Panera Bread 2006 Annual Report Download - page 15

service marks, trade secrets, confidential and proprietary information and other intellectual property rights are key
components of our operating and marketing strategies. Although we have taken steps to protect our brand,
intellectual property and confidential and proprietary information, the steps that we have taken may not be
adequate. Unauthorized usage or imitation by others could harm our image, brand or competitive position and, if we
commence litigation to enforce our rights, cause us to incur significant legal fees.
We are not aware of any assertions that our trademarks or menu offerings infringe upon the proprietary rights
of third parties, but we cannot assure you that third parties will not claim infringement by us in the future. Any such
claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause delays in introducing
new menu items in the future or require us to enter into royalty or licensing agreements. As a result, any such claim
could have a material adverse effect on our business, results of operations and financial condition.
We try to ensure that our franchisees maintain and protect our brand and our confidential and proprietary
information. However, since our franchisees are independent third parties that we do not control, if they do not
operate their bakery-cafes in a manner consistent with their agreements with us, the Panera Bread brand and
reputation or the value of our confidential and proprietary information could be harmed. If this occurs, our business
and operating results could be adversely affected.
Competition may adversely affect our operations and results of operation.
The restaurant industry is highly competitive with respect to location, environment, customer service, price,
quality of products and overall customer experience. We compete with specialty food, casual dining and quick
service restaurant retailers including national, regional and locally owned restaurants. Many of our competitors or
potential competitors have substantially greater financial and other resources than we do, which may allow them to
react to changes in pricing, marketing and the casual dining restaurant industry better than we can. Additionally,
other companies may develop restaurants that operate with concepts similar to ours. We also compete with other
restaurant chains and other retail businesses for quality site locations and hourly employees. If we are unable to
successfully compete in our markets, we may be unable to sustain or increase our revenues and profitability.
Additionally, competition could cause us to modify or evolve our products, designs or strategies. If we do so,
we cannot assure you that we will be successful in implementing the changes or that our profitability will not be
negatively impacted by them.
Rising insurance costs could negatively impact our profitability.
We self-insure a significant portion of our expected losses under our workers’ compensation, health, general,
auto and property liability programs. The liabilities associated with the risks that are retained by us are estimated, in
part, by considering our historical claims experience and data from industry and other actuarial sources. The
estimated accruals for these liabilities could be affected if claims differ from these assumptions and historical
trends. Unanticipated changes in the actuarial assumptions and management estimates underlying our reserves of
these losses could result in materially different amounts of expense under these programs, which could have a
material adverse effect on our financial condition and results of operation.
Additionally, the costs of insurance and medical care have risen significantly over the past few years and are
expected to continue to increase in 2007. These increases, as well as existing or potential legislation changes, such as
proposals to require employers to provide health insurance to employees, could negatively impact our operating results.
Disruptions in our supply chain or increases in ingredient, product and other supply costs could adversely
affect our profitability and operating results.
Our Company-owned and franchise-operated bakery-cafes are dependent on frequent deliveries of ingredients
and other products. Three companies deliver the majority of our ingredients and other products to the Panera Bread
bakery-cafes on a regular basis (two or three times weekly). Our agreements with these distributors are up for
renewal in February 2008. In addition, we and our franchisees rely on a network of local and national suppliers for
the delivery of fresh produce (three to six times per week) which is particularly susceptible to supply volatility as a
result of weather conditions. Our dependence on frequent deliveries to our bakery-cafes could cause shortages or
supply interruptions that could adversely impact our operations.
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