bear Craftshop™ products at Michaels® and other major retailers. sized, pre-stuffed animals is an incremental purchase as an impulse item, as well as an add-on to a full-sized animal. By emphasizing their collectibility, we increase visit frequency, plus the connection to bearville...

  • Page 6
    ... core values every day. We are proud to be named one of the FORTUNE 100 Best Companies to Work For ® for the third consecutive year. Our associates deliver a great experience, evident by the high level of Guest satisfaction that we continue to achieve. OUR 2010 FINANCIAL RESULTS • Total revenues...

  • Page 7
    ... to our stores and get the hottest, must-have products and we make it easy for parents to say "yes" with promotions and special offers. Our selective use of Gifts with Purchase to add value to our product offerings was an important element, which we plan to continue. Our marketing vehicles balance...

  • Page 8
    ...-up store locations in North America in the fourth quarter of 2010, which allowed us to take advantage of excess real estate availability in the marketplace while positioning us to make long-term lease decisions in the future. In 2011, we will add other new store formats. By summer, we plan to open...

  • Page 9
    ... from to Commission file number: 001-32320 (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) 43-1883836 (I.R.S. Employer...

  • Page 10
    ...Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services 38 40 40 40 40 Market for...

  • Page 11
    ...: • our future financial performance; • our anticipated operating and growth strategies; • our future capital expenditures; • our anticipated rate of store openings; • our anticipated store opening costs; and • our franchisees' anticipated rate of international store openings. These...

  • Page 12
    ... and only international company providing a "make your own stuffed animal" interactive retail-entertainment experience. As of January 1, 2011, we operated 344 company-owned retail stores in the United States, Canada, the United Kingdom and Ireland, including 290 Build-A-Bear Workshop® stores in the...

  • Page 13
    ... United States, Canada, Puerto Rico, the United Kingdom and Ireland, as our international plans adjust to meet a variety of market conditions in additional countries. We believe there are also growth opportunities to sell Build-A-Bear Workshop products in other retail stores. Over the past 13 years...

  • Page 14
    ... and related products. In the fiscal 2008 third quarter, we announced plans to close the Friends 2B Made concept. The closure plan affected our nine Friends 2B Made store locations, Friends 2B Made fixtures within approximately 50 Build-A-Bear Workshop stores, and the concept's website. All Friends...

  • Page 15
    ... website, buildabear.com. In 2010, we continued to expand our use of social media to better reach our mom target audience. We have also begun utilizing affiliate marketing opportunities in other online spaces that share our values and target demographic. In 2007, we created a virtual world Web site...

  • Page 16
    ... 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 of the traditional toy market were $21.9 billion in the United States (excluding video games) in 2010...

  • Page 17
    ... 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 January 1, 2011, there were 63 Build-A-Bear Workshop franchised stores located...

  • Page 18
    ... of several small companies that operate "make your own" teddy bear and stuffed animal stores or kiosks in retail locations, but we believe none of those companies offer the breadth and depth of the Build-A-Bear Workshop experience or operate as a national or international retail company. We also...

  • Page 19
    ...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 20
    ... our interactive shopping experience, our animals, animal apparel or accessories, or a misjudgment of consumer preferences or fashion trends, could have a negative impact on our business, financial condition and results of operations. For example, in 2008 we announced plans to close the Friends 2B...

  • Page 21
    ... the virtual world website with large numbers of unique visitors with frequent visitation that drives visits to our retail stores resulting in purchases. Our planned marketing expenditures may not result in increased total or comparable store sales or generate sufficient levels of product and brand...

  • Page 22
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K charges associated with those closures which could negatively impact our profitability. Our growth strategy requires us to operate a significant number of stores in the United States, Canada, the United Kingdom and Ireland each year as well as open new ...

  • Page 23
    ... were 63 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 frequently...

  • Page 24
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K in France profitably and in 2010, we closed all three of our company-owned stores in France. 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 ...

  • Page 25
    ..., there are several small companies that 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...

  • Page 26
    ...number of traditional children's toy and entertainment companies have also developed their own virtual world online play sites including Barbie.com® and McWorld. We cannot assure you that children's preferences for our products will remain strong or that our on line Web site for children, bearville...

  • Page 27
    ... in the future for shares of our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2. STORES As of January 1, 2011, we operated 290 retail stores located primarily in major malls throughout the United States, Canada and Puerto Rico, 52 stores located in the United Kingdom and two...

  • Page 28
    ...) Total company-owned stores Temporary pop-up locations Other (ballparks, zoo) Total company-owned retail locations 200 108 17 8 11 344 11 4 359 Following is a list of our 344 company-owned stores in the United States, Canada, the United Kingdom and Ireland as of January 1, 2011: Number of Stores...

  • Page 29
    ...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 strictly a merchandise retailer and there is a strong interactive...

  • Page 30
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K ISSUER PURCHASES OF EQUITY SECURITIES (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(2) $23,714,009 $23,714,009 $23,714,009 $23,714,009 Period Oct. 3, 2010 - Oct. 30, 2010 Oct. ...

