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Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312509042707/d10k.htm[9/11/2014 10:10:56 AM]
10-K 1 d10k.htm FORM 10-K
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One):
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 30, 2008
OR
¨TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission File Number 1-33515
EINSTEIN NOAH RESTAURANT GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3690261
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
555 Zang Street, Suite 300, Lakewood, Colorado 80228
(Address of principal executive offices) (Zip Code)
Registrant’ s telephone number, including area code: (303) 568-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Name of each exchange on which
registered:
Common Stock, $.001 par value The NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant’ s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendments of this Form 10-K. ¨
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer ¨
(Do not check if a smaller reporting company)
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Table of contents

  • Page 1
    ...fiscal year ended December 30, 2008 OR ¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-33515 EINSTEIN NOAH RESTAURANT GROUP, INC. (Exact Name of Registrant as Specified in its Charter) Delaware (State...

  • Page 2
    ...the "Company") operates primarily under the Einstein Bros. Bagels ("Einstein Bros."), Noah' s New York Bagels ("Noah' s") and Manhattan Bagel Company ("Manhattan Bagel") brands. We commenced operations as an operator and franchisor of coffee cafes in 1993. Substantial growth in our restaurant counts...

  • Page 3
    ... hours. • Principal products and services sold: Einstein Bros. offers a menu that specializes in high-quality foods for breakfast and lunch, including fresh-baked bagels and hot breakfast sandwiches, cream cheese and other spreads, specialty coffees and teas, creative soups, salads and sandwiches...

  • Page 4
    ... 15 flavors of cream cheese, a variety of breakfast and lunch sandwiches, salads, soups, coffees and café beverages and desserts. In late 2007, we acquired a location from one of our franchisees, which made it our only company-owned Manhattan Bagel restaurant. We use this location for employee and...

  • Page 5
    ... recipes and production processes for our bagel dough, cream cheese and coffee to help ensure product consistency. We believe this system provides a variety of consistent, superior quality products at competitive market prices to our company-owned, franchised and licensed restaurants. Frozen bagel...

  • Page 6
    ... are currently working to finalize our registration in the 50th state. During 2008, we actively marketed the Einstein Bros. brand franchise rights and signed several multi-location deals. We currently have seven development agreements in place for 47 restaurants that we expect will open on various...

  • Page 7
    ... and licensees as well as general corporate governance. Associates: As of December 30, 2008, the Company had 7,698 associates, of whom 233 were corporate personnel. 7 • Table of Contents Financial information about geographic areas: Our manufacturing operations sell bagels to a wholesaler and...

  • Page 8
    ..., restaurant openings or closings, operating margins, the availability of acceptable real estate locations, the sufficiency of our cash balances and cash generated from operating and financing activities for our future liquidity and capital resource needs, and other matters, and are generally...

  • Page 9
    ...at company-owned restaurants through various sub-initiatives including: promoting and offering value to our customers through discounts, coupons and new menu offerings and broadening our offerings across multiple dayparts, improving our ordering and production systems, expanding our catering program...

  • Page 10
    ... and expanding their coffee offerings. This could further increase competition in the breakfast daypart. In addition to current competitors, one or more new major competitors with substantially greater financial, marketing and operating resources could enter the market at any time and compete...

  • Page 11
    ... distributors by our company-owned, franchised and/or licensed restaurants could increase our distribution costs. These risks could have a material adverse effect on our business, financial condition and results of operations. Additionally, increased costs and distribution issues related to fuel and...

  • Page 12
    ...violations may divert financial and management resources that would otherwise be used to benefit our future performance. For example, we recently settled two class actions in California as described in Note 19 to our Consolidated Financial Statements set forth in Item 8 of this report. There is also...

  • Page 13
    ...local rules and regulations applicable to our business. The failure to comply with federal, state and local rules and regulations would have an adverse effect on us. Under various federal, state and local laws, an owner or operator of real estate may be liable for the costs of removal or remediation...

  • Page 14
    ... approximately 11 to 20 years. Our leases generally require us to pay a proportionate share of real estate taxes, insurance, common charges and other operating costs. As of December 30, 2008, we have identified approximately 10 to 15 company-owned restaurants that we anticipate closing over the next...

  • Page 15
    ... Square Feet Lease Expiration Lakewood, Colorado Whittier, California Walnut Creek, California Carrolton, Texas Orlando, Florida Denver, Colorado Grove City, Ohio Headquarters, Support Center, Test Kitchen Production Facility and USDA Approved Commissary Administration Office-Noah' s USDA Approved...

