e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 |
For the quarterly period ended March 31, 2007
OR
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o |
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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)
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Delaware
(State or Other Jurisdiction of Incorporation or
Organization)
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43-1883836
(I.R.S. Employer Identification No.) |
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1954 Innerbelt Business Center Drive
St. Louis, Missouri
(Address of Principal Executive Offices)
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63114
(Zip Code) |
(314) 423-8000
(Registrants 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o Accelerated Filer þ Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes þ No o
As of May 4, 2007, there were 20,607,648 issued and outstanding shares of the registrants common
stock.
BUILD-A-BEAR WORKSHOP, INC.
INDEX TO FORM 10-Q
2
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share and per share data)
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March 31, |
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December 30, |
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2007 |
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2006 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
42,375 |
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$ |
53,109 |
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Inventories |
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48,013 |
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50,905 |
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Receivables |
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6,028 |
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7,389 |
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Prepaid expenses and other current assets |
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17,854 |
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11,805 |
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Deferred tax assets |
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2,437 |
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2,388 |
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Total current assets |
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116,707 |
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125,596 |
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Property and equipment, net |
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129,455 |
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130,347 |
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Goodwill |
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36,374 |
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36,927 |
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Other intangible assets, net |
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2,984 |
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2,873 |
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Other assets, net |
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4,972 |
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4,027 |
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Total Assets |
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$ |
290,492 |
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$ |
299,770 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
44,167 |
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$ |
46,761 |
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Accrued expenses |
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12,378 |
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16,301 |
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Gift cards and customer deposits |
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20,295 |
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28,128 |
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Deferred revenue |
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6,613 |
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6,454 |
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Total current liabilities |
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83,453 |
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97,644 |
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Deferred franchise revenue |
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2,418 |
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2,297 |
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Deferred rent |
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36,466 |
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34,754 |
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Other liabilities |
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308 |
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352 |
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Deferred tax liabilities |
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460 |
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459 |
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Stockholders equity: |
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Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares
issued or outstanding at March 31, 2007 and December 30, 2006 |
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Common stock, par value $0.01, Shares authorized: 50,000,000;
Issued and outstanding: 20,594,729 and 20,537,421 shares, respectively |
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206 |
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205 |
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Additional paid-in capital |
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84,796 |
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88,866 |
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Other comprehensive income |
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(1,868 |
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(997 |
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Retained earnings |
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84,253 |
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76,190 |
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Total stockholders equity |
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167,387 |
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164,264 |
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Total Liabilities and Stockholders Equity |
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$ |
290,492 |
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$ |
299,770 |
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See accompanying notes to condensed consolidated financial statements.
3
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share and per share data)
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Thirteen weeks ended |
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March 31, 2007 |
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April 1, 2006 |
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Revenues: |
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Net retail sales |
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$ |
115,883 |
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$ |
97,730 |
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Franchise fees |
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695 |
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690 |
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Licensing revenue |
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236 |
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211 |
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Total revenues |
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116,814 |
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98,631 |
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Costs and expenses: |
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Cost of merchandise sold |
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62,140 |
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49,860 |
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Selling, general and administrative |
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41,544 |
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35,451 |
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Store preopening |
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688 |
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615 |
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Interest expense (income), net |
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(545 |
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(866 |
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Total costs and expenses |
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103,827 |
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85,060 |
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Income before income taxes |
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12,987 |
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13,571 |
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Income tax expense |
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4,922 |
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5,225 |
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Net income |
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$ |
8,065 |
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$ |
8,346 |
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Earnings per common share: |
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Basic |
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$ |
0.40 |
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$ |
0.42 |
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Diluted |
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$ |
0.39 |
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$ |
0.41 |
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Shares used in computing common per share amounts: |
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Basic |
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20,281,820 |
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20,078,876 |
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Diluted |
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20,525,347 |
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20,401,378 |
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See accompanying notes to condensed consolidated financial statements.
4
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
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Thirteen weeks ended |
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March 31, 2007 |
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April 1, 2006 |
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Cash flows from operating activities: |
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Net income |
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$ |
8,065 |
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$ |
8,346 |
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Adjustments to reconcile net income to
net cash used in operating activities: |
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Depreciation and amortization |
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6,260 |
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4,782 |
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Deferred taxes |
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39 |
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(847 |
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Tax benefit from stock option exercises |
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(159 |
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(405 |
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Loss (gain) on disposal of property and equipment |
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10 |
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(13 |
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Stock-based compensation |
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587 |
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493 |
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Change in assets and liabilities: |
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Inventories |
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4,057 |
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(3,435 |
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Receivables |
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1,358 |
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(667 |
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Prepaid expenses and other assets |
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(6,952 |
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(504 |
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Accounts payable |
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(4,424 |
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(2,731 |
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Accrued expenses and other liabilities |
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(9,808 |
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(6,772 |
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Net cash used in operating activities |
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(967 |
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(1,753 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(4,944 |
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(9,662 |
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Purchases of other assets and other intangible assets |
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(644 |
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(301 |
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Escrow Deposit |
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(36,893 |
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Net cash used in investing activities |
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(5,588 |
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(46,856 |
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Cash flows from financing activities: |
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Exercise of employee stock options and employee stock purchases |
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347 |
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652 |
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Purchases of Companys common stock |
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(4,670 |
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Tax benefit from stock option exercises |
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159 |
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405 |
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Net cash (used in) provided by financing activities |
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(4,164 |
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1,057 |
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Effect of exchange rates on cash |
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(15 |
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Net decrease in cash and cash equivalents |
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(10,734 |
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(47,552 |
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Cash and cash equivalents, beginning of period |
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53,109 |
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90,950 |
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Cash and cash equivalents, end of period |
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$ |
42,375 |
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$ |
43,398 |
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Supplemental disclsoure of cash flow information: |
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Cash paid during the period for: |
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Income taxes |
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$ |
8,106 |
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$ |
7,326 |
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Noncash Transactions: |
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Return of common stock in lieu of tax witholdings and option exercises |
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$ |
494 |
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$ |
211 |
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See accompanying notes to condensed consolidated financial statements.
5
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 30, 2006 was derived from the Companys 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 Companys 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. Because of the
seasonal nature of the Companys 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 Companys audited consolidated
financial statements for the fiscal year ended December 30, 2006 included in the Companys annual
report on Form 10-K filed with the SEC on March 15, 2007.
2. Business Acquisition
On April 2, 2006, the Company acquired all of the outstanding shares of The Bear Factory
Limited (Bear Factory), a stuffed animal retailer in the United Kingdom, and Amsbra Limited
(Amsbra), the Companys former U.K. franchisee (collectively, the U.K. Acquisition). The results
of the U.K. Acquisition operations have been included in the consolidated financial statements
since that date. In conjunction with those transactions, we obtained 40 retail locations in the
United Kingdom and Ireland. The aggregate cash purchase price for the U.K. Acquisition was $39.4
million, excluding cash acquired of $0.3 million. In addition to the cash purchase price, the
Company had previously advanced $4.5 million to Amsbra as a note receivable. The amount of this
note receivable and the related accrued interest is a component of the purchase price.
The company has not completed its assessment of the U.K. Acquisition assets and liabilities.
Until that assessment is complete, the allocation of the purchase price is preliminary and may be
subject to revisions.
The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of Acquisition (in thousands):
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Current assets |
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$ |
7,670 |
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Property and equipment |
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6,192 |
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Goodwill |
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31,162 |
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Intangibles |
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1,824 |
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Total assets acquired |
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46,848 |
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Current liabilites assumed |
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(9,215 |
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Loan previously advanced |
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4,517 |
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Total purchase price |
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$ |
42,150 |
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6
The following unaudited pro forma summary presents the Companys revenue, net income,
basic earnings per share and diluted earnings per share as if the U.K. Acquisition had occurred on
January 1, 2006 (in thousands, except per share data):
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Thirteen Weeks Ended |
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March 31, 2007 |
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April 1, 2006 |
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Revenue |
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$ |
116,814 |
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$ |
107,764 |
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Net Income |
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8,065 |
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6,060 |
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Basic earnings per common share: |
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$ |
0.40 |
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$ |
0.30 |
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Diluted earnings per common share: |
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$ |
0.39 |
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$ |
0.30 |
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Pro forma adjustments have been made to reflect depreciation and amortization using estimated
asset values recognized after applying purchase accounting adjustments.
