Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The condensed consolidated financial statements included herein are unaudited and have been prepared by Build-A-Bear Workshop, Inc. and its subsidiaries (collectively, the “Company”) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet of the Company as of January 30, 2021 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly the financial position of the Company and the results of the Company’s operations and cash flows for the periods presented. All of these adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. Because of the seasonal nature of the Company’s operations, results of operations of any single reporting period should not be considered as indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended January 30, 2021, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2021.
COVID-19 Pandemic
In March 2020, the World Health Organization announced that COVID-19 is a global pandemic and the Company's results of operations in fiscal 2020 ended January 30, 2021 were significantly negatively impacted. The beginning of fiscal 2021 saw the Company's United States store portfolio open and operating while its stores in the United Kingdom, Canada, and Ireland remained temporarily closed. In April 2021, stores in the United Kingdom reopened as the government lifted lockdown restrictions resulting in almost all of the Company's stores operating as the end of the 2021 first fiscal quarter. The majority of the Company's Canadian stores remained temporarily closed at the end of the fiscal quarter as government restrictions continued.
Significant Accounting Policies
The Company's significant accounting policies are summarized in Note 2 to the consolidated financial statements included in its Form 10-K for the year ended January 30, 2021.
Government Grants
As a result of the pandemic, governments enacted relief legislation and stimulus packages to help combat the economic effects through such things as payroll expense reimbursement and business and restart grants. Due to the nature of these grants relating to income, they can be presented in one of two ways: (1) a credit in the income statement under a general heading such as "other income" or (2) as a reduction to the related expense. The Company applied for reimbursement of payroll expenses in certain jurisdictions through COVID-19 related government programs for payroll paid to employees who were paid while not providing services to the Company and for business and restart grants from the United Kingdom government for businesses in the retail, hospitality and leisure sectors. The Company recorded a reduction to expenses of $1.0 million for the thirteen weeks ended May 1, 2021 related to these wages within the Selling, general and administrative line in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for employees in various jurisdictions. For the thirteen weeks ended May 2, 2020, the Company recorded a reduction to expense of $1.5 million. The business and restart grants in the United Kingdom for businesses in the non-essential retail, hospitality and leisure sectors, were applied for on a per-property basis to support businesses through the latest lockdown restrictions. These grants did not relate to specific expenses incurred by the Company and were therefore recorded as "other income" of $0.9 million within the Selling, general and administrative line in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the thirteen weeks ended May 1, 2021. The Company did not record income related to business or restart grants in the thirteen weeks ended May 2, 2020.
Entertainment Production Costs
Costs of producing entertainment assets, which include direct costs, production overhead and development costs, are capitalized when incurred and are stated at the lower of cost, less accumulated amortization, or fair value. Costs of entertainment
productions are subject to recoverability assessments, which compare the estimated fair values with the unamortized cost, whenever events or changes in circumstances indicate that the fair value of the film may be less than the unamortized cost. The fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the entertainment assets. The amount by which the unamortized costs of entertainment assets exceed their estimated fair values are written off. As of May 1, 2021 and May 2, 2020, the Company had capitalized entertainment production costs of $5.0 million and $0.3 million, respectively.
2. Revenue
Nearly all the Company’s revenue is derived from retail sales (including from its e-commerce sites) and is recognized when control of the merchandise is transferred to the customer. The Company's disaggregated revenue is fully disclosed as net sales to external customers by reporting segment and by geographic area (See Note 11 — Segment Information for additional information). The Company's direct-to-consumer reporting segment represents 97% of consolidated revenue for the first quarter of fiscal 2021. The majority of these sales transactions were single performance obligations that were recorded when control was transferred to the customer.
The following is a description of principal activities from which the Company generates its revenue, by reportable segment.
