Einstein Bros 2010 Annual Report Download - page 34

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312511067286/d10k.htm[9/11/2014 10:09:09 AM]
• 100% of net cash proceeds of any debt issued by the Company, subject to certain exceptions.
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EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The New Credit Facility contains a number of negative covenants that will limit the Company from taking certain actions. In addition, the Company is required to maintain:
• a minimum consolidated fixed charge coverage ratio ranging from 1.25x to 1.35x; and
• a maximum consolidated leverage ratio ranging from 2.00x to 2.75x.
The New Credit Facility contains limitations on annual capital expenditures of $20.0 million in 2010, $35.0 million in 2011 and $32.0 million thereafter, but allows, subject to certain conditions, for a
percentage of any unused portion of the capital expenditure limit to be carried forward into the following year.
The New Credit Facility contains customary events of default. In addition, the New Credit Facility provides for (i) an incremental term loan (the “Incremental Term Loan”) and (ii) an increase in the
Revolving Facility (the “Revolving Facility Increase” and together with the Incremental Term Loan, the “Incremental Facilities”) of up to $50 million to be used by the Company, if needed, solely for the
purpose of making acquisitions permitted under the New Credit Facility. If the Company chooses to draw down the Incremental Facilities, the outstanding amount of the Incremental Facilities must be repaid in
equal quarterly installments on the last day of each calendar quarter, with any remaining amounts due and payable on the Maturity Date. Borrowings under the Incremental Facilities, if any, will bear interest at
the same rate schedule as other borrowings under the New Credit Facility. Availability of the Incremental Facilities is subject to customary borrowing conditions, including absence of any default or material
adverse change, and to a requirement of advanced successful syndication of the Incremental Facilities.
As of December 28, 2010, the Company had $7.3 million in letters of credit outstanding on its New Credit Facility with Bank of America. The letters of credit expire on various dates during 2011, are
generally automatically renewable for one additional year and are payable upon demand in the event that the Company fails to pay the underlying obligation. Letters of credit reduce the Company’ s availability
under its Revolving Facility, which was $30.0 million as of December 28, 2010.
During the term of the New Credit Facility, and subject to pro forma compliance the fixed charge coverage ratio covenant and with certain consolidated leverage ratio requirements, and having specified
excess availability under the Revolving Facility, the Company is permitted to repurchase up to $20.0 million of its common stock and make dividends of up to $10.0 million. In addition, starting in 2012, and
subject to pro forma compliance with the fixed charge coverage ratio covenant and with certain consolidated leverage ratio requirements, and having specified excess availability under the Revolving Facility, the
Company may make additional dividends and repurchases of its common stock using excess cash flow (as defined in the New Credit Facility).
The Company may prepay amounts outstanding under the New Credit Facility and may terminate commitments in whole at any time without penalty or premium upon prior written notice.
On December 20, 2010, as a condition to the effectiveness of the New Credit Facility, the Company and its material subsidiaries entered into a guaranty and security agreement with the Administrative
Agent (the “Guaranty”). The Guaranty is secured by a first priority security interest in all the assets of the Company and its material subsidiaries, including a pledge of 100% of the Company’ s interest in all
shares of capital stock (or other ownership or equity interests) of each material subsidiary.
Debt issuance costs were capitalized as part of the credit agreement and are being amortized over a period of five years on a straight-line basis for the Revolving Facility and on the effective interest rate
method for the Term Loan. In the event that the debt is retired prior to the maturity date, debt issuance costs will be expensed in the period that the debt is retired.
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EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In conjunction with the entry into the New Credit Facility, the Company terminated its prior credit facility with Wells Fargo Foothill, Inc. as administrative agent dated February 28, 2006, as amended
June 28, 2007. The Company pre-paid the outstanding balance of $85.6 million and no early termination or prepayment penalties were incurred. In conjunction with this prepayment, during the fourth quarter of
2010, the Company recorded a charge of approximately $1.0 million in unamortized debt issuance costs.
As of December 28, 2010, the weighted-average interest rate under the New Credit Facility was 3.3%. As of December 28, 2010, the Company was in compliance with all financial and operating
covenants.
The Company’ s obligations on its New Credit Facility for the five years following December 28, 2010 are as follows:
Fiscal year (in thousands of dollars):
2011 $ 7,500
2012 $ 7,500
2013 $ 9,375
2014 $ 8,438
Thereafter $ 54,887
$ 87,700
June 2007 Credit Facility
The Company’ s June 2007 Credit Facility was composed of a credit facility that had an original principal amount of $90 million term loan and a $20 million revolver. The credit facility had a five-year
term and was secured by substantially all of the Company’ s assets and guaranteed by its subsidiaries. Borrowings under this credit facility bore interest at a rate equal to an applicable margin plus, at the
Company’ s option, either a variable base rate or a Eurodollar rate. As of December 29, 2009, the weighted-average interest rate under the credit facility was 2.24%. The credit facility contained usual and
customary covenants including consolidated leverage ratios, fixed charge coverage ratios, limitations on capital expenditures, etc. As of December 29, 2009, the Company was in compliance with all financial
and operating covenants. As of December 29, 2009, the Company had $7.2 million in letters of credit outstanding under this facility. The Company’ s availability under the revolver was $12.8 million as of
December 29, 2009.
In the first quarter of 2010, the Company made a $4.3 million prepayment related to the excess cash flow provision in its debt agreement in place at that time.
Debt Issuance Costs
As of December 29, 2009 and December 28, 2010, debt issuance costs, net of amortization of approximately $1.5 million and $2.3 million, respectively, have been capitalized in other assets for the
credit facilities. The amortization of debt issuance costs of $0.5 million, $0.6 million and $0.5 million for the fiscal years ended 2008, 2009, and 2010, respectively, is included in interest expense in the
consolidated statements of operations.
9. INTEREST RATE SWAP AND OTHER COMPREHENSIVE INCOME
On May 7, 2008, the Company entered into an interest rate swap agreement relating to its term loan for two years, effective August 2008. This agreement expired in August 2010. The Company was
required to make payments based on a fixed interest rate of 3.52% calculated on an initial notional amount of $60 million. In exchange, the Company received interest on $60 million of notional amount at a