Panera Bread 2015 Annual Report Download - page 59

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PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
49
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 29, 2015 and December 30,
2014 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 - 15 years
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-7years
Computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5years
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. Interest incurred
for such purposes was $0.2 million and $0.1 million for fiscal 2015 and fiscal 2014, respectively. No interest was incurred for
such purposes during fiscal 2013.
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 $67.3 million,
$62.0 million, and $56.6 million, for fiscal 2015, fiscal 2014, and fiscal 2013, respectively.
Goodwill
The Company evaluates goodwill for impairment on an annual basis during our fourth quarter, or more frequently if circumstances
indicate impairment might exist. Goodwill is evaluated for impairment through the comparison of fair value of our reporting units
to their carrying values. When evaluating goodwill for impairment, the Company may first perform an assessment of qualitative
factors to determine if the fair value of the reporting unit is more-likely-than-not greater than its carrying amount. If, based on
the review of the qualitative factors, the Company determines it is not more-likely-than-not that the fair value of a reporting unit
is less than its carrying value, the Company bypasses the required two-step impairment test. If the Company does not perform a
qualitative assessment or if the fair value of the reporting unit is not more-likely- than-not greater than its carrying value, the
Company performs a quantitative assessment and calculates the estimated fair value of the reporting unit. If the carrying value
of the reporting unit exceeds the estimated fair value, there is an indication that impairment may exist. The amount of impairment
is determined by comparing the implied fair value of the reporting unit goodwill to the carrying value of the goodwill in the same
manner as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill is less than
the recorded goodwill, the Company would record an impairment loss for the difference.
The fair value of a reporting unit is the price a willing buyer would pay for the reporting unit and is estimated using a discounted
cash flow model. The discounted cash flow estimate is 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.
No goodwill impairment charges were recorded during fiscal 2015 and fiscal 2013. The Company recorded a goodwill impairment
charge of $2.1 million during fiscal 2014. This charge was recorded in other (income) expense, net in the Consolidated Statements
of Income.