UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

_______________________________

Form 10-K

(Mark One)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 27, 2011

or

o	TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from   to

Commission file number 0-19253

____________________________

Panera Bread Company

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	04-2723701 (I.R.S. Employer Identification No.)
3630 South Geyer Road, Suite 100, St. Louis, MO (Address of Principal Executive Offices)	63127 (Zip Code)

(314) 984-1000

(Registrant’s telephone number, including area code)

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

Title of Each Class	Name of Exchange on Which Registered
Class A Common Stock, $.0001 par value per share	The NASDAQ Global Select Market

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

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 and 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. Yes þ No o

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 preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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. þ

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 þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

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 worldwide Class A Common Stock at the close of business on June 28, 2011, was $2,686,757,784.

As of February 20, 2012, the registrant had 30,384,746 shares of Class A Common Stock ($.0001 par value per share) and 1,383,687 shares of Class B Common Stock ($.0001 par value per share) outstanding.

Part III of this Annual Report incorporates by reference certain information from the registrant’s definitive proxy statement for the 2011 annual meeting of shareholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end of December 27, 2011.

TABLE OF CONTENTS

PART I
ITEM 1. BUSINESS	1
ITEM 1A. RISK FACTORS	7
ITEM 1B. UNRESOLVED STAFF COMMENTS	14
ITEM 2. PROPERTIES	14
ITEM 3. LEGAL PROCEEDINGS	16
ITEM 4. MINE SAFETY DISCLOSURES	18
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES	18
ITEM 6. SELECTED FINANCIAL DATA	19
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	70
ITEM 9A. CONTROLS AND PROCEDURES	70
ITEM 9B. OTHER INFORMATION	71
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	71
ITEM 11. EXECUTIVE COMPENSATION	71
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	71
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	71
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES	71
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	72
SIGNATURES	73
EXHIBIT INDEX	74
Exhibit 21. REGISTRANT’S SUBSIDIARIES
Exhibit 23.1. CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 31.1 CERTIFICATION
Exhibit 31.2 CERTIFICATION
Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Forward-Looking Statements

Matters discussed in this report and in our public disclosures, whether written or oral, relating to future events or our future performance, including any discussion, express or implied, of our anticipated growth, operating results, future earnings per share, plans, and objectives, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. These statements are often identified by the words “believe,” “positioned,” “estimate,” “project,” “plan,” “goal,” “target,” “assume,” “continue,” “intend,” “expect,” “future,” “anticipate” and other similar expressions that are not statements of historical fact. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this report and in our other public filings with the Securities and Exchange Commission, or SEC. All forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this report or other periodic reports represent our estimates as of the date made and should not be relied upon as representing our estimates as of any subsequent date. We expressly disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

ITEM 1. BUSINESS

General

Panera Bread Company and its subsidiaries, referred to as “Panera Bread,” “Panera,” the “Company,” “we,” “us,” and “our,” is a national bakery-cafe concept with 1,541 Company-owned and franchise-operated bakery-cafe locations in 42 states, the District of Columbia, and Ontario, Canada. We have grown from serving approximately 60 customers a day at our first bakery-cafe to currently serving nearly 6.5 million customers a week system-wide, and are currently one of the largest food service companies in the United States. We believe our success is based on our ability to create long-term dining concept differentiation. We operate under the Panera Bread^®, Saint Louis Bread Co.^® and Paradise Bakery & Café^® trademark names.

Our bakery-cafes are located in urban, suburban, strip mall, and regional mall locations. We feature high quality, value priced food in a warm, inviting, and comfortable environment. With our identity rooted in handcrafted artisan bread we bake every day, we are committed to providing great tasting, quality food that people can trust. Nearly all of our bakery-cafes have a menu highlighted by antibiotic-free chicken, whole grain bread, and select organic and all-natural ingredients, with zero grams of artificial trans fat per serving, which provide flavorful, wholesome offerings. Our menu includes a wide variety of year-round favorites complemented by new items introduced seasonally with the goal of creating new standards in everyday food choices. In neighborhoods across the United States and in Ontario, Canada, our customers enjoy our warm and welcoming environment featuring comfortable gathering areas, relaxing decor, and free internet access. Our bakery-cafes routinely donate bread and baked goods to community organizations in need.

We operate as three business segments: Company bakery-cafe operations, franchise operations, and fresh dough and other product operations. As of December 27, 2011, our Company bakery-cafe operations segment consisted of 740 Company-owned bakery-cafes, located throughout the United States and in Ontario, Canada, and our franchise operations segment consisted of 801 franchise-operated bakery-cafes, all located in the United States. As of December 27, 2011, 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 of 24 fresh dough facilities (22 Company-owned and two franchise-operated). In the fiscal year ended December 27, 2011, or fiscal 2011, our revenues were $1,822.0 million, consisting of $1,592.9 million of Company-owned net bakery-cafe sales, $92.8 million of franchise royalties and fees, and $136.3 million of fresh dough and other product sales to franchisees. Franchise-operated net bakery-cafe sales, as reported by franchisees, were $1,828.2 million in fiscal 2011. See Note 19 to our consolidated financial statements for further segment information.

Our fiscal year ends on the last Tuesday in December. Each of our fiscal years ended December 27, 2011, December 28, 2010 and December 29, 2009 had 52 weeks.

Concept and Strategy

Bread is our platform and the entry point to the Panera experience at our bakery-cafes. It is the symbol of Panera quality and a reminder of Panera Warmth, the totality of the experience the customer receives and can take home to share with friends and family. We strive to offer a memorable experience with superior customer service. Our associates are passionate about sharing their expertise and commitment with our customers. We strive to achieve what we call Concept Essence, our blueprint for attracting and retaining our customers that we believe differentiates us from our competitors. Concept Essence begins with artisan bread,

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quality products, and a warm, friendly, comfortable environment. It calls for each of our bakery-cafes to be a place customers can trust to serve high quality food. Bread is our passion, soul, and expertise, and serves as the platform that makes all of our other food special.

We believe our competitive strengths include more than just great food at the right price. We are committed to creating an ambiance in our bakery-cafes and a culture within Panera that is warm, inviting, and embracing. We design each bakery-cafe to provide a distinctive environment, in many cases using fixtures and materials complementary to the neighborhood location of the bakery-cafe as a way to engage customers. The distinctive design and environment of our bakery-cafes offer an oasis from the rush of daily life, where our associates are trained to greet our customers by name and have the skills, expertise, and personalities to make each visit a delight. Many of our bakery-cafes incorporate the warmth of a fireplace and cozy seating areas or outdoor cafe seating, which facilitate the use of our bakery-cafes as a gathering spot. Our bakery-cafes are designed to visually reinforce the distinctive difference between our bakery-cafes and other bakery-cafes and restaurants. In addition, we believe that our MyPanera^® loyalty program, which we rolled out in the fiscal year ended December 28, 2010, or fiscal 2010, allows us to build deeper relationships with our customers and entice them to return to our bakery-cafes.

Our menu, operating systems, design, and real estate strategy allow us to compete successfully in several segments of the restaurant business: breakfast, "AM chill", lunch, "PM chill", dinner, and take home, through both on-premise sales and off-premise Panera Catering^®. We compete with specialty food, casual dining, and quick-service restaurant retailers, including national, regional, and locally-owned restaurants. Our competitors vary across different dayparts. We understand people choose restaurants depending on individual food preferences and mood. Our goal is to be the first choice for those customers craving soup, salad, a hot sandwich, or a hot or frozen drink.

Panera Catering is a nation-wide catering service that provides breakfast assortments, sandwiches, salads, soups, and bakery items using the same high-quality, fresh ingredients enjoyed in our bakery-cafes. Panera Catering is supported by a national sales infrastructure, and we believe it represents a meaningful growth opportunity for our business.

Menu

Our value-oriented menu is designed to provide our customers with fairly priced products built on the strength of our bakery expertise. We feature a menu containing proprietary items prepared with high-quality, fresh ingredients, including our fresh from the field romaine lettuce and tomatoes and our antibiotic-free chicken, as well as unique recipes and toppings designed to provide appealing, flavorful products that we believe our customers crave.

Our key menu groups are daily baked goods, including a variety of freshly baked bagels, breads, muffins, scones, rolls, and sweet goods, made-to-order sandwiches on freshly baked breads, hearty, unique soups and side items, freshly prepared and hand-tossed salads, and custom roasted coffees and cafe beverages, such as hot or cold espresso and cappuccino drinks and smoothies.

We regularly review and innovate our menu offerings to feature new taste profiles we believe our customers crave. We seek to continuously improve our products, or develop new ones, such as our improved Turkey Artichoke Panini, premium Sonoma Chicken Stew, and our Steak Balsamic Panini.

New product rollouts are integrated into periodic or seasonal menu rotations, referred to as “Celebrations”. Examples of products we introduced in fiscal 2011 include the Thai Chopped Chicken Salad, an improved version of our Chicken noodle soup, and our Wild-berry Smoothie which were launched in the first Celebration of 2011. The Steak and White Cheddar Panini, Steak and Blue Cheese Chopped salad, and Steak and Egg Breakfast Sandwich were also added to help build on the success of our lunch and breakfast entrees in our second celebration.  In our third celebration of 2011, our popular seasonal Strawberry Poppyseed with Chicken returned to our menu along with the Frozen Strawberry Lemonade.  In our fourth celebration, we introduced a completely revised version of our Turkey Artichoke Panini and our new Turkey Cranberry Harvest Salad, which featured antibiotic-free turkey, along with a new Pumpkin cookie and Chocolate Babka bread.  In our final celebration of the year, we introduced the Steak Basamico Panini and our new premium Sonoma Chicken Stew.

We believe our menu innovation is one reason our value scores with customers remain so strong. Zagat’s 2011 consumer-generated National Restaurant Chains Survey for eating on-the-go rates us number one among chain restaurants with fewer than 5,000 locations in the Best Salad and Best Facilities categories while ranking us among the top five in the Best Value, Best Grilled Chicken, Top Service, and Best Breakfast Sandwich categories.

Operational Excellence

We believe that operational excellence is the most important element of Panera Warmth and that without strong execution and operational skills, it is difficult to build and maintain a strong relationship with our customers. To develop a strong connection

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with our customers, our bakery-cafes are staffed by engaged associates who are skilled at and passionate about their jobs. Additionally, we believe high-quality restaurant management is critical to our long-term success and, as such, we provide detailed operations manuals and hands-on training to each of our associates. We train our associates both in small group and individual settings. Our systems have been created to educate our associates so each one is well prepared to respond to a customer’s questions and create a better dining experience. Furthermore, we believe our commitment to maintaining staffing levels and competitive compensation for our associates is fundamental to our current and 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 and multi-unit managers may participate in a bonus program, which is based upon a percentage of the cash flows of the bakery-cafes they operate over a period of five years (subject to annual minimums and maximums). We believe the program’s multi-year approach improves operator quality, management retention, and creates team stability, generally resulting in a higher level of consistency and customer service for a particular bakery-cafe. It also leads to stronger associate engagement and customer loyalty. Currently, approximately fifty-five percent of our Company-owned bakery-cafe operators participate in the Joint Venture Program. We believe this program is a fundamental underpinning of our low management turnover and operational improvements.

Marketing

We are committed to improving the customer experience in ways we believe few in our industry have done. We use our scale to execute a broader marketing strategy, not simply to build name recognition and awareness, but also to build deeper relationships with our customers who we believe will help promote our brand.

To reach our target customer group, we advertise through a mix of mediums, including radio, billboards, social networking, television, and in-store sampling days. In 2012, we will market through a new national cable campaign as a way to reach a broader audience. We expect to continue to increase media impressions as we strive to build deeper relationships with our customers. We believe that additional marketing will help us improve and increase recognition of the Panera brand and competitive differentiation. We have also completed the rollout of our MyPanera customer loyalty program through which our customers earn rewards based on registration in the program and purchases from our bakery-cafes. We believe MyPanera has allowed us to build deeper relationships with our customers by enhancing their experience with us through receipt of rewards and enticing them to return to our bakery-cafes. At the end of fiscal 2011, the MyPanera program had over nine million members.

Our franchise agreements generally require our franchisees to contribute to advertising expenses. During fiscal 2011, our franchise-operated bakery-cafes contributed 1.2 percent of their net sales to a national advertising fund, paid us a marketing administration fee of 0.4 percent of their net sales, and were required to spend 2.0 percent of their net sales on advertising in their respective local markets. Under the terms of our franchise agreements, we have the ability to increase national advertising fund contributions from current levels up to a maximum of 2.6 percent of net sales. The national advertising fund and marketing administration contributions received from our franchise-operated bakery-cafes are consolidated in our financial statements with amounts contributed by us. We contributed the same net sales percentages from Company-owned bakery-cafes towards the national advertising fund and marketing administration fee.

We have established and may in the future establish local and/or regional advertising associations covering specific geographic regions for the purpose of promoting and advertising the bakery-cafes located in that geographic market. If we establish an advertising association in a specific market, the franchise group in that market must participate in the association, including making contributions in accordance with the advertising association bylaws. Franchise contributions to the advertising association are credited towards the franchise groups’ required local advertising spending.

Capital Resources and Deployment of Capital

Our primary capital resource is cash generated by operations. We also have access to a $250.0 million credit facility. During fiscal 2011 we had no borrowings outstanding.

Our capital requirements, including development costs related to the opening or acquisition of additional Company-owned bakery-cafes and fresh dough facilities and maintenance and remodel expenditures, have been and will continue to be significant. However, we believe our cash flow from operations and available borrowings under our existing credit facility will be sufficient to fund our capital requirements for the foreseeable future.

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 where 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.

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Our concept has proven successful in a number of different types of locations, such as in-line or end-cap locations in strip or power centers, regional malls, drive-through, and free-standing units. The average Company-owned bakery-cafe size was approximately 4,600 square feet as of December 27, 2011. We lease all but two of our bakery-cafe locations and all of our fresh dough facilities. Lease terms for our bakery-cafes and fresh dough facilities are generally 10 years with renewal options at most locations, and 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 53 Company-owned bakery-cafes that opened in fiscal 2011 was approximately $950,000 per bakery-cafe, net of landlord allowances and excluding capitalized development overhead.

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.

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 may repurchase shares from time to time on the open market or in privately negotiated transactions and 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 the repurchase authorization was approved, we have repurchased 2,810,069 shares at a weighted-average price of $86.33 for an aggregate purchase price of approximately $242.6 million. We have approximately $357.4 million available under the existing $600.0 million repurchase authorization.

Franchise Operations

Our franchisees, which as of December 27, 2011, operated approximately 52.0 percent of our bakery-cafes, are comprised of 40 franchise groups with an average of approximately 20 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.

As of December 27, 2011, we had 801 franchise-operated bakery-cafes open, all located in the United States, and we have received commitments to open 195 additional franchise-operated bakery-cafes. The timetables for opening these bakery-cafes are established in the various Area Development Agreements, referred to as ADAs, with franchisees, which provide for the majority of these bakery-cafes to open in the next four to five years. The ADAs require a franchisee to develop a specified number of bakery-cafes on or before specific dates. If a franchisee fails to develop bakery-cafes on schedule, we have the right to terminate the ADA and develop Company-owned locations or develop locations through new franchisees in that market. We may exercise one or more alternative remedies to address defaults by area developers, including not only development defaults, but also defaults in complying with our operating and brand standards and other covenants under the ADAs and franchise agreements. We may waive compliance with certain requirements under our ADAs and franchise agreements if we determine such action is warranted under the particular circumstances.

The revenues we receive from a typical ADA include a franchise fee of $35,000 per bakery-cafe (of which we generally receive $5,000 at the signing of the ADA and $30,000 at or before the bakery-cafe opening) and continuing royalties, which are generally 4 percent to 5 percent of net sales per bakery-cafe. Franchise royalties and fees in fiscal 2011 were $92.8 million, or 5.1 percent of our total revenues. Our franchise-operated bakery-cafes follow the same protocol for in-store operating standards, product quality, menu, site selection, and bakery-cafe construction as Company-owned bakery-cafes. Generally, franchisees are required to purchase all of their fresh dough and other products from us or sources approved by us. Our fresh dough facility system supplies fresh dough and other products to substantially all franchise-operated bakery-cafes. We do not generally finance franchisee construction or ADA payments. From time to time and on a limited basis, we may provide certain development or real estate services to franchisees in exchange for a payment equal to the total costs of the services plus an additional fee. As of December 27, 2011, we did not hold an equity interest in any of our franchise-operated bakery-cafes.

