Einstein Bros 2010 Annual Report Download - page 35

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312511067286/d10k.htm[9/11/2014 10:09:09 AM]
variable rate. The variable rate
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EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
interest the Company received was based on the one-month London InterBank Offered Rate (“LIBOR”). The net effect of the swap was to fix the interest rate on $60 million of the Company’ s First Lien Term
Loan at 3.52% plus an applicable margin. As of December 29, 2009, the weighted-average interest rate under the term loan including this swap was 4.71%.
The interest rate swap agreement qualified as a cash flow hedge. The fair value of the interest rate swap agreement, which was adjusted regularly, was recorded in the Company’ s balance sheet as an
asset or liability, as necessary, with a corresponding adjustment to accumulated other comprehensive loss within stockholders’ equity.
GAAP requires fair value measurement to be classified and disclosed in one of the following three categories:
• Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
• Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
• Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The interest rate swap discussed above fell into the Level 2 category. The fair market value of the interest rate swap as of December 28, 2010 was $0 million. As of December 29, 2009 and
December 28, 2010, the change in unrealized (loss) gain associated with this cash flow hedging instrument is recorded in accumulated other comprehensive (loss) gain within stockholders’ equity.
Comprehensive income consisted of the following:
52 weeks ended
December 30,
2008
December 29,
2009
December 28,
2010
(As Restated,
See Note 3)
(As Restated,
See Note 3)
(in thousands of dollars)
Net income available to common stockholders $ 19,709 $ 90,363 $ 11,308
Change in unrealized (loss) gain on cash flow hedge (2,470) 1,193 1,277
Total comprehensive income $ 17,239 $ 91,556 $ 12,585
10. MANDATORILY REDEEMABLE SERIES Z PREFERRED STOCK
In September 2003, the Company completed an equity recapitalization with its preferred stockholders, who held a substantial portion of the Company’ s common stock. Among other things, the Halpern
Denny Fund III, L.P. (“Halpern Denny”) interest in the Company’ s Mandatorily Redeemable Series F Preferred Stock (“Series F”) was converted into 57,000 shares of Series Z Mandatorily Redeemable
Preferred Stock (“Series Z”).
The Series Z was recorded in the accompanying consolidated balance sheets at its full face value of $32.2 million as of December 29, 2009 which represented the total cash payable upon redemption. In
December of 2010, the final redemption payment was made reducing the balance to $0.
On May 28, 2009, the Company and Halpern Denny agreed that the Company would redeem shares in accordance with a designated schedule with the final payment occurring June 30, 2010. The first
redemption payment
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EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
was made on June 30, 2009. All subsequent redemption payments included additional redemption price per share based on a rate that was 250 bps higher than the highest rate paid on the Company’ s funded
indebtedness, as provided in the Certificate of Designations (“Certificate”) for the Series Z.
As of December 29, 2009, the Company had redeemed $24.8 million of Series Z and incurred $0.2 million of additional redemption expense and $1.3 million of additional redemption amount was
included in accrued expenses and other liabilities on the balance sheet and included within interest expense on the statements of operations.
On March 17, 2010, the Company and Halpern Denny amended their previous agreement dated May 28, 2009 to extend the redemption date to June 30, 2011, and allowed the Company to redeem any
amount of Series Z at any time through that date. In addition, beginning July 1, 2010, Halpern Denny received a one year option to exchange up to $7.0 million of the outstanding Series Z and accrued additional
redemption amounts for shares of the Company’ s freely tradable common stock at a price of $11.50 per share. All additional redemption amounts that accrue after June 30, 2010 would be waived with respect to
the shares of Series Z exchanged, if any. To the extent that Halpern Denny’ s exchange option remained unexercised, the Company had the right to redeem the shares subject to the exchange option after the
Company redeemed the shares of the Series Z that were not subject to the exchange option.
The Company recorded this agreement on its balance sheet at fair value during the first quarter of 2010. The fair value was recorded at a premium with a non-cash charge to net income of $0.9 million.
The fair value of the Series Z was estimated to be $31.0 million as of December 29, 2009.
On October 25, 2010, the Company redeemed an additional 3,240 shares of Series Z for $3.6 million, including accrued additional redemption amounts. Halpern Denny did not exercise its exchange
option and pursuant to the terms of the agreement, the exchange option expired. After this redemption, 3,240 shares of Series Z remain outstanding. On December 20, 2010, the Company redeemed all remaining
outstanding shares of the Company’ s Series Z preferred stock for $3.6 million in cash.
During fiscal year 2010, the Company redeemed $32.2 million of Series Z shares and accrued additional redemption amount of approximately $2.6 million.
11. STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized to issue up to 25 million shares of common stock, par value $0.001 per share. As of December 29, 2009 and December 28, 2010, there were 16,461,123 and 16,655,474
shares outstanding, respectively.
The Company announced on December 20, 2010 that the Board of Directors has declared an initial cash dividend on the Company’ s common stock in the amount of $0.125 per share, payable on
April 15, 2011 to shareholders of record as of March 1, 2011. The Company intends to pay a regular quarterly dividend going forward, at the discretion of the Board of Directors, dependent on a variety of
factors, including available cash and the overall financial condition of the Company and subject to legal restrictions on the ability to pay dividends and the terms of the Company’ s senior credit facility.
The Company also announced the authorization by the Board of Directors of up to $20 million in share repurchases of the Company’ s common stock. The amount and timing of the share repurchases in
the open market or in privately negotiated transactions will be subject to an assessment of market conditions and other economic factors. This authorization expires in two years and is subject to compliance with