Einstein Bros 2006 Annual Report Download

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http://www.sec.gov/Archives/edgar/data/949373/000104746907001622/a2176540z10-k.htm[9/11/2014 10:12:36 AM]
10-K 1 a2176540z10-k.htm 10-K
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NEW WORLD RESTAURANT GROUP, INC. FORM 10-K TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One):
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 2007
OR
oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 0-27148
NEW WORLD RESTAURANT GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3690261
(State or Other Jurisdiction
of Incorporation or Organization)
(I.R.S. Employer
Identification No.)
1687 Cole Blvd., Golden, Colorado 80401 (303) 568-8000
(Address of Principal Executive Offices) (Zip Code) (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(g) of the Act:
None Common Stock, $.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o No ý
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this

Table of contents

  • Page 1
    ...Use these links to rapidly review the document NEW WORLD RESTAURANT GROUP, INC. FORM 10-K TABLE OF CONTENTS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One): ý ANNUAL REPORT PURSUANT TO SECTION 13 OR...

  • Page 2
    ...check mark whether the registrant is a shell company. Yes o No ý The aggregate market value of the common stock held by non-affiliates of the registrant as of the last business day of the second fiscal quarter, July 4, 2006 was $2,560,387 (computed by reference to the closing sale price as reported...

  • Page 3
    .... You can find additional information in our 2007 Proxy Statement, which will be filed within 120 days after the close of the 2006 fiscal year, and is hereby incorporated by reference. Our History We opened our first company-owned restaurant, a New World Coffee café, in New York in 1993. Over the...

  • Page 4
    ... of muffins, pastries and cookies. Unlike many of our competitors, we bake our signature bagels and other bakery products fresh on premises daily and our breakfast sandwiches are made-to-order. National Brands with Neighborhood Presence Einstein Bros. is a national brand, with locations in 32 states...

  • Page 5
    ...the menu at a typical Einstein Bros. company-owned restaurant features a wide variety of fresh baked bagels, rolls, muffins and cookies, along with unique offerings that include breakfast and lunch paninis, hot and cold sandwiches and gourmet hand tossed salads. A typical Noah's restaurant menu also...

  • Page 6
    .... We are also moving towards centralization of the ordering process to ensure the order is routed to the restaurant best positioned to fulfill it in a timely manner. Open New Company-Owned Locations In 2006, we opened three new Einstein Bros. and two new Noah's company-owned restaurants. In 2007, we...

  • Page 7
    ... group. Restaurant Concepts Einstein Bros. Einstein Bros. offers a menu that specializes in high-quality foods for breakfast and lunch, including fresh-baked bagels and hot breakfast sandwiches, cream cheese and other spreads, specialty coffees and teas, creative soups, salads and sandwiches, and...

  • Page 8
    ... utilizing our proprietary recipes. Our cream cheese and certain other cheese products are purchased exclusively from a single source. We also have developed a proprietary coffee blend for sale at our Einstein Bros. and Noah's company-owned and franchised locations. All of our coffee is purchased...

  • Page 9
    ... grocery stores as the end user, for the sale of bagels, cream cheese, salad toppers and salads. These products are sold either through a private label program or under the Einstein Bros. or Noah's brands. Manufacturing We currently operate a bagel dough manufacturing facility in Whittier, CA...

  • Page 10
    ... are Einstein Bros. restaurants. Our license partners include Aramark, Sodexho, AAFES, HMS Host, Compass and CA1. These partners' operations are located in airports, colleges and universities, hospitals, military bases and on turnpikes and feature a more limited menu selection than our company-owned...

  • Page 11
    ...new general managers and assistant managers. Finally, we have developed a restaurant-level associate training program that ensures each associate is assigned a mentor during his or her orientation period. Management Information Systems Each Einstein Bros. and Noah's company-owned location uses point...

  • Page 12
    ... awareness, advertising effectiveness, location and attractiveness of facilities, hospitality, environment, quality and speed of guest service, price, quality and the value of products offered. Certain of our competitors may have substantially greater financial, marketing and operating resources. We...