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Bakery-Cafe Supply Chain

We believe our fresh dough facility system and supply chain function provide us a competitive advantage. We have a unique supply-chain operation in which our regional fresh dough facilities supply on a daily basis dough for our fresh bread along with tuna, cream cheese, and certain produce to substantially all of our Company-owned and franchise-operated bakery-cafes. As of December 27, 2011, we had 24 fresh dough facilities, 22 of which were Company-owned, including a limited production facility that is co-located with one of our Company-owned bakery-cafes in Ontario, Canada to support the three Company-owned bakery-cafes located in that market.

Fresh dough is the key to our high-quality, artisan bread. Distribution is accomplished through a leased fleet of temperature controlled trucks operated by our associates. As of December 27, 2011, we leased 200 trucks. The optimal maximum distribution range is approximately 300 miles; however, when necessary, the distribution ranges may be up to 500 miles. An average distribution route delivers dough and other products to seven bakery-cafes.

Our bakers bake through the night shaping, scoring, and finishing the dough by hand to bring our customers fresh-baked loaves every morning and throughout the day. In addition, our bakers bake high volume products throughout the day to continue to deliver abundant amounts of the highest quality and freshest bread possible. We believe our fresh dough facilities have helped us and will continue to help us to ensure consistent quality at our bakery-cafes.

We focus our growth in areas we believe allow us to continue to gain efficiencies through leveraging the fixed cost of the fresh dough facility structure. We expect to selectively enter new markets, which may require the construction of additional fresh dough facilities once a sufficient number of bakery-cafes are opened to ensure efficient distribution of fresh dough and other products.

Our supply chain management system is intended to provide bakery-cafes with high quality food from reliable sources. We have contracted externally for the manufacture of the remaining baked goods in the bakery-cafes, referred to as sweet goods. Sweet goods products are completed at each bakery-cafe by our professionally trained bakers. Completion includes finishing with fresh toppings and other ingredients and baking to established artisan standards utilizing unique recipes.

We use independent distributors to distribute our proprietary sweet goods products, and other materials to bakery-cafes. With the exception of products supplied directly by the fresh dough facilities, virtually all other food products and supplies for our bakery-cafes, including paper goods, coffee, and smallwares, are contracted by us and delivered by vendors to an independent distributor for delivery to the bakery-cafes. We maintain a list of approved suppliers and distributors from which we and our franchisees must select. We leverage our size and scale to improve the quality of our ingredients, improve purchasing efficiency, and negotiate purchase agreements with most of our approved suppliers to achieve cost reduction for both us and our customers.

For further information regarding our product supply, see Item 1A. Risk Factors.

Management Information Systems

Each of our Company-owned bakery-cafes have programmed point-of-sale registers which collect transaction data used to generate pertinent information, including, among other things, transaction counts, product mix, and average check. All Company-owned bakery-cafe product prices are programmed into the point-of-sale registers from our support centers. We allow franchisees access to certain of our proprietary bakery-cafe systems and systems support. Franchisees are responsible for providing 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 distributors, and to reduce managers’ administrative time. We use retail data to generate daily and weekly consolidated reports regarding sales and other key metrics, as well as detailed profit and loss statements for our Company-owned bakery-cafes. Additionally, we monitor the transaction counts, product mix, average check, and other sales trends. We also use this retail data in our “exception-based reporting” tools to safeguard our cash, protect our assets, and train our associates. Our fresh dough facilities have information systems which accept electronic orders from our bakery-cafes and monitor delivery of the ordered product back to our bakery-cafes. We also use proprietary on-line tools, such as eLearning, to provide on-line training for our retail associates and on-line baking instructions for our bakers.

Most bakery-cafes also provide customers free Internet access through a managed WiFi network. As a result, we host one of the largest free public WiFi networks in the country.

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Competition

We compete with a variety of food service companies. Our bakery-cafes compete with specialty food, casual dining and quick service cafes, bakeries, and restaurant retailers, including national, regional and locally-owned cafes, bakeries, and restaurants. Our bakery-cafes compete in several segments of the restaurant business: breakfast, "AM chill”, lunch, "PM chill”, dinner, take home, and catering. We believe we are able to compete favorably against other food service providers through our convenient bakery-cafe locations, environment, food and beverage quality, customer service, and price. We also compete for leased space in desirable locations. Some of our competitors are larger than we are and have substantially greater financial resources than we do. For further information regarding competition, see Item 1A. Risk Factors.

Employees

As of December 27, 2011, we had approximately 18,000 full-time associates (defined as associates who average 25 hours or more per week), of whom approximately 900 were employed in general or administrative functions, principally in our support centers, approximately 1,300 were employed in our fresh dough facility operations, and approximately 15,800 were employed in our bakery-cafe operations as bakers, managers, and associates. We also had approximately 14,600 part-time hourly associates at our bakery-cafes as of December 27, 2011. We do not have any collective bargaining agreements with our associates and we consider our employee relations to be good. We place a priority on staffing our bakery-cafes, fresh dough facilities, and support center operations with skilled associates and invest in training programs to ensure the quality of our operations.

Proprietary Rights

Our brand, intellectual property, and our confidential and proprietary information are very important to our business and competitive position. We protect these assets through a combination of trademark, copyright, trade secret, unfair competition, and contract laws.

The Panera^®, Panera Bread^®, Saint Louis Bread Co.^®, Panera Catering^®, You Pick Two^®, Paradise Bakery^®, Paradise Bakery & Café^®, the Mother Bread^® design, and MyPanera^® trademarks are some of the trademarks we have registered with the United States Patent and Trademark Office. In addition, we have filed to register other trademarks with the United States Patent and Trademark Office. We have also registered some of our trademarks in a number of foreign countries. In addition, we have registered and maintain numerous Internet domain names.

Corporate History and Additional Information

We are a Delaware corporation. Our principal offices are located at 3630 South Geyer Road, Suite 100, St. Louis, Missouri 63127 and our telephone number is (314) 984-1000.

We were originally organized in March 1981 as a Massachusetts corporation under the name Au Bon Pain Co., Inc. and reincorporated in Delaware in June 1988. In December 1993, we purchased Saint Louis Bread Company. In August 1998, we sold our Au Bon Pain division and changed our name to Panera Bread Company.

We are subject to the informational requirements of the Exchange Act, and, accordingly, we file reports, proxy statements, and other information with the SEC. Such reports, proxy statements, and other information are publicly available and can be read and copied at the reference facilities maintained by the SEC at the Public Reference Room, 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Our Internet address is www.panerabread.com. We make available at this address, free of charge, nutritional information, press releases, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. In addition, we provide periodic investor relations updates and our corporate governance materials at our Internet address.

Government Regulation

Our fresh dough facilities and Company-owned and franchise-operated bakery-cafes are subject to regulation and licensing by federal, state, and local agencies, and health, sanitation, safety, fire, and other governmental departments. Difficulties or failures in obtaining and retaining the required licensing or approval could result in delays or cancellations in the opening of fresh dough facilities or bakery-cafes as well as fines and possible closure of existing fresh dough facilities or bakery-cafes. In addition, we are subject to federal laws and regulations, such as the Fair Labor Standards Act and various state laws governing such matters

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as minimum wages, overtime, and other working conditions.

We are also subject to federal, state, and in Canada, provincial laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of the franchises and may also apply substantive standards to the relationship between franchisor and franchisee.

We are subject to various federal, state, and local environmental regulations. Compliance with applicable environmental regulations is not believed to have a material effect on capital expenditures, consolidated financial condition and results of operations, or our competitive position.

The Americans with Disabilities Act prohibits discrimination in employment and public accommodations on the basis of disability. Under the Americans with Disabilities Act, we could be required to expend funds to modify our Company-owned bakery-cafes to provide service to, or make reasonable accommodations for the employment of, disabled persons. Compliance with the requirements of the Americans with Disabilities Act is not believed to have a material effect on our consolidated financial condition or results of operations.

ITEM 1A. RISK FACTORS

The following risk factors could materially affect our business, consolidated financial condition and results of operations. The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies, including overall economic and industry conditions. Additional risks and uncertainties not currently known to us or that we currently believe are not material also may impair our business, consolidated financial condition and results of operations.

Disruptions in our bakery-cafe supply chain could adversely affect our profitability and operating results.

Our Company-owned and franchise-operated bakery-cafes depend on frequent deliveries of ingredients and other products. One company delivers the majority of our ingredients and other products to our bakery-cafes two or three times per week. In addition, we supply Company-owned and franchise-operated bakery-cafes with fresh dough and other products on a daily basis. These daily deliveries are particularly susceptible to supply volatility as a result of weather conditions. Our dependence on frequent deliveries to our bakery-cafes could cause shortages or supply interruptions that could adversely impact our operations.

Although many of our ingredients and products are prepared to our specifications, we believe that a majority of our ingredients are generally available and could be obtained from alternative sources. In addition, we frequently enter into annual and multi-year contracts for ingredients in order to decrease the risks of supply interruptions and cost fluctuation. Antibiotic-free chicken is sold in most Company-owned and franchise-operated bakery-cafes and we have introduced and tested the sale of other antibiotic-free proteins in our Company-owned and franchise-operated bakery-cafes. Our antibiotic-free chicken is currently supplied to us by three different companies. However, there are few producers of antibiotic-free chicken or other antibiotic-free proteins, which may make it difficult or more costly for us to find alternative suppliers if necessary.

Generally, we believe that we have adequate sources of supply for our ingredients and products to support our bakery-cafe operations or, if necessary, we could make menu adjustments to address material supply issues. However, there are many factors which could cause shortages or interruptions in the supply of our ingredients and products, including weather, unanticipated demand, labor, production or distribution problems, quality issues and cost, and the financial health of our suppliers and distributors.

Changes in food and supply costs could adversely affect our consolidated results of operations.

Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. In the past, we have been able to recover inflationary cost and commodity price increases for, among other things, fuel, proteins, dairy, produce, wheat, tuna, and cream cheese through increased menu prices. There have been, and there may be in the future, delays in implementing such menu price increases, and economic factors and competitive pressures may limit our ability to recover such cost increases in their entirety. Historically, the effects of inflation on our consolidated results of operations have not been materially adverse. However, increased volatility in certain commodity markets, including those for wheat, produce, or proteins including chicken or turkey could have an adverse effect on us depending upon whether we are able to increase menu prices to cover such increases.

Disruptions or supply issues in our fresh dough facilities could adversely affect our business and consolidated results of operations.

We operate 22 fresh dough facilities, which service substantially all of our Company-owned and franchise-operated bakery-cafes in the United States and Ontario, Canada. Our fresh dough and other product distribution system delivers fresh dough and other products daily to the bakery-cafes through a leased fleet of temperature controlled vehicles. The optimal maximum distribution

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range is approximately 300 miles; although, when necessary, the distribution range may reach up to 500 miles. As a result, any prolonged disruption in the operations of or distribution from any of our fresh dough facilities, whether due to weather conditions, technical or labor difficulties, destruction, or damage to the vehicle fleet or facility or other reasons, could cause a shortage of fresh dough and other products at our bakery-cafes. Such a shortage of fresh dough and other products could, depending on the extent and duration, have a material adverse effect on our business and consolidated results of operations.

Additionally, while fuel costs remained relatively constant in 2011 and 2010, given the historical volatility of these costs, increased costs and distribution issues related to fuel and utilities could also materially impact our business and consolidated results of operations, including efficiencies in distribution from our fresh dough facilities to our bakery-cafes.

Our Franklin, Massachusetts fresh dough facility manufactures and supplies through its distributors all of the cream cheese and tuna used in most of our Company-owned and franchise-operated bakery-cafes in the United States. Although we believe we have adopted adequate quality assurance and other procedures to ensure the production and distribution of quality products and ingredients, we may be subject to allegations regarding quality, health, or other similar concerns that could have a negative impact on our operations, whether or not the allegations are valid or we are liable. Additionally, defending against such claims or litigation could be costly and the results uncertain.

Economic conditions in the United States and globally could adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources as well as that of our suppliers.

As our business depends upon discretionary consumer spending, our financial results may be impacted by the broader global economic conditions and their impact on consumer spending. Our customers may make fewer discretionary purchases as a result of job losses, foreclosures, bankruptcies, reduced access to credit and falling home prices. Because a key point in our business strategy is maintaining our transaction counts, average check amount and margin growth, any significant decrease in customer traffic or average profit per transaction resulting from fewer purchases from our customers or our customers trading down to lower priced products on our menu will negatively impact our financial performance. Financial difficulties experienced by our suppliers could result in product delays or shortages. Although there has been some improvement in certain economic indicators, the level of consumer spending across the United States is not where it was prior to the global recession. A stagnant economy or a renewed decline in consumer spending could have a material adverse effect on our liquidity and capital resources including our ability to raise additional capital if needed, the willingness of banks to renew our credit facility upon its expiration on March 7, 2013 or honor our draws thereunder, or otherwise negatively impact our business and financial results.

We may not be able to continue to convince our customers of the benefits of paying our prices for higher-quality food.

Our success depends in large part on our continued ability to convince customers that food made with higher-quality ingredients, including antibiotic-free chicken and turkey, nitrate-free proteins, and our artisan breads, is worth the prices at our bakery-cafes relative to lower prices offered by some of our competitors, particularly those in the quick-service segment. Our inability to successfully educate customers about the quality of our food or our customers’ rejection of our pricing approach could require us to change our pricing, marketing, or promotional strategies, which could materially and adversely affect our consolidated financial results or the brand identity that we have tried to create.

Customer preferences and traffic could be negatively impacted by health concerns about the consumption of certain products.

Customer preferences and traffic could be impacted by health concerns about the consumption of particular food products and could cause a decline in our sales. Negative publicity about ingredients, poor food quality, a production run of items produced in our fresh dough facilities, food-borne illness, injury, health concerns, allergens, or nutritional content could cause customers to shift their preferences. For example, past outbreaks of E. coli in certain beef food products caused consumers to avoid certain products and restaurant chains. In addition, outbreaks of salmonella in certain peanuts and peanut butter products, jalapenos and spinach caused consumers to avoid such products. These problems, other food-borne illnesses (such as hepatitis A or trichinosis), and injuries caused by food tampering have in the past, and could in the future, require us to temporarily close bakery-cafes or adversely affect the price and availability of affected ingredients and cause customers to shift their preferences, particularly if we choose to pass any higher ingredient costs along to consumers. Negative publicity concerning particular food products may adversely affect demand for our products and could cause an increase in our food costs as a result of potentially irregular supply of such products and a decrease in customer traffic to our bakery-cafes.

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Our ability to increase our revenues and operating profits could be adversely affected if we are unable to execute our growth strategy or achieve sufficient returns on invested capital in bakery-cafe locations.

Our growth strategy primarily consists of new market development and further penetration of existing markets, both by us and our franchisees, including the selection of sites which will achieve targeted returns on invested capital. The success of this strategy depends on numerous factors that are not completely controlled by us or involve risks that may impact the development, or timing of development, of our bakery-cafes. Our ability to grow the number of bakery-cafes successfully will depend on a number of factors, including:

• general economic conditions;

• obstacles to hiring and training qualified operating personnel in the local market;

• identification and availability of suitable locations for new bakery-cafes on acceptable terms, including costs and appropriate delivery distances from our fresh dough facilities;

• competition for restaurant sites;

• 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 our control, such as the timing of delivery of a leased location by the landlord;

• our ability to negotiate favorable economic and business terms;

• securing required governmental approvals and permits and complying with applicable zoning, land use, and environmental regulations; and

• impact of inclement weather, natural disasters, and other acts of nature.

Our growth strategy also includes continued development of bakery-cafes through franchising. At December 27, 2011, approximately 52.0 percent of our bakery-cafes were operated by franchisees (801 franchise-operated bakery-cafes out of a total of 1,541 bakery-cafes system-wide). The opening and successful operation of bakery-cafes by franchisees depends on a number of factors, including those identified above, as well as the availability of suitable franchise candidates and the financial and other resources of our franchisees such as our franchisees’ ability to receive financing from banks and other financial institutions, which may become more challenging in the current economic environment.

