Einstein Bros 2003 Annual Report Download - page 52

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
and such losses have continued through March 26, 2004. We also had a deficit in stockholders' equity of approximately $81,866,000 as of
December 30, 2003, and, as of that date, our current liabilities exceeded our current assets by approximately $23,632,000.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheets is dependent upon our continued operations, which in turn are dependent upon our ability to meet our financing
requirements on a continuing basis, and to succeed in future operations. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should
we be unable to continue in existence.
We have recorded a loss from operations for the fiscal years ending December 30, 2003, December 31, 2002 and January 1, 2002 of
approximately $11.8 million, $0.3 million and $6.8 million, respectively. We continue our on-going process of identifying, evaluating and
implementing cost reduction initiatives. The primary cost areas in which these initiatives are focused are supply chain, store level operations,
manufacturing operations and overhead. Examples of key initiatives that have been recently implemented or are currently in process include menu
optimization to remove and/or modify inefficient products, upgrade/deployment of technology to enable more accurate identification and tracking
of cost of products sold, and realignment and consolidation of the executive team resulting in a reduction in overhead. In addition, we incurred
substantial expenses in 2003 related to (1) legal
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and advisory fees related to the Equity Recap (Note 1) which included the refinancing of the $140 Million Facility and our revolving line of credit,
and (2) consolidation and integration expenses primarily associated with the consolidation of executive management and integration of separate
accounting and finance functions which related to the Einstein Acquisition (as defined below in Note 3). Although there is no assurance that
funding will continue to be available after our current financing matures, we believe that our current business plan will improve our operating
results and cash flow in the future.
3. Acquisitions
On June 19, 2001, we purchased substantially all of the assets (the "Einstein Acquisition") of Einstein/Noah Bagel Corp. and its majority-
owned subsidiary, Einstein/Noah Bagel Partners, L.P. (collectively, "Einstein"). Einstein was the largest bagel bakery chain in the United States,
with 458 stores, nearly all of which were company-operated. The Einstein Acquisition was made pursuant to an Asset Purchase Agreement, which
was entered into by us, the successful bidder, at an auction conducted by the United States Bankruptcy Court, District of Arizona, on June 1, 2001
in the Einstein bankruptcy case. The purchase price was $160,000,000 in cash and the assumption of certain liabilities, subject to adjustment to the
extent that Assumed Current Liabilities (as defined in the Asset Purchase Agreement) exceeded $30,000,000.
In connection with the Einstein Acquisition, we incurred approximately $9,722,000 of acquisition costs. The acquisition has been accounted
for under the purchase method of accounting and accordingly the results of operations of the acquired company have been included in the
statements of operations since the acquisition date. The aggregate purchase price of $163,337,000 was allocated based on the fair value of the
tangible and intangible assets acquired and liabilities assumed as follows:
(amounts in
thousands)
Assets Acquired:
Current assets $ 13,800
Plant property and equipment 98,107
Trademarks and intangible assets 97,784
Liabilities assumed:
Current liabilities (34,223)
Long-term liabilities (12,131)
Total purchase price $ 163,337
The purchase price was allocated to the assets acquired and liabilities assumed based on management's estimate of their fair market value at
the date of acquisition, which was determined by an independent appraisal. Pursuant to the Asset Purchase Agreement, we were entitled to a
reduction in purchase price to the extent that assumed current liabilities (as defined) exceeded $30,000,000 as of the acquisition date. We received
$3,918,000 in fiscal 2002 from the bankruptcy estate based upon the final determination of assumed current liabilities by the independent arbitrator