Panera Bread 2014 Annual Report Download

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Panera Bread Company
2014 Annual Report to Stockholders

Table of contents

  • Page 1
    Panera Bread Company 2014 Annual Report to Stockholders

  • Page 2

  • Page 3
    ... markets that we believe can offer new paths of growth. WHERE WE HAVE BEEN Our journey has evolved over time. In 2011, we conceived a vision for an enhanced customer experience enabled by technology that would position Panera ahead of the competition in an increasingly digital and omnichannel world...

  • Page 4
    ...elevated experience is now being incorporated into all menu items, marketing campaigns and store design initiatives to reinforce Panera's positioning and excite Panera's customers. The success in 2014 of our line of flatbreads and the debut in January of Broth Bowls-a healthful extension of our soup...

  • Page 5
    ...our cafes and support centers through compensation packages and work experiences that make Panera a best-in-class employer. And we are investing in our cafes. Equipment upgrades, redesigns and other development costs are crucial to our strategy of enhancing Panera's competitive position. Maintaining...

  • Page 6
    ... invested in the customer experience despite the recession. Our actions led to increased same-store sales at a time when other restaurant companies were cutting back on the guest experience even as they were reporting significant declines in guest traffic. The result...our stock price nearly doubled...

  • Page 7
    ...and in our public disclosures, whether written or oral, relating to future events or our future performance, including any discussion, expressed or implied, of our anticipated growth, operating results, future earnings per share, plans, objectives, and the impact of our investments in sales-building...

  • Page 8

  • Page 9
    ... (as defined in Rule 12b-2 of the Act). Yes No Smaller reporting company The aggregate market value of the registrant's voting common equity held by non-affiliates of the registrant, based on the last sale price of the registrant's Class A Common Stock at the close of business on July 1, 2014, was...

  • Page 10

  • Page 11
    ... FINANCIAL DISCLOSURE ...68 ITEM 9A. CONTROLS AND PROCEDURES ...68 ITEM 9B. OTHER INFORMATION ...69 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ...69 ITEM 11. EXECUTIVE COMPENSATION...69 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED...

  • Page 12

  • Page 13
    ...of 955 franchise-operated bakery-cafes, located throughout the United States and in Ontario, Canada. As of December 30, 2014, our fresh dough and other product operations segment, which supplies fresh dough and other products daily to most Company-owned and franchise-operated bakery-cafes, consisted...

  • Page 14
    .... Our menu, operating systems, design, and real estate strategy allow us to compete successfully in several segments of the restaurant business: breakfast, lunch, gathering place, dinner, and take home, through both on-premise sales and off-premise Panera® Catering. We compete with specialty food...

  • Page 15
    ...service growth in revenues, along with maintaining competitive compensation for our associates, is fundamental to our future success. We believe in providing bakery-cafe operators the opportunity to share in the success of the bakery-cafe. Through our Joint Venture Program, selected general managers...

  • Page 16
    ...returns. Our concept has proved successful in different types of locations, such as in-line or end-cap locations in strip or power centers, regional malls, and free-standing units. The average Company-owned bakery-cafe size was approximately 4,500 square feet as of December 30, 2014. We lease nearly...

  • Page 17
    ...-operated bakery-cafes, for a fee, limited information technology services and access to information technology infrastructure supporting operational initiatives. As of December 30, 2014, we did not hold an equity interest in any of our franchise-operated bakery-cafes. Bakery-Cafe Supply Chain...

  • Page 18
    ... the appropriate menu prices, discount rates, and tax rates for system programming. We use in-store enterprise application tools to assist in labor scheduling and food cost management, to provide corporate and retail operations management quick access to retail data, to allow on-line ordering with...

  • Page 19
    ... investments during fiscal 2015 and going forward in technology, operational tools, and related systems, as well as the labor necessary to support this technology, in areas which include, but are not limited to, the ordering process, food production and the delivery of food to the customer...

  • Page 20
    ... on various factors including the returns we realize from such transactions and whether the resulting ownership mix supports our financial objectives; balancing unit growth while meeting target returns on invested capital for locations; generating additional revenue and corresponding profits through...

