Panera Bread 2012 Annual Report Download - page 65

PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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13. Commitments and Contingent Liabilities
Lease Commitments
The Company is obligated under operating leases for its bakery-cafes, fresh dough facilities and trucks, and support centers. Lease
terms for its trucks are generally for five to seven years. 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 the Company to pay a proportionate share of real estate taxes,
insurance, common area, and other operating costs. Certain 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, scheduled rent increases during the lease
terms, and/or rental payments commencing at a date other than the date of initial occupancy.
Aggregate minimum requirements under non-cancelable operating leases, excluding contingent payments, as of December 25,
2012, were as follows (in thousands):
Fiscal Years
2013 2014 2015 2016 2017 Thereafter Total
$ 122,611 121,254 120,015 119,093 116,210 643,305 $ 1,242,488
Rental expense under operating leases was approximately $114.8 million, $100.6 million, and $87.4 million, in fiscal 2012, fiscal
2011, and fiscal 2010, respectively, which included contingent (i.e. percentage rent) expense of $2.0 million, $1.6 million, and
$1.1 million, respectively.
In accordance with the accounting guidance for asset retirement obligations the Company complies with lease obligations at the
end of a lease as it relates to tangible long-lived assets. The liability as of December 25, 2012 and December 27, 2011 was $9.2
million and $5.9 million, respectively, and is included in other long-term liabilities in the Consolidated Balance Sheets.
In connection with the Company’s relocation of its St. Louis, Missouri support center in the third quarter of fiscal 2010, it
simultaneously entered into a capital lease for certain personal property and purchased municipal industrial revenue bonds of a
similar amount from St. Louis County, Missouri. As of the fiscal years ended December 25, 2012 and December 27, 2011, the
Company held industrial revenue bonds and had recorded a capital lease of $1.5 million and $1.7 million in the Consolidated
Balance Sheets, respectively.
During the fiscal year ended December 25, 2012, the Company completed sale-leaseback transactions of the leasehold
improvements and land for two Company-owned bakery-cafes for cash proceeds of $4.5 million. The leases have been classified
as either capital or operating leases, depending on the substance of the transaction, and have initial terms of 15 years, with renewal
options of up to 15 years. The Company realized gains on these sales totaling $1.0 million, which have been deferred and are
being recognized on a straight-line basis over the reasonably assured lease term for the leases.
Lease Guarantees
As of December 25, 2012, the Company guaranteed operating leases of 25 franchisee or affiliate bakery-cafes, which the Company
accounted for in accordance with the accounting requirements for guarantees. These leases have terms expiring on various dates
from January 31, 2013 to September 30, 2027 and have a potential amount of future rental payments of approximately $23.3
million as of December 25, 2012. The obligation from these leases will generally continue to decrease over time as these operating
leases expire. The Company has not recorded a liability for certain of these guarantees as they arose prior to the implementation
of the accounting requirements for guarantees and, unless modified, are exempt from its requirements. The Company has not
recorded a liability for those guarantees issued after the effective date of the accounting requirements because the fair value of
each such lease guarantee was determined by the Company to be insignificant based on analysis of the facts and circumstances
of each such lease and each such franchisee’s performance, and the Company did not believe it was probable it would be required
to perform under any guarantees at the time the guarantees were issued. The Company has not had to make any payments related
to any of these guaranteed leases. Applicable franchisees or affiliates continue to have primary liability for these operating leases.
As of December 25, 2012, future commitments under these leases were as follows (in thousands):
Fiscal Years
2013 2014 2015 2016 2017 Thereafter Total
$ 3,578 3,441 2,492 2,054 1,989 9,758 $ 23,312