Einstein Bros 2013 Annual Report Download - page 38

10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312514073832/d629623d10k.htm[9/11/2014 10:05:27 AM]
this strategy has been effective in dealing with increases to our food and product costs.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements set forth in Item 8 of this Form 10-K for a detailed description of recent accounting
pronouncements. We do not expect these recently issued accounting pronouncements to have a material impact on our results of operations,
financial condition, or liquidity in future periods.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates based on
historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. Additionally, any estimates for contingent liabilities that arise as result of any
legal proceedings are discussed in Item 3 of this report.
Our significant accounting policies are discussed in Note 2 to our consolidated financial statements set forth in Item 8 of this Form 10-K.
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective
tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable
income in the years in which we expect the temporary differences to reverse. We routinely evaluate the likelihood of realizing the benefit of our
deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will
not be realized.
In addition, our income tax returns are periodically audited by federal and state tax authorities. These audits include questions regarding our
tax filing positions, including the timing and amount of deductions taken and the allocation of income amongst various tax jurisdictions. We
evaluate our exposures associated with our various tax filing positions and record a related liability. We adjust our liability for unrecognized tax
benefits and income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the
relevant taxing authority to examine the tax position or when more information becomes available.
As of December 31, 2013, we have not recorded a valuation allowance on our deferred tax assets. We have also recorded a liability for
unrecognized tax benefits of $0.7 million. The recording of these amounts requires
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significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and our particular facts
and circumstances. We believe that our estimates are reasonable; however, actual results could differ from these estimates.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying values of these 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. We believe that historical cash flows, in addition to other relevant facts and
circumstances, are the primary basis for estimating future cash flows. Relevant facts and circumstances may include, but are not limited to, local
competition in the area, the ability of existing restaurant management, the necessity of tiered pricing structures and the impact that upgrading our
restaurants may have on our estimates. 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. This process
requires the use of estimates and assumptions, which are subject to a high degree of judgment. 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. Based
upon our testing, we had no impairments for fiscal 2012 and fiscal 2013.
Impairment of Goodwill and Other Indefinite Lived Intangible Assets
At least annually, we assess the recoverability of goodwill and other intangible assets that are not subject to amortization. These impairment