Einstein Bros 2008 Annual Report Download - page 26

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312509042707/d10k.htm[9/11/2014 10:10:56 AM]
Table of Contents
Interest Expense, Net and Other Expenses
(dollars in thousands)
Increase/
(Decrease)
Fiscal
2007
Fiscal
2008
2008
vs. 2007
Interest expense, net 12,387 5,439 (56.1%)
As a percentage of revenue 3.1% 1.3%
Other expense:
Write-off of debt discount upon redemption of senior notes 528 — **
Prepayment penalty upon redemption of senior notes 240 — **
Write-off of debt issuance costs upon redemption of senior
notes 2,071 — **
Total other expense 2,839 —
As a percentage of total revenue 0.7% 0.0%
** not meaningful
In June 2007, we amended our debt facility and reduced our debt outstanding to $90 million, substantially decreasing our interest expense.
The outstanding senior notes and other long-term debt as of December 30, 2008 was $87.9 million compared to $89.8 million as of January 1,
2008. Borrowings under this senior secured credit facility bear interest at either a Eurodollar rate or a variable base rate plus an applicable margin,
as defined by our amended and restated credit agreement. We are currently using LIBOR as our base rate but can switch to U.S. prime rate if we
choose to do so.
As part of the debt redemption in 2007 we wrote off a discount related to the repayment of the $25 Million Subordinated Note, paid a
redemption premium related to the repayment of the $65 Million Second Lien Term Loan, and wrote off debt issuance costs.
The Company entered into an interest rate swap which became effective in August 2008 and will expire in two years. The net effect of the
swap fixed our interest rate on $60.0 million of our First Lien Term Loan at 3.52% plus an applicable margin. The one-month LIBOR rate has
been lower than our fixed rate for all but one month since we entered into the swap. On a prospective basis, we cannot estimate the impact of
LIBOR due to the uncertainties in the current credit market. The fair market value of the interest rate swap as of December 30, 2008 was a liability
of $2.5 million, which is recorded in other liabilities on the Company’ s consolidated balance sheet. As of December 30, 2008, the unrealized loss
associated with this cash flow hedging instrument is recorded in accumulated other comprehensive loss within stockholders’ deficit.
Income Taxes
(dollars in thousands)
Increase/
(Decrease)
Fiscal
2007
Fiscal
2008
2008
vs. 2007
Provision for income taxes 454 1,100 142.3%
As a percentage of revenue 0.1% 0.3%
For tax purposes, utilization of our fully reserved net operating loss (“NOL”) carryforwards reduced our effective tax rate and our federal and
state income tax liability incurred for 2008. Although we have substantial NOL carryforwards available to offset federal taxable income, we are
still required to pay income taxes at the state level and required to pay alternative minimum tax at the federal level. For the fifty-two weeks ended
December 30, 2008 compared to the same period in 2007, the provision for income taxes increased $0.6 million.
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The increase was primarily driven by the considerable improvement in income before income taxes since the second quarter of 2007 when the
Company paid down a substantial portion of its outstanding debt, thereby reducing interest expense.
Due to the uncertainty of future taxable income, deferred tax assets resulting from these net operating losses have been fully reserved. In
accordance with SFAS No. 109 we will assess the continuing need for a valuation allowance that results from uncertainty regarding our ability to
realize the benefits of our deferred tax assets. If we conclude that our prospects for the realization of our deferred tax assets are more likely than
not, we will then reduce our valuation allowance as appropriate and credit income tax expense.