Einstein Bros 2004 Annual Report Download - page 37

http://www.sec.gov/Archives/edgar/data/949373/000104746905006202/a2153240z10-k.htm[9/11/2014 10:13:29 AM]
We record revenue from the sale of food and beverage as products are sold. Our manufacturing revenues are recorded at the time of shipment
to customers. Initial fees received from a franchisee or licensee to establish a new location are recognized as income when we have performed our
obligations required to assist the franchisee or licensee in opening a new location, which is generally at the time the franchisee or licensee
commences operations. Continuing royalties, which are a percentage of the net sales of franchised and licensed locations, are accrued as income
each month. Proceeds from the sale of gift cards are recorded as deferred revenue and recognized as income when redeemed by the holder.
Property and Equipment
Property and equipment is recorded at cost. Furniture and equipment are depreciated using the straight-line method over the estimated useful
life of the asset, which ranges from 3 to 8 years. Leasehold improvements are amortized using the straight-line method. The depreciable lives for
our
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leasehold improvements, which are subject to a lease, are limited to the lesser of the useful life or the noncancelable lease term. In circumstances
where we would incur an economic penalty by not exercising one or more option periods, we include one or more option periods when
determining the depreciation period. In either circumstance, our policy requires consistency when calculating the depreciation period, in classifying
the lease, and in computing straight-line rent expense.
In accordance with Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets,"
impairment losses are recorded on long-lived assets on a restaurant-by-restaurant basis whenever impairment indicators are determined to be
present. We consider a history of cash flow losses to be the primary indicator of potential impairment for individual restaurant locations. We
determine whether a restaurant location is impaired based on expected undiscounted future cash flows, considering location, local competition,
current store management performance, existing pricing structure and alternatives available for the site. If impairment exists, the amount of
impairment is measured as the excess of the carrying amount of the asset over its fair value as determined utilizing the estimated discounted future
cash flows or the expected proceeds, net of costs to sell, upon sale of the asset.
For the year ended December 28, 2004, we recorded $450 in impairment charges for long-lived asset impairments and exit costs from the
decision to close two restaurants and to write down the assets of five under-performing restaurants.
Goodwill, Trademarks and Other Intangibles
Intangible assets include both goodwill and identifiable intangibles arising from the allocation of the purchase prices of assets acquired.
Goodwill represents the excess of cost over fair value of net assets acquired in the acquisition of Manhattan. Other intangibles consist mainly of
trademarks, trade secrets and patents.
Goodwill and other intangible assets with indefinite lives are not subject to amortization but are tested for impairment annually or more
frequently if events or changes in circumstances indicate that the asset might be impaired. Statement of Financial Accounting Standards (SFAS)
No. 142, "Goodwill and Other Intangible Assets" requires a two-step approach for testing impairment. First, the estimated fair value of each
reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the second
step of the impairment test is performed; the fair value of the reporting unit's goodwill is determined by allocating the unit's fair value to its assets
and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of
impairment for goodwill and other intangible assets is measured as the excess of its carrying amount over its fair value. Intangible assets not
subject to amortization consist primarily of the Einstein Bros. and Manhattan trademarks.
Intangible assets with lives restricted by contractual, legal or other means are amortized over their useful lives and consist primarily of patents
used in our manufacturing process. Amortization expense is calculated using the straight-line method over the estimated useful lives of
approximately 5 years. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable, in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."
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During fiscal 2004, we began an evaluation of whether each of our brands should be a part of our overall strategic business plan. As a result of
this evaluation, we determined that certain brands may no longer fit strategically. Accordingly, we performed an interim impairment analysis and
determined that no impairment of these brands existed. We also performed a longevity analysis of certain brands and determined that certain