Panera Bread 2008 Annual Report Download - page 45

Amended and Restated Credit Agreement increases the size of our secured revolving credit facility from
$75.0 million to $250.0 million. We may select interest rates equal to (a) the Base Rate (which is defined as
the higher of Bank of America prime rate and the Federal Funds Rate plus 0.50 percent), or (b) LIBOR plus an
Applicable Rate, ranging from 0.75 percent to 1.50 percent, based on our Consolidated Leverage Ratio, as each term
is defined in the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement allows us
from time to time to request that the credit facility be further increased by an amount not to exceed, in the aggregate,
$150.0 million, subject to receipt of lender commitments and other conditions precedent. The Amended and
Restated Credit Agreement contains 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 March 7, 2013, 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 Amended and Restated Credit Agreement.
The proceeds from the credit facility will be used for general corporate purposes, including working capital, capital
expenditures, and permitted acquisitions and share repurchases. See Note 11 to the consolidated financial
statements for further information with respect to the credit facility.
Critical Accounting Policies & Estimates
Our discussion and analysis of our financial condition and results of operations is based upon the consolidated
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 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, valuation of goodwill, self-insurance, income taxes, lease obli-
gations, and stock-based compensation to be the most critical in the preparation of the 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 25, 2007.
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 30, 2008 and December 25, 2007, our goodwill balance was $87.3 million and $87.1 million, respec-
tively. Goodwill is subject to periodic evaluation for impairment when circumstances warrant, or at least once per
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