Panera Bread 2015 Annual Report Download - page 64

PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
54
and historical experience. Stock-based compensation expense is recognized only for those awards expected to vest, with forfeitures
estimated at the date of grant based on historical experience. The fair value of the awards expected to vest is amortized over the
vesting period. Options and restricted stock generally vest 25 percent after two years and thereafter 25 percent each year for the
next three years and options generally have a six-year term. Stock-based compensation expense is included in general and
administrative expenses in the Consolidated Statements of Income.
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 accounting standard for the asset retirement and environmental obligations ("ARO") in the Company’s
consolidated financial statements. Most lease agreements require the Company to restore the leased property to its original
condition, including removal of certain long-lived assets the Company has installed, at the end of the lease. 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, net
and recognizes accretion expense in connection with the discounted liability over the reasonably assured lease term. The estimated
liability is based on the Company’s historical experience in closing bakery-cafes, fresh dough facilities, and support centers 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 terms. As of December 29, 2015 and December 30, 2014, the Company's net ARO asset included in
property and equipment, net was $10.3 million and $13.3 million, respectively, and its net ARO liability included in other long-
term liabilities was $19.5 million and $19.8 million, respectively. ARO accretion expense was $1.0 million, $0.6 million, and
$0.6 million for fiscal 2015, fiscal 2014, and fiscal 2013, respectively.
Variable Interest Entities
The Company applies relevant accounting standards for variable interest entities (“VIE”), which defines the process for how an
enterprise determines which party consolidates a VIE. 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 December 29, 2015. As discussed further at Note 3, the
Company also evaluated all of the applicable criteria for an entity subject to consolidation and concluded its interest in a certain
bakery-cafe concept is a VIE requiring consolidation.
Recent Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17,
“Balance Sheet Classification of Deferred Taxes”. This update requires that deferred tax liabilities and assets be classified as
noncurrent in a classified statement of financial position. This update is effective for annual and interim reporting periods beginning
after December 15, 2016. Early adoption is permitted. The Company plans on adopting this guidance in the first quarter of fiscal
2016.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments”. This update eliminates the requirement for an acquirer in a business combination to account
for measurement-period adjustments retrospectively. Acquirers would now recognize measurement-period adjustments during
the period in which they determine the amount of the adjustment. This update is effective for annual and interim reporting periods
beginning after December 15, 2015, including interim periods within those fiscal years, and should be applied prospectively to
adjustments for provisional amounts that occur after the effective date with early adoption permitted for financial statements that
have not been issued. The adoption of this guidance is not expected to have a material effect on the Company's consolidated
financial statements.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”. This update
provides guidance on the subsequent measurement of inventory, which changes the measurement from lower of cost or market to
lower of cost and net realizable value. This update is effective for annual and interim periods beginning after December 15, 2016.
The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs”. This update requires debt issuance costs related to a recognized debt liability to be presented in the