BUILD-A-BEAR WORKSHOP INC

Previous wording

Build-A-Bear Workshop, Inc. a Delaware corporation, was formed in 1997 as a mall-based, experiential specialty retailer where children and their families could create their own stuffed animals by participating in the stuffing, fluffing, dressing, accessorizing, and naming of their own teddy bears and other plush toys. We believe the hands-on and interactive nature of our experience locations, our personal service model and engaging digital shopping experiences result in guests forming an emotional connection with our brand. Over the last 26 years, with more than 240 million furry friends sold to guests around the world, Build-A-Bear has become a brand with high consumer awareness, positive affinity, and strong retail influence. We are leveraging this brand strength to grow our brick-and-mortar retail footprint beyond traditional malls through a range of store sizes, formats and locations including tourist destinations. We are also growing through our websites, which focus on gift-giving, collectible merchandise, and licensed products. In addition to growing our corporately-managed store and e-commerce footprint, we are also growing through third-party operated and franchised stores, particularly for our international expansion. Our ongoing digital transformation, which touches our e-commerce business, consumer loyalty program and digital marketing and content, has led to omni-channel growth over the past several years. Build-A-Bear's pop-culture and multi-generational appeal have played a key role in growing our total addressable market beyond children by adding teens and adults with entertainment and sports licensing, collectible and gifting offerings, as well as by introducing new products and adding categories beyond plush.

Current wording

Build-A-Bear Workshop, Inc., a Delaware corporation, was formed in 1997 as a mall-based, experiential specialty retailer where children and their families could create their own stuffed animals by participating in the stuffing, fluffing, dressing, accessorizing, and naming of their own teddy bears and other plush toys. We believe the hands-on and interactive nature of our experience locations, our personal service model and engaging digital shopping experiences result in guests forming an emotional connection with our brand. Over the last 27 years, with more than 250 million furry friends sold to guests around the world, Build-A-Bear has become a brand with high consumer awareness, positive affinity, and strong retail influence. We are leveraging this brand strength to grow our brick-and-mortar retail footprint beyond traditional malls through a range of store sizes, formats and locations including tourist destinations. We are also growing through our websites, which focus on gift-giving, collectible merchandise, and licensed products. In addition to growing our corporately-managed store and e-commerce footprint, we are also growing through third-party-operated and franchised stores, particularly for our international expansion. Our ongoing digital transformation, which touches our e-commerce business, consumer loyalty program and digital marketing and content, has led to omni-channel growth over the past several years. Build-A-Bear's pop-culture and multi-generational appeal have played a key role in growing our total addressable market beyond children by adding teens and adults with entertainment and sports licensing, collectible and gifting offerings, as well as by introducing new products and adding categories beyond plush.

Previous wording

As of February 3, 2024, we had 359 corporate-managed stores globally, 92 locations operating through our "third-party retail" model in which we sell our products on a wholesale basis to other companies that then in turn execute our retail experience, and 74 franchised stores operating internationally under the Build-A-Bear Workshop brand. In addition to our stores, we sold product on our company-owned e-commerce sites.

Current wording

As of February 1, 2025, we had 368 corporate-managed stores globally, 138 locations operating through our "third-party retail" model in which we sell our products on a wholesale basis to other companies that then in turn execute our retail experience, and 83 franchised stores operating internationally under the Build-A-Bear Workshop brand. In addition to our stores, we sold product on our company-owned e-commerce sites.

Previous wording

Our year-over-year results discussed below are impacted by an additional week in fiscal 2023 as it was a 53-week period compared to the 52-week period for fiscal 2022.

Current wording

Our year-over-year results discussed below are impacted by fiscal 2024 and fiscal 2022 being 52-week periods compared to fiscal 2023 which had an additional week because it was a 53-week period.

Previous wording

Our consolidated net income was $52.8 million in fiscal 2023 compared to net income of $48.0 million in fiscal 2022. We believe that we have a concept that has broad demographic appeal which, for North American stores open for the entire year averaged net retail sales per store of $1.2 million in fiscal 2023 and 2022.

