Panera Bread 2013 Annual Report Download - page 55

PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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In considering the step one approach to testing goodwill for impairment, the Company utilized a quantitative assessment to test
goodwill for impairment for one reporting unit during the fourth quarter of fiscal 2013 and concluded that there was no impairment
as the estimated fair value of the reporting unit exceeded its carrying value. The fair value of the reporting unit is the price a
willing buyer would pay for the reporting unit and is estimated using a discounted cash flow model. The goodwill balance for the
reporting unit subject to the quantitative assessment was $2.2 million at December 31, 2013. The Company's discounted cash
flow estimate was 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 two years to 17 years as of December 31, 2013. 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 seven years to 20 years as of December 31, 2013. 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 31, 2013,
December 25, 2012, and December 27, 2011, 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 and management believes that the underlying assumptions are
reasonable.
The Company recognized impairment losses of $0.8 million and $0.3 million during the fiscal years ended December 31, 2013
and December 25, 2012, 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 31, 2013, the Company believes it has provided adequate reserves
for its self-insurance exposure. As of December 31, 2013 and December 25, 2012, self-insurance reserves were $31.5 million and