Panera Bread 2012 Annual Report Download - page 40

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On November 30, 2012, we entered into a new credit agreement, which we refer to as the Credit Agreement, by and among us,
Bank of America, N.A., and the other lenders party thereto. The Credit Agreement provides for an unsecured revolving credit
facility of $250.0 million and provides that we may select interest rates under the credit facility equal to (1) LIBOR plus the
Applicable Rate for LIBOR loans (which is an amount ranging from 1.00 percent to 2.00 percent depending on our consolidated
leverage ratio) or (2) the Base Rate (which is defined as the higher of Bank of America prime rate, the Federal funds rate plus
0.50 percent, or LIBOR plus 1.00 percent) plus the Applicable Rate for Base Rate loans (which is an amount ranging from 0.00
percent to 1.00 percent depending on our consolidated leverage ratio). Our obligations under the credit facility are guaranteed by
certain of our direct and indirect subsidiaries. The 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 the arrangement of additional
commitments with financial institutions acceptable to us and Bank of America. The Credit Agreement contains various financial
covenants that, among other things, require us to maintain certain leverage and fixed charges coverage ratios. The credit facility
will become due on November 30, 2017, 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. We expect to use the credit facility for general corporate purposes. As of December 25, 2012, we had no balance
outstanding and were in compliance with all covenants under the Credit Agreement.
Critical Accounting Policies & Estimates
Our discussion and analysis of our consolidated 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 GAAP. 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 to actual experience 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 consolidated 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 obligations, and impairment of long-lived assets
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 that occurred during the fiscal year ended
December 25, 2012.
Revenue Recognition
We recognize revenues from net 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 of the fresh dough and other products 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. Sales of soup and other branded products sold outside our bakery-
cafes are generally recognized upon delivery to customers. Further, franchise fees are generally 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 corresponding bakery-cafe. Royalties are generally paid weekly based on a percentage of net
franchisee sales specified in each ADA (generally 4 percent to 5 percent of net sales). Royalties are recognized as revenue based
on contractual royalty rates applied to the net franchise sales.
We maintain a customer loyalty program through which customers earn rewards based on registration in the program and purchases
at our bakery-cafes. We record the full retail value of loyalty program rewards as a reduction of net bakery-cafe sales and a liability
is established within accrued expenses as rewards are earned while considering historical redemption rates. Fully earned rewards
generally expire if unredeemed after 60 days. Partially earned awards generally expire if inactive for a period of one year.
We sell gift cards which do not have an expiration date and from which we do not deduct non-usage fees from outstanding gift
card balances. We recognize revenue from gift cards when: (i) the gift card is redeemed by the customer; or (ii) we determine the
likelihood of the gift card being redeemed by the customer is remote ("gift card breakage") and there is no legal obligation to remit
the unredeemed gift cards in the relevant jurisdiction. The determination of gift card breakage is based upon our specific historical
redemption patterns. When the likelihood of further redemptions becomes remote, breakage is recorded as a reduction of general