Business Combinations and Divestitures

6 Months Ended

Jun. 28, 2011

Business Combinations and Divestitures [Abstract]

Business Combinations and Divestitures

Note 2. Business Combinations and Divestitures

Texas Divestiture

On February 9, 2011, the Company sold substantially all of the assets of two Paradise Bakery & Café (“Paradise”) bakery-cafes to an existing Texas franchisee for a sales price of approximately $0.1 million, resulting in a nominal gain, which is classified in other (income) expense, net in the Consolidated Statements of Operations.

Milwaukee Franchisee Acquisition

On April 19, 2011 the Company purchased substantially all the assets and certain liabilities of 25 bakery-cafes and the area development rights from a Milwaukee franchisee for a purchase price of approximately $41.9 million. Approximately $39.8 million of the purchase price was paid on April 19, 2011, with $2.1 million retained by the Company for certain holdbacks. The holdbacks are primarily for certain indemnifications and expire on the 18 month anniversary of the transaction closing date, October 19, 2012, with any remaining holdback amounts reverting to the prior franchisee. As a result of the acquisition, the Company gained control of the 25 bakery-cafes and expanded Company-owned operations into Wisconsin. The Consolidated Statements of Operations include the results of operations from the operating bakery-cafes from the date of the acquisition.

The acquired business contributed revenues of $11.4 million and net income of less than $0.1 million for the period from April 20, 2011 through June 28, 2011. The following supplemental pro forma information is presented for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on December 30, 2009, nor are they indicative of any future results (in thousands):

	Pro Forma for the Fiscal Period Ended
	For the 13 Weeks Ended				For the 26 Weeks Ended
	June 28, 2011		June 29, 2010		June 28, 2011		June 29, 2010
Bakery-cafe sales, net	$	407,109	$	335,008		785,273		660,093
Net income		35,841		26,834		68,743		52,809

The pro forma amounts included in the table above reflect the application of the Company’s accounting policies and adjustment of the results of the Milwaukee bakery-cafes to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from December 30, 2009, together with the consequential tax impacts.

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: $0.4 million to inventories, $9.3 million to property and equipment, $23.3 million to intangible assets, which represents the fair value of re-acquired territory rights and favorable lease agreements, $1.7 million to liabilities, and $10.6 million to goodwill. The fair value measurement of tangible and intangible assets and liabilities as of the acquisition date is based on significant inputs not observed in the market and thus represents a Level 3 measurement.

Goodwill recorded in connection with this acquisition is attributable to the workforce of the acquired bakery-cafes and synergies expected to arise from cost savings opportunities. All of the recorded goodwill is anticipated to be tax deductible and is included in the Company Bakery-Cafe Operations segment.

New Jersey Franchisee Acquisition

On September 29, 2010 the Company purchased substantially all of the assets and certain liabilities of 37 bakery-cafes and the area development rights from a New Jersey franchisee for a purchase price of approximately $55.0 million. Approximately $52.2 million of the purchase price was paid on September 29, 2010, with $2.8 million retained by the Company for certain holdbacks. The holdbacks are primarily for certain indemnifications and expire on the first anniversary of the transaction closing date, September 29, 2011, with any remaining holdback amounts reverting to the prior franchisee. As a result of the acquisition, the Company gained control of the 37 bakery-cafes and expanded Company-owned operations into New Jersey. The Consolidated Statements of Operations include the results of operations from the operating bakery-cafes from the date of the acquisition.

The following supplemental pro forma information is presented for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on December 30, 2009, nor are they indicative of any future results (in thousands):

	Pro Forma for the Fiscal Period Ended
	For the 13 Weeks Ended		For the 26 Weeks Ended
	June 29, 2010		June 29, 2010
Bakery-cafe sales, net	$	343,735	$	677,775
Net income		27,257		53,938

The pro forma amounts included in the table above reflect the application of the Company’s accounting policies and adjustment of the results of the New Jersey bakery-cafes to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied from December 30, 2009, together with the consequential tax impacts.

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: $0.5 million to inventories, $19.9 million to property and equipment, $31.2 million to intangible assets, which represents the fair value of re-acquired territory rights and favorable lease agreements, $1.2 million to liabilities, and $4.6 million to goodwill. The fair value measurement of tangible and intangible assets and liabilities as of the acquisition date is based on significant inputs not observed in the market and thus represents a Level 3 measurement.

Goodwill recorded in connection with this acquisition is attributable to the workforce of the acquired bakery-cafes and synergies expected to arise from cost savings opportunities. All of the recorded goodwill is anticipated to be tax deductible and is included in the Company Bakery-Cafe Operations segment.

Alabama Divestiture

On April 27, 2010, the Company sold substantially all of the assets of three bakery-cafes and the area development rights for Mobile, Alabama to an existing franchisee for a sales price of approximately $2.2 million, resulting in a gain of approximately $0.6 million, which was classified in other (income) expense, net in the Consolidated Statements of Operations.

Canada Franchisee Acquisition

On September 10, 2008, the Company’s Canadian subsidiary, Panera Bread ULC, as lender, entered into a Cdn. $3.5 million secured revolving credit facility agreement and franchise agreements with Millennium Bread Inc. (“Millennium”) and certain of Millennium’s present and future subsidiaries (the “Franchise Guarantors”), pursuant to which Millennium would operate three Panera Bread bakery-cafes in Ontario, Canada.

On March 30, 2010, PB Biscuit, ULC (“PB Biscuit”) was formed by Panera Bread ULC through the contribution of its Cdn. $3.5 million note receivable from Millennium and cash. On March 31, 2010, PB Biscuit acquired certain assets and liabilities and the operations of Millennium’s three Panera Bread bakery-cafes. In exchange for the bakery-cafe operations and certain assets and liabilities, PB Biscuit assigned the Cdn. $3.5 million note receivable to and issued noncontrolling interest to Millennium at a fair value of $0.6 million (28.5 percent ownership of PB Biscuit’s voting shares), for a total consideration of $4.1 million, subject to certain closing adjustments. The Consolidated Statements of Operations include the results of operations from the operating bakery-cafes from the date of the acquisition. This non-cash transaction is excluded from the Consolidated Statements of Cash Flows for the twenty-six weeks ended June 29, 2010. The pro forma impact of the acquisition on prior periods is not presented, as the impact was 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: $2.3 million to property and equipment, $0.5 million of net assumed current liabilities, and $2.3 million to goodwill.

On December 28, 2010, the Company purchased the remaining noncontrolling interest of Millennium for $0.7 million. The transaction was accounted for as an equity transaction, by adjusting the carrying amount of the noncontrolling interest balance to reflect the change in the Company’s ownership interest in Millennium, with the difference between fair value of the consideration paid and the amount by which the noncontrolling interest was adjusted recognized in equity attributable to the Company.