Build-A-Bear Workshop, Inc.

a friend made a friend made a friend made a friend a friend made a friend made a friend a friend made a 

Making 
Friends  
Count

2011 A N N UA L REP O RT

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made a friend made a friend made a friend a friend made a friend made a friend a friend made a

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2011 A N N UA L  REP O RT

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a friend made a friend made a friend made a friend a friend made a friend made a friend a friend made a 

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 ...and making friends 

last  for  

Generations.

Build-A-Bear Workshop® is about friendship. In fact, the idea to start Build-A-Bear Workshop 
sprang from a shopping trip with Maxine Clark and her neighbor and best friend, Katie,  

who was only 10 years old at the time. From their conversation that day, the idea for our first store  

took form and came to life, opening in October, 1997. The concept was an immediate success  

which has now grown to over 400 stores worldwide and our Guests have populated the globe  
with over 100 million furry friends. As we cele-bear-ate our 15th birthday, we look forward  

to welcoming a new generation of Guests to our stores, inspiring friendships that will last  

a lifetime and spreading even more teddy bear hugs around the world.

Lil’ Cub® Chocolate, 1997

Centennial Teddy Bear V, 2003

Cele-bear-ation Teddy, 2012

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made a friend made a friend made a friend a friend made a friend made a friend a friend made a

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Highlights

(dollars in thousands, except per share, per store, and per gross square foot data)

Fiscal Year 

Revenues

2011 

2010 

2009

  Net retail sales  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .  

  Commercial revenue   .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .  

Franchise fees  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .  

Total revenues .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .  

$ 387,041 

$ 

 3,943 

$  3,391 

$ 394,375 

Net income (loss)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .  

$  (17,062) 

$ 387,163 

$  11,246 

$  3,043 

$ 401,452 

$ 

104 

$ 388,552

$ 

 4,001

$  3,353

$ 395,906

$  (12,473)

eaRnings (loss) peR common shaRe

  Basic   .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .

  Diluted  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .  

$ 

$ 

 (0.98) 

(0.98)  

$ 

$ 

0 .01  

0 .01  

$ 

$ 

(0 .66)

(0 .66)

otheR financial and stoRe data(1)

Retail gross margin (dollars)(2)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .  

$ 154,468 

$ 155,128 

$ 142,572

Retail gross margin (percent)(2) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .  

  Number of company-owned stores at end of period  .  .  .  .  .  . .

  Average net retail sales per store  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .

  Net retail sales per gross square foot   .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .  

39.9% 

346 

 1,021 

354 

$ 

$ 

(1)   For descriptions of this financial and store data, please see the fiscal 2011 annual report on Form 10-K .

40 .1% 

344 

$  1,030  

$ 

356 

36 .7%

345

$  1,044

$ 

358

(2)   Retail gross margin represents net retail sales less cost of retail merchandise sold . Retail gross margin percentage represents retail gross margin divided by net retail sales .

total Revenue

(dollars in millions)

475.4

468.3

395.9

401.5

394.4

numbeR of company-owned stoRes

(at end of period)

321

346

345

344

346

07

08

09

10

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07

08

09

10

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Company profile

Build-A-Bear Workshop, Inc . is the only global company that offers an interactive make-your-own stuffed animal retail-entertainment 

experience . There are more than 400 Build-A-Bear Workshop stores worldwide, including company-owned stores in The United States, 

Puerto Rico, Canada, the United Kingdom and Ireland, and franchise stores in Europe, Asia, Australia, Africa, the Middle East, 

Mexico and South America . Founded in St . Louis in 1997, Build-A-Bear Workshop is the leader in interactive entertainment retail . 
Brands include make-your-own Major League Baseball® mascot in-stadium locations, and Build-A-Dino® stores . Build-A-Bear Workshop 
extends its in-store interactive experience online with its award winning virtual world website at bearville .com™ .  The company was 
named  to  the  FORTUNE  100  Best  Companies  to Work  For®  list  for  the  fourth  year  in  a  row  in  2012 .  Build-A-Bear Workshop 

(NYSE: BBW) posted total revenue of $394 .4 million in fiscal 2011 . For more information, call 888 .560 .BEAR (2327) or visit the 
company’s award-winning website at buildabear .com® .

BUILD-A-BEARWORKSHOP,INC.LETTER TO SHAREHOLDERS1 
 
 
 
 
 
 
 
 
 
 
 
 
a friend made a friend made a friend made a friend a friend made a friend made a friend a friend made a friend made a friend made a friend made a friend made a friend made a friend made a friend a friend made a friend made 

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a

HEAR ME  In 2011, our  
Hear Me station underwent a 
technological make over. This 
highly interactive, self-service 
touchscreen kiosk features higher 
quality sounds and a larger 
selection. Updates to this process 
will increase opportunities for 
customization and personalization, 
sound sales and fun for our  
Guests. This will be an integral  
part of all store remodels and  
new store designs.

15 years 
of fun and friendship

As we celebrate 15 years of friendship at Build-A-Bear Workshop®, we are  
connecting with a new generation of Guests. We continue to have a strong  

presence in the retail environment as well as the digital space. We remain top  

of mind for our Guests by staying at the height of trends, crossing over into  

new areas of play and continuing to offer a one-of-a-kind experience. 

THE UNITED KINGDOM  In 2011, we opened  
five stores in the United Kingdom, which brings  
our company-owned store total to 58 stores in  
the United Kingdom and Ireland. Our presence  
in the United Kingdom will continue our mission  
to spread smiles to Guests around the globe. 

FASHIONABLE FUN FUR EVERYONE   
We stay on the cutting edge of furry 
fashion! By partnering with popular brands 
in fashion and entertainment like Justice®, 
SKECHERS® and Disney ®,  we offer designs 
that mirror clothing Guests have in their 
own closets. Our furry friends remain  
up to date with the latest looks seen  
in schools, malls, movies and on TV. 

friend made a friend made a friend made a friend a friend made a friend made a friend a friend made a friend made a friend made a friend made a friend made a friend made a friend a friend made a friend made

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e

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
a friend made a friend made a friend made a friend a friend made a friend made a friend a friend made a friend made a friend made a friend made a friend made a friend made a friend made a friend a friend made a friend made 

e

15 years 
of fun and friendship

As we celebrate 15 years of friendship at Build-A-Bear Workshop®, we are  
connecting with a new generation of Guests. We continue to have a strong  

presence in the retail environment as well as the digital space. We remain top  

of mind for our Guests by staying at the height of trends, crossing over into  

new areas of play and continuing to offer a one-of-a-kind experience. 

CONNECTING IN THE CYBEAR 
CENTURY  With well over 2 million fans 
on Facebook, over 25,000 followers  
on Twitter, over 5.5 million views on 
YouTube, and over 1 million downloads 
of the Build-A-Bear® App, Build-A-Bear 
Workshop has a very strong social 
media presence. E-commerce at 
buildabear.com® is a growing part  
of our business that we will continue  
to develop throughout 2012.

FEED YOUR FRIENDSHIP  We are continuing to expand 
our assortment of limited edition build-a-bear smallfrys®, 
which are pre-stuffed, smaller versions of past, present as 
well as unique Build-A-Bear Workshop furry friends. These 
collectible friends may be small, but they are packed with 
fun and play value. They are appealing to young children 
who like to play Mommy and Baby with their smallfrys and 
regular-sized stuffed animals, and they are popular with 
tweens because they are so portable.

GAME ON  We partnered with Microsoft Xbox 360 to introduce a new 
interactive entertainment experience for our Guests. Select stuffed animals can 
be imported into the new Kinect for Xbox 360 game, “Kinectimals Now with 
Bears.” With engaging activities including training, caring for and playing  
with their cubs and embarking on challenges, kids of all ages can create  
lasting friendships with their favorite Build-A-Bear Workshop furry friends.

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friend made a friend made a friend made a friend a friend made a friend made a friend a friend made a friend made a friend made a friend made a friend made a friend made a friend a friend made a friend made

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a

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Letter to shareholders

Making Friends Count. The title of this year’s annual report has a lot of meaning, inspiration 
and motivation for Build-A-Bear Workshop® associates and stakeholders, particularly as 2011 brought us a 
milestone of over 100 million furry friends made in our company-owned stores. While our annual net retail sales 

were essentially flat in 2011 compared to 2010, we are not satisfied with our financial performance for the year. 

Our focus remains on delivering innovative products and 
providing an unforgettable experience for each and every 
Guest — simply put, we are committed to providing the 
“funnest” hour of a family’s day through all of our brand 
touch points. 

I am proud of several key accomplishments in the year.  
Our Guest satisfaction scores reached record levels with over 
80 percent of all those surveyed giving us the highest rating. The 
same is true for our associates as we were named to Fortune’s 
100 Best Companies to Work For ® list for the fourth straight year 
— our culture is critical to encouraging creativity, communication 
and strong store performance. We will leverage the passion of 
our Guests and our associates to deliver our goal of driving long 
term value for all Build-A-Bear Workshop stakeholders. 

Our 2011 Financial Results:

(cid:116)(cid:1) Total revenues were $394.4 million compared to 

$401.5 million in fiscal 2010

2000

Over  1  

Our balance sheet remains 
strong with $46.4 million in cash 
and equivalents at year end 
2011 even as we repurchased 
approximately 2.5 million shares 
of our common stock at a total 
cost of $15.0 million. We had no 
borrowings under our revolving credit facility which was renewed 
with U.S. Bank, National Association at the end of the year. 

million furry  

friends sold

Build-A-Bear Workshop is a powerful global brand, one that 
kids love and Moms trust. We have demonstrated that we can 
drive sales growth in both our stores and online when we have 
the right product, make it easy for Moms to say yes and deliver 
our signature Guest experience. Despite a disappointing 2011, 
we are in a strong financial position to drive our growth and 
execute our strategies in 2012. To increase long-term 
shareholder value, we expect to:

(cid:116)(cid:1) Consolidated net retail sales were $387.0 million, 

1. IMPROVE STORE PRODUCTIVITY AND PROFITABILITY.

essentially flat with fiscal 2010 

(cid:116)(cid:1) E-commerce sales rose 8.5 percent

(cid:116)(cid:1) Achieved cost savings of $3.0 million

(cid:116)(cid:1) Loss per share of $0.98 compared to earnings per share of 
$0.01 in 2010. Net loss for 2011 included a $15.6 million 
non-cash income tax charge, or $0.88 per share, related  
to a valuation allowance against net deferred tax assets

In 2012, we will build the destination appeal of our stores, 
improve store performance and optimize our positioning within 
markets. We will close between 15 and 20 stores, primarily  
in multi-store markets, transferring a percentage of sales to 
other stores in the same markets. These are strategic closures 
that recognize changes that have occurred in specific markets 
and malls and will reposition our stores to optimize our reach 

A Beary Special 15 Years...

1997

1998

1999

2000

BEARY FIRST BUILD-A-BEAR 
WORKSHOP STORE 

Opened in Saint Louis Galleria

THE AMBASSADOR OF HUGS

BEAR FEET

Samantha, a Guest, named 
Bearemy ®, our huggable mascot, 
in a contest

Our first soft-sole bear shoes 
were introduced

OVER 1 MILLION FURRY 
FRIENDS SOLD

Millions of people were 
introduced to our brand as furry 
friends started selling on FTD.com 

2

and market presence. We will 
also relocate select stores  
within existing malls, reduce  
their square footage and thereby 
increase productivity. While our 
store base in North America  
will be “leaner,” operating stores 
will have higher volumes and profitability.

2002

Over  10  

million furry  

friends sold

2. INCREASE SHOPPING FREQUENCY.

In order to grow our business, we will drive Guest traffic to our 
stores, specifically targeting families with children, convert the 
traffic into transactions and then retain those Guests once they 
have experienced our store, increasing shopping frequency 
and household value. 

Build-A-Bear Workshop offers a unique combination of product 
and experience and it is important that we speak to both. 
We will continue to promote our innovative product launches 
while also developing new categories of business including 
other toy and branded products that are in demand with our 
core demographics yet consistent with our brand attributes of 
creativity and imaginative play. 

We will use our national multi-media marketing programs to 
increase store traffic by promoting our interactive experience 
and seasonal product launches. We will increase shopping 
frequency with Guests that are members in our Stuff Fur Stuff ® 
club loyalty program. We believe our signature store 
experience is a competitive advantage and the full integration 
of product, marketing and operations enhances our Guests’ 
brand interaction. We will continue to grow our e-commerce 
business leveraging ongoing changes in consumers’ shopping 
channel preferences. 

Build-A-Bear Workshop has a community of highly engaged 
brand advocates, both adults (primarily Moms) and kids. 
In 2011, we continued to expand our use of social media  

to reach and market to these brand advocates. As of 
March 12, 2012, over 2 million Facebook users have “liked” 
the Build-A-Bear Workshop brand. We have over 25,000 
Twitter followers, over 5.5 million views on YouTube and over 
1 million downloads of our Build-A-Bear® App. Our virtual 
world and entertainment destination website, bearville.com,™  
is targeted at kids, primarily ages 6 to 14 and continues to be 
a tool to increase engagement, promote our brand and raise 
awareness of in-store products and events. In 2012, the digital 
space will continue to be an important component in our 
marketing efforts. 

3.  ENHANCE OUR STORE EXPERIENCE WITH 

A NEW STORE DESIGN. 

Build-A-Bear Workshop stores are highly recognizable and our 
teddy bear-themed environment encourages imagination and 
exploration. While our products change and improve regularly, 
our signature store experience has remained essentially 
unchanged since our inception. When I started Build-A-Bear 
Workshop, I wanted to re-define retail. My vision was to be 
“a theme park in the mall.” Fifteen years and over 100 million 
furry friends later, I think we can all truly take pride in the 
impact Build-A-Bear Workshop has made on the retail industry. 

With a new generation of kids, the 
evolution in technology, our expanded 
line of products and the growth in 
our online business, our vision has 
broadened and we will deliver an 
updated store design in 2012. 

2004

Over  25  

million furry  

friends sold

We are investing in our company to build these newly 
designed stores; they feature a bold new look that adds 
elements which enhance our experience, while maintaining the 
process and interaction that has made us who we are. While 
many other retailers are trying to create an experience to draw 
shoppers to their brands, we have always offered that and 
we will continue to lead in the interactive experiential retail 

2001

2003

2005

2007

BEAREMY’S KENNEL PALS ®

FIRST INTERNATIONAL STORE 

200TH STORE 

Program started to raise money 
for domestic pets in need of a  
helping paw 

The first Build-A-Bear Workshop 
store outside North America 
opened in Sheffield, England 

We cele-bear-ated our 200th store 
opening at the Mall of America in 
Minneapolis, Minnesota

ONLINE WORLD STUFFED   
WITH FUN 

Buildabearville.com® (now 
Bearville.com™) started

3

space. I am confident this new design will enhance our fun 
experience, connect us even more with our Guests, continue 
our leadership role in experiential retail, and ultimately drive 
store traffic and sales. Our first newly designed store will open 
in the Fall of 2012. 

4.  REINFORCE BUILD-A-BEAR WORKSHOP ® AS 

THE TOP DESTINATION FOR GIFTS. 

Throughout 2012, we will invite our associates and our Guests 
to cele-bear-ate their contributions to two major milestones, 
our 15th Birthday and over 100 million best friends made. 
We will leverage the celebration of these milestones as an 
opportunity to increase sales of our gifting business, both in 
store and online. The number one gift occasion for Build-A-Bear 
Workshop is someone’s birthday — Guests have made coming 
to our store for their birthdays an annual event and we are 
using our own 15th birthday to take gift giving to an entirely 
new level, grow our gift card sales and reenergize our party 
program. We have scheduled events throughout the year that 
will help us drive incremental visit occasions and add lots of 
FUN — for our Guests and our associates!

5. INCREASE OUR GLOBAL PRESENCE. 

We will also continue to build our global presence by 
colla-bear-ating with our franchisees who deliver the signature 
Build-A-Bear Workshop brand experience around the world 
and by adding new countries of operation to our portfolio. 
In fiscal 2011, our international franchisees grew their store 
base by 25 percent, net of closures, finishing the year with 
79 stores. In 2012, our franchisees plan to open an additional 
ten to twelve locations, net of closures. We are also working 
with our franchisees to improve their cost structure on both 

2006

Over  50  

million furry  

friends sold

product and logistics. Build-A-Bear 
Workshop has been on the 
forefront of international growth  
and we are putting the support  
and infrastructure in place to 
continue this expansion and  
our overall success. 

2011

Over  100  

million furry  

6. IMPROVE COST EFFICIENCIES.

friends sold

We must drive our business by 
increasing sales, but we also 
challenge ourselves every day on 
expenses. In 2011, we began our 
current cost savings program and 
realized $3 million in savings.  
We anticipate an additional $9 million in savings in 2012  
as the initiatives are annualized, a portion of which will  
offset expected product cost increases and support sales-
driving marketing initiatives. We achieved savings in store  
and World Bearquarters expenses, cost of goods sold, 
primarily through freight and product-related costs, and 
reduced store payroll. The processes that are driving our 
current savings will continue to focus our organization on 
improving efficiencies.

We are excited about our growth strategies and are confident 
they will enable us to increase our sales and profitability and 
drive long term value for all Build-A-Bear Workshop stakeholders. 
We are inspired by the more than 100 million friends that 
have been made and are equally motivated to grow and find 
meaning in all of the future friendships that will be made. 

I would like to thank each of our associates for your dedicated 
commitment. Thanks to our pawsome Guests for sharing your 
smiles, your stories and your love of our beary special brand. 
I also want to recognize the contribution of our Board of 
Directors and thank you for your support. And finally, thanks 
to you, our shareholders, for continuing to believe in the power 
of the teddy bear spirit and the future of our company. 

Beary Best Regards,

Maxine Clark
Founder and Chief Executive Bear 

March 23, 2012

...and still counting

2008

2009

2010

2012

HOLLY & HAL MOOSE™ 

The debut of our first story  
book featuring our characters. 

“HOLLY & HAL MOOSE:  
OUR UPLIFTING CHRISTMAS 
ADVENTURE” 

Was turned into an  
animated movie

GOING MOBILE

FRIENDS COUNT

The Build-A-Bear® App launched 
on iTunes allowing Guests to stay 
in the know even on the go!

Cele-bear-ating 15 years of  
love, hugs and smiles and  
over 100 million friends made

4

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

(Mark One)
È Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2011

OR

‘ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

to

Commission file number: 001-32320

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation or Organization)
1954 Innerbelt Business Center Drive
St. Louis, Missouri
(Address of Principal Executive Offices)

43-1883836
(I.R.S. Employer Identification No.)

63114
(Zip Code)

(314) 423-8000
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, par value $0.01 per share

Name of Each Exchange on Which Registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if
Act. ‘ Yes È No

Indicate by check mark if
Act. ‘ Yes È No

the registrant

is a well-known seasoned issuer, as defined in Rule 405 of

the Securities

the registrant

is not required to file reports pursuant

to Section 13 or Section 15(d) of

the

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. È Yes ‘ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the registrant was required to submit and post such files).
the preceding 12 months (or

for such shorter period that

È Yes ‘ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. È

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ‘ Accelerated filer È Non-accelerated filer ‘ Smaller reporting company ‘

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ‘ Yes È No

There is no non-voting common equity. The aggregate market value of the common stock held by nonaffiliates (based upon the
closing price of $6.33 for the shares on the New York Stock Exchange on July 1, 2011) was $87,573,917 as of July 2, 2011.

As of March 12, 2012, there were 17,394,457 issued and outstanding shares of the registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its May 10, 2012 Annual Meeting are incorporated herein by reference.

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

BUILD-A-BEAR WORKSHOP, INC.
INDEX TO FORM 10-K

Forward-Looking Statements

Part I

Item 1.

Business

Item 1A.

Risk Factors

Item 1B.

Unresolved Staff Comments

Item 2.

Item 3.

Item 4.

Part II

Item 5.

Item 6.

Item 7.

Properties

Legal Proceedings

Mine Safety Disclosure

Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities

Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Item 9.

Financial Statements and Supplementary Data

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Item 9A.

Controls and Procedures

Item 9B.

Other Information

Part III

Item 10.

Directors, Executive Officers and Corporate Governance

Item 11.

Executive Compensation

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13.

Certain Relationships and Related Transactions and Director Independence

Item 14.

Principal Accountant Fees and Services

Part IV

Item 15.

Exhibits and Financial Statement Schedules

Exhibit Index

Signatures

Page

3

4

11

19

19

20

20

21

22

24

37

37

38

38

40

40

41

41

41

41

42

61

67

2

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain statements
that are, or may be considered to be, “forward-looking
statements” for the purpose of federal securities laws,
including, but not limited to, statements that reflect our current
views with respect to future events and financial performance.
We generally identify these statements by words or phrases
such as “may,” “might,” “should,” “expect,” “plan,”
“anticipate,” “believe,” “estimate,” “intend,” “predict,”
“future,” “potential” or “continue,” the negative or any
derivative of these terms and other comparable terminology.
These forward-looking statements, which are subject to risks,
uncertainties and assumptions about us, may include, among
other things, projections or statements regarding:

• our future financial performance;

• our anticipated operating and growth strategies;

• our future capital expenditures;

• our anticipated rate of store closures, relocations and

openings;

• our anticipated costs related to store closures, relocations

and openings, and

• our franchisees’ anticipated rate of international store

openings.

These statements are only predictions based on our
current expectations and projections about future events.
Because these forward-looking statements involve risks and

uncertainties, there are important factors that could cause our
actual results, level of activity, performance or achievements
to differ materially from the results, level of activity,
performance or achievements expressed or implied by these
forward-looking statements, including those factors discussed
under the caption entitled “Risk Factors” as well as other
places in this Annual Report on Form 10-K.

We operate in a competitive and rapidly changing
environment. New risk factors emerge from time to time and it
is not possible for management to predict all the risk factors,
nor can it assess the impact of all the risk factors on our
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks
and uncertainties, you should not place undue reliance on
forward-looking statements, which speak only as of the date
of this Annual Report on Form 10-K, as a prediction of actual
results.

You should read this Annual Report on

Form 10-K completely and with the understanding
that our actual results may be materially different
from what we expect. Except as required by law,
we undertake no duty to update these forward-
looking statements, even though our situation may
change in the future. We qualify all of our
forward-looking statements by these cautionary
statements.

3

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

PART I

ITEM 1. BUSINESS

OVERVIEW

Build-A-Bear Workshop, Inc., a Delaware corporation, was
formed in 1997 and is the leading, and only international
company providing a “make your own stuffed animal”
interactive retail-entertainment experience. As of
December 31, 2011, we operated 346 company-owned
retail stores in the United States, Canada, the United Kingdom
and Ireland, including 288 Build-A-Bear Workshop® stores in
the United States and Canada and 58 Build-A-Bear Workshop
stores in the United Kingdom and Ireland. In addition,
franchisees operated 79 Build-A-Bear Workshop stores in
other international locations. Our core concept is based on
our guests making, personalizing and customizing their own
stuffed animals, and capitalizes on what we believe is the
relatively untapped demand for experience-based shopping
as well as the widespread appeal of stuffed animals.

We offer an extensive and coordinated selection of
merchandise, including over 30 different styles of animals to
be stuffed and a wide variety of clothing, shoes and
accessories for the stuffed animals as well as other brand
appropriate toy and accessory items. Our concept appeals to
a broad range of age groups and demographics, including
children, teens, parents and grandparents. We believe that
our stores, which are primarily located in malls, are
destination locations and draw guests from a large
geographic reach. Our stores average approximately
2,600 square feet in size and have a highly visual and
colorful appearance, including custom-designed fixtures
featuring teddy bears and other themes relating to the
Build-A-Bear Workshop experience.

We also market our products and build our brand
awareness and equity in our countries of operation through
national multi-media marketing programs that target our core
demographic guests, principally children and their
parents. The program incorporates consistent messaging
across a variety of media, and is designed to increase our
brand awareness and store traffic and attract more first-time
and repeat guests. In addition, our virtual world Web site,
bearville.com™, promotes brand connection and in-store
products and events with branded games, activities and social
connectivity features.

Since opening our first store in St. Louis, Missouri in
October 1997, we have sold over 100 million stuffed animals.
On February 20, 2007, we announced that our board of

directors had authorized a $25 million share repurchase
program of our outstanding common stock. On March 10,
2008, we announced that the Board of Directors had
authorized an increase in our share repurchase program to
up to $50 million. On February 23, 2012, we announced
that our share repurchase program had been extended to

March 31, 2013. As of March 12, 2012, we had
$8.7 million of availability under the program.

DESCRIPTION OF OPERATIONS

Guests who visit Build-A-Bear Workshop stores enter a teddy
bear themed environment consisting of eight stuffed animal
making stations: Choose Me, Hear Me, Stuff Me, Stitch Me,
Fluff Me, Dress Me, Name Me, and Take Me Home®. To
attract our target guests, we have designed stores that are
open and inviting with an entryway that spans the majority of
our storefront and are highly visual with colorful teddy bear
themes and displays that create a “theme park” destination in
the mall. The duration of a guest’s experience can vary
greatly depending on his or her preferences. While most
guests choose to participate in the full animal-making process
and all eight stations, a process which we believe averages
45 minutes, guests can also visit a Build-A-Bear Workshop
store and purchase items such as clothing, accessories, our
Bear Buck$® and Cub Cash® gift certificates, Bearville
Outfitters® game cards or pre-made animals in only a few
minutes. We also offer a wide variety of animals and
accessories on our e-commerce Web site, buildabear.com®.
We offer an extensive and coordinated selection of
merchandise including approximately 30 to 35 varieties of
animals to be stuffed, as well as a wide variety of other
clothing and accessory items for the animals. Our clothing is
inspired by human fashion and includes authentic details such
as functional buttons, working pockets, belt loops and zippers
and has child-friendly, easy-to-dress details such as an
opening for the stuffed animal’s tail and adjustable closures to
help fit any size animal. We enhance the authentic nature of
a number of our products with strategic product licensing
relationships with brands that are in demand with our guests
such as officially sanctioned NFL®, NBA®, MLB® and FIFA™
team apparel, Skechers® shoes and Justice® clothing. We
also tap into pop culture that is relevant to our guests by
featuring merchandise such as a Victoria Justice bear and
accessories and Alvin and the Chipmunks® and Smurf™
stuffed characters.

While our concept is a unique combination of experience

and product, we selectively promote seasonal products with
special offers and discounts intended to maximize sales at
peak traffic periods in the year. We also offer frequent
shopper discounts associated with our Stuff Fur Stuff® club
loyalty program and strategically use coupons and gift-with-
purchase promotions to drive traffic to our stores.

As a retailer whose signature product is a stuffed animal

that is typically purchased as a toy or gift, our sales are
highest in our fourth quarter which ends on the Saturday
nearest December 31 each year, followed by the first
quarter. The timing of holidays and school vacations can
impact our quarterly results. Our European-based stores have
historically been more heavily weighted in the fourth quarter
as compared to our North American stores. We cannot
ensure that this will continue to be the case.

4

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

GROWTH STRATEGY

Our growth strategy is to improve the productivity of our
company-owned store base and to expand the reach of the
Build-A-Bear Workshop brand internationally.

Our concept is a unique combination of experience and

product, both of which are keys to our growth. In terms of
product innovation, we believe that the focus on larger, limited
edition animal introductions that launch approximately once a
month creates a sense of urgency to shop and drives traffic to
our stores, increases conversion and improves sales. We plan
to further increase conversion and average transaction value
by offering additional toy products and other branded products
that are in demand with our core demographics yet consistent
with our brand attributes of creativity and imaginative
play. We will use our national multi-media marketing programs
to increase store traffic by promoting our interactive experience
and seasonal product launches and to increase shopping
frequency with guests that are members in our loyalty
program. We believe our signature store experience is a
competitive advantage and the full integration of product,
marketing and operations enhances our guests’ brand
interaction. We will continue to grow online engagement at
bearville.com, as well as grow our e-commerce business. We
also plan to drive sales increases related to gift-giving
occasions, such as birthdays and Christmas, by promoting our
products and gift cards.

We expect to build the appeal of our stores and improve
our store productivity and profitability by closing select stores,
relocating and downsizing other stores and remodeling and
opening select stores in a new design. We believe that we
can optimize stores in multi-store markets with fewer locations
that have higher sales volumes. In fiscal 2012, we plan to
close 15 to 20 stores in accordance with natural lease events
such as expirations and lease termination options, primarily in
multi-store markets, transferring a percentage of sales to other
stores in the same markets. We also expect to relocate and
downsize ten to fifteen stores within existing malls which we
anticipate will lead to higher productivity metrics in these
locations. We expect to open four to six new stores in
North America and Europe, compared to opening three new
stores in 2011 in North America and five new stores in 2011
in Europe. In 2012, we also plan to introduce a new store
design which we believe will enhance our store experience
and better showcase our products. We expect that a total of
approximately five of the new stores and relocations will be in
this model. We believe the market potential for Build-A-Bear
Workshop stores in North America is approximately 300 to
325 locations and approximately 70 stores in the
United Kingdom and Ireland.

We lease all of our store locations. The majority of our
store leases contain provisions for base rent plus percentage
rent based on sales in excess of an agreed upon minimum
annual sales level. A number of our leases include a
termination provision which applies if we do not meet certain
sales levels during a specified period, typically in the third to

fourth year and the sixth to seventh year of the lease, at either
the landlords’ options or ours. Many of our initial leases have
expiration dates in the next 18 to 24 months as well as other
more recent leases that have termination or “kick out” options
in the same time period. The terms of new leases may have
financial increases reflecting current market conditions and if
we execute termination rights, we may have expenses and
charges associated with those closures.

In addition, we currently operate Build-A-Bear Workshop

stores in non-traditional retail locations including six
temporary locations, three Major League Baseball® ballparks,
one store located in the Saint Louis Zoo, one store at the
St. Louis Science Center and one store located in an airport.
Build-A-Bear Workshop stores are also operated by third
parties under licensing agreements. For example, Landry’s®
Restaurants operates Build-A-Bear Workshop stores within
select Rain Forest Café® and T-Rex Café™ locations.

We believe that there is continued opportunity to grow

our Build-A-Bear Workshop concept and brand outside of
North America, the United Kingdom and Ireland primarily
through franchise agreements. Our goal is to have franchisees
that are well capitalized and bring extensive retail and/or real
estate experience. As of December 31, 2011, our franchisees
operated 79 Build-A-Bear Workshop stores in 14 foreign
countries under master franchise agreements on a
country-by-country basis. We expect our franchisees to open
approximately ten to twelve new stores in fiscal 2012, net of
closures, under existing franchise agreements. We believe
there is a market potential for approximately 300 international
stores outside North America, the United Kingdom and
Ireland, which we expect to be primarily operated through
new and existing franchise agreements. Although we expect
to continue to open international stores primarily through
franchise agreements, we may open additional company-
owned stores outside of the United States, Canada,
Puerto Rico, the United Kingdom and Ireland, as our
international plans adjust to meet a variety of market
conditions in additional countries.

We believe there are also growth opportunities to sell
Build-A-Bear Workshop products in other retail stores. Over
the past 15 years, we have established our store as a place
where children can have a hands-on experience, express their
creativity and use their imagination. We believe our brand is
one that parents value and trust and kids love. We believe
that our expertise in product development and the reputation
and quality of our brand will drive sales of plush and other
branded products in locations other than our own stores. We
expect to be able to leverage our extensive guest database to
market new products and build demand for them.

In fiscal 2003, we began testing in certain markets a

proprietary collection of Friends 2B Made® make-your-own
dolls and related products. In the fiscal 2008 third quarter,
we announced plans to close the Friends 2B Made
concept. The closure plan affected our nine Friends 2B Made
store locations, Friends 2B Made fixtures within approximately
50 Build-A-Bear Workshop stores, and the concept’s Web

5

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

site. All Friends 2B Made locations were closed by the end of
fiscal 2009. Eight of these locations were in or adjacent to a
Build-A-Bear Workshop store.