This pro forma information is presented for informational purposes only and is not necessarily
indicative of actual results had the acquisition been effected at the beginning of the respective
periods presented, and is not necessarily indicative of future results.
3. Goodwill
In connection with our U.K. Acquisition, we acquired goodwill. This asset was recorded in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations
and is reported as a component of the Companys retail segment. The following table summarizes the
Companys goodwill (in thousands):
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U.K. Acquisition |
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$ |
31,162 |
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Acquisition costs |
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1,005 |
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Severance costs |
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785 |
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32,952 |
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Effect of foreign currency translation |
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3,422 |
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Goodwill, as of March 31, 2007 |
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$ |
36,374 |
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4. Stock-based Compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised
2004), Share-Based Payment (SFAS 123R). SFAS 123R requires companies to recognize the cost of
awards of equity instruments, such as stock options and restricted stock, based on the fair value
of those awards at the date of grant and eliminates the choice to account for employee stock
options under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). The Company adopted SFAS 123R effective January 1, 2006 using the modified
prospective method.
7
Under this method, in addition to reflecting compensation expense for new share-based awards,
expense is also recognized to reflect the remaining service period of awards that had been included
in pro forma disclosures in prior periods. Prior to January 1, 2006, the fair value of restricted
stock awards was expensed by the Company over the vesting period, while compensation expense for
stock options was recognized over the vesting period only to the extent that the grant date market
price of the stock exceeded the exercise price of the options.
For the thirteen weeks ended March 31, 2007, selling, general and administrative expense
includes $0.6 million ($0.4 million after tax) of stock-based compensation expense. For the
thirteen weeks ended April 1, 2006, selling, general and administrative expenses includes $0.5
million ($0.3 million after tax) of stock-based compensation expense.
As of March 31, 2007, there was $8.9 million of total unrecognized compensation expense
related to nonvested restricted stock awards and options which is expected to be recognized over a
weighted-average period of 3.37 years.
Upon adoption of SFAS 123R, the Company made a policy decision that the straight-line expense
attribution method would be utilized for all future stock-based compensation awards with graded
vesting.
5. Stock Incentive Plans
In 2000, the Company adopted the 2000 Stock Option Plan. In 2003, the Company adopted the
Build-A-Bear Workshop, Inc. 2002 Stock Incentive Plan, and, in 2004, the Company adopted the
Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan (collectively, the Plans).
Under the Plans, as amended, up to 3,700,000 shares of common stock were reserved and may be
granted to employees and nonemployees of the Company. The Plans allow for the grant of incentive
stock options, nonqualified stock options, and restricted stock. Options granted under the Plans
expire no later than 10 years from the date of the grant. The exercise price of each incentive
stock option shall not be less than 100% of the fair value of the stock subject to the option on
the date the option is granted. The exercise price of the nonqualified options shall be determined
from time to time by the compensation committee of the board of directors (the Committee). The
vesting provision of individual awards is at the discretion of the Committee and generally ranges
from one to four years.
(a) Stock Options
The following table is a summary of the balances and activity for the Plans related to stock
options for the thirteen weeks ended March 31, 2007:
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Weighted |
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Aggregate |
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Weighted |
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Average |
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Intrinsic |
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Number of |
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Average |
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Remaining |
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Value |
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Shares |
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Exercise Price |
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Contractual Term |
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(in thousands) |
|
Outstanding, December 30, 2006 |
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|
529,200 |
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|
$ |
16.10 |
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Granted |
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Exercised |
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|
30,505 |
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|
6.88 |
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Forfeited |
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|
15,000 |
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|
34.65 |
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Outstanding, March 31, 2007 |
|
|
483,695 |
|
|
$ |
16.10 |
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|
|
5.7 |
|
|
$ |
5,498 |
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Options Exercisable As Of: |
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|
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|
|
|
|
|
|
|
March 31, 2007 |
|
|
479,945 |
|
|
$ |
16.05 |
|
|
|
5.6 |
|
|
$ |
5,482 |
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8
The total intrinsic value of options exercised in the thirteen weeks ended March 31, 2007
and April 1, 2006 was approximately $0.7 million and $1.8 million, respectively. The Company
generally issues new shares to satisfy option exercises.
(b) Restricted Stock
The following table is a summary of the balances and activity for the Plans related to
restricted stock granted as compensation to employees and directors for the thirteen weeks ended
March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average Grant |
|
|
|
Number of |
|
|
Date Fair Value |
|
|
|
Shares |
|
|
per Award |
|
Outstanding, December 30, 2006 |
|
|
227,453 |
|
|
$ |
30.06 |
|
Granted |
|
|
215,428 |
|
|
|
27.48 |
|
Vested |
|
|
51,889 |
|
|
|
29.23 |
|
Canceled or expired |
|
|
400 |
|
|
|
27.82 |
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2007 |
|
|
390,592 |
|
|
$ |
28.75 |
|
|
|
|
|
|
|
|
The total fair value of restricted shares vested during the thirteen weeks ended March
31, 2007 and April 1, 2006 was $1.4 million and $0.4 million, respectively.
(c) Associate Stock Purchase Plan
In October 2004, the Company adopted an Associate Stock Purchase Plan (ASPP). Under the ASPP,
substantially all full-time employees are given the right to purchase shares of the Companys
common stock, subject to certain limitations, at 85% of the lesser of the fair market value on the
purchase date or the beginning of each purchase period. Up to 1,000,000 shares of the Companys
common stock are available for issuance under the ASPP. The employees of the Company purchased
5,868 shares at $23.35 per share through the ASPP during the thirteen weeks ended March 31, 2007.
The expense recorded related to the ASPP during the thirteen weeks ended March 31, 2007 was
determined using the Black-Scholes option pricing model and the provisions of FASB Technical
Bulletin 97-1, Accounting under Statement 123 for Certain Employee Stock Purchase Plans with a
Look-Back Option (FTB 97-1), as amended by SFAS 123R. The assumptions used in the option pricing
model for the thirteen weeks ended March 31, 2007 were: (a) dividend yield of 0%; (b) volatility of
20%; (c) risk-free interest rate of 6.0%; and (d) an expected life of 0.25 years.
9
6. Earnings per Share
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 |
|
|
|
March 31, 2007 |
|
|
April 1, 2006 |
|
Net income allocated to common
stockholders |
|
$ |
8,065 |
|
|
$ |
8,346 |
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding |
|
|
20,281,820 |
|
|
|
20,078,876 |
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options |
|
|
177,347 |
|
|
|
283,843 |
|
Restricted stock |
|
|
66,180 |
|
|
|
38,659 |
|
|
|
|
|
|
|
|
Weighted average number |
|
|
|
|
|
|
|
|
of common shares dilutive |
|
|
20,525,347 |
|
|
|
20,401,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic: |
|
$ |
0.40 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.39 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
In calculating diluted earnings per share for the thirteen weeks ended March 31, 2007, options
to purchase 156,588 shares of common stock were outstanding as of the end of the period, but were
not included in the computation of diluted earnings per share due to their anti-dilutive effect. An
additional 215,028 shares of restricted common stock were outstanding at the end of the period, but
excluded from the calculation of diluted earnings per share due to their anti-dilutive effect under
the provisions of SFAS No. 128, Earnings per Share (SFAS No. 128).
