Panera Bread 2012 Annual Report Download - page 12

4
We believe the best use of our capital is to invest in our core business, either through the development of new bakery-cafes or
through the acquisition of existing bakery-cafes from our franchisees or other similar restaurant or bakery-cafe concepts, such as
our acquisition of Paradise Bakery & Café, Inc.
In evaluating potential new bakery-cafe locations, we study the surrounding trade area and demographics within the most recent
year, and publicly available information on competitors. Based on this review and the use of proprietary, predictive modeling, we
estimate projected sales and a targeted return on investment. We also employ a disciplined capital expenditure process in which
we focus on occupancy and development costs in relation to the market. This process is designed to ensure we have an appropriate
size bakery-cafe and deploy capital in the right market.
Our concept has proven successful in different types of locations, such as in-line or end-cap locations in strip or power centers,
regional malls, drive-throughs, and free-standing units. The average Company-owned bakery-cafe size was approximately 4,500
square feet as of December 25, 2012. We lease nearly all of our bakery-cafe locations and all of our fresh dough facilities. The
reasonably assured lease term for most bakery-cafe and support center leases is the initial non-cancelable lease term plus one
renewal option period, which generally equates to 15 years. The reasonably assured lease term for most fresh dough facility leases
is the initial non-cancelable lease term plus one to two renewal periods, which generally equates to 20 years. Lease terms generally
require us to pay a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs. Many
bakery-cafe leases provide for contingent rental (i.e. percentage rent) payments based on sales in excess of specified amounts or
changes in external indices. Certain of our lease agreements provide for scheduled rent increases during the lease term or for rental
payments commencing at a date other than the date of initial occupancy.
The average construction, equipment, furniture and fixtures, and signage cost for the 59 Company-owned bakery-cafes that opened
in fiscal 2012 was approximately $1,050,000 per bakery-cafe, net of landlord allowances and excluding capitalized development
overhead, which has increased since fiscal 2011 due to increased costs associated with the opening of urban bakery-cafe locations
in fiscal 2012.
In the past three years, we have acquired bakery-cafes from certain franchisees. In March 2012, we acquired 16 bakery-cafes from
a North Carolina franchisee for a purchase price of $48.0 million. In July 2011, we acquired five bakery-cafes from an Indiana
franchisee for a purchase price of approximately $5.1 million. In April 2011, we acquired 25 bakery-cafes from our Milwaukee
franchisee for a purchase price of approximately $41.9 million. In September 2010, we acquired 37 bakery-cafes from our New
Jersey franchisee for a purchase price of approximately $55.0 million. Also, in March 2010, we acquired controlling interest in
three bakery-cafes from our Canadian franchisee and subsequently acquired the remaining noncontrolling interest on December 28,
2010 for total consideration of $4.8 million.
On November 17, 2009, our Board of Directors approved a three year share repurchase authorization of up to $600.0 million of
our Class A common stock, pursuant to which we repurchased shares on the open market under a Rule 10b5-1 plan. During fiscal
2012, we repurchased 34,600 shares under this share repurchase authorization at an average price of $144.24 per share for an
aggregate purchase price of $5.0 million. Prior to its termination on August 23, 2012, we repurchased a total of 2,844,669 shares
of our Class A common stock cumulatively under this share repurchase authorization at a weighted-average price of $87.03 per
share for an aggregate purchase price of approximately $247.6 million.
On August 23, 2012, our Board of Directors terminated the November 17, 2009 repurchase authorization and approved a new
three year share repurchase authorization of up to $600.0 million of our Class A common stock, pursuant to which we may
repurchase shares from time to time on the open market or in privately negotiated transactions and which may be made under a
Rule 10b5-1 plan. Repurchased shares may be retired immediately and resume the status of authorized but unissued shares or may
be held by us as treasury stock. This repurchase authorization is reviewed quarterly by our Board of Directors and may be modified,
suspended, or discontinued at any time. Since this repurchase authorization was approved, we have repurchased 124,100 shares
at a weighted-average price of $161.00 for an aggregate purchase price of approximately $20.0 million. We have approximately
$580.0 million available under the existing $600.0 million repurchase authorization.
Franchise Operations
Our franchisees, which as of December 25, 2012, operated approximately 51 percent of our bakery-cafes, are comprised of 38
franchise groups with an average of approximately 22 bakery-cafes per group. We are selective in granting franchises, and applicants
must meet specific criteria in order to gain consideration for a franchise. Generally, our franchisees must be well-capitalized to
open bakery-cafes, meet a negotiated development schedule, and have a proven track record as a multi-unit restaurant operator.
Additional qualifications include minimum net worth and liquidity requirements, infrastructure and resources to meet our
development schedule, and a commitment to the development of our brand. If these qualifications are not met, we may still consider
granting a franchise depending on the market and the particular circumstances.