We hold a minority interest in Ridemakerz, LLC

(previously Retail Entertainment Concepts, LLC). Ridemakerz®
offers a wholesale toy product line and operates interactive
retail stores, primarily in selected tourist locations, that allow
guests, or customizers, to build and personalize their own
model cars. The concept capitalizes on the universal love of
cars and a widely popular car culture that crosses ages and
demographics, although the primary targets are children and
their families. In 2009, Ridemakerz undertook a major
restructuring of its operations that included significant store
closings. As a result, we reduced the book value of our equity
method investment and receivable to zero in 2009.

In 2007, we responded to an emerging trend of kids’
interaction and play in the online space by launching our
virtual world, Bearville.com. The website is designed to
complement and continue our in-store experience and
enhance our core brand values. With customization options,
social connectivity features, entertainment exclusives and
product story development our Guests have a safe place to
play and engage with the brand. By the end of 2011, there
have been over 20 million accounts created. This site drives
interaction with core demographic segments and creates
loyalty with these guests while also encouraging and
promoting future store visits. We plan to continue to leverage
Bearville.com as a key piece of our digital strategy.

As we continually monitor kid’s play patterns, we have
seen an increase in mobile interaction and play. In November
2010, we launched the Build-A-Bear® App for mobile
devices; users gain access to mobile-exclusive content and
Bearville.com games. To date, there have been over 1 million
downloads. In 2012, we plan to continue to update and
enhance our mobile App presence.

Our stuffed animal skins and clothing are produced from

high quality man-made materials or natural fibers such as
cotton, and the stuffing is made of a high-grade polyester
fiber. We believe all of our products in our stores and online
at buildabear.com meet Consumer Product Safety
Commission requirements including the Consumer Product
Safety Improvement Act (CPSIA) for Children’s Products. We
also comply with American Society for Testing and Materials
(ASTM), EN71 (European standards) and Canadian
specifications for toy safety in all material respects. Our
products are tested through independent third-party testing
labs for compliance with toy safety standards. We believe
we comply with governmental toy safety requirements
specific to each country where we have stores. Packaging
and labels for each product indicate to our guests the age
grading for the product and any special warnings in
accordance with guidelines established by the Consumer
Product Safety Commission.

Our products have earned the Good Housekeeping Seal

of Approval. The Good Housekeeping Seal, introduced in
1909, is earned by products that pass Good Housekeeping
Institute review and is one of America’s most trusted consumer
icons assuring consumers of a quality product. Seal-backed
products are covered by Good Housekeeping’s two-year
money-back warranty.

In order to increase store visits and give guests additional
reasons for purchasing at our stores, we expect to expand our
product assortment and our leadership in the toy industry by
offering additional products other than our core plush animals
and related items that are consistent with our interactive and
hands-on experience, some of which are proprietarily
developed and some that come from other toy and accessory
companies. We believe the addition of complementary toy
and accessory products will allow us to increase our sales
and overall profitability.

PRODUCT DEVELOPMENT

MARKETING

Through our in-house design and product development team,
we have developed a coordinated, creative and broad
merchandise assortment, including a variety of animals,
clothing, shoes and accessories. We believe our merchandise
is an integral part of our concept and that the proprietary
design of many of the products we offer is a critical element of
our success, while the authentic and fashionable nature of our
products greatly enhances our brand’s appeal to our
guests. Our product development team regularly monitors
current fashion and cultural trends in order to create products
that are most appealing to our guests, often reflecting similar
styling to the clothes our guests wear themselves. We test our
products on an ongoing basis to ensure guest demand
supports order quantities. Through our focused vendor
relationships, we are able to source our merchandise in a
manner that is cost-effective, maximizes our speed to market
and facilitates rapid reorder of our best-selling items.

We believe there is value in the Build-A-Bear Workshop store
and brand as a family-friendly destination that provides
affordable experiences appealing to a broad range of age
groups and demographics. This gives us a competitive
advantage and is critical to our business strategy. In 2012,
our goal is to continue to build brand recognition through fully
integrated marketing programs.

Since February 2004, we have aired nationally televised

advertisements in the United States. In the fourth quarter of
2010, for the first time, we expanded our television
advertising to the United Kingdom. Television advertising is a
key strategy to reach and acquire new guests and gives
existing guests a reason to visit one of our stores. In 2012, we
plan to refine our advertising strategy to include brand
building and experience advertising in addition to featuring
new products and seasonal promotions. Our advertising
expenditures were $19.3 million (5.0% of net retail sales) in

6

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

fiscal 2011, $18.5 million (4.8% of net retail sales) in fiscal
2010 and $24.4 million (6.3% of net retail sales) in fiscal
2009, reflecting the continuation and further refinement of
marketing initiatives.

Build-A-Bear Workshop has a community of highly
engaged advocates, both adults, primarily Moms, and kids.
In 2011, we continued to expand our use of social media to
reach and market to these brand advocates. As of March 12,
2012, over 2 million Facebook users have “liked” the
Build-A-Bear Workshop brand, we had over 25,000 Twitter
followers, over 5.5 million views on You Tube and over
1 million downloads of our Build-A-Bear App. Digital media
and social media have allowed us to measure success of
products, events, programs and other initiatives so we can
refine and replicate the programs that our guests rate highest
as well as better understand our guests and listen and learn
from them in new ways to improve our product and marketing
activities. In 2012, the digital space will continue to be an
important component in our marketing efforts. The digital
space is constantly changing; therefore we continue to refine
our online strategies. Our virtual world Web site,
bearville.com, is targeted at kids, primarily ages six to
fourteen and continues to be a tool to increase brand
engagement, promote our brand and raise awareness of
in-store products and events.

We also leverage our database of nearly four million

active members of our Stuff Fur Stuff club loyalty program in
the United States and Canada. The program offers shoppers
the opportunity to earn reward certificates based on
purchases as well as receive other member only benefits. In
2008, we launched a version of the program in the United
Kingdom that did not include reward certificates, but served
to gather guest data and maintain contact with our guests. In
February 2012, we refreshed our Stuff Fur Stuff program in
all three countries to increase guest retention metrics. In North
America, members will earn rewards sooner and more often,
as the threshold for a reward has been lowered from 100 to
50 points. In the United Kingdom, members will now earn
points and get rewards as well. The data collected provides
insight into the overall purchasing history of members
including visit frequency, items purchased and amounts spent
on each visit and cumulatively over time. We continue to
leverage this information and our database to market
products, promotions and store events.

LICENSING AND STRATEGIC RELATIONSHIPS

We have developed licensing and strategic relationships with
some of the leading retail and cultural organizations in North
America and Europe. We believe that our guest base and
brand strength make us an attractive partner and our customer
research and insight allow us to focus on strategic
relationships with other companies. We plan to continue to
add partnerships with companies that have strong, family-
oriented brands and provide us with attractive marketing and
merchandising opportunities. These relationships for specific

products are generally reflected in contractual arrangements
for limited terms that are terminable by either party upon
specified notice.

Product and Merchandise Licensing. We have key
strategic relationships with select companies, including
Disney®, Sanrio®, Skechers, Justice stores, Star Wars, MLB,
NBA, NFL, the NHL®, and World Wildlife Fund US and
Canada, in which we feature their brands on products sold in
our stores. These strategic relationships allow both parties to
generate awareness of their brands. We have also offered
selected character and media-oriented products including
Sanrio’s Hello Kitty, Disney’s Wizards of Waverly Place,
Sony, The Smurfs, Warner Brothers, Happy Feet Two,
Peanuts Snoopy and Fox’s movie featuring Alvin and the
Chipmunks, Chipwrecked.

Promotional Arrangements. We have also developed
promotional arrangements with select organizations. Our
arrangements with Major League Baseball teams, including
the Chicago Cubs®, St. Louis Cardinals™ and Pittsburg
Pirates® have featured stuffed animal giveaways at each
club’s ballpark on a day in which our brand is highly
promoted within the stadium. In 2012, we partnered with
McDonald’s® for the fourth time to feature limited edition,
collectible mini Build-A-Bear Workshop animals in Happy
Meals®. We also have had arrangements featuring product
sampling, cross promotions and shared media with
companies such as Dairy Queen in North America, Baskin-
Robbins in UK, Necco Sweethearts and Quaker
Smashbars. We continue to partner with teen celebrity,
Victoria Justice, who will be our brand ambassador through
July 2012. The arrangement also features Victoria Justice 4
BABW branded merchandise available in our stores.

Third Party Licensing. We have continued a series of
licensing arrangements with leading manufacturers to develop
a collection of lifestyle Build-A-Bear Workshop branded
products including children’s furniture, fruit snacks, girls play
sets, novelty toys, trading cards, and puzzles.
We believe that each of these initiatives has the potential to
enhance our brand, raise brand awareness, and drive
increased revenues and profitability. We select companies for
licensing relationships that we believe are leaders in their
respective sectors and that understand and share our strategic
vision for offering guests exciting and interactive
merchandise. We have policies and practices in place
intended to ensure that the products manufactured under the
Build-A-Bear Workshop brand adhere to our quality, value
and usability standards. We have entered into or maintained
licensing arrangements for our branded products with leading
manufacturers including Playmates Toys, Pulaski Furniture,
ConAgra Foods, Enterplay and The Canadian Group. In
addition we have entered into agreements with agencies for
international third party licensing: Bulldog Licensing Ltd. for
the UK and Wild Pumpkin for Australia. Many of our licensed
products include a tie-in with our interactive Web site,
bearville.com, and a bounce back offer to use in our stores or
online.

7

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

INDUSTRY AND GUEST DEMOGRAPHICS

While Build-A-Bear Workshop offers consumers an interactive
and personalized experience, our tangible products are
stuffed animals, including our flagship product, the teddy
bear, a widely adored icon for over 100 years. According to
data published by the Toy Industry Association and The NPD
Group, sales of the traditional toy market were $21.2 billion
in the United States (excluding video games) in 2011 with
plush and doll sales having a combined 18.7% share of the
traditional toy market. According to further data provided by
The NPD Group, worldwide toy sales topped $83.3 billion
dollars in 2010.

Our guests are diverse, spanning broad age ranges and

socio-economic categories. Major guest segments include
families with children, primarily ages three to twelve,
grandparents, aunts and uncles, teen girls who occasionally
bring along their boyfriends, and child-centric organizations
looking for interactive entertainment options such as scouting
organizations and schools. Based on information compiled
from our guest database for 2011, the average age of the
recipient of our stuffed animals at the time of purchase is nine
years old and children aged one to fourteen are the recipients
of approximately 80% of our stuffed animals.

According to the estimates by the United States Census
Bureau, in 2009 there were over 62 million children age 14
and under in the United States. The size of this population
group is projected to remain relatively stable over the next
decade. Industry sources estimate direct spending by children
in the United States at over $50 billion annually and that
parents and family members spend an additional $170 billion
annually on children. In addition, children influence billions of
dollars in other family spending.

EMPLOYEES AND TRAINING

In January 2012, we were recognized by Fortune magazine
for the fourth consecutive year as one of the 100 Best
Companies to Work For. We believe that this honor is the
result of our commitment to providing a great experience for
our diverse team of associates as well as our guests. We have
a distinctive culture that we believe encourages contribution
and collaboration. We take great pride in our culture and feel
it is critical in encouraging creativity, communication, and
strong store performance. All store managers receive
comprehensive training through our Bear University program,
which is designed to promote a friendly and personable
environment in our stores and a consistent experience across
our stores.

We extensively train our associates on the bear-building

process and the guest experience. In fiscal 2011, we hired
approximately 3.5% of applicants for store manager
positions. We focus on employing and retaining people who
are friendly and committed to guest service. Our high
employee retention rates contribute to the consistency and
quality of the guest experience. Our store teams are evaluated
and compensated not only on sales results but also the results

from our regular guest satisfaction surveys. Each store has a
recognition fund so that exceptional guest service can be
immediately recognized and rewarded. We are committed to
providing compensation structures that recognize individual
accomplishments as well as overall team success.

As of December 31, 2011, we employed approximately

1,000 full-time and 3,800 part-time employees. We divide
our store base into four geographic regions, with the
United Kingdom and Ireland representing one of those
regions. The regions are lead by our Chief Operations and
Financial Bear; our North American operations are led by our
Chief Workshop Bear – North America and there are three
Regional Workshop Managing Directors. Bearitory Leaders
are responsible for each of our 31 store districts, or
bearitories, consisting of on average, 11 stores. Historically,
our stores generally have had a full-time Chief Workshop
Manager, and three additional managers who are full-time or
part-time, depending upon the volume at the specific location,
in addition to part-time hourly Bear Builder® associates. The
number of part-time employees fluctuates depending on our
seasonal needs. In addition to the approximately
4,500 employees at our store locations, we employ
approximately 200 associates in general administrative
functions at our World Bearquarters in St. Louis, Missouri,
approximately 70 associates at our Bearhouse distribution
center in Groveport, Ohio, and approximately 30 associates
in our European Bearquarters in Windsor, England. We are
committed to innovation and invention and generally have
confidentiality agreements with our employees and
consultants. Store managers and Bearquarters associates pass
specific profile assessments. None of our employees are
represented by a labor union, and we believe our relationship
with our employees is good.

INTERNATIONAL FRANCHISES

In 2003, we began to expand Build-A-Bear Workshop stores
outside of the United States, opening company-owned stores
in Canada and our first franchised location in the
United Kingdom. As of December 31, 2011, there were
79 Build-A-Bear Workshop franchised stores located in the
following countries:

Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulf States(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17
10
10
9
8
7
5
4
4
3
1
1

79

(1) Gulf States agreement includes Kuwait, Bahrain, Qatar, Oman and the

United Arab Emirates.

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BUILD-A-BEAR WORKSHOP, INC.

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All stores outside of the U.S., Canada, the United
Kingdom and Ireland are currently operated by third party
franchisees under separate master franchise agreements
covering each territory. Master franchise rights are typically
granted to a franchisee for an entire country or group of
countries for a specified term. The terms of these master
franchise agreements vary by country but typically provide
that we receive an initial, one-time development fee and
continuing royalties based on a percentage of the franchisees’
stores sales. The terms of these agreements range up to
25 years with a franchisee option to renew for an additional
term if certain conditions are met. All franchised stores have
similar signage, store layout and merchandise characteristics
to our company-owned stores. Our goal is to have well-
capitalized franchisees with expertise in retail operations or
franchising and real estate in their respective country. We
collaborate with our franchisees in the development of their
business, marketing and store growth plans. We review all
franchisees’ orders for merchandise which are made in the
same factories that produce products for our company-owned
stores and advise our franchisees concerning their operational
and business practices in an effort to ensure they are in
compliance with our standards. We expect our current
franchisees to open approximately ten to twelve new stores,
net of closures, in fiscal 2012.

SOURCING AND INVENTORY MANAGEMENT

We do not own or operate any manufacturing facilities. Our
animal skins, stuffing, clothing and accessories are produced
by factories located primarily in China. We purchased
approximately 81% of our inventory in fiscal 2011,
approximately 73% in fiscal 2010 and approximately 80% in
fiscal 2009 from three long standing vendors. After specifying
the details and requirements for our products, our vendors
contract orders with multiple manufacturing facilities in China
that are approved by us in accordance with our quality
control and labor standards. We believe that our supplier
factories are compliant with the International Council of Toy
Industries (ICTI) CARE certification.

The CARE (Caring, Awareness, Responsible, Ethical)
Process is the ICTI program to promote ethical manufacturing,
in the form of fair labor treatment, as well as employee health
and safety, in the toy industry supply chain worldwide. The
program’s initial focus is in China, where 70 percent of the
world’s toy volume is manufactured. In order to obtain this
certification, each factory completed a rigorous evaluation
performed by an accredited ICTI agent. Our vendors can be
used interchangeably as each has a sourcing network for
multiple product categories and can expand its factory
network as needed. Our relationships with our vendors
generally are on a purchase order basis and do not provide a
contractual obligation to provide adequate supply or
acceptable pricing on a long-term basis.

The average time from the beginning of production to

arrival of the products into our stores is approximately 90 to

120 days. Our weekly tracking and reporting tools give us
the capability to adjust to shifts in demand. Through an
ongoing analysis of selling trends, we regularly update our
product assortment by increasing quantities of productive
styles and eliminating less productive items. Our distribution
centers provide further logistical efficiencies for delivering
merchandise to our stores.

DISTRIBUTION AND LOGISTICS

We own our 350,000 square-foot distribution center near
Columbus, Ohio which serves the majority of our stores in the
United States and Canada. We also engage a third-party
warehouse in southern California to service our West Coast
stores. The contract has a one year term and is renewable. In
Europe, we contract with a third-party distribution center in
Selby, England under an agreement that ends in December
2014. This agreement contains clauses that allow for
termination if certain performance criteria are not met.
Transportation from the warehouses to the stores is

managed by several third-party logistics providers. In the
United States, Canada and Europe, merchandise is shipped
by a variety of distribution methods, depending on the store
and seasonal inventory demand. Key delivery methods are
direct trucks through third-party pool points, ‘LTL’ (less-than
truck load) deliveries, and direct parcel deliveries. Shipments
from our third-party distribution centers are scheduled
throughout the week in order to smooth workflow and stores
that are part of the same shipping route are grouped together
to reduce freight costs. All items in our assortment are eligible
for distribution, depending on allocation and fulfillment
requirements, and we typically distribute merchandise and
supplies to each store once a week on a regular schedule,
which allows us to consolidate shipments in order to reduce
distribution and shipping costs. Back-up supplies, such as
Cub Condo® carrying cases and stuffing for the animals, are
often stored in limited amounts at local pool points.

MANAGEMENT INFORMATION SYSTEMS AND TECHNOLOGY

Optimizing technology is a key business strategy. We are
committed to utilizing and leveraging digital advancements to
gain a competitive edge and improve guest experiences. We
regularly evaluate strategic information technology initiatives
focused on competitive differentiation, support of corporate
strategy and reinforcement of our internal support
systems. Most recently, we implemented a new e-commerce
platform which helps propel our largest store into the future.

Our information and operational systems are best in class

and incorporate a broad range of purchased and internally
developed technologies; each are built on a foundation of
sound business processes, support guest relationships,
marketing, financial, retail operations, real estate,
merchandising, e-commerce and inventory management
processes, and deliver solid business results. Our employees
can securely access these systems over a company-wide
network. Sales, daily deposit and guest information are

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BUILD-A-BEAR WORKSHOP, INC.

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automatically collected from the stores’ point-of-sale terminals
and kiosks on a near real time basis.

We have developed award-winning, proprietary software

including our new Digital Sound Station, party scheduling
system and domestic and international versions of our Name
Me kiosk, which populates our Find-A-Bear® identification
system. Data from these systems are used to support key
decisions in all areas of our business, including
merchandising, allocation and operations. All data captured is
secured, Payment Card Industry compliant and protected by a
solid disaster recovery plan. Our critical systems are reviewed
on a regular basis to evaluate security and disaster recovery.

COMPETITION

We view the Build-A-Bear Workshop experience as a
distinctive combination of entertainment and retail with limited
direct competition. Because our signature product is a stuffed
animal, we compete with toy retailers, such as Wal-Mart, Toys
“R” Us, Target, Kmart and other discount chains. Build-A-Bear
Workshop was ranked by Playthings Magazine as the ninth
largest toy retailer for retailers with continuing operations,
based on 2008 revenues. Since we develop proprietary
products, we also compete indirectly with a number of
companies that sell stuffed animals in the United States,
including, but not limited to, Ty, Fisher Price, Mattel, Ganz,
Russ Berrie, Applause, Boyd’s, Hasbro, Commonwealth, Gund
and Vermont Teddy Bear. Since we sell a product that
integrates merchandise and experience, we also view our
competition as any company that competes for family time and
entertainment dollars, such as movie theaters, amusement
parks and arcades, other mall-based entertainment venues and
online entertainment. Being a mall-based retailer, we also
compete with other mall-based retailers for prime mall
locations, including various apparel, footwear and specialty
retailers.

We are aware of several small companies that operate

“make your own” teddy bear and stuffed animal stores or
kiosks in retail locations, but we believe none of those
companies offer the breadth and depth of the Build-A-Bear
Workshop experience or operate as a national or
international retail company.

We also believe that there is an emerging trend within
children’s play patterns towards mobile internet and online
play. According to Emarketer.com, kids aged 8 to 11
reported that they spend between one and two hours online
each day. We believe our bearville.com Web site competes
with other companies and internet sites that vie for children’s
attention in the online space including webkinz.com,
clubpenguin.com and neopets.com.

INTELLECTUAL PROPERTY AND TRADEMARKS

As of December 31, 2011, we had obtained over

232 U.S. trademark registrations, including Build-A-Bear
Workshop for stuffed animals and accessories for the animals,
retail store services and other goods and services, 36 issued

U.S. patents with expirations ranging from 2013 through
2020 and over 389 copyright registrations. In addition, we
have 12 U.S. trademark applications pending. We have
exclusive patent rights from two third parties in association
with our BUILD-A-SOUND message device and system. We
were granted exclusive licenses to use the device and system
covered by the patents in retail stores similar to ours. While
we have the right to sublicense the patent, the licensors have
agreed not to grant competing license rights to any of our
competitors. In the event that we or the licensors have reason
to believe that a third party is infringing upon the patents, the
licensors are generally required to bear the expenses required
to maintain and defend the patents. Our exclusive rights will
last until the expiration of the latest patent covered by each
agreement, calculated to be 2013 and 2017, respectively,
unless the agreements are terminated by either party.

We believe our copyrights, service marks, trademarks,

trade secrets, patents and similar intellectual property are
critical to our success, and we intend, directly or indirectly,
to maintain and protect these marks and, where applicable,
license the intellectual property and the registrations for the
intellectual property. We rely on trademark, copyright and
other intellectual property law to protect our proprietary rights
to the extent available in any relevant jurisdiction. We also
depend on trade secret protection through confidentiality and
license agreements with our employees, subsidiaries,
licensees, licensors and others. We may not have agreements
containing adequate protective provisions in every case, and
the contractual provisions that are in place may not provide us
with adequate protection in all circumstances. Any
infringement or misappropriation of our intellectual property
rights or breach of our confidentiality or license agreements
could result in significant litigation costs, and any failure to
adequately protect our proprietary rights could result in our
competitors offering similar products, potentially resulting in
loss of one or more competitive advantages and decreased
revenues. In addition, intellectual property litigation or claims
could force us to do one or more of the following: cease
selling or using any of our products that incorporate the
challenged intellectual property, which would adversely
affect our revenue; obtain a license from the holder of the
intellectual property right alleged to have been infringed,
which license may not be available on reasonable terms, if at
all; and redesign or, in the case of trademark claims, rename
our products to avoid infringing the intellectual property rights
of third parties, which may not be possible and time-
consuming if it is possible to do so.

Despite our efforts to protect our intellectual property

rights, intellectual property laws afford us only limited
protection. A third party could copy or otherwise obtain
information from us without authorization. Accordingly,
we may not be able to prevent misappropriation of our
intellectual property or to deter others from developing similar
products or services. Further, monitoring the unauthorized use
of our intellectual property is difficult. Litigation has been and
may continue to be necessary to enforce our intellectual

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BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

property rights or to determine the validity and scope of the
proprietary rights of others. Litigation of this type could result
in substantial costs and diversion of resources, may result in
counterclaims or other claims against us and could
significantly harm our results of operations. In addition, the
laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States.
We also conduct business in foreign countries to the

extent our merchandise is manufactured or sold outside the
United States and we have opened stores outside the
United States either directly or indirectly through
franchisees. We filed, obtained or plan to file for registration
of marks in foreign countries to the degree necessary to
protect these marks, although our efforts may not be successful
and there may be restrictions on the use of these marks in
some jurisdictions.

SEGMENTS AND GEOGRAPHIC AREAS

We conduct our operations through three reportable segments
consisting of retail, international franchising, and
commercial. The retail segment includes the operating
activities of company-owned stores in the United States,
Canada, the United Kingdom and Ireland, and other retail
operations, including our web-store and non-traditional store
locations such as tourist venues, temporary locations and
ballpark stores. The commercial segment includes our
transactions with other business partners, mainly comprised of
licensing our intellectual property, including entertainment
properties, for third-party use and wholesale product
sales. The international franchising segment includes the
activities under our franchise agreements with locations in
Asia, Australia, Africa, the Middle East, Europe, Mexico and
South America.

Our reportable segments are primarily determined by the

types of customers they serve and the types of products and
services that they offer. Each reportable segment may operate
in many geographic areas. See the financial statements
included elsewhere in this Annual Report on Form 10-K for
further discussion and financial information related to our
segments and the geographic areas in which we operate.

Relations section or by writing to the Investor Relations
department at World Bearquarters, 1954 Innerbelt Business
Center Dr., St. Louis, MO 63114.

ITEM 1A. RISK FACTORS

We operate in a changing environment that involves
numerous known and unknown risks and uncertainties that
could materially affect our operations. The risks, uncertainties
and other factors set forth below may cause our actual results,
performances or achievements to be materially different from
those expressed or implied by our forward-looking statements.
If any of these risks or events occur, our business, financial
condition or results of operations may be adversely affected.

RISKS RELATED TO OUR BUSINESS

A decline in general global economic conditions could lead to
disproportionately reduced consumer demand for our
products, which represent relatively discretionary spending,
and have an adverse effect on our liquidity and profitability.

Since purchases of our merchandise are dependent upon
discretionary spending by our guests, our financial
performance is sensitive to changes in overall economic
conditions that affect consumer spending. Consumer spending
habits are affected by, among other things, prevailing
economic conditions, levels of employment, salaries and
wage rates, consumer confidence and consumer perception of
economic conditions. A continued slowdown in the
United States, Canadian or European economies or
uncertainty as to the economic outlook could reduce
discretionary spending or cause a shift in consumer
discretionary spending to other products. Any of these factors
would likely cause us to delay or slow our expansion plans,
result in lower net sales and could also result in excess
inventories, which could, in turn, lead to increased
merchandise markdowns and related costs associated with
higher levels of inventory and adversely affect our liquidity
and profitability. For example, the slower economy in the
United States and Europe has caused our sales to decline and
led us to slow our growth plans.

AVAILABILITY OF INFORMATION

We make certain filings with the SEC, including our Annual
Report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments and exhibits to
those reports, available free of charge in the Investor Relations
section of our corporate website, http://ir.buildabear.com, as
soon as reasonably practicable after they are filed with the
SEC. The filings are also available through the SEC at the
SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 or by calling 1-800-SEC-0330.
Also, these filings are available on the internet at
http://www.sec.gov. Our Annual Reports to shareholders,
press releases and recent analyst presentations are also
available on our website, free of charge, in the Investor

A decrease in the customer traffic generated by the shopping
malls in which we are located, which we depend upon to
attract guests to our stores, could adversely affect our
financial condition and profitability.

While we invest heavily in integrated marketing efforts and
believe we are more of a destination location than traditional
retailers, we rely to a great extent on customer traffic in the
malls in which our stores are located. In order to generate
guest traffic, we generally attempt to locate our stores in
prominent locations within high traffic shopping malls. We
rely on the ability of the malls’ anchor tenants, generally large
department stores, and on the continuing popularity of malls
as shopping destinations. We cannot control the development
of new shopping malls, the addition or loss of anchors and

11

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

co-tenants, the availability or cost of appropriate locations
within existing or new shopping malls or the desirability,
safety or success of shopping malls. In addition, customer mall
traffic may be reduced due to a loss of consumer confidence
because of the economy, terrorism or war. If we are unable to
generate sufficient guest traffic, our sales and results of
operations will be harmed. A significant decrease in shopping
mall traffic could have a material adverse effect on our
financial condition and profitability. For example, we have
experienced a decline in transactions at comparable locations
over the past several years.

If we are unable to generate interest in and demand for our
interactive retail experience, including being able to identify
and respond to consumer preferences in a timely manner,
our financial condition and profitability could be
adversely affected.

We believe that our success depends in large part upon our
ability to continue to attract guests with our interactive
shopping experience and our ability to anticipate, gauge and
respond in a timely manner to changing consumer
preferences and fashion trends. We cannot assure you that
our past success will be sustained or there will continue to be
a demand for our “make-your-own stuffed animal” interactive
experience, or for our stuffed animals, animal apparel and
accessories. A decline in demand for our interactive shopping
experience, our animals, animal apparel or accessories, or a
misjudgment of consumer preferences or fashion trends, could
have a negative impact on our business, financial condition
and results of operations. For example, in 2008 we
announced plans to close the Friends 2B Made concept. The
closure was completed by the end of the fiscal 2009 third
quarter with pre-tax charges totaling $3.9 million. In addition,
if we miscalculate the market for our merchandise or the
purchasing preferences of our guests, we may be required to
sell a significant amount of our inventory at discounted prices
or even below costs, thereby adversely affecting our financial
condition and profitability. For example, in 2007, we
wrote-off $1.6 million, net of tax, of inventory, including
excess Shrek® merchandise.

Our future growth and profitability could be adversely
affected if our marketing and online initiatives are not
effective in generating sufficient levels of brand awareness
and guest traffic.

We continue to update and evaluate our marketing initiatives,
focusing on brand awareness, new product news, timely
promotions and rapidly changing consumer preferences. We
may not be able to successfully engage children in our virtual
world website, bearville.com, and achieve high enough traffic
levels nor be able to leverage the site to drive traffic to our
stores. Our future growth and profitability will depend in large
part upon the effectiveness and efficiency of our marketing

programs and future marketing efforts that we undertake,
including our ability to:

• create greater awareness of our brand, interactive

shopping experience and products;

• identify the most effective and efficient level of spending

in each market;

• determine the appropriate creative message and media

mix for marketing expenditures;

• effectively manage marketing costs (including creative
and media) in order to maintain acceptable operating
margins and return on marketing investment;

• select the right geographic areas in which to market;

• convert consumer awareness into actual store visits and

product purchases; and

• reach a level of engagement on the virtual world Web
site with large numbers of unique visitors with frequent
visitation that drives visits to our retail stores resulting
in purchases.

Our planned marketing expenditures may not result in

increased total or comparable store sales or generate
sufficient levels of product and brand awareness. We may not
be able to manage our marketing expenditures on a cost-
effective basis.

If we are unable to increase our comparable store sales
trends, our results of operations and financial condition could
be adversely affected.

Our comparable store sales for 2011 declined 2.1%
following a 2.0% decline in 2010, a 13.4% decline in fiscal
2009, a 14.0% decline in fiscal 2008 and a 9.9% decline in
fiscal 2007. We believe that the decrease in 2011 was
primarily attributable to the underperformance of certain
licensed movie products in the fourth quarter. We believe that
global economic conditions continued to impact our
comparable store sales in 2010. We believe that the
decrease in fiscal 2009 was primarily attributable to the
continued economic recession and dramatic decrease in
consumer sentiment and the decline in North American
shopping mall traffic. We believe that the decrease in 2008
was primarily attributable to the economic recession and
decrease in consumer disposable income, a continued decline
in shopping mall customer traffic and changes in media
strategies, online entertainment, children’s media consumption
and play patterns. We believe that the decrease in 2007 was
primarily attributable to a decline in shopping mall customer
traffic and consumer spending on discretionary products,
changes in media strategies, online entertainment, children’s
media consumption and play patterns, competitive plush
animal products and lower than expected customer purchases
of select licensed movie products introduced in the fiscal

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BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

2007 second quarter. We believe the principal factors that
will affect comparable store results include the following:

• the continuing appeal of our concept;

• the effectiveness of our marketing efforts to attract new

and repeat guests;

• consumer confidence and general economic conditions;

• our ability to anticipate and to respond, in a timely

manner, to consumer trends;

2010, we closed five and four locations, respectively, prior to
the expiration of their respective leases. Prior to 2010, we had
closed four stores since our inception (excluding four stores that
we closed in connection with our 2006 acquisition of Amsbra
and The Bear Factory). We may decide to close other stores in
the future. In addition, our ability to open new stores and
manage our portfolio will be limited to some extent by market
saturation of our stores. Our ability to open new stores and to
manage our growth also depends on our ability to:

• the continued introduction and expansion of our

• negotiate acceptable lease terms, including desired

merchandise offerings;

tenant improvement allowances;

• the impact of store openings, closures and relocations in

• finance the costs of closing, relocating and opening

existing markets;

• mall traffic;

• competition for product offerings including in the online

space;

• the timing and frequency of national media appearances

and other public relations events; and

• weather conditions.

