UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 28, 2013March 29, 2014
OR
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number: 001-32320
BUILD-A-BEAR WORKSHOP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 43-1883836 |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
1954 Innerbelt Business Center Drive St. Louis, Missouri | 63114 |
(Address of Principal Executive Offices) | (Zip Code) |
(314) 423-8000
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated | Accelerated filer☒ | |
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Non-accelerated | filer☐ | Smaller reporting company ☐ |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 5, 2013,May 2, 2014, there were 17,350,51917,477,869 issued and outstanding shares of the registrant’s common stock.
BUILD-A-BEAR WORKSHOP, INC.
INDEX TO FORM 10-Q
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Part I Financial Information | ||||
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Item 1. | Financial Statements (Unaudited) | 3 | ||
Condensed Consolidated Balance Sheets | 3 | |||
| Condensed Consolidated Income Statements and Statements of | 4 | ||
| Condensed Consolidated Statements of Cash Flows | 5 | ||
| Notes to Condensed Consolidated Financial Statements | 6 | ||
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. | Controls and Procedures |
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Part II Other Information | ||||
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Item 1A. | Risk Factors |
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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| Item 6. | Exhibits |
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Signatures |
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PART I-FINANCIAL INFORMATION
Item 1. Financial StatementsStatements.
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
March 29, | December 28, | March 30, | ||||||||||
2014 | 2013 | 2013 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 41,903 | $ | 44,665 | $ | 40,826 | ||||||
Inventories | 44,059 | 50,248 | 37,824 | |||||||||
Receivables | 10,761 | 14,542 | 5,804 | |||||||||
Prepaid expenses and other current assets | 9,639 | 11,547 | 13,168 | |||||||||
Deferred tax assets | 81 | 81 | 120 | |||||||||
Total current assets | 106,443 | 121,083 | 97,742 | |||||||||
Property and equipment, net of accumulated depreciation of $179,350; $177,512and $186,500, respectively | 65,596 | 70,163 | 68,048 | |||||||||
Other intangible assets, net | 472 | 518 | 617 | |||||||||
Other assets, net | 3,641 | 3,847 | 4,724 | |||||||||
Total Assets | $ | 176,152 | $ | 195,611 | $ | 171,131 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 20,384 | $ | 34,977 | $ | 25,918 | ||||||
Accrued expenses | 11,446 | 16,380 | 8,698 | |||||||||
Gift cards and customer deposits | 29,070 | 33,786 | 27,439 | |||||||||
Deferred revenue | 4,677 | 4,687 | 5,017 | |||||||||
Deferred tax liability | 774 | 900 | 566 | |||||||||
Total current liabilities | 66,351 | 90,730 | 67,638 | |||||||||
Deferred franchise revenue | 1,124 | 905 | 1,115 | |||||||||
Deferred rent | 18,402 | 19,357 | 19,068 | |||||||||
Other liabilities | 318 | 229 | 1,287 | |||||||||
Stockholders' equity: | ||||||||||||
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No sharesissued or outstanding at March 29, 2014, December 28, 2013 and March 30, 2013 | - | - | - | |||||||||
Common stock, par value $0.01, Shares authorized: 50,000,000;Issued and outstanding: 17,547,477; 17,386,920 and 17,085,121 shares, respectively | 175 | 174 | 171 | |||||||||
Additional paid-in capital | 69,595 | 69,094 | 66,318 | |||||||||
Accumulated other comprehensive loss | (7,263 | ) | (7,303 | ) | (9,016 | ) | ||||||
Retained earnings | 27,450 | 22,425 | 24,550 | |||||||||
Total stockholders' equity | 89,957 | 84,390 | 82,023 | |||||||||
Total Liabilities and Stockholders' Equity | $ | 176,152 | $ | 195,611 | $ | 171,131 | ||||||
September 28, 2013 | December 29, 2012 | September 29, 2012 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 13,802 | $ | 45,171 | $ | 22,145 | ||||||
Inventories | 56,671 | 46,904 | 54,885 | |||||||||
Receivables | 10,515 | 9,428 | 4,721 | |||||||||
Prepaid expenses and other current assets | 14,602 | 14,216 | 13,569 | |||||||||
Deferred tax assets | 269 | 987 | 487 | |||||||||
Total current assets | 95,859 | 116,706 | 95,807 | |||||||||
Property and equipment, net of accumulated depreciationof $179,915; $189,134 and $184,606, respectively | 69,562 | 71,459 | 73,754 | |||||||||
Goodwill | - | - | 33,876 | |||||||||
Other intangible assets, net | 571 | 633 | 510 | |||||||||
Other assets, net | 3,025 | 3,304 | 7,218 | |||||||||
Total Assets | $ | 169,017 | $ | 192,102 | $ | 211,165 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 33,517 | $ | 38,984 | $ | 35,151 | ||||||
Accrued expenses | 9,162 | 11,570 | 5,981 | |||||||||
Gift cards and customer deposits | 23,092 | 30,849 | 21,180 | |||||||||
Deferred revenue | 4,935 | 4,800 | 5,455 | |||||||||
Total current liabilities | 70,706 | 86,203 | 67,767 | |||||||||
Deferred franchise revenue | 1,000 | 1,177 | 1,238 | |||||||||
Deferred rent | 19,050 | 20,843 | 20,955 | |||||||||
Other liabilities | 492 | 742 | 257 | |||||||||
Stockholders' equity: | ||||||||||||
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No sharesissued or outstanding at September 28, 2013, December 29, 2012 and September 29, 2012 | - | - | ||||||||||
Common stock, par value $0.01, Shares authorized: 50,000,000;Issued and outstanding: 17,364,772; 17,068,182 and 17,351,904 shares, respectively | 174 | 171 | 174 | |||||||||
Additional paid-in capital | 68,460 | 66,112 | 66,782 | |||||||||
Accumulated other comprehensive loss | (7,843 | ) | (7,683 | ) | (7,020 | ) | ||||||
Retained earnings | 16,978 | 24,537 | 61,012 | |||||||||
Total stockholders' equity | 77,769 | 83,137 | 120,948 | |||||||||
Total Liabilities and Stockholders' Equity | $ | 169,017 | $ | 192,102 | $ | 211,165 | ||||||
See accompanying notes to condensed consolidated financial statements.