Our success in part depends on the success of our franchisees business.

Our success depends in part on the operations of our independent franchisees. While we provide training and support to, and monitor the operations of, our franchisees, the product quality and service they deliver may be diminished by any number of factors beyond our control, including financial pressures. We believe customers expect the same quality of products and service from our franchisees as they do from us and we strive to ensure customers have the same experience whether they visit a Company-owned or franchise-operated bakery-cafe. Any problems which originate with one of our franchisees, particularly an issue affecting the quality of the service experience, the safety of our products, or compliance with laws and regulations, may be attributed by customers to us, thus damaging our reputation and brand value and potentially affecting our results of operations.

Furthermore, our consolidated results of operations include revenues derived from royalties on sales from, and revenues from sales by our fresh dough facilities to, franchise-operated bakery-cafes. As a result, our growth expectations and revenues could be negatively impacted by a material downturn in sales at and to franchise-operated bakery-cafes or if one or more key franchisees becomes insolvent and unable to pay us royalties.

Although we have been able to successfully manage our growth to date, we may experience difficulties doing so in the future.

Our growth strategy includes selectively opening bakery-cafes in urban trade areas where we may have little operating experience. Accordingly, there can be no assurance that a bakery-cafe opened in such trade areas will have similar operating results, including average weekly net sales, as our existing bakery-cafes. New markets may not perform as expected or may take longer to reach planned operating levels, if at all. Operating results or overall bakery-cafe performance in these urban trade areas could vary as a result of higher construction, occupancy, or general operating costs, a lack of familiarity with our brand which may require us to build local brand awareness, differing demographics, consumer tastes, and spending patterns, and variable competitive

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environments. Additional expenses attributable to costs of delivery from our fresh dough facilities may exceed our expectations in areas not currently served by those facilities.

Our growth strategy also includes opening bakery-cafes in existing markets to increase the penetration rate of our bakery-cafes in those markets. There can be no assurance we will be successful in operating bakery-cafes profitably in new markets or further penetrating existing markets.

We may not be successful in implementing important strategic initiatives, which may have an adverse impact on our business and consolidated financial results.

Our business depends upon our ability to continue to grow and evolve through various important strategic initiatives. There can be no assurance that we will be able to implement these important strategic initiatives, which could in turn adversely affect our business. These strategic initiatives include:

• introducing desirable new menu items and improving existing items consistent with customer tastes and expectations;

• balancing unit growth while meeting target returns on invested capital for locations;

• increasing same store sales and gross profit per transaction through investments in areas such as category management, catering, and technology in an effort to increase overall traffic and transaction count; and

• increasing brand awareness through greater investment in multi-channel marketing and advertising, including national television advertising.

Our failure or inability to protect our trademarks or other proprietary rights could adversely affect our business and competitive position.

We believe that our intellectual property and confidential and proprietary information is very important to our business and competitive position. Our primary trademarks, Panera^®, Panera Bread^®, Saint Louis Bread Co.^®, Panera Catering^®, You Pick Two^®, Paradise Bakery^®, Paradise Bakery & Café^®, the Mother Bread^® design, and MyPanera^® along with other trademarks, copyrights, service marks, trade secrets, confidential and proprietary information, and other intellectual property rights, are key components of our operating and marketing strategies. Although we have taken steps to protect our brand, intellectual property, and confidential and proprietary information, these steps may not be adequate. Unauthorized usage or imitation by others could harm our image, brand, or competitive position and, if we commence litigation to enforce our rights, cause us to incur significant legal fees.

We are not aware of any assertions that our trademarks or menu offerings infringe upon the proprietary rights of third parties, but third parties may claim infringement by us in the future. Any such claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause delays in marketing or introducing new menu items in the future, or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our business, consolidated financial condition and results of operations.

We try to ensure that our franchisees maintain and protect our brand and our confidential and proprietary information. However, since our franchisees are independent third parties that we do not control, if they do not operate their bakery-cafes in a manner consistent with their agreements with us, our brand and reputation or the value of our confidential and proprietary information could be harmed. If this occurs, our business and operating results could be adversely affected.

Damage to our brands or reputation could negatively impact our business.

Our success depends substantially on the value of our brands and our reputation for offering a memorable experience with superior customer service. Our brands have been highly rated in annual consumer studies and have received high recognition in several industry publications. We believe that we must protect and grow the value of our brands through our Concept Essence to differentiate ourselves from our competitors and continue our success. Any incident that erodes consumer trust in or affinity for our brands could significantly reduce their value. If consumers do not continue to perceive us as a company that customers can trust to serve high quality food in a warm, friendly, comfortable environment, our brand value could suffer, which could have an adverse effect on our business.

Competition may adversely affect our operations and consolidated results of operations.

The restaurant industry is highly competitive with respect to location, customer service, price, taste, quality of products, and overall customer experience. We compete with specialty food, casual dining, and quick-service restaurant retailers, including national, regional, and locally owned restaurants. Many of our competitors or potential competitors have greater financial and other resources

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than we do, which may allow them to react to changes in pricing, marketing, and the restaurant industry better than we can. Additionally, given our recent success other companies may develop restaurants that operate with concepts similar to ours or that try to replicate the things we do well. We also compete with other restaurant chains and other retail businesses for quality site locations and hourly employees. If we are unable to successfully compete in our markets, we may be unable to sustain or increase our revenues and profitability.

Additionally, competition could cause us to modify or evolve our products, designs, or strategies. If we do so, we cannot guarantee that we will be successful in implementing the changes or that our profitability will not be negatively impacted.

Loss of senior management or the inability to recruit and retain associates could adversely affect our future success.

Our success depends on the services of our senior management and associates, 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.

Our success also depends on our continuing ability to hire, train, motivate, and retain qualified associates in our bakery-cafes, fresh dough facilities, and support centers. Our failure to do so could result in higher associate turnover and increased labor costs, and could compromise the quality of our service, all of which could adversely affect our business.

We operate in Canada and therefore, we may be exposed to uncertainties and risks that could negatively impact our consolidated results of operations.

We expanded our Company-owned operations into Canadian markets. Our expansion into Canada has made us subject to Canadian economic conditions, particularly currency exchange rate fluctuations, increased regulations, quotas, tariffs, and political factors, any of which could have a material adverse effect on our consolidated financial condition and results of operations if our Canadian operations continue to expand. Further, we may be exposed to new forms of competition not present in our domestic markets, as well as subject to potentially different demographic tastes and preferences for our products.

If we fail to comply with governmental laws or regulations or if these laws or regulations change, our business could suffer.

In connection with the operation of our business, we are subject to extensive federal, state, local, and foreign laws and regulations, including those related to:

• franchise relationships;

• building construction and zoning requirements;

• nutritional content labeling and disclosure requirements;

• management and protection of the personal data of our employees and customers; and

• environmental matters.

Our bakery-cafes and fresh dough facilities are licensed and subject to regulation under federal, state, and local laws, including business, health, fire, and safety codes.

In addition, various federal, state, and local labor laws govern our operations and our relationship with our associates, including prevailing wages, overtime, accommodation and working conditions, benefits, citizenship requirements, insurance matters, workers’ compensation, disability laws such as the Federal Americans with Disabilities Act, child labor laws, and anti-discrimination laws.

While we believe we operate in substantial compliance with these laws, they are complex and vary from location to location, which complicates monitoring and compliance. As a result, regulatory risks are inherent in our operation. Although we believe that compliance with these laws has not had a material effect on our operations to date, we may experience material difficulties or failures with respect to compliance in the future. Our failure to comply with these laws could result in required renovations to our facilities, litigation, fines, penalties, judgments, or other sanctions including the temporary suspension of bakery-cafe or fresh dough facility operations or a delay in construction or opening of a bakery-cafe, any of which could adversely affect our business, operations and our reputation.

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Regulatory changes in and customer focus on nutrition and advertising practices could adversely affect our business.

There continues to be increased consumer emphasis on and regulatory scrutiny of restaurants operating in the quick-service and fast-casual segments, with respect to nutrition and advertising practices. While we have taken steps to respond to these developments by updating our menu boards and printed menus to include caloric information in all of our Company-owned bakery-cafes, we may become subject to other initiatives in the area of nutrition disclosure or advertising which would require us to make certain additional nutritional information available to guests or restrict the sales of certain types of ingredients. We may experience higher costs associated with the implementation and oversight of such changes that could have an adverse impact on our business.

Rising insurance costs could negatively impact our profitability.

We self-insure a significant portion of potential losses under our workers’ compensation, medical, general, auto, and property liability programs. The liabilities associated with the risks that are retained by us are estimated, in part, by considering our historical claims experience and data from industry and other actuarial sources. The estimated accruals for these liabilities could be affected if claims differ from these assumptions and historical trends. Unanticipated changes in the actuarial assumptions and management estimates underlying our reserves of these losses could result in materially different amounts of expense under these programs, which could have a material adverse effect on our consolidated financial condition and results of operations.

Additionally, the costs of insurance and medical care have risen significantly over the past few years and are expected to continue to increase. These increases, as well as existing or potential legislation changes, which requires employers to provide health insurance to employees, could negatively impact our operating results.

We are subject to complaints and litigation that could have an adverse effect on our business.

In the ordinary course of our business we may become subject to complaints and litigation alleging that we are responsible for a customer illness or injury suffered at or after a visit to one of our Company-owned bakery-cafes or to one of our franchise-operated bakery-cafes, including allegations of poor food quality, food-borne illness, adverse health effects, nutritional content, advertising claims, allergens, personal injury, or other concerns. In addition, we are subject to litigation by employees, investors, franchisees, and others through private actions, class actions or other forums, of which the outcome of litigation is difficult to assess and quantify and the defense against such claims or actions can be costly. In addition to decreasing sales and profitability and diverting financial and management resources, we may suffer from adverse publicity that could harm our brand, regardless of whether the allegations are valid or whether we are liable. Moreover, we are subject to the same risks of adverse publicity resulting from allegations even if the claim involves one of our franchisees. A judgment significantly in excess of our insurance coverage for any claims could materially and adversely affect our consolidated financial condition or results of operations. Additionally, publicity about these claims may harm our reputation or prospects and adversely affect our results.

We rely heavily on information technology and any material failure, interruption, or security breach in our systems could adversely affect our business.

We rely heavily on information technology 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. Our ability to effectively manage our business and coordinate the production, distribution, and sale of our products depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or a breach in security of these systems could cause delays in product sales and reduced efficiency of our operations, and significant capital investments could be required to remediate the problem. Additionally, if a person is able to circumvent the security measures intended to protect our employee or customer private data, he or she could destroy or steal valuable information or disrupt our operations, which could significantly harm our reputation or result in litigation against us or the imposition of penalties.

We periodically acquire existing bakery-cafes from our franchisees or ownership interests in other restaurant or bakery-cafe concepts, which could adversely affect our consolidated results of operations.

We have historically acquired existing bakery-cafes and development rights from our franchisees either by negotiated agreement or exercise of our rights of first refusal under the franchise and area development agreements. Any acquisition that we undertake involves risk, including:

• our ability to successfully achieve anticipated synergies, accurately assess contingent and other liabilities as well as potential profitability;

• failure to successfully integrate the acquired entity’s operational and support activities;

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• unanticipated changes in business and economic conditions;

• limited or no operational experience in the acquired bakery-cafe market;

• future impairment charges related to goodwill and other acquired intangible assets; and

• risks of dispute and litigation with the seller, the seller’s landlords, and vendors and other parties.

Any of these factors could strain our financial and management resources as well as negatively impact our consolidated results of operations.

Our operating results fluctuate due to a number of factors, some of which may be beyond our control, and any of which may adversely affect our consolidated financial condition.

Our operating results may fluctuate significantly from our forecasts, targets, or projections because of a number of factors, including the following:

• changes in average weekly net sales and comparable net bakery-cafe sales due to:

• lower customer traffic or average check per transaction, including as a result of the introduction or removal of new menu items;

• changes in demographics, consumer preferences, and discretionary spending;

• negative publicity about the ingredients we use or the occurrence of food-borne illnesses or other problems at our bakery-cafes; and

• seasonality, including as a result of inclement weather.

• cost increases due to:

• changes in our operating costs;

• labor availability and increased labor costs, including wages of management and associates, compensation, 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-cafe openings;

• fluctuations in supply costs, shortages, or interruptions; and

• natural disasters and other calamities.

Increased advertising and marketing costs could adversely affect our consolidated results of operations.

We expect our advertising expenses to continue to increase and to dedicate greater resources to advertising and marketing than in previous years. If new advertising and other marketing programs, including our national television advertising, do not drive increased net bakery-cafe sales or if the costs of advertising, media, or marketing increase greater than expected, our consolidated financial results could be materially adversely affected.

Our federal, state, and local tax returns have been and may in the future be selected for audit by the taxing authorities, which may result in tax assessments or penalties that could have a material adverse impact on our consolidated financial position and results of operations.

We are subject to federal, state, and local taxes in the United States and Canada, including sales, use, and other applicable taxes. Significant judgment is required in determining the provision for taxes. Although we believe our tax estimates are reasonable, if the Internal Revenue Service or another taxing authority disagrees with the positions we have taken on our tax returns, we could have additional tax liability, including interest and penalties. If material, payment of such additional amounts upon final adjudication of any disputes could have a material impact on our consolidated financial position and results of operations.

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A regional or global health pandemic could severely affect our business.

A health pandemic is a disease outbreak that spreads rapidly and widely by infection and affects many individuals in an area or population at the same time. If a regional or global health pandemic occurs, depending upon its duration, location, and severity, our business could be severely affected. Generally, we are viewed by our customers as an “everyday oasis”, a friendly, all day destination where people can gather with friends and business colleagues. Customers might avoid public gathering places in the event of a health pandemic, and local, regional, or national governments might limit or ban public gatherings to halt or delay the spread of disease. A regional or global health pandemic might also adversely impact our business by disrupting or delaying production and delivery of ingredients and products in our supply chain and by causing staffing shortages in our bakery-cafes. The impact of a health pandemic might be disproportionately greater on us than on other companies that depend less on the gathering of people for the sale of their products.

Regional factors could negatively impact our consolidated results of operations.

There are several states in which we, our franchisees, or both own and operate a significant number of bakery-cafes. As a result, the economic conditions, state and local laws, government regulations, and weather conditions affecting those particular states, or a geographic region generally, may have a material impact upon our consolidated results of operations.

Failure to meet market expectations for our financial performance would likely adversely affect the market price of our stock.

The public trading of our stock is based in large part on market expectations that our business would continue to grow and that we would achieve certain levels of financial performance. Should we fail to meet market expectations going forward, particularly with respect to comparable net bakery-cafe sales revenues, operating margins, and diluted earnings per share, the market price of our stock would likely decline.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The average size of a Company-owned bakery-cafe as of December 27, 2011 was approximately 4,600 square feet. The square footage of each of our fresh dough facilities is provided below. We lease all but two of our bakery-cafe locations, all fresh dough facilities, and all of our support centers. Lease terms for our bakery-cafes, fresh dough facilities, and support centers are generally 10 years with renewal options at most locations and our leases 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 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. See Note 2 to the consolidated financial statements for further information on our accounting for leases.

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The square footage of our Company-owned leased fresh dough facilities as of December 27, 2011 is set forth below:

	Square
Facility	Footage
Albuquerque, NM	1,600
Atlanta, GA	18,000
Beltsville, MD	35,700
Chandler, AZ	7,500
Chicago, IL	30,900
Cincinnati, OH	22,300
Denver, CO	10,000
Detroit, MI	19,600
Fairfield, NJ	39,900
Franklin, MA (1)	40,300
Greensboro, NC	19,200
Houston, TX	20,700
Kansas City, KS	17,000
Minneapolis, MN	10,300
Miramar, FL	15,100
Ontario, CA	27,800
Orlando, FL	20,000
Seattle, WA	16,600
St. Louis, MO	30,000
Stockton, CA	15,800
Warren, OH	16,300
Ontario, CAN (2)	300

(1) Total square footage includes approximately 20,000 square feet utilized in tuna and cream cheese production.