The Company’s direct-to-consumer segment includes the operating activities of corporately-managed stores, other retail-delivered operations and online sales. Direct-to-consumer revenue is recognized when control of the merchandise is transferred to the customer and for the Company's online sales, generally upon estimated delivery to the customer. Revenue is measured as the amount of consideration, including any discounts or incentives, the Company expects to receive in exchange for transferring the merchandise. Product returns have historically averaged less than one-half of one percent due to the personalized and interactive nature of sales, where consumers customize their own stuffed animal. The Company has elected to exclude from revenue all collected sales, value added and other taxes paid by its customers.
For the Company’s gift cards, revenue, including any related gift card discounts, is deferred for single transactions until redemption. Historically, the vast majority of gift card redemptions have occurred within two years of acquisition and approximately 75% of gift cards have been redeemed within the first twelve months. In addition, unredeemed gift cards or breakage revenue is recorded in proportion to the customer’s redemption period using an estimated breakage rate based on historical experience. For certain qualifying transactions, a portion of revenue transactions are deferred for the obligation related to the Company’s loyalty program or when a material right in the form of a future discount is granted. In these transactions, the transaction price is allocated to the separate performance obligations based on the relative standalone selling price. The standalone selling price for the points earned for the Company's loyalty program is estimated using the net retail value of the merchandise purchased, adjusted for estimated breakage based on historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired. In regard to the consolidated balance sheet, contract liabilities for gift cards are classified as gift cards and customer deposits.
The Company’s commercial segment includes transactions with other businesses and are mainly comprised of licensing the Company’s intellectual properties for third-party use and wholesale sales of merchandise, including supplies and fixtures. Revenue for wholesale sales is recognized when control of the merchandise or fixtures is transferred to the customer, which generally occurs upon delivery to the customer. The license agreements provide the customer with highly interrelated rights that are not distinct in the context of the contract and therefore, have been accounted for as a single performance obligation and recognized as licensee sales occur. If the contract includes a guaranteed minimum, the minimum guarantee is recognized on a straight-line basis over the guarantee term until such time as royalties earned through licensee sales exceed the minimum guarantee. The Company classifies these guaranteed minimum contract liabilities as deferred revenue on the consolidated balance sheet.
The Company’s international franchising segment includes the activities with franchisees who operate store locations in certain countries and includes development fees, sales-based royalties and merchandise, including supplies and fixture sales. The Company's obligations under the franchise agreements are ongoing and include operations and product development support and training, generally concentrated around initial store openings. These obligations are highly interrelated rights that are not distinct in the context of the contract and, therefore, have been accounted for as a single performance obligation and recognized as franchisee sales occur. If the contract includes an initial, one-time nonrefundable development fee, this fee is recognized on a straight-line basis over the term of the franchise agreement, which may extend for periods up to 25 years, or if the agreement is terminated prior to the end of the term. The Company classifies these initial, one-time nonrefundable franchise fee contract liabilities as deferred
revenue on its consolidated balance sheet. Revenue from merchandise and fixture sales is recognized when control is transferred to the franchisee which generally occurs upon delivery.
The Company also incurs expenses directly related to the startup of new franchises, which may include finder’s fees, legal and travel costs, expenses related to its ongoing support of the franchises and employee compensation. Accordingly, the Company’s policy is to capitalize any finder’s fee, an incremental cost, and expense all other costs as incurred. Additionally, the Company amortizes these capitalized costs into expense in the same pattern as the development fee's recording of revenue as described previously.
3. Leases
The majority of the Company's leases relate to retail stores and corporate offices. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Most new retail store leases have an original term of a five to ten-year base period and may include renewal options to extend the lease term beyond the initial base period. The extension periods are typically much shorter than the original lease term giving the Company's strategic decision to maintain a high level of lease optionality. Some leases also include early termination options, which can be exercised under specific conditions. Additionally, the Company may operate stores for a period of time on a month-to-month basis after the expiration of the lease term. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, certain leases contain incentives, such as construction allowances from landlords and/or rent abatements subsequent to taking possession of the leased property.
