Panera Bread 2010 Annual Report Download - page 59

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in accordance with the accounting standard for goodwill by comparing the carrying value of reporting units to their
estimated fair values. The Company completed annual impairment tests as of the first day of the fiscal fourth quarter
of fiscal 2010, fiscal 2009, and fiscal 2008, none of which identified any impairment as the fair value of the
Company’s reporting units exceeded the associated carrying values.
As quoted market prices for the Company’s reporting units are not available, fair value is estimated based on
the present value of expected future cash flows, with forecasted average growth rates of approximately four percent
and average discount rates of 10 percent used in the fiscal 2010 analysis for the reporting units, which are
commensurate with the risks involved in the reporting units. The Company uses current results, trends, future
prospects, and other economic factors as the basis for expected future cash flows.
Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. The
Company makes every effort to forecast these future cash flows as accurately as possible with the information
available at the time the forecast is developed. However, changes in the assumptions and estimates may affect the
estimated fair value of the Company’s reporting units, and could result in goodwill impairment charges in future
periods. Factors that have the potential to create variances between forecasted cash flows and actual results include
but are not limited to (i) fluctuations in sales volumes, (ii) commodity costs, such as wheat and fuel, and
(iii) acceptance of the Company’s pricing actions undertaken in response to rapidly changing commodity prices and
other product costs. Refer to “Forward-Looking Statements” included in the beginning of the Company’s
Form 10-K for further information regarding the impact of estimates of future cash flows.
The calculation of fair value could increase or decrease depending on changes in the inputs and assumptions
used, such as changes in the financial performance of the reporting units, future growth rate, and discount rate. In
order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test, the Company applied
hypothetical changes to its projected growth rate and discount rate which the Company believes are considered
appropriate. Based on the goodwill analysis performed as of September 29, 2010, the first day of the Company’s
fourth quarter of fiscal 2010, these hypothetical changes in the Company’s assumptions would not affect the results
of the impairment test, as all reporting units individually still had an excess of fair value over their respective
carrying value.
Other Intangible Assets
Other intangible assets consist primarily of favorable lease agreements, re-acquired territory rights, and
trademarks. The Company amortizes the fair value of favorable lease agreements over the remaining related lease
terms at the time of the acquisition, which ranged from approximately 2 years to 17 years. The fair value of re-
acquired territory rights was based on the present value of the acquired bakery-cafe cash flows. The Company
amortizes the fair value of re-acquired territory rights over the remaining contractual terms of the re-acquired
territory rights at the time of the acquisition, which ranged from approximately 13 years to 20 years. The fair value
of trademarks is amortized over their estimated useful life of 22 years.
The Company reviews intangible assets with finite lives for impairment when events or circumstances indicate
these assets might be impaired. When warranted, the Company tests intangible assets with finite lives for
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 28, 2010, December 29, 2009, and December 30, 2008, no
impairment of intangible assets with finite lives had been recognized. There can be no assurance that future
intangible asset 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 impairment by comparing anticipated
52
PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)