Panera Bread 2004 Annual Report Download - page 49

10. Commitments and Contingent Liabilities
The Company is obligated under non-cancelable operating leases for its bakery-cafes, fresh dough facilities and trucks, and
administrative offices. Lease terms for its trucks are generally for five to seven years. Lease terms for its bakery-cafes, fresh dough
facilities, and administrative offices are generally for ten years with renewal options at certain locations and generally require the
Company to pay a proportionate share of real estate taxes, insurance, common area, 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. Certain of the
Company’s lease agreements provide for scheduled rent increases during the lease terms or for rental payments commencing at a date
other than the date of initial occupancy. See Note 3 to the Consolidated Financial Statements for further information.
Aggregate minimum requirements under non-cancelable operating leases, excluding contingent liabilities, as of December 25,
2004, were as follows (in thousands):
2005........................................................................................................................................................................................ $ 28,680
2006........................................................................................................................................................................................ 28,756
2007........................................................................................................................................................................................ 27,537
2008........................................................................................................................................................................................ 26,141
2009........................................................................................................................................................................................ 25,050
Thereafter ............................................................................................................................................................................... 91,563
$ 227,727
Rental expense under operating leases was approximately $24.7 million, $21.0 million (as restated), and $16.6 million (as restated)
in 2004, 2003, and 2002, respectively, which included contingent (i.e. percentage rent) payments of $0.6 million, $0.6 million, and
$0.3 million, respectively.
The Company is a prime tenant for certain operating leases of ten franchisee locations and guarantor for certain operating leases of
42 locations of the former Au Bon Pain Division, or its franchisees. These leases have terms expiring on various dates from January
31, 2005 to January 1, 2019, and the guarantees have a potential amount of future rental payments of approximately $33.6 million.
The obligation from these leases will continue to decrease over time as these operating leases expire or are not renewed. As the
guarantees were initiated prior to December 31, 2002, the Company has not recorded a liability for these guarantees pursuant to the
provisions of FASB Interpretation Number (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements For Guarantees,
Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of
FASB Interpretation No. 34.” Also, the Company has not had to make any payments related to these leases. Au Bon Pain and the
respective franchisees continue to have primary liability for these operating leases. Future commitments as of December 25, 2004
under these leases were as follows (in thousands):
2005.......................................................................................................................................................................................... $ 7,405
2006.......................................................................................................................................................................................... 6,759
2007.......................................................................................................................................................................................... 5,254
2008.......................................................................................................................................................................................... 4,148
2009.......................................................................................................................................................................................... 3,067
Thereafter ................................................................................................................................................................................. 6,964
$ 33,597
In March 1998, the Company entered into a multi-year supply agreement with Bunge Food Corporation (“Bunge”) for the supply
of substantially all of its sweet goods. The Company’s pricing was structured as a cost plus arrangement. In November 2002, the
Company signed an agreement with Dawn Food Products, Inc. (“Dawn”) to provide sweet goods for the period 2003-2007. The
agreement with Dawn is also structured as a cost plus agreement. The transition from Bunge to Dawn was completed in the first
quarter of fiscal 2003.
Beginning in fiscal 2003, the Company executed Confidential and Proprietary Information and Non-Competition Agreements
(Agreements) with certain employees. These Agreements contain a provision whereby employees would be due a certain number of
weeks of their salary if their employment was terminated by the Company as specified in the Agreement. In accordance with SFAS 5,
the Company has not recorded a liability for these amounts potentially due employees. Rather, the Company will record a liability for
these amounts when an amount becomes due to an employee. As of December 25, 2004, the total amount potentially owed to
employees under these Agreements was approximately $5.4 million.
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