Einstein Bros 2013 Annual Report Download - page 37

10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312514073832/d629623d10k.htm[9/11/2014 10:05:27 AM]
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During fiscal 2012, we spent $2.2 million, net of cash acquired, on the purchase of eight restaurants. We also used approximately $24.0
million of cash to purchase additional property and equipment as follows:
• $20.2 million for new restaurants and upgrades of existing restaurants, including the installation of new equipment, exterior signs and
new menu boards;
• $3.7 million for replacement of equipment at our existing company-owned restaurants and at our manufacturing operations; and
• $0.1 million for general corporate purposes.
We also received $0.4 million in proceeds from the sale of one company-owned restaurant to a franchisee.
Net Cash Used in Financing Activities
During fiscal 2013, we used approximately $35.6 million for financing activities. This included $5.0 million in scheduled term loan
repayments, $24.7 million in additional net payments towards our revolving facility, $0.6 million in debt issuance costs relating to the amendment
of our Senior Credit Facility in June 2013 and $9.1 million in dividend payments. We received $3.9 million in proceeds from stock options
exercised during fiscal 2013.
During fiscal 2012, we amended our Senior Credit Facility to increase the availability and then borrowed an additional $38.1 million on our
term loan and an additional $30.0 million on our revolving line of credit. With these proceeds, we paid a one-time special cash dividend of $4.00
per share of common stock to stockholders totaling approximately $68.1 million. We paid $1.6 million in debt issuance costs associated with this
amendment. Prior to the amendment of the Senior Credit Facility, we made term loan payments totaling $5.6 million throughout the year.
In addition to the $68.1 million dividend payment referred to above, we also made $8.5 million in regular quarterly dividend payments in
2012. We received $1.8 million in proceeds from stock options exercised during fiscal 2012.
Off-Balance Sheet Arrangements
Letters of Credit
We have $6.7 million in letters of credit outstanding under our Senior Credit Facility. The letters of credit expire on various dates during
2014, 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
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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 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. We have utilized a third party advisor to manage our wheat purchases. In addition to
wheat, we have established contracts and entered into commitments with our vendors for Class III milk, butter, cheese and coffee. We believe that