Einstein Bros 2004 Annual Report Download - page 38

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trademarks had an estimated remaining useful life of 4 years. These trademarks were previously treated as a non-amortizing intangible and
accordingly, were reclassified as an amortizing intangible at June 29, 2004.
For the fiscal years ended 2004 and 2003, we engaged an independent valuation expert to assist us in performing our impairment analyses. At
December 28, 2004, there was no indication of impairment in our indefinite and definite lived intangible assets. At December 30, 2003, there was
an indication that the carrying amounts of our indefinite lived assets exceeded their fair values and accordingly we recorded an impairment charge
of $4,878 related to our Manhattan and Chesapeake trademarks. The impairments for both Manhattan and Chesapeake were related to declining
cash flows for those brands and our expectation that the trend of lower sales will continue in future years. In addition to the trademark impairment,
we also wrote-off the value of previously reacquired Manhattan franchise territory rights of $414.
Self-Insurance
We are self-insured for certain losses related to health, general liability and workers' compensation. We maintain stop loss coverage with third
party insurers to limit our total exposure. The self-insurance liability represents an estimate of the ultimate cost of claims incurred and unpaid as of
the balance sheet date. The estimated liability is established based upon analysis of historical data and actuarial estimates, is discounted at 10% and
is reviewed on a quarterly basis to ensure that the liability is appropriate. The estimated liability is included in accrued expenses in our consolidated
balance sheets.
Guarantees
We are liable for certain lease assignments and guarantees and we record a liability for our exposure under these lease assignments and
guarantees when such exposure is probable and estimable. Current franchisees are the primary lessees under the vast majority of these leases.
Under the lease guarantees, we may be required by the lessor to make all of the remaining monthly rental payments or property tax and common
area maintenance payments if the franchisee does not make the required payments in a timely manner. However, we believe that most, if not all, of
the franchised locations could be subleased to third parties minimizing our potential exposure. Additionally, we have indemnification agreements
with our franchisees under which the franchisees would be obligated to reimburse us for any amounts paid under such guarantees. Historically, we
have not been required to make such payments in significant amounts. We have recorded a liability where we believe our exposure is probable and
estimable. As of December 28, 2004, our total exposure under these contingent liabilities was approximately $2,300. Approximately $425 has been
recorded and is included in accrued expenses in our consolidated balance sheets.
We are also liable for certain debt guarantees we made in connection with our franchisees initial equipment purchases. When we have been
required to make significant payments related to the debt guarantees, we have recorded a liability where we believe our exposure is probable and
estimable. As
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of December 28, 2004, our total exposure under these contingent liabilities was approximately $536. Approximately $411 has been recorded and is
included in accrued expenses in our consolidated balance sheets.
Fair Value of Financial Instruments
As of December 28, 2004 and December 28, 2003, our financial instruments consist of cash equivalents, accounts receivable, accounts
payable and debt. The fair value of accounts receivable and accounts payable approximate their carrying value, due to their short-term maturities.
The fair value of debt and notes payable is estimated to approximate their carrying value by comparing the terms of existing instruments to the
terms offered by lenders for similar borrowings with similar credit ratings. The fair value of the $160 Million Notes approximates its carrying
value at December 28, 2004 as the notes are traded at par in the market.
The Mandatorily Redeemable Series Z Preferred Stock (Series Z) is recorded in the accompanying balance sheet at its full face value of
$57,000, which represents the total required future cash payment. The current fair value of the Series Z, which was determined by using the useful
life of the Series Z and the effective dividend rate from the Certificate of Designation, is estimated to be $28,500 and $24,400 at December 28,
2004 and December 30, 2003, respectively.
Concentrations of Risk
We purchase a majority of our frozen bagel dough from one supplier who utilizes our proprietary processes, which we are dependent upon in
the short-term. Additionally, we purchase all of our cream cheese from a single source. Though to date we have not experienced significant
difficulties with our suppliers, our reliance on our suppliers subjects us to a number of risks, including possible delays or interruption in supplies,