Panera Bread 2008 Annual Report Download - page 50

agreement bear interest at the per annum rate of 7.58 percent, calculated daily and payable monthly in arrears on the
last business day of each of Panera Bread ULC’s fiscal month. The credit facility, which is collateralized by present
and future property and assets of Millennium and the Franchisee Guarantors, as well as the personal guarantees of
certain individuals, will become due on September 9, 2009, subject to acceleration upon certain specified events of
default, including breaches of representations or covenants, failure to pay other material indebtedness or a change of
control of Millennium, as defined in the Credit Agreement. The proceeds from the credit facility may be used by
Millennium to pay costs and expenses to develop and construct the Franchisee Guarantors bakery-cafes and for their
day-to-day operating requirements. As of December 30, 2008, there were no outstanding advances under the Credit
Agreement.
As part of the franchise agreement between Millennium and Panera Bread ULC, Panera Bread ULC will
develop and equip the bakery-cafe as a typical Panera Bread bakery-cafe in accordance with its then current design
and construction standards and specifications as applied by us to the bakery-cafe, in our sole discretion. Millennium
will pay us an amount equal to the total cost of development of the bakery-cafe, which includes any and all costs and
expenses incurred by us in connection with selection and development of the bakery-cafe; however, no overhead
expenses of ours other than the development fee shall be included in total cost. We will deliver possession of the
bakery-cafe to Millennium when the bakery-cafe is substantially complete, including issuance of a certificate of
occupancy, and Millennium will open the bakery-cafe for business with the public as soon as practicable following
the date of delivery of possession of the bakery-cafe. On September 15, 2008 and October 27, 2008, we delivered
possession of the first two Panera Bread bakery-cafes in Canada to Millennium, which subsequently opened on
October 6, 2008 and November 10, 2008, respectively. We delivered possession of the third bakery-cafe on
December 16, 2008, which opened on January 26, 2009 during our first quarter of fiscal 2009. As of December 30,
2008, we had a $3.9 million receivable from Millennium included in other accounts receivable in our Consolidated
Balance Sheets representing the total cost of the three bakery-cafes’ development. We expect settlement of this
receivable to be substantially funded by the use of the Credit Agreement previously described and cash payments in
fiscal 2009.
Under the February 1, 2007 agreement to purchase 51 percent of the outstanding stock of Paradise, we have the
right to purchase the remaining 49 percent of the outstanding stock of Paradise after January 1, 2009 at a
contractually determined value, which approximates current fair value. Also, if we do not exercise our right to
purchase the remaining 49 percent of the outstanding stock of Paradise by June 30, 2009, the remaining Paradise
owners have the right to purchase our 51 percent ownership interest in Paradise after June 30, 2009 for
$21.1 million.
Impact of Inflation
Our profitability depends in part on our ability to anticipate and react to changes in food, supply, labor,
occupancy and other costs. In the past, we have been able to recover a significant portion of inflationary costs and
commodity price increases, including, among other things, fuel, proteins, dairy, wheat, tuna, and cream cheese
costs, through increased menu prices. There have been, and there may be in the future, delays in implementing such
menu price increases, and competitive pressures may limit our ability to recover such cost increases in their entirety.
Historically, the effects of inflation on our net income have not been materially adverse. However, the volatility
recently experienced in fiscal 2008 in certain commodity markets, such as those for wheat, fuel, and proteins, such
as chicken or turkey, may have a continued adverse effect on us in fiscal 2009. The extent of the impact will depend
on our ability and timing to increase food prices.
A majority of our associates are paid hourly rates related to federal and state minimum wage laws. Although
we have and will continue to attempt to pass along any increased labor costs through food price increases, there can
be no assurance that all such increased labor costs can be reflected in our prices or that increased prices will be
absorbed by consumers without diminishing to some degree consumer spending at the bakery-cafes. However, we
have not experienced to date a significant reduction in bakery-cafe profit margins as a result of changes in such laws,
and management does not anticipate any related future significant reductions in gross profit margins.
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