The table below presents certain information related to the lease costs for operating leases for the thirteen weeks ended May 1, 2021 and May 2, 2020 (in thousands).
|
|
Thirteen weeks ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
|
|
|
|
|
|
|
|
|
Operating lease costs
|
|
|
8,580
|
|
|
|
9,656
|
|
Variable lease costs
|
|
|
879
|
|
|
|
274
|
|
Short term lease costs
|
|
|
14
|
|
|
|
88
|
|
Total Operating Lease costs
|
|
$
|
9,473
|
|
|
$
|
10,018
|
|
Other information
The table below presents supplemental cash flow information related to leases for the thirteen weeks ended May 1, 2021 and May 2, 2020 (in thousands).
|
|
Thirteen weeks ended
|
|
|
|
May 1, 2021
|
|
|
May 2, 2020
|
|
Operating cash flows for operating leases
|
|
|
11,129
|
|
|
|
7,455
|
|
Operating cash flow for the fiscal 2021 first quarter exceeded expense recorded for the same period, which is expected to continue for the remainder of fiscal 2021, as the Company's deferred rent obligations obtained during rent negotiations in fiscal 2020 are to be paid during fiscal 2021. The Company has approximately $3.6 million remaining of rent deferrals to be paid in the remainder of fiscal 2021.
As of May 1, 2021 and May 2, 2020, the weighted-average remaining operating lease term was 4.7 years and 5.6 years, respectively, and the weighted-average discount rate was 6.0% and 6.1%, respectively, for operating leases recognized on the Company's Condensed Consolidated Balance Sheets.
For the thirteen weeks ended May 1, 2021, the Company did not incur impairment charges against its right-of-use operating lease assets. For the thirteen weeks ended May 2, 2020, the Company incurred right-of-use asset impairment charges of $2.4 million.
Undiscounted cash flows
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the balance sheet (in thousands).
Operating Leases
|
|
|
|
2021
|
|
|
28,659
|
|
2022
|
|
|
31,804
|
|
2023
|
|
|
26,416
|
|
2024
|
|
|
22,030
|
|
2025
|
|
|
16,438
|
|
Thereafter
|
|
|
20,642
|
|
Total minimum lease payments
|
|
|
145,989
|
|
Less: amount of lease payments representing interest
|
|
|
(19,704
|
)
|
Present value of future minimum lease payments
|
|
|
126,285
|
|
Less: current obligations under leases
|
|
|
(30,631
|
)
|
Long-term lease obligations
|
|
$
|
95,654
|
|
As of May 1, 2021, the Company had an additional executed lease that had not yet commenced with operating lease liabilities of $0.2 million. This lease is expected to commence in 2021 with a lease term of two years.
4. Other Assets
Prepaid expenses and other current assets consist of the following (in thousands):
|
|
May 1,
|
|
|
January 30,
|
|
|
May 2,
|
|
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
Prepaid occupancy (1)
|
|
$
|
1,476
|
|
|
$
|
1,367
|
|
|
$
|
239
|
|
Prepaid taxes (2)
|
|
|
326
|
|
|
|
473
|
|
|
|
463
|
|
Prepaid insurance
|
|
|
424
|
|
|
|
884
|
|
|
|
282
|
|
Prepaid gift card fees
|
|
|
1,199
|
|
|
|
1,291
|
|
|
|
1,266
|
|
Other (3)
|
|
|
6,373
|
|
|
|
6,096
|
|
|
|
3,646
|
|
Total
|
|
$
|
9,798
|
|
|
$
|
10,111
|
|
|
$
|
5,896
|
|
|
(1)
|
Prepaid occupancy consists of prepaid expenses related to non-lease components.
|
|
(2)
|
Prepaid taxes consists of prepaid federal and state income tax and other taxes.
|
|
(3)
|
Other consists primarily of prepaid expense related to IT maintenance contracts and software as a service.