  • Page 16
    ... of Columbia Florida Georgia Illinois Indiana Kansas Kentucky Louisiana Maryland Massachusetts Michigan Minnesota Mississippi Missouri Nevada New Hampshire New Jersey New Mexico New York North Carolina Ohio Oregon Pennsylvania South Carolina Tennessee Texas Utah Virginia Washington Wisconsin Total...

  • Page 17
    ... Mathistad, a former store manager, filed a putative class action against the Company in the Superior Court of California for the State of California, County of San Diego. The plaintiff alleged that we failed to pay overtime wages to "salaried restaurant employees" of our California stores who were...

  • Page 18
    ... structure. The companies selected are participants of the restaurant industry with a sufficient period of operating history for continuous inclusion in the Index. Fiscal 2003 Measurement period - five years (1) (2) Fiscal Fiscal Fiscal Fiscal 2004 2005 2006 2007 Fiscal 2008 BAGL PGI...

  • Page 19
    ... data and as otherwise indicated) 2008 (52 weeks) Selected Statements of Operations Data: Revenues Gross profit Gross profit percentage General and administrative expenses California wage and hour settlements Senior management transition costs Income from operations Interest expense, net(2) Write...

  • Page 20
    ... breakfast and lunch in a bakery-café atmosphere with a neighborhood emphasis. As of December 30, 2008, we owned and operated, franchised or licensed 649 restaurants in 36 states and in the District of Columbia, primarily under the Einstein Bros., Noah' s and Manhattan Bagel brands. Einstein Bros...

  • Page 21
    ... for morning and lunch time traffic), parking, signage and adaptability of any current structures. The Company has several franchise and license agreements in place and plans on moving forward with the opening of locations within this segment. We opened two franchise restaurants in 2008 and have...

  • Page 22
    ... been open for one full year and have not been relocated or closed during the current year. It summarizes our financial performance since 2006 by reporting company-owned restaurants by sales level and the related revenue (in thousands of dollars) and gross profit percentage: Number of Restaurants 96...

  • Page 23
    ..., labor expenses, other operating costs, and rent and related and marketing costs. Cost of goods sold (dollars in thousands) Fiscal Fiscal 2007 2008 Increase/ (Decrease) 2008 vs. 2007 Cost of goods sold As a percentage of company-owned restaurant sales As a percentage of total revenue $110,397 29...

  • Page 24
    ... in merit pay year-over-year coupled with increased minimum wage rates at the federal level and in some states in which we operate. The changes in other operating costs and expenses for the fifty-two weeks ended December 30, 2008 compared to the same period in 2007 decreased primarily related to...

  • Page 25
    ... franchise restaurant since January 1, 2008. 30 Table of Contents General and Administrative Expenses (dollars in thousands) Fiscal Fiscal 2007 2008 Increase/ (Decrease) 2008 vs. 2007 General and administrative expenses California wage and hour settlements Senior management transition costs Total...

  • Page 26
    ..., 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...

  • Page 27
    ...sold. Additionally, restaurant sales for 2007 benefited from $1.3 million in gift card breakage, which relates to unredeemed balances from 2003 through 2006. We expect the benefit that will be received in future years will be considerably less than this amount. 33 Table of Contents Comparable store...

  • Page 28
    ...$1.3 million of gift card breakage were offset primarily by higher commodities costs, labor and labor related costs, and other store level expenses. The cost of flour, cheese, coffee and butter collectively increased $3.4 million. Wheat and, in turn, flour have reached unprecedented price levels and...

  • Page 29
    ... intangible assets, and other related costs are typically costs associated with closing a company-owned restaurant. Generally, an indicator of impairment would include significant change in an asset' s ability to generate positive cash flow in the future or in the fair value of an asset. Whenever...

  • Page 30
    ... Fiscal 2007 Increase/ (Decrease) 2007 vs. 2006 Provision for income taxes As a percentage of revenue ** not meaningful - 0.0% 454 0.1% ** For our financial statements prepared in accordance with generally accepted accounting principles ("GAAP"), we reported net income for 2007 of $12.6 million...

  • Page 31
    ...the remaining liability related to minimum future purchase commitments with a supplier that advanced us $10.0 million in 1996. (b) (c) Financial Condition, Liquidity and Capital Resources The restaurant industry is predominantly a cash business where cash is received at the time of the transaction...

