Panera Bread 2006 Annual Report Download - page 46

adjusted for amortization of premiums to maturity using the effective interest method, which approximates fair
value at December 26, 2006.
Trade and Other Accounts Receivable
Trade accounts receivable consists primarily of amounts due to the Company from its 41 franchise groups for
purchases of fresh dough from the Company’s fresh dough facilities and royalties due to the Company from
franchisee sales. The Company does not require collateral and maintains reserves for potential uncollectible
accounts based on historical losses and existing economic conditions, when relevant. The allowance for doubtful
accounts at December 26, 2006 and December 27, 2005 was $0.03 million. Other accounts receivable consists
primarily of tenant allowances due from landlords.
Inventories
Inventories, which consist of food products, paper goods and supplies, and promotional items, are valued at the
lower of cost or market, determined under the first-in, first-out method.
Property and Equipment
Property, equipment, and leaseholds are stated at cost. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method
over the shorter of their estimated useful lives or the related reasonably assured lease term. The estimated useful
lives used for financial statement purposes are:
Leasehold improvements ............................................... 15-20 years
Machinery and equipment . . . ........................................... 3-10 years
Furniture and fixtures ................................................. 2-7years
External signage ..................................................... 3-6years
Interest, to the extent it is incurred, is capitalized when incurred in connection with the construction of new
locations or facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over
the asset’s estimated useful life. No interest was incurred for such purposes in 2006, 2005, or 2004.
Upon retirement or sale, the cost of assets disposed of and their related accumulated depreciation are removed
from the accounts. Any resulting gain or loss is credited or charged to operations. Maintenance and repairs are
charged to expense when incurred, while betterments are capitalized.
Goodwill
Goodwill consists of the excess of the purchase price over the fair value of net assets acquired from the
acquisitions of the Saint Louis Bread Company, franchise-operated bakery-cafes, a franchise-operated fresh dough
facility, and the membership interest of a former minority interest owner. SFAS No. 142, “Goodwill and Other
Intangible Assets,” requires goodwill and indefinite-lived intangible assets recorded in the financial statements to be
evaluated for impairment annually or when events or circumstances occur indicating that goodwill might be
impaired. When appropriate, the Company performs its impairment assessment by comparing discounted cash
flows from reporting units with the carrying value of the underlying net assets inclusive of goodwill. The Company
completed annual impairment tests as of the first day of the fourth quarter of fiscal years 2006, 2005, and 2004, none
of which identified any impairment.
Other Intangible Assets
Other intangible assets consist primarily of the fair value of favorable and unfavorable lease agreements and
the fair value of re-acquired territory rights. The Company is amortizing the fair value of favorable lease agreements
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PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)