Einstein Bros 2011 Annual Report Download - page 36

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312512092597/d260635d10k.htm[9/11/2014 10:08:30 AM]
We also received $1.4 million in proceeds from the sale of three company-owned restaurants to franchisees and insurance proceeds from a
restaurant fire.
During fiscal 2010, we used approximately $16.6 million of cash to purchase additional property and equipment as follows and we also
received $0.9 million in proceeds from the sale of one company-owned restaurant to a franchisee and sales of equipment:
• $7.8 million to open new restaurants and upgrade existing restaurants in 2009 and 2010;
• $6.7 million for replacement of equipment at our existing company-owned restaurants and at our manufacturing operations; and
• $2.1 million for general corporate purposes.
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Table of Contents
Cash Used in Financing Activities
During fiscal 2011, we made payments on our Senior Credit Facility totaling $15.5 million, of which $7.5 million went towards the term loan
in accordance with our debt repayment schedule and $8.0 million towards the revolving line of credit. Our outstanding debt balance decreased
$13.5 million, based on the above repayments, partially offset by $2.0 million in borrowings on the revolving line of credit. We also paid dividends
of $6.3 million during fiscal 2011. We received $1.3 million in proceeds from stock options exercised during fiscal 2011.
During 2010, we made payments on our prior credit facility totaling $79.8 million on the term loan and $11.0 million on the line of credit.
We also redeemed $32.2 million of our Series Z. In connection with the entrance into our Senior Credit Facility, we had borrowings of $75.0
million on the term loan, received $12.7 million in proceeds from the line of credit and incurred $2.3 million in debt issuance costs which were
capitalized. We received $1.0 million in proceeds from stock option exercises.
Off-Balance Sheet Arrangements
Letters of Credit
We have $7.3 million in letters of credit outstanding under our Senior Credit Facility. The letters of credit expire on various dates during
2012, 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
Our results depend on discretionary consumer spending, which is influenced by consumer confidence and disposable income. Declining home
values and sales, the negative impact of the changes in the subprime mortgage and credit markets, high unemployment rates and lower consumer
confidence as a result of the changes within the economic environment have caused the consumer to experience a real and perceived reduction in
disposable income. We believe that this has negatively impacted consumer spending in most segments of the restaurant industry, including the
segment in which we compete. Any material decline in the amount of discretionary spending could have a material adverse effect on our sales and
income.
We believe our current strategy for dealing with inflation, which is to maintain operating margins through a combination of menu price
increases, cost controls, efficient purchasing practices and careful evaluation of property and equipment needs, has been an effective tool for
dealing with increased costs. However, the impact of inflation on labor and occupancy costs could, in the future, 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, which would increase our labor costs. Costs for
construction, taxes, repairs, maintenance and insurance all impact our occupancy costs.
Inflation on food costs also can also increase our cost of goods sold, which includes food and product costs, compensation costs and other
operating costs. Wheat, coffee, butter and cheese are our primary agricultural commodities. Chicken and turkey are other major agricultural
commodities which are included in our cost of goods sold. Utilizing a third party, we attempt to lock in our food and product costs over an
extended period of time. We believe that this strategy has been effective in dealing with increases to our food and product costs.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements set forth in Item 8 of this Form 10-K for a detailed description of recent accounting
pronouncements. We do not expect these recently issued accounting pronouncements to have a material impact on our results of operations,
financial condition, or liquidity in future periods.
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