Einstein Bros 2003 Annual Report Download - page 27

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We have historically relied upon our major preferred and common stockholders to provide us with supplemental financing at times when our
cash flows from operations have been insufficient to cover our capital requirements or the requirements of other debt. In July 2003, we completed a
refinancing of our existing debt, which had the effect of:
•Reducing the actual interest rates on our debt obligations;
•Extending the maturity of our long term debt to July 2008;
•Eliminating the requirement for dividends on our mandatorily redeemable preferred stock;
•Establishing a new revolving line of credit with a higher borrowing capacity and a lower effective interest rate to accommodate
seasonal fluctuations in our operating cash needs, forecasted capital expenditure requirements, and semi-annual payments of
interest on our long-term debt;
•Reducing the frequency of interest payments on our long-term debt from quarterly payments to semi-annual payments; and,
•Allowing us to devote additional resources to the operation of our restaurants.
The restaurant industry is a cash business where cash is received at the time of the transaction. We have a minimal amount of accounts
receivable, which are predominantly from our franchisees and distributors, and our investment in inventory is minimal since our products are
perishable. Our accounts payable are on terms that we believe are consistent with those of other companies within the industry.
The primary driver of our operating cash flow is our restaurant operations, specifically the gross margin from our company-operated
restaurants. Therefore, we focus on the elements of those
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operations including comparable store sales to ensure a steady stream of operating profits that enable us to meet our cash obligations. On a weekly
basis, we review our company-operated store performance compared with the same period in the prior year and our operating plan. We are also in
the continuous process of identifying and implementing cost reduction initiatives, not only at the store operations level, but also within other
disciplines such as supply chain, manufacturing operations and overhead. Examples of these cost reduction initiatives include:
•Menu optimization to remove and/or modify inefficient products;
•Upgrade/deployment of technology to enable more accurate sales identification and tracking of cost of products sold;
•Realignment and consolidation of the senior management team resulting in a reduction of overhead; and,
•Focusing on reducing the various elements of cost that were historically non-recurring in nature.
On a historic basis, the majority of our capital expenditures have been associated with the acquisition of ENBC and investing in new
company-operated restaurants. In fiscal 2004, we anticipate the majority of our capital expenditures will be focused on requirements of our
existing company-operated stores, primarily equipment replacement and upgrades and remodeling costs associated with the revitalization of our
concept, a modest amount of new company-operated store development related to approximately four to six new store openings, and additional
capital for our support center in Golden, Colorado, primarily related to spending on information technology upgrades and maintenance.
Based upon our projections for fiscal 2004 and beyond, we believe that the cash flows from operations coupled with the continued availability
of our AmSouth Revolver will be adequate to fund our operations, capital expenditures and required debt and interest repayments for the
foreseeable future.
From a historical perspective, at December 30, 2003, we had unrestricted cash of $9.6 million and restricted cash of $4.9 million. We reduced
our working capital deficit to $23.6 million in fiscal 2003 compared with a working capital deficit of $164.8 million in fiscal 2002. This reduction
was primarily due to our refinancing the $140 Million Facility on July 8, 2003, which was classified as a current liability and replacing it with our