Panera Bread 2005 Annual Report Download - page 50

44
On October 6, 2005, the FASB issued FASB Staff Position No. FAS 13-1, “Accounting for Rental Costs Incurred During a
Construction Period” (“FSP 13-1”). FSP 13-1 is effective for the first reporting period beginning after December 15, 2005. FSP 13-1
states that rental costs associated with operating leases must be recognized as rental expense allocated on a straight-line basis over the
lease term, which includes the construction period. This accounting is consistent with the Company’s current practice.
3. Acquisitions
On November 1, 2005, the Company purchased from a franchisee substantially all of the assets of twenty-one bakery-cafes, two
bakery-cafes under construction, and the area development rights for certain markets in Indiana for a purchase price of approximately
$28.0 million in cash plus the assumption of certain liabilities including those associated with bakery-cafe construction. The
acquisition price was paid with cash on hand. The Consolidated Statements of Operations include the results of operations from the
operating bakery-cafes from the date of the acquisition. The pro forma impact of the acquisition on prior periods is not presented as
the impact is not material to reported results. The Company allocated the purchase price to the assets acquired and liabilities assumed
in the acquisition at their estimated fair values with the remainder allocated to tax deductible goodwill as follows: $0.3 million to
inventories, $11.6 million to fixed assets, $3.1 million to intangible assets, which represents the fair value of re-acquired territory
rights, which was in accordance with EITF 04-1 effective for acquisitions in reporting periods beginning after October 13, 2004, and
favorable lease agreements, and $13.0 million to goodwill.
On October 30, 2004, the Company’s wholly-owned subsidiary, Artisan Bread, LLC (“Artisan”), became the owner of 100% of
the membership interests in Cap City Bread, LLC (“LLC”). Prior to the completion of this transaction, Artisan had owned
approximately 78.5% of the membership interests in LLC and the remaining membership interests had been owned by Capitol Dough,
Inc. (“Capitol Dough”), a Missouri corporation owned by Richard Postle, the Company’s former president (“Postle”), as a minority
interest owner. As part of the transaction, LLC redeemed certain of the membership interests held by Capitol Dough in exchange for
the transfer to Capitol Dough of LLC’s interest in 3 bakery-cafes at cost, one of which was under construction at the acquisition date
(“redemption transaction”). In addition to the redemption transaction, Artisan acquired the remaining membership interests held by
Capitol Dough in exchange for a cash purchase price of approximately $5.2 million (including acquisition costs), which approximates
fair value. Of this purchase price, approximately $4.3 million was paid in cash at the acquisition date and the remaining purchase price
was paid, with interest, in 2005. At the time of the acquisition, LLC operated 36 bakery-cafes in the northern Virginia and central
Pennsylvania markets. The results of operations of these bakery-cafes have been included in the Company’s Consolidated Financial
Statements since the date of formation of LLC. Following the completion of the transaction, Artisan became the sole owner of LLC,
which then owned 34 operating bakery-cafes in the northern Virginia and central Pennsylvania markets. The 3 remaining bakery-cafes
transferred to Postle, one of which was under construction at the acquisition date, are owned and operated by Postle and/or his
affiliates as a franchisee. The pro forma impact of the acquisition on prior periods is not presented as the impact is not material to
reported results. The Company allocated the purchase price to the membership interest and related intangibles acquired in the
acquisition at their estimated fair values with any remainder allocated to tax deductible goodwill as follows: $2.0 million to eliminate
the minority interest balance, $0.3 million to fixed assets, $0.2 million to intangible assets, which represents the fair value of favorable
lease agreements, and $2.7 million to goodwill.
On November 2, 2003, the Company purchased from a franchisee substantially all of the assets of twelve bakery-cafes, two of
which were under construction, as well as the area development rights for the Toledo, Ohio and Ann Arbor, Michigan markets for a
net purchase price of approximately $14.2 million (includes $0.1 million paid in fiscal 2004). The acquisition price was paid with cash
on hand. The Consolidated Statements of Operations include the results of operations from the operating bakery-cafes from the date of
the acquisition. The pro forma impact of the acquisition on prior periods is not presented as the impact is not material to reported
results. The Company allocated the purchase price to the assets acquired and liabilities assumed in the acquisition at their estimated
fair values with the remainder allocated to tax deductible goodwill as follows: $0.3 million to inventories, $5.6 million to fixed assets,
$1.4 million to liabilities, and $9.7 million to goodwill.
On February 1, 2003, the Company purchased from a franchisee substantially all of the assets of one operating bakery-cafe, the
furniture, fixtures, and equipment of two closed locations, and the area development rights for the Dallas market for a cash purchase
price of $1.3 million with a commitment to purchase the furniture, fixtures, and equipment of an additional bakery-cafe for
approximately $0.2 million. The acquisition price was paid with cash on hand. The Consolidated Statements of Operations include the
results of operations of the one operating bakery-cafe from the date of acquisition. The pro forma impact of the acquisition on prior
periods is not presented as the impact is not material to reported results. The Company allocated the purchase price to the assets
acquired in the acquisition at their estimated fair values with the remainder allocated to tax deductible goodwill as follows: $0.9
million to fixed assets and $0.4 million to goodwill. In October 2004, the Company completed the purchase of the remaining bakery-
cafe for a cash purchase price of approximately $0.2 million.