Panera Bread 2008 Annual Report Download - page 66

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Asset Retirement Obligations
The Company recognizes the future cost to comply with lease obligations at the end of a lease as it relates to
tangible long-lived assets in accordance with the provisions of SFAS No. 143, Accounting for Asset Retirement
Obligations, as interpreted by FIN No. 47, Accounting for Conditional Asset Retirement Obligations. A liability for
the fair value of an asset retirement obligation along with a corresponding increase to the carrying value of the
related long-lived asset is recorded at the time a lease agreement is executed. The Company amortizes the amount
added to property and equipment and recognizes accretion expense in connection with the discounted liability over
the life of the respective lease. The estimated liability is based on experience in closing bakery-cafes and the related
external cost associated with these activities. Revisions to the liability could occur due to changes in estimated
retirement costs or changes in lease term.
Variable Interest Entities
The Company applies the provisions of FIN No. 46R, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51, revised in December 2003, to all franchise entities, which operate our franchise-
operate bakery-cafes, in which the Company holds an interest. In December 2008, the FASB issued FASB Staff
Position (“FSP”) SFAS No. 140-4 and FIN No. 46R-8, Disclosures by Public Entities (Enterprises) about Transfers
of Financial Assets and Interests in Variable Interest Entities, which is effective for the first reporting period ending
after December 15, 2008. This FSP requires additional disclosures related to variable interest entities (“VIE”) in
accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, and FIN No. 46R. Generally a VIE is an entity with one or more of the following characteristics: (a) the
total equity investment at risk is not sufficient to permit the entity to finance its activities without additional
subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make
decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses
of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and
substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has
disproportionately few voting rights. FIN No. 46R requires a VIE to be consolidated in the financial statements of
the entity that is determined to be the primary beneficiary of the VIE.
The Company’s determination of the primary beneficiary of each VIE requires judgment and is based on an
analysis of all relevant facts and circumstances including: (a) the existence of a principal-agency relationship
between the Company and the franchisee; (b) the relationship and significance of the activities of the VIE to the
Company and the franchisee; (c) the Company and the franchisee’s exposure to the expected losses of the VIE; and
(d) the design of the VIE. We do not posses any ownership interests in franchise entities. The franchise agreements
are designed to provide the franchisee with key decision-making ability to enable it to oversee its operations and to
have a significant impact on the success of the franchise, while the Company’s decision-making rights are related to
protecting its brand. Based upon its analysis of all the relevant facts and considerations of the franchise entities, the
Company has concluded that it is not the primary beneficiary of the entities and therefore, these entities have not
been consolidated.
Recently Issued Pronouncements
In December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS No. 141R establishes
principles and requirements for how the acquirer of a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The
statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination
and determines what information to disclose to enable users of the financial statement to evaluate the nature and
financial effects of the business combination. SFAS No. 141R is effective for financial statements issued for fiscal
years beginning after December 15, 2008. Accordingly, any business combinations the Company engages in will be
recorded and disclosed following the new standard beginning December 31, 2008. The Company expects
59
PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)