As a result of these and other factors, we may not be
able to generate or achieve comparable stores sales growth
in the future. If we are unable to do so, our results of
operations could be significantly harmed and we may be
required to record significant impairment charges.

Our strategy requires us to operate a significant number of
stores in the United States, Canada, the United Kingdom and
Ireland as well as close, relocate and open store locations in
these countries. If we are not able to operate these stores or to
effectively manage the overall portfolio of our stores, it could
adversely affect our ability to grow and could significantly
harm our profitability.

Our growth will largely depend on our ability to operate our
stores successfully in the United States, Canada, the
United Kingdom and Ireland and optimizing store productivity
and profitability by closing select stores, relocating and
downsizing other stores and remodeling and opening select
stores in a new design. We opened 25, 50, and 35 stores in
fiscal 2008, 2007 and 2006, respectively. Since then we
slowed net store growth considerably with one net closure in
both 2009 and 2010 and two net openings in 2011,
exclusive of temporary locations. We plan to continue this
trend in 2012 with fifteen to twenty strategic closures. Our
ability to manage our portfolio of stores in future years in
desirable locations and operate stores profitably, particularly
in multi-store markets, is a key factor in our ability to grow
successfully. We cannot assure you as to when or whether
desirable locations will become available, the number of
Build-A-Bear Workshop stores that we can or will ultimately
open, or whether any such new or relocated stores can be
profitably operated. We have not always succeeded in
identifying desirable locations or in operating our stores
successfully in those locations. For example, in 2011 and

stores, including, severance and termination fees for store
closures and capital expenditures and working capital
requirements of the new and relocated stores;

• manage inventory to meet the needs of new and existing

stores on a timely basis;

• hire, train and retain qualified store personnel;

• develop cooperative relationships with our landlords; and

• successfully integrate new stores into our

existing operations.

In July 2005, we opened our flagship store in

New York City. This store is much larger than our typical mall-
based stores and as such, we may be unable to generate
revenues from this store at a level that justifies keeping the
store open. Closing this store could not only have an adverse
impact on our profitability, as the costs of opening this store
were much larger than those for a typical store, but, as our
flagship store, it could also have an adverse impact on the
Build-A-Bear Workshop brand and consumer perception of
our brand.

Increased demands on our operational, managerial and
administrative resources as a result of our store strategy could
cause us to operate our business less effectively, which in turn
could cause deterioration in our profitability. Additionally,
closing multiple stores could have an adverse impact on the
Build-A-Bear Workshop brand and consumer perception of
our brand.

If we are unable to renew, renegotiate or replace our store
leases or enter into leases for new stores on favorable terms,
or if we violate any of the terms of our current leases, our
growth and profitability could be harmed.

We lease all of our store locations. The majority of our store
leases contain provisions for base rent plus percentage rent
based on sales in excess of an agreed upon minimum annual
sales level. A number of our leases include a termination
provision which applies if we do not meet certain sales levels
during a specified period, typically in the third to fourth year
and the sixth to seventh year of the lease, which may be at
either the landlord’s options or ours. Furthermore, some of our
leases contain various restrictions relating to change of control
of our company. Our leases also subject us to risks relating to

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compliance with changing mall rules and the exercise of
discretion by our landlords on various matters within the
malls. In addition, the lease for our store in the Downtown
Disney® District at the Disneyland® Resort in Anaheim,
California provides that the landlord may terminate the lease
at any time, subject to the payment of an early termination
fee. As a result, we cannot assure you that the landlord will
not exercise its right to terminate this lease.

In addition, most of our leases will expire within the next
ten years and many of our initial leases are near completion
and do not contain options to renew. We may not be offered
a lease renewal by our landlord, may not be able to renew
leases under favorable economic terms or maintain our
existing store location thereby requiring additional capital
expenditure to move the store location within the mall. Those
locations may be in parts of the mall that have less traffic or
be positioned further from our desired co-tenants and our
ongoing sales and profitability results may be negatively
affected. The terms of new leases may not be as favorable,
increasing store expenses and impacting overall
profitability. If we execute termination rights, we may have
expenses and charges associated with those closures which
could negatively impact our profitability.

Our merchandise is manufactured by foreign manufacturers
and we transact business in various foreign countries;
therefore the availability and costs of our products, as well as
our product pricing, may be negatively affected by risks
associated with international manufacturing and trade and
foreign currency fluctuations.

We purchase our merchandise from domestic vendors who
contract with manufacturers in foreign countries, primarily in
China. Any event causing a disruption of imports, including
the imposition of import restrictions or labor strikes or lock-
outs, could adversely affect our business. For example, in
fiscal 2002, we experienced disruption to our import of
merchandise as well as increased shipping costs associated
with a dock-worker labor dispute. The flow of merchandise
from our vendors could also be adversely affected by
financial or political instability in any of the countries in which
the goods we purchase are manufactured, especially China, if
the instability affects the production or export of merchandise
from those countries. Trade restrictions in the form of tariffs or
quotas, or both, applicable to the products we sell as well as
increases in raw material and labor costs could also affect the
importation of those products and could increase the cost and
reduce the supply of products available to us. In addition,
decreases in the value of the U.S. dollar against foreign
currencies, particularly the Chinese renminbi, could increase
the cost of products we purchase from overseas vendors. The
pricing of our products in our stores may also be affected by
changes in foreign currency rates and require us to make
adjustments which would impact our revenue and profit in
various markets.

We may suffer negative publicity or be sued if the
manufacturers of our merchandise ship any products that do
not meet current safety standards or production requirements
or if our products are recalled or cause injuries.

Although we require our manufacturers to meet our product
specifications and safety standards and submit our products
for testing, we cannot control the materials used by our
manufacturers. If one of these manufacturers ships
merchandise that does not meet our required standards, we
could in turn experience negative publicity or be sued.

Many of our products are used by small children and
infants who may be injured from usage if age grading or
warnings are not followed. We may decide or be required to
recall products or be subject to claims or lawsuits resulting
from injuries. For example, we have voluntarily recalled four
products in the past three years due to possible safety
issues. While the vendors have historically reimbursed us for
certain, related expenses, negative publicity in the event of
any recall or if any children are injured from our products
could have a material adverse effect on sales of our products
and our business, and related recalls or lawsuits with respect
to such injuries could have a material adverse effect on our
financial position. Additionally, we could incur fines related to
consumer product safety issues from the regulatory authorities
in the countries in which we operate. Although we currently
have liability insurance, we cannot assure you that it would
cover product recalls or related fines, and we face the risk
that claims or liabilities will exceed our insurance
coverage. Furthermore, we may not be able to maintain
adequate liability insurance in the future.

We rely on a few vendors to supply substantially all of our
merchandise, and significant price increases or any disruption
in their ability to deliver merchandise could harm our ability
to source products and supply inventory to our stores.

We do not own or operate any manufacturing facilities. We
purchased approximately 81% of our merchandise in fiscal
2011, approximately 73% in fiscal 2010 and approximately
80% in fiscal 2009 from three vendors. Our 2010 purchases
included a significant purchase of non-proprietary toy
products that were incremental to our traditional
purchasing. Excluding these purchases, we purchased
approximately 80% of our merchandise from three
vendors. These vendors in turn contract for our orders with
multiple manufacturing facilities located primarily in China for
the production of merchandise. Our relationships with our
vendors generally are on a purchase order basis and do not
provide a contractual obligation to provide adequate supply
or acceptable pricing on a long-term basis. Our vendors
could discontinue sourcing merchandise for us at any time. If
any of our significant vendors were to discontinue their
relationship with us, or if the factories with which they contract
were to suffer a disruption in their production, we may be
unable to replace the vendors in a timely manner, which

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could result in short-term disruption to our inventory flow or
quality of the inventory as we transition our orders to new
vendors or factories which could, in turn, disrupt our store
operations and have an adverse effect on our business, financial
condition and results of operations. For example in 2011, one
factory used by one of our vendors closed unexpectedly,
causing us to quickly switch factories for one product, affecting
the quality and flow of the product. Additionally, in the event of
a significant price increase from these suppliers, we may not be
able to find alternative sources of supply in a timely manner or
raise prices to offset the increases, which could have an adverse
effect on our business, financial condition and results of
operations.

Our profitability could be adversely affected by high
petroleum products prices.

The profitability of our business depends to a certain degree
upon the price of petroleum products, both as a component of
the transportation costs for delivery of inventory from our
vendors to our stores and as a raw material used in the
production of our animal skins and stuffing. For example, our
results in fiscal 2011, 2008 and 2007 were impacted by
significant increases in fuel surcharges due to higher
petroleum products prices. We are unable to predict what the
price of crude oil and the resulting petroleum products will be
in the future. We may be unable to pass along to our
customers the increased costs that would result from higher
petroleum prices. Therefore, any such increase could have an
adverse impact on our business and profitability.

We may not be able to operate our European company-
owned stores in the United Kingdom and Ireland profitably.

In April 2006, we acquired The Bear Factory Limited, a
stuffed animal retailer in the United Kingdom owned by The
Hamleys Group Limited, and Amsbra Limited, our former
United Kingdom franchisee (the UK Acquisition). Both The
Bear Factory and Amsbra had losses in prior to our
acquisition. Although we have realized benefits from these
operations as part of our larger company, we may be unable
to continue to do so on a consistent basis. In particular, we
face business, regulatory and cultural differences from our
domestic business, such as economic conditions, changes in
foreign government policies and regulations and potential
restrictions and costs to convert and repatriate currency, as
well as other risks that we may not anticipate. We also face
difficulties realizing benefits because we have less brand
awareness than in the U.S., face higher labor and rent costs,
and have different holiday schedules. In 2007, we terminated
our French franchise agreement and opened three company-
owned stores in France. We were unable to operate the stores
in France profitably and in 2010, we closed all three of our
company-owned stores in France.

Our leases in the United Kingdom and Ireland also
typically contain provisions requiring rent reviews every five

years in which the base rent that we pay is adjusted to current
market rates. These rent reviews require that base rents cannot
be reduced if market conditions have deteriorated but can be
changed “upwards only”. We may be required to pay base
rents that are significantly higher than we have forecast. For
example, past rent reviews have resulted in increases as high
as 40% in select locations within the United Kingdom. As a
result of these and other factors, we may not be able to
operate our European store locations profitably. If we are
unable to do so, our results of operations and financial
condition could be harmed and we may be required to record
significant additional impairment charges.

If we are not able to franchise new stores outside of the
United States, Canada, the United Kingdom and Ireland, if we
are unable to effectively manage our international franchises
or if the laws relating to our international franchises change,
our growth and profitability could be adversely affected and
we could be exposed to additional liability.

In 2003, we began to expand the Build-A-Bear Workshop
brand outside of the United States, opening company-owned
stores in Canada and our first franchised location in the
United Kingdom. We have continued to expand outside of
our company-owned regions through franchising in a number
of countries. As of December 31, 2011, there were
79 Build-A-Bear Workshop franchised stores located outside
of the United States, Canada, the United Kingdom and
Ireland. We cannot assure you that our franchisees will be
successful in identifying and securing desirable locations or in
operating their stores. International markets frequently have
different demographic characteristics, competitive conditions,
consumer tastes and discretionary spending patterns than our
existing North American and European markets, which may
cause these stores to be less successful than those in our
existing markets. Additionally, our franchisees may
experience merchandising and distribution expenses and
challenges that are different from those we currently encounter
in our existing markets. The operations and results of our
franchisees could be negatively impacted by the economic or
political factors in the countries in which they operate or
foreign currency fluctuations. These challenges, as well as
others, could have a material adverse effect on our business,
financial condition and results of operations.

The success of our franchising strategy will depend upon

our ability to attract and maintain qualified franchisees with
sufficient financial resources to develop and grow the
franchise operation and upon the ability of those franchisees
to successfully develop and operate their franchised
stores. Franchisees may not operate stores in a manner
consistent with our standards and requirements, may not hire
and train qualified managers and other store personnel and
may not operate their stores profitably. As a result, our
franchising strategy may not be profitable to us. Moreover,
our brand image and reputation may suffer. When
franchisees perform below expectations we may transfer those

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agreements to other parties or discontinue the franchise
agreement. Furthermore, even if our international franchising
strategy is successful, the interests of franchisees might
sometimes conflict with our interests. For example, whereas
franchisees are concerned with their individual business
strategies and objectives, we are responsible for ensuring the
success of the Build-A-Bear Workshop brand and all of
our stores.

The laws of the various foreign countries in which our

franchisees operate govern our relationships with our
franchisees. These laws, and any new laws that may be
enacted, may detrimentally affect the rights and obligations
between us and our franchisees and could expose us to
additional liability.

Portions of our business are subject to privacy and security
risks. If we improperly obtain, or are unable to protect,
information from our guests, in violation of privacy or security
laws or expectations, we could be subject to liability and
damage to our reputation.

Our Web site, bearville.com, features children’s games and in
world e-mail and chat system. In addition, our e-commerce
site, buildabear.com, features e-cards and printable party
invitations and thank-you notes and provides an opportunity
for children under the age of 13 to sign up, with the consent
of their parent or guardian, to receive our online
newsletter. We currently obtain and retain personal
information about our website users, store shoppers and Stuff
Fur Stuff loyalty program members. In addition, we obtain
personal information about our guests as part of their
registration in our Find-A-Bear identification system. Federal,
state and foreign governments have enacted or may enact
laws or regulations regarding the collection and use of
personal information, with particular emphasis on the
collection of information regarding minors. Such regulations
include or may include requirements that companies establish
procedures to:

• give adequate notice regarding information collection

and disclosure practices;

• allow consumers to have personal information deleted

from a company’s database;

• provide consumers with access to their personal

information and the ability to rectify
inaccurate information;

• obtain express parental consent prior to collecting and

using personal information from children; and

• comply with the Federal Children’s Online Privacy

Protection Act.

Such regulation may also include enforcement and
redress provisions. While we have implemented programs
and procedures designed to protect the privacy of people,
including children, from whom we collect information, and our
websites are designed to be fully compliant with the Federal

Children’s Online Privacy Protection Act, there can be no
assurance that such programs will conform to all applicable
laws or regulations. If we fail to fully comply, we may be
subjected to liability and damage to our reputation.

We have a stringent, comprehensive privacy policy
covering the information we collect from our guests and have
established security features to protect our guest database
and website. However, our security measures may not
prevent security breaches. We may need to expend
significant resources to protect against security breaches or to
address problems caused by breaches. If unauthorized third
parties were able to penetrate our network security and gain
access to, or otherwise misappropriate, our guests’ personal
information, it could harm our reputation and, therefore, our
business and we could be subject to liability. Such liability
could include claims for misuse of personal information or
unauthorized use of credit cards. These claims could result in
litigation, our involvement in which, regardless of the
outcome, could require us to expend significant financial
resources. In addition, because our guest database primarily
includes personal information of young children and young
children frequently interact with our website, we are
potentially vulnerable to charges from parents, children’s
organizations, governmental entities, and the media of
engaging in inappropriate collection, distribution or other use
of data collected from children. Such charges could
adversely impact guest relationships and ultimately cause a
decrease in net sales and also expose us to litigation and
possible liability.

Our virtual world Web site, primarily for children,
bearville.com, allows social interaction between users. While
we have security features and chat monitoring, our security
measures may not protect users’ identities and our online
safety measures may be questioned which may result in
negative publicity or a decrease in visitors to our site. If site
users act inappropriately or seek unauthorized contact with
other users of the site, it could harm our reputation and,
therefore, our business and we could be subject to liability.
Internet privacy is a rapidly changing area and we may be
subject to future requirements and legislation that are costly to
implement and negatively impact our results.

We may suffer negative publicity or be sued if the
manufacturers of our merchandise violate labor laws or
engage in practices that our guests believe are unethical.

We rely on our sourcing personnel to select manufacturers
with legal and ethical labor practices, but we cannot control
the business and labor practices of our manufacturers. If one
of these manufacturers violates labor laws or other applicable
regulations or is accused of violating these laws and
regulations, or if such a manufacturer engages in labor or
other practices that diverge from those typically acceptable in
the United States, we could in turn experience negative
publicity or be sued.

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We may suffer negative publicity or a decrease in sales or
profitability if the non-proprietary toy products we sell in our
stores do not meet our quality standards or fails to achieve
our sales expectations.

We expect to expand our product assortment to include
interactive toy products manufactured by other toy
companies. If sales of such products do not meet our
expectations or are impacted by competitors’ pricing, we may
have to take markdowns or employ other strategies to
liquidate the product. If other toy companies do not meet
quality standards or violate any manufacturing or labor laws,
we suffer negative publicity and not realize our sales plans.

We may not be able to operate successfully if we lose key
personnel, are unable to hire qualified additional personnel,
or experience turnover of our management team.

The success of our business depends upon our senior
management closely supervising all aspects of our business, in
particular the operation of our stores and the design,
procurement and allocation of our merchandise. Also,
because guest service is a defining feature of the Build-A-Bear
Workshop corporate culture, we must be able to hire and
train qualified managers and Bear Builder associates to
succeed. The loss of certain key employees, in particular
Maxine Clark, our founder and Chief Executive Bear, as well
as other members of our senior management, our inability to
attract and retain other qualified key employees or a labor
shortage that reduces the pool of qualified store associates
could have a material adverse effect on our business,
financial condition and results of operations. We generally do
not maintain key person insurance with respect to our
executives, management or other personnel, except for limited
coverage of Ms. Clark, which we do not believe would be
sufficient to completely protect us against losses we may suffer
if her services were to become unavailable to us in the future.

We rely on a company-owned distribution center to service
the majority of our stores in North America, and our third-
party distribution center providers used in the western United
States and Europe may perform poorly.

The efficient operation of our stores is dependent on our
ability to distribute merchandise to locations throughout the
United States, Canada and Europe in a timely manner. We
have a 350,000-square-foot distribution center in
Groveport, Ohio. We rely on this company-owned distribution
center to receive, store and distribute merchandise for the
majority of our North America stores. We rely on third parties
to manage all of the warehousing and distribution aspects of
our business on the West Coast of the United States and in
Europe. Any significant interruption in the operation of the
distribution centers due to natural disasters and severe
weather, as well as events such as fire, accidents, power
outages, system failures or other unforeseen causes could
damage a significant portion of our inventory. These factors

may also impair our ability to adequately stock our stores and
could increase our costs associated with our supply chain.

Our market share may be adversely impacted at any time by
a significant number of competitors.

We operate in a highly competitive environment
characterized by low barriers to entry. We compete against a
diverse group of competitors. Because we are mall-based, we
see our competition as those mall-based retailers that compete
for prime mall locations, including various apparel, footwear
and specialty retailers. As a retailer whose signature product
is a stuffed animal that is typically purchased as a toy or gift,
we also compete with toy retailers, such as Wal-Mart,
Toys “R” Us, Target, Kmart and other discount chains, as well
as with a number of manufacturers that sell plush toys in the
United States and Canada, including, but not limited to, Ty,
Fisher Price, Mattel, Ganz, Russ Berrie, Applause, Boyds,
Hasbro, Commonwealth, Gund and Vermont Teddy Bear.
Since we offer our guests an experience as well as
merchandise, we also view our competition as any company
that competes for our guests’ time and entertainment dollars,
such as movie theaters, restaurants, amusement parks and
arcades. In addition, there are several small companies that
operate “make your own” teddy bear and stuffed animal
experiences in retail stores and kiosks. Although we believe
that currently none of these companies offers the breadth and
depth of the Build-A-Bear Workshop products and experience,
we cannot assure you that they will not compete directly with
us in the future.

Many of our competitors have longer operating histories,
significantly greater financial, marketing and other resources,
and greater name recognition. We cannot assure you that we
will be able to compete successfully with them in the future,
particularly in geographic locations that represent new
markets for us. If we fail to compete successfully, our market
share and results of operations could be materially and
adversely affected.

We also believe that there is an emerging trend within
children’s play patterns towards electronic toys, internet and
online play. According to Emarketer.com, kids aged eight to
eleven reported that they spend between one and two hours
online each day. We believe our Web site, bearville.com,
competes with other companies and internet sites that vie for
children’s attention in the online space including
webkinz.com, clubpenguin.com and neopets.com. A growing
number of traditional children’s toy and entertainment
companies have also developed their own virtual world online
play sites including Barbie.com® and McWorld. We cannot
assure you that children’s preferences for our products will
remain strong or that our on line Web site for children,
bearville.com, will be successful in attracting children to our
brand. If children decide to engage with other products or
Web sites, our sales will be negatively impacted and our
results will be materially impacted.

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We may fail to renew, register or otherwise protect our
trademarks or other intellectual property and may be sued by
third parties for infringement or, misappropriation of their
proprietary rights, which could be costly, distract our
management and personnel and which could result in the
diminution in value of our trademarks and other important
intellectual property.

Other parties have asserted in the past, and may assert in the
future, trademark, patent, copyright or other intellectual
property rights that are important to our business. We cannot
assure you that others will not seek to block the use of or seek
monetary damages or other remedies for the prior use of our
brand names or other intellectual property or the sale of our
products or services as a violation of their trademark, patent
or other proprietary rights. Defending any claims, even claims
without merit, could be time-consuming, result in costly
settlements, litigation or restrictions on our business and
damage our reputation.

In addition, there may be prior registrations or use of
intellectual property in the U.S. or foreign countries for similar
or competing marks or other proprietary rights of which we
are not aware. In all such countries it may be possible for any
third party owner of a national trademark registration or other
proprietary right to enjoin or limit our expansion into those
countries or to seek damages for our use of such intellectual
property in such countries. In the event a claim against us
were successful and we could not obtain a license to the
relevant intellectual property or redesign or rename our
products or operations to avoid infringement, our business,
financial condition or results of operations could be
harmed. Securing registrations does not fully insulate us
against intellectual property claims, as another party may
have rights superior to our registration or our registration may
be vulnerable to attack on various grounds.

Poor global economic conditions could have a material
adverse effect on our liquidity and capital resources.

In 2008 and 2009, the general economic and capital market
conditions in the United States and other parts of the world
deteriorated significantly. These conditions adversely affected
borrowers’ access to capital and increased the cost of
capital. Although we believe that our capital structure and
credit facilities will provide sufficient liquidity, there can be no
assurance that our liquidity will not be affected by changes in
the capital markets or that our capital resources will at all
times be sufficient to satisfy our liquidity needs. Capital market
conditions may affect the renewal or replacement of our credit
agreement, which was originally entered into in 2000 and
has been extended annually since then and currently expires
December 31, 2013.

RISKS RELATED TO OWNING OUR COMMON STOCK

Fluctuations in our quarterly results of operations could cause
the price of our common stock to substantially decline.

Retailers generally are subject to fluctuations in quarterly
results. Our operating results for one period may not be
indicative of results for other periods, and may fluctuate
significantly due to a variety of factors, including:

• the profitability of our stores;

• increases or decreases in comparable store sales;

• changes in general economic conditions and consumer

spending patterns;

• seasonal shopping patterns, including whether the Easter
holiday occurs in the first or second quarter and other
school holiday schedules;

• the effectiveness of our inventory management;

• the timing and frequency of our marketing initiatives;

• changes in consumer preferences;

• the continued introduction and expansion of

merchandise offerings;

• actions of competitors or mall anchors and co-tenants;

• weather conditions;

• the timing of store closures, relocations and openings and

related expenses; and

• the timing and frequency of national media appearances

and other public relations events.

If our future quarterly results fluctuate significantly or fail

to meet the expectations of the investment community, then the
market price of our common stock could decline substantially.

Fluctuations in our operating results could reduce our cash
flow and we may be unable to repurchase shares at all or at
the times or in the amounts we desire or the results of the
share repurchase program may not be as beneficial as we
would like.

Our Board of Directors has implemented a $50 million share
repurchase program. The program does not require the
Company to repurchase any specific number of shares of our
common stock, and may be modified, suspended or
terminated at any time without prior notice. Shares
repurchased under the program will be subsequently retired. If
our cash flow decreases as a result of decreased sales,
increased expenses or capital expenditures or other uses of
cash, we may not be able to repurchase shares of our
common stock at all or at times or in the amounts we
desire. As a result, the results of the share repurchase
program may not be as beneficial as we would like.

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Our certificate of incorporation and bylaws and Delaware law
contain provisions that may prevent or frustrate attempts to
replace or remove our current management by our
stockholders, even if such replacement or removal may be in
our stockholders’ best interests.

Our basic corporate documents and Delaware law contain
provisions that might enable our management to resist a
takeover. These provisions:

• restrict various types of business combinations with

significant stockholders;

• provide for a classified board of directors;

• limit the right of stockholders to remove directors or

change the size of the board of directors;

• limit the right of stockholders to fill vacancies on the

board of directors;

• limit the right of stockholders to act by written consent

and to call a special meeting of stockholders or propose
other actions;

• require a higher percentage of stockholders than would
otherwise be required to amend, alter, change or repeal
our bylaws and certain provisions of our certificate of
incorporation; and

• authorize the issuance of preferred stock with any voting
rights, dividend rights, conversion privileges, redemption
rights and liquidation rights and other rights,
preferences, privileges, powers, qualifications,
limitations or restrictions as may be specified by our
board of directors.

These provisions may:

• discourage, delay or prevent a change in the control
of our company or a change in our management,
even if such change may be in the best interests of
our stockholders;

• adversely affect the voting power of holders of common

stock; and

• limit the price that investors might be willing to pay in the

future for shares of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.

PROPERTIES

STORES

As of December 31, 2011, we operated 288 retail stores
located primarily in major malls throughout the United States,
Canada and Puerto Rico, 56 stores located in the
United Kingdom and two stores in Ireland in our Retail
segment. Our North American mall-based stores generally
range in size from approximately 2,000 to 4,000 gross
square feet and average approximately 2,800 square feet,
while our tourist location stores currently range up to
7,000 square feet and our flagship store in New York City is
approximately 20,000 square feet. Our UK stores range in
size from approximately 800 to 2,300 selling square feet and
average approximately 1,500 square feet. Our stores are
highly visual and colorful featuring a teddy bear theme and
larger than life details including a “sentry bear” at the front
entry, custom-designed fixtures as well as a customized
Build-A-Bear Workshop tile logo in our entryway. Our stores
are designed to be open and inviting so that guests can fully
immerse in the shopping experience and actively participate
in the creation and customization of their purchase. Our
typical store features one or two stuffing machines, three to
five Name Me computer stations and numerous displays of
fully-dressed stuffed animals throughout the store. We select
malls and make site selections within the mall based upon
demographic analysis, market research, site visits and mall
dynamics as well as a proprietary forecasting model that
projects a potential location’s first year sales. We have
identified additional target sites that meet our criteria for new
stores in new and existing markets. We seek to locate our
mall-based stores in areas with maximum customer traffic,
often near to or in the center of the mall, as well as offering
adjacencies to other children, teen and family retailers.

We lease all of our store locations. Due to our attraction

as a family-oriented entertainment destination concept, we
have received numerous requests from mall owners and
developers to locate a Build-A-Bear Workshop store in their
malls. We believe that we generally have negotiated favorable
lease terms including provisions providing for exclusivity of
operation of our concept in the mall. Our stores are located in
a variety of shopping center types. As of December 31, 2011,
the distribution of our stores is as follows:

Super regional center
Regional center
Open air lifestyle center
Outlet center(1)
Other (theme, NYC, concession)

Total company-owned stores

Temporary locations
Other (ballparks, zoo)

Total company-owned retail locations

214
88
17
10
17

346
6
4

356

(1) Build-A-Bear Workshop stores in outlet centers are not merchandised with

outlet merchandise.

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Most of our leases have an initial term of ten years and

NON-STORE PROPERTIES

In addition to leasing all of our store locations, we lease
approximately 59,000 square feet for our corporate
headquarters, or World Bearquarters, in
St. Louis, Missouri. Our World Bearquarters houses our
corporate staff, our call center and our on-site training
facilities. The lease was amended, effective January 1, 2008
with a five-year term, and may be extended for two additional
five-year terms. In September 2006, we completed
construction of a company-owned warehouse and distribution
center, or Bearhouse, in Groveport, Ohio, which is utilized
primarily by our Retail segment. The facility is approximately
350,000 square feet. In 2007, our web fulfillment site moved
to the Bearhouse.

In the United Kingdom, we lease approximately

2,000 square feet for our regional headquarters in
Windsor, England. The lease commenced in August 2003.
The lease can be terminated at any time by either party giving
notice of termination six months prior to cancellation.

ITEM 3.

LEGAL PROCEEDINGS

From time to time we are involved in ordinary routine litigation
typical for companies engaged in our line of business. We are
involved in several court actions seeking to enforce our
intellectual property rights or to determine the validity and
scope of the proprietary rights of others. As of the date of this
Annual Report on Form 10-K, we are not involved in any
pending legal proceedings that we believe would be likely,
individually or in the aggregate, to have a material adverse
effect on our financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable

do not have renewal options or clauses although our leases in
the United Kingdom are typically covered by laws and
regulations that give us priority rights of renewal. A number of
our leases provide a lease termination or “kick out” option,
which may be mutual, allowing either party to exercise the
option in a pre-determined year or years, typically the third or
fourth year and sixth or seventh year of the lease, if we do not
meet certain agreed upon minimum sales levels. In addition,
our leases typically require us to pay personal property taxes,
our pro rata share of real property taxes of the shopping mall,
our own utilities, repairs and maintenance in our store, a pro
rata share of the malls’ common area maintenance and, in
some instances, merchant association fees and media fund
contributions. Most of our leases in North America also
require the payment of a fixed minimum rent as well as
percentage rent based on sales in excess of agreed upon
minimum annual sales levels. Our leases in the
United Kingdom and Ireland typically have rent reviews every
five years in which the base rental rate is adjusted to current
market rates if they are higher than the original rent agreed.
Following is a list of our 346 company-owned stores in
the United States, Canada, the United Kingdom and Ireland
as of December 31, 2011:

State

Alabama . . . . . . . . . .
Alaska . . . . . . . . . . . .
Arizona . . . . . . . . . . .
Arkansas . . . . . . . . . .
California . . . . . . . . .
Colorado . . . . . . . . . .
Connecticut . . . . . . . .
Delaware . . . . . . . . . .
Florida . . . . . . . . . . . .
Georgia . . . . . . . . . . .
Idaho . . . . . . . . . . . . .
Illinois . . . . . . . . . . . .
Indiana . . . . . . . . . . .
Iowa . . . . . . . . . . . . .
Kansas . . . . . . . . . . . .
Kentucky . . . . . . . . . .
Louisiana . . . . . . . . . .
Maine . . . . . . . . . . . .
Maryland . . . . . . . . . .
Massachusetts . . . . . .
Michigan . . . . . . . . . .
Minnesota . . . . . . . . .
Mississippi . . . . . . . . .

Canadian Province

Alberta . . . . . . . . . . .
British Columbia . . . .
Manitoba . . . . . . . . . .
Nova Scotia . . . . . . .
Ontario . . . . . . . . . . .
Quebec . . . . . . . . . . .
Saskatchewan . . . . . .