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
AND STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands, except share and per share data)
Thirteen weeks ended | Thirty-nine weeks ended | Thirteen weeks ended | ||||||||||||||||||||||
September 28, 2013 | September 29, 2012 | September 28, 2013 | September 29, 2012 | March 29, 2014 | March 30, 2013 | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Net retail sales | $ | 83,580 | $ | 84,263 | $ | 266,906 | $ | 258,452 | $ | 96,840 | $ | 102,931 | ||||||||||||
Franchise fees | 670 | 861 | ||||||||||||||||||||||
Commercial revenue | 451 | 908 | 1,674 | 1,989 | 432 | 473 | ||||||||||||||||||
Franchise fees | 781 | 800 | 2,399 | 2,313 | ||||||||||||||||||||
Total revenues | 84,812 | 85,971 | 270,979 | 262,754 | 97,942 | 104,265 | ||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Cost of merchandise sold | 50,197 | 53,887 | 161,837 | 163,057 | 54,898 | 60,471 | ||||||||||||||||||
Selling, general and administrative | 35,819 | 36,573 | 116,455 | 113,774 | 37,800 | 43,735 | ||||||||||||||||||
Interest expense (income), net | (60 | ) | (36 | ) | (166 | ) | (185 | ) | (62 | ) | (51 | ) | ||||||||||||
Total costs and expenses | 85,956 | 90,424 | 278,126 | 276,646 | 92,636 | 104,155 | ||||||||||||||||||
Loss before income taxes | (1,144 | ) | (4,453 | ) | (7,147 | ) | (13,892 | ) | ||||||||||||||||
Income tax expense (benefit) | 210 | (201 | ) | 412 | (1,072 | ) | ||||||||||||||||||
Net loss | $ | (1,354 | ) | $ | (4,252 | ) | $ | (7,559 | ) | $ | (12,820 | ) | ||||||||||||
Income before income taxes | 5,306 | 110 | ||||||||||||||||||||||
Income tax expense | 281 | 97 | ||||||||||||||||||||||
Net income | $ | 5,025 | $ | 13 | ||||||||||||||||||||
Foreign currency translation adjustment | 1,106 | 2,063 | (160 | ) | 3,145 | 40 | (1,333 | ) | ||||||||||||||||
Comprehensive loss | $ | (248 | ) | $ | (2,189 | ) | $ | (7,719 | ) | $ | (9,675 | ) | ||||||||||||
Comprehensive income (loss) | $ | 5,065 | $ | (1,320 | ) | |||||||||||||||||||
Loss per common share: | ||||||||||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||
Basic | $ | (0.08 | ) | $ | (0.26 | ) | $ | (0.46 | ) | $ | (0.79 | ) | $ | 0.29 | $ | 0.00 | ||||||||
Diluted | $ | (0.08 | ) | $ | (0.26 | ) | $ | (0.46 | ) | $ | (0.79 | ) | $ | 0.29 | $ | 0.00 | ||||||||
Shares used in computing common per share amounts: | ||||||||||||||||||||||||
Basic | 16,531,240 | 16,473,114 | 16,407,668 | 16,323,630 | 16,701,723 | 16,231,291 | ||||||||||||||||||
Diluted | 16,531,240 | 16,473,114 | 16,407,668 | 16,323,630 | 16,910,071 | 16,231,291 | ||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollarsdollars in thousands)
Thirty-nine weeks ended September 28, 2013 September 29, 2012 Cash flows from operating activities: Net loss Adjustments to reconcile net loss tonet cash used in operating activities: Depreciation and amortization Stock-based compensation Deferred taxes Loss from investment in affiliate Impairment of store assets Trade credit utilization Loss on disposal of property and equipment Change in assets and liabilities: Inventories Receivables Prepaid expenses and other assets Accounts payable and accrued expenses Lease related liabilities Gift cards and customer deposits Deferred revenue Net cash used in operating activities Cash flows from investing activities: Purchases of property and equipment Purchases of other assets and other intangible assets Proceeds from sale or maturitiy of short term investments Investment in unconsolidated affiliate Cash used in investing activities Cash flows from financing activities: Exercise of employee stock options Cash provided by financing activities Effect of exchange rates on cash Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period $ (7,559 ) $ (12,820 ) 14,399 15,832 2,308 2,810 (26 ) (1,533 ) - 475 649 319 354 298 499 469 (9,656 ) (2,629 ) (781 ) 3,186 (197 ) (1,276 ) (7,165 ) (9,320 ) (1,870 ) (3,020 ) (7,705 ) (7,224 ) (41 ) (27 ) (16,791 ) (14,460 ) (14,490 ) (13,036 ) (203 ) (371 ) - 2,647 - (475 ) (14,693 ) (11,235 ) 655 - 655 - (540 ) 1,473 (31,369 ) (24,222 ) 45,171 46,367 $ 13,802 $ 22,145
Thirteen weeks ended | ||||||||
March 29, 2014 | March 30, 2013 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 5,025 | $ | 13 | ||||
Adjustments to reconcile net income tonet cash from operating activities: | ||||||||
Depreciation and amortization | 4,508 | 4,916 | ||||||
Deferred taxes | - | (40 | ) | |||||
Store asset impairment | 120 | 470 | ||||||
Loss on disposal of property and equipment | 37 | 144 | ||||||
Stock-based compensation | 604 | 812 | ||||||
Trade credit utilization | 148 | 183 | ||||||
Change in assets and liabilities: | ||||||||
Inventories | 6,275 | 8,575 | ||||||
Receivables | 3,814 | 3,804 | ||||||
Prepaid expenses and other assets | 1,853 | 907 | ||||||
Accounts payable and accrued expenses | (18,329 | ) | (14,227 | ) | ||||
Lease related liabilities | (969 | ) | (1,658 | ) | ||||
Gift cards and customer deposits | (4,748 | ) | (3,257 | ) | ||||
Deferred revenue | 202 | 171 | ||||||
Net cash (used in) provided by operating activities | (1,460 | ) | 813 | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment, net | (1,094 | ) | (3,738 | ) | ||||
Purchases of other assets and other intangible assets | (12 | ) | (69 | ) | ||||
Net cash used in investing activities | (1,106 | ) | (3,807 | ) | ||||
Cash flows from financing activities: | ||||||||
Purchases of Company's common stock | (723 | ) | - | |||||
Proceeds from the exercise of employee stock options, net of withholding tax payments | 622 | (607 | ) | |||||
Net cash used in financing activities | (101 | ) | (607 | ) | ||||
Effect of exchange rates on cash | (95 | ) | (744 | ) | ||||
Net decrease in cash and cash equivalents | (2,762 | ) | (4,345 | ) | ||||
Cash and cash equivalents, beginning of period | 44,665 | 45,171 | ||||||
Cash and cash equivalents, end of period | $ | 41,903 | $ | 40,826 | ||||
See accompanying notes to condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The condensed consolidated financial statements included herein are unaudited and have been prepared by Build-A-Bear Workshop, Inc. and its subsidiaries (collectively, the Company) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet of the Company as of December 29, 201228, 2013 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly the financial position of the Company and the results of the Company’s operations and cash flows for the periods presented. All of these adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. As a toy retailer, the Company’s sales are highest in the fourth quarter, followed by the first quarter. The timing of holidays and school vacations can impact quarterly results. Because of the seasonal nature of the Company’s operations, results of operations of any single reporting period should not be considered as indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended December 29, 2012 that28, 2013, which were included in the Company’s annual report on Form 10-K filed with the SEC on March 14, 2013.13, 2014.
Certain reclassifications have been made to prior year amounts to conform to current year presentation, none of which impact net income in any period.
In the first quarter of fiscal 2013,2014, the Company adopted new accounting guidance with regard to the presentation and disclosure of accumulated other comprehensive income (loss) in accordance withunrecognized tax benefits, according to the provisions of Accounting Standards Update 2013-02.2013-11. The adoption of this guidance impacted onlydid not have a material impact on the presentation and disclosure of accumulated other comprehensive income (loss).
financial statements.
2. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
September 28, 2013 December 29, 2012 September 29, 2012 Prepaid rent Prepaid income taxes Other $ 8,347 $ 8,736 $ 8,026 679 - 365 5,576 5,480 5,178 $ 14,602 $ 14,216 $ 13,569
March 29, | December 28, | March 30, | ||||||||||
2014 | 2013 | 2013 | ||||||||||
Prepaid rent | $ | 4,059 | $ | 4,608 | $ | 7,692 | ||||||
Prepaid income taxes | 193 | 280 | 111 | |||||||||
Other | 5,387 | 6,659 | 5,365 | |||||||||
| $ | 9,639 | $ | 11,547 | $ | 13,168 | |||||||
3. Property and Equipment
In 2012, the Company initiated a turnaround plan that includesmade the closuredecision to close of a number of stores. The Company considers a more likely than not assessment that an individual location will close as a triggering event to review the store asset group for recoverability. As a result of these quarterly reviews inthis review for the first quarter of fiscal 2013,2014, it was determined that certain storesone store would not be able to recover the carrying value of store leasehold improvements through expected undiscounted cash flows over the shortened remaining life of the related assets. Accordingly, the carrying value of the assets was reduced to fair value, calculated as the estimated future cash flows for each asset group, and asset impairment charges of $-0- and $0.6$0.1 million were recorded in the thirteen and thirty-nine weeks ended September 28, 2013, respectively,March 29, 2014, and are included in selling, general and administrative expenses as a component of lossincome before income taxes in the Retail segment. The inputs used to determine the fair value of the assets are Level 3 fair value inputs as defined by ASC section 820-10. Any remaining net book value is depreciated over the shortened expected life. The thirteen and thirty-nine weeks ended September 29, 2012, included similarSimilar asset impairment charges of $0.1$0.5 million and $0.3 million, respectively.were recorded in the thirteen weeks ended March 30, 2013.
4. Accrued Expenses
Accrued expenses consist of the following (in thousands):
September 28, 2013 December 29, 2012 September 29, 2012 Accrued wages, bonuses and related expenses Sales tax payable Accrued rent and related expenses Current income taxes payable $ 6,422 $ 5,455 $ 3,459 2,212 5,216 1,697 328 811 725 200 88 100 $ 9,162 $ 11,570 $ 5,981
5. Stock-based Compensation
The following table is a summary of the balances and activity for the plans related to restricted stock and stock options for the thirty-ninethirteen weeks ended September 28, 2013:March 29, 2014:
Restricted Stock Options Outstanding, December 29, 2012 Granted Vested Exercised Forfeited Canceled or expired Outstanding, September 28, 2013 860,325 1,155,239 459,140 498,318 397,368 — — 126,609 34,315 30,192 137,600 343,956 750,182 1,152,800
Restricted | ||||||||
Stock | Options | |||||||
Outstanding, December 28, 2013 | 720,198 | 1,065,012 | ||||||
Granted | 154,486 | 95,148 | ||||||
Vested | 232,008 | — | ||||||
Exercised | — | 192,690 | ||||||
Forfeited | 10,892 | 15,476 | ||||||
Canceled or expired | — | 6,750 | ||||||
Outstanding, March 29, 2014 | 631,784 | 945,244 | ||||||
For the thirteen and thirty-nine weeks ended September 28,March 29, 2014 and March 30, 2013, selling, general and administrative expense includes $0.7expenses include $0.6 million and $2.3$0.8 million respectively, of stock-based compensation expense. For the thirteen and thirty-nine weeks ended September 29, 2012 selling, general and administrative expense, includes $0.8 million and $2.8 million, respectively, of stock-based compensation expense.respectively. As of September 28, 2013,March 29, 2014, there was $4.0$4.4 million of total unrecognized compensation expense related to nonvested restricted stock and option awards which is expected to be recognized over a weighted-average period of 1.6 years.
