Panera Bread 2010 Annual Report Download - page 62

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$2.2 million for the fiscal years ended December 28, 2010, December 29, 2009, and December 30, 2008,
respectively. Royalties are generally paid weekly based on the percentage of franchisee sales specified in each
ADA (generally 4 percent to 5 percent of net sales). Royalties are recognized as revenue when they are earned.
Royalties were $84.8 million, $77.1 million, and $72.6 million for the fiscal years ended December 28, 2010,
December 29, 2009, and December 30, 2008, respectively.
The Company maintains a customer loyalty program referred to as “MyPanera
TM
” in which Panera Bread
Company customers earn rewards based on registration in the program and purchases within our Panera Bread
bakery-cafes. The Company records the full retail value of loyalty program rewards as a reduction of net bakery-
cafe sales and a liability is established within other accrued expenses as rewards are earned while considering
historical redemption rates. Fully earned rewards expire if unredeemed after 60 days. The accrued liability related to
the Company’s loyalty program, which is included as a reduction of bakery-cafe sales in the Consolidated Statement
of Operations, was $4.3 million as of December 28, 2010.
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
costs are 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 $27.4 million, $15.3 million, and $14.2 million for the fiscal years ended December 28, 2010,
December 29, 2009, and December 30, 2008, 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 the Consolidated Statements of Operations, are
expensed when incurred.
Rent Expense
The Company recognizes rent expense on a straight-line basis over the reasonably assured lease term as
defined in the accounting standard for leases. The reasonably assured lease term for most bakery-cafe leases is the
initial non-cancelable lease term plus one renewal option period, which generally equates to 15 years. The
reasonably assured lease term on most fresh dough facility leases is the initial non-cancelable lease term plus one to
two renewal option periods, which generally equates to 20 years. In addition, 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. The Company includes any rent escalations and construction period and
other rent holidays in its determination of straight-line rent expense. Therefore, rent expense for new locations is
charged to expense beginning with the start of the construction period.
The Company records landlord allowances and incentives received which are not related to structural building
improvements as deferred rent in the Consolidated Balance Sheets based on their short-term or long-term nature.
This deferred rent is amortized on a straight-line basis as a reduction of rent expense. Additionally, the Company
records landlord allowances for structural tenant improvements as a reduction in depreciation expense over the
reasonably assured lease term.
55
PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)