  • Page 21
    ...® loyalty program; investing in labor and the related management tools to meet the demands necessary to maximize throughput and capacity in our bakery-cafes; simplifying our operating procedures to facilitate the operation of a high volume bakery-cafe; and investing in technology designed to drive...

  • Page 22
    ... competition for restaurant sites from newer and increasing number of concepts in the fast casual segment; variations in the number and timing of bakery-cafe openings as compared to our construction schedule; management of the costs of construction of bakery-cafes, particularly factors outside...

  • Page 23
    ... service they deliver may be diminished by any number of factors beyond our control, including financial pressures and their own business operations, such as employment related matters. We strive to provide our customers with the same experience at Company-owned bakery-cafes and franchise-operated...

  • Page 24
    ...our future success. Our success depends on the services of our senior management, all of whom are "at will" employees. The loss of a member of senior management could have an adverse impact on our business or the financial market's perception of our ability to continue to grow. Increased labor costs...

  • Page 25
    ... to other regulations in the area of nutrition disclosure or advertising which would require us to make certain additional nutritional information available to our customers or restrict the sales of certain types of ingredients. We may experience higher costs associated with the implementation...

  • Page 26
    ... systems across our operations, including for the order and delivery of fresh dough from our fresh dough facilities, point-of-sale processing in our bakery-cafes, gift and loyalty cards, online business, and various other processes and transactions, including the storage of employee and customer...

  • Page 27
    ... and increased labor costs, including wages and other compensation of management and associates, insurance, and health care; and changes in business strategy including concept evolution and new designs. • • • profitability of new bakery-cafes, especially in new markets; delays in new bakery...

  • Page 28
    ... share growth rate and potentially our stock price. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES We lease nearly all of our bakery-cafe locations, fresh dough facilities, and support centers. The square footage of our Company-owned leased fresh dough facilities as of December 30, 2014...

  • Page 29
    The average size of our Company-owned bakery-cafes as of December 30, 2014 was approximately 4,500 square feet. As of December 30, 2014, 1,880 bakery-cafes operated in the following locations: Location Alabama ...Arizona ...Arkansas ...California ...Colorado ...Connecticut...Delaware...Florida ......

  • Page 30
    ... on our consolidated financial statements. However, a significant increase in the number of these claims, or one or more successful claims under which we incur greater liabilities than is currently anticipated, could materially and adversely affect our consolidated financial statements. ITEM 4. MINE...

  • Page 31
    ... public trading market for our Class B common stock. For the periods indicated, the following table sets forth the quarterly high and low sale prices per share of our Class A common stock as reported by Nasdaq. For the fiscal year ended December 30, 2014 December 31, 2013 High Low High Low...

  • Page 32
    ... information) December 30, 2014 Revenues: Bakery-cafe sales, net ...Franchise royalties and fees...Fresh dough and other product sales to franchisees ...Total revenues...Costs and expenses: Bakery-cafe expenses: Cost of food and paper products...Labor...Occupancy ...Other operating expenses ...Total...

  • Page 33
    ... royalty income and franchise fees, which include fees for development and real estate services and information technology services. The cost of food and paper products, labor, occupancy, and other operating expenses relate primarily to Company-owned net bakery-cafe sales. The cost of fresh dough...

  • Page 34
    ... system-wide average weekly net sales increased 0.5 percent to $47,655 ($48,114 for Company-owned bakery-cafes and $47,215 for franchise-operated bakery-cafes); 114 new bakery-cafes opened system-wide (65 Company-owned bakery-cafes and 49 franchise-operated bakery-cafes); and 11 bakery-cafes closed...

  • Page 35
    ..., 2014 2013 2012 Revenues: Bakery-cafe sales, net Franchise royalties and fees ...Fresh dough and other product sales to franchisees ...Total revenue ...Costs and expenses: Bakery-cafe expenses (1): Cost of food and paper products ...Labor ...Occupancy ...Other operating expenses...Total bakery-cafe...

  • Page 36
    ...bakery-cafe data relating to Company-owned and franchise-operated bakery-cafes for the periods indicated: For the fiscal year ended December 30, December 31, December 25, 2014 2013 2012 Number of bakery-cafes: Company-owned: Beginning of period ...Bakery-cafes opened ...Bakery-cafes closed ...Bakery...