Number of

Stores State

Number of
Stores

5 Missouri
. . . . . . . . .
1 Montana . . . . . . . . .
5 Nebraska . . . . . . . .
3 Nevada . . . . . . . . .
26 New Hampshire . . .
6 New Jersey . . . . . . .
5 New Mexico . . . . . .
1 New York . . . . . . . .
21 North Carolina . . . .
8 Ohio . . . . . . . . . . . .
1 Oklahoma . . . . . . . .
10 Oregon . . . . . . . . . .
7 Pennsylvania . . . . . .
3 Puerto Rico . . . . . . .
2 Rhode Island . . . . . .
3 South Carolina . . . .
5 Tennessee . . . . . . . .
2 Texas . . . . . . . . . . .
5 Utah . . . . . . . . . . . .
9 Virginia . . . . . . . . . .
5 Washington . . . . . .
2 West Virginia . . . . .
1 Wisconsin . . . . . . . .

United Kingdom

3 England . . . . . . . . .
2 Scotland . . . . . . . . .
1 Wales . . . . . . . . . . .
1 Northern Ireland . . .
9 Ireland . . . . . . . . . .
3
1

7
1
1
3
2
12
1
12
9
10
2
3
11
1
1
3
5
24
3
10
5
1
5

48
6
1
1
2

20

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON

EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange
(NYSE) under the symbol “BBW.” Our common stock
commenced trading on the NYSE on October 28, 2004. The
following table sets forth the high and low sale prices of our
common stock for the periods indicated.

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Fiscal 2011

Fiscal 2010

High

Low

High

Low

$8.66
$7.00
$6.63
$8.80

$6.00
$5.53
$4.60
$4.37

$7.43
$9.76
$7.45
$9.24

$4.50
$6.37
$4.85
$5.54

As of March 12, 2012, the number of holders of record

of the Company’s common stock totaled approximately 2,544.

PERFORMANCE GRAPH

The following performance graph compares the 60-month
cumulative total stockholder return of our common stock, with
the cumulative total return on the Russell 2000® Index and an
SEC-defined peer group of companies identified as
SIC Code 5600-5699 (the “Peer Group”). The Peer Group
consists of companies whose primary business is the
operation of apparel and accessory retail stores. Build-A-Bear
Workshop is not strictly a merchandise retailer and there is a
strong interactive, entertainment component to our business
which differentiates it from retailers in the Peer Group.

ISSUER PURCHASES OF EQUITY SECURITIES

However, in the absence of any other readily identifiable peer
group, we believe the use of the Peer Group is appropriate.

The performance graph starts on December 30, 2006

and ends on December 30, 2011, the last trading day prior
to December 31, 2011, the end of our fiscal 2011. The
graph assumes that $100 was invested on December 30,
2006 in each of our common stock, the Russell 2000 Index
and the Peer Group, and that all dividends were reinvested.

These indices are included only for comparative purposes

as required by Securities and Exchange Commission rules
and do not necessarily reflect management’s opinion that such
indices are an appropriate measure of the relative
performance of the common stock. They are not intended to
forecast the possible future performance of our common stock.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Build-A-Bear Workshop, Inc.
The Russell 2000 Index
SIC Codes 5600-5699

$140
$120
$100
$80
$60
$40
$20
$0

Dec.
2006

Dec.
2007

Jan.
2009

Jan.
2010

Jan.
2011

Dec.
2011

Dec.
2006

100.00

100.00

100.00

Dec.
2007

51.82

99.17

80.49

Jan.
2009

16.63

66.01

49.54

Jan.
2010

17.45

82.89

Jan.
2011

Dec.
2011

27.27

30.19

105.14

100.75

87.28

111.19

124.89

* $100 invested on 12/31/06 in stock or index, including reinvestment of dividends.

Period

Oct. 2, 2011 — Oct. 29, 2011
Oct. 30, 2011 — Nov. 26, 2011
Nov. 27, 2011 — Dec. 31, 2011

Total

(a)
Total Number of
Shares
(or Units)
Purchased(1)

(b)
Average
Price Paid
Per Share
(or Unit)

517,148
314,588
128

831,864

$5.29
$6.69
$8.69

$5.82

(c)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs(2)

516,490
314,588
—

831,078

(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
the May Yet Be
Purchased Under
the Plans or
Programs(2)

$10,817,301
$ 8,711,999
$ 8,711,999

(1) Includes shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of restricted shares which vested during the

quarter. Our equity incentive plans provide that the value of shares delivered to us to pay the withholding tax obligations is calculated as the closing trading price
of our common stock on the date the relevant transaction occurs.

(2) On February 23, 2012, we announced the further extension of our $50 million share repurchase program of our outstanding common stock until March 31,

2013. 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, applicable regulatory requirements, and other factors. Purchase activity may be increased, decreased or
discontinued at any time without notice. Shares purchased under the program are subsequently retired. As of March 12, 2012, we had $8.7 million of
availability under the program.

21

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

RECENT SALES OF UNREGISTERED SECURITIES

ITEM 6. SELECTED FINANCIAL DATA

There were no sales of unregistered securities during the
fourth quarter of fiscal 2011.

DIVIDEND POLICY

We anticipate that we will retain any future earnings to
support operations, to finance the growth and development of
our business and to repurchase shares of our common stock
from time to time and we do not expect, at this time, to pay
cash dividends in the future. Any future determination relating
to our dividend policy will be made at the discretion of our
board of directors and will depend on a number of factors,
including future earnings, capital requirements, financial
conditions, future prospects and other factors that the board of
directors may deem relevant. Additionally, under our credit
agreement, we are prohibited from declaring dividends
without the prior consent of our lender, subject to certain
exceptions, as described in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations —
Liquidity and Capital Resources”.

Throughout this Annual Report on Form 10-K, we refer to our
fiscal years ended December 31, 2011, January 1,
2011, January 2, 2010, January 3, 2009 and December 29,
2007, as fiscal years 2011, 2010, 2009, 2008 and 2007,
respectively. Our fiscal year consists of 52 or 53 weeks, and
ends on the Saturday nearest December 31 in each
year. Fiscal years 2011, 2010, 2009 and 2007 included
52 weeks and fiscal year 2008 included 53 weeks. All of our
fiscal quarters presented in this Annual Report on Form 10-K
included 13 weeks, with the exception of the fourth quarter of
fiscal 2008 which included 14 weeks. When we refer to our
fiscal quarters, or any three month period ending as of a
specified date, we are referring to the 13-week or 14-week
period prior to that date.

The following table sets forth, for the periods and dates
indicated, our selected consolidated financial and operating
data. The balance sheet data as of December 31, 2011

and January 1, 2011 and the statement of operations and
other financial data for our fiscal years ended December 31,
2011, January 1, 2011 and January 2, 2010 are derived
from our audited financial statements included elsewhere in
this Annual Report on Form 10-K. The balance sheet data as
of January 2, 2010, January 3, 2009 and December 29,
2007, and the statement of income and other financial data
for our fiscal years ended January 3, 2009 and
December 29, 2007 are derived from our audited
consolidated financial statements that are not included in this
Annual Report on Form 10-K. You should read our selected
consolidated financial and operating data in conjunction with
our consolidated financial statements and related notes and
with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” appearing elsewhere in
this Annual Report on Form 10-K.

22

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

(Dollars in thousands, except share, per share, per store

and per gross square foot data)

2011

2010

Fiscal Year

2009

2008

2007

Statement of income data:

Total revenues
Costs and expenses:

Cost of merchandise sold
Selling, general and administrative
Store preopening
Store closing
Losses from investment in affiliate
Interest expense (income), net

Total costs and expenses

Income (loss) before income taxes
Income tax expense (benefit)

Net income (loss)

Earnings (loss) per common share:

Basic
Diluted

Shares used in computing common per share amounts:

Basic
Diluted

Other financial data:

Retail gross margin ($)(1)
Retail gross margin (%)(1)
Capital expenditures, net(2)
Depreciation and amortization

Cash flow data:

Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows provided by (used in) financing activities

Store data(3):

Number of stores at end of period

North America
Europe

Total stores

Square footage at end of period

North America
Europe(4)

Total square footage

Average net retail sales per store — North America(5)(6)
Net retail sales per gross square foot —

North America(6)(7)

Consolidated comparable store sales change (%)(8)

Balance sheet data:

Cash and cash equivalents
Working capital
Total assets
Total stockholders’ equity

$

394,375

$

401,452

$

395,906

$

468,316

$

475,360

234,227
162,334
547
—
—
(81)

397,027

(2,652)
14,410

(17,062) $

239,556
163,910
708
—
—
(250)

403,924

(2,472)
(2,576)

104

(0.98) $
(0.98) $

0.01
0.01

$

$
$

17,371,315
17,371,315

18,601,465
18,653,012

$

$

$

$

$

$

$

$

$

$

$

$

154,468

39.9%

12,248
24,232

16,010
(13,318)
(14,587)

288
58

346

830,437
84,022

914,459
1,021

354
(2.1)%

46,367
37,610
241,571
129,243

155,128

40.1%

14,649
26,976

22,021
(13,766)
(7,216)

290
54

344

841,600
77,870

919,470
1,030

356
(2.0)%

58,755
51,671
275,794
157,713

$

$
$

$

$

$

$

$

$

247,511
161,692
90
981
9,615
(143)

419,746

(23,840)
(11,367)

(12,473) $

(0.66) $
(0.66) $

270,918
185,608
2,410
2,952
—
(799)

461,089

7,227
2,663

4,564

0.24
0.24

18,874,352
18,874,352

19,153,123
19,224,273

$

$

$

$

$

$

142,572

36.7%

8,148
28,487

23,990
(8,898)
—

291
54

345

846,373
77,520

923,893
1,044

358
(13.4)%

60,399
53,865
284,273
164,780

190,500

41.3%

23,215
28,883

23,615
(26,629)
(14,024)

292
54

346

856,504
77,520

934,024
1,329

445
(14.0)%

47,000
38,880
300,152
167,725

260,077
177,375
4,416
—
—
(1,531)

440,337

35,023
12,514

22,509

1.11
1.10

20,256,847
20,448,793

209,090

44.7%

37,235
26,292

56,374
(40,938)
(3,052)

272
49

321

810,208
70,577

880,785
1,576

516
(9.9)%

66,261
40,090
339,531
193,608

$

$
$

$

$

$

$

$

$

(1) Retail gross margin represents net retail sales less cost of retail merchandise sold, which excludes cost of wholesale merchandise sold. Retail gross margin

percentage represents retail gross margin divided by net retail sales.

(2) Capital expenditures, net consist of leasehold improvements, furniture and fixtures, land, buildings, computer equipment and software purchases, as well as

trademarks, intellectual property, key money deposits and deferred leasing fees.

(3) Excludes our webstore and temporary, seasonal and event-based locations.

(4) Square footage for stores located in Europe is estimated selling square footage and includes stores in the United Kingdom, Ireland and France.

(5) Average net retail sales per store represents net retail sales from stores open throughout the entire period in North America divided by the total number of

such stores.

(6) When we refer to average net retail sales per store and net retail sales per gross square foot for any period, we include in those calculations only those stores that

have been open for that entire period in North America. European stores are not included.

(7) Net retail sales per gross square foot represents net retail sales from stores open throughout the entire period in North America divided by the total gross square

footage of such stores. European stores are not included.

(8) Comparable store sales percentage changes are based on net retail sales. Stores are considered comparable beginning in their thirteenth full month of

operation. Fiscal 2008 first quarter was the first quarter that our European operations met the criteria for inclusion in our comparable store calculation. As such,
fiscal 2008 is the first period to include comparable store sales change for Europe in the consolidated comparable store sales change.

23

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND

Selected financial data attributable to each segment for

ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of
Financial Condition and Results of Operations contains
forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from the
results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited
to, those discussed in “Risk Factors” and elsewhere in this
Annual Report on Form 10-K. The following section is
qualified in its entirety by the more detailed information,
including our financial statements and the notes thereto, which
appears elsewhere in this Annual Report on Form 10-K.

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 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 December 31, 2011, we
operated 288 stores in the United States, Canada and
Puerto Rico, 56 stores in the United Kingdom and two stores
in Ireland, and had 79 franchised stores operating in
international locations under the Build-A-Bear Workshop
brand. In addition to our stores, we sell our products on our
e-commerce Web site, buildabear.com and market our
products and build our brand through our “virtual world”
Web site, bearville.com, which complements our interactive
shopping experience and positively enhances our core brand
value. We also operate non-traditional store locations in
Major League Baseball ballparks, six temporary locations,
one location in a zoo, one location in a science center and
an airport.

We operate in three segments 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, Puerto Rico, the United Kingdom and
Ireland, a webstore and seasonal, event-based locations;

• Transactions with other business partners, mainly

comprised of licensing our intellectual property, including
entertainment properties, for third-party use and
wholesale product sales; and

• International stores operated under franchise agreements.

fiscal 2011, 2010 and 2009, are set forth in Note 19 to our
consolidated financial statements included elsewhere in this
Annual Report on Form 10-K.

For a discussion of the key trends and uncertainties that

have affected our revenues, income and liquidity, see the
“— Revenues,” “— Costs and Expenses” and “— Expansion
and Growth Potential” subsections of this Overview.

We believe that we have developed an appealing retail

store concept that, for North American stores open for the
entire year, averaged $1.0 million in fiscal 2011, fiscal 2010
and fiscal 2009 in net retail sales per store. For a discussion
of the changes in comparable store sales in fiscal years
2011, 2010 and 2009, see “— Revenues” below. Store
contribution, which consists of income (loss) before income tax
expense (benefit); interest; store depreciation, amortization
and impairment; store preopening expense; store closing
expense; losses from investment in affiliate and general and
administrative expense, excluding franchise fees, income from
commercial activities and contribution from our webstore,
temporary and seasonal event-based locations, as a
percentage of net retail sales, excluding revenue from our
webstore, temporary and seasonal and event-based locations,
was 15.2% for fiscal 2011, 15.3% for fiscal 2010 and
12.4% for fiscal 2009. Total company net loss as a
percentage of total revenues was 4.3% for fiscal 2011 and
3.2% for fiscal 2009. Total company net income as a
percentage of total revenues was 0.0% for fiscal 2010. See
“— Non-GAAP Financial Measures” for a reconciliation of
store contribution to net (loss) income. The net loss in 2011
was primarily attributable to the decrease in comparable store
sales and the recording of a valuation allowance on the
Company’s US deferred tax assets. Net income increased in
2010 due to stable store sales trends, continued cost
reductions, improvements in margin and leverage of fixed
costs. Additionally, certain non-cash charges included in
2009 did not recur, or were significantly lower in 2010. Net
income declined in 2009 due primarily to the decrease in
comparable store sales and the impact of certain non-cash
charges. In 2009, merchandise margin improvement was
more than offset by fixed occupancy cost deleverage due
primarily to the decrease in comparable store sales.

In 2011, our results reflect stablizing economic trends
and modest mall traffic increases but continuing low levels of
consumer confidence. In 2011, our store contribution
percentage was essentially flat with 2010, as declining sales
were offset by lower store expenses, specifically payroll and
supplies. In 2009 and 2010, our results reflect the
challenging retail environment – economic recession,
declining mall traffic, and slowing consumer spending –
factors impacting many retailers and particularly our company
given the discretionary nature of our products and our
experience. In 2010, our store contribution increased,

24

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

primarily due to a significant decrease in store asset
impairment charges as compared to 2009 as well as
improvements in margin and leverage of fixed store costs. In
2009, our total store contribution declined, primarily due to a
13.4% decrease in comparable store sales. This decrease in
total store contribution was partially offset by approximately
$25 million in cost reductions in North America in 2009.
Our 2012 plan balances our long term business goals

while recognizing the continuing challenges of the retail
environment. We plan to improve store productivity and
profitability by strategically closing fifteen to twenty stores
during the year and reducing the square footage of select
stores by relocating them within the same malls. While we
believe our market potential in North America is
approximately 300 to 325, stores, this right-sizing will allow
us to focus on our business and align all operations around our
goals of improving our comparable stores sales performance
and store productivity, while also building our long term brand
value. At the same time, we will build our first newly designed
stores that feature a bold new look and enhanced experience
as we continue to be a leader in the interactive experiential
retail space. While Build-A-Bear Workshop in North America
will be leaner with fewer stores that have higher volumes and
profitability, we will continue to grow internationally in our
company-owned operations in the UK and through our
franchisees. We also intend to increase shopping frequency by
increasing new guest traffic to its stores, specifically focusing
on families with children, by refreshing our loyalty program
and intensifying digital engagement to increase visits from our
existing guests and by reinforcing our store as a top
destination for gifts. In 2009, we implemented cost reduction
initiatives that resulted in approximately $25 million in pre-tax
savings. We were able to maintain these savings in 2010 and
2011 and saved an additional $3 million in 2011. We
anticipate an additional $9 million in savings in 2012, a
portion of which will offset expected product cost
increases. We ended fiscal 2011 with no borrowings under
our bank loan agreement and with $46 million in cash and
cash equivalents after investing $12 million in capital projects
and $15 million in share repurchases.

Following is a description and discussion of the major

components of our statement of operations:

REVENUES

Net retail sales: Net retail sales are revenues from retail sales
(including our webstore and other non-store locations), are net
of discounts, exclude sales tax, include shipping and handling
costs billed to customers, and are recognized at the time of
sale. Revenues from gift cards are recognized at the time of
redemption. Our guests use cash, checks, gift cards and third
party credit cards to make purchases. We classify stores as
new, non-comparable and comparable stores. Stores enter the
comparable store calculation in their thirteenth full month of
operation. Our webstore and temporary, seasonal and event-
based locations are not included in our store count or in our

comparable store calculations. Non-comparable stores also
result from a store relocation or remodel that results in a
significant change in square footage. The net retail sales for
that location are excluded from comparable store sales
calculations until the thirteenth full month of operation after the
date of the change. In fiscal 2008 and 2009, we closed all
Friends 2B Made locations. All but one of these locations
were inside or adjacent to a Build-A-Bear Workshop store and
were excluded from our store count Other than one stand-
alone store in Ontario, California, the closures of these
locations were considered remodels of existing Build-A-Bear
Workshop stores and were not included as closures. The net
retail sales of these expanded Build-A-Bear Workshop stores
were excluded from comparable store sales calculations until
the thirteenth full month of operation after the date of the
expansion as well as after the subsequent closure.

We have a loyalty program with a frequent shopper

reward feature in North America, the Stuff Fur Stuff
club. Through 2011, guests enrolled in the program received
one point for every dollar or partial dollar spent and, after
reaching 100 points, received a $10 discount on a future
purchase. On a quarterly basis, an estimate of the obligation
related to the program, based on actual points and
certificates outstanding and historical point conversion and
certificate redemption patterns, is recorded as an adjustment
to deferred revenue and net retail sales. At the time of
redemption of the $10 discount, the deferred revenue
obligation is reduced, and a corresponding amount is
recognized in net retail sales. As the reward certificates can
be earned or redeemed at any of our store locations, we
account for changes in the deferred revenue account at the
total company level only. Therefore, when we refer to net
retail sales by location, such as comparable stores or new
stores, these amounts do not include any changes in the
deferred revenue amount. See “— Critical Accounting
Estimates” for additional details on the accounting for the
deferred revenue under our customer loyalty program.
We use net retail sales per gross square foot and
comparable store sales as performance measures for our
business. The following table details net retail sales per gross
square foot by age of store for the periods presented:

Net retail sales per gross square foot —

North America(1)(2)
Store Age > 5 years (220, 194 and

164 stores, respectively)

Store Age 3-5 years (56, 71 and

62 stores respectively)

Store Age <3 years (4, 21 and

59 stores, respectively)

All comparable stores

Fiscal
2011

Fiscal
2010

Fiscal
2009

$362

$370

$372

$315

$321

$341

$369
$354

$317
$356

$333
$358

(1) Net retail sales per gross square foot represents net retail sales from North

American stores open throughout the entire period divided by the total gross
square footage of such stores. Calculated on an annual basis only.

(2) Excludes our webstore, temporary and seasonal and event-based locations.

25

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

The percentage increase (or decrease) in comparable

Commercial revenue: Commercial revenue, includes the

store sales for the periods presented below is as follows:

Comparable store sales change —

North America (%)(1)(2)
Store Age > 5 years (220, 194 and

164 stores, respectively)

Store Age 3-5 years (56, 71 and

62 stores respectively)

Store Age <3 years (4, 21 and

59 stores, respectively)

Total comparable store sales change

Comparable store sales change —

Europe (%)(1)(2)

Comparable store sales change —

Consolidated (%)(1)(2)

Fiscal
2011

Fiscal
2010

Fiscal
2009

(2.1)% (0.4)% (15.1)%

(5.1)% (3.3)% (17.7)%

1.0% (3.8)% (22.2)%
(2.5)% (1.2)% (16.7)%

(0.2)% (5.5)% 5.0%

(2.1)% (2.0)% (13.4)%

(1) Comparable store sales percentage changes are based on net retail sales
and stores are considered comparable beginning in their thirteenth full
month of operation.

(2) Excludes our webstore, temporary and seasonal and event-based locations.

Fiscal 2011 consolidated comparable store sales
decreased by 2.1%, including a 0.2% decrease in Europe
and a 2.5% decrease in North America (full year comparable
store sales are compared to the 52 week period ended
Jan. 1, 2011). We believe the overall decline in consolidated
comparable store sales for the full year was attributed
primarily to the following factors:

• Through the third quarter, we had experienced a

0.9% decrease in consolidated comparable store sale.
Growth in third quarter sales, which resulted from
improved merchandise assortments and successful
promotional events, only partially offset comparable
stores sales declines in the first half of the year, which
were primarily driven by a decline in transactions and
negative consumer sentiment and spending in the UK.

• Further sales declines in the fourth quarter, attributable to
underperforming licensed movie product, resulted in a
decline for the full year.

Fiscal 2010 consolidated comparable store sales
decreased by 2.0%, including a 5.5% decrease in Europe
and a 1.2% decrease in North America (full year comparable
store sales are compared to the 52 week period ended
Jan. 2, 2010). We believe the decline in consolidated
comparable store sales was attributed primarily to the
following factors:

• The continuing impact of the economic recession and
resulting pullback in consumer spending impacted our
comparable store sales particularly in Europe. While
these factors impact many retailers we believe that they
impact our comparable store sales particularly given the
discretionary nature of our products and our experience.

• We believe that our product selection and improved

integration of product marketing and store operations
positively impacted our North American comparable
store sales trend in 2010.

26

company’s transactions with other businesses, mainly through
wholesale and licensing transactions. Revenue from licensing
activities is generally based on a percentage of sales made
by licensees to third parties and is recognized at the time the
product is shipped by the licensee or at the point of sale. We
have entered into a number of licensing arrangements
whereby third parties manufacture and sell to other retailers
merchandise carrying the Build-A-Bear Workshop
trademark. Revenue from wholesale product sales includes
revenue from merchandise sold at stores operated by third
parties under licensing agreements like Landry’s
restaurants. In 2010, it also includes two transactions totaling
$6.4 million with no associated gross margin.

Franchise fees: We receive an initial, one-time franchise

fee for each master franchise agreement which is amortized to
revenue over the life of the respective franchise agreements,
which extend for periods up to 25 years. Master franchise
rights are typically granted to a franchisee for an entire
country or countries. Continuing franchise fees are based on a
percentage of sales made by the franchisees’ stores and are
recognized as revenue at the time of those sales.

As of December 31, 2011, we had 79 stores, including
19 opened and three closed in fiscal 2011, operating under
franchise arrangements in the following countries:

Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulf States(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17
10
10
9
8
7
5
4
4
3
1
1

79

(1) Gulf States agreement includes Kuwait, Bahrain, Qatar, Oman and the

United Arab Emirates.

COSTS AND EXPENSES

Cost of merchandise sold and retail gross margin: Cost of
merchandise sold includes the cost of the merchandise,
including royalties paid to licensors of third party branded
merchandise; store occupancy cost, including store
depreciation and store asset impairment charges; cost of
warehousing and distribution; packaging; stuffing; damages
and shortages; and shipping and handling costs incurred in
shipment to customers. Retail gross margin is defined as net
retail sales less the cost of retail merchandise sold, which
excludes cost of wholesale merchandise sold.

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Selling, general and administrative expense: These

EXPANSION AND GROWTH POTENTIAL

expenses include store payroll and benefits, advertising, credit
card fees, and store supplies, as well as central office general
and administrative expenses, including costs for virtual world
maintenance, management payroll, benefits, stock-based
compensation, travel, information systems, accounting,
insurance, normal store closings, legal and public
relations. These expenses also include depreciation and
amortization of central office leasehold improvements,
furniture, fixtures and equipment as well as the amortization of
intellectual property costs.

Beginning of period

Opened
Closed

Company-owned stores: The number of Build-A-Bear
Workshop stores in the United States, Canada, Puerto Rico,
the United Kingdom, Ireland and France for the last three
fiscal years can be summarized as follows:

Fiscal
2011

Fiscal
2010

Fiscal
2009

344
8
(6)

346

345
4
(5)

344

346
1
(2)

345

In 2009, we achieved $22 million in savings in selling,

End of period

general and administrative expenses including marketing,
central office payroll and outside services. We were able to
maintain these savings in 2010 and 2011. We anticipate an
additional $9 million in savings in 2012, which we expect to
offset expected product cost increases. Other store expenses
such as credit card fees and supplies historically have
increased or decreased proportionately with net retail sales.
We have share-based compensation plans covering the

majority of our management groups and our Board of
Directors. We account for share-based payments utilizing the
fair value recognition provisions of Accounting Standards
Codification (ASC) Section 718 – Stock Compensation. We
recognize compensation cost for equity awards on a straight-
line basis over the requisite service period for the entire
award. In 2011, 2010 and 2009, we recorded stock based
compensation of approximately $4.6 million, $4.8 million
and $4.3 million, respectively.

Store preopening: Preopening costs are expensed as
incurred and include store set-up, certain labor and hiring
costs, and rental charges incurred prior to a store’s opening.
Losses from investment in affiliate. Equity losses from
investment in affiliate are the result of the allocation of losses
related to our investment in Ridemakerz, LLC. Ridemakerz,
while still in its start-up phase, had incurred substantial losses
including charges resulting from a major restructuring of its
operations that included store closings. Under the agreements
in place in 2009, we were the sole member of an equity class
that is allocated losses only following the allocation of losses
to all other common and preferred equity holders to the extent
of their capital contributions. All of the priority equity
members’ capital was reduced to zero in the fiscal 2009
second quarter. We continued to provide services to
Ridemakerz in exchange for equity in 2010. The book value
of our investment was $-0- at December 31, 2011 and
January 1, 2011.

The Friends 2B Made stores are not included in the
number of store openings or closures in fiscal 2009 as noted
above but rather are considered remodels of Build-A-Bear
Workshop stores. In the fiscal 2008 third quarter, we
announced plans to close the Friends 2B Made concept;
concept closure was completed in the fiscal 2009
third quarter.

In fiscal 2011, we opened three Build-A-Bear Workshop

stores in North America and five in the United Kingdom. In
fiscal 2012, we anticipate opening four to six Build-A-Bear
Workshop stores and closing 15 to 20 stores, in accordance
with natural lease events such as expirations and lease
termination options. We will also relocate and downsize ten
to fifteen stores within existing malls which will lead to higher
productivity metrics in these locations. We believe there is a
market potential for approximately 300 to 325 Build-A-Bear
Workshop stores in the United States, Puerto Rico and
Canada and 70 stores in the United Kingdom and Ireland.
Non-store Locations: In 2004 we began offering

merchandise in seasonal, event-based locations such as Major
League Baseball ballparks. We expect to expand our future
presence at select seasonal and non-traditional locations
contingent on their availability. As of December 31, 2011,
we had a total of three ballpark locations. We opened our
first store in a zoo during fiscal 2006, our first store in a
science center during fiscal 2007 and our first store in an
airport in 2011. In 2010, we opened our first temporary
stores, which generally have lease terms of six to eighteen
months and are excluded from our store count. These
locations are intended to capitalize on short-term opportunities
in specific locations. As of December 31, 2011, six
temporary stores were open.

27

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Commercial Revenue: In fiscal 2004, we began entering
into license agreements pursuant to which we receive royalties
on Build-A-Bear Workshop brand products produced and sold
by third parties. These agreements generated revenue of
$1.8 million in 2011, $2.8 million in 2010 and $2.5 million
in 2009. Wholesale revenue is primarily generated under
agreements with third-parties who operate Build-A-Bear
Workshop locations or sell our product in agreed-upon
outlets. These agreements generated revenue of $2.1 million
in 2011, $2.0 million in 2010 and $1.5 million in 2009. In
addition to our normal wholesale business, in 2010, we had
two wholesale transactions totaling $6.4 million with no gross
margin. We anticipate entering into additional license and
wholesale agreements in the future.

International Franchise Revenue: Our first franchisee
location was opened in November 2003. The number of
international, franchised stores opened and closed for the
periods presented below can be summarized as follows:

Beginning of period

Opened
Closed

End of period

Fiscal
2011

Fiscal
2010

Fiscal
2009

63
19
(3)

79

65
10
(12)

63

62
10
(7)

65

As of December 31, 2011, we had 12 master franchise

agreements, which typically grant franchise rights for a
particular country or group of countries, covering an
aggregate of 16 countries. In the ordinary course of business,
we anticipate signing additional master franchise agreements
in the future and terminating other such agreements. We
expect our current franchisees to open ten to twelve stores in
fiscal 2012, net of closures. We believe there is a market
potential for approximately 300 international stores outside of
the United States, Canada, the United Kingdom and Ireland,
which we expect to be operated primarily by new and
existing franchisees.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated,
selected statement of operation data expressed as a
percentage of total revenues, except where otherwise
indicated. Percentages will not total due to cost of
merchandise sold being expressed as a percentage of net
retail sales and commercial revenue and immaterial rounding:

Revenues:

Net retail sales
Commercial revenues
Franchise fees

Total revenues
Costs and expenses:

Cost of merchandise

sold(1)

Selling, general, and

administrative
Store preopening
Losses from investment

in affiliate
Interest expense
(income), net

Total costs and expenses

Income (loss) before
income taxes
Income tax expense

(benefit)

Net income (loss)

Fiscal 2011

Fiscal 2010

Fiscal 2009

98.1%
1.0
0.9

96.4%
2.8
0.8

98.1%
1.0
0.8

100.0

100.0

100.0

59.9

41.2
0.1

—

60.1

40.8
0.2

—

63.1

41.1
0.0

2.4

(0.0)

100.7

(0.1)

100.6

(0.0)

106.0

(0.7)

3.7

(4.3)

(0.6)

(0.6)

0.0

(6.0)

(2.9)

(3.2)

Retail gross margin (%)(2)

39.9%

40.1%

36.7%

(1) Cost of merchandise sold is expressed as a percentage of net retail sales

and commercial revenue.

(2) Retail gross margin represents net retail sales less cost of retail merchandise

sold, which excludes cost of wholesale merchandise sold. Retail gross
margin was $154.5 million, $155.1 million and $142.6 million in 2011,
2010 and 2009, respectively. Retail gross margin percentage represents
retail gross margin divided by net retail sales.

28

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Fiscal Year Ended December 31, 2011 (52 weeks) Compared
to Fiscal Year Ended January 1, 2011 (52 weeks)

Total revenues. Net retail sales were $387.0 million for
fiscal 2011, compared to $387.2 million for fiscal 2010, a
decrease of $0.2 million. Comparable store sales decreased
$7.6 million in fiscal 2011, or 2.1% and sales from
non-comparable locations, comprised primarily of relocated
and remodeled locations, decreased $3.6 million. Partially
offsetting these decreases are increases of $4.4 million from
sales in new stores, $1.0 million in e-commerce sales and of
$2.7 million in sales from non-store locations which includes
temporary locations. Other changes, adding $2.9 million to
net retail sales, resulted from the impact of foreign currency
exchange rates, changes in deferred revenue estimate, offset
by redemptions throughout the year, and other revenue.

