Panera Bread 2007 Annual Report Download - page 85

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Other (income) expense, net in 2006 primarily consisted of interest income of $3.5 million, partially offset by
$1.5 million of charges associated with the termination of ADA’s with two franchisees in the Phoenix markets, none
of which had operating bakery-cafes. The termination of the ADA’s was precipitated by the pending acquisition of
Paradise, which closed in the first quarter of 2007 (see Note 3 to the accompanying consolidated financial
statements for further description of the Paradise transaction). Included in the $1.5 million of charges was
$0.8 million of asset write-offs from assets acquired from one of the franchisees, $0.3 million of future operating
lease costs resulting from the assumption of certain leases from one of the franchisees, and $0.4 million of other
costs involved with termination of the ADA’s. Other (income) expense, net in 2005 principally consisted of interest
income of $2.5 million, partially offset by costs of $1.4 million.
19. Business Segment Information
The Company operates three business segments. The Company Bakery-Cafe Operations segment is comprised
of the operating activities of the bakery-cafes owned directly and indirectly by the Company. The Company-owned
bakery-cafes conduct business under the Panera Bread», Saint Louis Bread Co.»or Paradise Bakery & Café»
names. These bakery-cafes offer some or all of the following: fresh baked goods, made-to-order sandwiches on
freshly baked breads, soups, salads, custom roasted coffees, and other complementary products through on-premise
sales, as well as catering.
The Franchise Operations segment is comprised of the operating activities of the franchise business which
licenses qualified operators to conduct business under the Panera Bread»or Paradise Bakery & Café»names and
also of the costs to monitor the operations of these bakery-cafes. Under the terms of most of the agreements, the
licensed operators pay royalties and fees to the Company in return for the use of the Panera Bread»or Paradise
Bakery & Café»names.
The Fresh Dough Operations segment supplies fresh dough items and indirectly supplies proprietary sweet
goods items through a contract manufacturing arrangement to both Company-owned and franchise-operated
bakery-cafes. The fresh dough is sold to a number of both Company-owned and franchise-operated bakery-cafes at
a delivered cost generally not to exceed 27 percent of the retail value of the end product. The sales and related costs
to the franchise-operated bakery-cafes are separately stated line items in the Consolidated Statements of Oper-
ations. The operating profit related to the sales to Company-owned bakery-cafes is classified as a reduction of the
costs in the Cost of Food and Paper Products line item on the Consolidated Statements of Operations.
75
PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)