In calculating diluted earnings per share for the thirteen weeks ended April 1, 2006, options
to purchase 206,324 shares of common stock were outstanding as of the end of the period, but were
not included in the computation of diluted earnings per share due to their anti-dilutive effect. An
additional 202,631 shares of restricted common stock were outstanding at the end of the period, but
excluded from the calculation of diluted earnings per share due to their anti-dilutive effect under
the provisions of SFAS No. 128.
7. Comprehensive Income
Comprehensive income for the thirteen weeks ended March 31, 2007 and April 1, 2006 was $7.2
million and $8.3 million, respectively. The difference between comprehensive income and net income
resulted from foreign currency translation adjustments.
10
8. Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 30, |
|
|
|
2007 |
|
|
2006 |
|
Land |
|
$ |
2,261 |
|
|
$ |
2,261 |
|
Furniture and fixtures |
|
|
33,221 |
|
|
|
33,938 |
|
Computer hardware |
|
|
15,862 |
|
|
|
15,649 |
|
Building |
|
|
14,970 |
|
|
|
14,970 |
|
Leasehold improvements |
|
|
123,847 |
|
|
|
122,043 |
|
Computer software |
|
|
14,410 |
|
|
|
12,988 |
|
Construction in progress |
|
|
4,085 |
|
|
|
2,200 |
|
|
|
|
|
|
|
|
|
|
|
208,656 |
|
|
|
204,049 |
|
Less accumulated depreciation |
|
|
79,201 |
|
|
|
73,702 |
|
|
|
|
|
|
|
|
|
|
$ |
129,455 |
|
|
$ |
130,347 |
|
|
|
|
|
|
|
|
9. Income Taxes
The Company adopted the provisions of Financial Standards Accounting Board Interpretation No.
48 Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN 48)
on December 31, 2006. The implementation of FIN 48 did not
result in an adjustment to the liability for unrecognized income tax benefits. At the adoption date of
December 31, 2006, there was approximately $1,207,000 of unrecognized tax benefits, all of which
would affect the Companys effective tax rate if recognized. At March 31, 2007, there is
approximately $1,207,000 of unrecognized tax benefits. In the short-term, management of the
Company does not reasonably expect any significant changes.
The Company recognizes interest and penalties related to uncertain tax positions in
income tax expense. As of March 31, 2007, there is approximately $86,000 of accrued interest
related to uncertain tax positions.
The tax years 2003-2006 remain open to examination by the major taxing jurisdictions to which
the Company is subject.
10. Segment Information
The Companys operations are conducted through three reportable segments consisting of retail,
international franchising, and licensing and entertainment. 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 Companys web store and
non-traditional store locations such as baseball ballparks. The international franchising segment
includes the licensing activities of the Companys franchise agreements with store locations in
Europe, Asia, and Australia. The licensing and entertainment segment has been established to market
the naming and branding rights of the Companys intellectual properties for third party use. These
operating segments represent the basis on which the Companys chief operating decision-maker
regularly evaluates the business in assessing performance, determining the allocation of resources
and the pursuit of future growth opportunities. The operating segments have discrete sources of
revenue, different capital structures and different cost structures. The reporting segments follow
the same accounting policies used for the Companys consolidated financial statements.
11
Following is a summary of the financial information for the Companys reporting segments (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
Licensing & |
|
|
|
|
Retail |
|
Franchising |
|
Entertainment |
|
Total |
Thirteen weeks ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
$ |
115,883 |
|
|
$ |
695 |
|
|
$ |
236 |
|
|
$ |
116,814 |
|
Income before income taxes |
|
|
12,622 |
|
|
|
294 |
|
|
|
71 |
|
|
|
12,987 |
|
Capital expenditures |
|
|
4,941 |
|
|
|
|
|
|
|
3 |
|
|
|
4,944 |
|
Depreciation and amortization |
|
|
6,126 |
|
|
|
122 |
|
|
|
12 |
|
|
|
6,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended April 1, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
|
97,730 |
|
|
|
690 |
|
|
|
211 |
|
|
|
98,631 |
|
Income before income taxes |
|
|
13,170 |
|
|
|
271 |
|
|
|
130 |
|
|
|
13,571 |
|
Capital expenditures |
|
|
9,660 |
|
|
|
2 |
|
|
|
|
|
|
|
9,662 |
|
Depreciation and amortization |
|
|
4,634 |
|
|
|
146 |
|
|
|
2 |
|
|
|
4,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets as of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
$ |
286,134 |
|
|
$ |
2,427 |
|
|
$ |
1,931 |
|
|
$ |
290,492 |
|
April 1, 2006 |
|
|
236,472 |
|
|
|
7,718 |
|
|
|
1,174 |
|
|
|
245,364 |
|
The Companys 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 Companys sales to external and long-lived assets by
geographic area (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
United Kingdom |
|
|
|
|
|
|
America |
|
& Ireland |
|
Other |
|
Total |
Thirteen weeks ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
$ |
105,320 |
|
|
$ |
10,799 |
|
|
$ |
695 |
|
|
$ |
116,814 |
|
Property and equipment, net |
|
|
113,708 |
|
|
|
15,731 |
|
|
|
16 |
|
|
|
129,455 |
|
Thirteen weeks ended April 1, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
|
97,941 |
|
|
|
|
|
|
|
690 |
|
|
|
98,631 |
|
Property and equipment, net |
|
|
95,172 |
|
|
|
|
|
|
|
22 |
|
|
|
95,194 |
|
11. New Accounting Pronouncements
In September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value under GAAP, and expands
disclosures about fair value measurements. SFAS 157 emphasizes that fair value is a market-based
measurement, not an entity-specific measurement, and states that a fair value measurement should be
determined based on assumptions that market participants would use in pricing the asset or
liability. The Company is required to adopt SFAS 157 in the first quarter of 2008. The Company is
currently assessing the financial impact of SFAS 157 on its consolidated financial statements.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 permits an entity to measure certain financial assets
and liabilities at fair value. The statements objective is to improve financial reporting by
allowing entities to mitigate volatility in reported earnings caused by the measurement of related assets and
liabilities using different attributes, without having to apply complex hedge accounting
provisions. This statement becomes effective for fiscal years beginning after November 15, 2007 and
should be applied prospectively. It is expected that this statement will not have a material effect
on the Companys financial statements.
12
12. Subsequent Event
The Company holds a minority interest in Retail Entertainment Concepts, LLC (REC). REC is
an early-stage company that has developed an interactive retail concept targeted primarily to boys
and their families. REC conducts business under the Ridemakerz TM brand name.
On April 30, 2007, the Company entered into a series of agreements whereby an additional equity
investment was made and the Company agreed to perform operational support services for REC. In
accordance with the agreements, the Company invested approximately $2.4 million on April 30, 2007,
bringing the total investment in REC to approximately $3.0 million. In exchange for performing
operational support services the Company will receive additional equity in REC.
13
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following Managements 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. These
risks and uncertainties include, without limitation, those detailed under the caption Risk
Factors in our annual report on Form 10-K for the year ended December 30, 2006, as filed with the SEC, and the
following: we may be unable to generate interest in and demand for our interactive retail
experience, or to identify and respond to consumer preferences in a timely fashion; our marketing
initiatives may not be effective in generating sufficient levels of brand awareness and guest
traffic; we may be unable to generate comparable store sales growth; we may be unable to open new
stores or may be unable to effectively manage our growth; we may be unable to effectively manage
our international franchises or laws relating to those franchises may change; we may be unable to
realize some of the expected benefits of the acquisition of Amsbra and Bear Factory including
making these operations profitable; customer traffic may decrease in the shopping malls where we
are located, on which we depend to attract guests to our stores; general economic conditions may
deteriorate, which could lead to disproportionately reduced consumer demand for our products, which
represent relatively discretionary spending; our market share could be adversely affected by a
significant, or increased, number of competitors; we may lose key personnel, be unable to hire
qualified additional personnel, or experience turnover of our management team; the ability of our
principal vendors to deliver merchandise may be disrupted; the availability and costs of our
products could be adversely affected by risks associated with international manufacturing and
trade; high petroleum products prices could increase our inventory transportation costs and
adversely affect our profitability; we may be unable to realize the anticipated benefits from our
company-owned distribution center; fluctuations in our quarterly results of operations could cause
the price of our common stock to substantially decline; we may fail to renew, register or otherwise
protect our trademarks or other intellectual property; we may have disputes with, or be sued by,
third parties for infringement or misappropriation of their proprietary rights; we may be unable to
renew or replace our store leases, or enter into leases for new stores on favorable terms or in
favorable locations, or may violate the terms of our current leases; we may suffer negative
publicity or be sued due to violations of labor laws or unethical practices by manufacturers of our
merchandise; and we may improperly obtain or be unable to protect information from our guests in
violation of privacy or security laws or expectations.
