Panera Bread 2014 Annual Report Download - page 49

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(4) Represents estimated interest payments on the term loan borrowings. Interest payments are calculated based on LIBOR plus
the applicable margin in effect at December 30, 2014, or 1.15%. The actual interest rates on our term loan borrowings could
vary from that used to compute the above interest payments. See Note 11 to the consolidated financial statements for further
information with respect to our term loan borrowings.
(5) See Note 14 to the consolidated financial statements for further information with respect to our uncertain tax positions.
Off-Balance Sheet Arrangements
As of December 30, 2014, we guaranteed operating leases of 23 franchisee or affiliate locations, which we account for in accordance
with the accounting requirements for guarantees. These guarantees are primarily a result of our sales of Company-owned bakery-
cafes to franchisees and affiliates, pursuant to which we exercised our right to assign the lease or sublease for the bakery-cafe but
remain liable to the landlord for the remaining lease term in the event of a default by the assignee. These leases have terms expiring
on various dates from December 31, 2014 to September 30, 2027 and have a potential amount of future rental payments of
approximately $16.6 million as of December 30, 2014. Our obligation from these leases will decrease over time as these operating
leases expire. We have not recorded a liability for certain of these guarantees as they arose prior to the implementation of the
accounting requirements for guarantees and, unless modified, are exempt from its requirements. We have not recorded a liability
for those guarantees issued after the effective date of the accounting requirements because the fair value of these lease guarantee
was determined by us to be insignificant individually, and in the aggregate, based on analysis of the facts and circumstances of
each such lease and each such assignee's performance, and we did not believe it was probable we would be required to perform
under any guarantees at the time the guarantees were issued. We have not had to make any payments related to any of these
guaranteed leases. Applicable assignees continue to have primary obligation for these operating leases. As of December 30, 2014,
future commitments under these leases were as follows (in thousands):
Less than
1 year
1-3
years
3-5
years
More than
5 years Total
Subleases and Lease Guarantees (1). . . . . . . 2,574 4,206 3,857 5,983 $ 16,620
(1) Represents aggregate minimum requirement — see Note 13 to the consolidated financial statements for further information
with respect to our lease guarantees.
Employee Commitments
We have confidential and proprietary information and non-competition agreements, referred to as non-compete agreements, with
certain employees. These non-compete agreements contain a provision whereby employees would be due a certain number of
weeks of their salary if their employment was terminated by us as specified in the non-compete agreement. We have not recorded
a liability for these amounts potentially due to employees. Rather, we will record a liability for these amounts when an amount
becomes due to an employee in accordance with the appropriate authoritative literature. As of December 30, 2014, the total amount
potentially owed employees under these non-compete agreements was $24.3 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 price
increases in fuel, proteins, dairy, wheat, tuna, and cream cheese among others, 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 consolidated results of operations have
not been materially adverse. However, inherent volatility experienced in certain commodity markets, such as those for wheat,
proteins, including chicken raised without antibiotics, and fuel may have an adverse effect on us in the future. 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 regulated by 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.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update
2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40); Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern”. This update requires management to evaluate whether there is substantial doubt about