Einstein Bros 2002 Annual Report Download - page 25

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of a $13.0 million decrease in retail sales partially offset by increases of $2.7 million and $0.2 million related to manufacturing sales and franchise
fees and royalties, respectively. The retail sales decline was primarily attributable to approximately $16.4 million of sales associated with under-
performing stores that were closed in fiscal 2000 and fiscal 2001 and $8.7 million of sales due to nine additional days of operations in fiscal 2000
compared to fiscal 2001. The retail sales decline was partially offset by a company-operated comparable store sales increase of 2.5% and
$2.4 million of sales associated with stores opened in fiscal 2000 and fiscal 2001. The nine additional days of operations were the result of fiscal
2000 being a 53-week year under the fiscal year convention followed by Einstein and the addition of two operating days due to a change in
Einstein's fiscal year end date from Sunday to Tuesday for fiscal 2000. The manufacturing sales increase was primarily related to Einstein's
expansion within alternative retail channels.
Pro forma combined revenues for New World decreased 11.4% to $38.2 million in fiscal 2001 from $43.1 million in fiscal 2000. The overall
$4.9 million revenue decrease was comprised of $6.4 million and $0.6 million decreases in manufacturing sales and franchise fees and royalties,
respectively, partially offset by a $2.1 million increase in retail sales. The decreases in manufacturing sales and franchise fees and royalties were
primarily due to a substantial decline in the franchised store base, which declined by 85 locations from 363 locations at the beginning of fiscal 2000
to 278 at the end of fiscal 2001. The retail sales increase was primarily related to the 30 new company-operated locations acquired in fiscal 2000.
Cost of Sales. Pro forma combined cost of sales decreased 3.6% to $333.1 million in fiscal 2001 from $345.4 million in fiscal 2000. The
overall $12.3 million decrease was comprised of $9.5 million and $2.8 million decreases in retail-related and manufacturing-related costs,
respectively. The overall decrease was primarily related to costs associated with underperforming company-operated Einstein Bros. and Noah's
stores that were closed in fiscal 2000 and fiscal 2001 as well as the differences in the fiscal calendar between fiscal 2000 and fiscal 2001. Cost of
sales, expressed as a percentage of the related retail and manufacturing sales, remained relatively flat at 83.7% in fiscal 2001 and fiscal 2000.
General and Administrative Expenses. Pro forma combined general and administrative expenses decreased 8.9% to $42.9 million in fiscal
2001 from $47.1 million in fiscal 2000. This decrease was primarily attributable to prior year capital restructuring costs incurred by Einstein prior
to its Chapter 11 filing and cost savings realized from infrastructure consolidation. As a percentage of revenues, general and administrative
expenses decreased to 10.6% in fiscal 2001 from 11.2% in fiscal 2000.
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Depreciation and Amortization Expense. Depreciation and amortization expenses decreased by $2.4 million to $28.9 million for fiscal 2001
from $31.3 million for fiscal 2000. The decrease was primarily attributable to the closure of underperforming company-operated Einstein stores in
fiscal 2000 partially offset by and depreciation on asset additions.
Loss from Operations. Loss from operations decreased $9.7 million to a $14.4 million loss for fiscal 2001 from a $24.4 million loss for
fiscal 2000. The decrease was primarily due to the decrease in provision for reorganization, lower general and administrative costs and the closure
of underperforming stores in fiscal 2000.
Liquidity and Capital Resources
As of December 31, 2002, we had a working capital deficit of $164.8 million, due in large part to the maturity of the Notes on June 15, 2003.
We have engaged an investment bank to assist us in developing alternatives to rationalize our capital structure. We are actively pursuing options to
effect the refinancing or retiring of the Notes on or before their maturity on June 15, 2003. Such options currently under consideration by us
include the sale of all or part of the company, which could result in an investment of equity and a refinancing or retirement of our primary debt
obligations, and the refinancing of the Notes with a new debt facility, which may entail a new 144A senior note offering.
We have recorded a loss from operations for the fiscal years ending December 31, 2002, January 1, 2002 and December 31, 2000 of
approximately $300,000, $6.8 million and $3.1 million, respectively. We have also recorded net cash flow used in operating activities of
approximately $6.7 million in 2002 as a result of the operating loss as well as working capital contraction related primarily to shorter payment
terms associated with our new distribution contracts. We have initiated cost reduction programs that stem primarily from the integration of
Einstein, including supply chain efficiencies and reductions in overhead as a result of the elimination of duplicative functions and the streamlining
of various functional areas. While most of these initiatives commenced in fiscal 2002, the full year effect is not expected to be realized until 2003
and beyond. In addition, we incurred substantial expenses in 2002 related to (1) the payment of unauthorized bonuses to certain members of former
management, as well as the internal investigation that ensued, and (2) legal and advisory fees related to various efforts to refinance the Notes and
our revolving line of credit, which are not anticipated to recur at similar levels in 2003. Although there is no assurance that funding will be
available to refinance or retire the Notes on satisfactory terms and conditions, or at all, we believe that our current business plan, if successfully
funded, will improve our operating results and cash flow in the future.
In January and March 2001, we issued 25,000 shares of newly authorized Series F preferred stock and warrants to purchase Common Stock as
well as equity in a newly formed affiliate, GNW. The proceeds, net of related offering expenses, were $23.7 million. The proceeds from these
equity sales were utilized to purchase Einstein bonds and pay related costs.