Einstein Bros 2008 Annual Report Download - page 29

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312509042707/d10k.htm[9/11/2014 10:10:56 AM]
approximately $1.0 million in increased stock-based compensation expense, of which $0.7 million was from the additional options that were
granted related to the completion of our secondary public offering; $1.0 million related to increased travel costs; $2.9 million in increased costs in
salaries and benefits, which was a function of merit increases, increased salaries related to our field training program, an expanded headcount in
our franchise and license department to support future growth and an increase in recruiting expenses; and increase of $1.0 million related to sales
and use tax assessments, some of which remain under protest. These increases were off-set by a $2.6 million decrease in bonus expense for 2007
as compared to 2006, and a decrease in other expenses of $0.1 million.
Depreciation and Amortization
(dollars in
thousands)
Increase/
(Decrease)
Fiscal
2006
Fiscal
2007
2007 vs.
2006
Depreciation and amortization 16,949 11,192 (34.0%)
As a percentage of total revenue 4.3% 2.8%
Loss (gain) on sale, disposal or abandonment of assets, net 493 601 21.9%
Impairment charges and other related costs 2,268 236 (89.6%)
Total depreciation and amortization, disposal and impairment charges 19,710 12,029
As a percentage of total revenue 5.1% 3.0%
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Table of Contents
Depreciation and amortization expenses decreased 34.0%, or $5.8 million, in 2007 compared to 2006. The decrease is primarily due to all of
our amortizing intangible assets becoming fully amortized in the second quarter of 2006, which represents $3.9 million of the decrease, and a
substantial portion of our leasehold improvements becoming fully depreciated in 2006 and 2007. Through 2006, depreciation and amortization
expense was predominantly related to the assets of Einstein/Noah Bagel Corp. that we acquired in bankruptcy proceedings in June 2001. As most
of these assets had five year lives, they became fully depreciated in 2006. From that point forward, the depreciation expense is related to assets
purchased subsequent to the acquisition.
Loss on the Disposal, Sale or Abandonment of Assets
Loss on the disposal, sale or abandonment of assets represents the excess of book value over proceeds received, if any, over the net book
value of an asset. We establish estimated useful lives for our assets, which range from three to fifteen years, and depreciate using the straight-line
method. Leasehold improvements are limited to the lesser of the useful life or the non-cancelable lease term. 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. During 2007, we recorded a $0.6 million loss on the disposal of assets, compared to $0.5
million recorded in 2006.
Impairment Charges and other Related Costs
Impairment losses are non-cash charges recorded on long-lived assets, goodwill, trademarks and our other intangible assets, and other related
costs are typically costs associated with closing a company-owned restaurant. Generally, an indicator of impairment would include significant
change in an asset’ s ability to generate positive cash flow in the future or in the fair value of an asset. Whenever impairment indicators are
determined to be present, the amount of impairment is measured as the excess of the carrying amount of the asset over its fair value. During 2007,
we recorded $0.2 million in impairment charges and other related costs compared to $0.1 million in 2006 which excludes the write down of
equipment that was subsequently sold to our bagel dough supplier.
Until early 2007, we owned certain manufacturing equipment which was located at the plant of our frozen bagel dough supplier. In late 2006,
we were notified of their intent, under the terms of the contract, to purchase the equipment and we agreed to sell the equipment to them for $1.1
million. In order to adjust the assets down to their mutually agreed-upon fair value, we recorded an impairment charge of $2.2 million during the
quarter ended January 2, 2007. The assets were classified as held for sale on the consolidated balance sheet as of January 2, 2007 and sold in the
first quarter of 2007.
Other Expense (Income)
(dollars in
thousands)
Increase/
(Decrease)
Fiscal
2006
Fiscal
2007
2007 vs.
2006
Interest expense, net 19,555 12,387 (36.7%)
As a percentage of revenue 5.0% 3.1%