Panera Bread 2006 Annual Report Download - page 47

over the remaining related lease terms, which range from approximately 5 years to 17 years. The fair value of re-
acquired territory rights was based on the present value of bakery-cafe cash flow streams. The Company is
amortizing the fair value of re-acquired territory rights over the average remaining useful life of 18 years to 20 years.
The Company reviews intangible assets with finite lives for impairment when events or circumstances indicate
these assets might be impaired. The Company tests impairment using historical cash flows and other relevant facts
and circumstances as the primary basis for an estimate of future cash flows. As of December 26, 2006, no
impairment of intangible assets has been recognized. There can be no assurance that future intangible assets
impairment tests will not result in a charge to earnings.
Impairment of Long-Lived Assets
The Company evaluates whether events and circumstances have occurred that indicate the remaining
estimated useful life of long-lived assets may warrant revision or that the remaining balance of an asset may
not be recoverable. When appropriate, the Company determines if there is an impairment by comparing anticipated
undiscounted cash flows from the related long-lived assets of a bakery-cafe or fresh dough facility with their
respective carrying values. If impairment exists, the amount of an impairment is determined by comparing
anticipated discounted cash flows from the related long-lived assets of a bakery-cafe or a fresh dough facility with
their respective carrying values. In performing this analysis, management considers such factors as current results,
trends, future prospects, and other economic factors. No impairment of long-lived assets was determined for the
years ended December 26, 2006, December 27, 2005, and December 25, 2004.
Self-Insurance Reserves
The Company is self-insured for a significant portion of its workers’ compensation, group health (beginning in
2005), and general, auto, and property liability insurance with a deductible of as much as $500,000 of individual
claims, depending on the type of claim. Liabilities associated with the risks that are retained by the Company are
estimated, in part, by considering historical claims experience and trends of the Company and the industry and other
actuarial assumptions. The estimated accruals for these liabilities could be affected if development of costs on
claims differ from these assumptions and historical trends. Based on information known at December 26, 2006, the
Company believes it has provided adequate reserves for its self-insurance exposure. As of December 26, 2006 and
December 27, 2005, self-insurance reserves were $7.4 million and $8.9 million, respectively, and were included in
accrued expenses in the consolidated balance sheets.
Income Taxes
The provision for income taxes is determined in accordance with the provisions of SFAS No. 109, “Accounting
for Income Taxes.” Under this method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Capitalization of Certain Development Costs
The Company capitalizes certain internal costs associated with the development, design, and construction of
new bakery-cafe locations and fresh dough facilities. Capitalized costs of $7.0 million, $7.0 million, and
$5.4 million for the fiscal years ended December 26, 2006, December 27, 2005, and December 25, 2004,
respectively, are recorded as part of the asset to which they relate and are amortized over the asset’s useful life.
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PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)