Einstein Bros 2002 Annual Report Download - page 61

http://www.sec.gov/Archives/edgar/data/949373/000104746903027186/a2116520z10-ka.htm[9/11/2014 10:14:22 AM]
The primary effects of the restatement of the fiscal 2001 financial statements are summarized below:
Fiscal 2001 Revenue
Loss From
Operations
Net Loss
Available To
Common
Stockholders'
Equity/(Deficit)
(amounts in thousands)
As previously reported $ 236,020 $ (529) $ (54,809) $ 26,934
Adjustments:
Beginning balance — — — (15,766)
Reorganization accruals — (1,167) (1,167) (1,167)
Manufacturing revenue and COGS (1,690) — — —
Assets held for resale — 250 119 119
Purchase accounting — (3,981) (3,981) (3,981)
Other (155) (1,346) (1,484) 3,186
Equity — — (15,898) (36,368)
Total adjustments (1,845) (6,244) (22,411) (53,977)
As restated $ 234,175 $ (6,773) $ (77,220) $ (27,043)
Restated amounts were derived from changes in the accounting treatment applied primarily in the following categories:
Reorganization and Integration Accruals Established in Purchase Accounting. As previously discussed, the Company established certain
accrued liabilities at the time of the acquisition of Manhattan Bagel Company and Chesapeake Bagel Bakery in 1998 and 1999, respectively. In
2001, $563,000 of costs originally recorded as reductions to the Chesapeake Bagel Bakery reorganization and integration liabilities have been
restated as general and administrative expenses. The Company also has identified $563,022 of period costs that were improperly recorded as
reductions to the Manhattan Bagel Company reorganization accrual and have been restated as general and administrative expenses in 2001. In
addition, the Company expensed an additional $40,932 in restructuring expenses in 2001 as a result of expenditures in excess of the original plan.
Manufacturing Revenue and Cost of Goods Sold. Manufacturing revenue and cost of goods sold each have been reduced by $1,689,595 to
correct an erroneous gross-up on sales recorded to franchisees through a third-party distributor. This restatement has no impact on income from
operations.
Assets Held For Resale. The restated financial statements for 2001 reflect an increase of $119,324 in the balance of assets held for resale.
This increase is derived from an additional impairment charge in connection with the realization of assets of $458,584, offset by the reversal of
depreciation expense, which is prohibited by SFAS No. 121 for assets held for sale, of $577,908 (Note 12).
Purchase Accounting. The Company has corrected its allocation of the purchase of Einstein. (Note 4) to reflect the proper application of
APB 16. The net effect of this revision was to (1) reduce the book value of property, plant & equipment by $17,688,643, net of decreased
depreciation expense, (2) increase the value of intangibles, net of additional amortization, by $7,463,261, and (3) reduce the balance of accrued
liabilities by $4,132,979. In addition, in reviewing costs originally capitalized into the purchase price of Einstein, the Company has identified and
adjusted $2,702,888 of such capitalized
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costs as follows: $1,706,642 of costs not directly related to the Einstein Acquisition were expensed as general and administrative expenses,
$640,319 was recorded as a reduction in accrued liabilities and accounts payable as a result of overstated estimated accrued acquisition costs, and
$355,927 was reclassified as debt issuance costs. In total, depreciation and amortization expense increased by $2,274,022 as $3,338,184 in
increased amortization expense of intangibles was partially offset by a $1,064,162 decrease in depreciation expense as a result of the revised
purchase price allocation.
Other Adjustments. In connection with the Einstein Acquisition, the Company allocated a portion of the purchase price to the fair value of an
unfavorable contract to buy product and began amortizing the allocated amount over the targeted duration of the contract, without regard to the
contract's actual term, which concludes once the stipulated total gallons of product have been purchased. After reevaluating the contract and the
Company's usage rates, the Company determined that the appropriate method for accounting for this contract is to recognize a reduction of expense