Current wording

Our consolidated net income was $51.8 million in fiscal 2024 compared to net income of $52.8 million in fiscal 2023 and $48.0 million in fiscal 2022. We believe that we have a concept that has broad demographic appeal which, for North American stores open for the entire year averaged net retail sales per store of $1.2 million in fiscal 2024, 2023 and 2022.

Previous wording

We ended fiscal 2023 with no borrowings under our credit agreement and with $44.3 million in cash, cash equivalents and restricted cash after investing $18.3 million in capital projects throughout the year. On August 31, 2022, we announced that our Board of Directors authorized a share repurchase program of up to $50.0 million, and during fiscal 2023, we had utilized $20.5 million in cash to repurchase 896,603 shares under the stock buyback program, leaving $26.1 million authorized outstanding.

Current wording

We ended fiscal 2024 with no borrowings under our credit agreement and with $27.8 million in cash, cash equivalents and restricted cash after investing $19.3 million in capital projects throughout the year. In fiscal 2024 the company utilized $31.0 million in cash to repurchase 1,021,004 shares. During the year, the Company repurchased shares under two separate stock repurchase programs. The company repurchased 758,301 shares utilizing $20.2 million in cash under the Company's $50.0 million stock repurchase program that was authorized by its Board of Directors on August 31, 2022 (the "August 2022 Stock Repurchase Program"). On September 11, 2024, the Company announced that its Board of Directors terminated the August 2022 Stock Repurchase Program and authorized a new share repurchase program of up to $100 million (the “September 2024 Stock Repurchase Program”). The company repurchased 262,703 shares utilizing $10.8 million in cash under the September 2024 Stock Repurchase Program. From the end of fiscal 2024 through April 14, 2025, the Company utilized $4.2 million to repurchase 108,503 shares under the stock buyback program, leaving $85.0 million available under the September 2024 Stock Repurchase Program.

Previous wording

On March 13, 2024, we announced that our Board of Directors approved a new quarterly dividend program to evolve its strategic use of capital and declared an initial quarterly dividend of $0.20 per share paid on April 11, 2024 to all shareholders of record as of March 28, 2024. From the end of fiscal 2023 through April 15, 2024, the Company utilized $5.1 million to repurchase $201,198 shares under the stock buyback program, leaving $21.0 million authorized outstanding.

Current wording

On March 13, 2024, we announced that our Board of Directors approved a new quarterly dividend program to evolve its strategic use of capital. During fiscal 2024, the company declared and paid quarterly dividends totaling $11.0 million. Additionally, the Board of Directors declared a quarterly cash dividend of $0.22 per share on the issued and outstanding common stock of the company, which was paid on April 10, 2025, to all stockholders of record as of March 27, 2025.

Previous wording

The number of Build-A-Bear Workshop stores in the U.S. and Canada (collectively, North America) and the U.K. and Ireland (collectively, Europe) for the last two fiscal years is summarized as follows:

Current wording

The number of Build-A-Bear Workshop stores in the U.S. and Canada (collectively, North America) and the U.K. and Ireland (collectively, Europe) for the last three fiscal years is summarized as follows:

Previous wording

During fiscal 2023, our retail business model continued to evolve to address changing shopping patterns by diversifying our locations, formats and geographies. We are updating our store portfolio with our Discovery format, which represented 47% of our store base as of February 3, 2024. During fiscal 2023, we executed 9 planned new store openings in North America, with six being opened under the Discovery format, one of which was in a tourist site. Temporary locations generally have lease terms of two to eighteen months. These specific sites are designed to capitalize on short-term opportunities. In the future, we expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans.

Current wording

During fiscal 2024, our retail business model continued to evolve to address changing shopping patterns by diversifying our locations, formats and geographies. We are updating our store portfolio with our Discovery format, which represented 52% of our store base as of February 1, 2025. During fiscal 2024, we executed eight planned net new store openings in North America, with seven being opened under the Discovery format. Temporary locations generally have lease terms of two to eighteen months. These specific sites are designed to capitalize on short-term opportunities. In the future, we expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans.

