| ALEXANDERS J CORP Item 1A Risk Factors In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is including the following cautionary statements identifying important factors that could cause the Company’s actual results to differ materially from those projected in forward looking statements of the Company made by, or on behalf of, the Company |
| The Company’s continued growth depends on its ability to open new J Alexander’s restaurants and to operate them profitably, which will depend on a number of factors, including the selection and availability of suitable locations, the hiring and training of sufficiently skilled management and other personnel and other factors, some of which are beyond the control of the Company |
| The Company’s growth strategy includes opening restaurants in markets where it has little or no meaningful operating experience and in which potential customers may not be familiar with its restaurants |
| The success of these new restaurants may be affected by different competitive conditions, consumer tastes and discretionary spending patterns, and the Company’s ability to generate market awareness and acceptance of J Alexander’s |
| As a result, costs incurred related to the opening, operation and promotion of these new restaurants may be greater than those incurred in other areas |
| In addition, it has been the Company’s experience that new restaurants generate operating losses while they build sales levels to maturity |
| At January 1, 2006, the Company operated 28 J Alexander’s restaurants |
| Because of the Company’s relatively small restaurant base, an unsuccessful new restaurant could have a more adverse effect on the Company’s results of operations than would be the case in a restaurant company with a greater number of restaurants |
| The restaurant industry is intensely competitive with respect to price, service, location and food quality, and there are many well-established competitors with substantially greater financial and other resources than the Company |
| Some of the Company’s competitors have been in existence for a substantially longer period than the Company and may be better established in markets where the Company’s restaurants are or may be located |
| The restaurant business is often affected by changes in consumer tastes, national, regional or local economic conditions, demographic trends, traffic patterns and the type, number and location of competing restaurants |
| The Company’s quarterly results of operations are affected by the timing of the opening of new J Alexander’s restaurants, and fluctuations in the cost of food, labor, employee benefits, utilities and similar costs over which the Company has limited or no control |
| The Company’s operating results may also be affected by inflation or other non-operating items which the Company is unable to predict or control |
| In the past, management has attempted to anticipate and avoid material adverse effects on the Company’s profitability due to increasing costs through its purchasing practices and menu price adjustments, but there can be no assurance that it will be able to do so in the future |
| Weak general economic conditions could decrease discretionary spending by consumers and could impact the frequency with which the Company’s customers choose to dine out or the amount they spend on meals while dining out, thereby decreasing the Company’s net sales |
| Additionally, possible future terrorist attacks and other military conflict could lead to a weakening of the economy |
| Adverse economic conditions and any related decrease in discretionary spending by the Company’s customers could have an adverse effect on net sales and operating results |
| The Company’s Operating Strategy is Dependent on Providing Exceptional Food Quality and Outstanding Service |
| The Company’s success depends largely upon its ability to attract, train, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and servers who can meet the high standards necessary to deliver the levels of food quality and service on which the J Alexander’s concept is based |
| Qualified individuals of the caliber and number needed to fill these positions are in short supply in some areas and competition for qualified employees could require the Company to pay higher wages to attract sufficient employees |
| Also, increases in employee turnover could have an adverse effect on food quality and guest service resulting in an adverse effect on net sales and results of operations |
| Significant Capital is Required to Develop New Restaurants |
| The Company’s capital investment in its restaurants is relatively high as compared to some other casual dining companies |
| Failure of a new restaurant to generate satisfactory net sales and profits in relation to its investment could result in failure of the Company to achieve the desired financial return on the restaurant |
| Also, the Company has at times required capital beyond the cash flow provided from operations in order to expand, resulting in a significant amount of long-term debt and interest expense |
| The Company’s profitability is dependent in part on its ability to purchase food commodities which meet its specifications and to anticipate and react to changes in food costs and product availability |
| Ingredients are purchased from suppliers on terms and conditions that management believes are generally consistent with those available to similarly situated restaurant companies |
| Although alternative distribution sources are believed to be available for most products, increases in food prices, failure to perform by suppliers or distributors or limited availability of products at reasonable prices could cause the Company’s food costs to fluctuate and/or cause the Company to make adjustments to its menu offerings |
| Additional factors beyond the Company’s control, including adverse weather and market conditions, disease and governmental regulation, may also affect food costs and product availability |
| The Company may not be able to anticipate and react to changing food costs or product availability issues through its purchasing practices and menu price adjustments in the future, and failure to do so could negatively impact the Company’s net sales and results of operations |
