Einstein Bros 2008 Annual Report Download - page 31

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312509042707/d10k.htm[9/11/2014 10:10:56 AM]
Mandatorily Redeemable Series Z
57,000
—
—
—
57,000
Minimum lease payments under capital leases 67 42 — — 109
Minimum lease payments under operating leases 29,268 46,933 19,591 19,566 115,358
Purchase obligations(b) 21,878 6,144 — — 28,022
Other long-term obligations(c) — 500 500 5,659 6,659
Total $148,075 $61,455 $99,326 $25,225 $334,081
(a) Calculated as of December 30, 2008, using the fixed rate from the debt associated with the interest rate swap, and the variable LIBOR and
U.S. Prime rates, plus the applicable margin in effect for the remainder. Because the interest rates on the first lien term loan facility and the
revolving credit facility are variable, actual payments could differ materially.
(b) Purchase obligations consist of non-cancelable minimum purchases of frozen dough and certain other raw ingredients that are used in our
products.
(c) Other long-term obligations primarily consist of the remaining liability related to minimum future purchase commitments with a supplier that
advanced us $10.0 million in 1996.
Financial Condition, Liquidity and Capital Resources
The restaurant industry is predominantly a cash business where cash is received at the time of the transaction. We believe we will generate
sufficient cash flow and have sufficient availability under our revolving credit facility to fund operations, capital expenditures and required debt
and interest payments. Our inventory turns frequently since our products are perishable. Accordingly, our investment in inventory is minimal. Our
accounts payable are on terms that we believe are consistent with those of other companies within the industry.
The primary driver of our operating cash flow is our restaurant operations, specifically the gross margin from our company-owned
restaurants. Therefore, we focus on the elements of those operations including comparable store sales and cash flows to ensure a steady stream of
operating profits that enable us to meet our cash obligations.
Excluding tenant improvement allowances that we typically receive from the landlord, the cost of a new restaurant is approximately
$600,000, depending on square footage, layout and location. The cost includes equipment, leasehold improvements, furniture and fixtures, and
other related capital. For 2009, we anticipate that our tenant improvement allowances will average approximately $50,000 per restaurant which
will reduce our cost. However, the amount of the allowance can vary widely depending on the location of the restaurant and other terms of the
lease. We also intend to upgrade at least 45 of our current restaurants during 2009, which will include approximately $80,000 in capital costs and
approximately $49,000 in deferred maintenance costs, for a total cost of approximately $129,000 per restaurant.
38
Table of Contents
We anticipate that the majority of our capital expenditures for fiscal 2009 will be focused on the addition of six to eight new company-owned
restaurants and upgrades in existing restaurants. Based on our current purchases of capital assets, our existing base of assets, and our projections
for new purchases of fixed assets, we believe depreciation expense for 2009 will be approximately $17.9 million.
Our mandatorily redeemable Series Z Preferred Stock has been reclassified to a current liability as the redemption date is now within one
year. As part of the amended First Lien Term Loan in June 2007, we obtained a commitment for an incremental term loan in the aggregate amount
of up to $57.0 million to be used by us, if needed, solely for the purpose of redeeming the mandatorily redeemable Series Z Preferred Stock due on
June 30, 2009. Availability of the incremental term loan is subject to customary borrowing conditions, including absence of any default or material
adverse change, and to a requirement of successful syndication of such incremental term loan. We have had discussions with Wells Fargo Foothill,
the administrative agent for the Term Loan, regarding the status of the current credit market and the likelihood of a successful syndication under the
same terms as our existing Term Loan. Given the current state of the credit market we do not believe that the incremental term loan could be
syndicated at the same price and under the same terms as our existing Term Loan. While it still remains an option for us to consider, due to the
current state of the credit market, it is not likely that we will pursue this strategy at this time.
To the extent that we do not have adequate unrestricted cash and capacity under the revolver portion of our First Lien Term Loan the
unredeemed portion would be required to accrue additional redemption prospectively at a rate that is 250 basis points higher than our highest rate
paid on our funded debt, which is currently 5.52%. As of December 30, 2008, we have $24.2 million of unrestricted cash and $13.0 million of
borrowing capacity under the revolving portion of our First Lien Term Loan. During 2008 we generated $16.4 million of free cash flow. As a result
of this, we made a $7.2 million excess cash flow payment on the First Lien Term Loan on February 27, 2009.
We plan to continue focusing on generating free cash flow through June 30, 2009 that would continue to build our balance of unrestricted
cash. On June 30, 2009 we intend to make a redemption payment on the mandatorily redeemable Series Z Preferred Stock. In addition, we also
continue to monitor the state of the credit and capital markets and could satisfy any unredeemed portion with additional indebtedness, new capital