Panera Bread 2013 Annual Report Download - page 58

PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
50
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 an aggregate of 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
an aggregate of 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 on the date at which the Company has the right to control the use of
the property. Many of the Company's lease agreements also contain provisions that require additional rental payments based upon
net bakery-cafe sales volume, which the Company refers to as contingent rent. Contingent rent is accrued each period as the
liability is incurred, in addition to the straight-line rent expense noted above. This results in variability in occupancy expense over
the term of the lease in bakery-cafes where the Company pays contingent rent.
The Company records landlord allowances and incentives received 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 over the reasonably assured lease
term as a reduction of rent expense. Additionally, payments made by the Company and reimbursed by the landlord for improvements
deemed to be lessor assets have no impact on the Statements of Comprehensive Income. The Company considers improvements
to be a lessor asset if all of the following criteria are met:
• the lease specifically requires the lessee to make the improvement;
• the improvement is fairly generic;
• the improvement increases the fair value of the property to the lessor; and
• the useful life of the improvement is longer than the lease term.
The Company reports the period to period change in the landlord receivable within the operating activities section of its Consolidated
Statements of Cash Flows.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock
outstanding during the fiscal year. Diluted earnings per common share is computed by dividing net income by the weighted-
average number of shares of common stock outstanding and dilutive securities outstanding during the year.
Foreign Currency Translation
The Company has seven Company-owned bakery-cafes, one Company-owned fresh dough facility, and five franchise-operated
bakery-cafes in Canada which use the Canadian Dollar as their functional currency. Assets and liabilities are translated into U.S.
dollars using the current exchange rate in effect at the balance sheet date, while revenues and expenses are translated at the weighted-
average exchange rate during the fiscal period. The resulting translation adjustments are recorded as a separate component of
accumulated other comprehensive income in the Consolidated Balance Sheets and Consolidated Statements of Changes in Equity.
Gains and losses resulting from foreign currency transactions have not historically been significant and are included in other
(income) expense, net in the Consolidated Statements of Comprehensive Income.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable, and other accrued expenses approximate their fair values
due to the short-term nature of these assets and liabilities.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the accounting standard for stock-based compensation,
which requires the Company to measure and record compensation expense in the Company’s consolidated financial statements
for all stock-based compensation awards using a fair value method. The Company maintains several stock-based incentive plans
under which the Company may grant incentive stock options, non-statutory stock options and stock settled appreciation rights
(collectively, “option awards”) to certain directors, officers, employees and consultants. The Company also may grant restricted
stock and restricted stock units and the Company offers a stock purchase plan where employees may purchase the Company’s