(2) Company-owned limited production facility co-located within one of our Company-owned bakery-cafes in Ontario, Canada to support the Company-owned bakery-cafes located in this market.

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As of December 27, 2011, we operated 1,541 bakery-cafes in the following locations:

Location	Company- Owned Bakery-Cafes	Franchise- Operated Bakery-Cafes	Total Bakery-Cafes
Alabama	12	3	15
Arizona	31	6	37
Arkansas	—	6	6
California	53	69	122
Colorado	—	29	29
Connecticut	13	12	25
Delaware	—	5	5
Florida	48	86	134
Georgia	17	22	39
Illinois	74	32	106
Indiana	39	—	39
Iowa	2	17	19
Kansas	—	19	19
Kentucky	18	3	21
Maine	—	4	4
Maryland	—	45	45
Massachusetts	21	38	59
Michigan	46	17	63
Minnesota	26	3	29
Missouri	46	23	69
Nebraska	11	2	13
Nevada	—	5	5
New Hampshire	—	9	9
New Jersey	38	11	49
New Mexico	1	—	1
New York	39	42	81
North Carolina	13	31	44
Ohio	9	99	108
Oklahoma	—	17	17
Oregon	5	—	5
Pennsylvania	25	50	75
Rhode Island	—	7	7
South Carolina	9	8	17
South Dakota	1	—	1
Tennessee	13	18	31
Texas	20	36	56
Utah	—	7	7
Vermont	2	—	2
Virginia	59	10	69
Washington	20	—	20
West Virginia	—	8	8
Wisconsin	23	2	25
District of Columbia	3	—	3
Ontario, Canada	3	—	3
	740	801	1,541

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ITEM 3. LEGAL PROCEEDINGS

On January 25, 2008 and February 26, 2008, purported class action lawsuits were filed against us and three of our current and former executive officers by the Western Washington Laborers-Employers Pension Trust and Sue Trachet, respectively, on behalf of investors who purchased our common stock during the period between November 1, 2005 and July 26, 2006.  Both lawsuits were filed in the United States District Court for the Eastern District of Missouri, St. Louis Division.  Each complaint alleged that we and the other defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 under the Exchange Act in connection with our disclosure of system-wide net sales and earnings guidance during the period from November 1, 2005 through July 26, 2006.  Each complaint sought, among other relief, class certification of the lawsuit, unspecified damages, costs and expenses, including attorneys’ and experts’ fees, and such other relief as the Court might find just and proper.  On June 23, 2008, the lawsuits were consolidated and the Western Washington Laborers-Employers Pension Trust was appointed lead plaintiff.  On August 7, 2008, the plaintiff filed an amended complaint, which extended the class period to November 1, 2005 through July 26, 2007.  Following the filing of motions by both parties and hearings before the Court, on February 11, 2011, the parties filed with the Court a Stipulation of Settlement regarding the class action lawsuit.  Under the terms of the Stipulation of Settlement, our primary directors and officers liability insurer deposited $5.7 million into a settlement fund for payment to class members, plaintiff’s attorneys’ fees and costs of administering the settlement. The Stipulation of Settlement contains no admission of wrongdoing.  On June 22, 2011, the Court granted final approval of the settlement and entered an order dismissing the class action lawsuit with prejudice. The settlement and dismissal became final on July 22, 2011.

On February 22, 2008, a shareholder derivative lawsuit was filed against us as nominal defendant and against certain of our current and former officers and certain current directors.  The lawsuit was filed by Paul Pashcetto in the Circuit Court of St. Louis, Missouri.  The complaint alleged, among other things, breach of fiduciary duty, abuse of control, waste of corporate assets and unjust enrichment between November 5, 2006 and February 22, 2008.  The complaint sought, among other relief, unspecified damages, costs and expenses, including attorneys’ fees, an order requiring us to implement certain corporate governance reforms, restitution from the defendants and such other relief as the Court might find just and proper. Following the filing of motions by both parties and hearings before the Court, on February 22, 2011, the parties filed with the Court a Stipulation of Settlement regarding the shareholder derivative lawsuit.  Under the terms of the Stipulation of Settlement, we agreed, among other things, to implement and maintain certain corporate governance additions, modifications and/or formalizations, and our insurer paid plaintiff’s attorneys’ fees and expenses of $1.4 million. The Stipulation of Settlement contains no admission of wrongdoing. On April 8, 2011, the Court granted final approval of the settlement and entered an order dismissing the shareholder derivative lawsuit with prejudice. The settlement and dismissal became final on May 8, 2011.

On December 9, 2009, a purported class action lawsuit was filed against us and one of our subsidiaries by Nick Sotoudeh, a former employee of one of our subsidiaries.  The lawsuit was filed in the California Superior Court, County of Contra Costa. On April 22, 2011, the complaint was amended to add another former employee, Gabriela Brizuela, as a plaintiff.  The complaint alleged, among other things, violations of the California Labor Code, failure to pay overtime, failure to provide meal and rest periods and termination compensation and violations of California’s Business and Professions Code.   The complaint sought, among other relief, class certification of the lawsuit, unspecified damages, costs and expenses, including attorneys’ fees, and such other relief as the Court might find just and proper. On November 17, 2011, the parties reached a Memorandum of Agreement regarding the class action lawsuits and the class action filed by David Carter discussed below. Under the terms of the Memorandum of Agreement, we agreed to pay a maximum amount of $5.0 million to purported class members, plaintiffs' attorneys' fees, and costs of administering the settlement. The Memorandum of Agreement contains no admission of wrongdoing. The terms and conditions of a definitive settlement agreement are under negotiation and such agreement is subject to the final approval by the California Superior Court. The agreement of $5.0 million is included in accrued expenses in our Consolidated Balance Sheets as of December 27, 2011.

On July 22, 2011, a purported class action lawsuit was filed against us and one of our subsidiaries by David Carter, a former employee of one of our subsidiaries, and Nikole Benavides, a purported former employee of one of our franchisees.  The lawsuit was filed in the California Superior Court, County of San Bernardino.  The complaint alleges, among other things, violations of the California Labor Code, failure to pay overtime, failure to provide meal and rest periods and termination compensation and violations of California's Business and Professions Code.  The complaint seeks, among other relief, collective and class certification of the lawsuit, unspecified damages, costs and expenses, including attorneys' fees, and such other relief as the Court might find just and proper.  This matter against our subsidiary was consolidated with the lawsuit described in the immediately preceding paragraph and is expected to be resolved under the Memorandum of Agreement described above.

On December 16, 2010, a purported class action lawsuit was filed against us and one of our subsidiaries by Denarius Lewis, Caroll Ruiz, and Corey Weiner, former employees of one of our subsidiaries.  The lawsuit was filed in the United States District Court for the Middle District of Florida.  The complaint alleges, among other things, violations of the Fair Labor Standards Act.   The complaint seeks, among other relief, collective and class certification of the lawsuit, unspecified damages, costs and expenses,

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including attorneys’ fees, and such other relief as the Court might find just and proper.  We believe we and our subsidiary have meritorious defenses to each of the claims in this lawsuit and we are prepared to vigorously defend the lawsuit.  There can be no assurance, however, that we will be successful, and an adverse resolution of the lawsuit could have a material adverse effect on our consolidated financial statements.

In addition, we are subject to other routine legal proceedings, claims and litigation in the ordinary course of business. Defending lawsuits requires significant management attention and financial resources and the outcome of any litigation, including the matters described above, is inherently uncertain. We do not, however, currently expect that the costs to resolve these matters individually or in the aggregate will have a material adverse effect on our consolidated financial statements.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Class A common stock is listed on The Nasdaq Global Select Market (“Nasdaq”) under the symbol “PNRA.” There is no established 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.

	December 27, 2011				December 28, 2010
	High		Low		High		Low
First Quarter	$	123.47	$	94.86	$	79.27	$	65.65
Second Quarter	$	128.69	$	115.86	$	87.77	$	74.31
Third Quarter	$	131.96	$	96.68	$	89.25	$	73.82
Fourth Quarter	$	143.38	$	101.17	$	106.42	$	88.34

On February 20, 2012, the last sale price for the Class A common stock, as reported on the Nasdaq Global Select Market, was $151.67. As of February 20, 2012, we had approximately 1,981 holders of record of our Class A common stock and approximately 30 holders of record of our Class B common stock.

Dividend Policy

We periodically evaluate various options for the use of our capital, including the potential issuance of dividends. We have never paid cash dividends on our capital stock and we do not have current plans to do so.

Share Repurchases

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 share repurchases may be effected 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 they may be held by us as treasury stock. The repurchase authorization may be modified, suspended, or discontinued by our Board of Directors at any time. During fiscal 2011, we repurchased 877,100 shares under the share repurchase authorization at a weighted-average price of $103.55 for an aggregate purchase price of $90.8 million.

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During the fourth quarter of fiscal 2011, we repurchased Class A common stock as follows:

Period	Total Number of Shares Purchased		Weight-Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Announced Program
September 28, 2011 - October 25, 2011	26,700	(1)	$	101.37	26,700	$	357,414,869
October 26, 2011 - November 29, 2011	1,468	(2)	$	134.31	—	$	357,414,869
November 30, 2011 - December 27, 2011	—		$	—	—	$	357,414,869
Total	28,168		$	103.09	26,700	$	357,414,869

(1) Represents 26,700 shares of Class A common stock that were repurchased under a Rule 10b5-1 Plan, as described above. See Part II, Item 7. for further information regarding the share repurchase authorization.

(2) Represents Class A common stock surrendered by participants under the Panera Bread 1992 Stock Incentive Plan and the Panera Bread 2006 Stock Incentive Plan, as amended, as payment of applicable tax withholding on the vesting of restricted stock. Shares so surrendered by the participants are repurchased by us pursuant to the terms of those plans and the applicable award agreements and not pursuant to publicly announced share repurchase authorizations.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data has been derived from our consolidated financial statements. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto.

	For the fiscal year ended (1)
	(in thousands, except per share and percentage information)
	December 27, 2011			December 28, 2010			December 29, 2009			December 30, 2008			December 25, 2007
Revenues:
Bakery-cafe sales, net	$	1,592,951		$	1,321,162		$	1,153,255		$	1,106,295		$	894,902
Franchise royalties and fees	92,793			86,195			78,367			74,800			67,188
Fresh dough and other product sales to franchisees	136,288			135,132			121,872			117,758			104,601
Total revenues	1,822,032			1,542,489			1,353,494			1,298,853			1,066,691
Costs and expenses:
Bakery-cafe expenses:
Cost of food and paper products	$	470,398		$	374,816		$	337,599		$	332,697		$	271,442
Labor	484,014			419,140			370,595			352,462			286,238
Occupancy	115,290			100,970			95,996			90,390			70,398
Other operating expenses	216,237			177,059			155,396			147,033			121,325
Total bakery-cafe expenses	1,285,939			1,071,985			959,586			922,582			749,403
Fresh dough and other product cost of sales to franchisees	116,267			110,986			100,229			108,573			92,852
Depreciation and amortization	79,899			68,673			67,162			67,225			57,903
General and administrative expenses	113,083			101,494			83,169			84,393			68,966
Pre-opening expenses	6,585			4,282			2,451			3,374			8,289
Total costs and expenses	1,601,773			1,357,420			1,212,597			1,186,147			977,413
Operating profit	220,259			185,069			140,897			112,706			89,278
Interest expense	822			675			700			1,606			483
Other (income) expense, net	(466		)	4,232			273			883			333
Income before income taxes	219,903			180,162			139,924			110,217			88,462
Income taxes	83,951			68,563			53,073			41,272			31,434
Net income	135,952			111,599			86,851			68,945			57,028
Less: net (loss) income attributable to noncontrolling interest	—			(267		)	801			1,509			(428		)
Net income attributable to Panera Bread Company	$	135,952		$	111,866		$	86,050		$	67,436		$	57,456
Earnings per common share attributable to Panera Bread Company:
Basic	$	4.59		$	3.65		$	2.81		2.24			$	1.81
Diluted	$	4.55		$	3.62		$	2.78		$	2.22		$	1.79
Weighted average shares of common and common equivalent shares outstanding:
Basic	29,601			30,614			30,667			30,059			31,708
Diluted	29,903			30,922			30,979			30,422			32,178
Consolidated balance sheet data:
Cash and cash equivalents	$	222,640		$	229,299		$	246,400		$	74,710		$	68,242
Short-term investments	186			152			—			2,400			23,198
Total assets	1,027,322			924,581			837,165			673,917			698,752
Long-term liabilities	133,912			117,457			97,870			61,217			122,807
Stockholders’ equity	655,076			595,608			597,036			495,162			446,164
Franchisee revenues (2)	$	1,828,188		$	1,802,116		$	1,640,309		$	1,542,791		$	1,376,430
Comparable net bakery-cafe sales percentage for (2)(3):
Company-owned bakery-cafes	4.9		%	7.5		%	2.4		%	3.8		%	1.7		%
Franchise-operated bakery-cafes	3.4		%	8.2		%	2.0		%	3.5		%	1.5		%
Bakery-cafe data:
Company-owned bakery-cafes open	740			662			585			562			532
Franchise-operated bakery-cafes open	801			791			795			763			698
Total bakery-cafes open	1,541			1,453			1,380			1,325			1,230

(1) The fiscal year ended December 30, 2008, or fiscal 2008, was a 53 week year consisting of 371 days. All other fiscal years presented contained 52 weeks consisting of 364 days.

(2) Comparable net bakery-cafe sales percentages are non-GAAP financial measures, which should not be considered in isolation or as a substitute for other measures of performance prepared in accordance with generally accepted accounting principles in the United States, or GAAP, and may not be equivalent to comparable net bakery-cafe sales as defined or used by other companies. We do not record franchise-operated net bakery-cafe sales as revenues. However, royalty revenues are calculated based on a percentage of franchise-operated net bakery-cafe sales, as reported by franchisees. We use franchise-operated and system-wide sales information internally in connection with store development decisions, planning, and budgeting analyses. We believe franchise-operated and system-wide sales information is useful in assessing consumer acceptance of our brand, facilitates an understanding of financial performance and the overall direction and trends of sales and operating income, helps us appreciate the effectiveness of our advertising and marketing initiatives to which our franchisees also contribute based on a percentage of their sales, and provides information that is relevant for comparison within the industry.

(3) Comparable net bakery-cafe sales for fiscal 2011, 2010, 2009, and 2007 contained 52 weeks of sales while fiscal 2008 contained 53 weeks of sales, with an impact of approximately $14.4 million and $21.4 million of sales in the additional week of fiscal 2008 for Company-owned and franchise-operated bakery-cafes, respectively. Adjusted to reflect a comparative 52 week period in fiscal 2008 (the first 52 weeks in fiscal 2008), Company-owned and franchise-operated comparable net bakery-cafe sales for the fiscal year ended December 29, 2009, or fiscal 2009, would have been approximately 2.2 percent and 2.0 percent, respectively. Adjusted to reflect a comparative 53 week period in the fiscal year ended December 25, 2007, or fiscal 2007 (52 weeks in fiscal 2007 plus one week of fiscal 2008), Company-owned and franchise-operated comparable bakery-cafe sales for fiscal 2008 would have been approximately 3.5 percent and 3.3 percent, respectively. Adjusted on a calendar basis to match the specific weeks in fiscal 2009 to the same specific weeks in fiscal 2008, Company-owned and franchise-operated comparable net bakery-cafe sales for fiscal 2009 would have been 2.4 percent and 2.0 percent, respectively. For further information regarding comparable net bakery-cafe sales and the modification to the method by which we determine bakery-cafes included in our comparable net bakery-cafe sales, see Item 7. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Our revenues are derived from Company-owned net bakery-cafe sales, fresh dough and other product sales to franchisees, and franchise royalties and fees. Fresh dough and other product sales to franchisees are primarily comprised of sales of fresh dough, produce, tuna, and cream cheese to certain of our franchisees. 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 and other product sales to franchisees relates primarily to the sale of fresh dough, produce, tuna, and cream cheese to franchisees. General and administrative, depreciation and amortization, and pre-opening expenses relate to all areas of revenue generation.

