Panera Bread 2007 Annual Report Download - page 40

dough facility sales to franchisees, for the fiscal year ended December 26, 2006. The decrease in the fresh dough
facility cost of sales rate for fiscal year 2007 compared to fiscal year 2006 was primarily due to improved operating
efficiencies in the fresh dough facilities as average bakery-cafes served per fresh dough facility has continued to
increase in 2007 as compared to 2006, partially offset by modestly unfavorable input costs.
General and administrative expenses was $69.0 million, or 6.5 percent of total revenue, for the fiscal year
ended December 25, 2007 and $59.3 million, or 7.2 percent of total revenue, for the fiscal year ended December 26,
2006. The decrease in the general and administrative expenses rate between the 2007 and 2006 fiscal years were
primarily due to disciplined expense management, leverage from sales growth, and lower incentive bonus expense
as a result of weaker corporate performance. Partially offsetting the decrease in the general and administrative
expenses rate between the 2007 and 2006 fiscal years were a $0.8 million charge incurred in the fourth quarter of
2007 for purchase commitments and equipment related to our Crispani»hand-crafted pizza product that Panera will
no longer utilize as a result of the decision to discontinue this product in the majority of our markets beginning in
early 2008.
Other Income and Expense
Other income and expense for the fiscal year ended December 25, 2007 decreased to $0.3 million of expense,
or less than 0.1 percent of total revenue, from $2.0 million of income, or 0.2 percent of total revenue, for the fiscal
year ended December 26, 2006. The decrease in other income and expense for fiscal year 2007 compared to fiscal
year 2006 was primarily from lower interest income in 2007 resulting from lower cash and investments on-hand in
2007; a charge of approximately $0.2 million in the first quarter of 2007 stemming from the Paradise acquisition; a
charge of approximately $1.1 million in the second quarter of 2007 relating to the termination of franchise
agreements for certain acquired franchise-operated bakery-cafes that operated at a royalty rate lower that the current
market royalty rates; and a charge of approximately $1.0 million in the fourth quarter of 2007 relating to an
unrealized loss on our investment in the Columbia Strategic Cash Portfolio, or the Columbia Portfolio, as a result of
adverse market conditions that unfavorably affected the fair value and liquidity of collateral underlying the
Columbia Portfolio. Partially offsetting these items was a $0.5 million gain from the sale of a bakery-cafe to a
franchisee in the second quarter of 2007. See Note 3 to the accompanying consolidated financial statements for
further information with respect to the acquisition charges and gain on sale of the bakery-cafe and Note 4 for further
discussion regarding the Columbia Portfolio. Other income and expense in fiscal year 2006 primarily included
interest income and $1.5 million of charges associated with the Paradise acquisition.
Income Taxes
The provision for income taxes decreased to $31.4 million for the fiscal year ended December 25, 2007
compared to $33.8 million for the fiscal year ended December 26, 2006. The tax provision for the 2007 and 2006
fiscal years reflected a combined federal, state, and local effective tax rate of 35.4 percent and 36.5 percent,
respectively. The tax provision for the fiscal year ended December 25, 2007 included $0.9 million of charges related
to unfavorable FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN No. 48, tax
adjustments primarily for certain state tax law changes; a $1.5 million tax benefit reflecting the expiration of the
statute of limitations on the recovery of certain previously deducted expenses; and a $0.8 million favorable
provision to return adjustment to fully recognize the benefit of deductions not previously recognized. Additionally,
we adopted the provisions of FIN No. 48 effective December 27, 2006. As a result of the implementation of
FIN No. 48, we increased our existing reserves for uncertain tax positions by $1.2 million in the first quarter of
2007, largely related to state income tax matters. Of this amount, $0.4 million was recorded as deferred tax assets
relating to the estimated federal tax benefits and $0.8 million was recorded as a cumulative-effect adjustment to the
beginning balance of retained earnings. See Note 13 to the accompanying consolidated financial statements for
further information with respect to the adoption of FIN No. 48.
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