Panera Bread 2007 Annual Report Download - page 23

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 operations.
Additionally, the costs of insurance and medical care have risen significantly over the past few years and are
expected to continue to increase in 2008. 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.
We are subject to complaints and litigation that could have an adverse effect 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 or to one of our
franchise-operated bakery-cafes, including allegations of poor food quality, food-borne illness, adverse health
effects, nutritional content, allergens, 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. For example, in January
2008, a purported class action lawsuit was filed against us and three of our current or former executive officers by
investors alleging violations of the Securities Exchange Act of 1934 and the rules promulgated thereunder. While
we believe we have meritorious defenses to each of the claims in this lawsuit and we are prepared to vigorously
defend the lawsuit, 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.
If we are unable to protect our customers’ credit card data, we could be exposed to data loss, litigation
and liability, and our reputation could be significantly harmed.
In connection with credit card sales, we transmit confidential credit card information by way of secure private
retail networks. Notwithstanding our use of private networks, third parties may have the technology or know-how to
breach the security of this customer information, and our security measures and those of our technology vendors
may not effectively prohibit others from obtaining improper access to this information. If a person is able to
circumvent these security measures, he or she could destroy or steal valuable information or disrupt our operations.
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.
We are subject to periodic new accounting pronouncements that could have a material adverse impact
on our profitability or results of operations.
New accounting pronouncements are periodically issued which could change our current accounting practices.
We assess each new pronouncement for applicability and potential impact. Depending on whether the applicable
pronouncement is to be retroactively implemented or prospectively implemented, and depending on the magnitude
of the change, implementation could have a significant adverse impact on historical or future profitability or results
of operations.
We periodically acquire existing bakery-cafes from our franchisees or ownership interests in other res-
taurant or bakery-cafe concepts, which could adversely affect our results of operations.
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.
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