Commercial revenue was $3.9 million in fiscal 2011
compared to $11.2 million in fiscal 2010. This decrease was
primarily due to $6.4 million in non-recurring wholesale
transactions in fiscal 2010. Excluding these transactions,
commercial revenues decreased $0.9 million, primarily due to
the 2010 Build-A-Bear Craftshop launch that did not reoccur
in 2011. Revenue from international franchise fees increased
to $3.4 million for fiscal 2011 from $3.0 million for fiscal
2010, an increase of $0.4 million. This increase was
primarily due to the increase in the number of franchise
locations from 63 at the end of fiscal 2010 to 79 at the end
of fiscal 2011.

Gross margin. Total gross margin, calculated as net retail
sales and commercial revenues less cost of merchandise sold,
was $156.8 million for fiscal 2011 compared to
$158.9 million for fiscal 2010, a decrease of $2.1 million, or
1.3%. Retail gross margin was $154.5 million in fiscal 2011
compared to $155.1 million in fiscal 2010, a decrease of
$0.7 million or 0.4%. As a percentage of net retail sales,
retail gross margin decreased to 39.9% for fiscal 2011 from
40.1% for fiscal 2010, a decrease of 20 basis points as a
percentage of net retail sales (bps). This decline in margin
was primarily attributable to decreased merchandise margin,
decreased leverage on fixed occupancy costs and increased
purchasing costs offset by cost savings in distribution costs.

Selling, general and administrative. Selling, general and
administrative expenses were $162.3 million for fiscal 2011
as compared to $163.9 million for fiscal 2010, a decrease of
$1.6 million, or 1.0%. As a percentage of total revenues,
selling, general and administrative expenses were 41.2% for
fiscal 2011, compared to 40.8% in fiscal 2010. The dollar
decrease was primarily attributable to higher costs in 2010 of
$1.6 million in charges related to the closure of our stores in
France and corporate payroll costs primarily related to a
bonus that did not reoccur in 2011. These decreases were
partially offset by consulting costs related to continuing efforts
to improve efficiencies and reduce expenses.

Store preopening. Store preopening expense was
$0.5 million for fiscal 2011 as compared to $0.7 million for
fiscal 2010. These amounts include preopening rent expense
of $0.2 million for 2011 and $0.1 million for 2010.
Preopening expenses include expenses for stores that have
opened, including temporary locations, as well as some
expenses incurred for stores that will be opened at a
later date.

Interest expense (income), net. Interest income, net of

interest expense, was $0.1 million for fiscal 2011 as
compared to $0.3 million for fiscal 2010.

Provision for income taxes. Income tax expense was
$14.4 million in fiscal 2011, compared to an income tax
benefit of $2.6 million for fiscal 2010. The effective rate was
(543.4)% in 2011 and 104.2% in 2010. The fluctuation in
the effective rate in 2011 was primarily attributable to the
recording of a $15.6 million valuation allowance in 2011 on
the US deferred tax assets.

Fiscal Year Ended January 1, 2011 (52 weeks) Compared to
Fiscal Year Ended January 2, 2010 (52 weeks)

Total revenues. Net retail sales decreased to

$387.2 million for fiscal 2010 from $388.6 million for fiscal
2009, a decrease of $1.4 million, or 0.4%. Comparable
store sales decreased $7.2 million in fiscal 2010, or
2.0% and sales from non-comparable locations decreased
$2.1 million. Partially offsetting these decreases is an increase
of $4.3 million related to the revenue deferral under our
customer loyalty program. This year-end adjustment
represented a refinement in the calculation used to estimate
the liability that also took into account the change in
member’s redemption patterns experienced in 2010. This
increase was partially offset by $1.9 million of revenue
deferred throughout the year as estimated under the previous
approach. Increases in net retail sales resulted from sales in
new stores and increases in sales over the Internet of
$2.4 million and $1.2 million, respectively. Other increases
totaling $1.9 million came from sales at non-store locations
which includes temporary locations, other retail revenues and
the impact of foreign currency exchange rates.

Commercial revenue was $11.2 million in fiscal 2010
compared to $4.0 million in fiscal 2009. This increase was
primarily due to $6.4 million in non-recurring wholesale
transactions. Excluding these transactions, commercial
revenues increased $0.8 million reflecting the introduction of
Build-A-Bear Craftshop kits. Revenue from international
franchise fees decreased to $3.0 million for fiscal 2010 from
$3.4 million for fiscal 2009, a decrease of $0.4 million. This
decrease was primarily due to continuing adverse global
economic conditions.

29

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Gross margin. Total gross margin, calculated as net retail
sales and commercial revenues less cost of merchandise sold,
increased to $158.9 million for fiscal 2010 from
$145.0 million for fiscal 2009, an increase of $13.8 million,
or 9.5%. Retail gross margin increased to $155.1 million in
fiscal 2010 from $142.6 million in fiscal 2009, and increase
of $12.6 million or 8.8%. As a percentage of net retail sales,
retail gross margin increased to 40.1% for fiscal 2010 from
36.7% for fiscal 2009, an increase of 340 bps. This
improvement in margin was primarily attributable to a
110 basis point improvement resulting from the significant
reduction in asset impairment charges in 2010 as compared
2009. Additionally, we achieved 100 basis points of
improved leverage on fixed occupancy costs and a 70 basis
point improvement in merchandise margin along with other
improvements in distribution and purchasing.

Selling, general and administrative. Selling, general and
administrative expenses were $163.9 million for fiscal 2010
as compared to $162.7 million for fiscal 2009, an increase
of $1.2 million, or 0.7%. As a percentage of total revenues,
selling, general and administrative expenses were 40.8% for
fiscal 2010, compared to 41.1% for fiscal 2009. The dollar
increase was primarily attributable to $1.6 million in charges
related to the closure of our stores in France and increases in
corporate payroll costs primarily related to a bonus. These
increases were partially offset by marketing savings and
improved leverage on store salaries and other fixed
overhead costs.

Store preopening. Store preopening expense was
$0.7 million for fiscal 2010 as compared to $0.1 million for
fiscal 2009. The increase was primarily due to opening four
stores in fiscal 2010 as compared to one in 2009. These
amounts include preopening rent expense of $0.1 million for
2010 and $9,000 for fiscal 2009. Preopening expenses
include expenses for stores that have opened, including
temporary locations, as well as some expenses incurred for
stores that will be opened at a later date.

Losses from investment in affiliate. Losses from
investment in affiliate of $9.6 million in fiscal 2009 are
losses related to our investment in Ridemakerz. The losses
incurred in 2009 are comprised of a $7.5 million non-cash
charge of Ridemakerz net loss allocations, a $1.0 million
non-cash impairment charge and a $1.1 million write-off of
Ridemakerz outstanding receivable. As the investment was
written down to zero in 2009, no loss allocations charges
were recorded in 2010.

Interest expense (income), net. Interest income, net of

interest expense, was $0.3 million for fiscal 2010 as
compared to $0.1 million for fiscal 2009.

Provision for income taxes. The income tax benefit was
$2.6 million for fiscal 2010, compared to $11.4 million for
fiscal 2009. The effective rate was 104.2% in 2010 and
47.7% for fiscal 2009. The increase in the effective tax rate
was primarily attributable to a release of valuation allowances
on net operating loss carryforwards associated with our
France operations as well as the impact of lower taxes in
foreign jurisdictions and the release of tax reserves.

NON-GAAP FINANCIAL MEASURES

We use the term “store contribution” throughout this Annual
Report on Form 10-K. Store contribution consists of income
before income tax expense, interest, store depreciation and
amortization, store preopening expense, store closing
expense and general and administrative expense, excluding
franchise fees, income from licensing activities and
contribution from our web store 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 U.S. 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.

30

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

The following table sets forth a reconciliation of store contribution to net income for our company-owned stores located in the
United States, Canada and Puerto Rico (North America), stores located in the United Kingdom, Ireland and France (Europe) and
for our consolidated store base (dollars in thousands):

Net income (loss)
Income tax expense (benefit)
Interest expense (income)
Store depreciation, amortization and impairment(1)
Store preopening expense
Losses from investment in affiliate(2)
General and administrative expense(3)
Franchising and commercial contribution(4)
Non-store activity contribution(5)

North
America

$ (19,232)
13,607
56
15,233
226
—
43,641
(4,142)
(3,008)

Fiscal 2011

Fiscal 2010

Europe

Total

North
America

Europe

Total

$ 2,170
803
(137)
2,514
321
—
4,722
—
(1,109)

$ (17,062) $ (5,376) $ 5,480
708
(164)
2,949
182
—
(320)
—
(972)

(3,284)
(86)
16,222
526
—
48,047
(4,291)
(3,070)

14,410
(81)
17,747
547
—
48,363
(4,142)
(4,117)

$

104
(2,576)
(250)
19,171
708
—
47,727
(4,291)
(4,042)

Store contribution

$ 46,381

$ 9,284

$ 55,665

$ 48,688

$ 7,863

$ 56,551

Total revenues from external customers
Franchising and commercial revenues from external customers
Revenues from non-store activities(5)

$319,810
(7,334)
(16,765)

$74,565
—
(3,313)

$394,375
(7,334)
(20,078)

$331,392
(13,699)
(14,345)

$70,060
(590)
(2,785)

$401,452
(14,289)
(17,130)

Store location net retail sales

$295,711

$71,252

$366,963

$303,348

$66,685

$370,033

Store contribution as a percentage of store location

net retail sales

Total net income (loss) as a percentage of total revenues

15.7%

13.0%

(6.0)%

2.9%

15.2%

(4.3)%

16.1%

11.8%

(1.6)%

7.8%

15.3%

0.0%

Net income (loss)
Income tax expense (benefit)
Interest expense (income)
Store depreciation, amortization and impairment(1)
Store preopening expense
Losses from investment in affiliate(2)
General and administrative expense(3)
Franchising and commercial contribution(4)
Non-store activity contribution(5)

Store contribution

Total revenues from external customers
Franchising and commercial revenues from external customers
Revenues from non-store activities(5)

Store location net retail sales

Store contribution as a percentage of store location net retail sales

Total net income (loss) as a percentage of total revenues

Fiscal 2009

North
America

Europe

Total

$ (14,384) $ 1,911
(1,933)
(50)
5,314
—
—
3,508
—
(783)

(9,434)
(93)
20,159
90
9,615
38,572
(4,328)
(2,282)

$ (12,473)
(11,367)
(143)
25,473
90
9,615
42,080
(4,328)
(3,065)

$ 37,915

$ 7,967

$ 45,882

$323,386
(7,354)
(15,058)

$72,520
—
(2,391)

$395,906
(7,354)
(17,449)

$300,974

$70,129

$371,103

12.6%

11.4%

(4.4)%

2.6%

12.4%

(3.2)%

(1) Store depreciation, amortization and impairment includes depreciation and amortization of all capitalized assets in store locations, including leasehold

improvements, furniture and fixtures, and computer hardware and software and store asset impairment charges.

(2) Losses from investment in affiliate represent the Company’s losses related to its investment in Ridemakerz.

(3) 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, including 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 television advertising, virtual world costs and
direct mail catalogs, which are included in store contribution.

(4) Franchising and commercial contribution includes franchising and commercial revenues and all expenses attributable to the international franchising and

commercial 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 commercial activities is included in the interest
expense (income) caption.

(5) Non-store activities include our webstores, temporary locations and seasonal and event-based locations as well as intercompany transfer pricing charges.

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BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

SEASONALITY AND QUARTERLY RESULTS

The following is a summary of certain unaudited quarterly results of operations data for each of the last two fiscal years.

(Dollars in millions, except per share data)

Total revenues
Retail gross margin(1)
Net (loss) income(2)
Earnings (loss) per common share:

Basic
Diluted

Number of stores (end of quarter)

Fiscal 2011

Fiscal 2010

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 96.0
36.6
(2.3)

$ 81.8
28.8
(6.7)

(0.12)
(0.12)
342

(0.37)
(0.37)
342

$97.4
38.4
0.9

0.05
0.05
344

$119.1
50.7
(9.0)

(0.56)
(0.56)
346

First
Quarter

$101.4
41.0
1.7

Second
Quarter

$ 74.1
22.4
(8.5)

Third
Quarter

$100.1
35.4
(1.4)

Fourth
Quarter

$125.8
56.3
8.3

0.09
0.09
345

(0.45)
(0.45)
346

(0.07)
(0.07)
347

0.42
0.42
344

(1) Retail gross margin represents net retail sales less cost of retail merchandise sold.

(2) The 2011 fourth quarter included a $15.6 million charge related to the recording of a valuation allowance on all US deferred tax assets.

As a toy retailer, our sales are highest in our fourth
quarter, followed by the first quarter. The timing of holidays
and school vacations can impact our quarterly results. Our
European-based stores have historically been more heavily
weighted in the fourth quarter as compared to our North
American stores. We cannot ensure that this will continue to
be the case.

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 those
discussed under “Risk Factors — Risks Related to Owning Our
Common Stock —Fluctuations in our quarterly results of
operations could cause the price of our common stock to
substantially decline.”

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 store’s opening. We expect our
growth, operating results and profitability to depend in some
degree on our ability to increase our number of stores.

For accounting purposes, the quarters of each fiscal year
consist of 13 weeks, although we will have a 14-week quarter
approximately once every six years. The fiscal 2008 fourth
quarter was a 14-week quarter. Quarterly fluctuations and
seasonality may cause our operating results to fall below the
expectations of securities analysts and investors, which could
cause our stock price to fall.

LIQUIDITY AND CAPITAL RESOURCES

Our cash requirements are primarily for the opening of new
stores, installation and upgrades of information systems and
working capital. Over the past several years, we have met
these requirements through capital generated from cash flow
provided by operations. We have access to additional cash
through a revolving line of credit that has been in place since
2000. From our inception to December 2001, we raised at
various times a total of $44.9 million in capital from several
private investors. In 2004, we raised $25.7 million from the
initial public offering of our common stock.

Operating Activities. Cash flows provided by operating
activities were $16.0 million in fiscal 2011 and $22.0 million
in fiscal 2010 and $24.0 million in fiscal 2009. Cash flows
from operating activities decreased in fiscal 2011 as
compared to 2010 as accounts payable and accrued
expenses increased due to the timing of inventory shipments
and payments were offset by higher inventory levels. Cash
flows from operating activities decreased slightly in fiscal
2010 as compared to 2009 as improved net income and an
increase in accounts payable and accrued expenses due to
the timing of inventory shipments and payments were offset by
higher inventory levels.

Investing Activities. Cash flows used in investing activities

were $13.3 million in fiscal 2011, $13.8 million in fiscal
2010 and $8.9 million in fiscal 2009. Cash used in investing
activities in 2011 related primarily to the continued
installation and upgrades of central office information
technology systems, the opening of eight new stores, the
relocation of four stores and the purchase of short-term
investments, offset by the maturity of those investments. Cash
used in investing activities in 2010 related primarily to the
continued installation and upgrades of central office
information technology systems, acquisition of intangible
assets, the opening of four new stores and 11 temporary
locations and the relocation of one store, offset by cash
received for the sale of key money from one of our French
stores. Cash used in investing activities in 2009 related
primarily to the continued installation and upgrades of central
office information technology systems, acquisition of
intangible assets, repurposing existing Friends 2B Made
locations to Build-A-Bear Workshop stores, the opening of one
new store and the relocation of one store.

Financing Activities. Financing activities used cash of
$14.6 million and $7.2 million in fiscal 2011 and fiscal
2010, respectively. There was no cash from financing
activities in 2009. Purchases of our stock in fiscal 2011 and
2010 used cash of $15.0 million and $7.3 million,
respectively. In fiscal 2011 and 2010, exercises of employee
stock options and related tax benefits provided cash of
$0.4 million and $0.1 million, respectively. No employee
stock options were exercised in fiscal 2009.

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2011 FORM 10-K

Capital Resources. As of December 31, 2011, we had a

cash balance of $46.4 million, nearly half of which was
domiciled outside of the United States. We also have a line of
credit, which we can use to finance capital expenditures and
working capital needs throughout the year. The credit
agreement is with U.S. Bank, National Association and was
amended effective December 30, 2011. The bank line
continues to provide availability of $40 million for the first half
of the fiscal year and a seasonal overline of $50 million. The
seasonal overline is in effect from July 1 to December 31 each
year. Borrowings under the credit agreement are secured by
our assets and a pledge of 65% of our ownership interest in
our foreign subsidiaries. The credit agreement expires on
December 31, 2013 and contains various restrictions on
indebtedness, liens, guarantees, redemptions, mergers,
acquisitions or sale of assets, loans, transactions with
affiliates, and investments. It prohibits us from declaring
dividends without the bank’s prior consent, unless such
payment of dividends would not violate any terms of the credit
agreement. We are also prohibited from repurchasing shares
of our common stock unless such repurchase of shares would
not violate any terms of the credit agreement; we may not use
proceeds of the line of credit to repurchase
shares. Borrowings bear interest at LIBOR plus
1.8%. Financial covenants include maintaining a minimum
tangible net worth, maintaining a minimum fixed charge
coverage ratio (as defined in the credit agreement) and not
exceeding a maximum funded debt to earnings before
interest, depreciation and amortization ratio. As of
December 31, 2011: (i) we were in compliance with these
covenants; (ii) there were no borrowings under our line of
credit; (iii) there was a standby letter of credit of
approximately $1.1 million outstanding under the credit
agreement and (iv) there was approximately $48.9 million
available for borrowing under the line of credit.

Most of our retail stores are located within shopping

malls and all are operated under leases classified as
operating leases. Our leases in North America typically have
a ten-year term and contain provisions for base rent plus
percentage rent based on defined sales levels. Many of the
leases contain a provision whereby either we or the landlord
may terminate the lease after a certain time, typically in the
third or fourth year and sixth or seventh year of the lease, if a
certain minimum sales volume is not achieved. Many leases
contain incentives to help defray the cost of construction of a
new store. Typically, a portion of the incentive must be repaid
to the landlord if we choose to terminate the lease. 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 United Kingdom and Ireland typically

have terms of ten to fifteen 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 charged quarterly
and paid in advance.

In fiscal 2012, we expect to spend approximately $20 to

$25 million on capital expenditures. Capital spending in
fiscal 2011 totaled $12.2 million. Capital spending in fiscal
2011 was primarily for continued installation and upgrades
of central office information technology systems, the opening
of eight new stores and the relocation of four stores.

On February 20, 2007, we announced that our board of

directors had authorized a $25 million share repurchase
program of our outstanding common stock. On March 10,
2008, we announced an expansion of our share repurchase
program to $50 million. On February 23, 2012, we
announced that our share repurchase program had been
extended to March 31, 2013. We currently intend to
purchase up to an aggregate of $50 million of our common
stock in the open market (including through 10b5-1 plans),
through privately negotiated transactions or through an
accelerated repurchase transaction. The primary source of
funding for the program is expected to be cash on hand. The
timing and amount of share repurchases, if any, will depend
on price, market conditions, applicable regulatory
requirements, and other factors. The program does not require
us to repurchase any specific number of shares and may be
modified, suspended or terminated at any time without prior
notice. Shares repurchased under the program will be
subsequently retired. As of March 12, 2012, approximately
5.5 million shares at an average price of $7.47 per share
have been repurchased under this program for an aggregate
amount of $41.3 million, leaving $8.7 million of availability
under the program.

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
the near future. Our credit agreement expires on
December 31, 2013.

Off-Balance Sheet Arrangements
We hold a minority interest in Ridemakerz, which is
accounted for under the equity method. We purchased a call
option from a group of other Ridemakerz investors for
$150,000 for 1.25 million Ridemakerz common units at an
exercise price of $1.25 per unit. The call option was
immediately exercisable and expires April 30, 2012.
Simultaneously, we granted a put option to the same group of
investors for 1.25 million common units at an exercise price of
$0.50 per unit. The put option was exercisable on April 30,
2008 and expires on April 30, 2012. As of December 31,
2011, the book value of our investment in Ridemakerz was
zero, but we still retained an ownership interest of
approximately 15%. Under the current agreements, as of the

33

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

balance sheet date, we could own up to approximately
24% of fully diluted equity in Ridemakerz. The put option was
exercised on all 1.25 million shares on February 13,
2012. After the exercise, our ownership interest was
approximately 18%. Under the current agreements, as of the

Contractual Obligations and Commercial Commitments

exercise date, we could own up to approximately 24% of fully
diluted equity in Ridemakerz. See Note 17 – Investment in
Affiliate to the Consolidated Financial Statements for
additional information.

Our contractual obligations and commercial commitments include future minimum obligations under operating leases and
purchase obligations. Our purchase obligations primarily consist of purchase orders for merchandise inventory. The future
minimum payments for these obligations as of December 31, 2011 for periods subsequent to this date are as follows:

(In thousands)

Total

2012

2013

2014

2015

2016

Beyond

Payments Due by Fiscal Period as of December 31, 2011

Operating lease obligations
Purchase obligations

Total

$205,349
40,690

$45,755
40,690

$39,051
—

$34,159
—

$28,900
—

$21,253
—

$36,231
—

$246,039

$86,445

$39,051

$34,159

$28,900

$21,253

$36,231

Our total liability for uncertain tax positions under the
Financial Accounting Standards Board Accounting Standards
Codification (ASC) section 740-10-25 was $0.2 million as of
December 31, 2011. During the next fiscal year, it is
reasonably possible that the unrecognized tax benefits will
be reduced by $8,000 either because the tax positions are
sustained on audit or expiration of statute of limitations. At
this time, we do not expect a significant payment related to
these obligations within the next year. See Note 9—Income
Taxes to the Consolidated Financial Statements for
additional information.

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 assure you, however, that our business
will not be affected by inflation in the future.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with
generally accepted accounting principles requires the
appropriate application of certain accounting policies, which
require us to make estimates and assumptions about future
events and their impact on amounts reported in our financial
statements and related notes. Since future events and their
impact cannot be determined with certainty, the actual results
will inevitably differ from our estimates. Such differences could
be material to the financial statements.

We believe application of accounting policies, and the
estimates inherently required therein, are 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 are more fully described in
Note 2 to our Consolidated Financial Statements, which
appear elsewhere in this Annual Report on Form 10-K. We
have identified the following critical accounting estimates:

Inventory
Inventory is stated at the lower of cost or market, with cost
determined on an average cost basis. Historically, we have
not conducted sales whereby we offer products below cost
and, accordingly, have no significant lower of cost or market
reserve recorded.

Throughout the year we record an estimated cost of
shortage based on past experience. The amount accrued for
shortage each period is based on detailed historical
averages. The accrual rate remained unchanged for fiscal
2011, 2010 and 2009. 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, including
fiscal years 2011, 2010 and 2009, the timing of the physical
inventory has been in the fourth quarter 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
In accordance with ASC section 360-10-35 we assess the
potential impairment of long-lived assets annually or when
events or changes in circumstances indicate that the carrying
value may not be recoverable. Recoverability is measured by
comparing the carrying amount of an asset, or asset group, to
expected future net cash flows generated by the asset, or

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BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

asset group. If the carrying amount exceeds its estimated
undiscounted future cash flows, the carrying amount is
compared to its fair value and an impairment charge is
recognized to the extent of the difference. For purposes of
evaluating store assets for impairment, we have determined
that each store location is an asset group. As of
December 31, 2011, store assets represented approximately
$53.0 million, or approximately 68% of total property, plant
and equipment, net. Factors that we consider important which
could individually or in combination trigger an impairment
review include, but are not limited to, the following:
(1) significant underperformance relative to historical or
projected future operating results; (2) significant changes in
the manner of our use of the acquired assets or the strategy
for our overall business; and (3) significant changes in our
business strategies and/or negative industry or economic
trends. We assess events and changes in circumstances or
strategy that could potentially indicate that the carrying value
of long-lived assets may not be recoverable as they
occur. Due to the significance of the fourth quarter to
individual store locations, we assess store performance
annually, using the full year’s results. We consider a historical
and/or projected negative cash flow trend for a store location
to be an indicator that the carrying value of that asset group
may not be recoverable.

As a result of our 2011 review, we determined that
certain stores would not be able to recover the carrying value
of certain store leasehold improvements through expected
undiscounted cash flows over the remaining life of the related
assets. Accordingly, we reduced the carrying value of the
assets to fair value, calculated as the present value of
estimated future cash flows for each asset group and recorded
asset impairment charges of $0.4 million in the fourth quarter
of fiscal 2011, which is included in cost of merchandise
sold. The calculation of fair value could increase or decrease
depending on changes in the inputs and assumptions used,
such as changes in the financial performance of the asset
group, future growth rate and discount rate. In order to
evaluate the sensitivity of the fair value assumptions on store
asset impairment, we applied a hypothetical decrease of 1%
in the comparable stores sales trend and in margin, which we
believe is appropriate. Based on the analysis performed as of
December 31, 2011, the changes in our assumptions would
not have resulted in additional impairment charges.

As a result of our 2010 review, we determined that
certain stores would not be able to recover the carrying value
of certain store leasehold improvements through expected
undiscounted cash flows over the remaining life of the related
assets. Accordingly, we reduced the carrying value of the
assets to fair value, calculated as the present value of
estimated future cash flows for each asset group and recorded
asset impairment charges of $0.6 million in the fourth quarter
of fiscal 2010, which is included in cost of merchandise sold.
As a result of our 2009 review, we determined that several
stores would not be able to recover the carrying value of
certain store leasehold improvements through expected

undiscounted cash flows over the remaining life of the related
assets. Accordingly, we reduced the carrying value of the
assets to fair value, calculated as the present value of
estimated future cash flows for each asset group and recorded
asset impairment charges of $3.3 million in the fourth quarter
of fiscal 2009, which is included in cost of merchandise sold.
In the event that we decide to close any or all of these

stores in the future, we may be required to record additional
impairments, lease termination fees, severance and other
charges. Impairment losses in the future are dependent on a
number of factors such as site selection and general economic
trends, and thus could be significantly different than historical
results. As we continue to face a challenging retail
environment and general uncertainty in the global economy,
the assumptions used in future calculations of fair value may
change significantly which could result in further impairment
charges in future periods.

Corporate assets, including computer hardware and

software and the Company-owned distribution center
(approximately $17.0 million as of December 31, 2011),
and certain other assets, such as trade credits and
trademarks and intellectual property, net (approximately
$5.2 million as of December 31, 2011), have a broad
applicability and are generally considered to be recoverable,
unless abandoned. Other long-lived assets, including
deferred franchise and lease costs (approximately
$2.2 million as of December 31, 2011), are monitored in
relation to the relevant franchisee or store location. In 2009,
we determined that certain key money and long-term lease
deposits were no longer fully recoverable. Accordingly, we
reduced the carrying value of the assets to their estimated fair
value and recorded asset impairment charges of $1.8 million
in the fourth quarter of fiscal 2009, which is included in cost
of merchandise sold. In the fiscal 2010 second quarter, we
reviewed the inputs used to determine the fair value of certain
key money deposits, included in other intangible assets and
other store deposits, included in other assets, net, through
expected undiscounted cash flows over the remaining life of
the related assets. Accordingly, the carrying value of the
assets was reduced to fair value, calculated as the net
present value of estimated future cash flows for each asset
group, and asset impairment charges of $0.3 million were
recorded in the second quarter of fiscal 2010. As we had
determined at this time that we would be closing the related
stores, these charges are included in selling, general and
administrative expenses.

Goodwill
We record goodwill related to the excess of the purchase
price over the fair value of net identifiable assets acquired.
All of our recorded goodwill, which is associated with our
UK Acquisition, is recorded in the European reporting unit.
At December 31, 2011 and January 1, 2011, our goodwill
balance was $32.3 million and $32.4 million, respectively.
The decrease is entirely due to foreign currency translation
adjustments. Goodwill is subject to periodic evaluation for

35

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

impairment when circumstances warrant, or at least once per
year. We perform our annual impairment assessment as of the
end of the fourth quarter of each year. Impairment is tested in
accordance with ASC section 350-20-35, by comparison of
the carrying value of the reporting unit to its estimated fair
value. As there are not quoted prices for our reporting unit,
fair value is estimated based upon a present value technique
using estimated discounted future cash flows, forecasted over
the reasonably assured lease terms for retail stores, with
growth rates forecasted for the reporting unit and using a
credit adjusted discount rate. We use current results, trends,
future prospects, and other economic factors as the basis for
expected future cash flows. Our 2011 annual evaluation
indicated that no impairment of our goodwill existed as of
December 31, 2011.

Assumptions in estimating future cash flows are subject to

a high degree of judgment and complexity. We make every
effort to forecast these future cash flows as accurately as
possible with the information available at the time the forecast
is developed. However, changes in the assumptions and
estimates may affect the carrying value of goodwill, and could
result in impairment charges in future periods. Factors that
have the potential to create variances between forecasted
cash flows and actual results include but are not limited to
(i) fluctuations in sales volumes, (ii) long-term growth in the
number of stores; and (iii) actual gross margin results. Refer to
“Forward-Looking Statements” included in the beginning of
this Form 10-K for further information regarding the impact of
estimates of future cash flows.

The calculation of fair value could increase or decrease
depending on changes in the inputs and assumptions used,
such as changes in the financial performance of the reporting
unit, future growth rate, and discount rate. In order to evaluate
the sensitivity of the fair value calculations on the goodwill
impairment test, we applied a hypothetical decrease in cash
flows as a 100 basis point reduction to our projected growth
rate and a 100 basis point increase in the discount rate which
we considered appropriate. Based on the goodwill analysis
performed as of December 31, 2011, the outlined changes in
our assumptions would not affect the results of the impairment
test, as the reporting unit still had an excess of fair value over
the carrying value. However, as we continue to face a
challenging retail environment and general uncertainty in the
global economy, the assumptions used in future calculations of
fair value may change significantly which could result in
impairment charges in future periods.

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 a customer loyalty program in North America,
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. An estimate of the obligation related to the
program, based on historical redemption patterns, is recorded
as deferred revenue and a reduction of net retail sales. 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 certificate.

Throughout fiscal 2010, we continued to use the deferral

rate established at the end of fiscal 2008 to estimate the
appropriate amount of revenue to defer and thereby the
related liability. This rate, which was based on actual
redemption rates and historical results and was applied to
eligible purchases of Stuff Fur Stuff Club members at the time
of the transaction. During 2010, we experienced a change in
members’ redemption patterns as our members began
utilizing other discounts and coupons available to them in
place of an issued reward certificate. Accordingly, at the end
of fiscal 2010, we reevaluated the available data to
determine the most accurate approach to estimate our liability
and deferral of revenue, including the use of historical point
conversion and certificate redemption patterns. For both the
December 31, 2011 and January 1, 2011 balance sheets,
we used historical point conversion and redemption patterns
to estimate our liability under the loyalty program. We apply
the historical rates for points converting into certificates and
ultimate certificate redemption to our actual points and
certificates outstanding at each balance sheet date to
calculate the liability and corresponding adjustment to net
retail sales.

We review these patterns and assess the adequacy of the

deferred revenue liability at the end of each fiscal quarter.
Due to the estimates involved in these assessments,
adjustments to the historical rates are generally made no more
often than annually in order to allow time for more definite
trends to emerge. Based on this assessment at the end of fiscal
2011, the deferred revenue liability was adjusted downward
by $1.5 million, with a corresponding increase to net retail
sales, and a $0.9 million decrease in net loss.

Based on this assessment at the end of fiscal 2010, the

deferred revenue liability was adjusted downward by
$4.3 million, with a corresponding increase to net retail sales,
and a $2.6 million increase in net income. Based on the
assessment at the end of fiscal 2009, no adjustment was
made to the deferral rate.