  • Page 13
    ... developer of Boston Chicken. Mr. Murphy has a B.A. degree from Washington and Lee University. Daniel J. Dominguez was appointed Chief Operating Officer in December 2005. Mr. Dominguez joined us in November 1995 and served as Senior Vice President of Operations for Noah's New York Bagels from April...

  • Page 14
    ...our business through opening new company-owned restaurants is dependent on a number of factors, including our ability to: find suitable locations, reach acceptable lease terms, have adequate capital, train appropriate staff and properly manage the new restaurant. Our success in opening new franchise...

  • Page 15
    ...financial, marketing and operating resources could enter the market at any time and compete directly against us. Also, in virtually every major metropolitan area in which we operate or expect to enter, local or regional competitors already exist. This may make it more difficult to obtain real estate...

  • Page 16
    ... ordered from our distributors by our company-owned, franchised and/or licensed restaurants could increase our distribution costs. These risks could have a material adverse effect on our business, financial condition and results of operations. In late 2006, we negotiated contract terms with two new...

  • Page 17
    ... may divert financial and management resources that would otherwise be used to benefit our future performance. We have been subject to claims from time to time, and although these claims have not historically had a material impact on our operations, a significant increase in the number of these...

  • Page 18
    .... As a result, our franchise program for the Einstein Bros. brand may not grow at the rate we currently expect, or at all. Our restaurants and products are subject to numerous and changing government regulations. Failure to comply could negatively affect our sales, increase our costs or result in...

  • Page 19
    ... of our board of directors is a current employee of Greenlight. Our common stock is not currently listed on any stock exchange. As a result, we are not subject to corporate governance rules adopted by the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and Nasdaq requiring a majority...

  • Page 20
    ...year: Fiscal 2006 Fiscal 2005 Fiscal 2004 Einstein Bros. Bagels Company-owned beginning balance Opened restaurants Closed restaurants Company-owned ending balance 360 3 (22) 341 371 4 (15) 360 373 4 (6) 371 Licensed beginning balance Opened restaurants Closed restaurants Licensed ending balance...

  • Page 21
    ...: Location Company Operated Franchised or Licensed Total Alabama Arizona California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Illinois Indiana Kansas Kentucky Louisiana Maryland Massachusetts Michigan Minnesota Mississippi Missouri Nevada New Hampshire New Jersey...

  • Page 22
    ... on the average of approximately 15 to 20 years. Our leases generally require us to pay a proportionate share of real estate taxes, insurance, common charges and other operating costs. Information with respect to our headquarters, training, production and commissary facilities is presented below...

  • Page 23
    ... of our common stock. This number does not include individual stockholders who own common stock registered in the name of a nominee under nominee security listings. We have not declared or paid any cash dividends on our common stock since our inception. We do not intend to pay any cash dividends...

  • Page 24
    ... a market value-weighted index. The index includes: Panera Bread Company Starbuck's Corporation Sonic Corporation Jack in the Box Incorporated CKE Restaurants Incorporated AFC Enterprises Incorporated 28 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data for each fiscal year...

  • Page 25
    ... par value, $1,000 per share liquidation value Long-term debt Mandatorily redeemable Series F preferred stock, $.001 par value, $1,000 per share liquidation value (temporary equity)(3) Total stockholders' equity (deficit) Other Financial Data: 5,477 33,889 133,754 3,605 $ 1,556 33,359 130,924 280...

  • Page 26
    ...made-to-order sandwiches on a variety of bagels and breads, gourmet soups and salads, decadent desserts, premium coffees and other café beverages. Our manufacturing and commissary operations prepare and assemble consistent, high-quality ingredients and we deliver them to our restaurants quickly and...

  • Page 27
    ...we plan to open a total of 10 to 15 new company-owned restaurants in markets where we believe sales at these restaurants will exceed our current AUV. For Einstein Bros., we have targeted the Atlanta, Chicago, Las Vegas, Phoenix, and various cities in Florida for development. For Noah's, we intend to...

  • Page 28
    ..., our commissaries sell bagels, cream cheese, salad toppers and salads through various supplier relationships, typically with conventional grocery stores as the end user. These products are sold either through a private label program or under the Einstein Bros. or Noah's brand. The principal...

