i)Basis of Presentation and Principles of Consolidation:
The financial statements of the company are consolidated and are prepared in accordance to US GAAP and as per rules of Security Exchange Commission. The consolidated Statements consists of the accounts of Panera Bread Company and its wholly owned subsidiaries both direct and indirect.
The fiscal year of the company is reported to be last tuesday of every december.
iii)Use of Estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
iv)Cash and Cash Equivalents:
All highly liquid investments with maturity of 3 months or less are considered to be Cash and Cash Equivalents by the company.
Since 2010, the municipal revenue bonds have been the major investment of the company. Company intends to hold these bonds till maturity.
vi) Trade Accounts Receivable, net and Other Accounts Receivable:
Trade Account Receivable represents the total amount due to the company by the franchisees for sale of dough and other products, royalties due to the company and receivables from credit card and catering on-account sales.
Inventory of the company include food products, paper goods and supplies which are valued at lower of cost or market with cost determined under FIFO Method.
viii) Property and Equipment, net
Property, equipment, leasehold improvements, and land are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated using the straight-line method over the shorter of their estimated useful lives or the related reasonably assured lease term.
Goodwill is recorded as excess of purchase price over fair value of net assets acquired. The Company evaluates goodwill for impairment on an annual basis or more often if an event occurs or circumstances change that indicates impairment might exist. Goodwill is evaluated for impairment through the comparison of the fair value of reporting units to their carrying values.
x)Other Intangibles Assets:
Intangibles of the company include favorable lease agreements, re-acquired territory rights and trademarks
xi)Impairment of Long Lived Assets:
xii)Self Insurance Reserves:
The Company is self-insured for a significant portion of its workers’ compensation, group health, and general, auto, and property liability insurance with varying deductibles of as much as $0.7 million for individual claims, depending on the type of claim.
xiii) Income Taxes:
The Company completes the provision for income taxes in accordance with the accounting standard for income taxes in the Company’s consolidated financial statements.
xiv) Capitalization of Certain Development CostsThe Company capitalizes direct and indirect costs clearly associated with the acquisition, development, design, and construction of bakery-cafe locations and fresh dough facilities as these costs have a future benefit to the Company.
xv) Deferred Financing Costs:
Company capitalize and amortize interest expense in connection with issuance of long term debt.
xvi) Revenue Recognition:
The Company records revenues from bakery-cafe sales upon delivery of the related food and other products to the customer. Revenues from fresh dough and other product sales to franchisees are recorded upon delivery to the franchisees. Sales of soup and other branded products outside of the Company's bakery-cafes are recognized upon delivery to customers.
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 Comprehensive Income, while the Company’s own local bakery-cafe media costs are recorded as part of other operating expenses in the Consolidated Statements of Comprehensive Income.
All pre-opening expenses are included in the consolidated financial statements of the company.
xix) Rent Expenses:
The Company recognizes rent expense on a straight-line basis over the reasonably assured lease term as defined in the accounting standard for leases
xx) Earnings Per Share:
The Company accounts for earnings per common share in accordance with the relevant accounting guidance, which requires companies to present basic earnings per share and diluted earnings per share.
xxi) Foreign Currency Translation:
The Company has six Company-owned 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.
xxii)Fair Value of Financial Instruments:
The carrying amounts of the Company’s financial instruments, which include municipal industrial revenue bonds, accounts receivable, accounts payable, and other accrued expenses, approximate their fair values due to their maturities. xxiii)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.
xxiv)Asset Retirement Obligations :
The Company recognizes the future cost to comply with lease obligations at the end of a lease as it relates to tangible long-lived assets in accordance with the accounting standard for the asset retirement and environmental obligations ("ARO") in the Company’s
consolidated financial statements.