Previous wording

Through our third-party retail model, there were 92 stores in operation at the end of fiscal year 2023 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's and Girl Scouts of the USA. The third-party retail model is capital light for us, with the partner company building out and operating the workshops including providing the real estate location and covering the cost of labor and inventory, which is purchased on a wholesale basis. These locations are heavily-weighted to the hospitality industry, which allow us to further advance our focus on experience location expansion in non-traditional and tourist areas, as well as shop-in-shop arrangements within other retailers’ stores.

Current wording

Through our third-party retail model, there were 138 stores in operation at the end of fiscal year 2024 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's, and Girl Scouts of the USA. The third-party retail model is capital light for us, with the partner company building out and operating the workshops including providing the real estate location and covering the cost of labor and inventory, which is purchased on a wholesale basis. These locations are heavily-weighted to the hospitality industry, which allow us to further advance our focus on experience location expansion in non-traditional and tourist areas, as well as shop-in-shop arrangements within other retailers’ stores.

Previous wording

Our performance continues to reflect the success of our strategy which has allowed us to put the building blocks in place to develop a powerful platform to support our initiatives to deliver consistent profitable growth. We believe our elevated omnichannel business model, which includes a highly profitable e-commerce and experiential retail store base, complimented by diversified revenue streams and disciplined expense and balance sheet management, puts us in a solid position for continued future success. We delivered a full year pre-tax profit of $66.3 million, which was the highest in our company’s 26-year history. In response to a variety of external pressures including changes in consumer shopping habits resulting in the rapid rise of the digital economy and shifting mall traffic patterns, we remained focused on accelerating and expanding our key initiatives by investing in and executing plans to improve operations and profitability. We believe that the majority of our positive performance was driven by the disciplined execution of our strategic initiatives, including leveraging our financial management to invest in growth initiatives, to contribute to a 3.9% increase in total revenue to $486.1 million in fiscal 2023. We ended the year with cash and cash equivalents of $44.3 million with no outstanding borrowings on our credit facility. During fiscal 2023, the Company returned over $42 million to shareholders through$20.5 million in share repurchases and $22.0 million special dividend.

Current wording

Our performance continues to reflect the success of our strategy which has allowed us to put the building blocks in place to develop a powerful platform to support our initiatives to deliver consistent profitable growth. We believe our elevated omnichannel business model, which includes a highly profitable e-commerce and experiential retail store base, complimented by diversified revenue streams and disciplined expense and balance sheet management, puts us in a solid position for continued future success. We delivered a full year pre-tax profit of $67.1 million, which was the highest in our company’s 27-year history. In response to a variety of external pressures including changes in consumer shopping habits resulting in the rapid rise of the digital economy and shifting mall traffic patterns, we remained focused on accelerating and expanding our key initiatives by investing in and executing plans to improve operations and profitability. We believe that the majority of our positive performance was driven by the disciplined execution of our strategic initiatives, including leveraging our financial management to invest in growth initiatives, to contribute to anincrease in total revenue of $10.3 million in fiscal 2024. We ended the year with cash and cash equivalents of $27.8 million with no outstanding borrowings on our credit facility. During fiscal 2024, the Company returned $42.0 million to shareholders through$31.0 million in share repurchases and $11.0 million in dividends.

Previous wording

Total revenues. Net retail sales were $456.2 million for fiscal 2023, compared to $446.2 million forfiscal 2022, an increaseof $10.0 million or 2.2%, compared to the prior year. The compon ents of this increase are as follows:

Current wording

Total revenues. Net retail sales were $460.3 million for fiscal 2024, compared to $456.2 million forfiscal 2023, an increaseof $4.2 million or 0.9%, compared to the prior year. The compon ents of this increase are as follows:

Previous wording

Provision for income taxes. The provision for income taxes was $13.5 million in fiscal 2023 compared to $13.9 million in fiscal 2022. The 2023 effective rate of 20.4% differed from the statutory rate of 21% primarily due tothe reversal of the valuation allowance in the U.K. partially offset by state income tax expense. The 2022 effective rate of 22.5%differed from the statutory rate of 21% primarily due to state income tax expense.

Current wording

Provision for income taxes. The provision for income taxes was $13.5 million in fiscal 2023 compared to $13.9 million in fiscal 2022. The 2023 effective rate of 20.4% differed from the statutory rate of 21% primarily due to the reversal of the valuation allowance in the U.K. partially offset by state income tax expense. The 2022 effective rate of 22.5% differed from the statutory rate of 21% primarily due to state income tax expense.

Previous wording

EBITDA for fiscal 2023 was $79.1 million, compared to $74.4 million for fiscal 2022, an increase of $4.7 million compared to the prior year period. The overall increase in EBITDA was driven by lower freight expense, leverage of warehouse costs, and the impact of the 53rd week in fiscal 2023.

Current wording

EBITDA for fiscal 2024 was $81.1 million, compared to $79.1 million for fiscal 2023 and $74.4 million in fiscal 2022. The increase of $2.0 million in fiscal 2024 was driven byretail and commercial margins partially offset by higher SG&A expenses. The increase in fiscal 2023 was driven by lower freight expense, leverage of warehouse costs, and the impact of the 53rd week in fiscal 2023.

Previous wording

*Operating Activities.*Cash flows provided by operating activities were $64.3 million and $47.3 million in fiscal years 2023 and 2022, respectively. Cash flows from operating activities increased in fiscal 2023 as compared to fiscal 2022 primarily driven by a decrease in cash spent on inventory purchases and increased sales volume, resulting in higher net income.

Current wording

*Operating Activities.*Cash flows provided by operating activities were $47.1 million, $64.3 million and $47.3 million in fiscal years 2024, 2023 and 2022, respectively. Cash flows from operating activities decreased in fiscal 2024 as compared to fiscal 2023 primarily driven by increased cash spent on inventory purchases in the second half of fiscal 2024 in anticipation of the uncertainty in cost due to potential tariffs, higher accounts receivable resulting from higher commercial revenue and decreased payables and accrued expenses. Cash flows from operating activities increased in fiscal 2023 as compared to fiscal 2022 primarily driven by a decrease in cash spent on inventory purchases and increased sales volume, resulting in higher net income.

Previous wording

Investing Activities. Cash flows used in investing activities were $18.3 million and $13.6 million in fiscal years 2023 and 2022, respectively. Cash used in investing activities in fiscal 2023 increased as compared to fiscal 2022 primarily driven by an increase in spending on capital expenditures related to information technology projects and new store openings.

Current wording

Investing Activities. Cash flows used in investing activities were $19.3 million, $18.3 million and $13.6 million in fiscal years 2024, 2023 and 2022, respectively. The increases in cash used in investing activities when comparing fiscal 2024 to fiscal 2023 and fiscal 2023 to fiscal 2022 were primarily driven by an increased spending on capital expenditures related to information technology projects and new store openings.

Previous wording

Financing Activities. Financing activities used cash of $43.9 million in fiscal 2023 compared to $25.1 million in fiscal 2022. Cash used in financing activities in fiscal 2023 increased as compared to fiscal 2022, driven primarily by the repurchases of our common stock for $20.5 million throughout fiscal 2023 and dividends paid of $22.1 million.

Current wording

Financing Activities. Financing activities used cash of $44.2 million in fiscal 2024, $43.9 million in fiscal 2023 and $25.1 million in fiscal 2022. Cash used in financing activities in fiscal 2024 increased slightly when compared to fiscal 2023 due to increased stock repurchases offset by lower dividends. Cash used in financing activities in fiscal 2023 increased as compared to fiscal 2022, driven primarily by the repurchases of our common stock for $20.5 million throughout fiscal 2023 and dividends paid of $22.1 million.

