Einstein Bros 2013 Annual Report Download - page 48

10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312514073832/d629623d10k.htm[9/11/2014 10:05:27 AM]
assets may not be recoverable. For the purpose of reviewing restaurant assets for indicators of potential impairment, assets are grouped together at
the market level. The Company manages its restaurants by market with significant common costs and promotional activities which are generally
not clearly identifiable with an individual restaurant’ s cash flows. Site specific indicators of impairment, if present, are also considered.
Recoverability of restaurant assets is measured by a comparison of the carrying amount of an individual restaurant’ s assets to the estimated
identifiable undiscounted future cash flows expected to be generated by those restaurant assets. If the carrying amount of an individual restaurant’ s
assets exceeds its estimated identifiable undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying
amount of the assets exceeds its fair value. Generally, a restaurant’ s identifiable future cash flows are discounted to estimate its fair value.
The Company determined there were no impairments for fiscal years 2011, 2012 and 2013.
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 impairment indicator exists. If a potential 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.
As of January 3, 2012, January 1, 2013 and December 31, 2013, the Company performed impairment analyses of its goodwill and indefinite
lived intangible assets. The Company found no indication of impairment resulting from its goodwill and intangible asset impairment analyses for
fiscal years 2011, 2012 and 2013.
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Table of Contents
EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 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