The total fair value of shares vested during the thirty-ninethirteen weeks ended September 28,March 29, 2014 and March 30, 2013 and September 29, 2012 was $2.2$2.1 million and $4.3$1.6 million, respectively.
6. Loss per Share
The Company uses the two-class method to compute basic and diluted loss per common share. In periods of net loss, no effect is given to the Company’s participating securities as they do not contractually participate in the losses of the Company. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):
Thirteen weeks ended Thirty-nine weeks ended September 28, 2013 September 29, 2012 September 28, 2013 September 29, 2012 NUMERATOR: Net loss before allocation of earnings to participating securities Less: Earnings allocated to participating securities Net loss after allocation of earnings to participating securities 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-BearWorkshop, Inc. stockholders: Diluted loss per common share attributable to Build-A-BearWorkshop, Inc. stockholders $ (1,354 ) $ (4,252 ) $ (7,559 ) $ (12,820 ) - - - - $ (1,354 ) $ (4,252 ) $ (7,559 ) $ (12,820 ) 16,531,240 16,473,114 16,407,668 16,323,630 - - - - 16,531,240 16,473,114 16,407,668 16,323,630 $ (0.08 ) $ (0.26 ) $ (0.46 ) $ (0.79 ) $ (0.08 ) $ (0.26 ) $ (0.46 ) $ (0.79 )
For the thirteen and thirty-nine weeks ended September 28, 2013, options to purchase 1,152,800 shares of common stock were excluded from the denominator for diluted loss per common share because of their anti-dilutive effect. For the thirteen thirty-nine weeks ended September 29, 2012, options to purchase 1,166,350 shares of common stock were excluded from the denominator for diluted loss per common share because of their anti-dilutive effect.
Due to the net loss for thirteen and thirty-nine weeksended September 28, 2013 and September 29, 2012, the denominator for diluted loss per common share is the same as the denominator for basic loss per common share for those periods because the inclusion of stock options and unvested restricted shares would be anti-dilutive.
7.5. Income Taxes
In prior years, the Company recorded a valuation allowance on substantially all of its deferred tax assets. The effective tax rate was (18.4)% and (5.8)%5.3% for the thirteen and thirty-nineweeksweeks ended September 28, 2013, respectivelyMarch 29, 2014 compared to 4.5% and 7.7%88.2% for the thirteen and thirty-nineweeksweeks ended September 29, 2012, respectively.March 30, 2013. While the components of income tax expense were consistent between periods, the change in the effective rate was driven by the increase in pre-tax income.
8.6. Earnings per Share
The Company uses the two-class method to compute basic and diluted earnings per common share. The following table sets forth the computation of basic and diluted loss per share (in thousands, except share and per share data):
Thirteen weeks ended | ||||||||
March 29, 2014 | March 30, 2013 | |||||||
NUMERATOR: | ||||||||
Net income before allocation of earnings to participating securities | $ | 5,025 | $ | 13 | ||||
Less: Earnings allocated to participating securities | 205 | 1 | ||||||
Net income after allocation of earnings to participating securities | $ | 4,820 | $ | 12 | ||||
DENOMINATOR: | ||||||||
Weighted average number of common shares outstanding - basic | 16,701,723 | 16,231,291 | ||||||
Dilutive effect of share-based awards | 208,348 | - | ||||||
Weighted average number of common shares outstanding - dilutive | 16,910,071 | 16,231,291 | ||||||
Basic income per common share attributable to Build-A-BearWorkshop, Inc. stockholders: | $ | 0.29 | $ | 0.00 | ||||
Diluted income per common share attributable to Build-A-BearWorkshop, Inc. stockholders | $ | 0.29 | $ | 0.00 | ||||
In calculating diluted earnings per share for the thirteen week periods ended March 29, 2014 and March 30, 2013, options to purchase 372,584 shares and 1,153,121 shares, respectively, of common stock that were outstanding at the end of the period were not included in the computation of diluted earnings per share due to their anti-dilutive effect.
7. Comprehensive Income or Loss
The difference between comprehensive income or loss and net income or loss results from foreign currency translation adjustments on the balance sheets of subsidiaries whose functional currency is not the US Dollar. The accumulated other comprehensive loss balance at SeptemberMarch 29, 2014, December 28, 2013 and December 29, 2012March 30, 2013 is comprised entirely of foreign currency translation. For the thirteen weeks ended March 29, 2014 and thirty-nineweeks ended September 28,March 30, 2013, and September 29, 2012, there were no reclassifications out of accumulated other comprehensive loss.
9.8. Segment Information
The Company’s operations are conducted through three operating segments consisting of retail, commercialinternational franchising and international franchising.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, pop-up stores and non-traditional store locations such as a baseball parks. The commercial segment includes the Company’s transactions with other businesses, mainly comprised of licensing the Company’s intellectual properties for third party use and wholesale activities.park. The international franchising segment includes the licensing activities of the Company’s franchise agreements with store locations in Europe, outside of the United Kingdom and Ireland, Asia, Australia, the Middle East, Africa Mexico and South America.Mexico. The commercial segment includes the Company’s transactions with other businesses, mainly comprised of licensing the Company’s intellectual properties for third party use and wholesale activities. The operating segments have discrete sources of revenue, different capital structures and different cost structures. These operating segments represent the basis on which the Company’s chief operating decision maker regularly evaluates the business in assessing performance, determining the allocation of resources and the pursuit of future growth opportunities. Accordingly, the Company has determined that each of its operating segments represent one reportable segment. The reportable segments follow the same accounting policies used for the Company’s consolidated financial statements.
Following is a summary of the financial information for the Company’s reportable segments (in thousands):
Retail | Commercial | International Franchising | Total | International | ||||||||||||||||||||||||||||
Thirteen weeks ended September 28, 2013 | ||||||||||||||||||||||||||||||||
Retail | Franchising | Commercial | Total | |||||||||||||||||||||||||||||
Thirteen weeks ended March 29, 2014 | ||||||||||||||||||||||||||||||||
Net sales to external customers | $ | 96,840 | $ | 670 | $ | 432 | $ | 97,942 | ||||||||||||||||||||||||
Income (loss) before income taxes | 5,215 | (137 | ) | 228 | 5,306 | |||||||||||||||||||||||||||
Capital expenditures, net | 1,097 | 9 | - | 1,106 | ||||||||||||||||||||||||||||
Depreciation and amortization | 4,470 | 38 | - | 4,508 | ||||||||||||||||||||||||||||
Thirteen weeks ended March 30, 2013 | ||||||||||||||||||||||||||||||||
Net sales to external customers | $ | 83,580 | $ | 451 | $ | 781 | $ | 84,812 | $ | 102,931 | $ | 861 | $ | 473 | $ | 104,265 | ||||||||||||||||
Income (loss) before income taxes | (1,817 | ) | 277 | 396 | (1,144 | ) | (72 | ) | (53 | ) | 235 | 110 | ||||||||||||||||||||
Capital expenditures, net | 5,657 | - | 20 | 5,677 | 3,778 | 29 | - | 3,807 | ||||||||||||||||||||||||
Depreciation and amortization | 4,677 | - | 45 | 4,722 | 4,871 | 45 | - | 4,916 | ||||||||||||||||||||||||
Thirteen weeks ended September 29, 2012 | ||||||||||||||||||||||||||||||||
Net sales to external customers | $ | 84,263 | $ | 908 | $ | 800 | $ | 85,971 | ||||||||||||||||||||||||
Income (loss) before income taxes | (5,254 | ) | 453 | 348 | (4,453 | ) | ||||||||||||||||||||||||||
Capital expenditures, net | 5,063 | - | 40 | 5,103 | ||||||||||||||||||||||||||||
Depreciation and amortization | 5,152 | - | 44 | 5,196 | ||||||||||||||||||||||||||||
Thirty-nine weeks ended September 28, 2013 | ||||||||||||||||||||||||||||||||
Net sales to external customers | $ | 266,906 | $ | 1,674 | $ | 2,399 | $ | 270,979 | ||||||||||||||||||||||||
Income (loss) before income taxes | (8,695 | ) | 902 | 646 | (7,147 | ) | ||||||||||||||||||||||||||
Capital expenditures, net | 14,600 | - | 93 | 14,693 | ||||||||||||||||||||||||||||
Depreciation and amortization | 14,263 | - | 136 | 14,399 | ||||||||||||||||||||||||||||
Thirty-nine weeks ended September 29, 2012 | ||||||||||||||||||||||||||||||||
Net sales to external customers | $ | 258,452 | $ | 1,989 | $ | 2,313 | $ | 262,754 | ||||||||||||||||||||||||
Income (loss) before income taxes | (15,692 | ) | 688 | 1,112 | (13,892 | ) | ||||||||||||||||||||||||||
Capital expenditures, net | 13,320 | - | 87 | 13,407 | ||||||||||||||||||||||||||||
Depreciation and amortization | 15,699 | - | 133 | 15,832 | ||||||||||||||||||||||||||||
Total Assets as of: | ||||||||||||||||||||||||||||||||
September 28, 2013 | $ | 159,529 | $ | 6,370 | $ | 3,118 | $ | 169,017 | ||||||||||||||||||||||||
September 29, 2012 | $ | 199,612 | $ | 9,149 | $ | 2,404 | $ | 211,165 | ||||||||||||||||||||||||
