Einstein Bros 2006 Annual Report Download - page 38

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No. 5, "Accounting for Contingencies," following a probability related approach. Minimum future rental payments remaining under these leases
were approximately $0.7 million as of January 2, 2007. We believe the ultimate disposition of these matters will not have a material adverse effect
on our financial position or results of operations.
Letters of Credit
We have $6.7 million in letters of credit outstanding under our Revolving Facility at January 2, 2007. The letters of credit expire on various
dates during 2007, are automatically renewable for one additional year and are payable upon demand in the event that we fail to pay the underlying
obligation related to certain workers compensation claims or distributor claims.
Recent Accounting Pronouncements
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 is an
interpretation of FASB Statement No. 109, "Accounting for Income Taxes," and it seeks to reduce the diversity in practice associated with certain
aspects of measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement criterion for
the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, among other items. In addition,
FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition with
respect to uncertainty in income taxes. We are required to adopt FIN 48 in the first quarter of fiscal 2007. At this time, we are still in the process of
evaluating FIN 48 and are not able to estimate the impact of adoption to our consolidated financial statements. As of January 2, 2007, our net
deferred tax assets have been fully reserved and net operating loss carryforwards of $157 million were available to be utilized against future
taxable income. Any impact to our deferred tax liabilities upon adoption of FIN 48 would result in a reduction of our net operating loss
carryforwards.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108). Due to diversity in
practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated
for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15,
2006, and early application is encouraged. Adoption of SAB 108 did not have any impact on our results from operations or financial position.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"), which defines fair value, establishes a
framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007. We do not believe such adoption will have a material impact on our consolidated financial
statements.
In June 2006, the FASB ratified the consensus reached on EITF Issue No. 06-03, How Sales Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (that is, Gross Versus Net Presentation)(EITF 06-03). The EITF reached a
consensus that the presentation of taxes on either a gross or net basis is an accounting policy decision that requires disclosure. EITF 06-03 is
effective for our fiscal year beginning January 3, 2007. Sales tax amounts collected from customers have been recorded on a net basis. The
adoption of EITF 06-03 will not have any effect on our financial position or results of operations.
We have considered all other recently issued accounting pronouncements and do not believe the adoption of such pronouncements will have a
material impact on our consolidated financial statements.
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Critical Accounting Policies and 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 accounting principles generally accepted in the United States of America. 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.
We believe the following critical accounting policies impact our more significant judgments and estimates used in the preparation of our
consolidated financial statements. Our significant accounting policies are discussed in Note 2 to our consolidated financial statements set forth in
Item 8 of this report.