Panera Bread 2015 Annual Report Download - page 44

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Revolving Credit Agreements
On November 30, 2012, we entered into a credit agreement, or the 2012 Credit Agreement, with Bank of America, N.A. and other
lenders party thereto. The 2012 Credit Agreement provided for an unsecured revolving credit facility of $250 million that would
have become due on November 30, 2017. As of December 30, 2014, we had no balance outstanding under the 2012 Credit
Agreement. On July 16, 2015, we terminated the 2012 Credit Agreement and entered into a new credit agreement, or the 2015
Credit Agreement, with Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and each lender from
time to time party thereto. The 2015 Credit Agreement provides for an unsecured revolving credit facility of $250 million that
will become due on July 16, 2020, 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, as defined in the 2015 Credit
Agreement. We may select interest rates under the credit facility equal to, at our option, (1) the Eurodollar rate plus a margin
ranging from 1.00 percent to 1.50 percent depending on our consolidated leverage ratio or (2) the highest of (a) the Bank of America
prime rate, (b) the Federal funds rate plus 0.50 percent or (c) the Eurodollar rate plus 1.00 percent, plus a margin ranging from
0.00 percent to 0.50 percent depending on our consolidated leverage ratio. Our obligations under the 2015 Credit Agreement are
guaranteed by certain of our direct and indirect subsidiaries. The 2015 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. As of December 29, 2015, we had
no balance outstanding under the 2015 Credit Agreement.
The 2014 Term Loan Agreement, 2015 Term Loan Agreement and 2015 Credit Agreement contain customary affirmative and
negative covenants, including covenants limiting liens, dispositions, fundamental changes, investments, indebtedness, and certain
transactions and payments. In addition, such term loan and credit agreements contain various financial covenants that, among
other things, require us to satisfy two financial covenants at the end of each fiscal quarter: (1) a consolidated leverage ratio less
than or equal to 3.00 to 1.00, and (2) a consolidated fixed charge coverage ratio of greater than or equal to 2.00 to 1.00. As of
December 29, 2015, we were, and expect to remain, in compliance with all covenant requirements.
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 2015.
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. Sales of soup and other branded products sold outside our bakery-cafes are recognized upon delivery to customers.
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 in the period in which the sales are reported to have occurred based on contractual
royalty rates applied to the net franchise sales. 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.
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