Panera Bread 2011 Annual Report Download - page 44

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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
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.