Einstein Bros 2009 Annual Report Download

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Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10:09:50 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 29, 2009
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 001-33515
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes ¨ 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 ¨
Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company ¨

Table of contents

  • Page 1
    ... year ended December 29, 2009 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 001-33515 EINSTEIN NOAH RESTAURANT GROUP, INC. (Exact Name of Registrant as Specified in its Charter) Delaware (State...

  • Page 2
    ... for the 2010 annual meeting of stockholders, which will be filed with the SEC within 120 days after the close of the 2009 fiscal year. Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. FORM 10-K TABLE OF CONTENTS PART I ITEM 1. ITEM 1A. ITEM 1B. ITEM 2. ITEM 3. ITEM 4. BUSINESS RISK FACTORS...

  • Page 3
    ... sales at our Einstein Bros. and Noah' s company-owned restaurants. For the year ended December 29, 2009, approximately 65% of our revenues were generated from restaurant sales during the breakfast hours. • Principal products and services sold: Einstein Bros. offers a menu that specializes in high...

  • Page 4
    ... York City inspired bakery/deli restaurant that serves fresh-baked bagels, hot breakfast sandwiches, made-to-order deli-style sandwiches, cream cheese and other spreads, specialty coffees and teas, soups, salads and other unique menu offerings During fiscal years 2007, 2008 and 2009, Noah' s company...

  • Page 5
    ... 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, or partially baked...

  • Page 6
    ... with opening new company-owned restaurants. In 2009 we opened seven franchised locations and 31 licensed locations. We are currently planning to open 12 to 16 franchise restaurants and 35 to 45 license restaurants in 2010. In support of our strategy to only license the Einstein Bros. brand...

  • Page 7
    ... Chief Operating Officer in December 2005. Mr. Dominguez joined us in November 1995 and served as Senior Vice President of Operations for Noah' s New York Bagels from April 1998 to December 2005. From 1995 to April 1998, Mr. Dominguez served as the Director of Operations for Einstein Bros. Midwest...

  • Page 8
    ... by these forward-looking statements may include matters such as future economic performance, 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...

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

  • 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
    ... throughout 2009, and we are aware that additional increases have been approved and will become effective in few of the states in which we operate in 2010. Increases in the minimum wage may create pressure to increase the pay scale for our associates, which would increase our labor costs and...

  • Page 12
    ... or wrongful termination, or labor code violations may divert financial and management resources that would otherwise be used to benefit our future performance. For example, in 2008 we settled two class actions in California and made payments of $1.9 million during 2009 in connection with such...

  • Page 13
    ... have recently adopted or are considering regulations requiring disclosure of nutritional facts, including calorie information, on menus and/or menu boards. Additional cities or states may propose or adopt similar regulations. The cost of complying with these regulations could increase our expenses...

  • Page 14
    ... Expiration Lakewood, Colorado Whittier, California Walnut Creek, California Carrolton, Texas Orlando, Florida Denver, Colorado Grove City, Ohio Our Current Restaurants Headquarters, Support Center, Test Kitchen Manufacturing Facility and USDA Approved Commissary Administration Office-Noah' s USDA...

  • Page 15
    ... Company Operated Franchised or Licensed Total Alabama Arkansas Arizona California Colorado Connecticut District of Columbia Delaware Florida Georgia Illinois Indiana Kansas Kentucky Louisiana Maryland Massachusetts Michigan Minnesota Missouri Mississippi North Carolina New Hampshire New Jersey New...

  • Page 16
    ... traded on the NASDAQ Global Market under the symbol "BAGL". The following table sets forth the high and low sale prices for our common stock for each fiscal quarter during the periods indicated. High Low Year ended December 29, 2009 (fiscal 2009): First Quarter Second Quarter Third Quarter Fourth...

  • Page 17
    ... • Panera Bread Company • Starbucks Corporation • Sonic Corporation • Jack in the Box Incorporated • CKE Restaurants Incorporated (Hardee' s, Carl' s Jr., La Salsa, and Green Burrito restaurant chains) • AFC Enterprises Incorporated (Popeyes Chicken and Biscuits restaurant chain) • YUM...

  • Page 18
    ... indicated) 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-off of debt discount upon redemption of...

  • Page 19
    ... the year to drive new traffic and repeat visits. We intend to continue to expand our company-owned restaurants in 2010 with the addition of 10 to 12 new units. The new units will be in our more developed markets, such as Denver, Phoenix, Chicago, Baltimore, and Washington D.C. As we move into...

  • Page 20
    ...lesser extent, labor costs. Our health care benefit costs increased $1.9 million in 2009. We also continued to support our focus around our core breakfast offerings and other value-oriented initiatives by increasing our investments in marketing by $2.3 million in 2009. While our revenues declined in...