The calculation of fair value could increase or decrease
depending on changes in the inputs and assumptions used,
specifically, expected conversion and redemption rates. In
order to evaluate the sensitivity of the estimates used in the
recognition of deferred revenue, we applied a hypothetical
increase of 100 bps in the conversion and redemption rates
which we believe is appropriate. Based on the analysis
performed as of December 31, 2011, the change in our
assumptions would have resulted in a $0.2 million reduction
of net retail sales.

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Income Taxes
Our income tax expense is based on our income, statutory tax
rates, and tax planning opportunities available in the various
jurisdictions in which we operate. Tax laws are complex and
subject to different interpretations by the taxpayer and
respective governmental taxing authorities. Significant
judgment is required in determining our income tax expense
and in evaluating our tax positions, including evaluating
uncertainties. Management reviews tax positions at least
quarterly and adjusts the balances as new information
becomes available. Deferred income tax assets represent
amounts available to reduce income taxes payable on taxable
income in future years. Such assets arise because of
temporary differences between the financial reporting and tax
bases of assets and liabilities, as well as from net operating
loss and tax credit carryforwards. As we have incurred a
cumulative book loss over the three year period ended
December 31, 2011, we evaluated the realizability of our
deferred tax assets. We performed an analysis of all
available evidence, both positive and negative, consistent
with the provisions of ASC 740-10-30-17. Some of that
evidence evaluated includes our historical operating
performance, the macroeconomic factors contributing to the
recent fiscal loss for which the tax benefits have been fully
realized by the carryback availability, and our forecast of
future taxable income, including the availability of prudent
and feasible tax planning strategies. The three-year cumulative
loss is a significant piece of negative evidence and while
management believes that it is primarily a result of losses that
were primarily attributable to the significant economic
downturn experienced in 2009 and not an indication of
continuing operations, we are required to give objective
historical evidence more weight than subjective evidence,
such as forecasts of future income. Accordingly, in the fiscal
2011 fourth quarter, the Company recorded a $15.6 million
valuation allowance on its US deferred tax assets. This
allowance does not preclude us from utilizing the deferred tax
assets in the future, nor does it reflect a change in our long-
term outlook.

RECENT ACCOUNTING PRONOUNCEMENTS

There are no recently issued but not yet adopted accounting
pronouncements that are expected to significantly impact our
financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

Our market risks relate primarily to changes in interest rates,
and we bear this risk in two specific ways. First, our revolving
credit facility carries a variable interest rate that is tied to
market indices and, therefore, our results of operations and
our cash flows can be impacted by changes in interest
rates. Outstanding balances under our credit facility bear
interest at LIBOR plus 1.8%. We had no borrowings during
fiscal 2011. Accordingly, a 100 basis point change in
interest rates would result in no material change to our annual
interest expense. The second component of interest rate risk
involves the short term investment of excess cash in short term,
investment grade interest-bearing securities. If there are
changes in interest rates, those changes would affect the
investment income we earn on these investments and,
therefore, impact our cash flows and results of operations.
We conduct operations in various countries, which
expose us to changes in foreign exchange rates. The financial
results of our foreign subsidiaries and franchisees may be
materially impacted by exposure to fluctuating exchange
rates. Reported sales, costs and expenses at our foreign
subsidiaries, when translated into U.S. dollars for financial
reporting purposes, can fluctuate due to exchange rate
movement. While exchange rate fluctuations can have a
material impact on reported revenues, costs and expenses,
and earnings, this impact is principally the result of the
translation effect and does not materially impact our short-term
cash flows.

Although we enter into a significant amount of purchase

obligations outside of the U.S., these obligations are settled
primarily in U.S. dollars and, therefore, we believe we have
only minimal exposure at present to foreign currency
exchange risks for our purchase obligations. Historically, we
have not hedged our currency risk and do not currently
anticipate doing so in the future.

We do not engage in financial transactions for trading or

speculative purposes.

ITEM 8.

FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

The financial statements and schedules are listed under
Item 15(a) and filed as part of this Annual Report on
Form 10-K.

37

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

Our management is responsible for establishing and
maintaining adequate internal control over financial
reporting, as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934. Under the supervision and with the
participation of our management, including the Chief
Executive Bear and the Chief Operations and Financial Bear,
we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31,
2011. Our management, with the participation of our Chief
Executive Bear and Chief Operations and Financial Bear,
also conducted an evaluation of our internal control over
financial reporting to determine whether any changes
occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. All
internal control systems have inherent limitations, including
the possibility of circumvention and overriding the
control. Accordingly, even effective internal control can
provide only reasonable assurance as to the reliability of
financial statement preparation and presentation. Further,
because of changes in conditions, the effectiveness of internal
control may vary over time.

In making its evaluation, our management used the

criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in
Internal Control-Integrated Framework. Based upon this
evaluation, our management has concluded that our internal
control over financial reporting as of December 31, 2011
is effective.

Our independent registered public accounting firm,
Ernst & Young LLP, has audited the effectiveness of our internal
control over financial reporting, as stated in its report which is
included herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Chief
Executive Bear and Chief Operations and Financial Bear, has
evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)), as of the end of the period
covered by this report. Our disclosure controls and
procedures are designed to provide reasonable assurance of
achieving their objectives, and based on the foregoing
evaluation, our management, including the Chief Executive
Bear and Chief Operations and Financial Bear, concluded
that our disclosure controls and procedures were effective at
the reasonable assurance level as of December 31, 2011, the
end of the period covered by this Annual Report.

It should be noted that our management, including the
Chief Executive Bear and the Chief Operations and Financial
Bear, do not expect that our disclosure controls and
procedures or internal controls will prevent all error and all
fraud. A control system, no matter how well conceived or
operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have
been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The
design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in
achieving its stated goals under all potential future
conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of
compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-
effective control system, misstatements due to error or fraud
may occur and not be detected.

38

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Build-a-Bear Workshop, Inc.

We have audited Build-a-Bear Workshop, Inc. and Subsidiaries (collectively, the Company’s) internal control over financial

reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Build-a-Bear Workshop, Inc. and Subsidiaries, maintained, in all material respects, effective internal control

over financial reporting as of December 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheet of Build-a-Bear Workshop, Inc. and Subsidiaries as of December 31, 2011 and the
related consolidated statement of earnings, stockholders’ equity, and cash flows for the year ended December 31, 2011, and
our report dated March 15, 2012, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

St. Louis, Missouri
March 15, 2012

39

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING

There were no changes in internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) that occurred during the fiscal 2011 fourth quarter
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE

Information concerning directors, appearing under the caption
“Directors”, “The Board of Directors and its Committees”,
“Committee Charters, Corporate Governance Guidelines,
Business Conduct Policy and Code of Ethics” and
“Section 16(a) Beneficial Ownership Reporting Compliance”
in our Proxy Statement (the “Proxy Statement”) to be filed with
the SEC in connection with our Annual Meeting of
Shareholders scheduled to be held on May 10, 2012 is
incorporated by reference in response to this Item 10.

BUSINESS CONDUCT POLICY

The Board of Directors has adopted a Business Conduct Policy
applicable to our directors, officers and employees, including
all executive officers. The Business Conduct Policy has been
posted in the Investor Relations section of our corporate
website at http://ir.buildabear.com. We intend to satisfy the
amendment and waiver disclosure requirements under
applicable securities regulations by posting any amendments
of, or waivers to, the Business Conduct Policy on our website.
The information appearing under the caption “Committee

Charters, Corporate Governance Guidelines, Business
Conduct Policy and Code of Ethics” in the Proxy Statement is
incorporated by reference in response to this Item 10.

EXECUTIVE OFFICERS AND KEY EMPLOYEES

Maxine Clark, 63, has been our Chief Executive Bear

since she founded the Company in 1997. She was our
President from our inception in 1997 to April 2004, and has
served as Chairman of our Board of Directors since our
conversion to a corporation in April 2000. She was initially
elected to our Board of Directors pursuant to the terms of a
stockholders’ agreement which terminated upon the closing of
the Company’s initial public offering in 2004. Ms. Clark was
re-elected as a director at our 2005 and 2008 Annual
Meetings of Stockholders. Prior to founding Build-A-Bear
Workshop, Ms. Clark was the President of Payless
ShoeSource, Inc. from 1992 until 1996. Before joining
Payless, Ms. Clark spent over 19 years in various divisions of

The May Department Stores Company in areas including
merchandise development, merchandise planning,
merchandise research, marketing and product development.
Eric Fencl, 49, joined Build-A-Bear Workshop in July
2008 as Chief Bearrister—General Counsel. In March 2009,
he assumed responsibility for international franchising and
human resources. He now holds the title of Chief Bearrister,
General Counsel and International Franchising. Prior to
joining the Company, Mr. Fencl was Executive Vice
President, General Counsel and Secretary for Outsourcing
Solutions Inc., a national accounts receivable management
firm from August 1998 to June 2008. From September 1990
to August 1998, he held legal positions for Monsanto
Company, McDonnell Douglas Corporation and Bryan Cave
LLP. Mr. Fencl began his career in 1984 as an auditor with
Arthur Young & Company.

Dave Finnegan, 42, joined Build-A-Bear Workshop in
December 1999 as Director Inbearmation Technology and
was named Chief Information Bear in January 2007, adding
logistics responsibilities in March 2009 to become Chief
Information and Logistics Bear, and in March 2010 he
became Chief Information Bear. Prior to joining the Company,
Mr. Finnegan held information systems management positions
at Novell, Inc. in Provo Utah and Interchange Technologies
Inc. in St. Louis, Missouri. Mr. Finnegan is a member of the
St. Louis Regional Chief Information Officer Forum and the
NSB Executive Client Advisory Board. He was instrumental in
the development of bearville.com—the company’s virtual
world Web site. The online community received a 2009 “Best
of the Web” award from WiredSafety at the 9th Annual
Wired Kids Summit and a 2008 iParenting Media Award.

Tina Klocke, 52, has been our Chief Financial Bear since

November 1997, our Treasurer since April 2000, and
Secretary since February 2004. In March 2009, she assumed
responsibility for store operations and in July 2011, she
assumed responsibility for logistics and planning. She now
holds the title of Chief Operations and Financial Bear. Prior to
joining the Company, Ms. Klocke was the Controller for
Clayton Corporation, a manufacturing company, where she
supervised all accounting and finance functions as well as
human resources. Prior to joining Clayton Corporation in
1990, she was the controller for Love Real Estate Company, a
diversified investment management and development firm.
Ms. Klocke began her career in 1982 with Ernst & Young LLP.

Teresa Kroll, 57, joined Build-A-Bear Workshop in
September 2001 as Chief Marketing Bear, was named Chief
Entertainment Bear in March 2009, was named Chief
Entertainment and Digital Marketing Bear in June 2010 and
was named Chief Marketing and Entertainment Bear in
December 2011. Prior to joining the Company, Ms. Kroll was
Vice President–Advertising for The WIZ, a unit of Cablevision,
from 1999 to 2001. From 1995 to 1999, Ms. Kroll was
Director of Marketing for Montgomery Ward Holding Corp.,
a department store retailer. From 1980 to 1994 Ms. Kroll
held various administrative and marketing positions for
Venture Stores, Inc.

40

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

ITEM 11. EXECUTIVE COMPENSATION

The information contained in the sections titled “Executive
Compensation” and “Board of Directors Compensation” in the
Proxy Statement is incorporated herein by reference in
response to this Item 11.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED
STOCKHOLDER MATTERS

The information contained in the section titled “Security
Ownership of Certain Beneficial Owners and Management”
in the Proxy Statement is incorporated herein by reference in
response to this Item 12.

EQUITY COMPENSATION PLAN INFORMATION

Plan category

Equity compensation plans approved by security holders

Total

(a)

(b)

(c)

Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))

1,210,816

1,210,816

$8.49

$8.49

1,104,894

1,104,894

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

The information contained in the section titled “Related Party
Transactions” in the Proxy Statement is incorporated herein by
reference in response to this Item 13.

The information contained in the section titled “Principal
Accountant Fees” and “Policy Regarding Pre-Approval of
Services Provided by the Independent Registered Public
Accounting Firm” in the Proxy Statement is incorporated
herein by reference in response to Item 14.

41

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The financial statements and schedules set forth below are filed on the indicated pages as part of this Annual Report

on Form 10-K.

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets as of December 31, 2011 and January 1,

Consolidated Statements of Operations for the fiscal years ended December 31, 2011, January 1, 2011
and January 2, 2010

Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 31, 2011, January 1, 2011
and January 2, 2010

Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2011, January 1, 2011
and January 2, 2010

Notes to Consolidated Financial Statements

Page

43

45

46

47

48

49

42

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Build-A-Bear Workshop, Inc.

We have audited the accompanying consolidated balance sheet of Build-a-Bear Workshop, Inc. and Subsidiaries
(collectively, the Company) as of December 31, 2011, and the related consolidated statement of operations, stockholders’
equity, and cash flows for the fiscal year ended December 31, 2011. Our audit also included the financial statement schedule
listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board

(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Build-a-Bear Workshop, Inc. and Subsidiaries at December 31, 2011, and the consolidated results of its operations
and its cash flows for the fiscal year ended December 31, 2011, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States), Build-a-Bear Workshop, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2011,
based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 15, 2012 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

St. Louis, Missouri
March 15, 2012

43

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Build-A-Bear Workshop, Inc.:

We have audited the accompanying consolidated balance sheet of Build-A-Bear Workshop, Inc. and subsidiaries
(the Company) as of January 1, 2011, and the related consolidated statements of operations, stockholders’ equity, and cash
flows for each of the fiscal years in the two-year period ended January 1, 2011. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board

(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Build-A-Bear Workshop, Inc. and subsidiaries as of January 1, 2011, and the results of its operations and its cash
flows for each of the fiscal years in the two-year period ended January 1, 2011, in conformity with U.S. generally accepted
accounting principles.

/s/ KPMG LLP

St. Louis, Missouri
March 17, 2011

44

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Balance Sheets

(Dollars in thousands, except share data)

ASSETS
Current assets:

Cash and cash equivalents
Inventories
Receivables
Prepaid expenses and other current assets
Deferred tax assets

Total current assets

Property and equipment, net
Goodwill
Other intangible assets, net
Other assets, net

Total Assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable
Accrued expenses
Gift cards and customer deposits
Deferred revenue

Total current liabilities

Deferred franchise revenue
Deferred rent
Other liabilities
Commitments and contingencies

Stockholders’ equity:

Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares issued or outstanding at

December 31, 2011 and January 1, 2011

Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and outstanding: 17,405,270 and

19,631,623 shares, respectively

Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings

Total stockholders’ equity

Total Liabilities and Stockholders’ Equity

See accompanying notes to consolidated financial statements.

December 31,
2011

January 1,
2011

$ 46,367
51,860
7,878
17,854
419

$ 58,755
46,475
7,923
18,425
7,465

124,378

139,043

77,445
32,306
655
6,787

88,029
32,407
1,444
14,871

$241,571

$275,794

$ 41,032
12,128
28,323
5,285

$ 36,325
15,488
28,880
6,679

86,768

1,436
23,867
257

87,372

1,706
28,642
361

—

—

174
65,402
(10,165)
73,832

196
76,582
(9,959)
90,894

129,243

157,713

$241,571

$275,794

45

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Statements of Operations

(Dollars in thousands, except share and per share data)

2011

2010

2009

Fiscal Year

Revenues:

Net retail sales
Commercial revenue
Franchise fees

Total revenues

Costs and expenses:

Cost of merchandise sold
Selling, general, and administrative
Store preopening
Losses from investment in affiliate
Interest expense (income), net

Total costs and expenses

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Earnings (loss) per common share:

Basic

Diluted

Shares used in computing per common share amounts:

Basic
Diluted

See accompanying notes to consolidated financial statements.

$

$

$

$

$

387,041
3,943
3,391

394,375

234,227
162,334
547
—
(81)

397,027

(2,652)
14,410

(17,062) $

387,163
11,246
3,043

401,452

239,556
163,910
708
—
(250)

403,924

(2,472)
(2,576)

104

(0.98) $

(0.98) $

0.01

0.01

$

$

$

$

388,552
4,001
3,353

395,906

247,511
162,673
90
9,615
(143)

419,746

(23,840)
(11,367)

(12,473)

(0.66)

(0.66)

17,371,315
17,371,315

18,601,465
18,653,012

18,874,352
18,874,352

46

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity

(Dollars in thousands)

Balance, January 3, 2009
Stock-based compensation
Shares issued under employee stock plans, net of

tax benefit

Other comprehensive income
Net loss

Balance, January 2, 2010
Share repurchase
Stock-based compensation
Shares issued under employee stock plans, net of

tax benefit

Other comprehensive loss
Net income

Balance, January 1, 2011
Share repurchase
Stock-based compensation
Shares issued under employee stock plans, net of

tax benefit

Other comprehensive loss
Net loss

Common
stock

$195
—

Additional
paid-in
capital

$76,852
4,335

Accumulated
other
comprehensive
income (loss)

Retained
earnings

Total

Total
comprehensive
income (loss)

$(12,585) $103,263
—

—

$167,725
4,335

9
—
—

(1,065)
—
—

—
6,249
—

—
—
(12,473)

(1,056)
6,249
(12,473)

$204
(11)
—

$80,122
(7,263)
4,818

$ (6,336) $ 90,790
—
—

—
—

$164,780
(7,274)
4,818

3
—
—

(1,095)
—
—

—
(3,623)
—

—
—
104

(1,092)
(3,623)
104

$ 196
(25)
—

$ 76,582
(14,977)
4,605

$ (9,959)
—
—

$ 90,894
—
—

$ 157,713
(15,002)
4,605

3
—
—

(808)
—
—

—
(206)
—

—
—
(17,062)

(805)
(206)
(17,062)

$ 6,249
(12,473)

$ (6,224)

$ (3,623)
104

$ (3,519)

$

(206)
(17,062)

$ (17,268)

Balance, December 31, 2011

$ 174

$ 65,402

$ (10,165)

$ 73,832

$ 129,243

See accompanying notes to consolidated financial statements.

47

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Build-A-Bear Workshop, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

(in thousands)

Cash flows from operating activities:

Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization
Losses from investment in affiliate
Impairment of store assets
Deferred taxes
Loss on disposal of property and equipment
Excess tax benefit from share-based payments
Stock-based compensation
Trade credit utilization
Change in assets and liabilities:

Inventories
Receivables
Prepaid expenses and other assets
Accounts payable and accrued expenses
Lease related liabilities
Gift cards and customer deposits
Deferred revenue

Net cash provided by operating activities

Cash flows from investing activities:

Purchases of property and equipment, net
Purchases of other assets and other intangible assets
Proceeds from sale or maturity of short term investments
Purchases of short term investments
Proceeds from sale of assets
Investment in unconsolidated affiliate

Cash flow used in investing activities

Cash flows from financing activities:

Exercise of employee stock options and employee stock purchases
Purchases of Company’s common stock
Excess tax benefit from share-based payments

Cash flow used in financing activities

Effect of exchange rates on cash

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental disclosure of cash flow information:
Net received during the period for income taxes

Noncash Transactions:

Return of common stock in lieu of tax withholdings and option exercises

Exchange of inventory for trade credits

See accompanying notes to consolidated financial statements.

Fiscal Year

2011

2010

2009

$(17,062) $

104

$(12,473)

24,232
—
416
14,560
624
(266)
4,605
253

(5,477)
35
1,013
45
(4,743)
(561)
(1,664)

26,976
—
924
(2,437)
1,259
(33)
4,818
—

(7,030)
(1,803)
691
7,084
(5,983)
(325)
(2,224)

28,487
9,615
5,321
(5,090)
175
—
4,335
—

6,628
1,885
(3,852)
(4,642)
(7,377)
36
942

16,010

22,021

23,990

(12,035)
(213)
4,829
(5,899)
—
—

(14,086)
(563)
—
—
883
—

(13,318)

(13,766)

149
(15,002)
266

(14,587)

(493)

(12,388)
58,755

25
(7,274)
33

(7,216)

(2,683)

(1,644)
60,399

(5,727)
(2,421)
—
—
—
(750)

(8,898)

—
—
—

—

(1,693)

13,399
47,000

$ 46,367

$ 58,755

$ 60,399

$

$

$

(98) $ (3,218) $ (1,032)

692

$

712

— $ 4,867

$

$

318

—

48

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements

(1) DESCRIPTION OF BUSINESS AND BASIS OF PREPARATION

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Build-A-Bear Workshop, Inc. (the Company) is a specialty
retailer of plush animals and related products. At
December 31, 2011, the Company operated 346 stores
located in the United States, Canada, Puerto Rico, the
United Kingdom and Ireland. The Company was formed in
September 1997 and began operations in
October 1997. The Company changed to a Delaware C
Corporation on April 3, 2000. The Company previously
operated as a Missouri limited liability company.

During 2001, the Company and a third party formed
Build-A-Bear Entertainment, LLC (BABE) for the purpose of
promoting the Build-A-Bear Workshop brand and characters
of the Company through certain entertainment media. Prior to
February 2003, the Company owned 51% and was the
managing member.

During 2002, the Company formed Build-A-Bear

Workshop Franchise Holdings, Inc. (Holdings) for the purpose
of entering into franchise agreements with companies in
foreign countries where Build-A-Bear Workshop, Inc. does not
have company-owned stores. Holdings is a wholly-owned
subsidiary of the Company. As of December 31, 2011,
79 Build-A-Bear Workshop franchise stores are open and
operating in 14 countries.

Also during 2002, the Company formed Build-A-Bear
Workshop Canada Ltd. (BAB Canada) for the purpose of
operating Build-A-Bear Workshop stores in Canada. BAB
Canada is a wholly-owned subsidiary of the Company.

During 2003, the Company formed Build-A-Bear Retail

Management, Inc. (BABRM) for the purpose of providing
purchasing, legal, information technology, accounting, and
other general management services for Build-A-Bear
Workshop stores. BABRM is a wholly-owned subsidiary of the
Company. In February 2003, BABRM purchased the minority
interest in BABE, which became a wholly-owned subsidiary.
On April 2, 2006, the Company acquired all of the
outstanding shares of The Bear Factory Limited, a stuffed
animal retailer in the United Kingdom, and Amsbra Limited,
its former United Kingdom franchisee (the
UK Acquisition). During 2006, the Company formed
Build-A-Bear Workshop UK Holdings, Ltd (UK Holdings) as the
parent company to The Bear Factory and Amsbra. UK
Holdings is a wholly-owned subsidiary of Holdings. The
results of the acquisitions’ operations have been included in
the consolidated financial statements since the date of
acquisition. Also during 2006, the Company formed
Build-A-Bear Workshop Ireland, Ltd. and Build-A-Bear
Workshop France SAS as wholly-owned subsidiaries of
Holdings. In 2010, all Company-owned stores in France were
closed. The Company currently has 58 stores in the
United Kingdom and Ireland.

Certain reclassifications of prior year amounts have been

made to conform to current year presentation.

49

A summary of the Company’s significant accounting policies
applied in the preparation of the accompanying consolidated
financial statements follows:

(a) Principles of Consolidation

The accompanying consolidated financial statements

include the accounts of Build-A-Bear Workshop, Inc. and its
wholly-owned subsidiaries: Holdings, BAB Canada, BABE,
and BABRM. All significant intercompany accounts are
eliminated in consolidation.

(b) Fiscal Year

The Company operates on a 52- or 53-week fiscal year
ending on the Saturday closest to December 31. The periods
presented in these financial statements are the fiscal years
ended December 31, 2011 (fiscal 2011), January 1, 2011
(fiscal 2010) and January 2, 2010 (fiscal 2009). All fiscal
years presented included 52 weeks. References to years in
these financial statements relate to fiscal years or year ends
rather than calendar years.

(c) Cash and Cash Equivalents

Cash and cash equivalents include cash and short-term

highly liquid investments with an original maturity of three
months or less held in both domestic and foreign
financial institutions.

The majority of the Company’s cash and cash equivalents
exceed federal deposit insurance limits. The Company has not
experienced any losses in such accounts and management
believes that the Company is not exposed to any significant
credit risk on cash and cash equivalents.

(d) Inventories
Inventories are stated at the lower of cost or market, with cost
determined on an average-cost basis. Inventory includes
supplies of $3.7 million and $5.3 million as of December 31
and January 1, 2011, respectively.

(e) Receivables

Receivables consist primarily of amounts due to the
Company in relation to tenant allowances, corporate product
sales, franchisee royalties and product sales, and licensing
revenue. The Company assesses the collectability of all
receivables on an ongoing basis by considering its historical
credit loss experience, current economic conditions, and other
relevant factors. Based on this analysis, the Company has
determined that no material allowance for doubtful accounts
was necessary at either December 31, 2011 or
January 1, 2011.

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

(f) Property and Equipment

Property and equipment consist of leasehold

improvements, furniture and fixtures, computer equipment and
software, building and land and are stated at cost. Leasehold
improvements are depreciated using the straight-line method
over the shorter of the useful life of the assets or the life of the
lease which is generally ten years. Furniture and fixtures and
computer equipment are depreciated using the straight-line
method over the estimated service lives ranging from three to
seven years. Computer software is amortized using the
straight-line method over a period of three to five years. New
store construction deposits are recorded at the time the
deposit is made as construction-in-progress and reclassified to
the appropriate property and equipment category at the time
of completion of construction, when operations of the store
commence. Maintenance and repairs are expensed as
incurred and improvements are capitalized. Gains or losses
on the disposition of fixed assets are recorded upon disposal.

(g) Goodwill

Goodwill is 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 the carrying value of the reporting unit to its fair value, and
when appropriate, the carrying value of impaired assets is
reduced to fair value. The calculation of fair value requires
multiple assumptions regarding our future operations to
determine future cash flows, including but not limited to, sales
volume, margin rates, store growth rates and discount
rates. Based on the annual impairment test performed for the
Company’s UK reporting unit as of December 31, 2011, the
Company has determined that there was no impairment of
goodwill in 2011. If the assumptions used in the analysis
were less favorable, it is possible that the Company may have
been required to impair goodwill.

(h) Other Intangible Assets

Other intangible assets consist primarily of initial costs

related to trademarks and other intellectual property and key
money deposits. Trademarks and other intellectual property
represent third-party costs that are capitalized and amortized
over their estimated lives ranging from one to three years
using the straight-line method. Key money deposits represent
amounts paid to a tenant to acquire the rights of tenancy
under a commercial property lease for a property located in
France. These rights can be subsequently sold by us to a new
tenant. All key money deposits were sold in 2010.

(i) Other Assets

Other assets consist primarily of deferred leasing fees
and deferred costs related to franchise agreements. Deferred
leasing fees are initial, direct costs related to the Company’s
operating leases and are amortized over the term of the
related leases. Deferred franchise costs are initial costs related

50

to the Company’s franchise agreements that are deferred and
amortized over the life of the respective franchise
agreement. Amortization expense related to other assets was
$0.5 million, $0.7 million and $0.5 million for 2011, 2010
and 2009, respectively.

(j) Long-lived Assets

Whenever facts and circumstances indicate that the
carrying value of a long-lived asset may not be recoverable,
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. See
Note 4 – Property and Equipment and Note 6 – Other
Intangible Assets for further discussion regarding the
impairment of long-lived assets.

The calculation of fair value requires multiple assumptions

regarding our future operations to determine future cash
flows, including but not limited to, sales volume, margin rates
and discount rates. If different assumptions were used in the
analysis, it is possible that the amount of the impairment
charge may have been significantly different than what
was recorded.

(k) Deferred Rent

Certain of the Company’s operating leases contain
predetermined fixed escalations of minimum rentals during the
original lease terms. For these leases, the Company
recognizes the related rental expense on a straight-line basis
over the life of the lease and records the difference between
the amounts charged to operations and amounts paid as
deferred rent. The Company also receives certain lease
incentives in conjunction with entering into operating
leases. These lease incentives are recorded as deferred rent at
the beginning of the lease term and recognized as a
reduction of rent expense over the lease term. In addition,
certain of the Company’s leases contain future contingent
increases in rentals. Such increases in rental expense are
recorded in the period that it is probable that store sales will
meet or exceed the specified target that triggers contingent
rental expense.

(l) Franchises

The Company defers initial, one-time nonrefundable

franchise fees and amortizes them over the life of the
respective franchise agreements, which extend for periods up
to 25 years. The Company’s obligations under the contract
are ongoing and include operations and product development
support and training, generally concentrated around new
store openings. Continuing franchise fees are recognized as
revenue as the fees are earned.

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

(m) Retail Revenue Recognition

(n) Cost of Merchandise Sold

Net retail sales are net of discounts, exclude sales tax,

and are recognized at the time of sale. Shipping and
handling costs billed to customers are included in net
retail sales.

Revenues from the sale of gift cards are recognized at the

time of redemption. Unredeemed gift cards are included in
gift cards and customer deposits on the consolidated balance
sheets. The company escheats a portion of unredeemed gift
cards according to the escheatment regulations of the relevant
authority that generally require remittance of the cost of
merchandise portion of unredeemed gift cards over five years
old. The difference between the value of gift cards and the
amount escheated is recorded as income in the consolidated
statement of operations.

The Company has a customer loyalty program in North
America, 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. An estimate of the
obligation related to the program, based on historical
redemption patterns, is recorded as deferred revenue and a
reduction of net retail sales. 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 certificate.

Cost of merchandise sold includes the cost of the
merchandise, including royalties paid to licensors of third
party branded merchandise; store occupancy cost, including
store depreciation and store asset impairment charges; cost of
warehousing and distribution; packaging; stuffing; damages
and shortages; and shipping and handling costs incurred in
shipment to customers.

(o) Selling, General, and Administrative Expenses

Selling, general, and administrative expenses include
store payroll and related benefits, advertising, credit card
fees, store supplies and store closing costs, as well as central
office management payroll and related benefits, travel,
information systems, accounting, insurance, legal, and public
relations. It also includes depreciation and amortization of
central office leasehold improvements, furniture, fixtures, and
equipment, as well as amortization of trademarks and
intellectual property.

(p) Store Preopening Expenses

Store preopening expenses, including store set-up, certain

labor and hiring costs, and rental charges incurred prior to
store openings are expensed as incurred.

(q) Advertising

Throughout fiscal 2010, the Company continued to use

The costs of advertising and marketing programs are

the deferral rate established at the end of fiscal 2008 to
estimate the appropriate amount of revenue to defer and
thereby the related liability. This rate, which was based on
actual redemption rates and historical results, was applied to
eligible purchases of Stuff Fur Stuff Club members at the time
of the transaction. For the December 31, 2011 and
January 1, 2011 balance sheets, historical rates for points
converting into certificates and ultimate certificate redemption
were applied to actual points and certificates outstanding at
the respective balance sheet date to calculate the liability and
corresponding adjustment to net retail sales. Management
reviews these patterns and assesses the adequacy of the
deferred revenue liability at the end of each fiscal
quarter. Due to the estimates involved in these assessments,
adjustments to the historical rates are generally made no more
often than annually in order to allow time for more definite
trends to emerge.

Based on the assessment at the end of 2011, the
deferred revenue liability was adjusted downward by
$1.5 million, with a corresponding increase to net retail sales,
and a $0.9 million increase in net income.

Based on the assessment at the end of 2010, the
deferred revenue liability was adjusted downward by
$4.3 million, with a corresponding increase to net retail sales,
and a $2.6 million increase in net income.

Based on the assessment at the end of fiscal 2009, no

adjustment was made to the deferral rate.

charged to operations in the first period the program takes
place. Advertising expense was $19.3 million, $18.5 million
and $24.4 million for fiscal years 2011, 2010 and
2009, respectively.

