Panera Bread 2007 Annual Report Download - page 47

of acceptable lenders to increase the credit facility as requested. The credit agreement also allows us from time to
time to request that the credit facility be further increased by an amount not to exceed, in the aggregate,
$200.0 million, subject to the arrangement of additional commitments with financial institutions acceptable to
us, Bank of America and existing lenders. The credit agreement contains various financial covenants that, among
other things, require the maintenance of certain leverage and fixed charges coverage ratios. The credit facility,
which is secured by the capital stock of our present and future material subsidiaries, will become due on
November 27, 2012, subject to acceleration upon certain specified events of defaults, including breaches of
representations or covenants, failure to pay other material indebtedness or a change of control of our Company, as
defined in the credit agreement. The proceeds from the credit facility will be used for general corporate purposes,
including working capital, capital expenditures, permitted acquisitions, and to finance our share repurchase
program. See Note 10 to the accompanying consolidated financial statements for further information with respect to
the credit facility.
We had a $10.0 million unsecured revolving line of credit that expired on December 19, 2006 and was not
renewed. As of December 26, 2006, we had a $0.1 million outstanding letter of credit in support of certain
operational activities.
Critical Accounting Policies & Estimates
Our discussion and analysis of our financial condition and results of operations are based upon the consol-
idated financial statements and notes to the consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States. The preparation of the accompa-
nying consolidated financial statements requires us to make estimates, judgments and assumptions, which we
believe to be reasonable, based on the information available. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.
Variances in the estimates or assumptions used could yield materially different accounting results. On an ongoing
basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make
adjustments we consider appropriate under the facts and circumstances.
We have chosen accounting policies we believe are appropriate to report accurately and fairly our operating
results and financial position, and we apply those accounting policies in a consistent manner. We consider our
policies on accounting for revenue recognition, goodwill, self-insurance, income taxes, lease obligations, and stock-
based compensation to be the most critical in the preparation of the accompanying consolidated financial statements
because they involve the most difficult, subjective, or complex judgments about the effect of matters that are
inherently uncertain. There have been no material changes to our application of critical accounting policies and
significant judgments and estimates since December 26, 2006.
Revenue Recognition
We recognize revenue from bakery-cafe sales upon delivery of the related food and other products to the
customer. Revenue from fresh dough sales to franchisees is also recorded upon delivery of fresh dough to
franchisees. Also, a liability is recorded in the period in which a gift card is issued and proceeds are received. As gift
cards are redeemed, this liability is reduced and revenue is recognized as a sale. Further, franchise fees are the result
of the sale of area development rights and the sale of individual franchise locations to third parties. The initial
franchise fee is generally $35,000 per bakery-cafe to be developed under the Area Development Agreement, or
ADA. Of this fee, $5,000 is generally paid at the time of signing of the ADA and is recognized as revenue when it is
received as it is non-refundable and we have to perform no other service to earn this fee. The remainder of the fee is
paid at the time an individual franchise agreement is signed and is recognized as revenue upon the opening of the
bakery-cafe. Royalties are generally paid weekly based on a percentage of sales specified in each ADA (generally
4 percent to 5 percent of sales). Royalties are recognized as revenue when they are earned.
Valuation of Goodwill
We record goodwill related to the excess of the purchase price over the fair value of net assets acquired. At
December 25, 2007 and December 26, 2006, our goodwill balance was $87.1 million and $57.2 million,
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