Einstein Bros 2009 Annual Report Download - page 31

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10:09:50 AM]
which would increase our labor costs. Costs for construction, taxes, repairs, maintenance and insurance all impact our occupancy costs. We believe
our current strategy, which is to seek to maintain operating margins through a combination of menu price increases, cost controls, efficient
purchasing practices and careful evaluation of property and equipment needs, has been an effective tool for dealing with inflation.
Impact of Agricultural Commodities
Our cost of sales consist of cost of goods sold, which is made up of food and product costs, compensation costs and other operating costs.
Wheat, butter and cheese are our primary agricultural commodities and in addition, coffee, chicken and turkey are the other major agricultural
commodities which are included in our cost of goods sold. For the last few years, cost increases in one or more of our agricultural commodities
were generally modest in relation to our total cost of sales. Because of the increasing commodity costs in 2007 and 2008, we raised our prices once
at both Einstein Bros. and Noah’ s during 2008 and during 2009.
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Table of Contents
Recent Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 165,
Subsequent Events (“SFAS No. 165”) codified as FASB Accounting Standards Codification Topic 855 (“ASC 855”). ASC 855 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to
be issued. We adopted SFAS No. 165 for the quarter ending June 30, 2009. Adoption did not have a material impact on our consolidated financial
statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (“SFAS No. 168”), which identifies the FASB Accounting Standards Codification as the authoritative source of generally
accepted accounting principles in the United States. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under
federal securities laws are also sources of authoritative generally accepted accounting principles for SEC registrants. SFAS No. 168 is effective for
financial statements issued for interim and annual periods ending after September 15, 2009. Adoption did not have a material impact on our
consolidated financial statements.
Critical Accounting 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 (“GAAP”). 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.
Additionally, any estimates for contingent liabilities that arise as result of any legal proceedings are discussed in Item 3 of this report.
Our significant accounting policies are discussed in Note 2 to our consolidated financial statements set forth in Item 8 of this report.
Impairment of Long-Lived Assets
We review property and equipment and amortizing intangible assets 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 restaurant management, the necessity of tiered pricing structures and the impact that upgrading our
restaurants may have on our estimates. Recoverability of a restaurant’ s assets is measured by a comparison of the carrying amount of the assets to
the estimated undiscounted future cash flows expected to be generated by the restaurant. This process requires the use of estimates and
assumptions, which are subject to a high degree of judgment. If the carrying amount of a restaurant’ s assets exceeds its estimated undiscounted
future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the assets exceeds its fair value. Absent
other available information, we use discounted future cash flows as an estimate of fair value. During 2009, we recorded an impairment of $0.8
million related to seven of our company-owned restaurants.
At least annually, we assess the recoverability of goodwill and other intangible assets not subject to amortization 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. As of December 29, 2009, the fair value of goodwill and
other intangible assets not subject to amortization sufficiently exceeded the carrying values. The assumptions used in
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