Panera Bread 2010 Annual Report Download - page 49

(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 28, 2010, the total amount potentially
owed employees under these Non-Compete Agreements was $12.8 million.
Related Party Note Receivable
As part of the franchise agreement between Millennium and Panera Bread ULC, Panera Bread ULC developed
and equipped three bakery-cafes as typical Panera Bread bakery-cafes in accordance with our then current design
and construction standards and specifications as applied by Panera Bread ULC, in its sole discretion. Millennium
was required to pay Panera Bread ULC an amount equal to the total cost of development of the bakery-cafes, which
included any and all costs and expenses incurred by Panera Bread ULC in connection with selection and
development of the bakery-cafes, excluding overhead expenses of Panera Bread ULC. On September 15, 2008,
October 27, 2008, and December 16, 2008, Panera Bread ULC delivered possession of the three bakery-cafes in
Canada to Millennium, which bakery-cafes subsequently opened on October 6, 2008, November 10, 2008, and
January 26, 2009, respectively. The Cdn.$3.5 million note receivable from Millennium was included in other
accounts receivable in the Consolidated Balance Sheets as of December 29, 2009.
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.
Accounting Standards Issued Not Yet Adopted
On December 30, 2009, we adopted the updated guidance issued by the Financial Accounting Standards
Board, or FASB, related to fair value measurements and disclosures, which requires a reporting entity to separately
disclose the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to
describe the reasons for the transfers. The updated guidance also requires that an entity provide fair value
measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and non-recurring Level 2 and Level 3 fair value measurements.
This guidance was effective for interim or annual financial reporting periods beginning after December 15, 2009.
The adoption of this updated guidance did not have an impact on our consolidated results of operations or financial
42