March 29, 2014 | $ | 166,337 | $ | 3,949 | $ | 5,866 | $ | 176,152 | ||||||||||||||||||||||||
March 30, 2013 | $ | 161,662 | $ | 2,296 | $ | 7,173 | $ | 171,131 | ||||||||||||||||||||||||
The Company’s reportable segments are primarily determined by the types of products and services that they offer. Each reportable segment may operate in many geographic areas. The Company allocates revenues to geographic areas based on the location of the customer or franchisee. The following schedule is a summary of the Company’s sales to external customers and long-lived assets by geographic area (in thousands):
North America (1) | Europe (2) | Other (3) | Total | North | ||||||||||||||||||||||||||||
Thirteen weeks ended September 28, 2013 | ||||||||||||||||||||||||||||||||
America(1) | Europe(2) | Other(3) | Total | |||||||||||||||||||||||||||||
Thirteen weeks ended March 29, 2014 | ||||||||||||||||||||||||||||||||
Net sales to external customers | $ | 66,870 | $ | 17,484 | $ | 458 | $ | 84,812 | $ | 79,830 | $ | 17,751 | $ | 361 | $ | 97,942 | ||||||||||||||||
Property and equipment, net | 61,341 | 8,221 | - | 69,562 | 58,011 | 7,585 | - | 65,596 | ||||||||||||||||||||||||
Thirteen weeks ended September 29, 2012 | ||||||||||||||||||||||||||||||||
Thirteen weeks ended March 30, 2013 | ||||||||||||||||||||||||||||||||
Net sales to external customers | $ | 68,545 | $ | 16,951 | $ | 475 | $ | 85,971 | $ | 86,206 | $ | 17,584 | $ | 475 | $ | 104,265 | ||||||||||||||||
Property and equipment, net | 62,644 | 11,110 | - | 73,754 | 59,375 | 8,673 | - | 68,048 | ||||||||||||||||||||||||
Thirty-nine weeks ended September 28, 2013 | ||||||||||||||||||||||||||||||||
Net sales to external customers | $ | 219,776 | $ | 49,820 | $ | 1,383 | 270,979 | |||||||||||||||||||||||||
Property and equipment, net | 61,341 | 8,221 | - | 69,562 | ||||||||||||||||||||||||||||
Thirteen weeks ended September 29, 2012 | ||||||||||||||||||||||||||||||||
Net sales to external customers | $ | 214,157 | $ | 47,236 | $ | 1,361 | $ | 262,754 | ||||||||||||||||||||||||
Property and equipment, net | 62,644 | 11,110 | - | 73,754 | ||||||||||||||||||||||||||||
For purposes of this table only:
(1) North America includes the United States, Canada, Puerto Rico and franchise business in Mexico
(2) Europe includes the United Kingdom, Ireland and franchise businesses in Europe
(3) Other includes franchise businesses outside of North America and Europe
| For purposes of this table only: | |
(1) | North America includes the United States, Canada, Puerto Rico and franchise business in Mexico |
(2) | Europe includes the United Kingdom, Ireland and franchise businesses in Europe |
(3) | Other includes franchise businesses outside of North America and Europe |
10.9. Contingencies
In the normal course of business, the Company is subject to regular examination by various taxing authorities for years not closed by the statute of limitations, including an ongoing customs audit in the United Kingdom in which the Company is contesting audit findings. The Company accrues a liability for this type of contingency when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. In 2012, the Company received notification from the customs authority that it intended to make an assessment for unpaid duty, penalties and interest. The assessment was made in 2013. The Company has appealed this determination and continues to believe that the ultimate outcome of these matters will not have a material adverse impact on the results of operations, liquidity or financial position of the Company. However, if one or more of these examinations has an unfavorable resolution, it is possible that the results of operation, liquidity or financial position of the Company could be materially affected in any particular period. Since the date of the notification in the third quarter of fiscal 2012, the Company has been required to pay the disputed duty, pending resolution of the appeal. As of September 28, 2013, $2.7March 29, 2014, $3.1 million had been paid in respect of the disputed duty and is included in receivables in the Retail segment.
11. Subsequent Event
In the period from September 29, 2013 through November 5, 2013, the Company repurchased approximately 28,000 shares of its common stock for an aggregate amount of $0.2 million, leaving $7.1 million of availability under the program.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
Cautionary Notice Regarding Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements,uncertainties, and we undertake no obligation to update these statements except as required by federal securities laws. Our actual results may differ materially from the results discussed in the forward-looking statements. These risks and uncertainties include, without limitation, those detailed under the captionscaption “Risk Factors” and "Forward-Looking Statements" in ourthe Company’s annual report on Form 10-K for the year ended December 29, 2012,28, 2013, as filed with the SEC, on March 14, 2013, and the following:
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Overview
We are the leading, and only international,global company providing athat offers an interactive “make your own stuffed animal” interactiveretail entertainment experience under the Build-A-Bear Workshop brand, in which our guests stuff, fluff, dress, accessorize and name their own teddy bears and other stuffed animals. Our concept, which we developed primarily for mall-based retailing, capitalizes on what we believe is the relatively untapped demand for experience-based shopping as well as the widespread appeal of stuffed animals. The Build-A-Bear Workshop experience appeals to a broad range of age groups and demographics, including children, teens, their parents and grandparents.
Build-A-Bear Workshop is in a turnaround phase as we work to improve store productivity and profitability. We are taking actions to change our business dynamics with a reinvented store design, aggressive repositioning of our portfolio of stores, including closures and remodels that will reduce square footage, and a rebalancing of our marketing to include higher levels of brand advertising. We currently expect to have approximately 310 company-owned stores at the end of 2014, 250 stores in North America and 60 stores in the United Kingdom and Ireland. We believe the actions we are taking will result in improvements in productivity and profitability and, ultimately, stakeholder value. We also believe there are additional international growth opportunities, primarily through existing and new franchises.
As of September 28, 2013,March 29, 2014, we operated 254245 traditional stores and six11 non-traditional stores in United States, Canada and Puerto Rico (collectively, North America), 6058 traditional stores and two non-traditional stores in the United Kingdom and Ireland (collectively, Europe) and had 8583 franchised stores operating internationally under the Build-A-Bear Workshop brand. Non-traditional store locations include stores in a Major League Baseball® stadium, a zoo and an airport, as well as temporary pop-up locations. In order to capitalize on short-term opportunities in specific locations, we have selectively opened temporary, pop-up locations. In addition to our stores, we market our products and build our brand through our Web sites.
We operate in three reportable segments (retail, commercial and international franchising) that share the same infrastructure, including management, systems, merchandising and marketing, and generate revenues as follows:
Retail –- Company-owned traditional and non-traditional retail stores located in North Americathe United States, Canada, Puerto Rico, the United Kingdom and EuropeIreland, and e-commerce Web sites or “web stores”;
Commercial – Transactions with other business partners, mainly comprised of licensing our intellectual property, including entertainment properties, for third-party use and wholesale product sales; anda web store;
International Franchising – Other international stores operated under franchise agreements.agreements; and
Commercial - Transactions with other business partners, mainly comprised of wholesale product sales and licensing our intellectual property, including entertainment properties, for third-party use.
Our 2013 performance demonstrated progress toward our objective to achieve sustainable, profitable growth as we hired a new chief executive, executed a significant real estate strategy and implemented stringent cost controls throughout the organization. Our 2014 plan builds on the progress we made in 2013 in implementing our key strategies. We plan to continue to improve store productivity and profitability through our real estate optimization efforts, reposition our marketing programs to refine the consumer value equation and build on core competencies to lay the groundwork to further leverage the strength of our Build-A-Bear brand. Additionally we intend to work aggressively on expense rationalization as we continue to align our cost structure with our smaller store base and value engineer our products, along with an end to end review of our supply chain.
