Panera Bread 2005 Annual Report Download - page 53

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The Company is the prime tenant for operating leases of 14 franchisee locations and a guarantor for operating leases of 32
locations of the former Au Bon Pain Division, or its franchisees. These leases have terms expiring on various dates from January 2006
to December 2018 and have a potential amount of future rental payments of approximately $32.2 million. The obligation from these
leases will continue to decrease over time as these operating leases expire. As the guarantees were initiated prior to December 31,
2002, the Company has not recorded a liability for these guarantees pursuant to the provisions of FASB Interpretation Number (FIN)
45, “Guarantor’s Accounting and Disclosure Requirements For Guarantees, Including Indirect Guarantees of Indebtedness of Others,
an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34.” Also, the Company has not
had to make any payments related to the leases. Au Bon Pain or the respective franchisees continue to have primary liability for these
operating leases. Future commitments as of December 27, 2005 under these leases were as follows (in thousands):
2006 .......................................................................................................................................................................................... $ 6,946
2007 .......................................................................................................................................................................................... 5,492
2008 .......................................................................................................................................................................................... 4,648
2009 .......................................................................................................................................................................................... 3,560
2010 .......................................................................................................................................................................................... 2,379
Thereafter.................................................................................................................................................................................. 9,174
$ 32,199
In November 2002, the Company signed an agreement with Dawn Food Products, Inc. (“Dawn”) to provide sweet goods for the
period 2003-2007. The agreement with Dawn is structured as a cost plus agreement. For the years ended December 27, 2005,
December 25, 2004, and December 27, 2003, the Company paid $15.8 million, $17.2 million, and $9.7 million, respectively, under
this agreement.
Beginning in fiscal 2003, the Company executed Confidential and Proprietary Information and Non-Competition Agreements
(Agreements) with certain employees. These Agreements contain a provision whereby employees would be due a certain number of
weeks of their salary if their employment was terminated by the Company as specified in the Agreement. In accordance with SFAS 5,
the Company has not recorded a liability for these amounts potentially due employees. Rather, the Company will record a liability for
these amounts when an amount becomes due to an employee. As of December 27, 2005, the total amount potentially owed employees
under these Agreements was approximately $7.6 million.
The Company is subject to legal proceedings and claims which arise in the normal course of business. In the opinion of
management, the ultimate liabilities with respect to these actions will not have a material adverse effect on the Company’s financial
position, results of operations, or cash flow.
10. Income Taxes
The provision for income taxes attributable to income before income taxes and cumulative effect of accounting change in the
consolidated statements of operations is comprised of the following (in thousands):
December 27,
2005
December 25,
2004
December 27,
2003
Current:
Federal................................................................................................................................ $ 30,638 $ 15,634 $ 1,421
State.................................................................................................................................... 1,616 647 550
32,254 16,281 1,971
Deferred:
Federal................................................................................................................................ (2,166) 5,802 15,383
State.................................................................................................................................... (93) 92 412
(2,259) 5,894 15,795
Tax Provision....................................................................................................................... 29,995 22,175 17,766
Tax benefit on cumulative effect ......................................................................................... — — (137)
$ 29,995 $ 22,175 $ 17,629
A reconciliation of the statutory federal income tax rate to the effective tax rate as a percentage of income before income taxes and
cumulative effect of accounting change attributable to income before cumulative effect of accounting change follows:
2005 2004 2003
Statutory rate provision.................................................................................................................................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit and other .................................................................................. 1.5 1.5 1.5
36.5% 36.5% 36.5%