Einstein Bros 2013 Annual Report Download - page 40

10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312514073832/d629623d10k.htm[9/11/2014 10:05:27 AM]
the value calculated may not be indicative of the fair value observed in a willing buyer / willing seller market transaction.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based
upon general market conditions and changes in domestic and global financial markets, among other factors.
For fiscal years 2012 and 2013, our results of operations, financial position and cash flows were not materially affected by changes in the
relative values of non-U.S. currencies to the U.S. dollar. We do not use derivative financial instruments to limit our foreign currency risk exposure
since virtually all of our business is conducted in the United States. Our manufacturing operations sell bagels to a wholesaler and a distributor who
take possession in the United States and sell outside of the United States. As the products are shipped FOB domestic dock, invoiced in U.S. dollars
and paid in U.S. dollars, there are no international risks of loss or foreign exchange currency issues.
Our debt as of December 31, 2013 was composed of the Senior Credit Facility. For fixed rate debt, interest rate changes affect the fair market
value of such debt but do not impact earnings or cash flows. Conversely, for variable rate debt, including borrowings under our Senior Credit
Facility, interest rate changes generally do not affect the fair market value of such debt, but they do impact future earnings and cash flows,
assuming other factors are held constant.
On March 4, 2013, we entered into an interest rate swap agreement to fix the interest rate on $50.0 million of our debt at 0.395% plus an
applicable margin. The interest rate swap agreement became effective March 7, 2013 and terminates on March 7, 2015.
On December 10, 2013, we entered into a second interest rate swap agreement to fix the interest rate on $88.1 million of our debt at 1.535%
plus an applicable margin. The interest rate swap agreement will become effective on March 9, 2015 and will remain effective until June 6, 2018,
the maturity date of our Senior Credit Facility.
Assuming no change in the size or composition of debt as of December 31, 2013, and presuming that the utilization of our accumulated net
operating losses would minimize the tax implications for the next several years, a 100 basis point increase in short-term effective interest rates
would increase the annual interest expense on our Senior Credit Facility by approximately $1.1 million. Currently, the interest rates on our Senior
Credit Facility are predominantly at LIBOR rates plus an applicable margin through short-term fixed rate financing. The estimated increase in
interest expense incorporates the fixed interest financing into its assumptions.
On an annual basis, we purchase a substantial amount of agricultural products that are subject to fluctuations in price based upon market
conditions. Our purchase arrangements may contain contractual features that limit the price paid by establishing certain price floors or caps. We do
not use financial instruments to hedge commodity prices. We have utilized a third party advisor to manage our wheat purchases. In addition to
wheat, we have established contracts and entered into commitments with our vendors for Class III milk, butter, cheese and coffee.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Audited Annual Financial Statements
Reports of Independent Registered Public Accounting Firm 53
Consolidated Balance Sheets as of January 1, 2013 and December 31, 2013 55
Consolidated Statements of Income and Comprehensive Income for fiscal years 2011, 2012 and 2013. 56
Consolidated Statements of Changes in Stockholders’ Equity for fiscal years 2011, 2012 and 2013 57
Consolidated Statements of Cash Flows for fiscal years 2011, 2012 and 2013 58
Notes to Consolidated Financial Statements 59
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