Panera Bread 2014 Annual Report Download - page 45

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Credit Facility
On November 30, 2012, we entered into a credit agreement, or the Credit Agreement, with Bank of America, N.A. and other
lenders party thereto. The Credit Agreement provides for an unsecured revolving credit facility of $250 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 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 30, 2014, we had no balance outstanding and we were, and expect to
remain, in compliance with all covenant requirements 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 generally
accepted accounting principles in the United States of America, or 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 fiscal 2014.
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 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 typically $35,000 per bakery-cafe
to be developed under the 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. Franchise fees also include information technology-related fees for access to and the usage of proprietary systems.
Royalties are generally paid weekly based on a percentage of net franchisee sales specified in each ADA (generally five 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. Costs
associated with coupons are classified as a reduction of net bakery-cafe sales in the period in which the coupon is redeemed.
We sell gift cards which do not expire and from which we do not deduct non-usage fees from outstanding gift card balances. Gift
cards are redeemable at both Company-owned and franchise-operated bakery-cafes. Gift cards sold by either Company-owned
bakery-cafes or through wholesalers and redeemed at franchise-operated bakery-cafes reduce our gift card liability but do not