|
Other non-current assets consist of the following (in thousands):
|
|
May 1,
|
|
|
January 30,
|
|
|
May 2,
|
|
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
Entertainment production asset
|
|
$
|
4,971
|
|
|
$
|
1,715
|
|
|
$
|
299
|
|
Deferred compensation
|
|
|
1,119
|
|
|
|
1,037
|
|
|
|
2,700
|
|
Other (1)
|
|
|
595
|
|
|
|
629
|
|
|
|
6
|
|
Total
|
|
$
|
6,685
|
|
|
$
|
3,381
|
|
|
$
|
3,005
|
|
|
(1)
|
Other consists primarily of deferred financing costs related to the Company's credit facility
|
5. Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
May 1,
|
|
|
January 30,
|
|
|
May 2,
|
|
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
Accrued wages, bonuses and related expenses
|
|
$
|
10,514
|
|
|
$
|
13,185
|
|
|
$
|
9,145
|
|
Sales and value added taxes payable
|
|
|
1,831
|
|
|
|
2,048
|
|
|
|
1,084
|
|
Accrued rent and related expenses (1)
|
|
|
1,411
|
|
|
|
1,993
|
|
|
|
69
|
|
Current income taxes payable
|
|
|
2,873
|
|
|
|
325
|
|
|
|
97
|
|
Total
|
|
$
|
16,629
|
|
|
$
|
17,551
|
|
|
$
|
10,395
|
|
|
(1)
|
Accrued rent and related expenses consist of accrued costs associated with non-lease components.
|
6. Stock-based Compensation
On April 14, 2020, the Board of Directors (the “Board”) of Build-A-Bear Workshop, Inc. (the “Company”) adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc. 2020 Omnibus Incentive Plan (the “2020 Incentive Plan”). On June 11, 2020, at the Company’s 2020 Annual Meeting of Stockholders (the “Annual Meeting”), the Company’s stockholders approved the 2020 Incentive Plan. The 2020 Incentive Plan, which is administered by the Compensation and Development Committee of the Board (the "Compensation Committee", permits the grant of stock options (including both incentive and non-qualified stock options), stock appreciation rights, other stock-based awards, including restricted stock and restricted stock units, cash-based awards, and performance awards pursuant to the terms of the 2020 Incentive Plan. The 2020 Incentive Plan will terminate on April 14, 2030, unless terminated earlier by the Board. The number of shares of the Company’s common stock authorized for issuance under the 2020 Incentive Plan is 1,000,000, plus shares of stock that remained available for issuance under the Build-A-Bear Workshop, Inc. 2017 Omnibus Incentive Plan (the “2017 Incentive Plan”) at the time the 2020 Incentive Plan was approved by the Company’s stockholders, and shares that are subject to outstanding awards made under the 2017 Incentive Plan that on or after April 14, 2020 may be forfeited, expire or be settled for cash.
For the thirteen weeks ended May 1, 2021 and May 2, 2020, Selling, general and administrative expense included $0.6 million and $0.3 million, respectively, of stock-based compensation expense. As of May 1, 2021, there was $3.3 million of total unrecognized compensation expense related to unvested restricted stock and option awards which is expected to be recognized over a weighted-average period of 1.7 years.
The following table is a summary of the balances and activity for stock options for the thirteen weeks ended May 1, 2021:
|
|
Options
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
Outstanding, January 30, 2021
|
|
|
805,701
|
|
|
$
|
9.96
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(48,092
|
)
|
|
|
6.21
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Canceled or expired
|
|
|
(26,711
|
)
|
|
|
8.13
|
|
Outstanding, May 1, 2021
|
|
|
730,898
|
|
|
$
|
10.28
|
|
The following table is a summary of the balances and activity related to time-based and performance-based restricted stock for the thirteen weeks ended May 1, 2021:
|
|
Time-Based Restricted Stock
|
|
|
Performance-Based Restricted Stock
|
|
|
|
Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
|
Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
Outstanding, January 30, 2021
|
|
|
931,172
|
|
|
$
|
3.26
|
|
|
|
336,441
|
|
|
$
|
5.03
|
|
Granted
|
|
|
124,392
|
|
|
|
8.24
|
|
|
|
53,095
|
|
|
|
8.24
|
|
Vested
|
|
|
(360,828
|
)
|
|
|
3.54
|
|
|
|
(32,521
|
)
|
|
|
8.60
|
|
Forfeited
|
|
|
(9,850
|
)
|
|
|
6.35
|
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,735
|
)
|
|
|
8.60
|
|
Outstanding, May 1, 2021
|
|
|
684,886
|
|
|
$
|
3.97
|
|
|
|
306,280
|
|
|
$
|
3.56
|
|
The total fair value of shares vested during the thirteen weeks ended May 1, 2021 and May 2, 2020 was $1.6 million and $1.9 million, respectively.