Selected financial data attributable to each segment for the thirteen and thirty-nine weeks ended September 28,March 29, 2014 and March 30, 2013 and September 29, 2012 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.
We use comparable store sales as one of the performance measures for our business. Comparable store sales percentage changes are based on net retail sales, excluding our web storewebstores, pop-up and seasonal and event-based locations. Stores are considered comparable beginning in their thirteenth full month of operation. Stores with relocations or remodels that result in a significant change in square footage are excluded from the comparable stores sales calculation until the thirteenth full month of operation after the change. The percentage change in comparable store sales for the periods presented below is as follows:
Thirteen weeks ended Thirty-nine weeks ended September 28, September 29, September 28, September 29, 2013 2012 2013 2012 North America Europe Consolidated 7.6% (11.8)% 9.1% (3.4)% 2.3% (7.9)% 4.6% (6.7)% 6.4% (11.1)% 8.2% (4.0)%
Thirteen Weeks Ended | ||||||||
March 29, 2014 | March 30, 2013 | |||||||
North America | (1.9 | )% | 10.6 | % | ||||
Europe | (3.2 | )% | 9.7 | % | ||||
Consolidated | (2.2 | )% | 10.4 | % | ||||
We attributebelieve the increasedecline in comparable store sales for the periodsperiod presented is primarily to impact of our brand marketing and product strategies which have improved results in our overall store base and our real estate optimization strategies which have driven sales in selective markets impacted by store closures and remodels.
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Our brand building marketing initiatives, including national television advertising in the United States, and intensified communication with moms, along with a good balance of proprietary and licensed product which we believe increased traffic to our stores and contributedattributable to the increaseshift of Easter and the associated school breaks to the second quarter in transactions;
The elimination of a significant promotion and related discounts that ran in the 2012 third quarter which contributed to higher transaction value in the 2013 third quarter; and
The 30% increase in the issuance of gift cards on a consolidated basis during the 2012 fourth quarter, followed by a 19% increase in the first thirty-nine weeks of 2013, which contributed to increased retail sales2014 as well as the cards were redeemed.weather patterns that impacted the retail sector overall.
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The Company is working to build on this positive trend inimprove comparable store sales withthrough the following key initiatives:
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increasing productivity and profitability of our existing stores through strategic closures, primarily in multi-store markets where we expect to transfer a portion of the closed stores’ sales to remaining stores in the market and the relocation of select other stores with a reduction in square footage thereby improving their productivity;
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Stores
Company-owned:Stores
Company-owned Stores
The table below sets forth the number of Build-A-Bear Workshop company-owned stores in North Americathe United States, Canada, the United Kingdom and EuropeIreland for the periods presented:
2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thirty-nine Weeks Ended September 28, 2013 | Fifty-two Weeks Ended December 28, 2013 - Projected | Thirteen Weeks | Fifty-three Weeks - Projected | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
December 29, | September 28, | December 29, | December 28, | December 28, | March 29, | December 28, | January 3, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | Opened | Closed | 2013 | 2012 | Opened | Closed | 2013 | 2013 | Opened | Closed | 2014 | 2013 | Opened | Closed | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||
North America | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Traditional | 283 | 3 | (32 | ) | 254 | 283 | 4 | (34 | ) | 253 | 252 | - | (7 | ) | 245 | 252 | 2 | (13 | ) | 241 | ||||||||||||||||||||||||||||||||||||||||||||
Non-traditional | 8 | - | (2 | ) | 6 | 8 | 3 | (2 | ) | 9 | 11 | - | - | 11 | 11 | 6 | (1 | ) | 16 | |||||||||||||||||||||||||||||||||||||||||||||
| 291 | 3 | (34 | ) | 260 | 291 | 7 | (36 | ) | 262 | 263 | - | (7 | ) | 256 | 263 | 8 | (14 | ) | 257 | |||||||||||||||||||||||||||||||||||||||||||||
Europe | 60 | - | - | 60 | 60 | - | (1 | ) | 59 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Traditional | 58 | - | - | 58 | 58 | - | - | 58 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-traditional | 2 | - | - | 2 | 2 | - | - | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 60 | - | - | 60 | 60 | - | - | 60 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 351 | 3 | (34 | ) | 320 | 351 | 7 | (37 | ) | 321 | 323 | - | (7 | ) | 316 | 323 | 8 | (14 | ) | 317 | ||||||||||||||||||||||||||||||||||||||||||||
2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thirty-nine Weeks Ended September 29, 2012 | Fifty-two Weeks Ended December 29, 2012 | Thirteen Weeks | Fifty-two Weeks | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, | September 29, | December 31, | December 29, | December 29, | March 30, | December 29, | December 28, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2011 | Opened | Closed | 2012 | 2011 | Opened | Closed | 2012 | 2012 | Opened | Closed | 2013 | 2012 | Opened | Closed | 2013 | |||||||||||||||||||||||||||||||||||||||||||||||||
North America | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Traditional | 287 | 1 | (5 | ) | 283 | 287 | 2 | (6 | ) | 283 | 283 | - | (16 | ) | 267 | 283 | 3 | (34 | ) | 252 | ||||||||||||||||||||||||||||||||||||||||||||
Non-traditional | 11 | 1 | (2 | ) | 10 | 11 | 1 | (4 | ) | 8 | 8 | - | (2 | ) | 6 | 8 | 5 | (2 | ) | 11 | ||||||||||||||||||||||||||||||||||||||||||||
| 298 | 2 | (7 | ) | 293 | 298 | 3 | (10 | ) | 291 | 291 | - | (18 | ) | 273 | 291 | 8 | (36 | ) | 263 | |||||||||||||||||||||||||||||||||||||||||||||
Europe | 58 | - | - | 58 | 58 | 2 | - | 60 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Traditional | 58 | - | - | 58 | 58 | 1 | (1 | ) | 58 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-traditional | 2 | - | - | 2 | 2 | - | - | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 60 | - | - | 60 | 60 | 1 | (1 | ) | 60 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 356 | 2 | (7 | ) | 351 | 356 | 5 | (10 | ) | 351 | 351 | - | (18 | ) | 333 | 351 | 9 | (37 | ) | 323 | ||||||||||||||||||||||||||||||||||||||||||||
Our long term store real estate goal is to bringimprove our stores back to best in classstores’ sales productivity and profitability. We currently expectintend to haveclose approximately 310 Build-A-Bear Workshop stores, 250 in North America and 60 in the United Kingdom and Ireland, at the end of fiscal 2014. We currently expect to reach this level with the closure of 10 to 25 additional stores through15 locations in 2014, primarily in North America, alongAmerica. We also intend to strategically refresh and upgrade stores with limited, opportunistic store openings. Locations to close andselect features from the timing of the closures are subject to ongoing negotiations and overall economic considerations as market repositioning and optimization plans are continually reevaluated.
Integral to the success of this strategy is the opening of our new store design, which gives certain stores destination appeal and increases productivity inwhile driving down the market. Thecost of capital required for these improvements. We also expect to open new design merges Build-A-Bear Workshop’s iconic hands-on bear-making process with the power of technology to provide a new, highly interactive experience for our guests. We opened the first store with the new design in the third quarter of fiscal 2012. As of November 5, 2013, we have opened 29 of these stores. On average, sales at these locations have increased by nearly 20%. We plan to have approximately 30 locations in the new design operating by the end of 2013.
We have been aggressively renegotiating rents and executing short term extensions to line up lease dates within marketsselectively as part of an overall strategic plan to optimize our store locations and market positioning. As part of this strategy, we will continue to close underperforming stores in conjunction with natural lease expirations and kick out clauses, primarily in multi-store markets. In these markets, we have transferred, on average, approximately 20% of the sales from closing stores to other locations in the same market. As of November 5, 2013, we have closed 36 stores in fiscal 2013.opportunities arise.
International Franchise Locations:Revenue
Our first franchised location opened in November 2003. The number of international franchised stores for the periods presented below are summarized as follows:
Thirty-nine weeks ended | ||||||||||||||||
September 28, | September 29, | |||||||||||||||
2013 | 2012 | Thirteen Weeks Ended | ||||||||||||||
March 29, 2014 | March 30, 2013 | |||||||||||||||
Beginning of period | 91 | 79 | 86 | 91 | ||||||||||||
Opened | 7 | 12 | - | 4 | ||||||||||||
Closed | (13) | (4) | (3 | ) | (3 | ) | ||||||||||
End of period | 85 | 87 | 83 | 92 | ||||||||||||
As of September 28, 2013,March 29, 2014, we had master franchise agreements, which typically grant franchise rights for a particular country or countries,group of countries. With the Turkish franchise added in the 2014 first quarter, we now have agreements covering 16an aggregate of 17 countries. WeIn the ordinary course of business, we anticipate signing additional master franchise agreements in the future. We currently expect to end fiscal 2013 with 87 franchised locations. Wefuture and terminating other such agreements. In the long term, we believe there is a market potential for existing and new franchisees to operate approximately 300 franchised stores outside of the United States, Canada, Puerto Rico, the United Kingdom and Ireland.Ireland, which we expect to be operated primarily by new and existing franchisees.