  • Page 32
    ... our vendors; accrued expenses increased primarily due to the two California wage and hour settlements and the accrual for senior management transition costs; and short-term debt and the current portion of long-term debt increased by $7.1 million related to an excess cash flow payment that is due on...

  • Page 33
    ... existing company-owned restaurants and at our manufacturing operations; $1.8 million for general corporate purposes; and $2.5 million for leasehold improvements and build-out related to our new corporate headquarters. On January 1, 2008, we purchased a restaurant from a Manhattan Bagel franchisee...

  • Page 34
    ...of inflation on labor, food and occupancy costs could, in the future, significantly affect our operations. We pay many of our employees' hourly rates slightly above the applicable federal, state or municipal "living wage" rates. Recent changes in minimum wage laws may create pressure to increase the...

  • Page 35
    ... under unclaimed property laws, gift card balances may be recognized as gift card breakage and recorded as a reduction to deferred revenue and an increase to company-owned restaurant revenues. For the fiscal year ended December 30, 2008, we recognized $0.3 million in gift card breakage. http://www...

  • Page 36
    ...the fair market value of such debt, but do impact future earnings and cash flows, assuming other factors are held constant. On May 7, 2008, we entered into an interest rate swap agreement, to fix our rate on $60 million of our debt to 3.52% plus an applicable margin for the next two years, effective...

  • Page 37
    ...have audited the accompanying balance sheets of Einstein Noah Restaurant Group, Inc. ("Einstein Noah") (a Delaware corporation) as of December 30, 2008 and January 1, 2008, and the related statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended...

  • Page 38
    ... respects in relation to the basic financial statements taken as a whole. /s/ GRANT THORNTON LLP Denver, Colorado March 2, 2009 48 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share information) January 1, 2008 December 30, 2008 ASSETS...

  • Page 39
    ... commissary revenues Franchise and license related revenues Total revenues Cost of sales: Company-owned restaurant costs Manufacturing and commissary costs Total cost of sales Gross profit Operating expenses: General and administrative expenses California wage and hour settlements Senior management...

  • Page 40
    ... of assets Impairment charges and other related costs Provision for losses on accounts receivable Amortization of debt issuance and debt discount costs Write-off of debt issuance costs Write-off of debt discount Paid-in-kind interest Changes in operating assets and liabilities: Restricted cash...

  • Page 41
    ..., franchised or licensed various restaurant concepts under the brand names of Einstein Bros. Bagels ("Einstein Bros."), Noah' s New York Bagels ("Noah' s"), Manhattan Bagel Company ("Manhattan Bagel"), and New World Coffee ("New World"). We have a 52/53-week fiscal year ending on the Tuesday closest...

  • Page 42
    ... deferred revenue balance represents the Company' s liability for gift cards that have been sold, but not yet redeemed. There are no expiration dates on the Company' s gift cards, nor do we charge any service fees that decrease customer balances. 53 Table of Contents EINSTEIN NOAH RESTAURANT GROUP...

  • Page 43
    Form 10-K Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) In the first quarter of 2008, we reviewed the depreciable lives of our assets and determined that the economic useful life for leasehold improvements on new ...

  • Page 44
    ... related to our Einstein Bros. and Manhattan Bagel brands. For the fiscal years ended 2006, 2007, and 2008 there was no indication of impairment in our goodwill and indefinite lived intangible assets. Insurance Reserves We are self-insured for certain claims related to medical insurance, general...

  • Page 45
    ... of operations for the years ended January 2, 2007, January 1, 2008, and December 30, 2008. Our president and the senior management team manages our business and allocates resources via a combination of restaurant sales reports and gross profit information related to our three sources of revenue...

  • Page 46
    ... over a weighted-average 59 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) period of 2.2 years. Total compensation costs related to the options outstanding as of December 30, 2008 will be fully recognized by the fourth...

  • Page 47
    ... Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 4. INVENTORIES Inventories, which consist of food, beverage, paper supplies and bagel ingredients, are stated at the lower of cost or market, with cost being determined by...

  • Page 48
    ... $14.1 million for the fiscal years ended 2006, 2007 and 2008, respectively. There is no depreciation expense included in our cost of sales. 61 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 7. GOODWILL, TRADEMARKS AND...

  • Page 49
    Form 10-K Accrued senior management transition costs Deferred gift card revenue Other current liabilities Total accrued expenses and other current liabilities 62 - 1,643 1,302 $ 19,279 $ 1,297 1,415 1,511 22,410 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to ...