Previous wording

Capital Resources. As of February 3, 2024, we had a cash balance of $44.3 million, of which 81% was domiciled within the U.S, after investing$18.3 million in capital projects throughout the year.

Current wording

Capital Resources. As of February 1, 2025, we had a cash balance of$27.8 million, of which 79% was domiciled within the U.S, after investing$19.3 million in capital projects throughout the year.

Previous wording

We have a revolving credit and security agreement with PNC Bank, as agent, that provides for a secured revolving loan in aggregate principal of up to $25.0 million, subject to a borrowing base formula. As of February 3, 2024, borrowings under the agreement would bear interest at (a) a base rate determined under the agreement, or (b) the borrower's option, at a rate based on SOFR, plus in either case a margin based on average undrawn availability as determined in accordance with the agreement. As of February 3, 2024, we had a borrowing base of $25.0 million. As a result of a $250,000 letter of credit against the line of credit at the end of fiscal 2023, approximately $24.7 million was available for borrowing. As of February 3, 2024, we had no outstanding borrowings.

Current wording

We have a revolving credit and security agreement with PNC Bank, as agent, that provides for a secured revolving loan in aggregate principal of up to $25.0 million, subject to a borrowing base formula. As of February 1, 2025, borrowings under the agreement would bear interest at (a) a base rate determined under the agreement, or (b) the borrower's option, at a rate based on SOFR, plus in either case a margin based on average undrawn availability as determined in accordance with the agreement. As of February 3, 2024, we had a borrowing base of $25.0 million. As of February 1, 2025, we had no outstanding borrowings.

Previous wording

As of February 3, 2024, we had restricted cash of $0.4 million compared to $0.5 million as of January 28, 2023, resulting in an immaterial difference in activity.

Current wording

As of February 1, 2025, we had restricted cash of $0.4 million compared to $0.4 million as of February 3, 2024 and $0.5 million as of January 28, 2023.

Previous wording

Our leases in the U.K. and Ireland typically have terms of ten years and generally contain a provision whereby every fifth year the rental rate can be adjusted to reflect the current market rates. The leases typically provide the lessee with the first right for renewal at the end of the lease. We may also be required to make deposits and rent guarantees to secure new leases as we expand. Real estate taxes also change according to government time schedules to reflect current market rental rates for the locations we lease. Rents are invoiced monthly or quarterly and paid in advance.

Current wording

Our leases in the U.K. and Ireland typically have terms of five or ten years and generally contain a provision whereby every third or fifth year we have the opportunity to exit the lease (the ‘break clause’). The leases typically provide the lessee with the first right for renewal at the end of the lease. We may also be required to make deposits and rent guarantees to secure new leases as we expand. Real estate taxes also change according to government time schedules to reflect current market rental rates for the locations we lease. Rents are invoiced monthly or quarterly and paid in advance.

Previous wording

Capital spending in fiscal 2023 totaled $18.3 million and was primarily used to support our ongoing digital initiatives and new store openings.

Current wording

Capital spending in fiscal 2024 totaled $19.3 million and was primarily used to support our ongoing digital initiatives and new store openings.

Previous wording

We have various contractual or other obligations, including operating lease commitments and obligations under deferred compensation plans. Additional information is provided in the notes to our consolidated financial statements. As of February 3, 2024, we had purchase obligations totaling approxim ately $84.7 million, of which $26.0 million are due in the next 12 months. We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.

Current wording

We have various contractual or other obligations, including operating lease commitments and obligations under deferred compensation plans. Additional information is provided in the notes to our consolidated financial statements. As of February 1, 2025, we had purchase obligations totaling approxim ately $98.3 million, of which $27.0 million are due in the next 12 months. We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.

