Einstein Bros 2003 Annual Report Download - page 26

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
Charges for integration and reorganization cost. Charges for integration and reorganization cost decreased 4.5% to $4.2 million, which
represents 1.1% of total revenues for fiscal 2002 compared with $4.4 million, which represented 1.9% of total revenues in fiscal 2001. The charge
in fiscal 2002 reflects the costs associated with exiting the Eatontown, NJ facility and corporate consolidation. The charge in fiscal 2001 reflects
expenses related to the reorganization and integration of existing facilities and operations with those acquired in the Einstein Acquisition.
Impairment charge. In connection with our analysis of intangible assets in accordance with SFAS 142, no impairment charge was required
for fiscal 2002. In fiscal 2001, management performed an analysis of long-lived assets in accordance with Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The
review, which considered factors such as operating performance, the ability to sell company-owned stores to prospective franchisees, as well as our
shift in brand focus after the Einstein Acquisition resulted in an impairment charge of $3.3 million to assets held for resale (stores earmarked for
sale to franchisees) or 1.4% of total revenues.
Loss from operations. Due to the factors described above, our loss from operations decreased $6.5 million to $0.3 million, which represents
0.1% of total revenues for fiscal 2002 compared with $6.8 million, which represented 2.9% of total revenues for fiscal 2001.
Interest expense, net. Interest expense, net for fiscal 2002 decreased 8.9% to $42.9 million, or 10.8% of total revenues compared with
$47.1 million, or 20.1% of total revenues, for fiscal 2001. The decrease was primarily the result of the $3.9 million decline in interest expense
associated with the $140 Million Facility. Although fiscal 2002 reflected a full year of interest compared to the partial year in fiscal 2001, fiscal
2001 reflected greater interest expense related to the $140 Million Facility due to the effective interest amortization of the allocated value of
issuance costs, initial discount, initial warrants and the estimated future warrants. The recognition of this non-cash interest was greater in fiscal
2001 due to the initial estimated life over which these non-cash items were amortized. The initial estimated life of the $140 Million Facility had
assumed it would have been refinanced by year-end fiscal 2001.
Cumulative change in fair value of derivatives. The benefit of cumulative change in fair value of derivatives decreased to $0.2 million,
which represents 0.1% of total revenues compared with $57.7 million, which represented 24.6% of total revenues in fiscal 2001. These amounts
are related to the change in fair value of the liability of the warrants treated as a derivative. The fair value of these warrants is determined based on
the quoted market price of the underlying common stock and, for contingently-issuable warrants, the probability of issuance, and other pertinent
factors. The reduction in the benefit is primarily due to a lower reduction in fair value of the warrants in 2002. The lower reduction in fair value
was driven by a lower decline in the underlying stock price for the measurement period in fiscal 2002 vs. the comparable measurement period in
fiscal 2001.
Gain on investment in debt securities. Gain on investment in debt securities increased to $2.5 million, which represents 0.6% of total
revenues in fiscal 2002 compared with $0.2 million, which represented 0.1% of total revenues in fiscal 2001. These gains related to our
investment in the Einstein Bonds. These proceeds reflect distributions from the bankruptcy estate in excess of our original estimate.
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Loss on extinguishment of Greenlight obligation. In fiscal 2001, we negotiated an agreement between us and the subordinated debt holder
Greenlight that resulted in a substantial modification to their subordinated debt obligation. This modification allowed the company to secure
additional funding for the Einstein Acquisition. Pursuant to EITF 96-19, we recorded a loss on extinguishment of the obligation of $16.6 million.
This loss on extinguishment represented the difference between the fair value of the new subordinated debt obligation and the carrying amount of
the extinguished subordinated debt, plus the fair value of the obligation to issue deficiency warrants that we have determined must be recorded as a
liability. There was no such charge in fiscal 2002.
Permanent impairment in the value of investment in debt securities. In fiscal 2001, we recorded a permanent impairment in the value of
investments of $5.8 million to adjust the carrying value of our investment in the Einstein/Noah Bagel Corp. 7.25% Convertible Debentures due
2004 based on our estimate of the proceeds we would receive from the bankruptcy estate of Einstein. There was no such charge in 2002.
Other income(expense). We incurred other income of $0.3 million in fiscal 2002 compared with other expense of $0.1 million in fiscal 2001.
Provision for income taxes. Provision for income taxes, which are predominantly minimum state income taxes in the various states where we
operate our retail locations, was $0.4 million, which represents 0.1% of total revenues for fiscal 2002 compared with $0.2 million, which
represented 0.1% of total revenues for fiscal 2001.
Net loss. Due to the factors described above, our net loss increased 116.6% to $40.5 million, which represents 10.2% of total revenues for
fiscal 2002 compared with a net loss of $18.7 million, which represented 8.0% of total revenues for fiscal 2001.
Liquidity and Capital Resources