Einstein Bros 2011 Annual Report Download - page 11

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312512092597/d260635d10k.htm[9/11/2014 10:08:30 AM]
and non-cancelable and have similar renewal options. Most of our leases provide that the landlord may increase the rent over the term of the lease,
and require us to pay our proportionate share of the cost of insurance, taxes, maintenance and utilities. If we close a restaurant, we generally remain
committed to perform our obligations under the applicable lease, which would include, among other things, payment of the base rent for the
balance of the lease term. In some instances, we may be unable to close an underperforming restaurant due to continuous operation clauses in our
lease agreements. Our obligation to continue making rental payments in respect of leases for closed or underperforming restaurants could have an
adverse effect on our business and results of operations.
If we are unable to renew our restaurant leases, we may be forced to close or relocate a restaurant, which could subject us to construction and
other costs and risks, and could have a material adverse effect on our business and results of operations. For example, closing a restaurant, even
during the time of relocation, will reduce the sales that the restaurant would have contributed to our revenues. Additionally, the revenue and profit,
if any, generated at a relocated restaurant may not equal the revenue and profit generated at the prior location. We also face competition from both
restaurants and other retailers for suitable sites for new restaurants.
Our operations may be negatively impacted by seasonality, adverse weather conditions, natural disasters or acts of terror.
Our business is subject to seasonal fluctuations, as well as adverse weather conditions and natural disasters that may at times affect regions
in which our company-owned, franchised and licensed restaurants are located, regions that produce raw ingredients for our restaurants, or locations
of our distribution network. As a result of the seasonality of our business and our industry, our quarterly and yearly results have varied in the past,
and we believe that our quarterly operating results will vary in the future. In addition, if adverse weather conditions or natural disasters such as
fires and hurricanes affect our restaurants, we could experience closures, repair and restoration costs, food spoilage, and other significant reopening
costs as well as increased food costs and delayed supply shipments, any of which would adversely affect our business. We could also experience
shortages or delayed shipments at our restaurants if adverse weather or natural disasters affect our distribution network, which could adversely
affect our restaurants and our business as a whole. Additionally, during periods of extreme temperatures (either hot or cold) or precipitation, many
individuals choose to stay indoors. This impacts transaction counts in our restaurants and could adversely affect our business and results of
operations.
The effects of hurricanes, fires, snowstorms, freezes and other adverse weather conditions are likely to affect supply of and costs for raw
ingredients and natural resources, near-term construction costs for our new restaurants as well as sales in our restaurants going forward. If we do
not anticipate or react to changing costs of food and other raw materials by adjusting our purchasing practices or menu prices, our operating
margins would likely deteriorate.
The impact on our business from terrorism (including cyber-terrorism or efforts to tamper with food supplies) could have an adverse impact
on our brand and results of operations.
We have single suppliers and vendors for many of our key products and services and the failure of any of these suppliers or vendors to perform
could harm our business.
We currently purchase our raw materials from various suppliers; however, we have only one supplier for many of our key products. We
purchase all of our cream cheese from a single source. Also, we purchase a majority of our frozen bagel dough from one supplier, who uses our
proprietary processes and on whom we are dependent in the short-term. All of our remaining frozen bagel dough is produced at our dough
manufacturing facility in Whittier, California or by a second supplier. Although to date we have not experienced significant difficulties with our
suppliers, our reliance on a single supplier for most of our key ingredients 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. Any disruption in the supply or
degradation in the quality of the materials provided by our suppliers could have a material adverse effect on our business, operating results and
financial condition. In addition, any such disruptions in supply or degradations in quality could have a long-term
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detrimental impact on our efforts to maintain a strong brand identity and a loyal consumer base. Additionally, we rely upon a single vendor for
various services crucial to our business operations. Any loss or disruption in these services could detrimentally impact our business.
Distribution disruptions or other distribution issues could adversely affect our business and reputation.
We depend on our network of independent regional distributors to distribute frozen bagel dough and other products and materials to our
company-owned, franchised and licensed restaurants. Any failure by one or more of our distributors to perform as anticipated, or any disruption in
any of our distribution relationships for any reason, would subject us to a number of risks, including inadequate products delivered to our
restaurants, diminished control over quality of products delivered, and increased operating costs to prevent delays in deliveries. Any of these events
could harm our relationships with our franchisees or licensees, or diminish the reputation of our menu offerings or our brands in the marketplace. In
addition, a negative change in the volume of products ordered from our distributors by our company-owned, franchised and licensed restaurants