Panera Bread 2005 Annual Report Download - page 44

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PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Panera Bread Company operates a retail bakery-cafe business and franchising business under the concept names Panera Bread®
and Saint Louis Bread Co.® As of December 27, 2005, the Company’s retail operations consist of 311 Company-owned bakery-cafes.
The Company specializes in meeting consumer dining needs by providing high quality food, including fresh baked goods, made-to-
order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other cafe beverages, and targets suburban
dwellers and workers by offering a premium specialty bakery and cafe experience with a neighborhood emphasis. Bakery-cafes are
principally located in suburban, strip mall, and regional mall locations and currently operate in 36 states. Bakery-cafes use fresh dough
for their artisan and sourdough breads and bagels. As of December 27, 2005, our fresh dough operations, which supply fresh dough
items daily to both Company-owned and franchise-operated bakery-cafes, consisted of 16 Company-owned fresh dough facilities.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
For the years ended December 27, 2005 and December 25, 2004, the consolidated financial statements consist of the accounts of
Panera Bread Company, its wholly owned subsidiaries Panera, LLC and Pumpernickel, Inc., and its indirect consolidated subsidiaries
Pumpernickel Associates, LLC, Panera Enterprises, Inc., Asiago Bread, LLC, Atlanta JV, LLC, and Artisan Bread, LLC. On October
30, 2004, Cap City Bread, LLC became a wholly owned subsidiary of Artisan Bread, LLC. Prior to October 30, 2004, Artisan Bread,
LLC held a majority interest in Cap City Bread, LLC, which then operated 36 bakery-cafes. All intercompany balances and
transactions have been eliminated in consolidation.
Certain reclassifications have been made to conform previously reported data to the current presentation.
Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity at the time of purchase of three months or less to be cash
equivalents.
Investments in Government Securities
Investments of $46.3 million and $28.4 million at December 27, 2005 and December 25, 2004, respectively, consist of United
States treasury notes and government agency securities. During 2005, $2.0 million of investments matured or were called by the issuer
and $20.0 million of investments were purchased by the Company. During 2004, $9.3 million of investments matured or were called
by the issuer and $28.8 million of investments were purchased by the Company. During fiscal years 2005, 2004, and 2003, the
Company recognized interest income on these investments of $1.3 million, $0.8 million and $0.2 million, respectively, each of which
is net of premium amortization of $0.1 million, and is classified in “Other (Income) Expense” in the Consolidated Statements of
Operations. The Company’s investments are classified as short-term or long-term in the accompanying consolidated balance sheets
based upon their stated maturity dates which range from January 2006 to April 2007.
Management designates the appropriate classification of its investments at the time of purchase based upon its intended holding
period. At December 27, 2005, all investments are classified as held-to-maturity as the Company has the intent and ability to hold the
securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums to maturity using
the effective interest method, which approximates fair value at December 27, 2005.