(r) Income Taxes

Income taxes are accounted for using a balance sheet

approach known as the asset and liability method. The asset
and liability method accounts for deferred income taxes by
applying the statutory tax rates in effect at the date of the
consolidated balance sheets to differences between the book
basis and the tax basis of assets and liabilities. The
noncurrent deferred tax is reported on a jurisdictional
basis. Accordingly, noncurrent deferred tax assets are
included in other assets, net and noncurrent deferred tax
liabilities are included in other liabilities.

Tax positions are reviewed at least quarterly and
adjusted as new information becomes available. The
recoverability of deferred tax assets is evaluated by assessing
the adequacy of future expected taxable income from all
sources, including reversal of taxable temporary differences,
forecasted operating earnings and available tax planning
strategies. These estimates of future taxable income inherently
require significant judgment. To the extent it is considered
more likely than not that a deferred tax asset will be not
recovered, a valuation allowance is established.

51

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

The Company accounts for its total liability for

uncertain tax positions according to the provisions of ASC
section 740-10-25. The Company recognizes estimated
interest and penalties related to uncertain tax positions in
income tax expense. See Note 9 – Income Taxes for
further discussion.

(s) Earnings (Loss) Per Share

Under the two-class method, basic earnings (loss) per
share is determined by dividing net income or loss allocated
to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted
earnings or loss per share reflects the potential dilution that
could occur if options to issue common stock were
exercised. In periods in which the inclusion of such
instruments is anti-dilutive, the effect of such securities is not
given consideration.

(t) Stock-Based Compensation

The Company has share-based compensation plans
covering the majority of its management groups and its Board
of Directors. The Company accounts for share-based
payments utilizing the fair value recognition provisions of ASC
section 718. The Company recognizes compensation cost for
equity awards on a straight-line basis over the requisite
service period for the entire award. See Note 13 – Stock
Incentive Plans.

For fiscal 2011, 2010 and 2009, selling, general and

administrative expense includes $4.6 million, $4.8 million
and $4.3 million, respectively, of stock-based compensation
expense. As of December 31, 2011, there was $6.5 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 1.6 years.

expenses during the reporting period. The assumptions used
by management in future estimates could change significantly
due to changes in circumstances, including, but not limited to,
challenging economic conditions. Accordingly, future
estimates may change significantly. Significant items subject
to such estimates and assumptions include the valuation of
long-lived assets, including goodwill, trade credits and
deferred income tax assets, inventories, and the determination
of deferred revenue under the Company’s customer
loyalty program.

(x) Sales Tax Policy

The Company’s revenues in the consolidated statement of

operations are net of sales taxes.

(y) Foreign Currency Translation

Assets and liabilities of the Company’s foreign operations

with functional currencies other than the U.S. dollar are
translated at the exchange rate in effect at the balance sheet
date, while revenues and expenses are translated at average
rates prevailing during the years. Translation adjustments are
reported in accumulated other comprehensive income, a
separate component of stockholders’ equity.

(3) PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other current assets consist of the
following (in thousands):

Prepaid rent
Prepaid income taxes
Other

December 31,
2011

January 1,
2011

$ 7,745
1,970
8,139

$17,854

$ 7,959
2,458
8,008

$18,425

(u) Comprehensive Income (Loss)

(4) PROPERTY AND EQUIPMENT

Comprehensive income (loss) is comprised of net income

or loss and foreign currency translation adjustments.

Property and equipment consist of the following
(in thousands):

(v) Fair Value of Financial Instruments

For purposes of financial reporting, management has

determined that the fair value of financial instruments,
including cash and cash equivalents, receivables, accounts
payable and accrued expenses, approximates book value at
December 31, 2011 and January 1, 2011.

(w) Use of Estimates

The preparation of the consolidated financial statements
requires management of the Company to make a number of
estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and

Land
Furniture and fixtures
Computer hardware
Building
Leasehold improvements
Computer software
Construction in progress

Less accumulated depreciation

December 31,
2011

January 1,
2011

$ 2,261
39,306
20,705
14,970
137,352
35,326
2,543

252,463
175,018

$ 2,261
41,819
23,672
14,970
137,335
29,660
1,918

251,635
163,606

$ 77,445

$ 88,029

For 2011, 2010 and 2009, depreciation expense was

$22.8 million, $24.9 million and $26.7 million, respectively.

52

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

During 2011, the Company reviewed the operating
performance and forecasts of future performance for the stores
in its Retail segment. As a result of that review, it was
determined that several stores would not be able to recover
the carrying value of certain store leasehold improvements
through expected undiscounted cash flows over the remaining
life of the related assets. Accordingly, the carrying value of
the assets was reduced to fair value, calculated as the net
present value of estimated future cash flows for each asset
group, and asset impairment charges of $0.4 million were
recorded in the fourth quarter of fiscal 2011, which are
included in cost of merchandise sold as a component of net
loss before income taxes in the Retail segment. The inputs
used to determine the fair value of the assets are Level 3
inputs as defined by ASC section 820-10. In the event that we
decide to close any or all of these stores in the future, we may
be required to record additional impairments, lease
termination charges, severance charges and other charges.
The Company recorded asset impairment charges of
$0.6 million in the fourth quarter of fiscal 2010 and
$3.3 million in the fourth quarter of fiscal 2009.

(5) GOODWILL

Goodwill is accounted for in accordance with ASC
Section 350-20 and is reported as a component of the
Company’s Retail segment. The following table summarizes
the Company’s goodwill (in thousands):

Balance as of January 2, 2010

Effect of foreign currency translation

Balance as of January 1, 2011

Effect of foreign currency translation

Balance as of December 31, 2011

$33,780
(1,373)

32,407
(101)

$ 32,306

There was no tax-deductible goodwill as of

December 31, 2011 or January 1, 2011.

(6) OTHER INTANGIBLE ASSETS

Other intangible assets consist of the following (in thousands):

Trademarks, customer relationships and

other intellectual property
Less accumulated amortization

Total, net

2011

2010

$11,516
10,861

$11,853
10,409

$

655

$ 1,444

Trademarks and intellectual property are amortized over
three years. Amortization expense related to trademarks and
intellectual property was $0.9 million, $1.4 million and
$1.3 million in 2011, 2010 and 2009, respectively.

Estimated amortization expense related to other intangible
assets as of December 31, 2011, for each of the years in the
subsequent five year period and thereafter is:
2012—$0.5 million; 2013—$0.1 million; 2014—$23,000;
2015—$-0- and 2016—$-0-.

During 2009, the Company reviewed the operating
performance and forecasts of future performance for the stores
in its Retail segment. As a result of that review, it was
determined that certain stores would not be able to recover
the carrying value of certain key money deposits, included in
other intangible assets, and other store deposits, included in
other assets, net, through expected undiscounted cash flows
over the remaining life of the related assets. Accordingly, the
carrying value of the assets was reduced to fair value,
calculated as the net present value of estimated future cash
flows for each asset group, and asset impairment charges of
$1.8 million were recorded in the fourth quarter of fiscal
2009, which are included in cost of merchandise sold as a
component of net loss before income taxes in the Retail
segment. The inputs used to determine the fair value of the
assets are Level 3 inputs as defined by ASC section 820-10.

In the fiscal 2010 second quarter, we reviewed the inputs

used to determine the fair value of certain key money
deposits, included in other intangible assets, and other store
deposits, included in other assets, net, through expected
undiscounted cash flows over the remaining life of the related
assets. Accordingly, the carrying value of the assets was
reduced to fair value, calculated as the net present value of
estimated future cash flows for each asset group, and asset
impairment charges of $0.3 million were recorded in the
second quarter of fiscal 2010. As we had determined at this
time that we would be closing the related stores, these
charges are included in selling, general and administrative
expenses as a component of net income in the retail
segment. The key money deposits were sold in 2010.

(7) OTHER NON-CURRENT ASSETS

In 2010, certain other non-current assets were obtained

through a series of wholesale transactions whereby the
Company exchanged $6.4 million of inventory, at cost, with a
third-party vendor for $4.9 million of credits for future media
purchases and $1.5 million in cash. The transaction was
accounted for based upon the fair values of the assets
involved in the transaction. In accordance with Accounting
Standards Codification (ASC) Section 845-10, in an
exchange transaction for trade credits, the fair value of the
asset being surrendered cannot exceed its carrying value,
meaning that the sale of the inventory was recorded at its cost
in the Commercial segment. The trade credits expire in
2015. As of December 31, 2011 $0.7 million was included

53

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

Temporary differences that gave rise to deferred tax

assets and liabilities are as follows (in thousands):

in prepaid expenses and other current assets and $3.9 million
was included in other assets, net, related to these credits. As
of January 1, 2011, $0.7 million was included in prepaid
expenses and other current assets and $4.2 million was
included in other assets, net, related to these credits. The
Company evaluated its trade credits to determine whether an
impairment existed as of December 31, 2011. Because it is
not probable the entity will not use all the remaining barter
credits based on current utilization expectations, no
impairment loss was recognized.

(8) ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

Deferred tax assets:
Deferred revenue
Accrued rents
Net operating loss carryforwards
Intangible assets
Deferred compensation
Accrued bonuses
Carryforward of tax credits
Receivable and investment write-offs
Stock compensation
Depreciation
Other

Accrued wages, bonuses and related

expenses

Sales tax payable
Accrued rent and related expenses
Current income taxes payable

2011

2010

$ 5,200
5,678
454
796

$ 8,227
6,343
470
448

$12,128

$15,488

Less: Valuation allowance

Total deferred tax assets

Deferred tax liabilities:

Depreciation
Other

Total deferred tax liabilities

Net deferred tax asset

2011

2010

$ 4,711
2,414
1,770
1,837
2,218
91
2,251
840
179
743
1,834

18,888
16,126

$ 4,481
2,743
2,229
1,794
1,768
1,012
931
619
179
—
1,730

17,486
561

2,762

16,925

—
(1,925)

(1,925)

(1,515)
(586)

(2,101)

$

837

$14,824

(9) INCOME TAXES

The components of the provision for income taxes are as
follows (in thousands):

2011

2010

2009

Current:

Federal
State
Foreign
Deferred:
Federal
State
Foreign

Income tax

$

— $ (171) $ (6,272)
(410)
405

31
859

(439)
906

11,592
2,281
70

(1,965)
(1,205)
(125)

(2,610)
(332)
(2,148)

expense (benefit)

$14,410

$(2,576) $(11,367)

A reconciliation between the statutory federal income tax

rate and the effective income tax rate is as follows
(in thousands):

Loss before income taxes
Statutory federal income tax rate

$ (2,652) $(2,472) $(23,840)

34%

34%

35%

2011

2010

2009

Income tax expense (benefit)
at statutory federal rate

State income taxes, net of

federal tax benefit
Valuation allowance
Effect of lower foreign taxes
Release of state tax reserves
Other items, net

(902)

(840)

(8,344)

2
15,565
(231)
(47)
23

(74)
(1,249)
(174)
(174)
(65)

(482)
(1,758)
(154)
(595)
(34)

Income tax expense (benefit)

$14,410

$(2,576) $(11,367)

Effective tax rate

(543.4)% 104.2%

47.7%

54

We evaluate the realizability of our deferred tax assets

on a quarterly basis. As the Company has incurred a
cumulative book loss over the three year period ended
December 31, 2011, management evaluated the realizability
of the Company’s deferred tax assets. The Company
performed an analysis of all available evidence, both positive
and negative, consistent with the provisions of
ASC 740-10-30-17. Some of the evidence evaluated includes
our historical operating performance, the macroeconomic
factors contributing to the recent fiscal loss for which the tax
benefits have been fully realized by the carryback availability,
and our forecast of future taxable income, including the
availability of prudent and feasible tax planning strategies.
The three-year cumulative loss is a significant piece of
negative evidence and while management believes that it is
primarily a result of losses that were primarily attributable to
the significant economic conditions experienced in 2009 and
not an indication of continuing operations, ASC 740 requires
that objective historical evidence be given more weight than
subjective evidence, such as forecasts of future income.
Accordingly, in the fiscal 2011 fourth quarter, the Company
recorded a $15.6 million valuation allowance on its
US deferred tax assets.

Included in the deferred tax asset is $0.6 million related

to state net operating loss carryforwards for which a valuation
allowance of $0.6 million has been recorded and
$1.2 million related to net operating loss carryforwards in
foreign jurisdictions. Net operating loss carryforwards in
foreign jurisdictions total $4.3 million and $5.7 million as of
December 31, 2011 and January 1, 2011, respectively.

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

Although net operating losses in foreign jurisdictions do not
expire, a valuation allowance of $0.6 million was recorded
at December 31, 2011 and January 1, 2011. Also included
in the deferred tax asset in $2.3 million related to foreign tax
credits for which a valuation allowance of $2.3 million has
been recorded.

The Company has not provided for United States income

taxes on the accumulated but undistributed earnings of its
non-U.S. subsidiaries of $20.5 million and $18.0 million as
of December 31, 2011 and January 1, 2011, respectively,
as the Company intends to indefinitely reinvest these
undistributed earnings. However, if any portion were to be
distributed, the related U.S. tax liability may be reduced by
foreign income taxes paid on these earnings. Determination of
the unrecognized deferred tax liability related to these
undistributed earnings is not practicable because of the
complexities with its hypothetical calculation.

A reconciliation of the beginning and ending amount of

unrecognized tax benefits is as follows (in thousands):

Balance as of January 2, 2010

Lapse of statute
Settlements

Balance as of January 1, 2011

Lapse of statute

Balance as of December 31, 2011

$ 570
(166)
(141)

$ 263
(50)

$ 213

As of December 31, 2011 and January 1, 2011,
approximately $0.2 million and $0.3 million respectively, of
the unrecognized tax benefits would impact the Company’s
provision for income taxes and effective tax rate if
recognized. In the normal course of business, the Company
provides for uncertain tax positions and the related interest
and penalties and adjusts its unrecognized tax benefits and
accrued interest and penalties accordingly. During the next
fiscal year, it is reasonably possible to reduce unrecognized
tax benefits by $8,000 either because the tax positions are
sustained on audit or expiration of statute of limitations.

The Company recognizes interest and penalties related to

uncertain tax positions in income tax expense. There was
approximately $40,000 of accrued interest related to
uncertain tax positions as of December 31, 2011 and
January 1, 2011.

The Company’s income before income taxes from

domestic and foreign operations (which include the
United Kingdom, Canada, France and Ireland), are as follows
(in thousands):

Domestic
Foreign

Total

2011

2010

2009

$(6,200) $(8,744) $(23,500)
(340)
6,272

3,548

$(2,652) $(2,472) $(23,840)

The following tax years remain open in the Company’s

major taxing jurisdictions as of December 31, 2011:

United States (Federal)
United Kingdom
Canada
France
Ireland

(10) LONG-TERM DEBT

2008 through 2011
2006 through 2011
2009 through 2011
2007 through 2011
2007 through 2011

On December 30, 2011, the Company amended its existing
bank line of credit that provides borrowing capacity for the
first half of the fiscal year of $40 million and a seasonal
overline of $50 million. The seasonal overline is in effect from
July 1 to December 31 each year. Borrowings under the
credit agreement are secured by our assets and a pledge of
65% of our ownership interest in our foreign subsidiaries. The
credit agreement expires on December 31, 2013 and
contains various restrictions on indebtedness, liens,
guarantees, redemptions, mergers, acquisitions or sale of
assets, loans, transactions with affiliates, and investments. It
prohibits the Company from declaring dividends without the
bank’s prior consent, unless such payment of dividends would
not violate any terms of the credit agreement. The Company is
also prohibited from repurchasing shares of its common stock
unless such purchase would not violate any terms of the credit
agreement; the Company may not use proceeds of the line of
credit to repurchase shares. Borrowings bear interest at LIBOR
plus 1.8%. Financial covenants include maintaining a
minimum tangible net worth, maintaining a minimum fixed
charge 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
December 31, 2011: (i) the Company was in compliance
with these covenants; (ii) there were no borrowings under our
line of credit; and (iii) there was a standby letter of credit of
approximately $1.1 million outstanding under the credit
agreement. Giving effect to this standby letter of credit, there
was approximately $48.9 million available for borrowing
under the line of credit.

(11) COMMITMENTS AND CONTINGENCIES

(a) Operating Leases

The Company leases its retail stores and corporate offices

under agreements which expire at various dates through
2030. The majority of leases contain provisions for base rent
plus contingent payments based on defined sales as well as
scheduled escalations. Total office and retail store base rent
expense was $48.2 million, $47.7 million and $45.9 million,
and contingent rents were $1.2 million, $1.0 million and
$0.9 million for 2011, 2010 and 2009, respectively.

55

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

Future minimum lease payments at December 31, 2011,

(b) Litigation

were as follows (in thousands):

2012
2013
2014
2015
2016
Subsequent to 2016

(12) EARNINGS (LOSS) PER SHARE

$ 45,755
39,051
34,159
28,900
21,253
36,231

$205,349

In the normal course of business, the Company is subject

to certain claims or lawsuits. Management is not aware of any
claims or lawsuits that will have a material adverse effect on
the consolidated financial position or results of operations of
the Company.

The Company uses the two-class method to compute basic and diluted earnings per common share. In periods of net loss, no
effect is given to the Company’s participating securities as they do not contractually participate in the losses of the Company. The
following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per
share data):

2011

2010

2009

NUMERATOR:

Net (loss) earnings before allocation of earnings to participating securities

Less: Earnings allocated to participating securities

Net (loss) earnings after allocation of earnings to participating securities

$

$

(17,062) $
—

(17,062) $

104
7

97

$

$

(12,473)
—

(12,473)

DENOMINATOR:

Weighted average number of common shares outstanding — basic

Dilutive effect of share-based awards:

17,371,315
—

18,601,465
51,547

18,874,352
—

Weighted average number of common shares outstanding — dilutive

17,371,315

18,653,012

18,874,352

Basic (loss) earnings per common share attributable to Build-A-Bear Workshop,

Inc, stockholders:

Diluted (loss) earnings per common share attributable to Build-A-Bear Workshop,

Inc, stockholders

$

$

(0.98) $

0.01

(0.98) $

0.01

$

$

(0.66)

(0.66)

In calculating diluted earnings per share for fiscal 2011, 2010 and 2009, options to purchase 1,210,816, 627,456 and

805,347, respectively, shares of common stock were outstanding at the end of the period, but were not included in the
computation of diluted earnings per share due to their anti-dilutive effect under provisions of ASC 260-10.

Due to the net loss in fiscal 2011 and fiscal 2009, the denominator for diluted earnings per common share is the same as

the denominator for basic earnings per common share for those periods because the inclusion of stock options and unvested
restricted shares would be anti-dilutive.

(13) STOCK INCENTIVE PLANS

On April 3, 2000, the Company adopted the 2000 Stock
Option Plan (the Plan). In 2003, the Company adopted the
Build-A-Bear Workshop, Inc. 2002 Stock Incentive Plan, in
2004, the Company adopted the Build-A-Bear Workshop, Inc.
2004 Stock Incentive Plan and in 2009, the Company
amended and restated the Build-A-Bear Workshop, Inc.
2004 Stock Incentive Plan (collectively, the Plans).

Under the Plans, as amended, from January 3, 2009, up

to 3,230,000 shares of common stock were reserved and
may be granted to employees and nonemployees of the
Company. The Plan allows for the grant of incentive stock
options, nonqualified stock options, stock appreciation rights

(SAR) and restricted stock. Options granted under the Plan
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 all
options shall be the fair market value on the date of the grant.
The vesting provision of individual options is at the discretion
of the compensation committee of the board of directors and
generally ranges from one to four years. Each share of stock
awarded pursuant to an option or subject to the exercised
portion of a SAR reduces the number of shares available by
one share. Each share of stock awarded pursuant to any other
stock-based awards, including restricted stock grants, reduces
the number of shares available by 1.27 shares.

56

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

(a) Stock Options

The following table is a summary of the balance and activity for the Plans related to stock options for the periods presented:

Outstanding, January 3, 2009
Granted
Forfeited

Outstanding, January 2, 2010
Granted
Exercised
Forfeited

Outstanding, January 1, 2011
Granted
Exercised
Forfeited

Outstanding, December 31, 2011

Options Exercisable As Of:
December 31, 2011

Number of
Shares

354,772
480,967
30,392

805,347
391,228
28,484
42,868

1,125,223
305,727
55,501
164,633

1,210,816

Weighted
Average
Exercise Price

$15.98
5.04
14.25

9.51
6.63
0.87
9.32

8.73
6.22
5.13
7.04

$ 8.49

480,814

$ 12.18

Weighted
Average
Remaining
Contractual Term

Aggregate
Intrinsic
Value
(in thousands)

7.1

5.1

$2,480

$ 729

The expense recorded related to options granted during

(b) Restricted Stock

fiscal 2011 was determined using the Black-Scholes option
pricing model and the provisions of Staff Accounting Bulletin
(SAB) 107 and 110, which allow the use of a simplified
method to estimate the expected term of “plain vanilla”
options. The assumptions used in the option pricing model
during fiscal 2011 were: (a) dividend yield of 0%;
(b) volatility of 65%; (c) risk-free interest rates ranging from
1.2% to 2.5%; and (d) an expected life of 6.25 years. The
grant date fair value of options granted in 2011 was
approximately $1.2 million.

The assumptions used in the option pricing model during

fiscal 2010 were: (a) dividend yield of 0%; (b) volatility of
65%; (c) risk-free interest rates ranging from 2.1% to 3.4%;
and (d) an expected life of 6.25 years. The assumptions used
in the option pricing model during fiscal 2009 were:
(a) dividend yield of 0%; (b) volatility of 65%; (c) risk-free
interest rates ranging from 2.3% to 3.1%; and (d) an
expected life of 6.25 years.

The total intrinsic value of options exercised in

fiscal 2011 and fiscal 2010 was approximately $0.1 and
$0.2 million. No options were exercised in 2009. The
Company generally issues new shares to satisfy
option exercises.

Shares available for future option, non-vested stock and

restricted stock grants were 1,104,894 and 1,877,010 at the
end of 2011 and 2010, respectively.

The following table is a summary of the balance and

activity for the Plans related to unvested restricted stock
granted as compensation to employees and directors for the
periods presented:

Outstanding, January 3, 2009
Granted
Vested
Forfeited

Outstanding, January 2, 2010
Granted
Vested
Forfeited

Outstanding, January 1, 2011
Granted
Vested
Forfeited

Weighted
Average
Grant Date
Fair Value

$13.82
4.72
12.47
9.72

7.23
6.56
10.05
6.73

6.32
6.46
8.52
5.68

Number of
Shares

713,756
1,144,343
294,545
113,246

1,450,308
486,302
376,142
92,095

1,468,373
532,791
394,766
168,267

Outstanding, December 31, 2011

1,438,131

$ 5.85

The vesting date fair value of shares that vested in 2011,

2010 and 2009 was $2.5 million, $2.6 million and
$1.6 million, respectively.

During 2011, 455,640 shares of non-vested restricted
stock were granted to employees of the Company. The shares
vest over a period of four years from the grant date at a grant
date fair values ranging from $5.31 to $7.94. Various

57

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

members of the Company’s board of directors were granted
an additional 77,151 shares in the aggregate of non-vested
restricted stock as compensation for services. The shares were
issued subject to a restriction of continued service on the
board of directors and all restrictions lapse one year from the
grant date or upon a director’s retirement upon the completion
of his or her term, if earlier.

During 2010, 402,656 shares of non-vested restricted
stock were granted to employees of the Company. The shares
vest over a period of four years from the grant date at grant
date fair values ranging from $5.94 to $9.64. Various
members of the Company’s board of directors were granted
an additional 83,646 shares in the aggregate of non-vested
restricted stock as compensation for services. The shares were
issued subject to a restriction of continued service on the
board of directors and all restrictions lapse one year from the
grant date or upon a director’s retirement upon the completion
of his or her term, if earlier.

During 2009, 564,045 shares of non-vested restricted
stock were granted to employees of the Company. The shares
vest over a period of four years from the grant date at grant
date fair values ranging from $4.41 to $5.14. An additional
460,990 shares were granted to certain employees at grant
date fair values ranging from of $4.25 to $4.49. These
shares cliff vest three years from the grant date. Various
members of the Company’s board of directors were granted
an additional 119,308 shares in the aggregate of non-vested
restricted stock as compensation for services. The shares were
issued subject to a restriction of continued service on the
board of directors and all restrictions lapse one year from the
grant date or upon a director’s retirement upon the completion
of his or her term, if earlier.

The aggregate unearned compensation expense related

to options and restricted stock was $6.5 million as of
December 31, 2011. Based on the vesting provisions of the
underlying equity instruments, future compensation expense
related to previously issued options and restricted stock at
December 31, 2011 will be as follows (in thousands):

2012
2013
2014
2015

$1,507
2,485
1,700
787

$6,479

The outstanding non-vested restricted stock is included in

the number of outstanding shares on the face of the
consolidated balance sheets, but is treated as outstanding
stock options for accounting purposes. The shares of
non-vested restricted stock, accounted for as options, are
included in the calculation of diluted earnings per share using
the two-class, with the proceeds equal to the sum of
unrecognized compensation cost.

(14) STOCKHOLDERS’ EQUITY

The following table summarizes the changes in outstanding
shares of common stock for fiscal 2009, 2010 and 2011:

Shares as of January 3, 2009

Shares issued under employee stock plans, net of

shares withheld in lieu of tax withholding

Shares as of January 2, 2010

Shares issued under employee stock plans, net of

shares withheld in lieu of tax withholding

Repurchase of shares

Shares as of January 1, 2011

Shares issued under employee stock plans, net of

shares withheld in lieu of tax withholding

Repurchase of shares

Shares as of December 31, 2011

Common
Stock

19,478,750

968,593

20,447,343

318,045
(1,133,765)

19,631,623

302,007
(2,528,360)

17,405,270

(15) EMPLOYEE BENEFIT PLANS

401(k) Savings Plan

During 2000, the Company established a defined
contribution plan that conforms to IRS provisions for 401(k)
plans. The Build-A-Bear Workshop, Inc. Employees Savings
Trust covers associates who work 1,000 hours or more in a
year and have attained age 21. The Company, at the
discretion of its board of directors, can provide for a
Company match on the first 6% of employee deferrals. For
2011, the Company provided a match of 30% on the first 6%
of employee deferrals totaling $0.3 million. For 2010, the
Company provided a match of 25% on the first 6% of
employee deferrals totaling $0.3 million. In 2009, the
Company provided a match of 15% on the first 6% of
employee deferrals totaling $0.2 million. The Company match
vests over the first five years of employment.

(16) RELATED-PARTY TRANSACTIONS

The Company bought fixtures for new stores and furniture for
the corporate offices from a related party. The total payments
to this related party for fixtures and furniture amounted to
$0.5 million, $0.6 million and $0.1 million, in 2011, 2010
and 2009, respectively. The total amount due to this related
party as of December 31, 2011 and January 1, 2011 was
$-0- and $0.1 million, respectively.

The Company made charitable contributions of

$2.4 million, $2.8 million and $0.9 million in 2011, 2010
and 2009, respectively, to charitable foundations controlled
by certain executive officers of the Company. Substantially all
of the contributions are collected from guests at the point of
sale via pin pad prompts or as a portion of the proceeds of
specifically identified products. The foundations support a
variety of children’s causes, domestic animal shelters, disaster
relief and other concerns. The foundations distribute grants to

58

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

qualifying charitable organizations based upon decisions of
their respective contribution committees most of whose
members are employees of the Company. The total due to the
charitable foundations as of December 31, 2011 and
January 1, 2011 was $0.5 million and
$0.6 million, respectively.

(18) MAJOR VENDORS

Three vendors, each of whose primary manufacturing facilities
are located in China, accounted for approximately 81%, 73%
and 80% of inventory purchases in 2011, 2010 and
2009, respectively.

(19) SEGMENT INFORMATION

The Company’s operations are conducted through three
operating segments consisting of retail, international
franchising, and commercial. The retail segment includes the
operating activities of company-owned stores in the United
States, Canada, the United Kingdom, Ireland, France and
other retail delivery operations, including the Company’s web
store, temporary stores and non-traditional store locations
such as baseball ballparks. The international franchising
segment includes the licensing activities of the Company’s
franchise agreements with store locations in Europe, Asia,
Australia, Africa, the Middle East, Mexico and South
America. The commercial segment has been established to
market the naming and branding rights of the Company’s
intellectual properties for third party use. The operating
segments have discrete sources of revenue, different capital
structures and different cost structures. These operating
segments represent the basis on which the Company’s chief
operating decision maker regularly evaluates the business in
assessing performance, determining the allocation of
resources and the pursuit of future growth opportunities.
Accordingly, the Company has determined that each of its
operating segments represent one reportable segment. The
reportable segments follow the same accounting policies used
for the Company’s consolidated financial statements.

(17) INVESTMENT IN AFFILIATE

The Company holds a minority interest in Ridemakerz, LLC,
which is accounted for under the equity method. Ridemakerz
has developed a wholesale toy product line and selectively
operates interactive retail stores, primarily in tourist locations
that allow children and families to build and customize their
own personalized cars. From 2006 through 2008, the
Company invested $5.5 million in cash and entered into a
series of agreements whereby the Company agreed to
perform advisory and operational support services for
Ridemakerz in exchange for additional equity. The Company
received a total of $3.6 million in equity in exchange for
support services provided in fiscal 2007 through 2009. As of
December 31, 2011, the Company retained an ownership
interest of approximately 15%. Under the current agreements,
as of the balance sheet date, the Company could own up to
approximately 24% of fully diluted equity in Ridemakerz.

In 2006, the Company also purchased a call option from

a group of other Ridemakerz investors for $150,000 for
1.25 million Ridemakerz common units at an exercise price of
$1.25 per unit. The call option was immediately exercisable
and expires April 30, 2012. Simultaneously, the Company
granted a put option to the same group of investors for
1.25 million common units at an exercise price of $0.50 per
unit. The put option was exercised on all 1.25 million shares
on February 13, 2012. After the exercise, the Company’s
ownership interest was approximately 18%. Under the current
agreements, as of the exercise date, the Company could own
up to approximately 24% of fully diluted equity
in Ridemakerz.

In fiscal 2009, the Company recorded non-cash pre-tax

loss allocations of $7.5 million. In the 2009 fourth quarter,
the Company determined that its investment in Ridemakerz
had experienced an other than temporary decline in its fair
value due to continued significant losses and uncertainty as to
the ultimate results of their restructuring. Accordingly, an
additional non-cash charge of $1.0 million was
recorded. Additionally, the Company wrote-off $1.1 million in
receivables from Ridemakerz. The combination of these
charges reduced the book value of the Company’s investment
to zero. All of these charges are included in “Losses from
investment in affiliate” in the Consolidated Statements of
Operations and are part of the Retail segment. No income or
loss allocations, impairments or other charges related to
Ridemakerz were recorded in fiscal 2011 or 2010.

As of December 31, 2011 and January 1, 2011,

outstanding receivables from Ridemakerz were $-0-.