  • Page 37
    ... in 2013 12.2% 10.4% 9.9% 12.0% 1.6% $ $ $ $ The growth in total revenues in fiscal 2014 compared to the prior fiscal year was primarily due to the opening of 114 new bakerycafes system-wide in fiscal 2014 and the 1.1 percent increase in system-wide comparable net bakery-cafe sales in fiscal 2014...

  • Page 38
    ...2014 for bakery-cafes opened in fiscal 2013. The increase in average weekly net sales for Company-owned bakery-cafes in fiscal 2013 compared to the prior fiscal year was primarily due to average check growth that resulted from retail price increases and our category management initiatives. Franchise...

  • Page 39
    ... year was primarily due to the impact of the additional week in fiscal 2013, the opening of 70 franchise-operated bakery-cafes, and the 2.0 percent increase in franchise-operated comparable net bakery-cafe sales. Costs and Expenses The cost of food and paper products includes the costs associated...

  • Page 40
    ...average occupancy costs in new bakery-cafes and higher real estate taxes. Other operating expenses The following table summarizes other operating expenses for the periods indicated (dollars in thousands): For the fiscal year ended December 30, December 31, December 25, 2014 2013 2012 Other operating...

  • Page 41
    ...tax rate from fiscal 2013 to fiscal 2014 was primarily driven by certain discrete income tax benefit items for prior fiscal years related to additional federal and state tax credits and an increased deduction for domestic production activities. The decrease in the effective tax rate from fiscal 2012...

  • Page 42
    ... cost of food and paper products, employee labor, the repurchase of shares of our common stock, and our capital expenditures for the development of new Company-owned bakerycafes, for maintaining or remodeling existing Company-owned bakery-cafes, for purchasing existing franchise-operated bakerycafes...

  • Page 43
    ... the tax benefit from exercise of stock options. Share Repurchases On November 17, 2009, our Board of Directors approved a three year share repurchase authorization of up to $600 million of our Class A common stock, pursuant to which we repurchased shares on the open market under a Rule 10b5-1 plan...

  • Page 44
    ... purchase price of approximately $247.6 million. On August 23, 2012, our Board of Directors approved a three year share repurchase authorization of up to $600 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 2014...

  • Page 45
    ... proceeds are received. As gift cards are redeemed, this liability is reduced and revenue is recognized. Sales of soup and other branded products sold outside our bakerycafes are recognized upon delivery to customers. Further, franchise fees are generally the result of the sale of area development...

  • Page 46
    ... analysis evaluating factors including, but not limited to, macro-economic conditions, market and industry conditions, internal cost factors, competitive environment, share price fluctuations, results of past impairment tests, and the operational stability and the overall financial performance...

  • Page 47
    ... of state taxes, partially offset by favorable U.S. rules related to donations of inventory to charitable organizations and domestic manufacturing. Our future effective tax rates could be adversely affected by changes in the valuation of our deferred tax assets, or changes in tax laws, regulations...

  • Page 48
    ...years. Lease terms generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance, 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, scheduled...

  • Page 49
    ...depend on our ability and timing to increase food prices. A majority of our associates are paid hourly rates regulated by federal and state minimum wage laws. Although we have and will continue to attempt to pass along any increased labor costs through food price increases, there can be no assurance...

  • Page 50
    ... an impact on our consolidated financial statements. In May 2014, the FASB issued Accounting Standards Update 2014-09, "Revenue from Contracts with Customers (Topic 606)". This update provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the...

  • Page 51
    ... item: Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Comprehensive Income...Consolidated Statements of Cash Flows ...Consolidated Statements of Changes in Equity ...Notes to the Consolidated Financial Statements ...Schedule II...

  • Page 52
    Report of Independent Registered Public Accounting Firm To Board of Directors and Stockholders of Panera Bread Company: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, of changes in equity and of cash flows present fairly,...

  • Page 53
    PANERA BREAD COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share information) December 30, 2014 ASSETS Current assets: Cash and cash equivalents ...$ Trade accounts receivable, net...Other accounts receivable ...Inventories ...Prepaid expenses and other ...Deferred income ...

  • Page 54
    ... share information) For the fiscal year ended December 30, December 31, December 25, 2014 2013 2012 Revenues: Bakery-cafe sales, net ...$ Franchise royalties and fees ...Fresh dough and other product sales to franchisees ...Total revenues ...$ Costs and expenses: Bakery-cafe expenses: Cost of food...

