Einstein Bros 2002 Annual Report Download - page 21

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the full year impact of the Einstein Acquisition and the lack of impairment charge in 2002, which savings were partially offset by higher general
and administrative expenses and depreciation and amortization expenses.
Interest expense, net for fiscal 2002 decreased to $42.9 million, or 10.8% of total revenues, from $47.1 million, or 20.1% of total revenues, for
fiscal 2001. The decrease was primarily the result of assumptions employed in effective interest calculations, which included a shorter expected
life of the Notes in 2001 than the life assumed in 2002, due to assumptions regarding our intent and ability to refinance the Notes at various
periods in 2001 and 2002, partially offset by the full year impact of instruments used to finance the Einstein Acquisition. Interest expense for fiscal
2002 was comprised of approximately $24.9 million of interest paid or payable in cash and non-cash interest expense of approximately
$18.0 million resulting from the amortization of debt discount, debt issuance costs and the amortization of warrants issued in connection with debt
financings.
Cumulative change in the fair value of derivatives decreased from $57.7 million in fiscal 2001 to $0.2 million in 2002, due primarily to the
dynamics of the calculation of the fair value of derivative liabilities, including the smaller decrease in underlying stock price and the classification
of derivatives as liabilities in fiscal 2002 versus fiscal 2001. As discussed in Note 1—Nature of Business Organization and Significant Accounting
Policies—Derivative Instruments to our consolidated financial statements included in this Form 10-K, this represents the change in the fair value
of warrants classified as liabilities as determined periodically based on quoted market prices of the underlying Common Stock, among other
factors. As of December 31, 2002 and January 1, 2002, the closing price of the Common Stock was $0.09 per share and $0.26 per share,
respectively.
In fiscal 2001, we recorded a loss from extinguishment of the Greenlight Capital, L.L.C., Greenlight Capital, L.P., Greenlight Capital
Qualified, L.P., Greenlight Capital Offshore, Ltd (collectively, "Greenlight") obligation of $16.6 million, as a result of the execution of a certain
Letter Agreement dated June 19, 2001 with Greenlight that resulted in an extinguishment of the Bond Purchase Agreement dated January 17, 2001
pursuant to EITF 96-19. There was no such charge in fiscal 2002.
Other income of $2.9 million in fiscal 2002, which consisted primarily of a gain on the sale of debt securities of $2.5 million regarding our
investment in the 7.25% Convertible Debentures due 2004 of Einstein/Noah Bagel Corp., increased by $2.8 million as compared to fiscal 2001. In
fiscal 2001, we recorded a permanent impairment in the value of investments of $5.8 million to adjust the carrying value of such investment based
on our estimate of the proceeds we would receive from the bankruptcy estate of Einstein relating to our investment in the 7.25% Convertible
Debentures due 2004 of Einstein. There was no such charge in 2002.
Provision for income taxes increased to $0.4 million for fiscal 2002 from a provision for income taxes of $0.2 million for fiscal 2001. The
increase in tax expense was immaterial.
Net Loss. Net loss for fiscal 2002 was $40.5 million compared to net loss of $18.7 million for fiscal 2001. The increase in net loss is
primarily a result of the lower cumulative change in the fair value of derivatives, offset by the lack of extinguishment and impairment charges as
well as a lower loss from operations and higher other income in 2002.
Year Ended January 1, 2002 (fiscal 2001) Compared to Year Ended December 31, 2000 (fiscal 2000)
Revenues. Total revenues increased to $234.2 million for fiscal 2001 from $43.1 million for fiscal 2000. The increase in revenues was
primarily attributable to additional retail sales from the Einstein Bros. and Noah's brands acquired in June 2001. Retail sales increased to
$206.2 million or 88.0% of
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total revenues for fiscal 2001 from $12.0 million or 27.8% of total revenues for fiscal 2000. The increase was primarily attributable to the addition
of 458 company-operated stores that were acquired as the result of the Einstein Acquisition in June 2001. Manufacturing revenues decreased
10.1% to $22.3 million or 9.5% of total revenues for fiscal 2001 from $24.8 million or 57.5% of total revenues for fiscal 2000. The decrease in
manufacturing revenues was primarily the result of our decision to outsource our distribution business related to the New World brands, which had
been included in manufacturing revenues in fiscal 2000. Manufacturing revenue related to the Einstein Bros. and Noah's brands partially offset this
decrease. Franchise related revenues decreased 9.5% to $5.7 million or 2.4% of total revenues for fiscal 2001 from $6.3 million or 14.6% of total
revenues for fiscal 2000. The decrease reflects a lower average franchise store base in fiscal 2001, in part, resulting from management's decision
to terminate certain franchisees whose operations did not comply with our policies.
Costs and Expenses. Cost of sales as a percentage of related manufacturing and retail sales increased to 82.9% for fiscal 2001 from 82.0%
for fiscal 2000. The increase primarily resulted from the impact of the Einstein margins on our cost structure as a result of the acquisition.
General and administrative expenses increased to $28.6 million for fiscal 2001 from $12.7 million for fiscal 2000. The increase was primarily