These risks, uncertainties and other factors may adversely affect our business, growth,
financial condition or profitability, or subject us to potential liability, and cause our actual
results, performance or achievements to be materially different from those expressed or implied by
our forward-looking statements. We do not undertake any obligation or plan to update these
forward-looking statements, even though our situation may change.
Overview
We are the leading, and only international, company providing a make your own stuffed animal
interactive 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. As of March 31, 2007, we
operated 237 stores in 44 states and Canada, 40 stores in the United Kingdom and Ireland, and had
37 franchised stores operating internationally under the Build-A-Bear Workshop brand. In addition
to our stores, we market our products and build our brand through our website, which simulates our
interactive shopping experience, as well as non-traditional store locations in Major League
Baseball® ballparks, one location in a zoo and one in a science center, and our presence at
event-based locations through our mobile store.
14
On April 2, 2006, the Company acquired all of the outstanding shares of The Bear Factory
Limited (Bear Factory), a stuffed animal retailer in the United Kingdom, and Amsbra Limited
(Amsbra), the Companys former U.K. franchisee (collectively, the U.K. Acquisition). The results
of the U.K. Acquisition operations have been included in the consolidated financial statements
since that date. In conjunction with those transactions, we obtained 40 retail locations in the
United Kingdom and Ireland. Four of those locations closed during 2006. Of those four locations,
two closed due to overlapping store locations in the Amsbra and Bear Factory portfolios, and the
other two locations are concessions within department stores which is a format that we have chosen not to continue. The Company expects
to improve sales performance and adopt best practices in the areas of merchandising, marketing,
purchasing and store operations, across the acquired store base.
We operate in three reportable segments (retail, international franchising, and licensing and
entertainment) that share the same infrastructure, including management, systems, merchandising and
marketing, and generate revenues as follows:
|
|
Company-owned retail stores located in the United States, Canada, the United Kingdom and Ireland retail
stores, two webstores and seasonal, event-based locations; |
|
|
|
International stores operated under franchise agreements; and |
|
|
|
License arrangements with third parties which manufacture and sell to other retailers merchandise carrying
the Build-A-Bear Workshop brand. |
Selected financial data attributable to each segment for the thirteen weeks ended March 31,
2007 and April 1, 2006 are set forth in the notes to our condensed consolidated financial
statements included elsewhere in this quarterly report on Form 10-Q.
Store contribution, for our consolidated operations, was 24.4% for the thirteen weeks ended
March 31, 2007 and 27.7% for the thirteen weeks ended April 1, 2006 and consolidated net income as
a percentage of total revenues was 6.9% for the thirteen weeks ended March 31, 2007 and 8.5% for
the thirteen weeks ended April 1, 2006. See Non-GAAP Financial Measures for a definition of
store contribution and a reconciliation of store contribution to net income. The decrease in our
store contribution over the prior year was primarily due to the decline in gross margin. The
decrease in gross margin was anticipated and primarily resulted from higher occupancy costs as a
percentage of net retail sales at the U.K. stores. We have maintained what we believe to be a high
store contribution level through the creation of economies of scale which allow us to decrease the
cost of our product on a per unit basis and continued expense management through labor planning and
the monitoring of store supplies and other expenses.
We use comparable store sales as one of the performance measures for our business. Comparable
store sales decreased by 6.9% in the thirteen weeks ended March 31, 2007 compared to a decrease of
3.8% for the thirteen weeks ended April 1, 2006. The decline in comparable store sales was
attributed primarily to changing customer preferences. Our repeat customers, many of whom have
built a sizable collection of Build-A-Bear Workshop stuffed animals, have become more product
discriminating. Also contributing to the decline in comparable store sales was a decrease in
customer traffic in our stores and the more difficult macro economic conditions generally impacting customers.
15
Expansion and Growth Potential
Company-owned stores:
The table below sets forth the number of Build-A-Bear Workshop Company-owned stores in the
United States, Canada, the United Kingdom and Ireland for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
March 31, 2007 |
|
April 1, 2006 |
Beginning of period |
|
|
271 |
|
|
|
200 |
|
Opened |
|
|
6 |
|
|
|
2 |
|
Closed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
|
277 |
|
|
|
202 |
|
|
|
|
|
|
|
|
|
|
During
fiscal 2007, we anticipate opening 39 Build-A-Bear Workshop stores in the United States
and Canada, and 7 to 10 new stores in the United Kingdom and Ireland. We believe there is a market
potential for at least 350 Build-A-Bear Workshop stores in the United States and Canada and
approximately 70 to 75 stores in the United Kingdom and Ireland. Additionally, we expect to expand
our Company-owned store base in 2007 to France, which previously had one franchised store in
operation. We expect to open three new stores in France during fiscal 2007.
In fiscal 2003, we began testing in certain markets our initial brand expansion initiative,
our proprietary Friends 2B Made line of make-your-own dolls and related products. As of March 31,
2007, we operated one stand-alone Friends 2B Made store and eight Friends 2B Made stores adjacent
to or within Build-A-Bear Workshop stores in the United States. Other than the one stand-alone
store, these Friends 2B Made stores are not considered new stores but rather expansions of
Build-A-Bear Workshop stores.
Non-store locations:
In fiscal 2004, we began offering merchandise in seasonal, event-based locations such as Major
League Baseball® ballparks, as well as at temporary locations such as at the NBA All-Star Jam
Session. We expect to expand our future presence at select seasonal, event-based locations
contingent on their availability. As of the end of March 31, 2007, we had a total of five ballpark
locations and one store within a zoo. We also opened our first store within a science center during
the thirteen weeks ended March 31, 2007.
International Franchise Revenue:
Our first franchised location opened in November 2003. The number of international, franchised
stores for the periods presented below can be summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
March 31, 2007 |
|
April 1, 2006 |
Beginning of period |
|
|
34 |
|
|
|
30 |
|
Opened |
|
|
4 |
|
|
|
|
|
Closed |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
|
37 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
16
As of March 31, 2007, we had 13 master franchise agreements, which typically grant franchise
rights for a particular country or countries, covering 16 countries. We anticipate signing
additional master franchise agreements in the future. We expect our current and future franchisees
to open a total of 20 to 25 stores in fiscal 2007. We believe there is a market potential for
approximately 300 franchised stores outside of the United States, Canada, the United Kingdom and
Ireland.
