Einstein Bros 2005 Annual Report Download - page 28

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incurred and unpaid as of the balance sheet date. The estimated liability is established and discounted at 10% based upon analysis of historical data
and actuarial estimates and is reviewed on a quarterly basis to ensure that the liability is appropriate. If actual trends, including the severity or
frequency of claims differ from our estimates, our financial results could be favorably or unfavorably impacted.
Guarantees
Prior to 2001, we would occasionally guarantee leases for the benefit of certain of our franchisees. None of the guarantees have been modified
since their inception and we have since discontinued this practice. Current franchisees are the primary lessees under the vast majority of these
leases. Under the lease guarantees, we may be required by the lessor to make all of the remaining monthly rental payments or property tax and
common area maintenance payments if the franchisee does not make the required payments in a timely manner. However, we believe that most, if
not all, of the franchised locations could be subleased to third parties minimizing our potential exposure. Additionally, we have indemnification
agreements with our franchisees under which the franchisees would be obligated to reimburse us for any amounts paid under such guarantees.
Historically, we have not been required to make such payments in significant amounts. We record a liability for our exposure under the guarantees
in accordance with SFAS No. 5, “Accounting for Contingencies,” following a probability related approach. In the event that trends change in the
future, our financial results could be impacted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the fiscal years ended 2005 and 2004, our results of operations, financial position and cash flows have not been materially affected by
changes in the relative values of non-U.S. currencies to the U.S. dollar. We do not use derivative financial instruments to limit our foreign
currency risk exposure since virtually all of our business is conducted in the United States.
Our debt as of January 3, 2006 and December 28, 2004 was principally comprised of the $160 Million Notes due July 1, 2008 and the
AmSouth Revolver. A 100 basis point increase in market interest rates would have had an immaterial effect on our borrowing costs, since the
interest rate on the $160 Million Notes was fixed. The interest rate on the AmSouth Revolver fluctuated with changes in the prime rate, but was
immaterial in relation to interest expense under the $160 Million Notes and in our results of operations and financial condition.
We purchase certain commodities such as butter, cheese, coffee and flour. These commodities are generally purchased based upon market
prices established with vendors. These purchase arrangements may contain contractual features that limit the price paid by establishing certain
price floors or caps. We do not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate
cost paid and any commodity price aberrations are generally short-term in nature.
This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general
market conditions and changes in domestic and global financial markets.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited Annual Financial Statements Page
Report of Independent Registered Public Accounting Firm
38
Consolidated Balance Sheets as of January 3, 2006 and December 28, 2004 39
Consolidated Statements of Operations for the Years Ended January 3, 2006, December 28, 2004 and
December 30, 2003 40
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended January 3,
2006, December 28, 2004 and December 30, 2003 41
Consolidated Statements of Cash Flows for the Years Ended January 3, 2006, December 28, 2004 and
December 30, 2003 42
Notes to Consolidated Financial Statements 43
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
New World Restaurant Group, Inc.