| Certain of the Company’s restaurants are located in regions of the country which are commonly affected by hurricanes |
| Restaurant closures resulting from evacuations, damage or power or water outages caused by hurricanes could adversely affect the Company’s net sales and profitability |
| From time to time the Company is the subject of complaints or litigation from guests alleging food-borne illness, injury or other food quality or operational concerns |
| The Company is also subject to complaints or allegations from current, former or prospective employees based on, among other things, wage or other discrimination, harassment or wrongful termination |
| Any claims may be expensive to defend and could divert resources which would otherwise be used to improve the performance of the Company |
| A lawsuit or claim could also result in an adverse decision against the Company that could have a materially adverse effect on the Company’s business |
| 6 _________________________________________________________________ [40]Table of Contents The Company is also subject to state “dram shop” laws and regulations, which generally provide that a person injured by an intoxicated person may seek to recover damages from an establishment that wrongfully served alcoholic beverages to such person |
| While the Company carries liquor liability coverage as part of its existing comprehensive general liability insurance, the Company could be subject to a judgment in excess of its insurance coverage and might not be able to obtain or continue to maintain such insurance coverage at reasonable costs, or at all |
| Nutrition and health concerns are receiving increased attention from the media and government as well as from the health and academic communities |
| Food served by restaurants has sometimes been suggested as the cause of obesity and related health disorders |
| Certain restaurant foods have also been argued to be unsafe because of possible allergic reactions to them which may be experienced by guests, or because of alleged high toxin levels |
| Some restaurant companies have been the target of consumer lawsuits, including class action suits, claiming that the restaurants were liable for health problems experienced by their guests |
| Continued focus on these concerns by activist groups could result in a perception by consumers that food served in restaurants is unhealthy, or unsafe, and is the cause of a significant health crisis |
| Additional food labeling and disclosures could also be mandated by government regulators |
| Adverse publicity, the cost of any litigation against the Company, and the cost of compliance with new regulations related to food nutritional and safety concerns could have an adverse effect on the Company’s net sales and operating costs |
| The Company currently maintains insurance coverage that management believes is customary for businesses of its size and type |
| However, there are types of losses the Company may incur that cannot be insured against or that management believes are not commercially reasonable to insure |
| These losses, if they occur, could have a material and adverse effect on the Company’s business and results of operations |
| Expanding the Company’s Restaurant Base By Opening New Restaurants in Existing Markets Could Reduce the Business of its Existing Restaurants |
| The Company’s growth strategy includes opening restaurants in markets in which it already has existing restaurants |
| The Company may be unable to attract enough guests to the new restaurants for them to operate at a profit |
| Even if enough guests are attracted to the new restaurants for them to operate at a profit, those guests may be former guests of one of the Company’s existing restaurants in that market and the opening of new restaurants in the existing market could reduce the net sales of its existing restaurants in that market |
| The restaurant industry is subject to extensive state and local government regulation relating to the sale of food and alcoholic beverages, and sanitation, fire and building codes |
| Termination of the liquor license for any J Alexander’s restaurant would adversely affect the net sales for the restaurant |
| Restaurant operating costs are also affected by other government actions that are beyond the Company’s control, which may include increases in the minimum hourly wage requirements, workers’ compensation insurance rates and unemployment and other taxes |
| If the Company experiences difficulties in obtaining or fails to obtain required licensing or other regulatory approvals, this delay or failure could delay or prevent the opening of a new J Alexander’s restaurant |
| The suspension of, or inability to renew, a license could interrupt operations at an existing restaurant, and the inability to retain or renew such licenses would adversely affect the operations of the restaurants |
| A change in accounting standards can have a significant effect on the Company’s reported results and may affect the reporting of transactions completed before the change is effective |
| As an example, the requirement that, beginning in 2006, compensation expense be recorded in the consolidated statement of income for employee stock options using the fair value method could have a significant negative effect on the Company’s reported results |
| New pronouncements and evolving interpretations of pronouncements have occurred and may occur in the future |
| Changes to the existing rules or differing interpretations with respect to the Company’s current practices may adversely affect its reported financial results |
| Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and American Stock Exchange rules, has required an increased amount of management attention and external resources |
| The Company remains committed to maintaining high standards of corporate governance and public disclosure and intends to invest all reasonably necessary resources to comply with evolving standards |
| This investment will result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities |