Panera Bread 2009 Annual Report Download - page 63

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franchise entities, the Company has concluded that it is not the primary beneficiary of the entities and therefore,
these entities have not been consolidated.
Accounting Standards Issued Not Yet Adopted
In June 2009, the FASB issued authoritative guidance on accounting for transfers of financial assets, which is
effective for reporting periods beginning after November 15, 2009. This new guidance limits the circumstances in
which a financial asset may be de-recognized when the transferor has not transferred the entire financial asset or has
continuing involvement with the transferred asset. The concept of a qualifying special-purpose entity, which had
previously facilitated sale accounting for certain asset transfers, is removed by this new guidance. The Company
expects that the adoption of this new guidance will not have a material effect on its financial position or results of
operations.
In June 2009, the FASB issued authoritative guidance on accounting for variable interest entities (“VIE”),
which is effective for reporting periods beginning after November 15, 2009, and changes the process for how an
enterprise determines which party consolidates a VIE, to a primarily qualitative analysis. The party that consol-
idates the VIE (the primary beneficiary) is defined as the party with (1) the power to direct activities of the VIE that
most significantly affect the VIE’s economic performance and (2) the obligation to absorb losses of the VIE or the
right to receive benefits from the VIE. Upon adoption, reporting enterprises must reconsider their conclusions on
whether an entity should be consolidated and should a change result, the effect on net assets will be recorded as a
cumulative effect adjustment to retained earnings. The Company expects that the adoption of this new guidance will
not have a material effect on its financial position or results of operations.
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 the accounting guidance for business combinations, 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 the
accounting guidance on business combinations, 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 the accounting guidance for business combinations, 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
57
PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)