In April 2021, the Committee awarded three-year performance-based restricted stock, established specific profitability and revenue objectives for fiscal 2021, 2022, and 2023, and assigned a weighting to each objective. Profitability will be measured by the Company’s achievement of established cumulative consolidated earnings before interest, taxes and depreciation and amortization (EBITDA) goals. Revenue will be measured by the Company's achievement of revenue growth, by meeting established compound annual growth rate targets for total web demand sales or cumulative total revenue objectives.
The outstanding performance shares as of May 1, 2021 consist of the following:
|
|
Performance Shares
|
|
|
|
|
|
|
Unearned shares subject to performance-based restrictions at target:
|
|
|
|
|
2019 - 2021 consolidated pre-tax income growth objectives
|
|
|
95,811
|
|
2020 - 2022 consolidated liquidity and strategic performance objectives
|
|
|
89,168
|
|
2020 - 2022 consolidated earnings before interest and taxes (EBIT) objectives
|
|
|
68,206
|
|
2021 - 2023 consolidated, cumulative earnings before interest, taxes, depreciation and amortization objectives
|
|
|
39,821
|
|
2021 - 2023 consolidated revenue growth objectives
|
|
|
13,274
|
|
Performance shares outstanding, May 1, 2021
|
|
|
306,280
|
|
7. Income Taxes
The Company's effective tax rate was 21.3% for the thirteen weeks ended May 1, 2021 compared to (13.6%) for the thirteen weeks ended May 2, 2020. In the first quarter of fiscal 2021 the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax impact of equity awards vesting. While the Company is still in a full valuation allowance globally, it recorded tax expense on the pretax income earned in the first quarter of fiscal 2021 based on its projected current tax expense. The first thirteen weeks of fiscal 2020 was impacted by a $3.3 million valuation allowance recorded on the beginning balance of the net deferred tax assets in certain jurisdictions, offset by $0.8 million of benefit as a result of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. In addition, no tax benefit was recorded on the fiscal 2020 first quarter pretax loss as a full valuation allowance was recorded globally.