Previous wording

The impact of higher inflation on the Company's business operations was seen throughout fiscal 2022 and continued to adversely affect our business in fiscal 2023, mainly through rising store labor costs. However, we continue to take mitigating actions, such as select strategic price increases on highly sought-after products, and leveraging distribution costs. We continue to monitor the impact of inflation on our business operations on an ongoing basis and may need to adjust our prices further to mitigate the impacts of changes to the rate of inflation during 2023 or in future years. Future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead could adversely affect our financial results. Inflationary pressures may be exacerbated by higher transportation costs due to war and other geopolitical conflicts, such as the current Russia-Ukraine conflict, tension between China and Taiwan, and the Israel-Hamas conflict. We cannot provide an estimate or range of impact that such inflation may have on our future results of operations. However, if we are unable to recover the impact of these costs through price increases to our guests, or if consumer spending decreases as a result of inflation, our business, results of operations, financial condition and cash flows may be adversely affected. In addition, ongoing inflation in product costs may result in lower gross margin rates if we elect to maintain higher inventory reserves to mitigate anticipated higher costs.

Current wording

The impact of inflation on the Company's business operations was seen throughout fiscal 2022 and 2023. Inflation continued to adversely affect our business in fiscal 2024, mainly through rising store labor costs. However, we continue to take mitigating actions, such as select strategic price increases on highly sought-after products and leveraging distribution costs. We expect the inflationary pressures experienced in fiscal 2024 to continue into fiscal 2025, specifically through wage increases and tariffs on inventory purchases. We continue to monitor the impact of inflation on our business operations on an ongoing basis and may need to adjust our prices further to mitigate the impacts of changes to the rate of inflation during 2024 or in future years. Future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead could adversely affect our financial results. Inflationary pressures may be exacerbated by higher transportation costs due to war and other geopolitical conflicts, such as the current Russia/Ukraine conflict, tension between China and Taiwan, and the Israel-Hamas conflict. We cannot provide an estimate or range of impact that such inflation may have on our future results of operations. However, if we are unable to recover the impact of these costs through price increases to our guests, or if consumer spending decreases as a result of inflation, our business, results of operations, financial condition and cash flows may be adversely affected. In addition, ongoing inflation in product costs may result in lower gross margin rates if we elect to maintain higher inventory reserves to mitigate anticipated higher costs.

Previous wording

For the Company’s gift cards, revenue is deferred for single transactions until redemption including any related gift card discounts. Approximately 80% of gift cards are redeemed within three years of issuance and over the last three years, approximately 65% of gift cards issued 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 pattern using an estimated breakage rate based on historical experience. Subsequent to stores reopening following shutdowns caused by COVID, the Company experienced lower redemptions of its gift cards for all periods of outstanding activated cards compared to pre-pandemic redemption patterns (fiscal year 2019 and earlier), which impacts the gift card breakage rate. The Company does not believe that the redemption pattern experienced during the pandemic reflects the pattern in the future and has adjusted the historical redemption data used to calculate the breakage rate. The Company continues to evaluate expected breakage annually and adjusts the breakage rates in the fourth quarter of each year, or other times, if significant changes in customer behavior are detected. Changes to breakage estimates impact revenue recognition prospectively. Further, given the magnitude of the Company's gift card liability, the changes in breakage rates could have a significant impact on the amount of breakage revenue recognized in future periods. As a matter of sensitivity, a hypothetical 1% change in our gift card breakage rate in fiscal 2023 would have resulted in a change in breakage revenue of $1.0 million.

