Panera Bread 2009 Annual Report Download - page 60

accounting standard for property, plant and equipment, specifically related to the accounting for the impairment or
disposal of long-lived assets.
Deferred Financing Costs
Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to
interest expense based on the related debt agreement using the straight-line method, which approximates the
effective interest method. The unamortized amounts are included in deposits and other assets in the Consolidated
Balance Sheets and were $0.8 million and $1.1 million at December 29, 2009 and December 30, 2008, respectively.
Revenue Recognition
The Company records revenue from bakery-cafe sales upon delivery of the related food and other products to
the customer. Revenue from fresh dough sales to franchisees is also recorded upon delivery.
The Company records a liability 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.
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 (“ADA”). Of this fee, $5,000 is generally paid at the time of the signing of the ADA and is
recognized as revenue when it is received, as it is non-refundable and the Company has 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 bakery-cafe. Franchise fees were $1.2 million, $2.2 million, and
$2.6 million for the fiscal years ended December 29, 2009, December 30, 2008, and December 25, 2007,
respectively. Royalties are generally paid weekly based on the percentage of sales specified in each ADA (generally
4 percent to 5 percent of sales). Royalties are recognized as revenue when they are earned. Royalties were
$77.1 million, $72.6 million, and $64.6 million for the fiscal years ended December 29, 2009, December 30, 2008,
and December 25, 2007, respectively.
Advertising Costs
National advertising fund and marketing administration contributions received from franchise-operated
bakery-cafes are consolidated with those from the Company in the Company’s consolidated financial statements.
Liabilities for unexpended funds received from franchisees are included in accrued expenses in the Consolidated
Balance Sheets. The Company’s contributions to the national advertising and marketing administration funds are
recorded as part of general and administrative expenses in the Consolidated Statements of Operations, while the
Company’s own local bakery-cafe media costs are recorded as part of other operating expenses in the Consolidated
Statements of Operations. The Company’s policy is to record advertising costs as expense in the period in which the
cost is incurred. The Company’s advertising costs include national, regional and local expenditures utilizing
primarily radio, billboards, social networking, television, and print. The total amounts recorded as advertising
expense were $15.3 million, $14.2 million, and $10.8 million for the fiscal years ended December 29, 2009,
December 30, 2008, and December 25, 2007, respectively.
Pre-Opening Expenses
All pre-opening costs directly associated with the opening of new bakery-cafe locations, which consists
primarily of pre-opening rent expense, labor and food costs incurred during in-store training and preparation for
opening, but exclude manager training costs which are included in other operating expenses in the Consolidated
Statements of Operations, are expensed when incurred.
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PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)