Einstein Bros 2003 Annual Report Download - page 50

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
Reclassifications
Certain amounts set forth in the accompanying consolidated financial statements for the prior years have been reclassified to conform to the
presentation for the current fiscal year. These reclassifications had no effect on previously reported net income or loss.
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Recent Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51" ("FIN 46"). The primary objective of this interpretation is to provide guidance on the identification of,
and financial reporting for, entities over which control is achieved through means other than voting rights; such entities are known as variable-
interest entities ("VIE's"). This interpretation applies immediately to VIE's created after January 31, 2003 and in the first fiscal year or interim
period beginning after June 15, 2003, to VIE's in which an enterprise held an interest prior to February 1, 2003. In October 2003, the FASB issued
FASB Staff Position ("FSP") No. FIN 46-6, "Effective Date of FASB Interpretation 46." This interpretation deferred the effective date for applying
FIN 46 to an interest held in a VIE or potential VIE that was created before February 1, 2003 until the end of the first interim or annual period
ending after December 15, 2003, except if we had already issued statements reflecting a VIE in accordance with FIN 46. An additional revision in
December of 2003 deferred the implementation for all entities to no later than the end of the first reporting period that ends after March 15, 2004,
unless the VIE is a special purpose entity, in which case the December 15, 2003 date still applies. We are not a party to any VIE's and intend to
adopt FIN 46 if required in fiscal 2004. We do not expect adoption of FIN 46 to have a significant impact on our financial statements.
In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. The
accounting and reporting requirements were effective for contracts entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The adoption of SFAS 149 did not have a significant impact on our financial statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" ("SFAS 150"). SFAS 150 changes the classification in the statement of financial position of certain
common financial instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to
recognize changes in fair value or redemption amount within the statement of operations. This statement takes effect with this filing. The adoption
of this standard resulted in our Series F subject to mandatory redemption requirements being reclassified as a liability on July 2, 2003 rather than
the historical mezzanine presentation. There was no impact on our statement of operations upon adoption of SFAS 150 given that the Series F had
been previously stated at the present value of its redemption amount. The Series Z exchanged for the remaining Series F in the Equity Recap
(Note 1) has also been classified as a liability since its inception. Dividends and accretion of discount or amortization of premiums, if any, will be
recognized as interest expense.
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.
Derivative Instruments
Effective January 1, 2000, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"). SFAS 133 requires that all derivatives be recognized in the balance sheet at their fair value. Changes in the fair
values of derivatives that do not qualify for hedge accounting under SFAS 133 are recognized through earnings. In conjunction with certain debt
and preferred stock issuances in 2000 and 2001, we issued freestanding
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warrants and rights to receive additional warrants based either on the passage of time or upon the occurrence (or non-occurrence) of certain
contingent future events (contingently-issuable warrants). We determined that certain of these freestanding warrants, for a period of time in 2001,
and contingently-issuable warrants could not be classified within stockholders' equity based on the application of the criteria in EITF Issue 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock", and accordingly classified those
warrants as a liability in the balance sheet. Further, those warrants classified as a liability were subject to the provisions of SFAS 133, including the