  • Page 21
    ...implemented a new on-line ordering system which allowed us to reduce our catering sales force at the end of the year. Total labor costs increased 1.0% as a percentage of company-owned restaurant sales in 2009. http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10:09...

  • Page 22
    ... revenue improvement was driven by strong royalty streams resulting from the net opening of 26 license locations and six franchise locations over the last twelve months. Comparable store sales for the franchisees and licensees of the Manhattan Bagel and Einstein Bros. brands increased 1.1% in 2009...

  • Page 23
    ... 2008, we recorded $1.9 million in operating expenses to satisfy two California wage and hour settlements. These were fully paid in the second quarter of 2009. Late in 2008 we also experienced turnover at the senior management level, and hired our new CEO, which resulted in $0.9 million in severance...

  • Page 24
    ... Quarter 1.0% 5.2% 5.2% 3.2% 3.6% 1.0% -1.7% -3.3% Company-owned restaurant sales for 2008 increased $3.7 million, when compared to 2007. These results were primarily due to price increases at Einstein Bros. and Noah' s coupled with a net increase in the number of restaurants opened over the...

  • Page 25
    Form 10-K Table of Contents For 2008, labor costs increased $0.5 million from a combination of the growth of new restaurant openings that occurred throughout 2007 and 2008, an increase in base pay year-over-year from a combination of merit and an overall inflationary shift in our compensation ...

  • Page 26
    ... the two California wage and hour settlements. This accrual represented the Company' s estimate of the aggregate amount that is probable to be paid pursuant to these settlements. In late 2008 we experienced turnover at the senior management level. In November, our Chief Marketing Officer left the...

  • Page 27
    ... costs, for a total cost of approximately $130,000 per restaurant. Finally for 2010, we intend to install the kitchen display ordering system ("KDS") at most of our Noah' s restaurants and some of our Einstein Bros. restaurants. The KDS is currently in place at most of our Einstein Bros. locations...

  • Page 28
    ... accrued Additional Redemption price. As of December 29, 2009, $1.3 million of Additional Redemption price was included in accrued expenses 34 Table of Contents and other liabilities on the balance sheet and included within interest expense, net on the statements of operations. Our credit facility...

  • Page 29
    ... $24.8 million of our Series Z, to repay $8.1 million of debt and to pay $3.2 million for the two California wage and hour settlements and the payment of senior management transition costs. As of December 29, 2009, we had unrestricted cash of $9.9 million, representing a decline in unrestricted cash...

  • Page 30
    ...at our company-owned restaurants in recent years, our sales decreased in 2009 compared to 2008, interest expense increased due to the Series Z Additional Redemption amounts and we made several large payments related to the two California wage and hour settlements and the senior management transition...

  • Page 31
    ... commodity costs in 2007 and 2008, we raised our prices once at both Einstein Bros. and Noah' s during 2008 and during 2009. 38 Table of Contents Recent Accounting Pronouncements In April 2009, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard...

  • Page 32
    ...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 2009, we recognized $0.2 million in gift card breakage. 40 Table of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET...

  • Page 33
    ... Einstein Noah Restaurant Group, Inc. We have audited the accompanying consolidated balance sheets of Einstein Noah Restaurant Group, Inc. and subsidiaries (collectively, "Einstein Noah") (a Delaware corporation) as of December 29, 2009 and December 30, 2008, and the related consolidated statements...

  • Page 34
    ... Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Einstein Noah Restaurant Group, Inc. and subsidiaries as of December 29, 2009 and December 30, 2008, and the related http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10...

  • Page 35
    ... for each of the three years in the period ended December 29, 2009 and our report dated February 25, 2010 expressed an unqualified opinion. /s/ GRANT THORNTON LLP Denver, Colorado February 25, 2010 44 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands...

  • Page 36
    ... 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 37
    ... an integral part of these consolidated financial statements. 47 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) January 1, 2008 52 weeks ended December 30, 2008 December 29, 2009 OPERATING ACTIVITIES: Net income Adjustments to reconcile...

  • Page 38
    ... 29, 2009, the Company owned, franchised or licensed various restaurant concepts under the brand names of Einstein Bros. Bagels ("Einstein Bros."), Noah' s New York Bagels ("Noah' s"), and Manhattan Bagel Company ("Manhattan Bagel"). We have a 52/53-week fiscal year ending on the Tuesday closest to...

  • Page 39
    ... 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. 49 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements...

  • Page 40
    ... assets related to our Einstein Bros. and Manhattan Bagel brands. For the fiscal years ended 2007, 2008, and 2009 there was no indication of impairment in our goodwill and indefinite lived intangible assets. 51 http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10...

  • Page 41
    ... frozen bagel dough from a single supplier who utilizes our proprietary processes and on whom we are dependent in the short-term. Additionally, we purchase all of our cream cheese 52 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements...

