Einstein Bros 2004 Annual Report Download - page 26

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strategy will address customers' needs and contribute to overall company growth. While we believe our new EB Café concept will revitalize the
Einstein Bros. brand, its success is dependent upon various factors, including customer acceptance of new menu offerings and pricings, the look
and feel of the restaurant, and the new service system. In addition, the availability of capital and opportunities to make modifications to existing
stores will be significant factors in the success of our business strategy. If we improperly perceive customers' needs and/or are not successful in
implementing any or all of the initiatives of our business strategy, it could have a material adverse effect on our business, results of operations, and
financial condition.
We have and expect to continue to have a substantial amount of debt.
We have a high level of debt and are highly leveraged. In addition, we may, subject to certain restrictions, incur substantial additional
indebtedness in the future. Our high level of debt, among other factors, could:
•make it difficult for us to satisfy our obligations under our indebtedness;
•limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate
purposes;
•increase our vulnerability to downturns in our business or the economy generally;
•limit our ability to withstand competitive pressures from our less leveraged competitors; and
•harm us because a failure by us to comply with the covenants in the instruments and agreements governing our indebtedness could
result in an event of default that, if not cured or waived, could result in all of our indebtedness becoming immediately due and
payable, which could render us insolvent.
We may not be able to generate sufficient cash flow to make payments on our indebtedness.
Economic, financial, competitive, legislative and other factors beyond our control may affect our ability to generate cash flow from operations
to make payments on our indebtedness, including the $160 Million Notes, and to fund necessary working capital. A significant reduction in
operating cash flow would likely increase the need for alternative sources of liquidity. If we are unable to generate
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sufficient cash flow to make payments on our debt, we will have to pursue one or more alternatives, such as reducing or delaying capital
expenditures, refinancing our debt on terms that are not favorable to us, selling assets or raising equity. We may not be able to accomplish any of
these alternatives on satisfactory terms, if at all, and even if accomplished, they may not yield sufficient funds to service our debt.
We are vulnerable to changes in consumer preferences and economic conditions that could harm our financial results.
Food service businesses are often affected by changes in consumer tastes, dietary trends, national, regional and local economic conditions and
demographic trends. Factors such as traffic patterns, local demographics and the type, number and location of competing restaurants may adversely
affect the performance of individual locations. Shifts in consumer preferences away from our type of cuisine and/or the quick casual style could
have a material adverse affect on our results of operations. We believe that the trend toward consumption of food low in carbohydrate content may
have had and may continue to have a negative impact on our sales and revenues. In addition, increased food and energy costs have affected our
results and may, in the future, together with inflation, harm the restaurant industry in general and our locations in particular. Adverse changes in
any of these factors could reduce consumer traffic or impose practical limits on pricing, which could harm our business prospects, financial
condition, operating results and cash flow. Our continued success will depend in part on our ability to anticipate, identify and respond to changing
consumer preferences and economic conditions.
There is intense competition in the restaurant industry for personnel, real estate, advertising space, and customers, among other things.
Our industry is intensely competitive and there are many well-established competitors with substantially greater financial and other resources
than we have. In addition to current competitors, one or more new major competitors with substantially greater financial, marketing and operating
resources could enter the market at any time and compete directly against us. In addition, in virtually every major metropolitan area in which we