Einstein Bros 2005 Annual Report Download - page 5

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http://www.sec.gov/Archives/edgar/data/949373/000110465906016136/a06-3178_110k.htm[9/11/2014 10:13:03 AM]
lunch time traffic), parking, signage and adaptability of any current structures. We then determine the availability of the site and the related costs.
Our site selection strategy emphasizes co-tenant out parcel, end-cap and in-line locations in neighborhood shopping centers and power centers
with easy access from high-traffic roads.
Focus on Advertising Tactics. We also consider our advertising and media strategy critical to our long-term success. Our advertising and
media strategy focuses on multi-dimensional media tactics integrating print, traffic radio, broadcast, outdoor, public relations and local store
marketing to support our high revenue markets. Company operated and franchised locations are generally required to contribute to the respective
brand’ s marketing fund, which provides the locations with marketing support, including in-store point-of-purchase and promotional materials.
Print and other mass media advertising is utilized to increase consumer interest and build sales.
Improve Free Cash Flow. Our financial focus is on long term, sustainable growth in free cash flow. Free cash flow represents net cash
provided by operations less the investment in our facilities and fixed assets. By achieving free cash flow, we will be more capable of paying down
debt, saving cash for future use and building shareholder value. We also believe free cash flow may give us the ability to pursue new opportunities
and/or acquire other businesses. Increasing our operating profit and efficiently managing working capital and capital expenditures primarily drive
free cash flow.
In measuring our overall growth and progress, we focus on various key performance indicators. Such key performance indicators include:
· same-store sales growth, comprised of average check and transactions,
· restaurant level and concept level margins,
· cash generated from operations,
· adjusted EBITDA (as defined in our loan agreements),
· number of company-owned restaurant openings and closings, and
· number of franchise and licensed restaurant openings and closings.
Our progress toward some of these key performance indicators is discussed throughout Item 7, Management’ s Discussion and Analysis.
Sourcing, Manufacturing & Distribution
We believe that controlling the manufacture and distribution of our key products is an important element in ensuring both quality and
profitability. To support this strategy, we have developed proprietary formulations, invested in processing technology and manufacturing capacity,
and aligned ourselves with strategic suppliers.
Bagel Dough, Cream Cheese and Coffee
We have significant know-how and technical expertise for manufacturing and freezing mass quantities of raw dough to produce a high-quality
product more commonly associated with smaller bakeries. We believe this system enables locations to provide consumers with a variety of
consistent, superior products.
5
We currently operate a bagel dough manufacturing facility in Whittier, CA and have a supply contract with Harlan Bakeries, Inc. in Avon, Indiana
that produces bagel dough to our specifications.
Our cream cheese and other cheese products are purchased exclusively from a single source. Our cream cheese is manufactured to
specification utilizing our proprietary recipes.
All of our coffee is purchased through a third party provider and is sold at our Einstein Bros. and Noah’ s locations.
Though to date we have not experienced significant difficulties with our suppliers, our reliance on a limited number of suppliers subjects us to
a number of risks, including possible delays or interruption in supplies, diminished control over quality and a potential lack of adequate raw
material capacity.
Purchasing
Our purchasing programs provide our company-owned restaurants and our franchised and licensed locations with high quality ingredients at
competitive prices from reliable sources. Consistent product specifications, as well as purchasing guidelines, ensure freshness and quality. Because
we utilize fresh ingredients in most of our menu offerings, inventory at our distributors and company-owned restaurants is maintained at modest
levels. We negotiate short-term and long-term price agreements and contracts depending on supply and demand for our products and commodity