Panera Bread 2012 Annual Report Download - page 53

PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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The Company does not require collateral and maintains reserves for potential uncollectible accounts based on historical losses
and existing economic conditions, when relevant. The allowance for doubtful accounts at December 25, 2012 and December 27,
2011 was $0.1 million, respectively.
Inventories
Inventories, which consist of food products, paper goods, and supplies, are valued at the lower of cost or market, with cost
determined under the first-in, first-out method.
Property and Equipment, net
Property, equipment, leasehold improvements, and land are stated at cost less accumulated depreciation. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated using the
straight-line method over the shorter of their estimated useful lives or the related reasonably assured lease term. Costs incurred in
connection with the development of internal-use software are capitalized in accordance with the accounting standard for internal-
use software, and are amortized over the expected useful life of the software. The estimated useful lives used for financial statement
purposes are:
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-20 years
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-10 years
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-7 years
Computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5 years
Interest, to the extent it is incurred in connection with the construction of new locations or facilities, is capitalized. The capitalized
interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. No interest was
incurred for such purposes for the fiscal years ended December 25, 2012, December 27, 2011, and December 28, 2010.
Upon retirement or sale, the cost of assets disposed and their related accumulated depreciation are removed from the Company’s
accounts. Any resulting gain or loss is credited or charged to operations. Maintenance and repairs are charged to expense when
incurred, while certain improvements are capitalized. The total amounts expensed for maintenance and repairs was $48.0 million,
$39.5 million, and $33.8 million for the fiscal years ended December 25, 2012, December 27, 2011, and December 28, 2010,
respectively.
Goodwill
Goodwill consists of the excess of the purchase price over the fair value of net assets acquired. In September 2011, the Financial
Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-08, “Intangibles-Goodwill and
Other (Topic 350) - Testing Goodwill for Impairment” (ASU 2011-08). The provisions of ASU 2011-08 provide an entity with
the option to assess qualitative factors to determine whether the existence of events or circumstances leads to the determination
that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. This qualitative assessment
is referred to as a “step zero” approach. If, based on the review of the qualitative factors, an entity determines it is not more-
likely-than-not that the fair value of a reporting unit is less than its carrying value, the entity may skip the two-step impairment
test required by prior accounting guidance. If an entity determines otherwise, the first step (“step one”) of the two-step impairment
test is required. ASU 2011-08 also gives the entity the option to bypass “step zero” and proceed directly to “step one”; an entity
may resume performing “step zero” in any subsequent period.
The Company evaluates goodwill for impairment on an annual basis or more often if an event occurs or circumstances change
that indicates impairment might exist. Goodwill is evaluated for impairment through the comparison of the fair value of reporting
units to their carrying values.
In considering the step zero approach to testing goodwill for impairment, the Company performs a qualitative analysis evaluating
factors including, but not limited to, macro-economic conditions, market and industry conditions, internal cost factors, competitive
environment, share price fluctuations, results of past impairment tests, and the operational stability and the overall financial
performance of the reporting units. During the fourth quarter of fiscal year 2012, the Company utilized a qualitative analysis for
all but two of its reporting units where no significant change occurred, the reporting units did not relate to a same-year acquisition,
and no potential impairment indicators existed since the previous annual evaluation of goodwill, and the Company concluded it
is more likely than not that the fair value was more than its carrying value on a reporting unit basis.
In considering the step one approach to testing goodwill for impairment, the Company utilized a quantitative assessment to test
goodwill for impairment for two reporting units during the fourth quarter of fiscal year 2012 and concluded that there was no