Business Combinations and Divestitures

Refranchising Initiative

In February 2015, the Company announced a plan to refranchise approximately 50 to 150 Company-owned bakery-cafes by the end of fiscal 2015.

On March 3, 2015, the Company sold substantially all of the assets of one bakery-cafe to an existing franchisee for cash proceeds of approximately $3.2 million, which resulted in a gain on sale of approximately $2.6 million.

The Company recognized impairment losses of $3.8 million during the thirteen weeks ended March 31, 2015 related to certain under-performing bakery-cafes in one of the refranchised markets for which the Company had signed letters of intent, which were excluded from the proposed sale.

On July 14, 2015, the Company sold substantially all of the assets of 29 bakery-cafes in the Boston market to an existing franchisee for a purchase price of approximately $19.6 million, including $0.5 million for inventory on hand, with $2.0 million held in escrow for certain holdbacks, and recognized a loss on sale of $0.6 million. The holdback amount is primarily to satisfy any indemnification obligations of the Company and will be held in escrow until July 14, 2017, the two-year anniversary of the transaction closing date, with the remaining balance of the holdback amount reverting to the Company.

On October 7, 2015, the Company sold substantially all of the assets of 45 bakery-cafes in the Seattle and Northern California markets to a new franchisee for a purchase price of approximately $26.8 million, including $0.9 million for inventory on hand, and recognized a loss on sale of $1.6 million.

During the thirteen weeks ended December 29, 2015, eight Company-owned bakery-cafes that the Company concluded no longer met all of the criteria required to be classified as held for sale were reclassified to held and used at their depreciated carrying value, assuming depreciation had not ceased while classified as held for sale.

As of December 29, 2015, the Company classified as held for sale the assets and certain liabilities of 35 Company-owned bakery-cafes the Company expects to sell during the next 12 months. During fiscal 2015, the Company recorded losses on assets held for sale of $11.0 million. The Company classifies assets as held for sale and ceases depreciation of the assets when those assets meet the held for sale criteria, as defined in GAAP. The following summarizes the financial statement carrying amounts of assets and liabilities associated with the bakery-cafes classified as held for sale (in thousands):



	December 29, 2015
Inventories	$	738
Property and equipment, net	26,462
Goodwill	1,499
Assets held for sale	$	28,699

Deferred rent	$	2,410
Asset retirement obligation	535
Liabilities associated with assets held for sale	$	2,945

Assets held for sale were valued using Level 3 inputs, primarily representing information obtained from signed letters of intent. Costs to sell are considered in the estimates of fair value for those assets included in assets held for sale in the Company's Consolidated Balance Sheets.

The following summarizes activity associated with the refranchising initiative recorded in the caption entitled refranchising loss in the Consolidated Statements of Income (in thousands):



	For the fiscal year ended December 29, 2015
Loss on assets held for sale	$	10,999
Impairment of long-lived assets and lease termination costs	5,461
Professional fees and severance	1,088
Gain on sale of bakery-cafes	(440		)
Refranchising loss (1)	$	17,108

(1) The caption entitled refranchising loss in the Consolidated Statements of Cash Flows as a non-cash adjustment to reconcile net income to net cash provided by operating activities includes only non-cash refranchising amounts.

Tatte Acquisition

On December 7, 2015, the Company acquired a 50.01% interest in Tatte Holdings, LLC (“Tatte”), for a cash contribution of $4.0 million (the “Tatte Acquisition”). Tatte is a bakery-cafe concept with five locations in the Boston area. The Company has evaluated all of the applicable criteria for an entity subject to consolidation under the provisions of the variable interest model and has concluded that Tatte is a VIE requiring consolidation.

The following summarizes the consolidated assets and liabilities of Tatte as of December 7, 2015, including the Company's investment in Tatte, which is eliminated in consolidation (in thousands):



Current assets, including cash	$	4,136
Property and equipment	1,757
Goodwill	2,512
Intangible assets	1,657
Deposits and other	87
Total assets	$	10,149

Current liabilities	$	777
Long-term debt	1,237
Other long-term liabilities	137
Total liabilities	2,151
Redeemable noncontrolling interest	3,998
Panera Bread Company investment in Tatte	4,000
Total liabilities, redeemable noncontrolling interest, and stockholders' equity	$	10,149

Redeemable noncontrolling interest reflects that the noncontrolling interest holder holds a written put option, which will allow them to sell their noncontrolling interest to the Company at any time after the end of the third year after the Tatte Acquisition. In addition to the written put option, the Company holds a call option to acquire the noncontrolling interest after 42 months after the Tatte Acquisition. Under each of these alternatives, the exercise price will be based on a contractually defined multiple of cash flows, subject to certain limitations (the “redemption value”), which is not a fair value measurement and is payable in cash. As the written put option is redeemable at the option of the noncontrolling interest holder, and not solely within the Company's control, the noncontrolling interest in Tatte is classified as temporary equity and reflected in redeemable noncontrolling interest between the Liabilities and Stockholders' Equity sections of the Company's Consolidated Balance Sheets. The initial carrying amount of the noncontrolling interest is the fair value of the noncontrolling interest as of the acquisition date.

The noncontrolling interest is adjusted each period for comprehensive income attributable to the noncontrolling interest and changes in the Company's ownership interest in Tatte, if any. An additional adjustment to the carrying value of the noncontrolling interest may be required if the redemption value exceeds the current carrying value. Changes in the carrying value of the noncontrolling interest related to a change in the redemption value will be recorded against permanent equity and will not affect net income. While there is no impact on net income, the redeemable noncontrolling interest will impact the Company's calculation of earnings per share. Utilizing the two-class method, the Company will adjust the numerator of the earnings per share calculation to reflect the changes in the excess, if any, of the noncontrolling interest's redemption value over the noncontrolling interest carrying amount. The Company did not record any such adjustments as of December 29, 2015.

The pro-forma impact of the Tatte Acquisition on prior periods is not presented, as the impact is not material to reported results. All of the recorded goodwill is included in the Company Bakery-Cafe Operations segment.

Florida Bakery-cafe Acquisition

On April 9, 2013, the Company acquired substantially all the assets of one bakery-cafe from its Hallandale, Florida franchisee for a purchase price of $2.7 million. The Company paid approximately $2.4 million of the purchase price on April 9, 2013 and paid the remaining $0.3 million with interest during fiscal 2014. The Consolidated Statements of Income include the results of operations for the bakery-cafe from the date of its acquisition. The pro-forma impact of the acquisition on prior periods is not presented, as the impact is not material to reported results.