Results of Operations
The following table sets forth, for the periods indicated, selected statement of operations data expressed as a percentage of total revenues, except where otherwise indicated:indicated. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and commercial revenue and immaterial rounding:
Thirteen weeks ended | ||||||||
March 29, | March 30, | |||||||
2014 | 2013 | |||||||
Revenues: | ||||||||
Net retail sales | 98.9% | 98.7% | ||||||
Franchise fees | 0.7 | 0.8 | ||||||
Commercial revenue | 0.4 | 0.5 | ||||||
Total revenues | 100.0 | 100.0 | ||||||
Costs and expenses: | ||||||||
Cost of merchandise sold (1) | 56.4 | 58.5 | ||||||
Selling, general and administrative | 38.6 | 41.9 | ||||||
Interest expense (income), net | (0.1) | (0.0) | ||||||
Total costs and expenses | 94.6 | 99.9 | ||||||
Income before income taxes | 5.4 | 0.1 | ||||||
Income tax expense | 0.3 | 0.1 | ||||||
Net income | 5.1 | 0.0 | ||||||
Retail gross margin % (2) | 43.5% | 41.5% | ||||||
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen weeks ended Thirty-nine weeks ended September 28, September 29, September 28, September 29, 2013 2012 2013 2012 Revenues: Net retail sales Commercial revenue Franchise fees Total revenues Costs and expenses: Cost of merchandise sold (1) Selling, general and administrative Interest expense (income), net Total costs and expenses Loss before income taxes Income tax expense (benefit) Net loss Retail Gross Margin % (2) 98.5% 98.0% 98.5% 98.4% 0.5 1.1 0.6 0.8 0.9 0.9 0.9 0.9 100.0 100.0 100.0 100.0 59.7 63.3 60.3 62.6 42.2 42.5 43.0 43.3 (0.0) (0.0) (0.1) (0.1) 101.3 105.2 102.6 105.3 (1.3) (5.2) (2.6) (5.3) 0.2 (0.2) 0.2 (0.4) (1.6) (4.9) (2.8) (4.9) 40.1% 36.5% 39.6% 37.3%
(1) | Cost of merchandise sold is expressed as a percentage of net retail sales and commercial revenue. |
(2) | Retail gross margin represents net retail sales less cost of retail merchandise sold, which excludes cost of wholesale merchandise sold. Retail gross margin was |
Thirteen weeks ended September 28, 2013March 29, 2014 compared to thirteen weeks ended September 29, 2012March 30, 2013
Revenues
Net retail sales.Total revenues.Net retail salesTotal revenues were $83.6$97.9 million for the thirteen weeks ended September 28, 2013March 29, 2014 as compared to $84.3$104.3 million for the thirteen weeks ended September 29, 2012,March 30, 2013, a decrease of $0.7$6.3 million, or 0.8%6.1%. Net retail sales were $96.8 million for the thirteen weeks ended March 29, 2014 as compared to $102.9 million for the thirteen weeks ended March 30, 2013, a decrease of $6.1 million, or 5.9%. The components of this decrease are as follows:
Thirteen weeks September 28, 2013 (dollars in millions) Impact of store closures Increase in comparable store sales Increase in non-comparable stores, primarily remodels and relocations Increase from new stores Increase from non-traditional locations, including web sales Impact of foreign currency translation ended $ (6.1 ) 4.5 0.9 0.4 0.1 (0.5 ) $ (0.7 )
Thirteen weeks ended | ||||
March 29, | ||||
2014 | ||||
(dollars in millions) | ||||
Impact of store closures | $ | (6.0 | ) | |
Decrease in comparable store sales | (2.0 | ) | ||
Decrease in non-comparable stores, primarily remodels and relocations | (0.5 | ) | ||
Increase from new stores | 1.3 | |||
Increase from non-traditional locations, including web sales | 0.4 | |||
Impact of foreign currency translation | 0.7 | |||
| $ | (6.1 | ) | ||
We attributebelieve the increasedecline in comparable store sales for the periodsperiod presented is primarily attributable to impactthe shift of our brand marketingEaster and product strategies which have improved resultsthe associated school breaks to the second quarter in our overall store base and our real estate optimization strategies which have driven sales in selective markets2014 as well as the weather patterns that impacted by store closures and remodels.the retail sector overall.
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Our brand building marketing initiatives, including national television advertisingRevenue from international franchise fees was $0.7 million and $0.9 million for the thirteen weeks ended March 29, 2014 and March 30, 2013, respectively, as a result of fewer franchised stores in the United States, and intensified communication with moms, along with a good balance of proprietary and licensed product which we believe increased traffic to our stores and contributed to the increaseoperation in transactions;
The elimination of a significant promotion and related discounts that ran in the 2012 third quarter which contributed to higher transaction value in the 2013 third quarter, and
The 30% increase in the issuance of gift cards on a consolidated basis during the 2012 fourth quarter, followed by a 19% increase in the first thirty-nine weeks of 2013, which contributed to increased retail sales as the cards were redeemed.
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Commercial revenue and franchise fees.2014. Commercial revenue was $0.4 million for the thirteen weeks ended March 29, 2014 compared to $0.5 million for the thirteen weeks ended September 28,March 30, 2013, from $0.9 million for the thirteen weeks ended September 29, 2012,as a decreaseresult of $0.5 million, primarily attributable to a declinereduced licensing activity in licensing activity. Revenue from franchise fees was $0.8 million for both the thirteen weeks ended September 28, 2013 and September 29, 2012.2014.
Costs and expenses
Gross margin.Total gross margin increased to $33.8was $42.4 million for the thirteen weeks ended September 28, 2013 from $31.3March 29, 2014 as compared to $42.9 million for the thirteen weeks ended September 29, 2012, an increaseMarch 30, 2013, a decrease of $2.6$0.6 million, or 8.2%1.3%. Retail gross margin increased to $33.5was $42.1 million for the thirteen weeks ended September 28, 2013 from $30.8March 29, 2014 compared to $42.7 million for the thirteen weeks ended September 29, 2012, an increaseMarch 30, 2013, a decrease of $2.7$0.5 million, or 8.8%1.3%. As a percentage of net retail sales, retail gross margin was 40.1%43.5% for the thirteen weeks ended September 28, 2013March 29, 2014 as compared to 36.5%41.5% for the thirteen weeks ended September 29, 2012. This 360March 30, 2013, an increase of 200 basis points as a percentage of net retail sales (bps) increase. Our retail gross margin improvement was primarily driven by a 190 bps improvement inimproved merchandise margin, drivenpartially offset by decreased promotional activity and a 170 bps improvement in leveragedeleverage of fixed occupancy costs. expenses during the quarter.
Selling, general and administrative.Selling, general and administrative expenses were $35.8$37.8 million for the thirteen weeks ended September 28, 2013March 29, 2014 as compared to $36.6$43.7 million for the thirteen weeks ended September 29, 2012,March 30, 2013, a decrease of $0.8$5.9 million, or 2.1%13.6%. As a percentage of total revenues, selling, general and administrative expenses decreased to 42.2%were 38.6% for the thirteen weeks ended September 28, 2013March 29, 2014 as compared to 42.5%41.9% for the thirteen weeks ended September 29, 2012,March 30, 2013, a decrease of 30330 bps. The 2013 thirdfiscal 2014 first quarter included $0.4 million in one-time management transition costs and $0.2store closing expenses, compared to $2.3 million in store closing costs.the 2013 first quarter. Excluding these costs in both periods, selling, general and administrative expenses as a percentimproved 160 basis points to 38.1% of revenue decreased 80 bps, primarily due to decreasestotal revenues in the 2014 first quarter. This improvement was driven by reduced store payroll, costsother store expenses and other operational cost savings resulting from store closures and our cost reduction efforts that werecorporate overhead, partially offset by higher incentive compensation.increases in corporate payroll.
Interest expense (income), net.Interest income, net of interest expense, was $60,000$62,000 for the thirteen weeks ended September 28, 2013,March 29, 2014 as compared to $40,000$51,000 for the thirteen weeks ended September 29, 2012.March 30, 2013.
Provision for income taxes. The income tax expense was $0.2$0.3 million for the thirteen weeks ended September 28, 2013March 29, 2014 as compared to the income tax benefit of $0.2$0.1 million for the thirteen weeks ended September 29, 2012.March 30, 2013. The effective tax rate was (18.4)%5.3% for the thirteen weeks ended September 28, 2013March 29, 2014 compared to 4.5%88.2% for the thirteen weeks ended September 29, 2012. TheMarch 30, 2013. While the components of income tax expense were consistent between periods, the change in the effective tax rate was primarily attributable to the impact of recording valuation allowances on both foreign and domestic deferred tax assets in prior periods.
Thirty-nine weeks ended September 28, 2013 compared to thirty-nine weeks ended September 29, 2012
Revenues
Net retail sales.Net retail sales increased to $266.9 million for the thirty-nine weeks ended September 28, 2013 compared to $258.5 million for the thirty-nine weeks ended September 29, 2012, an increase of $8.5 million, or 3.3%. The components of this increase are as follows:
Thirty-nine weeks ended September 28, 2013 (dollars in millions) Impact of store closures Increase in comparable store sales Increase in non-comparable stores, primarily remodels and relocations Increase from new stores Increase from non-traditional locations, including web sales Impact of foreign currency translation $ (13.6 ) 18.4 2.8 1.3 0.6 (1.0 ) $ 8.5
We attributedriven by the increase in comparable store sales for the periods presented primarily to impact of our brand marketing and product strategies which have improved results in our overall store base and our real estate optimization strategies which have driven sales in selective markets impacted by store closures and remodels.
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Our brand building marketing initiatives, including national television advertising in the United States, and intensified communication with moms, along with a good balance of proprietary and licensed product which we believe increased traffic to our stores and contributed to the increase in transactions;
The 30% increase in the issuance of gift cards on a consolidated basis during the 2012 fourth quarter, followed by a 19% increase in the first thirty-nine weeks of 2013, which contributed to increased retail sales as the cards were redeemed.
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Commercial revenue and franchise fees. Commercial revenue was $1.7 million for the thirty-nine weeks ended September 28, 2013 compared to $2.0 million for the thirty-nine weeks ended September 29, 2012, a decrease of $0.3 million. This decrease was primarily attributable to an overall decline in licensing activities.Revenue from franchise fees was $2.4 million and $2.3 million for the thirty-nine weeks ended September 28, 2013 and September 29, 2012, respectively.
Cost and expenses
Gross margin.Total gross margin increased to $106.7 million for the thirty-nine weeks ended September 28, 2013 from $97.4 million for the thirty-nine weeks ended September 29, 2012, an increase of $9.4 million, or 9.6%. Retail gross margin increased to $105.8 million for the thirty-nine weeks ended September 28, 2013 from $96.4 million for the thirty-nine weeks ended September 29, 2012, an increase of $9.4 million, or 9.8%. As a percentage of net retail sales, retail gross margin increased to 39.6% for the thirty-nine weeks ended September 28, 2013 from 37.3% for the thirty-nine weeks ended September 29, 2012. This 230 bps increase was primarily driven by a 200 bps improvement in leverage of fixed occupancy costs and a 30 bps improvement in merchandise margin driven by decreased promotional activity.
Selling, general and administrative.Selling, general and administrative expenses were $116.5 million for the thirty-nineweeks ended September 28, 2013 as compared to $113.8 million for the thirty-nineweeks ended September 29, 2012, an increase of $2.7 million, or 2.4%. As a percentage of total revenues, selling, general and administrative expenses decreased to 43.0% for the thirty-nineweeks ended September 28, 2013 as compared to 43.3% for the thirty-nineweeks ended September 29, 2012, a decrease of 30 bps. The dollar increase was primarily attributable to $2.7 million in one-time management transition costs and $1.1 million in store closing costs. As a percent of revenue, these costs were offset by improved leverage on increased revenue. Excluding the management transition and store closing costs, selling, general and administrative expenses as a percent of revenue decreased 140 bps, primarily due to the overall decrease in expenses from store closures and our cost reduction efforts partially offset by higher incentive compensation.
Interest expense (income), net.Interest income, net of interest expense, was $0.2 million for both the thirty-nineweeks ended September 28, 2013 and September 29, 2012.
Provision for income taxes.The income tax expense was $0.4 million for the thirty-nineweeks ended September 28, 2013 as compared to the income tax benefit of $1.1 million for the thirty-nineweeks ended September 29, 2012. The effective tax rate was (5.8)% for the thirty-nineweeks ended September 28, 2013 compared to 7.7% for the thirty-nineweeks ended September 29, 2012. The change in the effective tax rate was primarily attributable to the impact of recording valuation allowances on both foreign and domestic deferred tax assets in prior periods.pre-tax income.
Seasonality and Quarterly Results
Our operating results for one period may not be indicative of results for other periods, and may fluctuate significantly because of a variety of factors, including, but not limited to:including: (1) changes in general economic conditions and consumer spending patterns; (2) increases or decreases in our comparable store sales; (3) fluctuations in the profitability of our stores; (4) changes in foreign currency exchange rates; (5) the timing and frequency of our marketing initiatives, including national media appearances and other public relations events; (6) the timing of our store openingsclosings and closingsopenings and related expenses; (7) changes in consumer preferences; (8) the effectiveness of our inventory management; (9) the actions of our competitors or mall anchors and co-tenants; (10) seasonal shopping patterns and holiday and vacation schedules; and (11) weather conditions.
The timing of store openings, closures, remodels and remodelsopenings may result in fluctuations in quarterly results as a result ofbased on the revenues and expenses associated with each store location. We typically incur most preopening costs for a new store in the three months immediately preceding the store’s opening. Expenses related to store closings are typically incurred in stages: when the decision is made to close the store, when the closure is communicated to store associates and at the time of closure. We typically incur most preopening costs for a new store in the three months immediately preceding the store’s opening.
As a toy retailer, our sales are highest in our fourth quarter, followed by the first quarter. The timing of holidays and school vacations can impact our quarterly results. Our European-based stores have historically been more heavily weighted in the fourth quarter as compared to our North American stores. We cannot ensureassure you that this will continue to be the case. In addition, for accounting purposes, the quarters of each fiscal year consist of 13 weeks, although we will have a 14-week quarter approximately once every six years. The 2008 fiscal fourth quarter had and the 2014 fiscal fourth quarter will have 14 weeks.
Liquidity and Capital Resources
Our cash requirements are primarily for the relocation and remodeling of existing stores, in our new design, opening of new stores, information systems and working capital. Over the past several years, we have met these requirements through capital generated from cash flow provided by operations. We have access to additional cash through our revolving line of credit that has been in place since 2000.
Operating Activities.Cash used in operating activities was $16.8$1.5 million for the thirty-ninethirteen weeks ended September 28, 2013 asMarch 29, 2014 compared with $14.5cash provided by operating activities of $0.8 million for the thirty-ninethirteen weeks ended September 29, 2012,March 30, 2013, an increase of $2.3 million. Generally, changes in cash from operating activities are driven by changes in net income or loss and changes in operating assets and liabilities. This increase in cash used in operating activities over the year ago period was primarily due to the timing of inventory receipts and payments and an increase in gift card redemptions, partially offset by increased store contribution.
Investing Activities.Activities. Cash used in investing activities was $14.7$1.1 million for the thirty-ninethirteen weeks ended September 28, 2013March 29, 2014 as compared to $11.2$3.8 million for the thirty-ninethirteen weeks ended September 29, 2012, an increase of $3.5 million.March 30, 2013. Cash used in investing activities during the thirty-ninethirteen weeks ended September 28, 2013March 29, 2014 primarily relatedrelates to store construction costs for new and remodeled stores, investments inmaintenance and upgrades and purchases of central office information technology systems and the acquisition of trademarks and other intellectual property.equipment. Cash used in investing activities during the thirty-ninethirteen weeks ended September 29, 2012March 30, 2013 primarily relatedrelates to investmentsthe purchase of equipment and fixtures for stores that will be relocated and remodeled in the new design in 2013 and upgrades and purchases of central office information technology systems new store construction costs and the acquisition of trademarks and other intellectual property.equipment.
Financing Activities.Activities Cash provided by financing. Financing activities was $0.7used cash of $0.1 million in the thirty-ninethirteen weeks ended September 28, 2013. NoMarch 29, 2014, as purchases of our stock used cash wasof $0.7 million, partially offset by $0.6 million provided by exercises of employee stock options, net of shares used for withholding tax payments. Cash used in or provided by financing activities in the thirty-ninethirteen weeks ended September 29, 2012. InMarch 30, 2013 the cash from financing activitieswas $0.6 million resulting from the exercise of employee stock options.shares used for withholding tax payments. No borrowings were made under our line of credit in either the thirty-ninethirteen weeks ended September 28, 2013March 29, 2014 or September 29, 2012.March 30, 2013.
