Panera Bread 2015 Annual Report Download - page 60

PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
50
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 four years to 19 years as of December 29, 2015. 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 five years to 20 years as of December 29, 2015. The fair value of trade names and trademarks is amortized
over their estimated useful life of eight years and 22 years, respectively.
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. There were no other intangible
asset impairment charges recorded during fiscal 2015, fiscal 2014, and fiscal 2013. 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 $3.8 million, $0.9 million, and $0.8 million during fiscal 2015, fiscal 2014, and
fiscal 2013, respectively, related to distinct, underperforming Company-owned bakery-cafes. For fiscal 2015, the impairment loss
was recorded in refranchising loss in the Consolidated Statements of Income. For fiscal 2014 and fiscal 2013, these impairment
losses were recorded in other operating expenses in the Consolidated Statements of Income.
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 $0.8 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 the Company's actual historical data and
historical industry 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 29, 2015, the Company believes it has provided adequate reserves for its self-insurance exposure.
As of December 29, 2015 and December 30, 2014, self-insurance reserves were $37.2 million and $32.6 million, respectively,
and were included in accrued expenses in the Consolidated Balance Sheets. The total amounts expensed for self-insurance were
$54.3 million, $50.7 million, and $46.9 million for fiscal 2015, fiscal 2014, and fiscal 2013, respectively.
Income Taxes
The Company recognizes deferred tax assets and liabilities 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. As of December 29, 2015 and
December 30, 2014 the Company had recorded a valuation allowance related to deferred tax assets of the Company's Canadian
operations of $5.3 million and $4.6 million, respectively.