Our fiscal year ends on the last Tuesday in December. Each of our fiscal years ended December 27, 2011, December 28, 2010, and December 29, 2009, had 52 weeks.

Use of Non-GAAP Measurements

We include in this report information on Company-owned, franchise-operated, and system-wide comparable net bakery-cafe sales percentages. In fiscal 2010, we modified the method by which we determine bakery-cafes included in our comparable net bakery-cafe sales percentages to include those bakery-cafes with an open date prior to the first day of our prior fiscal year, which we refer to as our base store bakery-cafes. Previously, comparable net bakery-cafe sales percentages were based on bakery-cafes that had been in operation for 18 months. While this methodology modification did not have a material impact on previously reported amounts, prior periods have been updated to conform to current methodology. Company-owned comparable net bakery-cafe sales percentages are based on sales from Company-owned bakery-cafes included in our base store bakery-cafes. Franchise-operated comparable net bakery-cafe sales percentages are based on sales from franchise-operated bakery-cafes, as reported by franchisees, that are included in our base store bakery-cafes. System-wide comparable net bakery-cafe sales percentages are based on sales at Company-owned and franchise-operated bakery-cafes that are included in our base store bakery-cafes. Acquired Company-owned and franchise-operated bakery-cafes and other restaurant or bakery-cafe concepts are included in our comparable net bakery-cafe sales percentages after we have acquired a 100 percent ownership interest and such acquisition occurred prior to the first day of our prior fiscal year. Comparable net bakery-cafe sales exclude closed locations.

Comparable net bakery-cafe sales percentages are non-GAAP financial measures, which should not be considered in isolation or as a substitute for other measures of performance prepared in accordance with generally accepted accounting principles in the United States, or GAAP, and may not be equivalent to comparable net bakery-cafe sales as defined or used by other companies. We do not record franchise-operated net bakery-cafe sales as revenues. However, royalty revenues are calculated based on a percentage of franchise-operated net bakery-cafe sales, as reported by franchisees. We use franchise-operated and system-wide sales information internally in connection with store development decisions, planning, and budgeting analyses. We believe franchise-operated and system-wide sales information is useful in assessing consumer acceptance of our brand, facilitates an understanding of our financial performance and the overall direction and trends of sales and operating income, helps us appreciate the effectiveness of our advertising and marketing initiatives, to which our franchisees also contribute based on a percentage of their net sales, and provides information that is relevant for comparison within the industry.

We also include in this report information on Company-owned, franchise-operated, and system-wide average weekly net sales. Average weekly net sales are calculated by dividing total net sales in the period by operating weeks in the period. Accordingly, year-over-year results reflect sales for all locations, whereas comparable net bakery-cafe sales exclude closed locations and are based on sales from bakery-cafes included in our base store bakery-cafes. New stores typically experience an opening “honeymoon” period during which they generate higher average weekly net sales in the first 12 to 16 weeks they are open as customers “settle-in” to normal usage patterns from initial trial of the location. On average, the “settle-in” experienced is 5 percent to 10 percent less than the average weekly net sales during the “honeymoon” period. As a result, year-over-year results of average weekly net sales are generally lower than the results in comparable net bakery-cafe sales. This results from the relationship of the number of

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bakery-cafes in the “honeymoon” phase, the number of bakery-cafes in the “settle-in” phase, and the number of bakery-cafes in the comparable bakery-cafe base.

Executive Summary of Results

In fiscal 2011, we earned $4.55 per diluted share with the following performance on key metrics: system-wide comparable net bakery-cafe sales growth of 4.0 percent (growth of 4.9 percent for Company-owned bakery-cafes and growth of 3.4 percent for franchise-operated bakery-cafes); system-wide average weekly net sales increased 3.4 percent to $44,313 ($44,071 for Company-owned bakery-cafes and $44,527 for franchise-operated bakery-cafes); 112 new bakery-cafes opened system-wide (53 Company-owned bakery-cafes and 59 franchise-operated bakery-cafes); and 24 bakery-cafes closed system-wide (three Company-owned bakery-cafes and 21 franchise-operated bakery-cafes). Our fiscal 2011 results of $4.55 per diluted share included a favorable impact of $0.05 per diluted share from the repurchase of 877,100 shares under our $600.0 million share repurchase authorization.

In the fiscal quarter ended December 27, 2011, we earned $1.31 per diluted share with the following performance on key metrics: system-wide comparable net bakery-cafe sales growth of 4.4 percent (growth of 5.9 percent for Company-owned bakery-cafes and growth of 3.2 percent for franchise-operated bakery-cafes); system-wide average weekly net sales increased 3.9 percent to $46,481 ($46,336 for Company-owned bakery-cafes and $46,612 for franchise-operated bakery-cafes); 40 new bakery-cafes opened system-wide (24 Company-owned bakery-cafes and 16 franchise-operated bakery-cafes); and three franchise-operated bakery-cafes closed.

In fiscal 2010, we earned $3.62 per diluted share with the following performance on key metrics: system-wide comparable net bakery-cafe sales growth of 7.9 percent (growth of 7.5 percent for Company-owned bakery-cafes and growth of 8.2 percent for franchise-operated bakery-cafes); system-wide average weekly net sales increased 7.3 percent to $42,852 ($41,899 for Company-owned bakery-cafes and $43,578 for franchise-operated bakery-cafes); 76 new bakery-cafes opened system-wide (42 Company-owned bakery-cafes and 34 franchise-operated bakery-cafes); and three bakery-cafes closed system-wide (two Company-owned bakery-cafes and one franchise-operated bakery-cafes). Our fiscal 2010 results of $3.62 per diluted share included a favorable impact of $0.10 per diluted share from the repurchase of 1,905,540 shares under our $600.0 million share repurchase authorization.

In fiscal 2009, we earned $2.78 per diluted share with the following performance on key metrics: system-wide comparable net bakery-cafe sales growth of 2.2 percent (growth of 2.4 percent for Company-owned bakery-cafes and growth of 2.0 percent for franchise-operated bakery-cafes), which included the impact of the additional week in fiscal 2008, a 53 week year; system-wide average weekly net sales increased 1.8 percent to $39,926 ($39,050 for Company-owned bakery-cafes and $40,566 for franchise-operated bakery-cafes); 69 new bakery-cafes opened system-wide (30 Company-owned bakery-cafes and 39 franchise-operated bakery-cafes); and 14 bakery-cafes closed system-wide (seven Company-owned bakery-cafes and seven franchise-operated bakery-cafes).

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Consolidated Statements of Operations Margin Analysis

The following table sets forth the percentage relationship to total revenues, except where otherwise indicated, of certain items included in our Consolidated Statements of Operations for the periods indicated. Percentages may not add due to rounding:

	For the fiscal year ended
	December 27, 2011		December 28, 2010		December 29, 2009
Revenues:
Bakery-cafe sales, net	87.4	%	85.7	%	85.2	%
Franchise royalties and fees	5.1		5.6		5.8
Fresh dough and other product sales to franchisees	7.5		8.8		9.0
Total revenue	100.0	%	100.0	%	100.0	%
Costs and expenses:
Bakery-cafe expenses (1):
Cost of food and paper products	29.5	%	28.4	%	29.3	%
Labor	30.4		31.7		32.1
Occupancy	7.2		7.6		8.3
Other operating expenses	13.6		13.4		13.5
Total bakery-cafe expenses	80.7		81.1		83.2
Fresh dough and other product cost of sales to franchisees (2)	85.3		82.1		82.2
Depreciation and amortization	4.4		4.5		5.0
General and administrative expenses	6.2		6.6		6.1
Pre-opening expenses	0.4		0.3		0.2
Total costs and expenses	87.9		88.0		89.6
Operating profit	12.1		12.0		10.4
Interest expense	—		—		0.1
Other (income) expense, net	—		0.3		—
Income before income taxes	12.1		11.7		10.3
Income taxes	4.6		4.4		3.9
Net income	7.5		7.2		6.4
Less: net (loss) income attributable to noncontrolling interest	—		—		0.1
Net income attributable to Panera Bread Company	7.5	%	7.3	%	6.4	%

(1) As a percentage of net bakery-cafe sales.

(2) As a percentage of fresh dough and other product sales to franchisees.

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Bakery-cafe Composition

The following table sets forth certain bakery-cafe data relating to Company-owned and franchise-operated bakery-cafes for the periods indicated:

	For the fiscal year ended
	December 27, 2011		December 28, 2010		December 29, 2009
Number of bakery-cafes:
Company-owned:
Beginning of period	662		585		562
Bakery-cafes opened	53		42		30
Bakery-cafes closed	(3	)	(2	)	(7	)
Bakery-cafes acquired from franchisees (1)	30		40		—
Bakery-cafe sold to a franchisee (2)	(2	)	(3	)	—
End of period	740		662		585
Franchise-operated:
Beginning of period	791		795		763
Bakery-cafes opened	59		34		39
Bakery-cafes closed (3)	(21	)	(1	)	(7	)
Bakery-cafes sold to Company (1)	(30	)	(40	)	—
Bakery-cafe purchased from Company (2)	2		3		—
End of period	801		791		795
System-wide:
Beginning of period	1,453		1,380		1,325
Bakery-cafes opened	112		76		69
Bakery-cafes closed	(24	)	(3	)	(14	)
End of period	1,541		1,453		1,380

(1) In July 2011, we acquired five bakery-cafes from an Indiana franchisee. In April 2011, we acquired 25 bakery-cafes from our Milwaukee franchisee. Additionally, in September 2010, we acquired 37 bakery-cafes from our New Jersey franchisee. Also, in March 2010, we acquired controlling interest in three bakery-cafes from our Canadian franchisee and subsequently purchased the remaining noncontrolling interest on December 28, 2010.

(2) In February 2011, we sold two bakery-cafes in the Dallas, TX market to an existing franchisee. Additionally, in May 2010, we sold three bakery-cafes in the Mobile, Alabama market to an existing franchisee.

(3) In June 2011, the franchise agreements for 13 franchise-operated Paradise bakery-cafes were mutually terminated and the bakery-cafes de-identified from the Paradise brand.

Comparable Bakery-Cafe Sales, net

Fiscal 2011, 2010, and 2009 each contained 52 weeks of sales while fiscal 2008 contained 53 weeks of sales, with an impact of $14.4 million and $21.4 million of sales in the additional week of fiscal 2008 for Company-owned and franchise-operated bakery-cafes, respectively. Accordingly, we believe it is appropriate to provide the following three separate measures of comparable net bakery-cafe sales for fiscal 2009: calendar basis, adjusted fiscal basis, and fiscal basis.

Calendar Basis

We believe that comparable net bakery-cafe sales percentages presented on a calendar basis, which match the specific weeks in a fiscal year to the same specific weeks in another, are useful in understanding our sales results because such comparisons are generally not impacted by the shifting of seasonal holidays between fiscal periods from one year to another or by additional weeks of sales in a particular fiscal period. Comparable net bakery-cafe sales growth on a calendar basis for the fiscal year ended December 29, 2009 was 2.4 percent, 2.0 percent and 2.2 percent for Company-owned, franchise-operated, and system-wide bakery-cafes, respectively. The comparable Company-owned net bakery-cafe sales growth on a calendar basis was driven by approximately 0.3 percent transaction growth and approximately 2.1 percent average check growth. Average check growth, in turn, was comprised of retail price increases of approximately 2.6 percent and negative mix impact of approximately 0.5 percent in comparison to fiscal 2008.

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Adjusted Fiscal Basis

We believe that presenting a comparison of adjusted fiscal 2008 sales results, which include only a 52 week period (the first 52 weeks in fiscal 2008), to fiscal 2009 sales results provides a more meaningful explanation of comparable net bakery-cafe sales over those periods. Comparable net bakery-cafe sales growth on an adjusted fiscal basis for fiscal 2009 was 2.2 percent, 2.0 percent and 2.1 percent for Company-owned, franchise-operated, and system-wide bakery-cafes, respectively. Comparable net bakery-cafe sales growth on an adjusted fiscal basis for fiscal 2008 was 3.5 percent, 3.3 percent and 3.4 percent for Company-owned, franchise-operated, and system-wide bakery-cafes, respectively. The fiscal 2009 comparable Company-owned net bakery-cafe sales growth on an adjusted fiscal basis was driven by approximately 2.1 percent average check growth. Average check growth, in turn, was comprised of retail price increases of approximately 2.6 percent and negative mix impact of approximately 0.5 percent in comparison to fiscal 2008.

Fiscal Basis

Comparable net bakery-cafe sales growth for the fiscal periods indicated were as follows:

	For the fiscal year ended
	December 27, 2011		December 28, 2010		December 29, 2009
Company-owned	4.9	%	7.5	%	2.4	%
Franchise-operated	3.4	%	8.2	%	2.0	%
System-wide	4.0	%	7.9	%	2.2	%

In fiscal 2010, we modified the method by which we determine bakery-cafes included in our comparable net bakery-cafe sales percentages to include those bakery-cafes with an open date prior to the first day of our prior fiscal year. Previously, comparable net bakery-cafe sales percentages were based on bakery-cafes that had been 100 percent owned and in operation for 18 months. While this methodology modification did not have a material impact on previously reported amounts, prior periods have been updated to conform to current methodology.

The 4.9 percent growth in fiscal 2011 comparable Company-owned net bakery-cafe sales was driven by approximately 1.8 percent of transaction growth and 3.1 percent average check growth. Average check growth, in turn, was comprised of retail price increases of 2.9 percent and positive mix impact of 0.2 percent in comparison to the prior fiscal year. The 7.5 percent growth in fiscal 2010 comparable Company-owned net bakery-cafe sales was driven by approximately 2.1 percent of transaction growth and 5.4 percent average check growth. Average check growth, in turn, was comprised of retail price increases of 2.0 percent and positive mix impact of 3.4 percent in comparison to the prior fiscal year. The 2.4 percent growth in fiscal 2009 comparable Company-owned net bakery-cafe sales was driven by approximately 2.3 percent average check growth and 0.1 percent of transaction growth. Average check growth, in turn, was comprised of retail price increases of 2.8 percent and negative mix impact of 0.5 percent in comparison to the prior fiscal year.

Results of Operations

Fiscal 2011 Compared to Fiscal 2010

Revenues

Total revenues in fiscal 2011increased 18.1 percent to $1,822.0 million compared to $1,542.5 million in fiscal 2010. The growth in total revenues in fiscal 2011 compared to the prior year was primarily due to the opening of 112 new bakery-cafes system-wide in fiscal 2011 and to the 4.0 percent increase in system-wide comparable net bakery-cafe sales in fiscal 2011, partially offset by the closure of 24 bakery-cafes system-wide in fiscal 2011.

