Einstein Bros 2011 Annual Report Download - page 9

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312512092597/d260635d10k.htm[9/11/2014 10:08:30 AM]
of our control, including international, national and local economic conditions, any of which could harm our business prospects, financial
condition, operating results and cash flows. Our success will depend in part upon our ability to anticipate, identify and respond to changing
economic and other conditions.
Failure to protect food supplies and adhere to food safety standards could result in food-borne illnesses and adversely affect our business.
We believe that food safety and reputation for quality is of significant importance to any company that, like us, operates in the restaurant
industry. Food safety is a focus of increased government regulatory initiatives at the local, state and federal levels.
Failure to protect our food supply or enforce food safety policies, such as proper food temperatures and adherence to shelf life dates, could
result in food-borne illnesses and/or injuries to our guests. Also, our reputation of providing high quality food is an important factor in our guests
choosing our restaurants. Instances of food borne illness, or other food safety issues, including food tampering and food contamination, whether or
not traced to our restaurants or those of our competitors, could reduce demand for certain or all of our menu offerings. If any of our guests become
ill from consuming our products, the affected restaurants may be forced to close and we may be subject to legal liability. An instance of food
contamination originating from one of our restaurants, our commissaries or suppliers, or our manufacturing plant could have far-reaching effects,
as the contamination, or the perception of contamination could affect substantially all of our restaurants. Publicity related to either product
contamination or recalls may also injure our brand and may affect the selection of our restaurants by guests, franchisees and licensees based on fear
of such illnesses. In addition, the occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of
affected ingredients, which could result in disruptions in our supply chain and/or lower margins for us and our franchisees and licensees.
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Increases in commodity prices would adversely affect our results of operations.
Global demand for commodities such as wheat, coffee and dairy products has resulted, and could in the future result, in higher prices which
would increase our costs. The prices of our main ingredients are directly associated with the changing weather conditions as well as economic
factors such as supply and demand of certain commodities within the United States and other countries. Our ability to forecast and manage our
commodities could significantly affect our gross margins. Any increase in the prices of the ingredients most critical to our products could adversely
affect our operating results.
Additionally, in the event of the destruction of products such as tomatoes, peppers or massive culling of specific animals such as chickens or
turkeys to prevent the spread of disease, the supply and availability of ingredients may become limited. This could dramatically increase the price
of certain menu items which could decrease sales of those items or could force us to eliminate those items from our menus entirely. All of these
factors could adversely affect our business, reputation and financial results.
Any material failure, inadequacy, interruption or security failure of information technology could harm our ability to effectively operate our
business.
We rely on information technology systems across our operations, including for management of supply chain, point-of-sale (“POS”)
processing in our restaurants, and various other processes and transactions. Our ability to effectively manage our business and coordinate the
production, distribution and sale of products depends on the reliability and capacity of these systems. Despite our implementation of security
measures, all of our technology systems are vulnerable to damage, disability or failures due to physical theft, fire, power loss, telecommunications
failure or other catastrophic events, as well as from internal and external security breaches, denial of service attacks, viruses, worms and other
disruptive problems caused by hackers. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement
systems, or a breach in security of these systems could cause delays in product sales and reduced efficiency of the Company’ s operations, and
significant capital investments could be required to remediate the problem.
Credit and debit card data loss, litigation and/or liability could significantly harm our reputation and adversely impact our business.
In connection with credit and debit card sales, we transmit confidential credit and debit card information securely over public networks. Third
parties may have the technology or know-how to breach the security of this customer information, and our security measures may not effectively
prohibit others from obtaining improper access to this information. If a person is able to circumvent our security measures, he or she could destroy
or steal valuable information or disrupt our operations. Several companies in a variety of industries recently have reported security breaches during
which credit/debit card or other personal identifying information has been compromised. Any security breach could expose us to risks of data loss,
litigation and liability and could seriously disrupt our operations and any resulting negative publicity could significantly harm our reputation.
Furthermore, as a result of legislative and regulatory rules, we may be required to notify the owners of the information of any data breaches, which
could harm our reputation and financial results, as well as subject us to litigation or actions by regulatory authorities.
Unsuccessful implementation of any or all of the initiatives of our business strategy could negatively impact our operations.