  • Page 31
    ...Square footage for stores located in Europe is estimated selling square footage and includes stores in the United Kingdom, Ireland and France. (5) Average net retail sales per store represents net retail sales from stores open throughout the entire period in North America divided by the total number...

  • Page 32
    ... States, Canada and Puerto Rico, 52 stores in the United Kingdom and two stores in Ireland, and had 63 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 and market...

  • Page 33
    ...-store locations), are net of discounts, exclude sales tax, include shipping and handling costs billed to customers, and are recognized at the time of sale. Revenues from gift cards are recognized at the time of redemption. Our guests use cash, checks, gift cards and third party credit cards to make...

  • Page 34
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K We use net retail sales per gross square foot and comparable store sales as performance measures for our business. The following table details net retail sales per gross square foot by age of store for the periods presented: Fiscal 2010 Net retail sales ...

  • Page 35
    ... book value of our investment was $-0- at January 1, 2011 and January 2, 2010. These services will be significantly reduced in 2011. Expansion and Growth Potential Company-owned stores: The number of Build-A-Bear Workshop stores in the United States, Canada, Puerto Rico, the United Kingdom, Ireland...

  • Page 36
    ...-A-Bear Workshop stores in North America and three in the United Kingdom. We believe there is a market potential for at least 350 Build-A-Bear Workshop stores in the United States, Puerto Rico and Canada and 70 stores in the United Kingdom and Ireland. Non-store Locations: In 2004 we began offering...

  • Page 37
    ... throughout the year as estimated under the previous approach. Increases in net retail sales resulted from sales in new stores and increases in sales over the Internet of $2.4 million and $1.2 million, respectively. Other increases totaling $1.9 million came from sales at non-store locations which...

  • Page 38
    ... on net operating loss carryforwards associated with our UK operations as a result of management's determination that it is more likely than not that the benefit of these losses will be realized. NON-GAAP FINANCIAL MEASURES We use the term "store contribution" throughout this Annual Report on...

  • Page 39
    BUILD-A-BEAR WORKSHOP, INC. 2010 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 France (Europe) and ...

  • Page 40
    ... office information technology systems, acquisition of intangible assets, repurposing existing Friends 2B Made locations to Build-A-Bear Workshop stores, the opening of one new store and the relocation of one store. Cash used in investing activities in fiscal 2008 relates primarily to opening 25 new...

  • Page 41
    .... Our leases in the United Kingdom and Ireland typically have terms of 10 to 15 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...

  • Page 42
    ...Annual Report on Form 10-K. We have identified the following critical accounting estimates: Inventory Inventory is stated at the lower of cost or market, with cost determined on an average cost basis. Historically, we have not conducted sales whereby we offer products below cost. Throughout the year...

  • Page 43
    ...changes in circumstances or strategy that could potentially indicate that the carrying value of long-lived assets may not be recoverable as they occur. Due to the significance of the fourth quarter to individual store locations, we assess store performance annually, using the full year's results. We...

  • Page 44
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K Goodwill We record goodwill related to the excess of the purchase price over the fair value of net assets acquired. All of our recorded goodwill, which is associated with our UK Acquisition, is recorded in the European reporting unit. At January 1, 2011 ...

  • Page 45
    ... of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These estimates of future taxable income inherently require significant judgment. Management uses historical experience and short and long-range business forecasts to develop such estimates...

  • Page 46
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and based on the foregoing evaluation, our management, including the Chief Executive Bear and Chief Operations and ...

  • Page 47
    ... of the St. Louis Regional Chief Information Officer Forum and the NSB Executive Client Advisory Board. He was instrumental in the development of bearville.com-the company's virtual world Web site. The online community received a 2009 "Best of the Web" award from WiredSafety at the 9th Annual Wired...

  • Page 48
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K ITEM 11. EXECUTIVE COMPENSATION The information contained in the sections titled "Executive Compensation" and "Board of Directors Compensation" in the Proxy Statement is incorporated herein by reference in response to this Item 11. ITEM 12. SECURITY ...

  • Page 49
    ...consolidated balance sheets of Build-a-Bear Workshop, Inc. and subsidiaries (the Company) as of January 1, 2011 and January 2, 2010, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the fiscal years in the three-year period ended January 1, 2011...

  • Page 50
    ... liabilities: Accounts payable Accrued expenses Gift cards and customer deposits Deferred revenue Total current liabilities Deferred franchise revenue Deferred rent Other liabilities Commitments and contingencies Stockholders' equity: Preferred stock, par value $0.01, Shares authorized: 15,000,000...

  • Page 51
    BUILD-A-BEAR WORKSHOP, INC. 2010 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...

  • Page 52
    ... comprehensive income Net loss Balance, January 2, 2010 Share repurchase Stock-based compensation Shares issued under employee stock plans, net of tax benefit Other comprehensive loss Net income Balance, January 1, 2011 See accompanying notes to consolidated financial statements. Total $193,608...

  • Page 53
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Statements of Cash Flows Fiscal Year (in thousands) Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities:...