8. Stockholders’ Equity
The following table sets forth the changes in stockholders’ equity (in thousands) for the thirteen weeks ended May 1, 2021 and May 2, 2020 (in thousands):
|
|
For the thirteen weeks ended May 1, 2021
|
|
|
For the thirteen weeks ended May 2, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
stock
|
|
|
APIC (1)
|
|
|
AOCI (2)
|
|
|
earnings
|
|
|
Total
|
|
|
stock
|
|
|
APIC (1)
|
|
|
AOCI (2)
|
|
|
earnings
|
|
|
Total
|
|
Balance, beginning
|
|
$
|
159
|
|
|
$
|
72,822
|
|
|
$
|
(12,615
|
)
|
|
$
|
6,942
|
|
|
$
|
67,308
|
|
|
$
|
152
|
|
|
$
|
70,633
|
|
|
$
|
(12,079
|
)
|
|
$
|
29,925
|
|
|
$
|
88,631
|
|
Issuance of restricted/performance stock
|
|
$
|
5
|
|
|
$
|
574
|
|
|
|
|
|
|
|
|
|
|
|
579
|
|
|
|
4
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
Stock-based compensation
|
|
|
|
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
551
|
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
Shares withheld in lieu of tax withholdings
|
|
|
(1
|
)
|
|
|
(923
|
)
|
|
|
|
|
|
|
|
|
|
|
(924
|
)
|
|
|
(1
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
(115
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
170
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,380
|
|
|
|
10,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,204
|
)
|
|
|
(21,204
|
)
|
Balance, ending
|
|
$
|
163
|
|
|
$
|
73,024
|
|
|
$
|
(12,532
|
)
|
|
$
|
17,322
|
|
|
$
|
77,977
|
|
|
$
|
155
|
|
|
$
|
71,491
|
|
|
$
|
(11,909
|
)
|
|
$
|
8,720
|
|
|
$
|
68,457
|
|
(1) - Additional paid-in capital (“APIC”)
(2) - Accumulated other comprehensive income (loss) (“AOCI”)
9. Income per Share
The following table sets forth the computation of basic and diluted net income/(loss) per share (in thousands, except share and per share data):
|
|
Thirteen weeks ended
|
|
|
|
May 1,
|
|
|
May 2,
|
|
|
|
2021
|
|
|
2020
|
|
NUMERATOR:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,380
|
|
|
$
|
(21,204
|
)
|
|
|
|
|
|
|
|
|
|
DENOMINATOR:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
15,062,025
|
|
|
|
14,926,097
|
|
Dilutive effect of share-based awards:
|
|
|
695,008
|
|
|
|
-
|
|
Weighted average number of common shares outstanding - dilutive
|
|
|
15,757,033
|
|
|
|
14,926,097
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share attributable to Build-A-Bear Workshop, Inc. stockholders
|
|
$
|
0.69
|
|
|
$
|
(1.42
|
)
|
Diluted income (loss) per common share attributable to Build-A-Bear Workshop, Inc. stockholders
|
|
$
|
0.66
|
|
|
$
|
(1.42
|
)
|
In calculating the diluted income per share for the thirteen weeks ended May 1, 2021, options to purchase 559,991 shares of common stock that were outstanding at the end of the period were not included in the computation of diluted income per share due to their anti-dilutive effect. For the thirteen weeks ended May 2, 2020, options to purchase 892,339 shares of common stock, respectively, that were outstanding at the end of the period were not included in the computation of diluted income per share due to their anti-dilutive effect.
10. Comprehensive Income (Loss)
The difference between comprehensive income or loss and net income or loss is the result of foreign currency translation adjustments on the balance sheets of subsidiaries whose functional currency is not the U.S. Dollar. The accumulated other comprehensive income (loss) balance at May 1, 2021 and May 2, 2020 was comprised entirely of foreign currency translation. For the thirteen weeks ended May 1, 2021 and May 2, 2020, the Company had no reclassifications out of accumulated other comprehensive income (loss).
11. Segment Information
The Company’s operations are conducted through three operating segments consisting of direct-to-consumer (“DTC”), commercial and international franchising. The DTC segment includes the operating activities of corporately-managed locations and other retail delivery operations in the United States (U.S.), Canada, China, Ireland and the United Kingdom (“U.K.”), including the Company’s e-commerce sites and temporary stores. The commercial segment includes the Company’s transactions with other businesses, mainly comprised of licensing the Company’s intellectual properties for third party use and wholesale activities. The international franchising segment includes the licensing activities of the Company’s franchise agreements with store locations in Asia, Australia, the Middle East, Africa, and South America. The operating segments have discrete sources of revenue, different capital structures and different cost structures. These operating segments represent the basis on which the Company’s chief operating decision maker regularly evaluates the business in assessing performance, determining the allocation of resources and the pursuit of future growth opportunities. Accordingly, the Company has determined that each of its operating segments represent a reportable segment. The three reportable segments follow the same accounting policies used for the Company’s consolidated financial statements.