  • Page 50
    ... rate swap agreement relating to our First Lien Term Loan for the next two years, effective August 2008. We are required to make payments based on a fixed interest rate of 3.52% 64 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements...

  • Page 51
    ... balance sheet to other expense/income on the consolidated statements of operations when the interest rate swap expires or at the time the we choose to terminate the swap. 65 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements...

  • Page 52
    ... 30, 2009. Under the terms of the Series Z Preferred Stock, we would be required to pay additional redemption price in the 66 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) future to redeem any shares not redeemed on...

  • Page 53
    ... under the 1994 Plan. As of January 1, 2008, all options under the 1994 Plan had expired. 67 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Our 1995 Directors' Stock Option Plan (the "Directors' Option Plan") provided...

  • Page 54
    ... and $0.8 million, respectively. 69 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) WeightedAverage Grant Date Fair Value Number of Options Non-vested shares, January 1, 2008 Granted Vested Forfeited 470,368 391,738...

  • Page 55
    ... of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) The aggregate intrinsic value of SARs exercised during 2008 was $2,000. Number of SARs WeightedAverage Grant Date Fair Value Non-vested shares, January 1, 2008 Granted Vested...

  • Page 56
    ... for the fiscal year ended 2006. Employer contributions vest at the rate of 100% after three years of service. We established the Einstein Noah Restaurant Group, Inc. Nonqualified Deferred Compensation Plan (the "DC Plan") in June of 2007 for key employees, generally officers of the Company. The DC...

  • Page 57
    ... Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) As of December 30, 2008, NOL carryforwards of $135.4 million were available to be utilized against future taxable income for years through fiscal 2026, subject to annual limitations...

  • Page 58
    ...) $ 1,100 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) A reconciliation between the reported provision for income taxes and the amount computed by applying the statutory federal income tax rate of 35% to loss before...

  • Page 59
    ... as of January 2, 2007, January 1, 2008 and December 30, 2008 are as follows: 2006 2007 (in thousands) 2008 Deferred tax assets Operating loss carryforwards Interest rate swap California wage and hour settlements Senior management transition costs Capital loss carryforwards Accrued expenses §481...

  • Page 60
    ...of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Capital Leases We lease certain equipment under capital leases. Included in property, plant and equipment are the asset values of $262,000 and $265,000 and the related accumulated...

  • Page 61
    ... Mathistad, a former store manager, filed a putative class action against the Company in the Superior Court of California for the State of California, County of San Diego. The plaintiff alleged that we failed to pay overtime wages to "salaried restaurant employees" of our California stores who were...

  • Page 62
    ... revenues Total revenues Cost of sales: Company-owned restaurant costs Manufacturing and commissary costs Franchise and license related costs Total cost of sales Gross profit Operating expenses Other expenses Provision for income taxes Net income (loss) Fiscal 2008: Companyowned restaurants Revenues...

  • Page 63
    ...,776 shares of restricted stock with a value of $375,000 which will vest in three equal annual installments starting January 9, 2009, provided that Mr. O' Neill remains employed by the Company. The number of shares issued was determined by the closing price of the Company' s common stock on January...

  • Page 64
    ... Based upon that evaluation, the Company' s Chief Executive Officer and Chief Financial Officer concluded, as of December 30, 2008, that the Company' s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated...

  • Page 65
    ...close of the 2008 fiscal year, and is hereby incorporated by reference. Information regarding executive officers is included in Part I of this Form 10-K, as permitted by General Instruction G(3). The Company adopted a Code of Conduct applicable to its chief executive officer, chief financial officer...

  • Page 66
    ... financial officer or controller, the Company will disclose the nature of the amendment or waiver, its effective date and to whom it applies on its website or in a report on Form 8-K filed with the SEC. ITEM 11. EXECUTIVE COMPENSATION This information will be included in our 2008 Proxy Statement...

  • Page 67
    ... Offer of Employment dated December 3, 2008 * + List of Subsidiaries* Consent of Grant Thornton LLP* Certification of Chief Executive Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Registrant' s Annual Report on Form 10-K for the year ended...

  • Page 68
    ... Statement on Form S-8, filed on May 3, 2007. (15) Incorporated by reference from Registrant' s Current Report on Form 8-K, filed on July 5, 2007. (16) Incorporated by reference from Registrant' s Annual Report on Form 10-K for the Fiscal Year Ended January 1, 2008, filed on March 3, 2008...