The system-wide average weekly net sales per bakery-cafe for the periods indicated are as follows:

	For the fiscal year ended
	December 27, 2011		December 28, 2010		Percentage Change
System-wide average weekly net sales	$	44,313	$	42,852	3.4	%

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Net bakery-cafe sales in fiscal 2011increased 20.6 percent to $1,593.0 million compared to $1,321.2 million in fiscal 2010. The increase in net bakery-cafe sales in fiscal 2011 compared to the prior fiscal year was primarily due to the opening of 53 new Company-owned bakery-cafes, the acquisition of 30 franchise-operated bakery-cafes, and the 4.9 percent increase in comparable Company-owned net bakery-cafe sales in fiscal 2011, partially offset by the closure of three Company-owned bakery-cafes and the sale of two Company-owned bakery-cafes. This 4.9 percent growth in comparable net bakery-cafe sales was driven by approximately 1.8 percent of transaction growth and approximately 3.1 percent average check growth. Average check growth, in turn, was comprised of retail price increases of approximately 2.9 percent and positive mix impact of approximately 0.2 percent in comparison to the same period in the prior fiscal year. In total, Company-owned net bakery-cafe sales as a percentage of total revenues increased by 1.7 percentage points to 87.4 percent for fiscal 2011 as compared to 85.7 percent in fiscal 2010. In addition, the increase in average weekly net sales for Company-owned bakery-cafes in fiscal 2011 compared to the prior fiscal year was primarily due to the previously described average check growth that resulted from retail price increases and our category management initiatives. The average weekly net sales per Company-owned bakery-cafe and the related number of operating weeks for the periods indicated are as follows:

	For the fiscal year ended
	December 27, 2011		December 28, 2010		Percentage Change
Company-owned average weekly net sales	$	44,071	$	41,899	5.2	%
Company-owned number of operating weeks	36,140		31,532		14.6	%

Franchise royalties and fees in fiscal 2011increased 7.7 percent to $92.8 million compared to $86.2 million in fiscal 2010. The components of franchise royalties and fees for the periods indicated are as follows (in thousands):

	For the fiscal year ended
	December 27, 2011		December 28, 2010
Franchise royalties	$	90,486	$	84,806
Franchise fees	2,307		1,389
Total	$	92,793	$	86,195

The increase in franchise royalty and fee revenues in fiscal 2011 compared to the prior fiscal year was attributed to the opening of 59 new franchise-operated bakery-cafes and the 3.4 percent increase in comparable franchise-operated net bakery-cafe sales in fiscal 2011, partially offset by the closure of 21 franchise-operated bakery-cafe and the Company’s purchase of 30 franchise-operated bakery-cafes. The average weekly net sales per franchise-operated bakery-cafe and the related number of operating weeks for the periods indicated are as follows:

	For the fiscal year ended
	December 27, 2011		December 28, 2010		Percentage Change
Franchise-operated average weekly net sales	$	44,527	$	43,578	2.2	%
Franchise-operated number of operating weeks	41,058		41,354		(0.7	)%

As of December 27, 2011, there were 801 franchise-operated bakery-cafes open and we have received commitments to open 195 additional franchise-operated bakery-cafes. The timetables for opening these bakery-cafes are established in the respective Area Development Agreements, referred to as ADAs, with franchisees, which provide for the majority of these bakery-cafes to open in the next four to five years. An ADA requires a franchisee to develop a specified number of bakery-cafes by specified dates. If a franchisee fails to develop bakery-cafes on the schedule set forth in the ADA, we have the right to terminate the ADA and develop Company-owned locations or develop locations through new franchisees in that market. We may exercise one or more alternative remedies to address defaults by franchisees, including not only development defaults, but also defaults in complying with our operating and brand standards and other covenants included in the ADAs and franchise agreements. We may waive compliance with certain requirements under its ADAs and franchise agreements if we determine that such action is warranted under the particular circumstances.

Fresh dough and other product sales to franchisees in fiscal 2011increased 0.9 percent to $136.3 million compared to $135.1 million in fiscal 2010. The increase in fresh dough and other product sales to franchisees was primarily due to the 3.4 percent increase in franchise-operated comparable net bakery-cafe sales and the opening of 59 franchise-operated cafes, partially offset

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by our purchase of 30 franchise-operated bakery-cafes and the closure of 21 franchise-operated bakery-cafes.

Costs and Expenses

The cost of food and paper products includes the costs associated with the fresh dough and other product operations that sell fresh dough and other products to Company-owned bakery-cafes, as well as the cost of food and paper products supplied by third-party vendors and distributors. The costs associated with the fresh dough and other product operations that sell fresh dough and other products to the franchise-operated bakery-cafes are excluded from the cost of food and paper products and are shown separately as fresh dough and other product cost of sales to franchisees in the Consolidated Statements of Operations.

The cost of food and paper products was $470.4 million, or 29.5 percent of net bakery-cafe sales in fiscal 2011, compared to $374.8 million, or 28.4 percent of net bakery-cafe sales, in fiscal 2010. This increase in the cost of food and paper products as a percentage of net bakery-cafe sales was principally due to food cost inflation, partially offset by improved leverage of our fresh dough manufacturing costs due to additional bakery-cafe openings and improved leverage from higher comparable net bakery-cafe sales. In fiscal 2011, there was an average of 69.6 bakery-cafes per fresh dough facility compared to an average of 65.2 in fiscal 2010.

Labor expense was $484.0 million, or 30.4 percent of net bakery-cafe sales, in fiscal 2011 compared to $419.1 million, or 31.7 percent of net bakery-cafe sales, in fiscal 2010. The decrease in labor expense as a percentage of net bakery-cafe sales was primarily a result of improved leverage from higher comparable net bakery-cafe sales, lower benefits costs due to lower self-insurance medical claims, and lower average wage in our bakery-cafes.

Occupancy cost was $115.3 million, or 7.2 percent of net bakery-cafe sales, in fiscal 2011 compared to $101.0 million, or 7.6 percent of net bakery-cafe sales, in fiscal 2010. The decrease in occupancy cost as a percentage of net bakery-cafe sales was primarily a result of common area maintenance credits, as landlords spent less on common area maintenance in prior years than anticipated, improved leverage from higher comparable net bakery-cafe sales, and lower occupancy costs in new bakery-cafes and favorably negotiated leases in existing bakery-cafes.

Other operating expenses were $216.2 million, or 13.6 percent of net bakery-cafe sales, in fiscal 2011 compared to $177.1 million, or 13.4 percent of net bakery-cafe sales, in fiscal 2010. The increase in other operating expenses as a percentage of net bakery-cafe sales was primarily a result of increased marketing expense, partially offset by increased leverage from higher comparable net bakery-cafe sales.

Fresh dough and other product cost of sales to franchisees was $116.3 million, or 85.3 percent of fresh dough and other product sales to franchisees, in fiscal 2011 compared to $111.0 million, or 82.1 percent of fresh dough and other product sales to franchisees, in fiscal 2010. The increase in the fresh dough and other product cost of sales to franchisees as a percentage of fresh dough and other product sales to franchisees was primarily the result of the year-over-year increase in ingredient costs, partially offset by improved leverage from new bakery-cafes and higher comparable net bakery-cafe sales.

General and administrative expenses were $113.1 million, or 6.2 percent of total revenues, in fiscal 2011 compared to $101.5 million, or 6.6 percent of total revenues, in fiscal 2010. The decrease in general and administrative expenses as a percent of total revenues was primarily the result of improved leverage from new bakery-cafes and higher comparable net bakery-cafe sales.

Interest Expense

Interest expense was $0.8 million, or less than 0.1 percent of total revenues, in fiscal 2011 compared to $0.7 million, or less than 0.1 percent of total revenues, in fiscal 2010.

Other (Income) Expense, net

Other (income) expense, net in fiscal 2011 increased to $0.5 million of income, or less than 0.1 percent of total revenues, from $4.2 million of expense, or 0.3 percent of total revenues, in fiscal 2010. Other (income) expense, net for fiscal 2011 was primarily comprised of immaterial items. Other (income) expense, net for fiscal 2010 was primarily comprised of charges related to unclaimed property audit exposures, certain state sales tax audit exposures, and immaterial items.

Income Taxes

The provision for income taxes increased to $84.0 million in fiscal 2011 compared to $68.6 million in fiscal 2010. The tax provision for fiscal 2011 and fiscal 2010 reflects a combined federal, state, and local effective tax rate of 38.2 percent and 38.1 percent, respectively. The increase in the effective tax rate between fiscal 2011 and 2010 was primarily driven by a decrease in permanent benefits recognized in the current period relating to differences between financial and tax reporting requirements.

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Fiscal 2010 Compared to Fiscal 2009

Revenues

Total revenues in fiscal 2010increased 14.0 percent to $1,542.5 million compared to $1,353.5 million in fiscal 2009. The growth in total revenues in fiscal 2010 compared to the prior year was primarily due to the opening of 76 new bakery-cafes system-wide in fiscal 2010 and to the 7.9 percent increase in system-wide comparable net bakery-cafe sales in fiscal 2010, partially offset by the closure of three bakery-cafes system-wide in fiscal 2010.

The system-wide average weekly net sales per bakery-cafe for the periods indicated are as follows:

	For the fiscal year ended
	December 28, 2010		December 29, 2009		Percentage Change
System-wide average weekly net sales	$	42,852	$	39,926	7.3	%

Net bakery-cafe sales in fiscal 2010increased 14.6 percent to $1,321.2 million compared to $1,153.3 million in fiscal 2009. The increase in net bakery-cafe sales in fiscal 2010 compared to the prior fiscal year was primarily due to the opening of 42 new Company-owned bakery-cafes, the acquisition of 40 franchise-operated bakery-cafes, and the 7.5 percent increase in comparable Company-owned net bakery-cafe sales in fiscal 2010, partially offset by the closure of two Company-owned bakery-cafes and the sale of three Company-owned bakery-cafes. This 7.5 percent growth in comparable net bakery-cafe sales was driven by approximately 2.1 percent of transaction growth and approximately 5.4 percent average check growth. Average check growth, in turn, was comprised of retail price increases of approximately 2.0 percent and positive mix impact of approximately 3.4 percent in comparison to the same period in the prior fiscal year. In total, Company-owned net bakery-cafe sales as a percentage of total revenues increased0.5 percentage points from 85.7 percent for fiscal 2010 as compared to 85.2 percent in fiscal 2009. In addition, the increase in average weekly net sales for Company-owned bakery-cafes in fiscal 2010 compared to the prior fiscal year was primarily due to the previously described average check growth that resulted from our category management initiative. The average weekly net sales per Company-owned bakery-cafe and the related number of operating weeks for the periods indicated are as follows:

	For the fiscal year ended
	December 28, 2010		December 29, 2009		Percentage Change
Company-owned average weekly net sales	$	41,899	$	39,050	7.3	%
Company-owned number of operating weeks	31,532		29,533		6.8	%

Franchise royalties and fees in fiscal 2010increased 10.0 percent to $86.2 million compared to $78.4 million in fiscal 2009. The components of franchise royalties and fees for the periods indicated are as follows (in thousands):

	For the fiscal year ended
	December 28, 2010		December 29, 2009
Franchise royalties	$	84,806	$	77,119
Franchise fees	1,389		1,248
Total	$	86,195	$	78,367

The increase in franchise royalty and fee revenues in fiscal 2010 compared to the prior fiscal year was attributed to the opening of 34 new franchise-operated bakery-cafes and the 8.2 percent increase in comparable franchise-operated net bakery-cafe sales in fiscal 2010, partially offset by the closure of one franchise-operated bakery-cafes. The average weekly net sales per franchise-operated bakery-cafe and the related number of operating weeks for the periods indicated are as follows:

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	For the fiscal year ended
	December 28, 2010		December 29, 2009		Percentage Change
Franchise-operated average weekly net sales	$	43,578	$	40,566	7.4	%
Franchise-operated number of operating weeks	41,354		40,436		2.3	%

As of December 28, 2010, there were 791 franchise-operated bakery-cafes open and commitments to open 176 additional franchise-operated bakery-cafes. The timetables for opening these bakery-cafes are established in the various Area Development Agreements, referred to as ADAs, with franchisees, which provide for the majority to open in the next four to five years. An ADA requires a franchisee to develop a specified number of bakery-cafes by specified dates. If a franchisee fails to develop bakery-cafes on schedule, we have the right to terminate the ADA and develop Company-owned locations or develop locations through new franchisees in that market. We may exercise one or more alternative remedies to address defaults by franchisees, including not only development defaults, but also defaults in complying with our operating and brand standards and other covenants under the ADAs and franchise agreements. We may waive compliance with certain requirements under its ADAs and franchise agreements if we determine that such action is warranted under the particular circumstances.

Fresh dough and other product sales to franchisees in fiscal 2010increased 10.9 percent to $135.1 million compared to $121.9 million in fiscal 2009. The increase in fresh dough and other product sales to franchisees was primarily driven by the previously described increased number of franchise-operated bakery-cafes opened since the prior fiscal year, the 8.2 percent increase in franchise-operated comparable net bakery-cafe sales, and increased produce distribution sales.

Costs and Expenses

The cost of food and paper products includes the costs associated with the fresh dough operations that sell fresh dough and other products to Company-owned bakery-cafes, as well as the cost of food and paper products supplied by third-party vendors and distributors. The costs associated with the fresh dough operations that sell fresh dough and other products to franchise-operated bakery-cafes are excluded and are shown separately as fresh dough and other product cost of sales to franchisees in the Consolidated Statements of Operations.

The cost of food and paper products was $374.8 million, or 28.4 percent of net bakery-cafe sales in fiscal 2010 compared to $337.6 million, or 29.3 percent of net bakery-cafe sales, in fiscal 2009. This decrease in the cost of food and paper products as a percentage of net bakery-cafe sales was principally due to category management initiatives, purchasing improvements, food cost deflation, improved leverage of our fresh dough manufacturing costs due to additional bakery-cafe openings, and improved leverage overall from higher comparable net bakery-cafe sales, partially offset by costs incurred related to the roll-out of our MyPanera loyalty program. In fiscal 2010, there was an average of 65.2 bakery-cafes per fresh dough facility compared to an average of 62.5 in fiscal 2009.

Labor expense was $419.1 million, or 31.7 percent of net bakery-cafe sales, in fiscal 2010 compared to $370.6 million, or 32.1 percent of net bakery-cafe sales, in fiscal 2009. The decrease in labor expense as a percentage of net bakery-cafe sales was primarily a result of improved leverage from higher comparable net bakery-cafe sales and lower costs due to the timing of lower than normal self-insurance claims, partially offset by the increased labor investment related to the rollout of our MyPanera loyalty program.

Occupancy cost was $101.0 million, or 7.6 percent of net bakery-cafe sales, in fiscal 2010 compared to $96.0 million, or 8.3 percent of net bakery-cafe sales, in fiscal 2009. The decrease in occupancy cost as a percentage of net bakery-cafe sales was primarily a result of common area maintenance credits received in 2010, as landlords spent less on common area maintenance in prior years than anticipated, improved leverage from higher comparable net bakery-cafe sales, and lower occupancy costs in new bakery-cafes.

Other operating expenses were $177.1 million, or 13.4 percent of net bakery-cafe sales, in fiscal 2010 compared to $155.4 million, or 13.5 percent of net bakery-cafe sales, in fiscal 2009. The decrease in other operating expenses as a percentage of net bakery-cafe sales was primarily a result of improved leverage from higher comparable net bakery-cafe sales, partially offset by costs associated with the roll-out of our MyPanera loyalty program.

Fresh dough and other product cost of sales to franchisees was $111.0 million, or 82.1 percent of fresh dough and other product sales to franchisees, in fiscal 2010 compared to $100.2 million, or 82.2 percent of fresh dough and other product sales to franchisees, in fiscal 2009. The decrease in the fresh dough and other product cost of sales to franchisees as a percentage of fresh dough and other product sales to franchisees was primarily the result of the year-over-year decrease in ingredient costs, improved leverage from new bakery-cafes, higher comparable net bakery-cafe sales, and the Company’s purchase of 40 franchise-operated bakery-cafes.

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General and administrative expenses were $101.5 million, or 6.6 percent of total revenues, in fiscal 2010 compared to $83.2 million, or 6.1 percent of total revenues, in fiscal 2009. The increase in general and administrative expenses as a percent of total revenues was primarily the result of investments made in our marketing infrastructure and higher incentive compensation expense compared to the prior year driven by our fiscal 2010 performance exceeding original targets, partially offset by improved leverage from increased revenues.

Interest Expense

Interest expense was $0.7 million, or less than 0.1 percent of total revenues, in fiscal 2010 compared to $0.7 million, or 0.1 percent of total revenues, in fiscal 2009. The year-over-year decrease in interest expense as a percentage of total revenues was the result of increased revenues.

Other (Income) Expense, net

Other (income) expense, net in fiscal 2010increased to $4.2 million, or 0.3 percent of total revenues, from $0.3 million, or less than 0.1 percent of total revenues, in fiscal 2009. Other (income) expense, net for fiscal 2010 was primarily comprised of charges related to unclaimed property audit exposures, certain state sales tax audit exposures, and immaterial items. Other (income) expense, net for fiscal 2009 was primarily comprised of charges related to certain state sales tax audit exposures, write-offs associated with smallwares and panini grills, the closure of bakery-cafes, and impairment of one bakery-cafe, partially offset by a gain related to the Columbia Strategic Cash Portfolio and the Company-owned life insurance program, and immaterial items.

Income Taxes

The provision for income taxes increased to $68.6 million in fiscal 2010 compared to $53.1 million in fiscal 2009. The tax provision for fiscal 2010 and fiscal 2009 reflects a combined federal, state, and local effective tax rate of 38.1 percent and 37.9 percent, respectively. The increase in the effective tax rate between fiscal 2010 and 2009 was primarily driven by state taxes.

