Panera Bread 2012 Annual Report Download - page 54

PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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impairment as the fair value of its reporting units exceeded their carrying value. This assessment was based upon a discounted
cash flow analysis. The goodwill balance for the reporting units subject to the quantitative assessment was $16.0 million at
December 25, 2012. The Company's estimates of cash flow were based upon, among other things, certain assumptions about
expected future operating performance, such as revenue growth rates, operating margins, risk-adjusted discount rates, and future
economic and market conditions. Estimates of discounted cash flow may differ from actual cash flow due to, among other things,
economic conditions, changes to the Company's business model or changes in operating performance. Additionally, certain
estimates of discounted cash flow involve businesses with limited financial history and developing revenue models, which increases
the risk of differences between the projected and actual performance. The long-term financial forecasts that the Company utilizes
represent the best estimate that the Company has at this time and the Company believes that the underlying assumptions are
reasonable.
Other Intangible Assets, net
Other intangible assets, net 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 as of December 25, 2012. 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 7 years to 20 years as of December 25, 2012. 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 25, 2012,
December 27, 2011, and December 28, 2010, 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. The Company compares
anticipated undiscounted cash flows from the related long-lived assets of a bakery-cafe or fresh dough facility with their respective
carrying values to determine if the long-lived assets are recoverable. If the sum of the anticipated undiscounted cash flows for the
long-lived assets is less than their carrying value, an impairment loss is recognized for the difference between the anticipated
discounted cash flows, which approximates fair value, and the carrying value of the long-lived assets. In performing this analysis,
management estimates cash flows based upon, among other things, certain assumptions about expected future operating
performance, such as revenue growth rates, operating margins, risk-adjusted discount rates, and future economic and market
conditions. Estimates of cash flow may differ from actual cash flow due to, among other things, economic conditions, changes to
the Company's business model or changes in operating performance. The long-term financial forecasts that management utilizes
represent the best estimate that management has at this time time and management believes that the underlying assumptions are
reasonable.
The Company recognized an impairment loss of $0.3 million and $0.1 million during the fiscal years ended December 25, 2012
and December 28, 2010, respectively, related to distinct underperforming Company-owned bakery-cafes. These losses were
recorded in other operating expenses in the Consolidated Statements of Comprehensive Income. No impairment loss was recognized
during the fiscal year ended December 27, 2011.
Self-Insurance Reserves
The Company is self-insured for a significant portion of its workers’ compensation, group health, and general, auto, and property
liability insurance with varying deductibles of as much as $0.7 million for individual claims, depending on the type of claim. The
Company also purchases aggregate stop-loss and/or layers of loss insurance in many categories of loss. The Company utilizes
third party actuarial experts’ estimates of expected losses based on statistical analyses of historical industry data, as well as its
own estimates based on the Company’s 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 25, 2012, the Company believes it has provided adequate reserves
for its self-insurance exposure. As of December 25, 2012 and December 27, 2011, self-insurance reserves were $28.9 million and
$23.6 million, respectively, and were included in accrued expenses in the Consolidated Balance Sheets. The total amounts expensed