Results of Operations
The following table sets forth, for the periods indicated, selected statement of operation
data expressed as a percentage of total revenues, except where otherwise indicated. Percentages
will not total due to the cost of merchandise sold being expressed as a percentage of net retail
sales and rounding:
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
March 31, |
|
April 1, |
|
|
2007 |
|
2006 |
Revenues: |
|
|
|
|
|
|
|
|
Net retail sales |
|
|
99.2 |
|
|
|
99.1 |
|
Franchise fees |
|
|
0.6 |
|
|
|
0.7 |
|
Licensing revenue |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Cost of merchandise sold (1) |
|
|
53.6 |
|
|
|
51.0 |
|
Selling, general and administrative |
|
|
35.6 |
|
|
|
35.9 |
|
Store preopening |
|
|
0.6 |
|
|
|
0.6 |
|
Interest expense (income), net |
|
|
(0.5 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
88.9 |
|
|
|
86.2 |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
11.1 |
|
|
|
13.8 |
|
Income tax expense |
|
|
4.2 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
6.9 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin % (2) |
|
|
46.4 |
% |
|
|
49.0 |
% |
|
|
|
(1) |
|
Cost of merchandise sold is expressed as a percentage of net retail sales. |
|
(2) |
|
Gross margin represents net retail sales less cost of merchandise sold. Gross margin
percentage represents gross margin divided by net retail sales. |
Thirteen weeks ended March 31, 2007 compared to thirteen weeks ended April 1, 2006
Total revenues. Net retail sales increased to $115.9 million for the thirteen weeks ended
March 31, 2007 from $97.7 million for the thirteen weeks ended April 1, 2006, an increase of $18.2
million, or 18.6%. Net retail sales for new stores in North America contributed a $12.6 million
increase in net retail sales. U.K. sales contributed $10.8 million. Sales over the Internet
increased by $0.6 million, or 24.0%. Comparable store sales decreased $6.5 million, or 6.9%. The
decline in comparable store sales was attributed primarily to a change in preferences from our repeat customers who
have become more product discriminating. Also contributing to the decline in comparable store sales was a decrease in
customer traffic in our stores and the more difficult macro economic conditions generally impacting customers.
Revenue from franchise fees was $0.6 million for both the thirteen weeks ended March 31, 2007
and thirteen weeks ended April 1, 2006.
Gross margin. Gross margin increased to $53.7 million for the thirteen weeks ended March 31,
2007 from $47.9 million for the thirteen weeks ended April 1, 2006, an increase of $5.8 million, or
12.1%. As a percentage of net retail sales, gross margin decreased to 46.4% for the thirteen weeks
ended March 31, 2007 from 49.0% for the thirteen weeks ended April 1, 2006, a decrease of 2.6%.
This decrease was
17
anticipated and primarily resulted from higher occupancy costs as a percentage of
net retail sales in the U.K. Improved merchandise margins partially offset the decrease in gross
margin percentage.
Selling, general and administrative. Selling, general and administrative expenses were $41.6
million for the thirteen weeks ended March 31, 2007 as compared to $35.5 million for the thirteen
weeks ended April 1, 2006, an increase of $6.1 million, or 17.2%. As a percentage of total
revenues, selling, general and administrative expenses decreased to 35.6% for the thirteen weeks ended March 31, 2007 as
compared to 35.9% for the thirteen weeks ended April 1, 2006, a decrease of 0.3%. The dollar
increase was primarily due to higher selling, general and administrative costs associated with the
acquired operations of the U.K., and having 75 more stores in operation at March 31, 2007 as
compared to April 1, 2006. Additionally, during the thirteen
weeks ended March 31, 2007 the Company incurred bad debt expense
of $0.3 million associated with receivables owed by our former
franchisee in France. The operations of the one franchised store in
France ceased in April 2007. The decrease in selling, general and administrative expenses as a
percent of revenue was primarily due to the leveraging of store payroll over a larger revenue base
and a decline in central office management payroll resulting primarily from lower performance-based
bonus expense.
Store preopening. Store preopening expense was $0.7 million for the thirteen weeks ended March
31, 2007 as compared to $0.6 million for the thirteen weeks ended April 1, 2006. Contributing to
the higher expense during the thirteen weeks ended March 31, 2007 was U.K. preopening expenses of
$0.2 million. Preopening expenses include expenses for stores that opened in the current period as
well as some expenses incurred for stores that will be opened in future periods.
Interest expense (income), net. Interest income, net of interest expense, was $0.5 million for
the thirteen weeks ended March 31, 2007 as compared to $0.9 million for the thirteen weeks ended
April 1, 2006. This decrease was due to lower cash balances in the fiscal 2007 first quarter as
compared to the fiscal 2006 first quarter.
Provision for income taxes. The provision for income taxes was $4.9 million for the thirteen
weeks ended March 31, 2007 as compared to $5.2 million for the thirteen weeks ended April 1, 2006.
The effective tax rate was 37.9% for the thirteen weeks ended March 31, 2007 compared to 38.5% for
the thirteen weeks ended April 1, 2006. The decrease in the effective tax rate is attributable to
tax benefits associated with our company-owned distribution center. We expect the effective tax
rate for full year 2007 to be approximately 38.0% compared to approximately 39.0% in fiscal year
2006.
Non-GAAP Financial Measures
We use the term store contribution in this quarterly report on Form 10-Q. Store contribution
consists of income before income tax expense, interest, store depreciation and amortization, store
preopening expense and general and administrative expense, excluding franchise fees, income from
licensing activities and contribution from our webstore and seasonal and event-based locations.
This term, as we define it, may not be comparable to similarly titled measures used by other
companies and is not a measure of performance presented in accordance with U.S. generally accepted
accounting principles (GAAP).
We use store contribution as a measure of our stores operating performance. Store
contribution should not be considered a substitute for net income, net income per store, cash flows
provided by operating activities, cash flows provided by operating activities per store, or other
income or cash flow data prepared in accordance with GAAP.
We believe store contribution is useful to investors in evaluating our operating performance
because it, along with the number of stores in operation, directly impacts our profitability.
Historically, central office general and administrative expenses and preopening expenses have
increased at a rate of less than our total net retail sales increases. Therefore, as we have
opened additional new stores and leveraged our central office and general and administrative and
preopening expenses over this larger store base and sales volume, we have been able to increase our
net income each year.
18
The following table sets forth a reconciliation of store contribution to net income for our
company-owned stores located in the U.S. and Canada (North America), stores located in the U.K. and
Ireland (United Kingdom), and for our consolidated store base (Total) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
Thirteen weeks ended |
|
|
|
March 31, 2007 |
|
|
April 1, 2006 |
|
|
|
North |
|
|
United |
|
|
|
|
|
|
North |
|
|
United |
|
|
|
|
|
|
America |
|
|
Kingdom |
|
|
Total |
|
|
America |
|
|
Kingdom |
|
|
Total |
|
Net income |
|
$ |
10,296 |
|
|
$ |
(2,231 |
) |
|
$ |
8,065 |
|
|
$ |
8,346 |
|
|
$ |
|
|
|
$ |
8,346 |
|
Income tax expense |
|
|
4,922 |
|
|
|
|
|
|
|
4,922 |
|
|
|
5,225 |
|
|
|
|
|
|
|
5,225 |
|
Interest expense (income) |
|
|
(545 |
) |
|
|
|
|
|
|
(545 |
) |
|
|
(866 |
) |
|
|
|
|
|
|
(866 |
) |
Store depreciation and amortization (1) |
|
|
4,148 |
|
|
|
545 |
|
|
|
4,693 |
|
|
|
3,912 |
|
|
|
|
|
|
|
3,912 |
|
Store preopening expense |
|
|
513 |
|
|
|
175 |
|
|
|
688 |
|
|
|
615 |
|
|
|
|
|
|
|
615 |
|
General and administrative expense (2) |
|
|
10,084 |
|
|
|
861 |
|
|
|
10,945 |
|
|
|
9,852 |
|
|
|
|
|
|
|
9,852 |
|
Franchising and licensing contribution (3) |
|
|
(539 |
) |
|
|
|
|
|
|
(539 |
) |
|
|
(457 |
) |
|
|
|
|
|
|
(457 |
) |
Non-store activity contribution (4) |
|
|
(1,016 |
) |
|
|
|
|
|
|
(1,016 |
) |
|
|
(403 |
) |
|
|
|
|
|
|
(403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store contribution |
|
$ |
27,863 |
|
|
$ |
(650 |
) |
|
$ |
27,213 |
|
|
$ |
26,224 |
|
|
$ |
|
|
|
$ |
26,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
106,015 |
|
|
$ |
10,799 |
|
|
$ |
116,814 |
|
|
$ |
98,631 |
|
|
$ |
|
|
|
$ |
98,631 |
|
Franchising and licensing revenues |
|
|
(931 |
) |
|
|
|
|
|
|
(931 |
) |
|
|
(901 |
) |
|
|
|
|
|
|
(901 |
) |
Revenues from non-store activities (4) |
|
|
(3,985 |
) |
|
|
(197 |
) |
|
|
(4,182 |
) |
|
|
(3,001 |
) |
|
|
|
|
|
|
(3,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store location net retail sales |
|
$ |
101,099 |
|
|
$ |
10,602 |
|
|
$ |
111,701 |
|
|
$ |
94,729 |
|
|
$ |
|
|
|
$ |
94,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store contribution as a percentage of store
location net retail sales |