Liquidity and Capital Resources

Cash and cash equivalents were $222.6 million at December 27, 2011 compared to $229.3 million at December 28, 2010. This $6.7 milliondecrease was primarily a result of $107.9 million used on capital expenditures, $96.6 million used to repurchase shares of our Class A common stock, $44.4 million used for acquisitions, and $5.0 million used for payment of deferred acquisition holdbacks, partially offset by $236.9 million of cash generated from operations, $5.0 million of tax benefit from exercise of stock options, $3.2 million received from the exercise of employee stock options, and $2.0 million of proceeds from issuance of common stock under employee benefit plans. Our primary source of liquidity is cash provided by operations, although we have the ability to borrow under a credit facility, as described below. Historically, our principal requirements for cash have primarily resulted from the cost of food and paper products, employee labor, and our capital expenditures for the development of new Company-owned bakery-cafes, for maintaining or remodeling existing Company-owned bakery-cafes, for purchasing existing franchise-operated bakery-cafes or ownership interests in other restaurant or bakery-cafe concepts, for developing, maintaining, or remodeling fresh dough facilities, and for other capital needs such as enhancements to information systems and other infrastructure.

We had working capital of $114.8 million at December 27, 2011 compared to $119.2 million at December 28, 2010. The decrease in working capital resulted primarily from the previously described decrease in cash and cash equivalents of $6.7 million, an increase in accrued expenses of $18.3 million, and an increase in accounts payable of $8.5 million. Partially offsetting the decrease in working capital was an increase in trade and other accounts receivable, net of $16.4 million, an increase in prepaid expenses of $7.3 million, an increase in inventories of $2.7 million, and an increase of $2.7 million in deferred income taxes. We believe that cash provided by our operations and available borrowings under our existing credit facility will be sufficient to fund our cash requirements for the foreseeable future.

A summary of our cash flows, for the periods indicated, are as follows (in thousands):

	For the fiscal year ended
Cash provided by (used in):	December 27, 2011			December 28, 2010			December 29, 2009
Operating activities	$	236,889		$	237,634		$	214,904
Investing activities	$	(152,194	)	$	(132,199	)	$	(49,219	)
Financing activities	$	(91,354	)	$	(122,536	)	$	6,005
Net (decrease) increase in cash and cash equivalents	$	(6,659	)	$	(17,101	)	$	171,690

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Operating Activities

Cash flows provided by operating activities in fiscal 2011 primarily resulted from net income, adjusted for non-cash items such as depreciation and amortization, stock-based compensation expense, deferred income taxes and the tax benefit from exercise of stock options, an increase in accrued expenses, accounts payable, deferred rent, and other long-term liabilities, partially offset by an increase in trade and other accounts receivable, net, prepaid expenses, and inventories. Cash flows provided by operating activities in fiscal 2010 primarily resulted from net income, adjusted for non-cash items such as depreciation and amortization, stock-based compensation expense, deferred income taxes and the tax benefit from exercise of stock options, an increase in accrued expenses and other long-term liabilities, partially offset by an increase in trade and other accounts receivable, net and prepaid expenses. Cash flows provided by operating activities in fiscal 2009 primarily resulted from net income, adjusted for non-cash items such as depreciation and amortization, stock-based compensation expense, deferred income taxes, and the tax benefit from exercise of stock options, an increase in accrued expenses, other long-term liabilities, deferred rent, and accounts payable, partially offset by an increase in trade and other accounts receivable, net and prepaid expenses.

Investing Activities

Capital Expenditures

Capital expenditures are the largest ongoing component of our investing activities and include expenditures for new bakery-cafes and fresh dough facilities, improvements to existing bakery-cafes and fresh dough facilities, and other capital needs. A summary of capital expenditures for the periods indicated consisted of the following (in thousands):

	For the fiscal year ended
	December 27, 2011		December 28, 2010		December 29, 2009
New bakery-cafe and fresh dough facilities	$	63,021	$	42,294	$	28,036
Bakery-cafe and fresh dough facility improvements	30,858		27,009		21,695
Other capital needs	14,053		12,923		4,953
Total	$	107,932	$	82,226	$	54,684

Our capital requirements, including development costs related to the opening or acquisition of additional bakery-cafes and fresh dough facilities and maintenance and remodel expenditures, have been and will continue to be significant. Our future capital requirements and the adequacy of available funds will depend on many factors, including the pace of expansion, real estate markets, site locations, and the nature of the arrangements negotiated with landlords. We believe that cash provided by our operations and available borrowings under our existing credit facility will be sufficient to fund our capital requirements in both our short-term and long-term future. We currently anticipate 115 to 120 system-wide bakery-cafe openings in fiscal 2012. We expect future bakery-cafes will require, on average, an investment per bakery-cafe (excluding pre-opening expenses which are expensed as incurred) of approximately $950,000, which is net of landlord allowances and excludes capitalized development overhead.

Business Combinations

We used approximately $44.4 million and $52.2 million of cash flows for acquisitions, in fiscal 2011 and fiscal 2010, respectively. In fiscal 2009 there were no acquisitions. In fiscal 2011 we purchased substantially all the assets and certain liabilities of 25 bakery-cafes from our Milwaukee franchisee and an additional five bakery-cafes from our Indiana franchisee. In fiscal 2010, we purchased a controlling interest in certain assets, liabilities, and the operations of three bakery-cafes in Ontario, Canada from our Canadian franchisee in a non-cash transaction. We subsequently purchased the remaining noncontrolling interest in the three bakery-cafes on December 28, 2010 for $0.7 million. Additionally, in fiscal 2010 we purchased substantially all the assets and certain liabilities of 37 bakery-cafes from our New Jersey franchisee. Within our Consolidated Balance Sheets as of December 27, 2011 and December 28, 2010, $2.6 million and $5.0 million respectively, were included for contingent or accrued purchase price remaining from previously completed acquisitions. See Note 3 to the consolidated financial statements for further information with respect to our acquisition activity in fiscal 2011 and 2010.

Investments

Historically, we invested a portion of our cash balances on hand in a private placement of units of beneficial interest in the Columbia Strategic Cash Portfolio, which was an enhanced cash fund previously sold as an alternative to traditional money-market funds. The Columbia Strategic Cash Portfolio included investments in certain asset-backed securities and structured investment vehicles that were collateralized by sub-prime mortgage securities or related to mortgage securities, among other assets. As a result of

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adverse market conditions that unfavorably affected the fair value and liquidity availability of collateral underlying the Columbia Strategic Cash Cash Portfolio was closed with a restriction placed upon the cash redemption ability of its holders in the fourth quarter of fiscal 2007.

During fiscal 2009, we received $5.5 million of cash redemptions at an average net asset value of $0.861 per unit, which fully redeemed our remaining units in the Columbia Strategic Cash Portfolio, and we classified the redemptions as investment maturity proceeds provided by investing activities. In total, we recognized a net realized and unrealized gain on the Columbia Strategic Cash Portfolio units of $1.3 million in fiscal 2009 related to the fair value measurements and redemptions received and included the net gain in net cash provided by operating activities.

Financing Activities

Financing activities in fiscal 2011 included $96.6 million used to repurchase shares of our Class A common stock and $5.0 million used on the payment of deferred acquisition holdbacks, offset by $5.0 million received from the tax benefit from exercise of stock options, $3.2 million received from the exercise of employee stock options, and $2.0 million received from the issuance of common stock. Financing activities in fiscal 2010 included $153.5 million used to repurchase shares of our Class A common stock offset by $25.6 million received from the exercise of employee stock options, $3.6 million received from the tax benefit from exercise of stock options, and $1.8 million received from the issuance of common stock. Financing activities in fiscal 2009 included $22.8 million received from the exercise of employee stock options, $5.1 million received from the tax benefit from the exercise of stock options, and $1.6 million received from the issuance of common stock, partially offset by $20.1 million used to purchase the remaining interest of Paradise and approximately $3.5 million to repurchase shares of our Class A common stock.

Purchase of Noncontrolling Interest

On June 2, 2009, we purchased the remaining 49 percent of the outstanding stock of Paradise, excluding certain agreed upon assets totaling $0.7 million, for a purchase price of $22.3 million, $0.1 million in transaction costs, and settlement of $3.4 million of debt owed to us by the former shareholders of the remaining 49 percent of Paradise, whom we refer to as the Prior Shareholders. Approximately $20.0 million of the purchase price, as well as the transaction costs, were paid on June 2, 2009, with $2.3 million retained by us for certain holdbacks. The holdbacks were primarily for certain indemnifications and expired on June 2, 2011, at which time the remaining holdback amounts reverted to the Prior Shareholders. The transaction was accounted for as an equity transaction, by adjusting the carrying amount of the noncontrolling interest balance to reflect the change in our ownership interest in Paradise, with the difference between fair value of the consideration paid and the amount by which the noncontrolling interest was adjusted recognized in equity attributable to us.

Share Repurchases

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 share repurchases may be effected 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 will resume the status of authorized but unissued shares or they may be held by us as treasury stock. The repurchase authorization may be modified, suspended, or discontinued by our Board of Directors at any time. Under the share repurchase authorization, we repurchased a total of 877,100 shares of our Class A common stock at a weighted-average price of $103.55 per share for an aggregate purchase price of $90.8 million in fiscal 2011. During fiscal 2010, we repurchased a total of 1,905,540 shares of our Class A common stock at a weighted-average price of $78.72 per share for an aggregate purchase price of $150.0 million. During fiscal 2009, we repurchased a total of 27,429 shares of our Class A common stock at a weighted-average price of $62.98 per share for an aggregate purchase price of $1.7 million. As of the date of this report, under the share repurchase authorization, we repurchased a total of 2,810,069 shares of our Class A common stock at a weighted-average price of $86.33 per share for an aggregate purchase price of approximately $242.6 million. We have approximately $357.4 million available under the existing $600.0 million repurchase authorization.

We have historically repurchased shares of our Class A common stock through a share repurchase authorization approved by our Board of Directors from participants of the Panera Bread 1992 Stock Incentive Plan and the Panera Bread 2006 Stock Incentive Plan, as amended, or collectively, the Plans. Repurchased shares are netted and surrendered as payment for applicable tax withholding on the vesting of participants’ restricted stock. During fiscal 2011, we repurchased 52,146 shares of Class A common stock surrendered by participants of the Plans at a weighted-average price of $109.33 per share for an aggregate purchase price of approximately $5.7 million pursuant to the terms of the Plans and the applicable award agreements. During fiscal 2010, we repurchased 44,002 shares of Class A common stock surrendered by participants of the Plans at a weighted-average price of $77.99 per share for an aggregate purchase price of $3.5 million pursuant to the terms of the Plans and the applicable award agreements. During fiscal 2009, we repurchased 32,135 shares of Class A common stock surrendered by participants in the Plans at a weighted-average price of $53.66 per share for an aggregate purchase price of $1.7 million pursuant to the terms of the Plans and the

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applicable award agreements.

Credit Facility

On March 7, 2008, we and certain of our direct and indirect subsidiaries, as guarantors, entered into an amended and restated credit agreement, referred to as the Amended and Restated Credit Agreement, with Bank of America, N.A., and other lenders party thereto to amend and restate in its entirety our Credit Agreement, dated as of November 27, 2007, by and among us, Bank of America, N.A., and the lenders party thereto, referred to as the Original Credit Agreement. Pursuant to our request under the terms of the Original Credit Agreement, the Amended and Restated Credit Agreement increased the size of our secured revolving credit facility from $75.0 million to $250.0 million. We may select interest rates equal to (a) the Base Rate (which is defined as the higher of Bank of America prime rate and the Federal Funds Rate plus 0.50 percent), or (b) LIBOR plus an Applicable Rate, ranging from 0.75 percent to 1.50 percent, based on our Consolidated Leverage Ratio, as each term is defined in the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement allows us from time to time to request that the credit facility be further increased by an amount not to exceed, in the aggregate, $150.0 million, subject to receipt of lender commitments and other conditions precedent. The Amended and Restated Credit Agreement contains financial covenants that, among other things, require the maintenance of certain leverage and fixed charges coverage ratios. The credit facility, which is secured by the capital stock of our present and future material subsidiaries, will become due on March 7, 2013, subject to acceleration upon certain specified events of defaults, including breaches of representations or covenants, failure to pay other material indebtedness or a change of control of our Company, as defined in the Amended and Restated Credit Agreement. The proceeds from the credit facility will be used for general corporate purposes, including working capital, capital expenditures, permitted acquisitions, and share repurchases. As of December 27, 2011 and December 28, 2010, we had no balance outstanding and was in compliance with all covenants under the Amended and Restated Credit Agreement.

Critical Accounting Policies & Estimates

Our discussion and analysis of our consolidated financial condition and results of operations is based upon the consolidated financial statements and notes to the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of the consolidated financial statements requires us to make estimates, judgments and assumptions, which we believe to be reasonable, based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Variances in the estimates or assumptions used to actual experience could yield materially different accounting results. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances.

We have chosen accounting policies we believe are appropriate to report accurately and fairly our consolidated operating results and financial position, and we apply those accounting policies in a consistent manner. We consider our policies on accounting for revenue recognition, valuation of goodwill, self-insurance, income taxes, lease obligations, and stock-based compensation to be the most critical in the preparation of the consolidated financial statements because they involve the most difficult, subjective, or complex judgments about the effect of matters that are inherently uncertain. There have been no material changes to our application of critical accounting policies and significant judgments and estimates that occurred during the fiscal year ended December 27, 2011.

Revenue Recognition

We recognize revenues from net bakery-cafe sales upon delivery of the related food and other products to the customer. Revenues from fresh dough and other product sales to franchisees are recorded upon delivery of the fresh dough and other products to franchisees. Also, a liability is recorded in the period in which a gift card is issued and 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 bakery-cafes are generally recognized upon delivery to customers. Further, franchise fees are the result of the sale of area development rights and the sale of individual franchise locations to third parties. The initial franchise fee is generally $35,000 per bakery-cafe to be developed under the Area Development Agreement, or ADA. Of this fee, $5,000 is generally paid at the time of signing of the ADA and is recognized as revenue when it is received as it is non-refundable and we have to perform no other service to earn this fee. The remainder of the fee is paid at the time an individual franchise agreement is signed and is recognized as revenue upon the opening of the corresponding bakery-cafe. Royalties are generally paid weekly based on a percentage of net franchisee sales specified in each ADA (generally 4 percent to 5 percent of net sales). Royalties are recognized as revenue when they are earned.

We maintain a customer loyalty program in which customers earn rewards based on registration in the program and purchases within our bakery-cafes. We record the full retail value of loyalty program rewards as a reduction of net bakery-cafe sales and a liability is established within accrued expenses as rewards are earned while considering historical redemption rates. Fully earned rewards expire if unredeemed after 60 days.

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We sell gift cards which do not have an expiration date and from which we do not deduct non-usage fees from outstanding gift card balances. We recognize revenue from gift cards when: (i) the gift card is redeemed by the customer; or (ii) we determine the likelihood of the gift card being redeemed by the customer is remote ("gift card breakage") and there is no longer a legal obligation to remit the unredeemed gift cards in the relevant jurisdiction. The determination of gift card breakage is based upon our specific historical redemption patterns. When the likelihood of further redemptions becomes remote, breakage is recorded as a reduction of general and administrative expenses in the Consolidated Statements of Operations; however, such gift cards will continue to be honored. In the fiscal year ended December 27, 2011, we completed an initial analysis of unredeemed gift card liabilities and recognized a reduction of $1.9 million of general and administrative expenses.

Valuation of Goodwill

Goodwill consists of the excess of the purchase price over the fair value of net assets acquired. In September 2011, the FASB updated its guidance on the annual testing of goodwill for impairment to allow companies to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. The updated guidance is applicable to goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.

We have adopted this updated guidance for the fiscal year 2011. We performed the qualitative assessment, which included an analysis of macroeconomic factors, industry and market conditions, internal cost factors, our overall financial performance, entity-specific events, share price fluctuations, and results of past impairment tests. Based on this assessment, we have not identified any conditions that would suggest an impairment of goodwill exists in fiscal year 2011.

