How does Potbelly Sandwich Works account for income taxes?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
(d) Use of Estimates
The accompanying consolidated financial statements, presented in U.S. dollars, are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Significant estimates are used in accounting for, among other items, long-lived assets and income taxes. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the financial statements in any individual year.
(e) Fair Value Measurements
We apply fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Source: Item 11 — FRANCHISOR'S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING (FDD pages 37–49)
What This Means (2025 FDD)
According to Potbelly Sandwich Works' 2025 Franchise Disclosure Document, the company uses estimates when accounting for income taxes. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management's best knowledge of current events and actions the company may undertake in the future. Significant estimates are used in accounting for, among other items, long-lived assets and income taxes. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the financial statements in any individual year.
For the fiscal year 2024, Potbelly Sandwich Works reported income before income taxes of $7,787,000 and an income tax benefit of $33,545,000. This resulted in a net income of $41,332,000. In 2023, the income before income taxes was $6,486,000, with an income tax expense of $909,000, resulting in a net income of $5,577,000. In 2022, Potbelly Sandwich Works had a loss from operations of $3,804,000, but after accounting for other items including an income tax benefit of $5,038,000, the net income was $4,711,000.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which enhances transparency of income tax disclosures by requiring additional disclosures on income tax rate reconciliation and income taxes paid, among other things. Potbelly Sandwich Works will adopt ASU 2023-09 in their Annual Report on Form 10-K for the year ending December 28, 2025, and is currently evaluating the impact that the updated standard will have on their financial statement disclosures. This indicates a commitment to adhering to updated accounting standards and providing more detailed information regarding income taxes in the future.