  • Page 29
    ... we expect that our cost for orange juice will remain relatively flat compared to 2006. In late 2006, we negotiated contract terms with two new distribution partners. In early 2007, these new partners began delivering products to our company-owned, franchise and license restaurants in the respective...

  • Page 30
    ... support our company-owned restaurants as well as our manufacturing and franchise and license operations. These costs include employee wages, taxes and related benefits, travel costs, information systems, recruiting and training costs, corporate rent, and general insurance costs. Depreciation and...

  • Page 31
    ... and our "Hate to Wait" promotion (a pre-packaged baker's dozen of bagels with cream cheese). We continue to see growth in markets in which we offer catering by our company-owned restaurants. Our catering business contributed 0.9% of the increase to our comparable store sales. Comparable store sales...

  • Page 32
    ... to the increase was approximately $0.7 million in stock based compensation expense and $0.7 million for our 2006 annual leadership summits for our Einstein Bros. and Noah's general managers and our Manhattan Bagel franchisees. Depreciation and Amortization Depreciation and amortization expenses...

  • Page 33
    ... those temporary differences become deductible. As we move closer toward achieving net income for a full year, we will review various qualitative and quantitative data, including events within the restaurant industry, the cyclical nature of our business, our future forecasts and historical trending...

  • Page 34
    ... mix to higher priced items, improvements in the operation of our restaurants including initiatives in customer service and overall restaurant appearance, the introduction of new menu items, further development of catering programs in selected markets, and advertising campaigns that were initiated...

  • Page 35
    ... $120,000 due to the disposal of menu boards as a result of our new menu offerings and approximately $1.5 million due to the abandonment of leasehold improvements related to closed restaurants and our administrative facilities located in New Jersey. The loss on disposal or abandonment of...

  • Page 36
    ... remodel includes new self service coolers, an expanded coffee bar, and a separate station for quick "to go" items. Finally, we plan to acquire additional equipment for new menu items and an improved ordering system that uses wireless technology to reduce the time our guests wait in line before they...

  • Page 37
    ... an estimate of the ultimate cost of claims incurred and unpaid as of the balance sheet date. The estimated liability is established based on actuarial estimates, is discounted at 10% based upon a discrete analysis of actual claims and historical data and is reviewed on a quarterly basis to ensure...

  • Page 38
    .... EITF 06-03 is effective for our fiscal year beginning January 3, 2007. Sales tax amounts collected from customers have been recorded on a net basis. The adoption of EITF 06-03 will not have any effect on our financial position or results of operations. We have considered all other recently issued...

  • Page 39
    ... equipment (related to the assets of Einstein/Noah Bagel Corp. that we acquired in bankruptcy proceedings in June 2001) became fully depreciated within the second and third quarters of fiscal 2006, and considering the improvement in the profitability and cash flows from each of our restaurants, we...

  • Page 40
    ... to be utilized against future taxable income for years through fiscal 2026, subject to annual limitations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During fiscal 2006 and fiscal 2005, our results of operations, financial position and cash flows have not been materially...

  • Page 41
    ... financial markets. 49 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Audited Annual Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of January 2, 2007 and January 3, 2006 Consolidated Statements of Operations for the Years Ended...

  • Page 42
    ... relation to the basic financial statements taken as a whole. /s/ GRANT THORNTON LLP Denver, Colorado February 23, 2007 51 NEW WORLD RESTAURANT GROUP, INC. CONSOLIDATED BALANCE SHEETS AS OF JANUARY 2, 2007 AND JANUARY 3, 2006 (in thousands, except share information) January 2, 2007 January 3, 2006...

  • Page 43
    ... consolidated financial statements. 52 NEW WORLD RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JANUARY 2, 2007, JANUARY 3, 2006, AND DECEMBER 28, 2004 (in thousands, except earnings per share and related share information) January 2, 2007 January 3, 2006 December...

  • Page 44
    ... consolidated financial statements. 53 NEW WORLD RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED JANUARY 2, 2007, JANUARY 3, 2006, AND DECEMBER 28, 2004 (in thousands, except share information) http://www.sec.gov/Archives/edgar/data...