xxv)Variable Interest Entities:
The Company applies the guidance issued by the FASB on accounting for variable interest entities (“VIE”), which defines the process for how an enterprise determines which party consolidates a VIE as primarily a qualitative analysis
Basis of Presentation and Principles of Consolidation:
Codification: 205 Presentation of Financial Statements > 10 Overall > S99
Cash and Cash Equivalents:
Codification: 305- Cash and Cash Equivalents:
Codification:320-Investments in Debt and Equity Securities
Trade Accounts Receivable, net and Other Accounts Receivable
Codification: 330- Inventories
Property, Plant and Equipement:
Codification:360- Property, Plant and Equipment
Codification:350- Intangibles- Goodwill and Other
Other Intangibles Assets:
Codification: 350- Intangibles- Goodwill and Other
Impairment of Long Lived Assets:
Codification:350 Intangibles—Goodwill and Other > 10 Overall > S35 Subsequent Measurement
Self Insurance Reserves:
Codification: 740-Income Taxes
Capitalization of Certain Development CostsCodification:
Deferred Financing Costs
Codification: 720-55-7- Other Expenses- Implementation Guidance and Illustrations
Codification:72-35-Other Expenses-Advertising Costs
Codification: 720 –Other Expenses
Earnings Per Share:
Codification:260-Earning Per Share
Foreign Currency Translation:
Codification:830-Foreign Currency Matters
Fair Value of Financial Instruments:
Codification:820-Fair Value of Isntrunments
Asset Retirement Obligations :
Codification:410-Asset Retirement and Environment Obligation
Variable Interest Entities:
Codification:860-Transfers and Savings
Timing of Revenue Recognition (Page no 48)
Panera Bread recognizes revenue from its sales in bakery and cafe outlets when the products and related products are delivered to the customers. While revenue from dough sales and other products sales are recorded as revenue when they are delivered to the franchisees. Similarly, revenue from sales of soups and other products are recorded on delivery to customers.
Franchisee Fee Programme:
Panera Bread earns franchisee fees from sale of area development rights and sale of individual franchise locations to the third parties. Of the total $40000, amount of $5000 is paid by franchisee borrower and this amount and is immediately recognized as revenue being non refundable amount. The remainder fee is paid at the time of signing of individual franchisee agreement and the fee earned is recognized as revenue once the bakery-cafe is open.
Company maintains a loyalty programme for the customers where customers registers themselves in the programme or from their purchases at bakery outlets. Entity deducts the retail amount earned from reduction of net bakery and cafe sales and a liability is established within accrued expenses.
Gift Card Policies:
Company also sells Gift Cards and the revenue earned is recognized when:
i)Gift card is redeemed by the customer
ii)It is evident that likelihood of gift card being redeemed is low.
Our View over recognition of revenue:
In my view, panera bread are following cash method of accounting where it recognizes revenue when the entity receives the cash amount or its franchisees start operating their bakery-cafe outlets. Also for Gift Cards, company recognize revenue only when customer redeems the gift card.
The company operates in three business segments:
- Bakery Cafe Operations Segment
- Franchisee Operations Segment
- Fresh Dough and other Products Segment
Bakery Cafe Segment:
The Bakery Cafe Segment is comprised of operating activities of the company where the ownership can be direct and indirect. The company owned bakery cafes conduct business under the name of Panera Bread and related brands of Paradise Bakery & Cafe and St.Louis Bread Co.
Franchise Operations Segment:
The Franchise Operations segment considers the operating activities of the franchise business unit, which authorize the franchise olders to conduct business under the name of Panera Bread and also monitors the operations of these bakery-cafes.
Fresh Dough and Other related Product Segment:
This segment supplies fresh dough, tun and cream cheese and also indirectly supplies properitory items to franchise holders and also company owned bakery and cafe.
Why Panera has identified these separate segments:
Since these three segments are involved in separate business in the form of ownership or supplies it was evident for Panera to Identify these businesses as its segments. The Bakery- Cafe segment is company owned segment involving direct sales by the company, while the Franchise Segments is related to operations of the franchise holders who conduct business under the name of Panera Bread.
Similarly, Fresh Dough Operations is classified as segments because this segment supplies fresh dough and other related products to both company owned Bakery and Cafes along with Cafes operated by Franchise holders.
Segment Related Codification: