Einstein Bros 2004 Annual Report Download - page 25

http://www.sec.gov/Archives/edgar/data/949373/000104746905006202/a2153240z10-k.htm[9/11/2014 10:13:29 AM]
assuming stable levels of capital expenditures going forward.
Impairment of Long-Lived Assets
We review property and equipment for impairment when events or circumstances indicate that the carrying amount of a restaurant's assets may
not be recoverable. We test for impairment using historical cash flows and other relevant facts and circumstances as the primary basis for our
estimate of future cash flows. Relevant facts and circumstances may include, but are not limited to, local competition in the area, the ability of
existing store management, the necessity of tiered pricing structures and the impact that conversion to the EB Café concept may have on our
estimates. This process requires the use of estimates and assumptions, which are subject to high degree of judgment. In the event that these
estimates and assumptions change in the future, we may be required to record impairment charges for these assets.
At least annually, we utilize independent valuation experts to assist us in assessing the recoverability of goodwill and other intangible assets
related to our restaurant concepts. These impairment tests require us to estimate the fair values of our restaurant concepts by making assumptions
regarding future profits and cash flows, expected growth rates, terminal values, discount rates and other factors. In the event that these assumptions
change in the future, we may be required to record impairment charges for these assets.
Self-Insurance
We are self-insured for certain losses related to health, general liability and workers' compensation. We maintain stop loss coverage with third
party insurers to limit our total exposure. The self-insurance liability represents an estimate of the ultimate cost of claims incurred and unpaid as of
the balance sheet date. The estimated liability is established and discounted at 10% based upon analysis of historical data and actuarial estimates
and is reviewed on a quarterly basis to ensure that the liability is appropriate. If actual trends, including the severity or frequency of claims differ
from our estimates, our financial results could be impacted.
Guarantees
In the past, we would sometimes guarantee leases for the benefit of certain of our franchisees. We record a liability for our exposure under the
guarantees when such exposure is probable and estimable. Current franchisees are the primary lessees under the vast majority of these leases.
Under the lease guarantees, we may be required by the lessor to make all of the remaining monthly rental payments or property tax and common
area maintenance payments if the franchisee does not make the required payments in a timely manner. However, we believe that most, if not all, of
the franchised locations could be subleased to third parties minimizing our potential exposure. Additionally, we have indemnification agreements
with our franchisees under which the franchisees would be obligated to reimburse us for any amounts paid under such guarantees. Historically, we
have not been required to make such payments in significant amounts. In the event that trends change in the future, our financial results could be
impacted.
We are also liable for certain debt guarantees we made in connection with our franchisees' initial equipment purchases. This program has
since been discontinued and most of our debt guarantees mature during 2006 and 2007. When we have been required to make significant payments
related to the debt guarantees, we have recorded a liability where we believe our exposure is probable and estimable.
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Forward Looking Statements
We wish to caution our readers that the following important factors, among others, could cause the actual results to differ materially from
those indicated by forward-looking statements made in this report and from time to time in news releases, reports, proxy statements, registration
statements and other written communications, as well as verbal forward-looking statements made from time to time by representatives of the
company. Such forward-looking statements involve risks and uncertainties that may cause our actual results, performance or achievements to be
materially different from any future performance or achievements expressed or implied by these forward-looking statements. Factors that might
cause actual events or results to differ materially from those indicated by these forward-looking statements may include matters such as future
economic performance, restaurant openings or closings, operating margins, the availability of acceptable real estate locations, the sufficiency of our
cash balances and cash generated from operating and financing activities for our future liquidity and capital resource needs, and other matters, and
are generally accompanied by words such as: believes, anticipates, estimates, predicts, expects, and similar expressions that convey the uncertainty
of future events or outcomes. An expanded discussion of some of these risks factors follows.
We may not be successful in implementing any or all of the initiatives of our business strategy.
Our success depends in part on our ability to understand our customers' needs. We believe successful deployment of our current business