Einstein Bros 2008 Annual Report Download - page 42

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312509042707/d10k.htm[9/11/2014 10:10:56 AM]
outside of the United States. As the product is shipped FOB domestic dock, there are no international risks of loss or foreign exchange currency
issues. Approximately $2.2 million, $3.3 million and $4.8 million of sales shipped internationally are included in manufacturing revenues for fiscal
years ended 2006, 2007 and 2008, respectively.
Franchise and license related revenues—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.
Gift Cards—Proceeds from the sale of gift cards are recorded as deferred revenue within accrued expenses, and recognized as income when
redeemed by the holder. The deferred revenue balance represents the Company’ s liability for gift cards that have been sold, but not yet redeemed.
There are no expiration dates on the Company’ s gift cards, nor do we charge any service fees that decrease customer balances.
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Table of Contents
EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
While we will continue to honor all gift cards presented for payment, we may determine the likelihood to be remote for certain gift card balances
due to the age of the unredeemed balance. In these circumstances, to the extent we determine there is no requirement for remitting balances to
government agencies under unclaimed property laws, gift card balances may be recognized as gift card breakage in revenue. Gift card breakage is
included in revenue within company-owned restaurant sales in our consolidated statements of operations.
For the fiscal year ended December 30, 2008, income from gift card breakage was $0.3 million. For the fiscal year ended January 1, 2008, income
recognized from gift card breakage was $1.3 million, which relates to unredeemed balances from 2003 through 2006 and resulted from the
Company entering into an agreement in December 2007, with an unrelated third party that assumed the unredeemed liability for gift cards that had
not yet reached the statutory term for unclaimed property. As a result of the agreement, certain third-party claims on unredeemed gift cards for
certain jurisdictions had been removed. There was no income recognized on unredeemed gift card balances during the fiscal year ended January 2,
2007. Our estimate of gift card breakage is based upon reasonable and reliable company-specific historical information that the Company believes
is predictive of the future and relates to a large pool of homogenous gift card transactions over a sufficient time frame.
Allowance for doubtful accounts—The majority of our receivables are due from our licensees, franchisees, distributors and trade customers.
Credit is extended based on our evaluation of the customer’ s financial condition and, generally, collateral is not required. Accounts receivable are
due within 7-30 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts receivable that are
outstanding longer than the contractual payment terms are considered past due. We determine our allowance by considering a number of factors,
including the length of time trade accounts receivable are past due, our previous loss and payment history, the customer’ s current ability to pay its
obligation to us and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
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. Restricted cash consists of funds paid by our franchisees that are
earmarked as advertising fund contributions, monies set aside for the lease on our corporate office and restricted cash accounts for the benefit of
taxing and other government authorities. The Company maintains cash and cash equivalent balances with financial institutions that exceed
federally insured limits. The Company has not experienced any losses related to these balances and management believes its credit risk to be
minimal.
Property, Plant and Equipment
Property, plant and equipment are 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 12 years. Leasehold improvements are amortized using the straight-line method. The depreciable
lives for our leasehold improvements are limited to the lesser of the useful life or the non-cancelable 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. Costs incurred to repair and maintain our facilities and equipment are expensed as incurred.
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