Panera Bread 2008 Annual Report Download - page 68

Download and view the complete annual report

Please find page 68 of the 2008 Panera Bread annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 99

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99

retrospectively. The Company does not expect FSP EITF No. 03-6-1 to have a material impact on the Company’s
financial position or results of operations.
In November 2008, the FASB ratified EITF No. 08-7, Accounting for Defensive Intangible Assets. EITF
No. 08-7 applies to defensive intangible assets, which are acquired intangible assets that the acquirer does not intend
to actively use but intends to hold to prevent its competitors from obtaining access to them. As these assets are
separately identifiable, EITF No. 08-7 requires an acquiring entity to account for defensive intangible assets as a
separate unit of accounting, which should be amortized to expense over the period the asset diminished in value.
Defensive intangible assets must be recognized at fair value in accordance with SFAS No. 141R and SFAS No. 157.
EITF No. 08-7 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The
Company expects EITF No. 08-7 will have an impact on the consolidated financial statements when effective, but
the nature and magnitude of the specific effects will depend upon the nature, terms and size of the intangible assets
purchased after the effective date.
3. Business Combinations
On June 21, 2007, the Company purchased substantially all of the assets of ten bakery-cafes and the area
development rights for certain markets in Illinois from its area developer, SLB of Central Illinois, L.L.C., for a
purchase price of approximately $16.6 million, net of the $0.4 million contractual settlement charge determined in
accordance with EITF No. 04-1, Accounting for Preexisting Relationships between the Parties to a Business
Combination, plus approximately $0.1 million in acquisition costs. Approximately $16.2 million of the acquisition
price was paid with cash on hand at the time of closing while the remaining approximately $0.8 million was paid
with interest in fiscal 2008. 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
tangible and intangible assets acquired in the acquisition at their estimated fair values with the remainder allocated
to tax deductible goodwill as follows: $0.2 million to inventories, $5.1 million to property and equipment,
$7.1 million to intangible assets, which represents the fair value of re-acquired territory rights and favorable lease
agreements, $0.6 million to liabilities, and $4.9 million to goodwill. As a result of the acquisition, the Company
incurred a contractual settlement charge of $0.4 million pursuant to EITF No. 04-1, reflecting the termination of
franchise agreements for certain bakery-cafes that operated at a royalty rate lower than the Company’s current
market royalty rates. The charge is reported as other (income) expense, net in the Consolidated Statements of
Operations.
On June 21, 2007, the Company also purchased substantially all of the assets of 22 bakery-cafes and the area
development rights for certain markets in Minnesota from its area developer, SLB of Minnesota, L.L.C., for a
purchase price of approximately $18.3 million, net of the $0.7 million contractual settlement charge determined in
accordance with EITF No. 04-1, plus approximately $0.1 million in acquisition costs. Approximately $18.1 million
of the acquisition price was paid with cash on hand at the time of closing while the remaining approximately
$0.9 million was paid with interest in fiscal 2008. 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 tangible and intangible assets acquired in the acquisition at their estimated fair values with the
remainder allocated to tax deductible goodwill as follows: $0.3 million to inventories, $8.7 million to property and
equipment, $2.2 million to intangible assets, which represents the fair value of re-acquired territory rights and
favorable lease agreements, $0.3 million to liabilities, and $7.5 million to goodwill. As a result of the acquisition,
the Company incurred a contractual settlement charge of $0.7 million pursuant to EITF No. 04-1, reflecting the
termination of franchise agreements for certain bakery-cafes that operated at a royalty rate lower than the
Company’s current market royalty rates. The charge is reported as other (income) expense, net in the Consolidated
Statements of Operations.
61
PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)