  • Page 55
    ... from sale of investments ...Proceeds from sale-leaseback transactions...Net cash used in investing activities ...Cash flows from financing activities: Proceeds from issuance of long-term debt ...Debt issuance costs ...Repurchase of common stock...Exercise of employee stock options ...Tax benefit...

  • Page 56
    ... (net of forfeitures)...Exercise of employee stock options . Stock-based compensation expense . Conversion of Class B to Class A...Exercise of SSARs ...Repurchase of common stock ...Tax benefit from exercise of stock options...Balance, December 25, 2012 ...Comprehensive income: Net income ...Other...

  • Page 57
    ..., 2014, retail operations consisted of 925 Company-owned bakery-cafes and 955 franchise-operated bakery-cafes. The Company specializes in meeting consumer dining needs by providing high-quality food, including the following: fresh baked goods, made-to-order sandwiches on freshly baked breads, soups...

  • Page 58
    ..., market and industry conditions, internal cost factors, competitive environment, share price fluctuations, results of past impairment tests, and the operational stability and the overall financial performance of the reporting units. During the fourth quarter of fiscal 2014, the Company utilized...

  • Page 59
    ... value of the long-lived assets. In performing this analysis, management estimates cash flows based upon, among other things, certain assumptions about expected future operating performance, such as revenue growth rates, operating margins, risk-adjusted discount rates, and future economic and market...

  • Page 60
    ... the accounting standard for real estate in the Company's consolidated financial statements. The Company capitalizes direct costs clearly associated with the acquisition, development, design, and construction of bakery-cafe locations and fresh dough facilities as these costs have a future benefit to...

  • Page 61
    ... associated with the opening of new bakery-cafe locations, which consists primarily of pre-opening rent expense, labor, and food costs incurred during in-store training and preparation for opening, but exclude manager training costs which are included in labor expense in the Consolidated Statements...

  • Page 62
    ... the landlord receivable within the operating activities section of its Consolidated Statements of Cash Flows. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the fiscal year. Diluted earnings...

  • Page 63
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) and historical experience. Stock-based compensation expense is recognized only for those awards expected to vest, with forfeitures estimated at the date of grant based on historical experience. The fair value of the ...

  • Page 64
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) beginning of the Company's first quarter of fiscal 2014 and did not have a material impact on the Company's consolidated financial statements. 3. Business Combinations Florida Bakery-cafe Acquisition On April 9, 2013, ...

  • Page 65
    ... carried at fair value in the Consolidated Balance Sheets based on quoted market prices for identical securities (Level 1 inputs). 6. Inventories Inventories consisted of the following (in thousands): December 30, 2014 Food: Fresh dough facilities: Raw materials ...$ Finished goods...Bakery-cafes...

  • Page 66
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. Goodwill The following is a reconciliation of the beginning and ending balances of the Company's goodwill by reportable segment at December 30, 2014 and December 31, 2013 (in thousands): Balance as of December 25, ...

  • Page 67
    ... 30, 2014 Unredeemed gift cards, net ...$ Compensation and related employment taxes...Capital expenditures ...Insurance ...Taxes, other than income tax...Advertising ...Occupancy costs ...Fresh dough and other product operations ...Utilities ...Deferred revenue...Loyalty program ...Other ...Total...

  • Page 68
    ...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, scheduled...

  • Page 69
    ...term liabilities in the Consolidated Balance Sheets. In connection with the Company's relocation of its St. Louis, Missouri support center in fiscal 2010, it simultaneously entered into a capital lease for certain personal property and purchased municipal industrial revenue bonds of a similar amount...

  • Page 70
    ... subject to on-going federal and state income tax audits and sales and use tax audits. The Company does not believe the ultimate resolution of these actions will have a material adverse effect on its consolidated financial statements. However, a significant increase in the number of these audits, or...

  • Page 71
    ... federal tax credits ...Other, including discrete tax items ...Effective tax rate ... The Company's lower effective tax rate for fiscal 2014 was primarily driven by certain discrete income tax benefit items for prior fiscal years related to additional federal and state tax credits and an increased...

