Einstein Bros 2012 Annual Report Download - page 48

10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312513085036/d445565d10k.htm[9/11/2014 10:07:50 AM]
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 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.
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Table of Contents
EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 28, 2010, January 3, 2012 and January 1, 2013, 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.
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 determines that a deferred tax asset could be
realized in a greater or lesser amount than recorded, the asset’ s recorded amount is adjusted and the income statement is either credited or charged,
respectively, in the period during which the determination is made.
The Company reduces its deferred tax assets by a valuation allowance if it determines that it is more likely than not that some portion or all
of these tax assets will not be realized. In making this determination, the Company considers various qualitative and quantitative factors, such as:
• the level of historical taxable income;