Panera Bread 2005 Annual Report Download - page 54

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The tax effects of the significant temporary differences which comprise the deferred tax assets and liabilities are as follows (in
thousands):
2005 2004
Deferred tax assets:
Accrued expenses............................................................................................................................................ $ 13,681 $ 5,094
Share-based compensation.............................................................................................................................. 368 —
Charitable contribution carryforward ............................................................................................................. — 1,316
Other ............................................................................................................................................................... 9 11
Total deferred tax assets.................................................................................................................................. 14,058 6,421
Valuation allowance ....................................................................................................................................... — (550)
Total deferred tax assets, net of valuation allowance................................................................................... $ 14,058 $ 5,871
Deferred tax liabilities:
Property, plant, and equipment ....................................................................................................................... $ (9,658) $ (4,908)
Goodwill ......................................................................................................................................................... (5,551) (4,363)
Total deferred tax liabilities ......................................................................................................................... $ (15,209) $ (9,271)
Net deferred tax liability ................................................................................................................................... $ (1,151) $ (3,400)
Net current deferred tax asset ........................................................................................................................... $ 3,871 $ 2,247
Net non-current deferred tax liability ............................................................................................................... $ 5,022 $ 5,647
A valuation allowance was provided in prior years to reduce the deferred tax assets to a level which, more likely than not, would
be realized. The valuation allowance at December 25, 2004 was attributable to $3.6 million of charitable contribution carryforwards
which the Company might not be able to utilize prior to their expiration in years 2005 to 2008. However, these charitable contribution
carryforwards were fully utilized during 2005.
11. Deposits and Other
The Company established a company-owned life insurance (“COLI”) program covering a substantial portion of its employees to
help manage long-term employee benefit cost and to obtain tax deductions on interest payments on insurance policy loans. However,
due to tax law changes, the Company froze this program in 1998. It appears based on actuarial estimates that the program will end in
2013.
At December 27, 2005 and December 25, 2004, the cash surrender values of $5.3 million and $7.4 million, respectively, the
mortality income receivables of $2.3 million and $1.0 million, respectively, and the insurance policy loans of $5.3 million and $7.4
million, respectively, related to the COLI program were netted and included in other assets in the Company’s consolidated balance
sheets. Mortality income receivable represents the dividend or death benefits the Company is due from its insurance carrier at the
respective dates. The insurance policy loans are collateralized by the cash values of the underlying life insurance policies and require
interest payments at a rate of 8.3% for the year ended December 27, 2005. Interest accrued on insurance policy loans is netted with
other COLI related income statement transactions in other income (expense) in the consolidated statements of operations, which netted
($0.2) million, ($0.1) million, and $0.1 million in 2005, 2004, and 2003, respectively, the components of which are as follows (in
thousands):
2005 2004 2003
Cash value loss ............................................................................................................................... $ (2,049) $ (2,103) $ (1,635)
Mortality income............................................................................................................................. 2,332 2,561 2,318
Interest expense .............................................................................................................................. (479) (584) (626)
(Expense)/income ........................................................................................................................... $ (196) $ (126) $ 57
The cash value loss is the cumulative change in cash surrender value for the year and is adjusted quarterly. Mortality income is
recorded periodically as charges are deducted from cash value. These amounts are recovered by the Company through payment of
death benefits and mortality dividends received. Interest expense is recorded on the accrual basis.