|
|
27.6 |
% |
|
|
-6.1 |
% |
|
|
24.4 |
% |
|
|
27.7 |
% |
|
|
0.0 |
% |
|
|
27.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net income as a percentage of total
revenues |
|
|
9.7 |
% |
|
|
-20.7 |
% |
|
|
6.9 |
% |
|
|
8.5 |
% |
|
|
0.0 |
% |
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Store depreciation and amortization includes depreciation and amortization of all
capitalized assets in store locations, including leasehold improvements, furniture and
fixtures, and computer hardware and software. |
|
(2) |
|
General and administrative expenses consist of non-store, central office general and
administrative functions such as management payroll and related benefits, travel, information
systems, accounting, purchasing and legal costs as well as the depreciation and amortization
of central office leasehold improvements, furniture and fixtures, computer hardware and
software and intellectual property. General and administrative expenses also include a central
office marketing department, primarily payroll and related benefits expense, but exclude
advertising expenses, such as direct mail catalogs and television advertising, which are
included in store contribution. |
|
(3) |
|
Franchising and licensing contribution includes franchising and licensing revenues and all
expenses attributable to the international franchising and licensing and entertainment
segments other than depreciation, amortization and interest expense/income. Depreciation and
amortization related to franchising and licensing is included in the general and
administrative expense caption. Interest expense/income related to franchising and licensing
is included in the interest expense (income) caption. |
|
(4) |
|
Non-store activities include our webstore, and seasonal and event-based locations. |
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: (1) the timing of our new
store openings and related expenses; (2) the profitability of our stores; (3) increases or
decreases in our comparable store sales; (4) the timing and frequency of our marketing initiatives;
(5) changes in general economic
19
conditions and consumer spending patterns; (6) changes in consumer
preferences; (7) the effectiveness of our inventory management; (8) the actions of our competitors
or mall anchors and co-tenants; (9) seasonal shopping patterns and holiday and vacation schedules;
(10) the timing and frequency of national media appearances and other public relations events; and
(11) weather conditions.
The timing of new store openings may result in fluctuations in quarterly results as a result
of the revenues and expenses associated with each new store location. We typically incur most
preopening costs for a new store in the three months immediately preceding the stores opening. We
expect our growth, operating results and profitability to depend in some degree on our ability to
increase our number of stores.
Historically, for North American stores (U.S. and Canada) open more than twelve months,
seasonality has not been a significant factor in our results of operations, although we cannot
assure you that this will continue to be the case. U.K.-based store sales have historically been
weighted more heavily in the fourth quarter as compared to North American stores. 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.
Liquidity and Capital Resources
Our cash requirements are primarily for the opening of new stores, information systems and
working capital. Historically, we have met these requirements through capital generated from the
sale and issuance of our securities to private investors and through our initial public offering,
cash flow provided by operations and our revolving line of credit.
Operating Activities. Cash used in operating activities was $1.0 million for the thirteen
weeks ended March 31, 2007 as compared with cash used in operating activities of $1.8 million for
the thirteen weeks ended April 1, 2006, or an decrease of $0.8 million. This increase over the year
ago period was primarily due to the timing of inventory purchases through better inventory
management partially offset by the increase of cash used in the prepayment of rent in the U.K.
Investing Activities. Cash used in investing activities was $5.6 million for the thirteen
weeks ended March 31, 2007 as compared to $46.9 million for the thirteen weeks ended April 1, 2006.
The decrease in cash used for investing activities relates primarily to cash held in escrow for the
U.K. Acquisition of $36.9 million for the thirteen weeks ended April 1, 2006. Additionally, cash
flows from investing activities decreased for the periods presented as the thirteen weeks ended
April 1, 2006 included cash expenditures for the construction of the company-owned distribution
center. As the distribution center was completed in fiscal 2006, first quarter 2007 capital
expenditures had no additional cash outflows related to this project.
Financing Activities. Cash used in financing activities was $4.2 million in the thirteen weeks
ended March 31, 2007 which consisted of cash spent for the repurchase of the Companys common stock
and slightly offset by proceeds from the exercise of employee stock options and the tax benefit
from the exercise of stock options. Cash flows provided by financing activities of $1.1 million for
the thirteen weeks ended April 1, 2006 consisted primarily of proceeds from the exercise of
employee stock options and the tax benefit from the exercise of stock options. No borrowings were
made under our line of credit in either the thirteen weeks ended March 31, 2007 or the thirteen
weeks ended April 1, 2006.
Capital Resources. As of March 31, 2007, we had a cash balance of $42.4 million. We also have
a line of credit, which we can use to finance capital expenditures and seasonal working capital
needs throughout the year. The credit agreement is with U.S. Bank, National Association and was
amended effective June 30, 2006 to include a seasonal overline from July 1 to December 31 each year
during which the line availability increases from $15 million to $30 million. Borrowings under the
credit agreement are not collateralized, but availability under the credit agreement can be limited
by the vendor based on our
20
level of accounts receivable, inventory, and property and equipment. The
credit agreement expires on September 30, 2007 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 banks prior
consent, unless such payment of dividends would not violate any terms of the loan agreement.
Borrowings bear interest at our option of prime minus 1.0% or LIBOR plus 1.5%. Financial covenants include maintaining a minimum tangible net worth,
maintaining a minimum fixed charge cover ratio (as defined in the credit agreement) and not
exceeding a maximum funded debt to earnings before interest, depreciation and amortization ratio.
As of March 31, 2007, we were in compliance with these covenants. There were no borrowings under
our line of credit as of March 31, 2007. There was a standby letter of credit of approximately $1.1
million outstanding under the credit agreement as of March 31, 2007. Accordingly, there was
approximately $28.9 million available for borrowing under the line of credit as of March 31, 2007.
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. 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. typically have terms of 10-15 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 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.
In fiscal 2007, we expect to spend a total of $35 to $40 million on capital expenditures.
Capital spending through the thirteen weeks ended March 31, 2007 totaled $5.6 million. Capital
spending in fiscal 2007 is primarily for the opening of approximately 44 new stores (38 in North
America and 7 to 10 in the United Kingdom), and the continued installation and upgrades of central
office information technology systems. In fiscal 2006, the average investment per new store, which
includes leasehold improvements, fixtures, equipment and inventory, was approximately $0.5 million.
We anticipate the investment per store in fiscal 2007 will be approximately the same as fiscal
2006.
We believe that cash generated from operations and borrowings under our credit agreement will
be sufficient to fund our working capital and other cash flow requirements for at least the next 18
months. Our credit agreement expires on September 30, 2007.
Off-Balance Sheet Arrangements
We do not have any arrangements classified as off-balance sheet arrangements.
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.
21
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting
principles requires the appropriate application of certain accounting policies, many of 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 our selection and application of accounting policies, and the estimates inherently
required therein, is reasonable. These accounting policies and estimates are periodically
reevaluated, 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 accounting policies and use of estimates are discussed in and should be read in
conjunction with the annual consolidated financial statements and notes included in our annual
report on Form 10-K, as filed with the Securities and Exchange Commission on March 15, 2007, which
includes audited consolidated financial statements for our 2006, 2005 and 2004 fiscal years. We
have identified certain critical accounting policies which are described below.