  • Page 45
    ... part of these consolidated financial statements. 54 NEW WORLD RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 2, 2007, JANUARY 3, 2006, AND DECEMBER 28, 2004 (in thousands) January 2, 2007 January 3, 2006 December 28, 2004 OPERATING ACTIVITIES: Net loss...

  • Page 46
    ...brand names of Einstein Bros. Bagels (Einstein Bros.), Noah's New York Bagels (Noah's), Manhattan Bagel Company (Manhattan), Chesapeake Bagel Bakery (Chesapeake) and New World Coffee (New World). We have a 52/53-week fiscal year ending on the Tuesday closest to December 31. Fiscal year 2004 and 2006...

  • Page 47
    ...performed our obligations required to assist the franchisee or licensee in opening a new location, which is generally at the time the franchisee or licensee commences operations. Continuing royalties, which are a percentage of the net sales of franchised and licensed locations, are accrued as income...

  • Page 48
    ... 2006, we recorded approximately $0.2 million in impairment charges related to company-owned stores. During fiscal 2005, we recorded approximately $0.2 million in impairment charges related to company-owned stores and approximately $0.1 million in exit costs from the decision to close one restaurant...

  • Page 49
    ...costs as incurred. Advertising costs were $4.5 million, $6.6 million, and $4.5 million for the fiscal years ended 2006, 2005, and 2004, respectively, and are included in restaurant costs of sales in the consolidated statements of operations. Company Operations http://www.sec.gov/Archives/edgar/data...

  • Page 50
    ... regularly review reports related to balance sheet or asset information during this process. Our manufacturing operations, which include our USDA approved commissaries, are ancillary and support our restaurant operations through the production and distribution of bagel dough, cream cheese and other...

  • Page 51
    ... tax benefits were recognized for these costs due to our recurring cumulative losses. The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions: January 2, 2007 January 3, 2006 December 28, 2004 Expected life of options...

  • Page 52
    .... EITF 06-03 is effective for our fiscal year beginning January 3, 2007. Sales tax amounts collected from customers have been recorded on a net basis. The adoption of EITF 06-03 will not have any effect on our financial position or results of operations. We have considered all other recently issued...

  • Page 53
    ... We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss and payment history, the customer's current ability to pay its obligation to us, and the condition of the general economy and the industry as a whole...

  • Page 54
    ... of purchases or period of time. Vendor rebates are recorded as a reduction to cost of sales when products are sold. INVENTORIES 5. Inventories, which consist of food, beverage, paper supplies and bagel ingredients, are stated at the lower of cost or market, with cost being determined by the first...

  • Page 55
    ... fiscal years ended January 2, 2007, January 3, 2006, and December 28, 2004, respectively. As of January 2, 2007 and January 3, 2006, manufacturing equipment with a net book value of approximately $1.7 million and $4.4 million, respectively, was located at the plant of Harlan, our frozen bagel dough...

  • Page 56
    ..., and $1.8 million was recorded for the fiscal years ended 2006, 2005, and 2004, respectively. 10. ACCRUED EXPENSES Accrued expenses consist of the following: January 2 2007 January 3, 2006 Payroll and related bonuses Interest Gift cards Unvouchered receipts Other Total accrued expenses $ 11,678...

  • Page 57
    ... stock (or other ownership or equity interests) of each material subsidiary. As of January 2, 2007, we were in compliance with all our financial and operating covenants. Approximately $0.4 million in debt issuance costs have been capitalized and are being amortized using the straight-line method...

  • Page 58
    ... pledge of 100% of our interest in all shares of capital stock of each material subsidiary. As of January 2, 2007, we were in compliance with all our financial and operating covenants. Approximately $1.7 million in debt issuance costs have been capitalized and are being amortized using the effective...

  • Page 59
    ... all our financial and operating covenants. Approximately $0.7 million in debt issuance costs have been ...2006, debt issuance costs were written off to interest expense in the amount of $0.2 million. New Jersey Economic Development Authority Note Payable In December 1998, Manhattan Bagel Company...

  • Page 60
    ...Operating Leases We lease office space, restaurant space and certain equipment under operating leases having terms that expire at various dates through fiscal 2017. Our restaurant leases have renewal clauses of 1 to 20 years at our option and, in some cases, have provisions...January 3, 2006 Vendor ...

