Panera Bread 2010 Annual Report Download - page 46

Self-Insurance
We are self-insured for a significant portion of our workers’ compensation, group health, and general, auto, and
property liability insurance with varying levels of deductibles of as much as $0.5 million of individual claims,
depending on the type of claim. We also purchase aggregate stop-loss and/or layers of loss insurance in many
categories of loss. We utilize third party actuarial experts’ estimates of expected losses based on statistical analyses
of historical industry data, as well as our own estimates based on our actual historical data to determine required
self-insurance reserves. The assumptions are closely reviewed, monitored, and adjusted when warranted by
changing circumstances. The estimated accruals for these liabilities could be affected if actual experience related to
the number of claims and cost per claim differs from these assumptions and historical trends. Based on information
known at December 28, 2010, we believe we have provided adequate reserves for our self-insurance exposure. As of
December 28, 2010 and December 29, 2009, self-insurance reserves were $20.2 million and $15.9 million,
respectively, and were included in accrued expenses in the Consolidated Balance Sheets.
Income Taxes
We are subject to income taxes in the United States and Canada. Significant judgment is required in evaluating
our uncertain tax positions and determining our provision for income taxes. We assess the income tax position and
record the liabilities for all years subject to examination based upon management’s evaluation of the facts,
circumstances, and information available at the reporting date.
Our provision for income taxes is determined in accordance with the accounting guidance 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.
Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given
that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts
and circumstances, such as the closing of a tax audit, the refinement of an estimate or changes in tax laws. To the
extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact
our provision for income taxes in the period in which such determination is made. Our provision for income taxes
includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the
related net interest.
Our effective tax rates have differed from the statutory tax rate primarily due to the impact of state taxes,
partially offset by favorable U.S. rules related to donations of inventory to charitable organizations and domestic
manufacturing. Our future effective tax rates could be adversely affected by changes in the valuation of our deferred
tax assets, or changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, we are
subject to the continuous examination of our income tax returns and other tax filings by the Internal Revenue
Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these
examinations to determine the adequacy of our provision for income taxes.
Lease Obligations
We lease our bakery-cafes, fresh dough facilities and trucks, and support centers. Each lease is evaluated to
determine whether the lease will be accounted for as an operating or capital lease. The term used for this evaluation
includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably
assured and failure to exercise such option would result in an economic penalty.
For leases that contain rent escalations, we record the total rent payable during the lease term, as described
above, on a straight-line basis over the term of the lease, and record the difference between the minimum rent paid
and the straight-line rent as a lease obligation. Some of our leases contain provisions that require additional rental
payments based upon net bakery-cafe sales volume or changes in external indices, which we refer to as contingent
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