Einstein Bros 2011 Annual Report Download - page 5

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Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312512092597/d260635d10k.htm[9/11/2014 10:08:30 AM]
marketing and an optimized menu. Catering accounts for approximately 6% of our company-owned restaurant sales.
• Product Supply: Our purchasing programs provide our restaurants with high quality ingredients at competitive prices from reliable
sources. Consistent product specifications, as well as purchasing guidelines, help to ensure freshness and quality. Our company-owned
restaurants purchase their
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products from approved vendors and/or from our manufacturing and commissary segment (at cost). Because we utilize fresh
ingredients in most of our menu offerings, our inventory is maintained at modest levels.
• Trademarks and service marks: Our rights in our trademarks and service marks are a significant part of all segments of our business.
We are the owners of the federal registration rights to the “Einstein Bros.,” “Noah’ s New York Bagels” and “Manhattan Bagel” marks,
as well as several related word marks and word and design marks related to our core brands. We license the rights to use certain
trademarks we own or license to our franchisees and licensees in connection with their operations. Many of our core brand trademarks
are also registered in numerous foreign countries. We are party to a co-existence agreement with the Hebrew University of Jerusalem
(“HUJ”), which sets forth the terms under which we can use the name Einstein Bros. and the terms and restrictions under which HUJ
could license the name and likenesses associated with the Estate of Albert Einstein to a business that competes with us. We also own
numerous other trademarks and service marks related to our other brands. We are aware of a number of companies that use various
combinations of words in our marks, some of which may have senior rights to ours for such use, but we do not consider any of these
uses, either individually or in the aggregate, to materially impair the use of our marks. It is our policy to defend our marks and their
associated goodwill against encroachment by others.
• Government Regulation: Our restaurants are subject to licensing and regulation by a number of governmental authorities, which include
health, safety, labor, sanitation, building and fire agencies in the state, county, or municipality in which the restaurant is located. A
failure to comply with one or more regulations could result in the imposition of sanctions, including the closing of restaurants for an
indeterminate period of time, fines or third party litigation.
• Seasonality: Our business is subject to seasonal fluctuations. Because of the seasonality of the business and the industry, results for any
quarter are not necessarily indicative of the results that may be achieved for any other quarter or the full fiscal year.
• Competition: The restaurant industry is intensely competitive. We experience competition from numerous sources in our trade areas.
Our restaurants compete based on guests’ needs for breakfast, lunch and afternoon snacks. Our competitors are different for each
daypart. The competitive factors include brand awareness, advertising effectiveness, location and attractiveness of facilities, hospitality,
environment, quality and speed of guest service and the price/value of products offered. We compete in the fast-casual segment of the
restaurant industry, but we also consider other restaurants in the fast-food, specialty food and full-service segments to be our
competitors.
Manufacturing and Commissaries:
We generated approximately 8% of our fiscal year 2011 total revenue from our manufacturing and commissary operations.
• Manufacturing: We currently operate a bagel dough manufacturing facility in Whittier, California and have contracts with two suppliers
to produce bagel dough and sweets to our specifications. These facilities provide frozen dough, partially-baked frozen bagels and fully
baked sweets for our company-owned restaurants, franchisees and licensees. We use excess capacity to produce bagels for sale to third
party resellers.
Commissaries: During fiscal year 2011, we operated five commissaries that were geographically located to best serve our existing
company-owned, franchised and licensed restaurants. These operations provided our restaurants with critical food products such as
sliced meats, cheeses, and/or certain salad ingredients. We have decided to close our commissaries to help streamline our supply chain
and to reduce our costs. We closed one commissary in the fourth quarter of 2011 and expect to close the remaining four commissaries
in the first quarter of 2012. We expect that the closing of these facilities will result in annual cost savings of approximately $1.5 million.
We recorded restructuring
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charges of $0.7 million during the fiscal year ended January 3, 2012 related to these closings. We estimate that an additional $0.5
million to $0.8 million of charges will be incurred in 2012 for this restructuring.