Capital Resources.As of September 28, 2013,March 29, 2014, we had a consolidated cash balance of $13.8$41.9 million the majorityless than half of which was helddomiciled 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 and was amended effective April 30, 2013. The bank line provides availability 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, 20142015 and contains various restrictions on indebtedness, liens, guarantees, redemptions, mergers, acquisitions or sale of assets, loans, transactions with affiliates and investments. It also 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 repurchase of shares would not violate any terms of the credit agreement; we may not use the 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. As of September 28, 2013:March 29, 2014: (i) we were in compliance with these covenants; (ii) there were no borrowings under our line of credit; (iii) there was a standby letter of credit of approximately $1.1 million outstanding under the credit agreement; and (iv) 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 to fourth year of the lease, if a certain minimum sales volume is not achieved. In addition, some of these leases contain various restrictions relating to change of control of our Company.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 U.K. 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 upwards 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 2013,2014, we expect to spend a total of approximately $20$12 to $15 million on capital expenditures. Capital spending through the thirty-nineweeksthirteen weeks ended September 28, 2013March 29, 2014 totaled $14.7$1.1 million, on track with our full year plans. Capital spending in fiscal 20132014 is primarily forto support the remodelingrefresh and openingrepositioning of stores and investment in our new design and the continued installation and upgrades of central office information technology systems.infrastructure.
We believe that cash generated from operations and available 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, 2014.2015.
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, 2013,24, 2014, we announced that our share repurchase program had been extended to March 31, 2014.2015. 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. The primary source of funding for the program is expected to be cash on hand. The timing and amount of 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. As of November 5, 2013,May 2, 2014, approximately 5.96.0 million shares at an average price of $7.24$7.25 per share have been repurchased under this program for an aggregate amount of $42.7$43.6 million, leaving $7.3$6.4 million of availability under the program.
Off-Balance Sheet Arrangements
None
Inflation
We do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented. We cannot provide assurance, however, that our business will not be affected by inflation in the future.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the appropriate application of certain accounting policies, which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements.
We believe the application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates, including those related to inventory, long-lived assets, goodwill, and revenue recognition and income taxes, are reevaluated on an ongoing basis, and adjustments are made when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.
Our critical accounting policies and estimates are discussed in and should be read in conjunction with our annual report on Form 10-K, as filed with the Securities and Exchange Commission (SEC) on March 14, 2013,13, 2014, which includes audited consolidated financial statements for our 2013, 2012 2011 and 20102011 fiscal years. There have been no material changes to the critical accounting estimates disclosed in the 20122013 Form 10-K.
Recent Accounting Pronouncements
There are no new accounting pronouncements for which adoption is expected to have a material effect on the Company’s financial statements in future accounting periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our market risks relate primarily to changes in interest rates, and we bear this risk in two specific ways. First, our revolving credit facility carries a variable interest rate that is tied to market indices and, therefore, our results of operations and our cash flows can be impacted by changes in interest rates. Outstanding balances under our credit facility bear interest at LIBOR plus 1.8%. We had no borrowings outstanding during the fiscal 2014 first nine months of fiscal 2013.quarter. Accordingly, a 100 basis point change in interest rates would result in no material change to our annual interest expense. The second component of interest rate risk involves the investment of excess cash in short term, investment grade interest-bearing securities. These investments are considered to be cash equivalents or short-term investments, based on their original maturity and are classified accordinglyshown that way on our balance sheet. If there are changes in interest rates, those changes would affect the investment income we earn on these investments and, therefore, impact our cash flows and results of operations.
We conduct operations in various countries, which expose us to changes in foreign exchange rates. The financial results of our foreign subsidiaries and franchisees may be materially impacted by exposure to fluctuating exchange rates. Reported sales, costs and expenses at our foreign subsidiaries, when translated into U.S. dollars for financial reporting purposes, can fluctuate due to exchange rate movement. While exchange rate fluctuations can have a material impact on reported revenues, costs and expenses, and earnings, this impact is principally the result of the translation effect and does not materially impact our short-term cash flows.
Although we enter into a significant amount of purchase obligations outside of the U.S., these obligations are settled primarily in U.S. dollars and, therefore, we believe we have only minimal exposure at present to foreign currency exchange risks for our purchase obligations. Historically, we have not hedged our currency risk and do not currently anticipate doing so in the future.
We do not engage in financial transactions for trading or speculative purposes.
Item 4. Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Chief President Bear and Chief Operations and Financial Bear, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our certifying officers, as appropriate to allow timely decisions regarding required disclosure. Based on the foregoing evaluation, our management, including the Chief Executive Officer and Chief President Bear and Chief Operations and Financial Bear, concluded that our disclosure controls and procedures were effective as of September 28, 2013,March 29, 2014, the end of the period covered by this Quarterly Report.
It should be noted that our management, including the Chief Executive Officer and Chief President Bear and the Chief Operations and Financial Bear, does not expect that our disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief President Bear and Chief Operations and Financial Bear, also conducted an evaluation of the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the period covered by this report.
PART II – OTHER INFORMATION
Item 1A. Risk FactorsFactors.
There have been no material changes to our Risk Factors as disclosed in our Annual Report on Form 10-K for the year ended December 29, 201228, 2013 as filed with the SEC on March 14, 2013.13, 2014.
Item 2. Unregistered Sales of Equity Securities and Use of ProceedsProceeds.
ISSUER PURCHASES OF EQUITY SECURITIES
Period (a) Total Number of Shares (or Units) Purchased (1) (b) Average Price Paid Per Share (or Unit) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) the May Yet Be Purchased Under the Plans or Programs (2) Jun. 30, 2013 – Jul. 27, 2013 Jul. 28, 2013 – Aug. 24, 2013 Aug. 25, 2013 – Sep. 28, 2013 Total 168 $ 6.22 - $ 7,364,562 213 $ 7.13 - $ 7,364,562 284 $ 7.15 - $ 7,364,562 665 $ 6.91 -
(a) | (b) | (c) | (d) | |||||||||||||
Period | Total Number of Shares (or Units) Purchased(1) | Average Price Paid Per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plan or Program(2) | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plan or Program | ||||||||||||
Dec. 29, 2013 – Jan. 25, 2014 | 102 | $ | 7.75 | — | $ | 7,148,180 | ||||||||||
Jan. 26, 2014 – Feb. 22, 2014 | 21 | $ | 8.65 | — | $ | 7,148,180 | ||||||||||
Feb. 23, 2014 – Mar. 29, 2014 | 175,604 | $ | 8.57 | 90,023 | $ | 6,425,557 | ||||||||||
Total | 175,727 | $ | 8.56 | 90,023 | $ | 6,425,557 | ||||||||||
(1) | Includes shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of restricted shares which vested during the applicable period. Our equity incentive plans provide that the value of shares delivered to us to pay the withheld to cover tax obligations is calculated at the closing trading price of our common stock on the date the relevant transaction occurs. |
(2) | On February |
Item 6. ExhibitsExhibits.
The following is a list of exhibits filed as a part of the quarterly report on Form 10-Q:
Exhibit No. | Description | |
2.1 | Agreement and Plan of Merger dated April 3, 2000 between Build-A-Bear Workshop, L.L.C. and the Registrant (incorporated by reference from Exhibit 2.1 to our Registration Statement on Form S-1, filed on August 12, 2004, Registration No. 333-118142) | |
3.1 | Third Amended and Restated Certificate of Incorporation (incorporated by reference from Exhibit 3.1 of our Current Report on Form 8-K, filed on November 11, 2004) | |
3.2 | Amended and Restated Bylaws (incorporated by reference from Exhibit 3.4 to our Registration Statement on Form S-1, filed on August 12, 2004, Registration No. 333-118142) | |
4.1 | Specimen Stock Certificate (incorporated by reference from Exhibit 4.1 to Amendment No. 3 to our Registration Statement on Form S-1, filed on October 1, 2004, Registration No. 333-118142) | |
31.1 | 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) | |
31.2 | Rule 13a-14(a)/15d-14(a) certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by the Chief Operations and Financial Bear) | |
32.1 | Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Chief Executive Officer and Chief President Bear) | |
32.2 | Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Chief Operations and Financial Bear) | |
101.INS | XBRL Instance | |
101.SCH | XBRL Extension Schema | |
101.CAL | XBRL Extension Calculation | |
101.DEF | XBRL Extension Definition | |
101.LAB | XBRL Extension Label | |
101.PRE | XBRL Extension Presentation |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 7, 2013
May 8, 2014
BUILD-A-BEAR WORKSHOP, INC. | |||
(Registrant) | |||
By: | /s/ Sharon John | ||
Sharon John | |||
Chief Executive Officer and Chief President Bear (on behalf of the registrant and as principal executive officer) | |||
By: | /s/ Tina Klocke | ||
Tina Klocke | |||
Chief Operations and Financial Bear, Treasurer (on behalf of the registrant and as principal financial officer) | |||
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