Einstein Bros 2009 Annual Report Download - page 26

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10:09:50 AM]
Senior management transition costs
—
1,335
**
0.0%
0.3%
Depreciation and amortization 11,192 14,100 26.0% 2.8% 3.4%
Other operating expenses 837 461 (44.9%) 0.2% 0.1%
Total operating expenses $ 52,664 $ 54,152 2.8% 13.1% 13.1%
Interest expense, net 12,387 5,439 (56.1%) 3.1% 1.3%
Provision for income tax 454 1,100 142.3% 0.1% 0.3%
** not meaningful
Our general and administrative expenses decreased $4.3 million in 2008. The overall decrease was partially related to a decrease in stock-
based compensation expense that was primarily due to the additional options that were granted and vested in the second quarter of 2007 related to
the secondary public offering, which did not occur again in 2008. Additionally, in 2008 compared to 2007, the Company had decreases in travel
expense, recruiting and referral fees, sales and use tax expense and relocation expense related to our corporate headquarters, partially offset by an
increase in our professional service fees. In addition, the Company experienced a decrease in compensation and related benefits as a result of a
reduction in administrative positions that occurred in the latter half of 2008, decreased insurance costs, partially offset by an increase in incentive
compensation expense.
The Company recorded $1.9 million in operating expenses during 2008 to satisfy 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 Company, and in
December we transitioned to a new Chief Executive Officer. These events resulted in $0.9 million in severance charges and $0.4 million in
recruiting and other costs.
Depreciation and amortization expenses increased $2.9 million in 2008 due to the additional depreciation expense on our new corporate
headquarters that we occupied in May 2007 and the additional assets invested in the company-owned restaurants that were added or upgraded since
the end of 2007.
In June 2007, we amended our credit facility and reduced our debt outstanding to $90 million, substantially decreasing our interest expense.
The outstanding senior notes and other long-term debt as of December 30, 2008 was $87.9 million compared to $89.6 million as of January 1,
2008. Borrowings under this credit facility bore interest at either a Eurodollar rate or a variable base rate plus an applicable margin, as defined by
our amended and restated credit agreement. We used LIBOR as our base rate.
As part of the debt redemption in 2007 we wrote off a discount related to the repayment of the $25 Million Subordinated Note, paid a
redemption premium related to the repayment of the $65 Million Second Lien Term Loan, and wrote off debt issuance costs.
The Company entered into an interest rate swap which became effective in August 2008 and will expire in August 2010. 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 LIBOR rate has
been lower than our fixed rate for all but one
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month since we entered into the swap. The fair market value of the interest rate swap as of December 30, 2008 was a liability of $2.5 million,
which is recorded in other liabilities on the Company’ s consolidated balance sheet. As of December 30, 2008, the unrealized loss associated with
this cash flow hedging instrument is recorded in accumulated other comprehensive loss within stockholders’ deficit.
For tax purposes, utilization of our fully reserved net operating loss (“NOL”) carryforwards reduced our effective tax rate and our federal and
state income tax liability incurred for 2008. Although we have substantial NOL carryforwards available to offset federal taxable income, we are
still required to pay income taxes at the state level and required to pay alternative minimum tax at the federal level. For 2008, the provision for
income taxes increased $0.6 million. The increase was primarily driven by the considerable improvement in income before income taxes since the
second quarter of 2007 when the Company paid down a substantial portion of its outstanding debt, thereby reducing interest expense.
Due to the uncertainty of future taxable income, deferred tax assets resulting from these net operating losses had been fully reserved as of the
end of 2008.
Contractual Obligations
The following table summarizes the amounts of payments due under specified contractual obligations as of December 29, 2009:
Payments Due by Fiscal Period