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 significant discounts or
markdowns, nor have we experienced significant occurrences of obsolete or slow moving inventory.
However, future changes in circumstances, such as changes in guest merchandise preference, could
cause reclassification of inventory as obsolete or slow-moving inventory. The effect of this
reclassification would be the recording of a reduction in the value of inventory to realizable
values.
Throughout the year we record an estimated cost of shortage based on past historical results.
Periodic physical inventories are taken and any difference between the actual physical count of
merchandise and the recorded amount in our records are adjusted and recorded as shortage.
Historically, the timing of the physical inventory has been near the end of the fiscal year so that
no material amount of shortage was required to be estimated on activity between the date of the
physical count and year-end. However, future physical counts of merchandise may not be at times at
or near the end of a fiscal quarter or fiscal year-end, and our estimate of shortage for the
intervening period may be material based on the amount of time between the date of the physical
inventory and the date of the fiscal quarter or year-end.
Long-Lived Assets
If facts and circumstances indicate that a long-lived asset, including property and equipment,
may be impaired, the carrying value is reviewed. If this review indicates that the carrying value
of the asset will not be recovered as determined based on projected undiscounted cash flows related
to the asset over its remaining life, the carrying value of the asset is reduced to its estimated
fair value.
Goodwill and Other Intangible Assets
Intangible assets deemed to have indefinite lives and goodwill are not subject to
amortization. All other intangible assets are amortized over their estimated useful lives.
Goodwill and other intangible assets not subject to amortization are tested for impairment annually
or more frequently if events or changes in circumstances indicate that the asset might be impaired.
This testing requires comparison of carrying values to fair values, and when appropriate, the
carrying values of impaired assets is reduced to
22
fair value. We reviewed our goodwill and other
intangible assets as of December 30, 2006 and determined that no impairment existed.
Revenue Recognition
Revenues from retail sales, net of discounts and excluding sales tax, are recognized at the
time of sale. Guest returns have not been significant. Revenues from gift certificates are
recognized at the time of redemption. Unredeemed gift cards are included in current liabilities on
the consolidated balance sheets.
We have an automated frequent shopper program in the United States, the Stuff Fur Stuff® club,
whereby guests enroll in the program and receive one point for every dollar or partial dollar spent
and after reaching 100 points receive a $10 discount on a future purchase. This program was
automated in July 2006 and replaced our former Buy Stuff Program, which was a manual punch card
system with limited tracking capability. The reward earned under the new program did not change.
An estimate of the obligation related to the program, based on historical redemption rates, is
recorded as deferred revenue and a reduction of net retail sales at the time of purchase. The
deferred revenue obligation is reduced, and a corresponding amount is recognized in net retail
sales, in the amount of and at the time of redemption of the $10 discount.
Under the previous Buy Stuff Program, the first card had no expiration date. Beginning in June
2002, and continuing each summer up to July 1, 2006, a series of cards was issued that had an
expiration date of December 31 of the year following the year in which that series of cards was
first issued. Beginning in July 2006, the automated Stuff Fur Stuff® club was introduced which
provides greater visibility to the rewards earned by our guests and the historical redemption
rates. We track redemptions of these various cards and use actual redemption rates by card series
and historical results to estimate how much revenue to defer. We review these redemption rates and
assess the adequacy of the deferred revenue account at the end of each fiscal quarter. Due to the
estimates involved in these assessments, adjustments to the deferral rate are generally made no
more often than bi-annually in order to allow time for more definite trends to emerge.
Based upon an assessment at the end of fiscal 2003, the deferred revenue account was adjusted
downward by $1.1 million with a corresponding increase to net retail sales, an increase in net
income of $0.7 million. Additionally, the amount of revenue being deferred beginning in fiscal
2004 was decreased by 0.2%, and by another 0.5% beginning with the third quarter of 2004, to give
effect to the change in redemption experience. The changes made to the deferral rate in fiscal
2004 were prospective in nature with no impact on previously reported results of operations.
Beginning with the second quarter of fiscal 2005, the amount of revenue being deferred was reduced
by 0.1% on a prospective basis from its then current level due to further changes in the Companys
redemption experience.
Based on the most recent assessment at the end of fiscal 2006, the deferred revenue account
was adjusted downward by $3.6 million, effective at the beginning of fiscal 2006, with a
corresponding increase to net sales, and a $2.2 million increase in net income. Additionally, the
amount of revenue being deferred for future periods has been decreased by 0.6%, to give effect to
the change in redemption experience and the increased visibility of the redemptions with the
automated system. An additional 0.1% adjustment of the ultimate redemption rate at the end of
fiscal 2006 for the current cards expiring on December 30, 2006 and December 29, 2007 would have an
approximate impact of $0.5 million on the deferred revenue balance and net retail sales.
Leases
We lease all of our store locations and our corporate headquarters. We account for our leases
under the provisions of FASB Statement No. 13, Accounting for Leases (SFAS 13) and subsequent
amendments, which require that our leases be evaluated and classified as operating or capital
leases for financial reporting purposes. All of our store leases are classified as operating leases
pursuant to the
23
requirements of SFAS 13. We disburse cash for leasehold improvements and furniture
fixtures and equipment to build out and equip our leased premises. We may also expend cash for
permanent improvements that we make to leased premises that generally are reimbursed to us by our
landlords as construction allowances (also known as tenant improvement allowances) pursuant to
agreed-upon terms in our leases. Landlord allowances can take the form of up-front cash, full or
partial credits against minimum or percentage rents otherwise payable by us, or a combination thereof. Under the
provisions of FASB Technical Bulletin No. 88-1, Issues Relating to Accounting for Leases, we
account for these landlord allowances as lease incentives resulting in a deferred credit to be
recognized over the term of the lease as a reduction of rent expense.
New Accounting Pronouncements
In September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value under GAAP, and expands
disclosures about fair value measurements. SFAS 157 emphasizes that fair value is a market-based
measurement, not an entity-specific measurement, and states that a fair value measurement should be
determined based on assumptions that market participants would use in pricing the asset or
liability. We are required to adopt SFAS 157 in the first quarter of 2008. We are currently
assessing the financial impact of SFAS 157 on our consolidated financial statements.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 permits an entity to measure certain financial assets
and liabilities at fair value. The statements objective is to improve financial reporting by
allowing entities to mitigate volatility in reported earnings caused by the measurement of related
assets and liabilities using different attributes, without having to apply complex hedge accounting
provisions. This statement becomes effective for fiscal years beginning after November 15, 2007 and
should be applied prospectively. It is expected that this statement will not have a material effect
on the our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our market risks relate primarily to changes in interest rates. 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 could have been
impacted by changes in interest rates. We had no borrowings outstanding under our revolving credit
facility during the thirteen weeks ended March 31, 2007. Accordingly, a 100 basis point change in
interest rates would result in no material change to our recorded interest expense. The second
component of interest rate risk involves the short term investment of excess cash in short term,
investment grade interest-bearing securities. These investments are considered to be cash
equivalents and are shown 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.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures: The Companys management, with the participation of the
Companys Chief Executive Bear and Chief Financial Bear, has evaluated the effectiveness of the
Companys 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. Based on such evaluation, the Companys management, including the Chief Executive Bear and Chief
Financial Bear, have concluded that the Companys disclosure controls and procedures were effective
as of March 31, 2007, the end of the period covered by this quarterly report.
24
It should be noted that our management, including the Chief Executive Bear and the Chief
Financial Bear, does not expect that the Companys 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 Companys management, with the
participation of the Companys Chief Executive Bear and Chief Financial Bear, also conducted an
evaluation of the Companys 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 Companys internal control over financial reporting. Based on that
evaluation, there has been no such change during the period covered by this report.
25
PART II OTHER INFORMATION
Item 1A. Risk Factors.