  • Page 54
    ...DESCRIPTION OF BUSINESS AND BASIS OF PREPARATION Build-A-Bear Workshop, Inc. (the Company) is a specialty retailer of plush animals and related products. At January 1, 2011, the Company operated 344 stores (unaudited) located in the United States, Canada, Puerto Rico, the United Kingdom, Ireland and...

  • Page 55
    ... of fair value requires multiple assumptions regarding our future operations to determine future cash flows, including but not limited to, sales volume, margin rates, store growth rates and discount rates. Based on the annual impairment test performed for the Company's reporting unit as of...

  • Page 56
    ... five years old. The difference between the value of gift cards and the amount escheated is recorded as income in the consolidated statement of operations. The Company has customer loyalty program in North America, the Stuff Fur Stuff club, whereby guests enroll in the program and receive one point...

  • Page 57
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K Notes to Consolidated Financial Statements (continued) (q) Advertising The costs of advertising, promotion and marketing programs are charged to operations in the first period the program takes place. Advertising expense was $18.5 million, $24.4 million ...

  • Page 58
    ... included in cost of merchandise sold as a component of net loss before income taxes in the Retail segment. The inputs used to determine the fair value of the assets are Level 3 inputs as defined by ASC section 820-10. In the event that we decide to close any or all of these stores in the future, we...

  • Page 59
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K Notes to Consolidated Financial Statements (continued) (7) OTHER NON-CURRENT ASSETS In 2010, certain other non-current assets were obtained through a series of wholesale transactions whereby the Company exchanged $6.4 million of inventory, at cost, with a...

  • Page 60
    ... by the accrual of additional interest for the current year. The Company's income before income taxes from domestic and foreign operations (which include the United Kingdom, Canada, France and Ireland), are as follows (in thousands): 2010 Domestic Foreign Total $(8,744) 6,272 $(2,472) 2009 $(23,500...

  • Page 61
    ... Operating Leases The Company leases its retail stores and corporate offices under agreements which expire at various dates through 2030. The majority of leases contain provisions for base rent plus contingent payments based on defined sales as well as scheduled escalations. Total office and retail...

  • Page 62
    BUILD-A-BEAR WORKSHOP, INC. 2010 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 63
    ...(k) plans. The Build-A-Bear Workshop, Inc. Employees Savings Trust covers associates who work 1,000 hours or more in a year and have attained age 21. The Company, at the discretion of its board of directors, can provide for a Company match on the first 6% of employee deferrals. For 2010, the Company...

  • Page 64
    ... 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, pop-up stores and non-traditional store locations such as baseball ballparks. The international franchising segment...

  • Page 65
    ... 2008, the Company announced plans to close its Friends 2B Made concept, a line of make-your-own dolls and related products. The closure plan affected the Company's nine Friends 2B Made locations, all but one of which were inside or adjacent to a Build-A-Bear Workshop store, separate Friends 2B Made...

  • Page 66
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K Notes to Consolidated Financial Statements (continued) (21) SUBSEQUENT EVENT On March 2, 2011, the Company announced the extension of its previously announced $50 million share repurchase program until March 31, 2012, subject to further extension by the ...

  • Page 67
    ...Current Report on Form 8-K, filed on August 1, 2006) Second Amended and Restated Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan (incorporated by reference from Exhibit 10.1 on our Current Report... to our Annual Report on Form 10-K for the year ended January 2, 2010) Employment, Confidentiality...

  • Page 68
    ..., Build-A-Bear Retail Management, Inc., and Build-A-Bear Workshop UK Holdings Ltd., as borrowers, Build-A-Bear Workshop Canada, Ltd. and US Bank National Association, as lender entered into on and effective as of on June 19, 2007 (incorporated by reference from Exhibit 10.1 to our Current Report on...

  • Page 69
    ... by reference from Exhibit 10.36 to our Annual Report on Form 10K for the year ended December 31, 2005) Rules of the Build-A-Bear Workshop, Inc. U.K. Share Option Scheme (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed on February 9, 2007) Nonqualified Deferred...

  • Page 70
    BUILD-A-BEAR WORKSHOP, INC. 2010 FORM 10-K Exhibits (continued) 13.1 Annual Report to Shareholders for the Fiscal Year Ended January 2, 2010 (The Annual Report, except for those portions which are expressly incorporated by reference in the Form 10-K, is furnished for the information of the ...

  • Page 71
    ... and 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 January 1, 2011 and any other documents and instruments incidental thereto...

  • Page 72
    ... sponsor focused on specialty retail and consumer growth companies) Katherine Savitt (3)** Chief Executive Officer Lockerz, LLC (an internet start-up that is building a next generation social network, entertainment and shopping platform for 15-25 year olds) Board Committees: (1) Audit Committee...

  • Page 73
    ...by an e-mail to [email protected]. Comprehensive financial information for Build-A-Bear Workshop is also available at the company's investor relations Web site: 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...

  • Page 74
    BUILD-A-BEAR WORKSHOP, INC. 1954 Innerbelt Business Center Drive St. Louis, MO 63114 buildabear.com® bearville.com® c t e i n n n g o In our c Communities We have a commitment to leave a pawsitive mark on the world. Since 1997 , we have donated nearly $30 million to support causes related to ...