Einstein Bros 2007 Annual Report Download - page 47

http://www.sec.gov/Archives/edgar/data/949373/000104746908002111/a2183061z10-k.htm[9/11/2014 10:12:02 AM]
increase of approximately $1.8 million in our gross deferred tax asset and a corresponding increase in our valuation allowance. There was no net
effect to the financial statements and none of the unrecognized tax benefits impacted our effective tax rate.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During fiscal 2007 and fiscal 2006, our results of operations, financial position and cash flows have not been 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 product is shipped FOB domestic dock,
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there are no international risks of loss or foreign exchange currency issues. Sales shipped internationally are included in manufacturing and
commissary revenue. Approximately $3.3 million and $2.2 million for 2007 and 2006, respectively, were included in manufacturing revenue for
these international shipments.
Our debt as of January 1, 2008 was principally comprised of the amended Revolving Facility and First Lien Term Loan. 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 revolving facility, first lien term loan and second lien term loan, interest rate changes generally do not affect the fair market
value of such debt, but do impact future earnings and cash flows, assuming other factors are held constant. A 100 basis point increase in short-term
effective interest rates would increase our interest expense by approximately $0.9 million annually, assuming no change in the size or composition
of debt at January 1, 2008, and presuming the utilization of our accumulated net operating losses would minimize the tax implications for the next
several years. Currently, the interest rates on our revolving facility, first lien term loan and second lien term loan 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 recently contracted with a subsidiary of Cargill, Incorporated to manage our
wheat purchases for our company-owned production facility. In addition to wheat, we have established contracts and entered into commitments
with our vendors for butter, cheese, coffee and turkey.
This 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Audited Annual Financial Statements
Report of Independent Registered Public Accounting Firm 59
Consolidated Balance Sheets as of January 2, 2007 and January 1, 2008 61
Consolidated Statements of Operations for the Years Ended January 3, 2006, January 2, 2007 and
January 1, 2008 62
Consolidated Statements of Changes in Stockholders' Deficit for the Years Ended January 3, 2006,
January 2, 2007 and January 1, 2008 63
Consolidated Statements of Cash Flows for the Years Ended January 3, 2006, January 2, 2007 and
January 1, 2008 64
Notes to Consolidated Financial Statements 65
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