Einstein Bros 2003 Annual Report Download - page 45

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
Inventories are stated at the lower of cost or market, with cost being determined by the first-in, first-out method. Inventories consist of the
following:
December 30,
2003
December 31,
2002
(amounts in thousands)
Finished goods $ 4,403 $ 4,554
Raw materials 428 451
$ 4,831 $ 5,005
F-11
Investment in Debt Securities
Previously held investment in debt securities which included Einstein/Noah Bagel Corp. 7.25% Convertible Debentures due 2004 (the
"Einstein Bonds") which classified as available for sale securities and were recorded at fair value with temporary fluctuations in fair value
excluded from earnings and reported as a separate component of stockholders' equity. Due to the developments in the bankruptcy of ENBC in
2001, including the auction pursuant to Section 363 of the U.S. Bankruptcy Code, fair value was based on the estimated value of Einstein Bonds
realizable from the proceeds of the bankruptcy estate. As a result, during the year ended January 1, 2002, we determined that a permanent decline
of $5,805,000 in the fair value of our investment had occurred. Accordingly, we recorded such amount as investment impairment with a
comparable charge in the accompanying statement of operations.
During the year ended December 31, 2002, we received proceeds of $36,711,000 for the debentures from the bankruptcy court (Note 6c). As
the amount received exceeded the carrying value of the asset, we recorded a gain on investment in debt securities of $374,000, $2,537,000 and
$241,000 in 2003, 2002 and 2001, respectively.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures for major maintenance and repairs that extend the life of the asset are
capitalized according to our capitalization policy. Expenditures for non-major 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
As of December 30, 2003 and December 31, 2002, manufacturing equipment with a net book value of approximately $10,117,000 and
$10,093,000, respectively, was located at a major supplier's plant.
Goodwill, Trademarks and Other Intangibles
We adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), 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 goodwill impairment requires that we 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.
Our goodwill represents the excess of cost over fair value of net assets acquired in the acquisition of Manhattan. We engaged an independent
valuation expert to perform our impairment analyses. The transitional impairment analyses on January 2, 2002 and annual impairment analyses of
goodwill as of