Panera Bread 2011 Annual Report Download - page 59

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Variable Interest Entities
The Company applies the guidance issued by the FASB on accounting for variable interest entities (“VIE”), which defines the
process for how an enterprise determines which party consolidates a VIE as primarily a qualitative analysis. The enterprise that
consolidates the VIE (the primary beneficiary) is defined as the enterprise 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. The Company does not possess any ownership interests in franchise entities or other affiliates. 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 and other affiliates, the
Company has concluded that these entities are not variable interest entities and they have not been consolidated as of the fiscal
year ended December 27, 2011.
New Accounting Standards
In September 2011, the FASB updated its guidance on the annual testing of goodwill for impairment to allow companies to first
assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required under current
accounting standards. The updated guidance is applicable to goodwill impairment tests performed for fiscal years beginning after
December 15, 2011, with early adoption permitted. The adoption of this updated guidance did not have a material impact on the
Company's consolidated financial statements.
In June 2011 and as updated in December 2011, the FASB updated its guidance for comprehensive income to require companies
to present the total of comprehensive income, the components of net income, and the components of other comprehensive income
either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated
guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in
equity. This updated guidance is applicable for fiscal years beginning after December 15, 2011. The Company believes the adoption
of this updated guidance will not have a material impact on the Company's consolidated financial statements.
3. Business Combinations and Divestitures
Indiana Franchisee Acquisition
On July 26, 2011, the Company purchased substantially all the assets and certain liabilities of five Paradise Bakery & Café
(“Paradise”) bakery-cafes and the related area development rights from an Indiana franchisee for a purchase price of approximately
$5.1 million. Approximately $4.6 million of the purchase price was paid on July 26, 2011, with $0.5 million retained by the
Company for certain holdbacks. The holdbacks are primarily for certain indemnifications and expire on the second anniversary
of the transaction closing date, July 26, 2013, with any remaining holdback amounts reverting to the prior franchisee. As a result
of this acquisition, the Company gained control of the five bakery-cafes and further expanded Company-owned operations into
Indiana. The Consolidated Statements of Operations include the results of operations from these five bakery-cafes from the date
of their acquisition. 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: $0.1 million to inventories, $1.3 million to property
and equipment, $1.3 million to intangible assets, which represent the fair value of re-acquired territory rights, $0.7 million to
liabilities, and $3.1 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 was 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.
Milwaukee Franchisee Acquisition
On April 19, 2011 the Company purchased substantially all the assets and certain liabilities of 25 bakery-cafes and the related 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,