Einstein Bros 2005 Annual Report Download - page 33

http://www.sec.gov/Archives/edgar/data/949373/000110465906016136/a06-3178_110k.htm[9/11/2014 10:13:03 AM]
The consolidated financial statements of New World Restaurant Group, Inc. and its wholly-owned subsidiaries (collectively, the Company)
have been prepared in conformity with accounting principles generally accepted in the United States of America. All inter-company accounts and
transactions have been eliminated in consolidation. The Company owns, franchises or licenses various restaurant concepts under the brand names
of Einstein Bros. Bagels and Einstein Bros. Café (collectively known as Einstein Bros.), Noah’ s New York Bagels (Noah’ s), Manhattan Bagel
Company (Manhattan), Chesapeake Bagel Bakery (Chesapeake) and New World Coffee (New World).
We have a 52/53-week fiscal year ending on the Tuesday closest to December 31. Fiscal year 2004 and 2003, which ended on December 28,
2004 and December 30, 2003, respectively, contained 52 weeks, while fiscal year 2005, which ended on January 3, 2006, contained 53 weeks.
Certain reclassifications have been made to conform previously reported data to the current presentation. These reclassifications have no
effect on net income or financial position as previously reported.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues, costs and expenses during the reporting period. Actual
results could differ from the estimates.
Revenue Recognition
We record revenue from the sale of food and beverage as products are sold. Our manufacturing revenues are recorded at the time of shipment
to customers. Initial fees received from a franchisee or licensee to establish a new location are recognized as income when we have performed our
obligations required to assist the franchisee or licensee in opening a new location, which is generally at the time the franchisee or licensee
commences operations. Continuing royalties, which are a percentage of the net sales of franchised and licensed locations, are accrued as income
each month. Proceeds from the sale of gift cards are recorded as deferred revenue and recognized as income when redeemed by the holder.
During fiscal year 2005, we began selling bagels through our manufacturing operations outside of the United States to a wholesaler and a
distributor who take possession in the United States. As the product is shipped FOB domestic dock, there are no international risk of loss or foreign
exchange currency issues. Approximately $2.2 million of international sales are included in manufacturing revenues.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid instruments with original maturities of three months or less when
purchased. Amounts in-transit from credit card processors are also considered cash equivalents because they are both short-term and highly liquid
in nature and are typically converted to cash within three days of the sales transaction.
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NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Property and Equipment
Property and equipment is recorded at cost. Furniture and equipment are depreciated using the straight-line method over the estimated useful
life of the asset, which ranges from 3 to 8 years. Leasehold improvements are amortized using the straight-line method. The depreciable lives for
our leasehold improvements, which are subject to a lease, are limited to the lesser of the useful life or the noncancelable lease term. In
circumstances where we would incur an economic penalty by not exercising one or more option periods, we include one or more option periods
when determining the depreciation period. In either circumstance, our policy requires consistency when calculating the depreciation period, in
classifying the lease, and in computing straight-line rent expense.
In accordance with Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for the Impairment or Disposal of Long Lived
Assets (SFAS No. 144), impairment losses are recorded on long-lived assets on a restaurant-by-restaurant basis whenever impairment indicators
are determined to be present. We consider a history of cash flow losses to be the primary indicator of potential impairment for individual
restaurant locations. We determine whether a restaurant location is impaired based on expected undiscounted future cash flows, considering
location, local competition, current restaurant management performance, existing pricing structure and alternatives available for the site. If
impairment exists, the amount of impairment is measured as the excess of the carrying amount of the asset over its fair value as determined utilizing
the estimated discounted future cash flows or the expected proceeds, net of costs to sell, upon sale of the asset.