  • Page 42
    ... Bagel, Einstein Bros. and Noah' s brands. Information regarding revenue and costs of sales for each of our business segments has been reported in the consolidated statements of operations for the years ended January 1, 2008, December 30, 2008 and December 29, 2009. Our president and the senior...

  • Page 43
    ... EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: January 1, 2008 December 30, 2008 December 29, 2009 Expected...

  • Page 44
    ... financial statements. 55 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 3. INVENTORIES Inventories, which consist of food, beverage, paper supplies and bagel ingredients, are stated at the lower of cost or market, with cost...

  • Page 45
    ... Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Long-term deferred franchise and license revenue is included in other liabilities on the balance sheet and was $250,000 and $465,000 as of December 30, 2008 and December 29, 2009, respectively...

  • Page 46
    .... 58 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Comprehensive income consisted of the following as of: January 1, 2008 52 weeks ended December 30, 2008 (in thousands of dollars) December 29, 2009 Net income Unrealized (loss...

  • Page 47
    ... EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements On May 28, 2009, the Company and Halpern Denny agreed that the Company will redeem shares as follows: 1. 2. 3. $20 million to redeem 20,000 shares of Series Z on June 30, 2009 at a redemption price...

  • Page 48
    ... equal to the fair market value on the date of grant, have a contractual life of ten years and typically vest over a three-year 61 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10:09:50 AM...

  • Page 49
    .... As of December 29, 2009, there were 79,735 shares reserved for future issuance under the SAR Plan. 62 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Restricted Stock Plans On May 3, 2007, the Company' s Compensation Committee had...

  • Page 50
    ... Non-vested shares, December 29, 2009 63 471,409 287,000 (165,480) (129,569) 463,360 $ $ 4.06 2.11 3.31 3.16 2.83 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The weighted-average fair value of options granted during the...

  • Page 51
    ... years ended 2007, 2008 or 2009. 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 52
    Form 10-K Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 13. INCOME TAXES Utilization of our net operating loss ("NOL") carryforwards reduced our federal and state income tax liability incurred. As of December 29, 2009, we had ...

  • Page 53
    ...exceptions, we are no longer subject to U.S. federal, state or local examinations by tax authorities for the tax year 2004 and prior. 67 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The amount of the deferred tax asset considered...

  • Page 54
    ...29, 2009: Unrecognized tax benefits (in thousands) Balance - December 30, 2008 Additions based on 2009 stock option exercises Balance - December 29, 2009 68 $ $ 3,384 1,692 5,076 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements If...

  • Page 55
    ...$ 46,554 (413) 1,841 498 1,010 464 500 50,454 (4,248) 46,206 53,390 Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 14. SUPPLEMENTAL CASH FLOW INFORMATION January 1, 2008 52 weeks ended December 30, 2008 (in thousands) December 29...

  • Page 56
    ... and pricing on an annual basis. Furthermore, from time to time, we will commit to the purchase price of certain commodities that are related to the ingredients used for the production of our bagels. On a periodic basis, we review the relationship of these purchase commitments to our business plan...

  • Page 57
    ... Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Segments Companyowned restaurants Manufacturing Franchise and commissary and license (in thousands of dollars) Corporate support Fiscal 2008: Consolidated Revenues: Company-owned restaurant...

  • Page 58
    ...) Corporate support Fiscal 2009: Consolidated Revenues: Company-owned restaurant sales Manufacturing and commissary revenues Franchise and license related revenues Total revenues Cost of sales: Company-owned restaurant costs Manufacturing and commissary costs Franchise and license related costs...

  • Page 59
    ... Table of Contents EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (a) In connection with the debt redemption and our amended credit facility, we wrote off $2.1 million of debt issuance costs and $0.5 million of debt discount, and paid a redemption...

  • Page 60
    ... Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company' s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. As of December 29, 2009...

  • Page 61
    ... financial reporting. ITEM 9B. None 78 OTHER INFORMATION Table of Contents PART III ITEM 10. DIRECTORS EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information relating to Directors required by Item 10 will be included in our 2010 Proxy Statement, which will be filed within 120 days after the close...

  • Page 62
    ... the New World Restaurant Group Inc. Stock Option Plan for (Non-Employee) Independent Directors (10)+ Approved Supplier Agreement dated as of November 30, 2006, by and among New World Restaurant Group, Inc., Einstein and Noah Corp., Manhattan Bagel Company, Inc., and Harlan Bagel Supply Company, LLC...

  • Page 63
    ... 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 December 29, 2009* Certification of Chief Financial Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the...

  • Page 64
    ...report to be signed on its behalf by the undersigned, thereunto duly authorized. EINSTEIN N OAH RESTAURANT G ROUP , I NC . Date: February 25, 2010 By: /S / J EFFREY J. O' N EILL Jeffrey J. O'Neill Chief Executive Officer....gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10:09:50 AM...