Einstein Bros 2011 Annual Report Download - page 37

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312512092597/d260635d10k.htm[9/11/2014 10:08:30 AM]
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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 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 Form 10-K.
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective
tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable
income in the years in which we expect the temporary differences to reverse. We routinely evaluate the likelihood of realizing the benefit of our
deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will
not be realized.
In addition, our income tax returns are periodically audited by federal and state tax authorities. These audits include questions regarding our
tax filing positions, including the timing and amount of deductions taken and the allocation of income amongst various tax jurisdictions. We
evaluate our exposures associated with our various tax filing positions and record a related liability. We adjust our liability for unrecognized tax
benefits and income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the
relevant taxing authority to examine the tax position or when more information becomes available.
As of January 3, 2012, we have recorded a valuation allowance of $4.8 million on certain of our deferred tax assets. We have also recorded a
liability for unrecognized tax benefits of $1.0 million. The recording of these amounts requires significant management judgment regarding the
interpretation of applicable statutes, the status of various income tax audits, and our particular facts and circumstances. We believe that our
estimates are reasonable; however, actual results could differ from these estimates.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying values of these assets
may not be recoverable. For the purpose of reviewing restaurant assets for indicators of potential impairment, assets are grouped together at the
market level. The Company manages its restaurants by market with significant common costs and promotional activities which are generally not
clearly identifiable with an individual restaurant’ s cash flows. We believe that historical cash flows, in addition to other relevant facts and
circumstances, are the primary basis for estimating 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 restaurant assets is measured by a comparison of the carrying amount of an individual
restaurant’ s assets to the estimated identifiable undiscounted future cash flows expected to be generated by those restaurant assets. This process
requires the use of estimates and assumptions, which are subject to a high degree of judgment. If the carrying amount of an individual restaurant’ s
assets exceeds its estimated, identifiable, undiscounted future cash flows, an impairment charge is recognized as the amount by
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which the carrying amount of the assets exceeds its fair value. Generally, a restaurant’ s identifiable future cash flow are discounted to estimate its
fair value. We have not recorded impairment charges for fiscal 2010 and fiscal 2011.
Impairment of Goodwill and Other Indefinite Lived Intangible Assets
At least annually, we assess the recoverability of goodwill and other intangible assets that are not subject to amortization. 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 January 3, 2012, the fair value of goodwill and other intangible assets not
subject to amortization sufficiently exceeded the carrying values. The assumptions used in the estimate of fair value are generally consistent with
the past performance of each reporting unit and other intangible assets and are also consistent with the projections and assumptions that are used in