Einstein Bros 2002 Annual Report Download - page 51

http://www.sec.gov/Archives/edgar/data/949373/000104746903027186/a2116520z10-ka.htm[9/11/2014 10:14:22 AM]
December 31, 2000 investment to reflect a temporary decline in fair value. Fair value at December 31, 2000 is based on the most recent traded
market price. Due to the developments in the bankruptcy of Einstein in 2001, including the auction pursuant to Section 363 of the U.S. Bankruptcy
Code, fair value at January 1, 2002 is based on the estimated value of such debentures realizable from the proceeds of the bankruptcy estate. As a
result, during the year ended
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January 1, 2002, the Company determined that a permanent decline of $5,805,000 in the fair value of its investment had occurred. Accordingly, the
Company recorded such amount as investment impairment with a comparable charge in the accompanying statement of operations.
During the year ended December 31, 2002, the Company received proceeds of $36,711,000 for the debentures from the bankruptcy court
(Note 8-c). As the amount received exceeded the carrying value of the asset, the Company recorded a gain on sale of debt securities of $2,537,497
in 2002, recorded in other income within the consolidated statement of operations.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Leasehold
improvements are amortized over the shorter of their useful lives or the term of the related leases by use of the straight-line method. Depreciation is
provided using the straight-line method over the following estimated useful lives:
Leasehold improvements 5 to 15 years
Store equipment 3 to 7 years
Furniture and fixtures 5 to 8 years
Office and computer equipment 3 to 5 years
Goodwill, Trademarks and Other Intangibles
The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets, effective January 2, 2002. SFAS 142 provides that goodwill
and other indefinite-lived intangibles should not be amortized, but be subject to an annual assessment for impairment, or more frequently if
circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. The two-step approach to assess its
goodwill impairment requires that the Company first compare the estimated fair value of each reporting unit that houses goodwill to the carrying
amount of the unit's assets and liabilities, including its goodwill and intangible assets. If the fair value of the reporting unit is below its carrying
amount, then the second step of the impairment test is performed, in which the current fair value of the unit's assets and liabilities will determine
the current implied fair value of the unit's goodwill.
The Company completed step one of both the transitional and annual impairment tests for its only reporting unit with goodwill and has
completed the transitional and annual impairment tests on indefinite-lived intangibles. The Company engaged an independent valuation expert to
perform these analyses. The transitional and annual impairment analyses of goodwill indicated that the fair value of the Manhattan Bagel Company
reporting unit as of December 31, 2002 and January 2, 2002 exceeded its carrying value. Thus, the associated goodwill as of December 31, 2002
and January 2, 2002 was not impaired, and the second step of the impairment tests were not required. Additionally, the transitional and annual
impairment analyses for the Company's indefinite-lived intangibles (trademarks) indicated that, in each instance, their respective fair values
exceeded their carrying values as of December 31, 2002 and January 2, 2002.
Goodwill represents the excess of cost over fair value of net assets acquired in the acquisition of Manhattan Bagel Company.
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In 2002, goodwill and indefinite-lived trademarks are not amortized in accordance with SFAS 142 and other intangibles are being amortized
on a straight-line basis consistent with the associated estimated future cash flows, as follows:
Trade secrets 5 years
Patents—manufacturing process 5 years
In 2001 and 2000 trademarks and other intangibles are being amortized on a straight-line basis as follows: