Einstein Bros 2002 Annual Report Download - page 28

http://www.sec.gov/Archives/edgar/data/949373/000104746903027186/a2116520z10-ka.htm[9/11/2014 10:14:22 AM]
We have considered all other recently issued accounting pronouncements and do not believe that the adoption of such pronouncements will
have a material impact on its financial statements.
General Economic Trends and Seasonality
We anticipate that our business will be affected by general economic trends that affect retailers in general. While we have not operated during
a period of high inflation, we believe based on industry experience that we would generally be able to pass on increased costs resulting from
inflation to our consumers. Our business may be affected by other factors, including increases in the commodity prices of green coffee and/or
flour, acquisitions by us of existing stores, existing and additional competition, marketing programs, weather and variations in the number of
location openings. Although few, if any, employees are paid at the minimum wage, an increase in the minimum wage may create pressure to
increase the pay scale for our employees, which would increase our labor costs and those of our franchisees. Our business is subject to seasonal
trends. Generally, our revenues in the first fiscal quarter are somewhat lower than in the other three fiscal quarters.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our debt at December 31, 2002 is principally comprised of the Notes, the revolving loan facility and the EnbcDeb Notes. A 100 basis point
increase in market interest rates would have no effect on our borrowing costs, as interest is paid at rates defined under the respective agreements.
However, an increase in prevailing market interest rates could negatively affect the market value of our Notes.
We are obligated under a mortgage payable in the principal amount of approximately $208,000 which bears interest at the prime rate plus
1.25%. We do not believe that a 100 basis point increase in the prime rate would have a material effect on our borrowing costs relating to this
mortgage.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information in response to this Item is set forth in the Financial Statements beginning on page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
On July 29, 2002, we dismissed Arthur Andersen LLP as our independent auditors and engaged the accounting firm of Grant Thornton LLP as
our new independent auditors. The decision to change auditors was recommended by the Audit Committee of the Board of Directors and
unanimously approved by the Board of Directors. The decision to engage Grant Thornton LLP followed our evaluation of proposals from several
accounting firms.
During the fiscal years ended January 1, 2002 and December 31, 2000, and the subsequent interim period through July 29, 2002, there were no
disagreements between Arthur Andersen and us on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or
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procedure, which disagreement, if not resolved to Arthur Andersen's satisfaction, would have caused Arthur Andersen to make reference to the
subject matter of such disagreement in its reports on our consolidated financial statements for such years, and there occurred no reportable events
as defined in Item 304(a)(1)(v) of Regulation S-K.
The audit reports of Arthur Andersen on our original consolidated financial statements for the fiscal years ended January 1, 2002 and
December 31, 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope
or accounting principles.
Pursuant to Item 304(a)(3) of Regulation S-K, we requested that Arthur Andersen furnish a letter addressed to the Securities and Exchange
Commission stating whether they agree with the above statements. A representative of Arthur Andersen advised us that Arthur Andersen is no
longer in a position to provide letters relating to its termination as a former audit client's independent auditor, and that Arthur Andersen's inability
to provide such letters has been discussed with the staff at the Securities and Exchange Commission.
During the fiscal years ended January 1, 2002 and December 31, 2000, and the subsequent interim period through July 29, 2002, we did not