  • Page 72
    ... or outstanding in fiscal 2014 and 2013. Treasury Stock Pursuant to the terms of the Panera Bread 1992 Stock Incentive Plan and the Panera Bread 2006 Stock Incentive Plan and the applicable award agreements, the Company repurchased 35,461 shares of Class A common stock at a weighted-average cost of...

  • Page 73
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Share Repurchase Authorization During fiscal 2014, fiscal 2013, and fiscal 2012, the Company purchased shares of Class A common stock under authorized share repurchase authorizations. Repurchased shares may be retired ...

  • Page 74
    ...Balance Sheets. This unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 3.7 years. For fiscal 2014, fiscal 2013, and fiscal 2012, restricted stock expense was $8.3 million, $9.2 million and $7.6 million, net of capitalized compensation expense...

  • Page 75
    ..., 2014, the total unrecognized compensation cost related to non-vested SSARs was $1.0 million, and is expected to be recognized over a weighted-average period of approximately 3.6 years. The Company uses historical data to estimate pre-vesting forfeiture rates. For fiscal 2014, 2013, and 2012, stock...

  • Page 76
    ... to fiscal 2014 to increase the number of shares of the Company's Class A common stock authorized for issuance to 950,000. The ESPP gives eligible employees the option to purchase Class A common stock (total purchases in a year may not exceed 10 percent of an employee's current year compensation) at...

  • Page 77
    ...sold to a number of both Company-owned and franchise-operated bakery-cafes at a delivered cost generally not to exceed 27 percent of the retail value of the end product. The sales and related costs to the franchise-operated bakery-cafes are separately stated line items in the Consolidated Statements...

  • Page 78
    ... Accounting Policies." Segment information related to the Company's three business segments is as follows (in thousands): For the fiscal year ended December 30, December 31, December 25, 2014 2013 2012 Revenues: Company bakery-cafe operations ...Franchise operations ...Fresh dough and other product...

  • Page 79
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) "Unallocated cash and cash equivalents" relates primarily to corporate cash and cash equivalents, "unallocated trade and other accounts receivable" relates primarily to rebates and interest receivable, "unallocated ...

  • Page 80
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 21. Selected Quarterly Financial Data (unaudited) The following table presents selected unaudited quarterly financial data for the periods indicated (in thousands, except per share data): Fiscal 2014 - quarters ended (1)...

  • Page 81
    ..., EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Incorporated by reference from the information in the Company's proxy statement for the 2015 Annual Meeting of Stockholders, which the Company intends to file with the SEC within 120 days of the end of the fiscal year to which this report relates...

  • Page 82
    ...with the SEC within 120 days of the end of the fiscal year to which this report relates. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Incorporated by reference from the information in the Company's proxy statement for the 2015 Annual Meeting of Stockholders, which the Company intends to file with...

  • Page 83
    ...Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PANERA BREAD COMPANY By: /s/ RONALD M. SHAICH Ronald M. Shaich Chairman and Chief Executive Officer Date: February 20, 2015 Pursuant to the requirements of the Securities...

  • Page 84
    ...3.1 to the Registrant's Current Report on Form 8-K (File No. 0-19253), as filed with the Commission on March 15, 2012 and incorporated herein by reference). Employee Stock Purchase Plan, as amended (filed as Appendix A to the Registrant's Proxy Statement on Schedule 14A dated April 22, 2014 (File No...

  • Page 85
    ....19 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 (File No. 0-19253), as filed with the Commission on February 20, 2014 and incorporated herein by reference).†Credit Agreement dated as of November 30, 2012 by and among Panera Bread Company, as borrower, Bank...

  • Page 86
    ...S&P MidCap Restaurants *$100 invested on 12/29/2009 in stock or index, including reinvestment of dividends. Indexes calculated on month-end basis. December 29, 2009 December 28, 2010 December 27, 2011 December 25, 2012 December 31, 2013 December 30, 2014 Panera Bread Company NASDAQ Composite...

  • Page 87
    ... 2015 Annual Meeting of Stockholders Thursday, May 21, 2015, 10:30 a.m., Central Time Panera Bread Company Headquarters 3630 South Geyer Road St. Louis, Missouri 63127 Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP Stock Trading Information The Nasdaq Global Select Market...

  • Page 88