Einstein Bros 2011 Annual Report Download - page 48

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312512092597/d260635d10k.htm[9/11/2014 10:08:30 AM]
The Company recorded approximately $0.8 million of impairment charges related to long–lived assets for the fiscal year ended
December 29, 2009. The Company did not record impairment charges for the fiscal years ended December 28, 2010 and January 3, 2012.
Goodwill, Trademarks and Other Intangibles
The Company’ s goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in various business
combinations. The Company also has other intangibles that consist mainly of trademarks, trade secrets and patents.
The Company’ s goodwill and other indefinite lived intangible assets are not subject to amortization, but are tested for impairment annually or
whenever events or changes in circumstances indicate that the asset might be impaired. The Company follows a two-step approach for testing
impairment, using nonrecurring Level 3 inputs. For goodwill, the fair value of each reporting unit is compared to its carrying value to determine
whether an indication of impairment exists. If impairment is indicated, the fair value of the reporting unit’ s goodwill is
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Table of Contents
EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. For indefinite lived intangibles, the fair value is compared to the carrying value. The amount of
impairment for goodwill and other intangible assets is measured as the excess of its carrying amount over its fair value.
As of December 29, 2009, December 28, 2010 and January 3, 2012, the Company performed impairment analyses of its goodwill and
indefinite lived intangible assets. Based on the Company’ s testing, there was no indication of impairment to these assets for these fiscal years.
Business Combinations
In accordance with accounting guidance for business combinations, the Company allocates the purchase price of an acquired business to its
net identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and
liabilities, if any, is recorded as goodwill.
The Company uses all available information to estimate fair values including the fair value determination of identifiable intangible assets
such as franchise rights, and any other significant assets or liabilities. In making these determinations, the Company may use the assistance of an
independent third party valuation group. The Company adjusts the preliminary purchase price allocation, as necessary, up to one year after the
acquisition closing date.
Debt Issuance Costs
Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense based on the
related debt agreement using the straight-line method, which approximates the effective interest method.
Self-Insurance Reserves
The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for workers’
compensation, general liability and healthcare benefits. The Company maintains coverage with third party insurers which limit the total exposure
from medical, workers’ compensation and general liability claims. The self-insurance medical liability, insured workers’ compensation and
general liability represent an estimate of the ultimate cost of claims incurred and unpaid as of the balance sheet date. The estimated liabilities are
established based upon the Company’ s analysis of historical data to ensure that the recorded liability is appropriate. The Company’ s financial
statements could be impacted if actual claims differ from these estimates. The estimated workers’ compensation liability is established based on
actuarial estimates, is discounted at 10% based upon a discrete analysis of actual claims and historical data and is reviewed on a quarterly basis to
ensure that the liability is appropriate. These estimated liabilities are included in accrued expenses in the accompanying consolidated balance
sheets.
Income Taxes
The Company computes income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for
differences between the basis of assets and liabilities for financial statement and income statement purposes, using the enacted statutory rate in
effect for the year these differences are expected to be taxable or refunded. Deferred income tax expenses or credits are based on the changes in the
asset or liability, respectively, from period to period. A deferred tax asset or liability is recognized whenever there are future tax effects from
existing temporary differences and operating loss and tax credit carry forwards. If the Company