Einstein Bros 2009 Annual Report Download - page 39

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10:09:50 AM]
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America (“GAAP”) 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
Company-owned restaurant sales – We record revenue from the sale of food, beverage and retail items as products are sold. Sales tax
amounts collected from customers that are remitted to governmental authorities are excluded from our net revenue.
Manufacturing and commissary revenues – Our manufacturing revenues are recorded at the time of shipment to customers. Our
manufacturing operations sell bagels to a wholesaler and a distributor who take possession in the United States and sells outside of the United
States. As the product is shipped FOB domestic dock, and invoiced and paid in U.S. dollars, there are no international risks of loss or foreign
exchange currency issues. Approximately $3.3 million, $4.8 million and $5.3 million of sales shipped internationally are included in manufacturing
revenues for fiscal years ended 2007, 2008 and 2009, 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
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 years ended December 30, 2008 and December 29, 2009, income from gift card breakage was $0.3 and $0.2 million,
respectively. 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. 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.
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, and Restricted Cash
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.