Panera Bread 2012 Annual Report Download - page 55

PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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for self-insurance were $41.8 million, $35.9 million, and $35.6 million, for the fiscal years ended December 25, 2012, December 27,
2011, and December 28, 2010, respectively.
Income Taxes
The Company completes the provision for income taxes in accordance with the accounting standard for income taxes in the
Company’s consolidated financial statements. 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 from a change in tax rates is recognized in income in the period that includes the enactment date. A
valuation allowance is recognized if the Company determines it is more likely than not that all or some portion of the deferred tax
asset will not be recognized. At December 25, 2012, the Company recorded a valuation allowance related to net operating loss
carryforwards of the Company's Canadian operations of $1.8 million. No valuation allowance was recorded against deferred tax
assets during the fiscal years ended December 27, 2011, and December 28, 2010, respectively.
In accordance with the authoritative guidance on income taxes, the Company establishes additional provisions for income taxes
when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum
probability threshold, which is a tax position that is more likely than not to be sustained upon ultimate settlement with tax authorities
assuming full knowledge of the position and all relevant facts. In the normal course of business, the Company and its subsidiaries
are examined by various federal, state, foreign, and other tax authorities. The Company regularly assesses the potential outcomes
of these examinations and any future examinations for the current or prior years in determining the adequacy of its provision for
income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax
provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known.
The Company classifies estimated interest and penalties related to the unrecognized tax benefits as a component of income taxes
in the Consolidated Statements of Comprehensive Income.
Capitalization of Certain Development Costs
The Company has elected to account for construction costs in accordance with the accounting standard for real estate in the
Company’s consolidated financial statements. The Company capitalizes direct and indirect costs clearly associated with the
acquisition, development, design, and construction of bakery-cafe locations and fresh dough facilities as these costs have a future
benefit to the Company. The types of specifically identifiable costs capitalized by the Company include primarily payroll and
payroll related taxes and benefit costs incurred within the Company’s development department. The Company’s development
department focuses solely on activities involving the acquisition, development, design, and construction of bakery-cafes and fresh
dough facilities. The Company does not consider for capitalization payroll or payroll-related costs incurred in other departments,
including general and administrative functions, as these other departments do not directly support the acquisition, development,
design, and construction of bakery-cafes and fresh dough facilities. The Company uses an activity-based methodology to determine
the amount of costs incurred within the development department for Company-owned projects, which are capitalized, and those
for franchise-operated projects and general and administrative activities, which both are expensed as incurred. If the Company
subsequently makes a determination that a site for which development costs have been capitalized will not be acquired or developed,
any previously capitalized development costs are expensed and included in general and administrative expenses in the Consolidated
Statements of Comprehensive Income.
The Company capitalized $9.0 million, $7.7 million, and $8.7 million direct and indirect costs related to the development of
Company-owned bakery-cafes for the fiscal years ended December 25, 2012, December 27, 2011, and December 28, 2010,
respectively. The Company amortizes capitalized development costs for each bakery-cafe and fresh dough facility using the straight-
line method over the shorter of their estimated useful lives or the related reasonably assured lease term and includes such amounts
in depreciation and amortization in the Consolidated Statements of Comprehensive Income. In addition, the Company assesses
the recoverability of capitalized costs through the performance of impairment analyses on an individual bakery-cafe and fresh
dough facility basis pursuant to the accounting standard for property and equipment, net specifically related to the accounting for
the impairment or disposal of long-lived assets.
Deferred Financing Costs
Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense
based on the related debt agreement using the straight-line method, which approximates the effective interest method. The
unamortized amounts are included in deposits and other assets in the Consolidated Balance Sheets and were $1.1 million and $0.3
million at December 25, 2012 and December 27, 2011, respectively.