Current wording

For the Company’s gift cards, revenue is deferred for single transactions until redemption including any related gift card discounts. Approximately 80% of gift cards are redeemed within three years of issuance and over the last three years, approximately 65% of gift cards issued 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 pattern using an estimated breakage rate based on historical experience. Subsequent to stores reopening following shutdowns caused by COVID, the Company experienced lower redemptions of its gift cards for all periods of outstanding activated cards compared to pre-pandemic redemption patterns (fiscal year 2019 and earlier), which impacts the gift card breakage rate. The Company does not believe that the redemption pattern experienced during the pandemic reflects the pattern in the future and has adjusted the historical redemption data used to calculate the breakage rate. The Company continues to evaluate expected breakage annually and adjusts the breakage rates in the fourth quarter of each year, or other times, if significant changes in customer behavior are detected. Changes to breakage estimates impact revenue recognition prospectively. Further, given the magnitude of the Company's gift card liability, the changes in breakage rates could have a significant impact on the amount of breakage revenue recognized in future periods. As a matter of sensitivity, a hypothetical 1% change in our gift card breakage rate in fiscal 2024 would have resulted in a change in breakage revenue of $1.1 million.

Previous wording

We recognize deferred tax assets resulting from tax credit carryforwards and deductible temporary differences between taxable income on our income tax returns and income before taxes under GAAP. Deferred tax assets generally represent future tax benefits to be received when these carryforwards can be applied against future taxable income or when expenses previously reported in our consolidated financial statements become deductible for income tax purposes. A deferred tax asset valuation allowance is required when some portion or all of the deferred tax assets may not be realized. We consider the weight of all available evidence, both positive and negative, in assessing the realizability of the deferred tax assets by each taxing jurisdiction. We evaluate the sustained profitability and three years of cumulative income in each jurisdiction and consider the Company’s ability to carry back its tax losses or credits for refunds, the availability of tax planning strategies, reversals of existing taxable temporary differences and projections of future taxable income. As we had incurred a cumulative book loss in the U.K. over the three-year period ended February 2, 2019, we evaluated the realizability of our UK deferred tax assets and, accordingly, in the fourth quarter of fiscal 2018, the Company recorded a $3.7 million valuation allowance on its U.K. deferred tax assets. In the fourth quarter of fiscal 2023, the Company recorded a benefit of $5.1 million for the reversal of the valuation allowance on deferred tax assets expected to be realized in the U.K. The positive evidence considered in our assessment of the realizability of the deferred tax assets included the generation of significant positive cumulative income in the U.K. for the three-year period ending with fiscal 2023, the implementation of tax planning strategies, and projections of future taxable income. The Company maintains a valuation allowance in certain other foreign jurisdictions. Changes in the valuation allowance in fiscal 2023 primarily related to the U.K. valuation reversal, balance sheet adjustments and functional currency fluctuations.

Current wording

We recognize deferred tax assets resulting from tax credit carryforwards and deductible temporary differences between taxable income on our income tax returns and income before taxes under GAAP. Deferred tax assets generally represent future tax benefits to be received when these carryforwards can be applied against future taxable income or when expenses previously reported in our consolidated financial statements become deductible for income tax purposes. A deferred tax asset valuation allowance is required when some portion or all of the deferred tax assets may not be realized. We consider the weight of all available evidence, both positive and negative, in assessing the realizability of the deferred tax assets by each taxing jurisdiction. We evaluate the sustained profitability and three years of cumulative income in each jurisdiction and consider the Company’s ability to carry back its tax losses or credits for refunds, the availability of tax planning strategies, reversals of existing taxable temporary differences and projections of future taxable income. As we had incurred a cumulative book loss in the U.K. over the three-year period ended February 2, 2019, we evaluated the realizability of our UK deferred tax assets and, accordingly, in the fourth quarter of fiscal 2018, the Company recorded a $3.7 million valuation allowance on its U.K. deferred tax assets. In the fourth quarter of fiscal 2023, the Company recorded a benefit of $5.1 million for the reversal of the valuation allowance on deferred tax assets expected to be realized in the U.K. The positive evidence considered in our assessment of the realizability of the deferred tax assets included the generation of significant positive cumulative income in the U.K. for the three-year period ending with fiscal 2023, the implementation of tax planning strategies, and projections of future taxable income. The Company maintains a valuation allowance in fiscal year 2023 and 2024 in certain other foreign jurisdictions. Changes in the valuation allowance in fiscal 2024 are primarily related to functional currency fluctuations.