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 30, 2006 as filed with the SEC on March 15, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
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(d) |
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Maximum Number |
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(or Approximate |
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(c) |
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Dollar Value) of |
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Total Number of |
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Shares (or Units) |
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(a) |
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(b) |
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Shares (or Units) |
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that May Yet Be |
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Total Number of |
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Average |
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Purchased as Part of |
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Purchased Under |
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Shares (or Units) |
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Price Paid |
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Publicly Announced |
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the |
Period |
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Purchased |
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Per Share (or Unit) |
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Plans or Program |
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Plans or Programs |
Dec. 31, 2006
Jan. 27, 2007 |
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N/A |
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Jan. 28, 2007
Feb. 24, 2007 (1) |
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30,000 |
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$ |
27.54 |
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30,000 |
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$ |
24,173,677 |
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Feb. 25, 2007
March 31, 2007(1)
(2) |
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164,093 |
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$ |
26.34 |
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146,500 |
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$ |
20,333,516 |
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Total |
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194,093 |
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$ |
26.52 |
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176,500 |
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$ |
20,333,516 |
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(1) |
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On February 20, 2007, we announced a $25 million share repurchase program of our
outstanding common stock over the next twelve months. The program was authorized by our
board of directors. Purchases may be made in the open market or in privately negotiated
transactions, with the level and timing of activity depending on market conditions, other
investment opportunities, and other factors. Purchases may be increased, decreased or
discontinued at any time without notice. Shares purchased under the program were subsequently
retired. |
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(2) |
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Represents shares of our common stock delivered to us in satisfaction of the tax
withholding obligation of holders of restricted shares which vested during the quarter. Our
equity incentive plans provide that the value of shares delivered to us to pay the withheld
to cover tax obligations is calculated as the average of the high and low trading price of
our common stock on the date the relevant transaction occurs. |
26
Item 5. Other Information
(a) The following individuals maintain Rule 10b5-1 trading plans (each, a Plan and together,
the Plans)(1) Maxine Clark, Chairman, Board of Directors and Chief Executive Bear, (2) Scott
Seay, President and Chief Operating Bear, (3) Tina Klocke, Chief Financial Bear, Treasurer and
Secretary, and (4) Teresa Kroll, Chief Marketing. Barry Erdos terminated his Rule 10b5-1 plan in
conjunction with his departure on January 5, 2007. Barney Ebsworth, Director Emeritus, terminated
his Rule 10b5-1 plan effective April 30, 2007.
Chief Executive Bear Maxine Clarks Plan was adopted under the name of Smart Stuff, Inc. Ms.
Clark controls the voting and/or investment power for the shares held by Smart Stuff, Inc, as its
president and sole shareholder. Ms. Clark currently owns 3,071,529 shares (including vested
options and the shares she owns through Smart Stuff, Inc.). Ms. Clarks Plan permits no more than
a maximum of 8% of her current share holdings (including vested options) to be sold per year (in
each of 2007 and 2008). Accordingly, Ms. Clark will continue to have a significant ownership
interest in the Company,
The participants in the Plans will have no control over the timing of any sales under their
respective Plans and there can be no assurance that the shares covered by the Plans actually will
be sold. The participants entered into the Plans in order to diversify their respective financial
holdings.
The Plans are intended to comply with Rule 10b5-1 of the Securities Exchange Act of 1934 and
the Companys insider trading policy. Rule 10b5-1 allows corporate insiders to establish
prearranged written plans to buy or sell a specified number of shares of a company stock over a set
period of time. The specified number of shares sold may be determined pursuant to a formula or may
be at the discretion of a third party, so long as such person is not aware of material non-public
information. Among other things, the Companys insider trading policy allows insiders to implement
a written trading plan provided such person is not in possession of material non-public information
about the Company at the time the plan is entered into, consistent with Rule 10b5-1. The Plans
were established during an open window under the Companys insider trading policy.
Except as may be required by law, the Company does not undertake to report written trading
plans established by other Company officers or directors, nor to report modifications,
terminations, transactions or other activities under the Plans or the plan of any other officer or
director. Actual sales made pursuant to the Plans will be disclosed publicly through Form 4 and
Form 144 filings with the Securities and Exchange Commission.
27
Item 6. Exhibits.
The following is a list of exhibits filed as a part of the quarterly report on Form 10-Q:
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Exhibit |
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No. |
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Description |
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10.1 |
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Rules of the Build-A-Bear Workshop, Inc. U.K. Share Option
Scheme, incorporated by reference to Build-A-Bear Workshop,
Inc. Form 8-K filed on February 9, 2007, Exhibit 10.1 |
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10.2 |
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Employment, Confidentiality, and Non-compete Agreement between
Build-a-Bear Workshop, Inc. and Paul Bundonis dated January
16, 2007, incorporated by reference to Build-A-Bear Workshop,
Inc. Form 8-K filed on January 18, 2007, Exhibit 10.1 |
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10.3 |
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Separation Agreement and General Release by and between
Build-A-Bear Workshop, Inc. and Barry Erdos dated January 5,
2007, incorporated by reference to Build-A-Bear Workshop, Inc.
Form 8-K filed on January 5, 2007, Exhibit 10.1 |
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10.4 |
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Second Amendment to the Employment, Confidentiality, and
Non-Compete Agreement between Build-A-Bear Workshop, Inc. and
Scott Seay dated January 5, 2007, incorporated by reference to
Build-A-Bear Workshop, Inc. Form 8-K filed January 5, 2007,
Exhibit 10.2 |
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31.1 |
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Rule 13a-14(a)/15d-14(a) certification (pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, executed by the Chief
Executive Bear) |
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31.2 |
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Rule 13a-14(a)/15d-14(a) certification (pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, executed by the Chief
Financial Bear) |
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32.1 |
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Section 1350 Certification (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, executed by the Chief Executive
Bear) |
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32.2 |
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Section 1350 Certification (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, executed by the Chief Financial
Bear) |
28
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: May 10, 2007
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BUILD-A-BEAR WORKSHOP, INC.
(Registrant)
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By: |
/s/ Maxine Clark
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Maxine Clark |
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Chairman of the Board and Chief Executive Bear |
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By: |
/s/ Tina Klocke
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Tina Klocke |
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Chief Financial Bear, Treasurer and Secretary |
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29
exv31w1
Exhibit 31.1
Certification of Principal Executive Officer
I, Maxine Clark, certify that:
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1. |
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I have reviewed this quarterly report on Form 10-Q of Build-A-Bear Workshop, Inc.; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
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4. |
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The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under his/her supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and
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5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors: |
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting.
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/s/ Maxine Clark
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Maxine Clark |
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Chairman of the Board and Chief Executive Bear
Build-A-Bear Workshop, Inc.
(Principal Executive Officer) |
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|
May 10, 2007
exv31w2
Exhibit 31.2
Certification of Principal Financial Officer
I, Tina Klocke, certify that:
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1. |
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I have reviewed this quarterly report on Form 10-Q of Build-A-Bear Workshop, Inc.; |
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2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under his/her supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and
|
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors: |
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting.
|
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/s/ Tina Klocke
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Tina Klocke |
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Chief Financial Bear, Treasurer and Secretary
Build-A-Bear Workshop, Inc.
(Principal Financial Officer) |
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|
May 10, 2007
exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Build-A-Bear Workshop, Inc. (the Company) on Form
10-Q for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Maxine Clark, Chairman of the Board and Chief Executive Bear of
the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
|
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|
|
|
/s/ Maxine Clark
|
|
|
Maxine Clark |
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|
Chairman of the Board and Chief Executive Bear
Build-A-Bear Workshop, Inc. |
|
|
Date: May 10, 2007
exv32w2
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Build-A-Bear Workshop, Inc. (the Company) on Form
10-Q for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Tina Klocke, Chief Financial Bear, Treasurer and Secretary of
the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
|
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/s/ Tina Klocke
|
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Tina Klocke. |
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Chief Financial Bear, Treasurer and Secretary
Build-A-Bear Workshop, Inc. |
|
|
Date: May 10, 2007