Einstein Bros 2003 Annual Report Download - page 70

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
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Total minimum lease payments $ 209
401(k) Plan
We assumed ENBC Employee Savings Plan (401(k) plan) in connection with the purchase of Einstein on June 19, 2001. All employees of
ENBC, excluding officers, are eligible to participate in the plan if they meet certain compensation and eligibility requirements. The 401(k) plan
allows participating employees to defer the receipt of a portion of their compensation and contribute such amount to one or more investment
options. We have accrued a match of 25% of the participants' elective contribution for 2003. Our contribution expense in 2003, 2002 and 2001 was
$203,000, $298,000 and $102,000, respectively. Our contributions vest at the rate of 100% after three years of service.
Health Insurance Plan
We are self-insured for medical and workers' compensation under a stop loss arrangement. The self-insurance liability related to workers'
compensation is determined actuarially based on claims filed. The self-insurance liability related to medical claims includes an estimate for claims
incurred but not yet reported based on the time lag between when a claim is incurred and when the claim is paid by us. The amounts related to
these claims are included as a component of accrued expenses. While the ultimate amount of claims incurred is dependent on future developments,
in our opinion, the reserves are adequate to cover the future payment of claims. However, it is reasonably possible that recorded reserves may not
be adequate to cover the future payment of claims. Adjustments, if any, to estimates recorded from ultimate claims payments will be reflected in
operations in the period in which such adjustments are known.
Fixed Fee Distribution Agreement
Through December of 2002, we maintained a fixed fee distribution agreement with a national distribution company (distributor) whereby the
distributor supplied substantially all products for resale in our company-operated restaurant locations. In addition, we maintained a separate fixed
fee distribution agreement with the distributor for delivery of certain proprietary products to our franchised locations. Effective February 20, 2002,
we entered into Mutual Termination Agreements (Agreement) with the distributor which provided for the termination of each of the fixed fee
distribution agreements effective August 2, 2002. Pursuant to the restated agreement, the distributor was required to provide distribution services to
all locations through August 2, 2002, which date was extended until December 2002. As a part of the agreement, we were required to pay the
distributor $12,000,000, representing a portion of the unamortized $5,000,000 investment made by the distributor at the inception of the original
agreement and a reduced amount of outstanding trade payables and other previously accrued charges. We recorded a reduction to general and
administrative expense of
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$2,750,000 in 2002 as the carrying amount of the associated liabilities exceeded the payments made under this agreement by such amount.
As of November 2002, we had replaced the national distributor with six regional custom distributors to our company-operated and franchised
locations.
Purchase Commitments
We have obligations with certain of our major suppliers of raw materials (primarily frozen bagel dough) for minimum purchases both in terms
of quantity and pricing on an annual basis. The total of these future purchase obligations on December 30, 2003 was approximately $14.2 million.
Furthermore, from time to time, we will commit to the purchase price of certain commodities that are related to the ingredients used for the
production of our bagels. On a periodic basis, we review the relationship of these purchase commitments to our business plan, general market
trends and our assumptions in our operating plans. If these commitments are deemed to be in excess of the market, we will charge off the costs in
excess of the market in the period they are incurred. Furthermore, if the minimum purchase commitment requirements are deemed in excess of our
forecasted purchases, we will charge off the excess purchase commitment as an increase in cost of sales, in the period the difference is determined.
Legal Proceedings
We are subject to claims and legal actions in the ordinary course of our business, including claims by our franchisees, licensees, and
employees or former employees. We do not believe that an adverse outcome in any currently pending or threatened matter, other than described
below, would have a material adverse effect on our business, results of operations or financial condition.