Panera Bread 2005 Annual Report Download - page 17

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Customer preferences and traffic could be negatively impacted by health concerns about the consumption of certain products.
Customer preferences and traffic could be impacted by health concerns about the consumption of particular food products and
could cause a decline in our sales. Negative publicity about ingredients, poor food quality, food-borne illness, injury, health concerns
or nutritional content could cause customers to shift their preferences. For example, since 2004, Asian and European countries have
experienced outbreaks of avian flu. Negative publicity concerning avian flu may adversely affect demand for our products because
chicken and turkey are key ingredients in many of our menu items and could cause an increase in our food costs and a decrease in
customer traffic to our bakery-cafes.
We are subject to complaints and litigation that could have a material adverse affect on our business.
In the ordinary course of our business we may become subject to complaints and litigation alleging that we are responsible for a
customer illness or injury suffered at or after a visit to one of our bakery-cafes including claims alleging poor food quality, food-borne
illness, adverse health effects, nutritional content, personal injury or other concerns. In addition, we are subject to litigation by
employees, franchisees and others through private actions, class actions or other forums. The outcome of litigation is difficult to assess
and quantify and the defense against such claims or actions can be costly. In addition to decreasing sales and profitability and
diverting financial and management resources, we may suffer from adverse publicity that could harm our brand, regardless of whether
the allegations are valid or whether we are liable. In fact, we are subject to the same risks of adverse publicity resulting from
allegations even if the claim involves one of our franchisees. A judgment significantly in excess of our insurance coverage for any
claims could materially and adversely affect our financial condition or results of operations. Additionally, publicity about these claims
may harm our reputation or prospects and adversely affect our results.
We periodically acquire existing bakery-cafes from our franchisees, which could adversely affect our results of operation.
We have historically acquired existing bakery-cafes and development rights from our franchisees either by negotiated agreement
or exercise of our rights of first refusal under the franchise and area development agreements. For example, in fiscal year 2005, we
acquired 23 bakery-cafes from a franchisee (including 2 under construction). Any bakery-cafe acquisition that we undertake involves
risk, including:
• our ability to successfully complete the acquisition, achieve anticipated synergies, accurately assess contingent and other
liabilities as well as potential profitability;
• un-anticipated changes in business and economic conditions;
• limited or no operational experience in the acquired bakery-cafe market;
• future impairment charges related to good will and other acquired intangible assets; and
• risks of dispute and litigation with the seller franchisee, the seller’s landlords and vendors and other parties.
Any of these factors could strain our financial and management resources as well as negatively impact our results of operation.
Our operating results fluctuate due to a number of factors, some of which may be beyond our control, and any of which may
adversely affect our financial condition.
Our quarterly operating results may fluctuate significantly because of a number of factors, including the following, some of which
are not within our control:
• changes in our operating costs;
• labor availability and wages of management and associates;
• increases and decreases in average weekly sales and comparable bakery-cafe sales, including as a result of the introduction of
new menu items;
• profitability of new bakery-cafes, especially in new markets;