Following is a summary of the financial information for the Company’s reportable segments (in thousands):
|
|
Direct-to-
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Franchising
|
|
|
Total
|
|
Thirteen weeks ended May 1, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
89,212
|
|
|
$
|
2,109
|
|
|
$
|
372
|
|
|
$
|
91,693
|
|
Income before income taxes
|
|
|
12,481
|
|
|
|
818
|
|
|
|
(118
|
)
|
|
|
13,181
|
|
Capital expenditures
|
|
|
491
|
|
|
|
-
|
|
|
|
-
|
|
|
|
491
|
|
Depreciation and amortization
|
|
|
3,122
|
|
|
|
5
|
|
|
|
-
|
|
|
|
3,127
|
|
Thirteen weeks ended May 2, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
45,647
|
|
|
$
|
333
|
|
|
$
|
644
|
|
|
$
|
46,624
|
|
(Loss) Income before income taxes
|
|
|
(18,370
|
)
|
|
|
(45
|
)
|
|
|
(249
|
)
|
|
|
(18,664
|
)
|
Capital expenditures
|
|
|
2,849
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,849
|
|
Depreciation and amortization
|
|
|
3,450
|
|
|
|
7
|
|
|
|
-
|
|
|
|
3,457
|
|
Total Assets as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2021
|
|
$
|
248,283
|
|
|
$
|
7,210
|
|
|
$
|
8,890
|
|
|
$
|
264,383
|
|
May 2, 2020
|
|
|
262,693
|
|
|
|
6,563
|
|
|
|
7,571
|
|
|
|
276,827
|
|
The Company’s reportable segments are primarily determined by the types of products and services that they offer. Each reportable segment may operate in many geographic areas. Revenues are recognized in the geographic areas based on the location of the customer or franchisee. The following schedule is a summary of the Company’s sales to external customers and long-lived assets by geographic area (in thousands):
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
America (1)
|
|
|
Europe (2)
|
|
|
Other (3)
|
|
|
Total
|
|
Thirteen weeks ended May 1, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
85,753
|
|
|
$
|
5,409
|
|
|
$
|
531
|
|
|
$
|
91,693
|
|
Property and equipment, net
|
|
|
46,575
|
|
|
|
3,842
|
|
|
|
-
|
|
|
|
50,417
|
|
Thirteen weeks ended May 2, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
39,651
|
|
|
$
|
6,665
|
|
|
$
|
308
|
|
|
$
|
46,624
|
|
Property and equipment, net
|
|
|
56,915
|
|
|
|
4,704
|
|
|
|
7
|
|
|
|
61,626
|
|
For purposes of this table only:
|
(1) North America includes corporately-managed locations in the United States and Canada.
|
(2) Europe includes corporately-managed locations in the U.K. and Ireland.
|
(3) Other includes franchise businesses outside of North America and Europe and includes a corporately-managed location in China that recently closed.
|
12. Contingencies
In the normal course of business, the Company is subject to legal proceedings, government inquiries and claims, and other commercial disputes. If one or more of these matters has an unfavorable resolution, it is possible that the results of operations, liquidity or financial position of the Company could be materially affected in any particular period. The Company accrues a liability for these types of contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. Gain contingencies are recorded when the underlying uncertainty has been settled.
Assessments made by the U.K. customs authority in 2012 were appealed by the Company, which has paid the disputed duty, strictly under protest, pending the outcome of the continuing dispute, and this is included in receivables, net in the DTC segment. The U.K. customs authority contested the Company's appeal. Rulings by the trial court in November 2019 and upper tribunal in March 2021 held that duty was due on some, but not all, of the products at issue. The Company intends to petition the Court of Appeals directly for leave to proceed with an appeal. The Company maintains a provision against the related receivable, based on a current evaluation of collectability, using the latest facts available in the dispute. As of May 1, 2021, the Company had a gross receivable balance of $4.6 million and a reserve of $3.6 million, leaving a net receivable of $1.0 million. The Company believes that the outcome of this dispute will not have a material adverse impact on the results of operations, liquidity or financial position of the Company.