Einstein Bros 2003 Annual Report Download - page 24

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
our asset management system.
Charges for integration and reorganization cost. The charge for integration and reorganization cost was $2.1 million for fiscal 2003
compared with a charge of $4.2 million for fiscal 2002. The charge in 2003 reflects an increase in the estimated liability associated with closing
certain facilities as part of our reorganization partially offset by an adjustment from an estimated reorganization liability recorded in 2002. The
charge in fiscal 2002 reflects the costs associated with closing a facility and corporate consolidation.
Impairment charge. In connection with our analysis of intangible assets in accordance with SFAS 142, we recorded a charge of
approximately $5.3 million for fiscal 2003 due to the reduced value of certain trademarks associated with our Manhattan and Chesapeake brands
and the value of franchisee territory rights for our Manhattan brand. There was no impairment of intangible assets in fiscal 2002. See "Critical
Accounting Policies and Estimates—Goodwill, Trademarks and Other Intangibles" above.
Loss from operations. Due to the factors described above, our loss from operations increased $11.5 million to $11.8 million for fiscal 2003
compared with a loss from operations of $0.3 million for fiscal 2002.
Interest expense, net. Interest expense, net for fiscal 2003 decreased 20.3% to $34.2 million, which represents 8.9% of total revenues
compared with $42.9 million, which represented 10.8% of total revenues, for fiscal 2002. The primary cause of the decline in interest expense is
the $7.0 million
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decline in interest associated with a $35 million asset-backed secured loan through a wholly-owned subsidiary (the "Bridge Loan"). Fiscal 2002
reflected a full year of interest in addition to the effective interest amortization of the initial discount and the estimated future warrants, where as
fiscal 2003 reflected a partial year of interest and no effective interest amortization.
Cumulative change in fair value of derivatives. Cumulative change in fair value of derivatives increased to $1.0 million, which represented
0.3% of total revenues in fiscal 2003 compared with $0.2 million, which represented 0.1% of total revenues in fiscal 2002. The change is due to
the change in the fair value of warrants classified as a derivative liability based on the underlying fair value of common stock to which they are
indexed and, for contingently-issuable warrants classified as a derivative liability, the estimated probability of issuance and other pertinent factors.
As a result of the Equity Recap, we no longer have contingently issuable warrants and all issued warrants are classified as permanent equity.
Consequently, we no longer have a warrant derivative liability at December 30, 2003.
Gain on investment in debt securities. In fiscal 2003 and 2002, we recognized a gain on the investment in debt securities of $0.4 million and
$2.5 million, respectively, from our investment in the Einstein/Noah Bagel Corp. 7.25% Convertible Debentures due 2004 (the "Einstein Bonds").
These proceeds from the bankruptcy court were in excess of our original estimates.
Loss on exchange of Mandatorily Redeemable Series F Preferred Stock due to Equity Recap. Loss on exchange of Series F due to Equity
Recap was $23.0 million for fiscal 2003. This loss was based on the difference between the carrying value of Series F and the fair value of
common stock associated with the exchange. No comparable item existed in fiscal 2002.
Other income. Other income increased to $0.7 million, which represents 0.2% of total revenues in fiscal 2003 compared with $0.3 million,
which represented 0.1% of total revenues in fiscal 2002. The fiscal 2003 income consisted primarily of a gain on the sale of our Greenville, SC
production facility and other equipment.
Provision for income taxes. Provision for income taxes, which are predominantly minimum state income taxes in the various states in which
we operate our retail locations, was $0.8 million, which represents 0.2% of total revenues for fiscal 2003 compared with $0.4 million, which
represented 0.1% of total revenues for fiscal 2002.
Net loss. Due to the factors described above, our net loss for fiscal 2003 increased 67.2% to $67.7 million compared with $40.5 million for
fiscal 2002.
Year Ended December 31, 2002 (fiscal 2002) Compared to Year Ended January 1, 2002 (fiscal 2001)
Revenues. Total revenues increased 70.2% to $398.7 million for fiscal 2002 compared with $234.2 million for fiscal 2001. The
$164.5 million increase in revenues was primarily attributable to the effect of recognizing a full fiscal year of retail sales from the Einstein Bros.
and Noah's brands acquired in June 2001.
Retail sales increased 79.1% to $369.4 million, which represents 92.7% of total revenues for fiscal 2002 compared with $206.2 million, which