59

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

Following is a summary of the financial information for the Company’s reporting segments (in thousands):

Fiscal 2011

Net sales to external customers
Net income (loss) before income taxes
Capital expenditures
Depreciation and amortization

Fiscal 2010

Net sales to external customers
Net income (loss) before income taxes
Capital expenditures
Depreciation and amortization

Fiscal 2009

Net sales to external customers
Net income (loss) before income taxes
Capital expenditures
Depreciation and amortization

Total Assets as of:

December 31, 2011
January 1, 2011

Retail

Commercial

International
Franchising

Total

$ 387,041
(6,553)
12,137
24,183

$387,163
(6,858)
14,490
26,482

$388,552
(27,726)
7,879
28,045

$ 3,943
1,940
—
—

$11,246
2,827
—
—

$ 4,001
1,973
—
—

$ 3,391
1,961
111
49

$3,043
1,559
159
494

$3,353
1,913
269
442

$ 394,375
(2,652)
12,248
24,232

$401,452
(2,472)
14,649
26,976

$395,906
(23,840)
8,148
28,487

$ 229,190
$ 263,193

$ 9,877
$ 9,647

$ 2,504
$ 2,954

$ 241,571
$ 275,794

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):

Fiscal 2011

Net sales to external customers
Property and equipment, net

Fiscal 2010

Net sales to external customers
Property and equipment, net

Fiscal 2009

Net sales to external customers
Property and equipment, net

For purposes of this table only:

North
America(1)

Europe(2)

Other(3)

Total

$ 316,853
65,902

$ 75,469
11,543

$ 2,053
—

$ 394,375
77,445

$328,524
76,729

$70,864
11,300

$2,064
—

$401,452
88,029

$320,033
87,860

$74,255
13,184

$1,618
—

$395,906
101,044

(1) North America includes the United States, Canada, Puerto Rico and Mexico

(2) Europe includes the United Kingdom, Ireland, franchise businesses in Europe and, prior to 2011, Company-owned stores in France

(3) Other includes franchise businesses outside of North America and Europe

(20) SUBSEQUENT EVENT

On February 23, 2012, the Company announced the
extension of its previously announced $50 million share
repurchase program until March 31, 2013, subject to further
extension by the Company’s Board of Directors. The
Company currently intends to purchase up to $50 million of
its common stock in the open market (including through
10b5-1 plans), through privately negotiated transactions or
through an accelerated repurchase transaction. The primary
source of funding for the program is expected to be cash on

hand. The timing and amount of share repurchases, if any,
will depend on price, market conditions, applicable
regulatory requirements, and other factors. The program does
not require the Company to repurchase any specific number
of shares and may be modified, suspended or terminated at
any time without prior notice. Shares repurchased under
the program will be subsequently retired. As of March 12,
2011, there was $8.7 million of availability remaining under
the program.

60

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Notes to Consolidated Financial Statements (continued)

(a)(2) Financial Statement Schedules

10.1.2*

Schedule II – Valuation and Qualifying Accounts

Balance as of January 1, 2011

Charged to cost and expenses
Charged to other accounts
Deductions

$ 561

15,565
—
—

Balance as of December 31, 2011

$16,126

10.2*

(a)(3) Exhibits.

The following is a list of exhibits filed as a part of the

Annual Report on Form 10-K:

Exhibit
Number

2.1

3.1

3.2

4.1

10.1*

10.1.1*

Description

10.2.1*

Agreement and Plan of Merger dated
April 3, 2000 between Build-A-Bear Workshop,
L.L.C. and the Registrant (incorporated by
reference from Exhibit 2.1 to our Registration
Statement on Form S-1, filed on August 12, 2004,
Registration No. 333-118142)

Third Amended and Restated Certificate of
Incorporation (incorporated by reference from
Exhibit 3.1 of our Current Report on Form 8-K,
filed on November 8, 2004)

Amended and Restated Bylaws (incorporated by
reference from Exhibit 3.4 to our Registration
Statement on Form S-1, filed on August 12, 2004,
Registration No. 333-118142)

Specimen Stock Certificate (incorporated by
reference from Exhibit 4.1 to Amendment No. 3
to our Registration Statement on Form S-1,
filed on October 1, 2004, Registration
No. 333-118142)

Build-A-Bear Workshop, Inc. 2000 Stock Option
Plan (incorporated by reference from Exhibit
10.1 to our Registration Statement on Form S-1,
filed on August 12, 2004, Registration
No. 333-118142)

Form of Incentive Stock Option Agreement under
the Build-A-Bear Workshop, Inc. 2000 Stock
Option Plan (incorporated by reference from
Exhibit 10.1.1 to Pre-Effective Amendment
No. 3 to our Registration Statement on Form S-1,
filed on October 1, 2004, Registration
No. 333-118142)

10.2.2*

10.3*

10.3.1*

10.3.2*

61

Form of Nonqualified Stock Option Agreement
under the Build-A-Bear Workshop, Inc.
2000 Stock Option Plan (incorporated by
reference from Exhibit 10.1.2 to Pre-Effective
Amendment No. 3 to our Registration Statement
on Form S-1, filed on October 1, 2004,
Registration No. 333-118142)

Build-A-Bear Workshop, Inc. 2002 Stock
Incentive Plan, as amended (incorporated
by reference from Exhibit 10.2 to our
Registration Statement on Form S-1, filed on
August 12, 2004, Registration
No. 333-118142)

Form of Manager-Level Incentive Stock Option
Agreement under the Build-A-Bear Workshop,
Inc. 2002 Stock Option Plan (incorporated by
reference from Exhibit 10.2.1 to Pre-Effective
Amendment No. 3 to our Registration Statement
on Form S-1, filed on October 1, 2004,
Registration No. 333-118142)

Form of Nonqualified Stock Option Agreement
under the Build-A-Bear Workshop, Inc.
2002 Stock Option Plan (incorporated by
reference from Exhibit 10.2.2 to Pre-Effective
Amendment No. 3 to our Registration Statement
on Form S-1, filed on October 1, 2004,
Registration No. 333-118142)

Build-A-Bear Workshop, Inc. 2004 Stock
Incentive Plan (incorporated by reference from
Exhibit 10.3 to Pre-Effective Amendment No. 3
to our Registration Statement on Form S-1, filed
on October 1, 2004, Registration
No. 333-118142)

Form of Incentive Stock Option Agreement under
the Build-A-Bear Workshop, Inc. 2004 Stock
Incentive Plan (incorporated by reference from
Exhibit 10.3.1 to Pre-Effective Amendment
No. 3 to our Registration Statement on Form S-1,
filed on October 1, 2004, Registration
No. 333-118142)

Model Incentive Stock Option Agreement Under
the Registrant’s 2004 Stock Incentive Plan
(incorporated by reference from Exhibit 10.3.3
to Pre-Effective Amendment No. 5 to our
Registration Statement on Form S-1, filed on
October 12, 2004, Registration
No. 333-118142)

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Exhibits (continued)

10.3.3*

10.3.4*

10.3.5*

10.3.6*

10.3.7*

10.3.8*

10.3.9*

10.3.10*

10.4*

10.4.1*

10.4.2*

10.5*

10.5.1*

10.6*

10.7*

Form of Employee Nonqualified Stock Option
Under the Registrant’s 2004 Stock Incentive
Plan (incorporated by reference from
Exhibit 10.3.4 to Pre-Effective Amendment
No. 5 to our Registration Statement on
Form S-1, filed on October 12, 2004,
Registration No. 333-118142)

Form of the Restricted Stock Agreement under
the Registrant’s 2004 Stock Incentive Plan
(incorporated by reference from Exhibit 10.3.5
to Pre-Effective Amendment No. 5 to our
Registration Statement on Form S-1, filed on
October 12, 2004, Registration
No. 333-118142)

Amended and Restated Build-A-Bear
Workshop, Inc. 2004 Stock Incentive Plan
(incorporated by reference from Exhibit 10.1
on our Current Report on Form 8-K, filed on
August 1, 2006)

Second Amended and Restated Build-A-Bear
Workshop, Inc. 2004 Stock Incentive Plan
(incorporated by reference from Exhibit 10.1
on our Current Report on Form 8-K, filed on
May 20, 2009)

Form of the Restricted Stock Agreement under
the Registrant’s Second Amended and Restated
2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.1 on our Quarterly
Report on Form 10-Q, filed on May 8, 2008)

Form of the Restricted Stock and Non-Qualified
Stock Option Agreement under the Registrant’s
Second Amended and Restated 2004 Stock
Incentive Plan (incorporated by reference from
Exhibit 10.1 on our Quarterly Report on
Form 10-Q, filed on May 14, 2009)

Form of the Restricted Stock Agreement under
the Registrant’s Second Amended and Restated
2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.3 on our Current
Report on Form 8-K, filed on May 20, 2009)

Form of the Restricted Stock and Non-Qualified
Stock Option Agreement under the Registrant’s
Second Amended and Restated 2004 Stock
Incentive Plan (incorporated by reference from
Exhibit 10.2 on our Current Report on
Form 8-K, filed on March 28, 2011)

Employment, Confidentiality and Noncompete
Agreement dated May 1, 2004 between
Maxine Clark and the Registrant (incorporated
by reference from Exhibit 10.4 to Pre-Effective
Amendment No. 2 to our Registration Statement
on Form S-1, filed on September 20, 2004,
Registration No. 333-118142)

First Amendment dated February 22, 2006 to
the Employment, Confidentiality and
Noncompete Agreement dated May 1, 2004
between Maxine Clark and the Registrant
(incorporated by reference from Exhibit 10.4.1
to our Annual Report on Form 10-K for the year
ended December 31, 2005)

Second Amendment dated March 22, 2011 to
Employment, Confidentiality and Noncompete
Agreement dated May 1, 2004 between
Maxine Clark and the Registrant (incorporated
by reference from Exhibit 10.1 on our Current
Report on Form 8-K, filed on March 28, 2011)

Employment, Confidentiality and Noncompete
Agreement dated March 7, 2004 between
Tina Klocke and the Registrant (incorporated
by reference from Exhibit 10.6 to Pre-Effective
Amendment No. 2 to our Registration Statement
on Form S-1, filed on September 20, 2004,
Registration No. 333-118142)

First Amendment dated February 22, 2006 to
the Employment, Confidentiality and
Noncompete Agreement dated March 7, 2004
between Tina Klocke and the Registrant
(incorporated by reference from Exhibit 10.6.1
to our Annual Report on Form 10-K for the year
ended December 31, 2005)

Employment, Confidentiality and Noncompete
Agreement dated as of January 10, 2007
between Dave Finnegan and the Registrant
(incorporated by reference from Exhibit 10.6 to
our Annual Report on Form 10-K for the year
ended January 2, 2010)

Employment, Confidentiality and Noncompete
Agreement dated September 10, 2001 between
Teresa Kroll and the Registrant (incorporated by
reference from Exhibit 10.9 to Pre-Effective
Amendment No. 2 to our Registration Statement
on Form S-1, filed on September 20, 2004,
Registration No. 333-118142)

62

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Exhibits (continued)

10.7.1*

10.8*

10.9*

10.10*

10.11

10.11.1

First Amendment dated February 22, 2006
to the Employment, Confidentiality and
Noncompete Agreement dated
September 10, 2001 between Teresa Kroll and
the Registrant (incorporated by reference from
Exhibit 10.9.1 to our Annual Report on
Form 10-K for the year ended
December 31, 2005)

Employment, Confidentiality and Noncompete
Agreement dated July 1, 2008 between Eric
Fencl and the Registrant (incorporated by
reference from Exhibit 10.1 to our Quarterly
Report on Form 10-Q, filed on
November 6, 2008)

Employment, Confidentiality and Noncompete
Agreement dated March 16, 2009 between
John Haugh and the Registrant (incorporated by
reference from Exhibit 10.2 to our Quarterly
Report on Form 10-Q, filed on May 14, 2009)

Form of Indemnification Agreement between the
Registrant and its directors and executive
officers (incorporated by reference from
Exhibit 10.11 to our Registration Statement on
Form S-1, filed on August 12, 2004,
Registration No. 333-118142)

Third Amendment to Loan Documents among the
Registrant, Shirts Illustrated, LLC, Build-A-Bear
Workshop Franchise Holdings, Inc.,
Build-A-Bear Entertainment, LLC, Build-A-Bear
Retail Management, LLC (incorporated by
reference from Exhibit 10.12 to our Registration
Statement on Form S-1, filed on
August 12, 2004, Registration
No. 333-118142)

Fifth Amendment to Loan Documents among the
Registrant, Shirts Illustrated, LLC, Build-A-Bear
Workshop Franchise Holdings, Inc.,
Build-A-Bear Entertainment, LLC, Build-A-Bear
Retail Management, LLC (incorporated by
reference from Exhibit 10.1 of our Current
Report on Form 8-K, filed on July 10, 2006)

10.11.2

10.11.3

10.11.4

10.11.5

Sixth Amendment to Loan Documents between
Build-A-Bear Workshop, Inc., Build-A-Bear
Workshop Franchise Holdings, Inc. Build-A-Bear
Entertainment, LLC, Build-A-Bear Retail
Management, Inc., and Build-A-Bear Workshop
UK Holdings Ltd., as borrowers, Build-A-Bear
Workshop Canada, Ltd. and US Bank National
Association, as lender entered into on and
effective as of on June 19, 2007 (incorporated
by reference from Exhibit 10.1 to our Current
Report on Form 8-K filed on June 20, 2007)

Seventh Amendment to Loan Documents
between Build-A-Bear Workshop, Inc.,
Build-A-Bear Workshop Franchise Holdings, Inc.
Build-A-Bear Entertainment, LLC, and
Build-A-Bear Retail Management, Inc., as
borrowers, and US Bank National Association,
as lender entered into as of on October 28,
2009 (incorporated by reference from Exhibit
10.1 to our Current Report on Form 8-K filed on
October 29, 2009)

Eighth Amendment to Loan Documents between
Build-A-Bear Workshop, Inc., Build-A-Bear
Workshop Franchise Holdings, Inc.,
Build-A-Bear Entertainment, LLC, Build-A-Bear
Retail Management, Inc., as Borrowers, and
U.S. Bank National Association, as Lender,
entered into effective as of December 31, 2010
(incorporated by reference to Exhibit 10.1 to
our Current Report on Form 8-K filed on
January 4, 2011)

Ninth Amendment to Loan Documents between
Build-A-Bear Workshop, Inc., Build-A-Bear
Workshop Franchise Holdings, Inc.,
Build-A-Bear Entertainment, LLC, Build-A-Bear
Retail Management, Inc., as Borrowers, and
U.S. Bank National Association, as Lender,
entered into effective as of December 30, 2011
(incorporated by reference from Exhibit 10.1 to
our Current Report on Form 8-K, filed on
January 4, 2012)

63

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Exhibits (continued)

10.12

10.13

10.14

10.14.1

10.15

Third Amended and Restated Loan Agreement
between the Registrant, Shirts Illustrated, LLC,
Build-A-Bear Workshop Franchise Holdings,
Inc., Build-A-Bear Entertainment, LLC, and
Build-A-Bear Retail Management, Inc., as
borrowers, and U.S. Bank National Association,
as Lender, entered into on September 27, 2005
with an effective date of May 31, 2005
(incorporated by reference from Exhibit 10.1 to
our Current Report on Form 8-K, filed on
October 3, 2005)

Second Amended and Restated Revolving Credit
Note dated May 31, 2005 by the Registrant,
Shirts Illustrated, LLC, Build-A-Bear Workshop
Franchise Holdings, Inc., Build-A-Bear
Entertainment, LLC, and Build-A-Bear Retail
Management, Inc., as Borrowers, in favor of
U.S. Bank National Association (incorporated
by reference from Exhibit 10.2 to our Current
Report on Form 8-K, filed on October 3, 2005)

Fourth Amended and Restated Loan Agreement
between the Registrant, Build-A-Bear Workshop
Franchise Holdings, Inc., Build-A-Bear
Entertainment, LLC, Build-A-Bear Retail
Management, Inc., as borrowers, and U.S. Bank
National Association, as lender, dated as of
August 11, 2008 (incorporated by reference
from Exhibit 10.1 to our Current Report on Form
8-K, filed on August 13, 2008)

Fourth Amended And Restated Revolving Credit
Note dated as of October 28, 2009 by the
Registrant, Franchise Holdings, Inc., Build-A-
Bear Entertainment, LLC (“BABE”), and Build-A-
Bear Retail Management, Inc., as borrowers, in
favor of U.S. Bank National Association
(incorporated by reference from Exhibit 10.1 to
our Current Report on Form 8-K, filed on
October 29, 2009)

Public Warehouse Agreement dated
April 5, 2002 between the Registrant and JS
Logistics, Inc., as amended (incorporated by
reference from Exhibit 10.25 to our Registration
Statement on Form S-1, filed on August 12,
2004, Registration No. 333-118142)

10.15.1

10.15.2†

10.16

10.16.1

10.16.2

10.16.3†

10.16.4†

Second Amendment dated June 16, 2005 to
the Public Warehouse Agreement dated
April 5, 2002 between the Registrant and JS
Warehousing, Inc. (incorporated by reference
from Exhibit 10.2 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended on
April 2, 2005)

Second Amendment dated June 16, 2005 to
the Public Warehouse Agreement dated
April 5, 2002 between the Registrant and
JS Warehousing, Inc. (incorporated by
reference from Exhibit 10.2 to our Quarterly
Report on Form 10-Q for the fiscal quarter
ended July 2, 2005)

Agreement for Logistics Services dated as of
February 24, 2002 by and among the
Registrant and HA Logistics, Inc. (incorporated
by reference from Exhibit 10.26 to our
Registration Statement on Form S-1, filed on
August 12, 2004, Registration
No. 333-118142)

Letter Agreement extending Agreement for
Logistics Services between HA Logistics, Inc.
and the Registrant dated March 22, 2005
(incorporated by reference from Exhibit 10.3
to our Quarterly Report on Form 10-Q for the
fiscal quarter ended April 2, 2005)

Letter Agreement extending Agreement for
Logistics Services between HA Logistics, Inc.
and the Registrant dated May 3, 2005
(incorporated by reference from Exhibit 10.4
to our Quarterly Report on Form 10-Q for the
fiscal quarter ended April 2, 2005)

Letter Agreement dated June 7, 2005
amending the Agreement for Logistics Services
dated February 24, 2002 by and among the
Registrant and HA Logistics, Inc. (incorporated
by reference from Exhibit 10.1 to our
Quarterly Report on Form 10-Q for the fiscal
quarter ended July 2, 2005)

Agreement For Logistics Services dated as of
June 30, 2008 between the Registrant and HA
Logistics. Inc. (incorporated by reference from
Exhibit 10.1 to our Current Report on
Form 8-K, filed on July 3, 2008)

64

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Exhibits (continued)

10.17†

10.18

10.19

10.19.1

10.19.2

10.20

10.21

10.22

Lease Agreement dated as of June 21, 2001
between the Registrant and Walt Disney World
Co. (incorporated by reference from Exhibit 2.1
of our Registration Statement on Form S-1, filed
on August 12, 2004, Registration No. 333-
118142)

Lease dated May 5, 1997 between Smart Stuff,
Inc. and Hycel Partners I, L.P. (incorporated by
reference from Exhibit 10.29 to our Registration
Statement on Form S-1, filed on August 12,
2004, Registration No. 333-118142)

Agreement dated October 16, 2002 between
the Registrant and Hycel Properties Co., as
amended (incorporated by reference from
Exhibit 10.30 to our Registration Statement on
Form S-1, filed on August 12, 2004,
Registration No. 333-118142)

Third Amendment to Lease between First
Industrial, L.P. and Registrant, dated as of
November 21, 2007

Fourth Amendment to Lease between First
Industrial, L.P and Registrant, dated as of
December 29, 2011

Letter Agreement dated September 30, 2003
between the Registrant and Hycel Properties Co.
(incorporated by reference from Exhibit 10.30.1
to Pre-Effective Amendment No. 5 to our
Registration Statement on Form S-1, filed on
October 12, 2004, Registration No. 333-
118142)

Construction Management Agreement dated
November 10, 2003 by and between the
Registrant and Hycel Properties Co.
(incorporated by reference from Exhibit 10.31
to our Registration Statement on Form S-1, filed
on August 12, 2004, Registration
No. 333-118142)

Agreement dated July 19, 2001 between the
Registrant and Adrienne Weiss Company
(incorporated by reference from Exhibit 10.32
to our Registration Statement on Form S-1, filed
on August 12, 2004, Registration
No. 333-118142)

10.23

10.24

10.25

10.26

10.27

10.28*

10.29*

10.30

Lease between 5th Midtown LLC and the
Registrant dated July 21, 2004 (incorporated by
reference from Exhibit 10.33 to Pre-Effective
Amendment No. 1 to our Registration Statement
on Form S-1, filed on September 10, 2004,
Registration No. 333-118142)

Exclusive Patent License Agreement dated
March 12, 2001 by and between Tonyco, Inc.
and the Registrant (incorporated by reference
from Exhibit 10.34 to Pre-Effective Amendment
No. 2 to our Registration Statement on Form S-1,
filed on September 20, 2004, Registration
No. 333-118142)

Standard Form Industrial Building Lease dated
August 28, 2004 between First Industrial, L.P.
and the Registrant (incorporated by reference
from Exhibit 10.35 to Pre-Effective Amendment
No. 4 to our Registration Statement on Form S-1,
filed on October 5, 2004, Registration
No. 333-118142)

Facility Construction Agreement dated
December 22, 2005 between the Registrant and
Duke Construction Limited Partnership
(incorporated by reference from Exhibit 10.35 to
our Annual Report on Form 10-K for the year
ended December 31, 2005)

Real Estate Purchase Agreement dated
December 19, 2005 between Duke Realty Ohio
and the Registrant (incorporated by reference
from Exhibit 10.36 to our Annual Report on
Form 10-K for the year ended
December 31, 2005)

Rules of the Build-A-Bear Workshop, Inc. U.K.
Share Option Scheme (incorporated by reference
from Exhibit 10.1 to our Current Report on
Form 8-K filed on February 9, 2007)

Nonqualified Deferred Compensation Plan
(incorporated by reference from Exhibit 10.42 to
our Annual Report on Form 10-K, filed on
March 15, 2007)

Settlement Agreement between Build-A-Bear
Workshop, Inc. and the United States Consumer
Products Safety Commission, finally accepted
effective January 4, 2012 (incorporated by
reference from Exhibit 10.2 to our Current Report
on Form 8-K, filed January 4, 2012)

65

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

Exhibits (continued)

11.1

13.1

16.1

21.1

23.1

23.2

31.1

Statement regarding computation of earnings per
share (incorporated by reference from Note 12 of
the Registrant’s audited consolidated financial
statements included herein)

Annual Report to Shareholders for the Fiscal Year
Ended January 2, 2010 (The Annual Report, except
for those portions which are expressly incorporated
by reference in the Form 10-K, is furnished for the
information of the Commission and is not deemed
filed as part of the Form 10-K)

Letter dated July 15, 2011 from KMPG LLP to the
Securities and Exchange Commission (incorporated
by reference from Exhibit 16.1 to our Current
Report on Form 8-K, filed on July 15, 2011)

List of Subsidiaries of the Registrant (incorporated
by reference from Exhibit 21.1 to our Annual Report
on Form 10-K for the year ended December 30,
2006, filed March 15, 2007)

Consent of Ernst & Young LLP

Consent of KPMG LLP

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)

31.2

32.1

32.2

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)

Section 1350 Certification (pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002, executed by the Chief Executive Bear)

Section 1350 Certification (pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002, executed by the Chief Financial Bear)

99.1

Financial Statements of Ridemakerz, LLC

101.INS

XBRL Instance

101.SCH

XBRL Extension Schema

101.CAL

XBRL Extension Calculation

101.DEF

101.LAB

101.PRE

XBRL Extension Definition

XBRL Extension Label

XBRL Extension Presentation

* Management contract or compensatory plan or arrangement.
† Confidential treatment requested as to certain portions filed separately with the Securities and Exchange Commission

66

BUILD-A-BEAR WORKSHOP, INC.

2011 FORM 10-K

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

BUILD-A-BEAR WORKSHOP, INC.
(Registrant)

By:

/S/ MAXINE CLARK

Maxine Clark
Chief Executive Bear

Date: March 15, 2012

By:

/S/ TINA KLOCKE

Tina Klocke
Chief Operations and Financial Bear, Treasurer and
Secretary

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Maxine

Clark and Tina Klocke, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities to sign the Annual Report on
Form 10-K of Build-A-Bear Workshop, Inc. (the “Company”) for the fiscal year ended December 31, 2011 and any other
documents and instruments incidental thereto, together with any and all amendments and supplements thereto, to enable the
Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and/or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Signatures

Title

Date

/s/ MARY LOU FIALA

Mary Lou Fiala

/s/ JAMES M. GOULD

James M. Gould

/s/ VIRGINIA KENT

Virginia Kent

/s/ BRADEN LEONARD

Braden Leonard

/s/ LOUIS M. MUCCI

Louis M. Mucci

/s/ COLEMAN PETERSON

Coleman Peterson

/s/ WILLIAM REISLER

William Reisler

/s/ MAXINE CLARK

Maxine Clark

/s/ TINA KLOCKE

Tina Klocke

Non-Executive Chairman

March 15, 2012

March 15, 2012

March 15, 2012

March 15, 2012

March 15, 2012

March 15, 2012

March 15, 2012

March 15, 2012

March 15, 2012

Director

Director

Director

Director

Director

Director

Director and Chief Executive Bear
(Principal Executive Officer)

Chief Operations and Financial Bear, Treasurer
and Secretary
(Principal Financial and Accounting Officer)

67

Coleman Peterson (2,3)
President and CEO 
Hollis Enterprises LLC  
(a human resources consulting firm)  
Former Executive  
Vice President of People  
Wal-Mart Stores, Inc.

William Reisler (1,2)**
Managing Partner 
Consumer Growth Partners  
(a private equity sponsor focused  
on specialty retail and consumer  
growth companies)

DIRECTOR EMERITUS

Barney Ebsworth*
Founder and CEO  
Windsor, Inc. (a corporation  
that provides financing for  
venture capital, real estate,  
and other investments)

Dorrie Krueger
Managing Director, 
Strategic Planning and  
Customer Exbearience

Rick Levine
Managing Director, 
Stores — West Region

Roger Parry
Bear Trading Director — Europe

Michael Segura
Managing Director,
Inbearmation Technology

Shari Stout
Managing Director, 
Bear Stuff Development and  
Quality Assurance

BOARD OF DIRECTORS

Maxine Clark
Founder and Chief Executive Bear 
Build-A-Bear Workshop, Inc.

Mary Lou Fiala (1, 2)
Non-Executive Chairman

Retired Vice Chairman  
and Chief Operating Officer  
Regency Centers Corporation  
(a real estate investment trust  
specializing in the ownership  
and operation of grocery-anchored  
shopping centers) 

James M. Gould (2,3)
Managing General Partner  
The Walnut Group  
(a group of affiliated  
private equity funds)

Virginia Kent (1,2)
Independent Management  
Consultant (primary focus  
on marketing strategy,  
global branding, and  
product development)

Braden Leonard(1,3)
Managing Member and Founder  
BML Capital Management, LLC

Louis Mucci (1,3)
Retired Partner  
PricewaterhouseCoopers LLP

Board Committees:

(1)   Audit Committee

(2) Compensation and Development Committee

(3)  Nominating and Corporate  
Governance Committee

  * Board Member Emeritus since 2006

** Announced intention to retire on  
date of 2012 Annual Meeting

SENIOR MANAGEMENT

MANAGING DIRECTORS

Maxine Clark
Founder and  
Chief Executive Bear

Paul Bundonis
Chief Workshop Bear — North America

Darlene Elder
Chief Human Resources Bear

Eric Fencl 
Chief Bearrister, General Counsel  
and International Franchising

Dave Finnegan
Chief Information Bear

Tina Klocke
Chief Operations and Financial Bear,  
Treasurer and Secretary

Teresa Kroll
Chief Marketing and  
Entertainment Bear

Laurie Coplin
Managing Director, 
Bear Marketing

Mike Early
Managing Director, 
Bear Logistics

Jeff Fullmer
Managing Director,  
Bear Merchandise Planning  
and Allocation

Scott Gower
Managing Director, 
Stores — East Region

Jennifer Guinn
Managing Director, 
Corbearate Controller

(cid:29)(cid:31)

shAreholder informAtion

Build‑A‑Bear Workshop  
World Bearquarters 
1954 Innerbelt Business Center Drive
St. Louis, Mo. 63114-5760
888.560.2327
314.423.8000
Fax: 314.423.8188
Web: buildabear.com®

transfer Agent and registrar
Computershare Shareowner Services
480 Washington Boulevard, 27th Floor
Jersey City, N.J. 07310-1900
888.667. 7679 
www.bnymellon.com/shareowner/isd

Auditors
Ernst & Young, LLP
St. Louis, Mo.

counsel
Bryan Cave LLP
St. Louis, Mo.

form 10‑k
The Build-A-Bear Workshop Form 10-K  
may be requested by a letter to the  
Investor Relations department at the  
World Bearquarters, by a phone call  
to the Investor Relations department  
at 314.423.8000, or by an e-mail  
to invest@buildabear.com.

Comprehensive financial information for 
Build-A-Bear Workshop is also available  
at the company’s investor relations  
website: http://ir.buildabear.com.

Annual meeting
The annual meeting of shareholders will be  
held at 10:00 a.m. St. Louis time (CDT) on 
Thursday, May 10, 2012, at the company’s  
World Bearquarters, 1954 Innerbelt Business 
Center Drive, St. Louis, Missouri 63114.  
A formal notice of the meeting and a proxy 
statement will be sent to each shareholder  
as of March 23, 2012.

Build-A-Bear Workshop  
common stock is traded on  
the New York Stock Exchange.  
Our symbol is BBW. 

As of March 23, 2012, there were 
approximately 10,500 shareholders.  
That number is based on the actual  
number of holders of record and an  
estimated number of beneficial holders  
of the company’s common stock.

certifications
The most recent certifications by our Chief 
Executive Officer and Chief Financial Officer 
pursuant to Section 302 of the Sarbanes-Oxley 
Act of 2002 are filed as exhibits to our  
Form 10-K. We have also filed with the  
New York Stock Exchange the most recent 
Annual CEO Certification, as required by  
the New York Stock Exchange.

Making Friends Count
Around the World

We have 79 franchisees’ stores in 14 countries which proves a bear hug is absolutely understood 
in every language. The brand presentation, execution and experience are always consistent so that 
wherever you are in the world, you’ll know you’re in a Build-A-Bear Workshop store. We will 
strategically add new countries to maximize our international paw print, and we will leverage existing 
franchisees which offer great future growth potential.

internAtionAl locAtions  (As of January 1, 2012) 

Australia . . . . . . . . . . . . . 10
Bahrain. . . . . . . . . . . . . .   1
Brazil . . . . . . . . . . . . . . .   1
Canada*  . . . . . . . . . . . . 20
Denmark. . . . . . . . . . . . .   9
Germany  . . . . . . . . . . . . 17

Japan . . . . . . . . . . . . . . . 10
Kuwait  . . . . . . . . . . . . . .   1
Mexico . . . . . . . . . . . . . .   8
Norway . . . . . . . . . . . . .   3
Republic of Ireland* . . . . .   2
Singapore. . . . . . . . . . . .   4

South Africa  . . . . . . . . . .   7
Sweden  . . . . . . . . . . . . .   1
Thailand . . . . . . . . . . . . .   5
The United Kingdom* . . . . 56
United Arab Emirates . . . .   2
*Company owned

www.buildabear.com

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Build‑A‑BeAr Workshop, inc. 

 1954 Innerbelt Business Center Drive 
St. Louis, Mo. 63114 
buildabear.com® 
bearville.com™

15 years of heart!

Supporting causes like St. Jude Children’s Research Hospital and giving back through 
our Huggable Heroes® program has been a part of the Build-A-Bear Workshop teddy  
bear culture of sharing and caring since the very beginning. Build-A-Bear Workshop 

and its foundations will continue to expand key charitable programs that have made  

a difference for children and families. Since 1997, we’ve donated nearly $31 million to 

support causes related to children, animals and the environment. While we’re lending  

a helping paw to people in need, we’re also nurturing the next generation of givers and 

empowering them to make a difference through their own enterprising service projects.

Nearly $31 million 

given to charities  

Over $4.0 million  

to support children and 

Over $6.9 million  

to support animal  

since 1997

family health and  

causes since 1997

wellness causes since 1997

Shannon M.  
Basking Ridge, NJ

Rujul Z. 
Plainsboro, NJ

Jasmine B.  
Chesapeake, VA

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made a friend made a friend made a friend a friend made a friend made a friend a friend made a

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