Goodwill and indefinite-lived intangible assets recorded in the consolidated financial statements are required to be evaluated for periodic evaluation for impairment when circumstances warrant, or at least once per year. Prior to fiscal year 2011, goodwill was tested for impairment in accordance with the accounting standard for goodwill by comparing the carrying value of reporting units to their estimated fair values. We completed annual impairment tests as of the first day of the fiscal fourth quarter for each of fiscal 2010 and fiscal 2009, none of which identified any impairment as the fair value of our reporting units exceeded the associated carrying values.

At December 27, 2011 and December 28, 2010, our goodwill balance was $108.1 million and $94.4 million, respectively. As we did not become aware of any impairment indicators subsequent to the date of the annual assessment, we determined there was no impairment as of December 27, 2011.

Self-Insurance

We are self-insured for a significant portion of our workers’ compensation, group health, and general, auto, and property liability insurance with varying levels of deductibles of as much as $0.5 million of individual claims, depending on the type of claim. We also purchase aggregate stop-loss and/or layers of loss insurance in many categories of loss. We utilize third party actuarial experts’ estimates of expected losses based on statistical analyses of historical industry data, as well as our own estimates based on our actual historical data to determine required self-insurance reserves. The assumptions are closely reviewed, monitored, and adjusted when warranted by changing circumstances. These estimated liabilities could be affected if actual experience related to the number of claims and cost per claim differs from these assumptions and historical trends. Based on information known at December 27, 2011, we believe we have provided adequate reserves for our self-insurance exposure. As of December 27, 2011 and December 28, 2010, self-insurance reserves were $23.6 million and $20.2 million, respectively, and were included in accrued expenses in the Consolidated Balance Sheets.

Income Taxes

We are subject to income taxes in the United States and Canada. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. We assess the income tax position and record the liabilities for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date.

Our provision for income taxes is determined in accordance with the accounting guidance for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, the refinement of an estimate or changes in tax laws. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact our provision for income taxes in the period in which such determination is made. Our provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.

Our effective tax rates have differed from the statutory tax rate primarily due to the impact 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, accounting principles, or interpretations thereof. In addition, we are subject to the continuous examination of our income tax returns and other tax filings by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our reserve for income taxes.

Lease Obligations

We lease all but two of our bakery-cafes, fresh dough facilities and trucks, and support centers. Each lease is evaluated to determine whether the lease will be accounted for as an operating or capital lease. The term used for this evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty.

For leases that contain rent escalations, we record the total rent payable during the lease term, as described above, on a straight-line basis over the term of the lease, and record the difference between the minimum rent paid and the straight-line rent as a lease obligation. Many of our leases contain provisions that require additional rental payments based upon net bakery-cafe sales volume or changes in external indices, which we refer to as contingent rent. Contingent rent is accrued each period as the liability is incurred, in addition to the straight-line rent expense noted above. This results in variability in occupancy expense over the term of the lease in bakery-cafes where we pay contingent rent.

In addition, we record landlord allowances for non-structural tenant improvements as deferred rent, which is included in accrued expenses or deferred rent in the Consolidated Balance Sheets based on their short-term or long-term nature. These landlord allowances are amortized over the reasonably assured lease term as a reduction of rent expense. Additionally, we record landlord allowances for structural tenant improvements as reduction in depreciation expense. Leasehold improvements are amortized using the straight-line method over the shorter of their estimated useful lives or the related reasonably assured lease term.

Management makes judgments regarding the probable term for each lease, which can impact the classification and accounting for a lease as capital or operating, the rent holiday, and/or escalations in payments that are taken into consideration when calculating straight-line rent and the term over which leasehold improvements for each bakery-cafe, fresh dough facility, and support center is amortized. These judgments may produce materially different amounts of depreciation, amortization, and rent expense than would be reported if different assumed lease terms were used.

Stock-Based Compensation

We account for stock-based compensation in accordance with the accounting standard for stock-based compensation, which requires us to measure and record compensation expense in our consolidated financial statements for all stock-based compensation awards using a fair value method. We maintain several stock-based incentive plans under which we may grant incentive stock options, non-statutory stock options, and stock settled appreciation rights, referred to collectively as option awards, to certain directors, officers, employees, and consultants. We also may grant restricted stock and restricted stock units and we offer a stock purchase plan through which employees may purchase our Class A common stock each calendar quarter through payroll deductions at 85 percent of market value on the purchase date and we recognize compensation expense on the 15 percent discount.

For option awards, fair value is determined using the Black-Scholes option pricing model, while restricted stock is valued using the closing stock price on the date of grant. The Black-Scholes option pricing model requires the input of subjective assumptions including the estimate of the following:

• Expected term — The expected term of the option awards represents the period of time between the grant date of the option awards and the date the option awards are either exercised or canceled, including an estimate for those option awards still outstanding, and is derived from historical terms and other factors.

• Expected volatility — The expected volatility is based on an average of the historical volatility of our stock price, for a period approximating the expected term, and the implied volatility of externally traded options of our stock that were

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entered into during the period.

• Risk-free interest rate — The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and with a maturity that approximates the option awards’ expected term.

• Dividend yield — The dividend yield is based on our anticipated dividend payout over the expected term of the option awards.

Additionally, we use historical experience to estimate the expected forfeiture rate in determining the stock-based compensation expense for these awards. Changes in these assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amount of stock-based compensation expense recognized in the Consolidated Statements of Operations. The fair value of the awards is amortized over the vesting period. Option awards and restricted stock generally vest ratably over a four-year period beginning two years from the date of grant and option awards generally have a six-year term.

Contractual Obligations and Other Commitments

We currently anticipate 115 to 120 system-wide bakery-cafe openings in fiscal 2012. We expect to fund our capital expenditures principally through internally generated cash flow and available borrowings under our existing credit facility, if needed.

In addition to our planned capital expenditure requirements, we have certain other contractual and committed cash obligations. Our contractual cash obligations consist of noncancelable operating leases for our bakery-cafes, fresh dough facilities and trucks, and support centers; purchase obligations primarily for certain commodities; and uncertain tax positions. Lease terms for our trucks are generally for six to eight years. Lease terms for our bakery-cafes, fresh dough facilities, and support centers are generally for ten years with renewal options at most locations and 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 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. As of December 27, 2011, we expect cash expenditures under these lease obligations, purchase obligations, and uncertain tax positions to be as follows for the fiscal periods indicated (in thousands):

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating Leases (1)	$	1,643,604	$	107,816	$	214,503	$	207,834	$	1,113,451
Capital Lease Obligations (1)	1,673		186		372		372		743
Purchase Obligations (2)	218,083		216,387		1,696		—		—
Uncertain Tax Positions (3)	3,379		677		966		405		1,331
Total	$	1,866,739	$	325,066	$	217,537	$	208,611	$	1,115,525

(1) See Note 13 to the consolidated financial statements for further information with respect to our operating and capital leases.

(2) Relates to certain commodity and service agreements where we are committed as of December 27, 2011 to purchase a fixed quantity over a contracted time period.

(3) See Note 14 to the consolidated financial statements for further information with respect to our uncertain tax positions.

Off-Balance Sheet Arrangements

As of December 27, 2011, we guaranteed operating leases of 25 franchisee or affiliate bakery-cafes, which we account for in accordance with the accounting requirements for guarantees. These leases have terms expiring on various dates from January 31, 2012 to December 31, 2023 and have a potential amount of future rental payments of approximately $23.6 million as of December 27, 2011. Our obligation under these leases will generally decrease over time as these operating leases expire. We have not recorded a liability for certain of these guarantees as they arose prior to the issuance of the accounting requirements for guarantees and, unless modified, are exempt from its requirements. We have 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 us to be insignificant based on analysis of the facts and circumstances of each such lease and each such franchisee’s performance, and we did not believe it was probable we would be required to perform under any guarantees at the time the guarantees were issued. We have not had to make any payments related to any of these guaranteed leases. Applicable franchisees continue to have primary obligation for these operating leases. As of December 27, 2011, future commitments under these leases were as follows (in thousands):

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	Total		Less than 1 year	1-3 years	3-5 years	More than 5 years
Subleases and Lease Guarantees (1)	$	23,628	3,253	6,291	4,188	9,896

(1) Represents aggregate minimum requirement — see Note 13 to the consolidated financial statements for further information with respect to our lease guarantees.

Employee Commitments

We have Confidential and Proprietary Information and Non-Competition Agreements, referred to as Non-Compete Agreements, with certain employees. These Non-Compete Agreements contain a provision whereby employees would be due a certain number of weeks of their salary if their employment was terminated by us as specified in the Non-Compete Agreement. We have not recorded a liability for these amounts potentially due to employees. Rather, we will record a liability for these amounts when an amount becomes due to an employee in accordance with the appropriate authoritative literature. As of December 27, 2011, the total amount potentially owed employees under these Non-Compete Agreements was $16.5 million.

Impact of Inflation

Our profitability depends in part on our ability to anticipate and react to changes in food, supply, labor, occupancy, and other costs. In the past, we have been able to recover a significant portion of inflationary costs and commodity price increases, including, among other things, fuel, proteins, dairy, wheat, tuna, and cream cheese costs, through increased menu prices. There have been, and there may be in the future, delays in implementing such menu price increases, and competitive pressures may limit our ability to recover such cost increases in their entirety. Historically, the effects of inflation on our consolidated results of operations have not been materially adverse. However, inherent volatility experienced in certain commodity markets, such as those for wheat, fuel, and proteins, such as chicken or turkey, may have an adverse effect on us in the future. The extent of the impact will depend on our ability and timing to increase food prices.

A majority of our associates are paid hourly rates related to 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 that all such increased labor costs can be reflected in our prices or that increased prices will be absorbed by consumers without diminishing to some degree consumer spending at the bakery-cafes. However, we have not experienced to date a significant reduction in bakery-cafe profit margins as a result of changes in such laws, and management does not anticipate any related future significant reductions in gross profit margins.

New Accounting Standards

In September 2011, the FASB updated its guidance on the annual testing of goodwill for impairment to allow companies to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. The updated guidance is applicable to goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of this updated guidance did not have a material impact on our consolidated financial statements.

In June 2011 and as updated in December 2011, the FASB updated its guidance regarding comprehensive income to require companies to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in equity. This updated guidance is applicable for fiscal years beginning after December 15, 2011. We believe the adoption of this updated guidance will not have a material impact on our consolidated financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Risk

We manage our commodity risk in several ways. All derivative instruments are entered into for other than trading purposes. In fiscal 2011, 2010 and 2009, we did not have any derivative instruments. In addition, we purchase certain commodities, such as flour, coffee, and proteins, for use in our business. These commodities are sometimes purchased under agreements of one month to one year time frames usually at a fixed price. As a result, we are subject to market risk that current market prices may be above or below our contractual price.

Interest Rate Sensitivity

We are also exposed to market risk primarily from fluctuations in interest rates on our revolving credit facility. Our revolving credit facility provides for a $250.0 million secured facility under which we may select interest rates equal to (1) the Base Rate (which is defined as the higher of the Bank of America prime rate and the Federal funds rate plus 0.50 percent) or (2) LIBOR plus an applicable rate ranging from 0.75 percent to 1.50 percent as set forth in the Amended and Restated Credit Agreement. We did not have an outstanding balance on our credit facility at December 27, 2011. We may have future borrowings under our credit facility, which could result in an interest rate change that may have an impact on our consolidated results of operations.

Foreign Currency Exchange Risk

We currently operate three Canadian Company-owned bakery-cafes. Our operating expenses and cash flows are subject to fluctuation due to changes in the exchange rate of the Canadian Dollar, in which our operating obligations in Canada are paid. To date, we have not entered into any hedging contracts, although we may do so in the future. Fluctuations in currency exchange rates could affect our business in the future.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements are included in response to this item:

Report of Independent Registered Public Accounting Firm	38
Consolidated Balance Sheets	39
Consolidated Statements of Operations	40
Consolidated Statements of Cash Flows	41
Consolidated Statements of Changes in Equity	42
Notes to the Consolidated Financial Statements	43
Schedule II — Valuation and Qualifying Accounts — is included in Item 15(a)(2). All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.	72

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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 operations, of changes in equity and of cash flows present fairly, in all material respects, the financial position of Panera Bread Company and its subsidiaries at December 27, 2011 and December 28, 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 27, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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.

/s/ PricewaterhouseCoopers LLP

St. Louis, Missouri

February 21, 2012

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PANERA BREAD COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share information)

	December 27, 2011			December 28, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	222,640		$	229,299
Trade accounts receivable, net	30,700			20,378
Other accounts receivable	24,009			17,962
Inventories	17,016			14,345
Prepaid expenses and other	31,228			23,905
Deferred income taxes	27,526			24,796
Total current assets	353,119			330,685
Property and equipment, net	492,022			444,094
Other assets:
Goodwill	108,071			94,442
Other intangible assets, net	67,269			48,402
Deposits and other	6,841			6,958
Total other assets	182,181			149,802
Total assets	$	1,027,322		$	924,581
LIABILITIES
Current liabilities:
Accounts payable	$	15,884		$	7,346
Accrued expenses	222,450			204,170
Total current liabilities	238,334			211,516
Deferred rent	54,055			47,974
Deferred income taxes	34,345			30,264
Other long-term liabilities	45,512			39,219
Total liabilities	372,246			328,973
Commitments and contingencies (Note 13)
STOCKHOLDERS' EQUITY
Panera Bread Company stockholders’ equity:
Common stock, $.0001 par value per share:
Class A, 112,500,000 shares authorized; 30,330,759 shares issued and 28,265,672 shares outstanding at December 27, 2011 and 30,125,936 shares issued and 29,006,844 shares outstanding at December 28, 2010	3			3
Class B, 10,000,000 shares authorized; 1,383,687 shares issued and outstanding at December 27, 2011 and 1,391,607 shares at December 28, 2010	—			—
Treasury stock, carried at cost; 2,048,338 shares at December 27, 2011 and 1,119,092 shares at December 28, 2010	(175,595		)	(78,990		)
Preferred stock, $.0001 par value per share; 2,000,000 shares authorized and no shares issued or outstanding at December 27, 2011 and December 28, 2010	—			—
Additional paid-in capital	150,093			130,005
Accumulated other comprehensive income	308			275
Retained earnings	680,267			544,315
Total stockholders' equity	655,076			595,608
Total liabilities and stockholders' equity	$	1,027,322		$	924,581

The accompanying notes are an integral part of the consolidated financial statements.

39

PANERA BREAD COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share information)

	For the fiscal year ended
	December 27, 2011			December 28, 2010			December 29, 2009
Revenues:
Bakery-cafe sales, net	$	1,592,951		$	1,321,162		$	1,153,255
Franchise royalties and fees	92,793			86,195			78,367
Fresh dough and other product sales to franchisees	136,288			135,132			121,872
Total revenues	1,822,032			1,542,489			1,353,494
Costs and expenses:
Bakery-cafe expenses:
Cost of food and paper products	$	470,398		$	374,816		$	337,599
Labor	484,014			419,140			370,595
Occupancy	115,290			100,970			95,996
Other operating expenses	216,237			177,059			155,396
Total bakery-cafe expenses	1,285,939			1,071,985			959,586
Fresh dough and other product cost of sales to franchisees	116,267			110,986			100,229
Depreciation and amortization	79,899			68,673			67,162
General and administrative expenses	113,083			101,494			83,169
Pre-opening expenses	6,585			4,282			2,451
Total costs and expenses	1,601,773			1,357,420			1,212,597
Operating profit	220,259			185,069			140,897
Interest expense	822			675			700
Other (income) expense, net	(466		)	4,232			273
Income before income taxes	219,903			180,162			139,924
Income taxes	83,951			68,563			53,073
Net income	135,952			111,599			86,851
Less: net (loss) income attributable to noncontrolling interest	—			(267		)	801
Net income attributable to Panera Bread Company	$	135,952		$	111,866		$	86,050
Earnings per common share attributable to Panera Bread Company:
Basic	$	4.59		$	3.65		$	2.81
Diluted	$	4.55		$	3.62		$	2.78
Weighted average shares of common and common equivalent shares outstanding:
Basic	29,601			30,614