  • Page 61
    ...cost of goods sold based on the volume of purchases of the vendor's product. In connection with our acquisition of Manhattan, we agreed to guarantee certain loans to franchisees made by two financial...per share; an annual dividend rate equal to 250 basis points higher than the highest rate paid on our...

  • Page 62
    ...-current exercise price, a number of the acquiring company's common shares having a market value at that time of twice the right's exercise price. 16. STOCK OPTION AND WARRANT PLANS 1994 and 1995 Plans Our 1994 Stock Plan (1994 Plan) provided for the granting to employees of incentive stock options...

  • Page 63
    ... of termination date of the SAR Plan or termination of employment and typically vest over a two-year service period. Generally, 50% of rights granted vest based solely upon the passage of time. We will recognize compensation costs for these awards using a graded vesting attribution method over the...

  • Page 64
    ... plan covering eligible employees of New World Restaurant Group (the 401(k) Plan). Employees, excluding officers, are eligible to...for 2006, 2005, and 2004, respectively. Employer contributions vest at the rate of 100% after three years of service. 18. INTEGRATION AND REORGANIZATION COSTS 2001 ...

  • Page 65
    ...that the revenues, cost of sales, other operating expenses and the net book value of the assets related to the sale of the coffee roasting plant and three retail locations included in the Willoughby's business were immaterial in relation to our Einstein Bros., Noah and Manhattan restaurants, as well...

  • Page 66
    ... net operating loss carryforwards of $157 million were available to be utilized against future taxable income for years through fiscal 2026, subject to annual limitations. The provision for income taxes consists of the following: 2006 2005 2004 Current Federal State Total current income tax benefit...

  • Page 67
    ... kind interest that is added to the principal balance outstanding at 7.25%. Total interest expense related to the Subordinated Note with Greenlight was $3.0 million for the year ended January 2, 2007. http://www.sec.gov/Archives/edgar/data/949373/000104746907001622/a2176540z10-k.htm[9/11/2014 10:12...

  • Page 68
    ... and cream cheese) for minimum purchases both in terms of quantity and pricing on an annual basis. Furthermore, from time to time, we will commit to the purchase price of certain commodities that are related to the ingredients used for the production of our bagels. On a periodic basis, we review the...

  • Page 69
    ... issuance costs and paid a 3% redemption premium in the amount of $4.8 million during the first quarter ended 2006. 83 Schedule II-Valuation and Qualifying Accounts (in thousands of dollars) Balance at beginning of period Balance at end of period Additions (a) Deductions(b) For the fiscal year...

  • Page 70
    ... CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information will be included in our 2007 Proxy Statement, which will be filed within 120 days after the close of the 2006 fiscal year, and is hereby incorporated by reference. http://www.sec.gov/Archives/edgar/data/949373/000104746907001622/a2176540z10...

  • Page 71
    ... FEES AND SERVICES This information will be included in our 2007 Proxy Statement, which will be filed within 120 days after the close of the 2006 fiscal year, and is hereby incorporated by reference. 86 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (1) Financial Statements See...

  • Page 72
    ...2006, by and among New World Restaurant Group, Inc., Einstein and Noah Corp., Manhattan Bagel Company, Inc., and Harlan Bagel Supply Company, LLC, and Harlan Bakeries, Inc. (Certain information...Annual Report on Form 10-K for the year ended January 2, 2007* Certification of Principal Financial Officer...

  • Page 73
    ... 30, 2003, filed on March 26, 2004. Incorporated by reference from Registrant's Annual Report on Form 10-K for the Fiscal Year Ended December 28, 2004, filed on March 11, 2005. Incorporated by reference from Registrant's Schedule 14A, filed on April 29, 2005 included as annex A. Incorporated by...

  • Page 74
    ... President, Chief Executive Officer and Director (Principal Executive Officer) Chief Financial Officer (Principal Financial and Accounting Officer) Director Director Director Director Director Director 90 http://www.sec.gov/Archives/edgar/data/949373/000104746907001622/a2176540z10-k.htm...