Einstein Bros 2004 Annual Report Download - page 24

http://www.sec.gov/Archives/edgar/data/949373/000104746905006202/a2153240z10-k.htm[9/11/2014 10:13:29 AM]
based payment transactions in which an enterprise receives employee services in exchange for a) equity instruments of the enterprise or
b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments.
The Statement eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and generally
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would require instead that such transactions be accounted for using a fair-value-based method. This Statement is effective as of the first interim or
annual reporting period that begins after June 15, 2005. We have not fully completed our evaluation of the impact this Statement will have on our
financial position and results of operations. Based on options granted and various assumptions used to calculate stock based compensation expense
as of December 28, 2004, we anticipate that the impact of adoption would result in an increase to expenses of approximately $471,000 for fiscal
2005. If actual events differ from our assumptions used to calculate the expense, our financial results could be impacted. Pro forma results of the
impact on net loss for fiscal years ended 2004, 2003 and 2002 are presented in Note 2 "Stock Based Compensation" of our consolidated financial
statements set forth in Item 8 of this report.
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 our financial statements.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these 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.
We believe the following critical accounting policies impact our more significant judgments and estimates used in the preparation of our
financial statements. Our significant accounting policies are discussed in Note 2 to our consolidated financial statements set forth in Item 8 of this
report.
Property and Equipment and the Related Depreciation and Amortization Expense
Property and equipment is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of the assets. The useful
lives of the assets are based upon our expectations of the period of time that the asset will be used to generate revenue. We periodically review the
assets for changes in circumstances, which may impact their useful lives.
In late January 2005, we commenced a review of our accounting policies and practices with respect to leasehold amortization and deferred
rent. Historically, we amortized our leasehold improvements over a period that included both the noncancelable term of the lease and its option
periods (or the useful life of the asset, if shorter). Concurrently, we used the noncancelable lease term in determining whether each of our leases
was an operating lease or a capital lease and in calculating our straight-line rent expense. We believed that these longstanding accounting
treatments were appropriate under generally accepted accounting principles. Furthermore, we believed that these accounting treatments were
comparable to the practices of other public companies. However, after noting recent Form 8-K filings by various restaurant companies and other
multi-location entities and following discussions with Grant Thornton LLP, we have now interpreted the authoritative accounting literature to
require that we use the same lease term in amortizing leasehold improvements as we use in determining capital versus operating leases and in
calculating straight-line rent expense. Accordingly, we have adopted the following policy: we generally limit the depreciable lives for our
leasehold improvements, which are subject to a lease, to the lesser of the useful life or the noncancelable lease term. However, in circumstances
where we would incur an economic penalty by not exercising one or more option periods, as contemplated by SFAS No. 13, we may include one
or more option periods when determining the depreciation period. In either circumstance, our policy requires consistency when
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calculating the depreciation period, in classifying the lease, and in computing straight-line rent expense. As a result of this change, our financial
results have been restated. We expect that in future years, depreciation and amortization will increase by approximately $1.0 million per year