Einstein Bros 2009 Annual Report Download - page 30

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10:09:50 AM]
While we experienced increased profitability 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. Net cash generated by operating activities was $33.7 million for 2009
compared to $43.1 million for 2008.
Cash Used in Investing Activities
During 2009, we used approximately $16.9 million of cash to purchase additional property and equipment as follows:
• $9.5 million to open new restaurants and upgrade existing restaurants in 2008 and 2009;
• $5.9 million for replacement of equipment at our existing company-owned restaurants and at our manufacturing operations; and
• $1.5 million for general corporate purposes.
During 2008, we used approximately $26.7 million of cash to purchase additional property and equipment as follows:
• $18.9 million to open new restaurants and upgrade existing restaurants in 2007 and 2008;
• $5.4 million for replacement of equipment at our existing company-owned restaurants and at our manufacturing operations; and
• $2.4 million for general corporate purposes.
Cash Used in Financing Activities
During 2009, we made payments on our debt totaling $8.1 million and redeemed $24.8 million of our Series Z. We received $1.8 million in
proceeds from stock option exercises primarily from former employees.
During 2008, we made payments on our debt totaling $2.0 million and received $0.4 million in proceeds from stock option exercises.
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Table of Contents
Off-Balance Sheet Arrangements
Guarantees
Prior to 2001, we would occasionally guarantee leases for the benefit of certain of our franchisees. None of the guarantees have been
modified since their inception and we have since discontinued this practice. Current franchisees are the primary lessees under the vast majority of
these leases. Under the lease guarantees, we may be required by the lessor to make all of the remaining monthly rental payments or property tax
and common area maintenance payments if the franchisee does not make the required payments in a timely manner. However, we believe that
most, if not all, of the franchised restaurants could be subleased to third parties, minimizing our potential exposure. Additionally, we have
indemnification agreements with our franchisees under which the franchisees would be obligated to reimburse us for any amounts paid under such
guarantees. Historically, we have not been required to make such payments in significant amounts. As of December 29, 2009, we do not have a
liability recorded for our exposure following a probability related approach. Minimum future rental payments for all remaining guaranteed leases
that expire on various dates through July 2012 were approximately $0.5 million as of December 29, 2009. We believe the ultimate disposition of
these matters will not have a material adverse effect on our financial position or results of operations.
Letters of Credit
We have $7.2 million in letters of credit outstanding under our credit facility as of December 29, 2009. The letters of credit expire on various
dates during 2010, are generally automatically renewable for one additional year and are payable upon demand in the event that we fail to pay the
underlying obligation.
Economic Environment and Commodity Volatility
Economic Environment
Our results depend on discretionary consumer spending, which is influenced by consumer confidence and disposable income. In particular,
the effects of changing energy and food costs, and increasing interest rates, among other things, may impact discretionary consumer spending in
restaurants. Accordingly, we believe we experience declines in comparable store sales during economic downturns or during periods of economic
uncertainty. Any material decline in the amount of discretionary spending could have a material adverse effect on our sales and income.
We have experienced only a modest impact from inflation. However, the impact of inflation on labor, food and occupancy costs could, in the
future, significantly affect our operations. We pay many of our associates based on hourly rates slightly above the applicable minimum federal,
state or municipal “living wage” rates. Recent changes in minimum wage laws may create pressure to increase the pay scale for our associates,