The Pandemic Possibility

How bad will it be for the U.S. economy if the avian flu mutates and spreads rapidly from human to human? Bad enough that a few companies have warned investors that a flu pandemic could hit their bottom line. In their most recent annual statements filed with the Securities and Exchange Commission, companies as diverse as Callaway Golf, MetLife and Starbucks mention the risk of a flu pandemic, for very different reasonssuch as the demand for its products, the accessibility of its facilities for customers, or the liabilities imposed by losses. Such statements suggest sensible planning, says Baruch Fischhoff, former president of the Society for Risk Analysis.

“It sounds like they’re beginning to think about the issue in a somewhat structured way, with greater breadth for Callaway and greater depth for Starbucks,” says Fischhoff, a professor of social and decision sciences at Carnegie Mellon University. “If there’s any real chance of a pandemic, then they should at least be organizing their thoughts.”

Excerpts from the SEC statements follow.

“The occurrence of a natural disaster, such as an earthquake or hurricane, or the outbreak of a pandemic disease, such as Severe Acute Respiratory Syndrome (“SARS”) or the Avian Flu, could significantly adversely affect the Company’s business. Demand for golf products could be negatively affected as consumers in the affected regions restrict their recreational activities and as tourism to those areas declines. If the Company’s suppliers experienced a significant disruption in their business as a result of a natural disaster or pandemic disease, the Company’s ability to obtain components to make its products could be significantly adversely affected. In addition, a natural disaster or the outbreak of a pandemic disease generally restricts the travel to and from the affected areas, making it more difficult in general to manage the Company’s international operations.”

“Significant influenza pandemics have occurred three times in the last century, but neither the likelihood, timing, nor the severity of a future pandemic can be predicted. The effectiveness of external parties, including governmental and non-governmental organizations, in combating the spread and severity of such a pandemic could have a material impact on the losses experienced by us. In our group insurance operations, a localized event that affects the workplace of one or more of our group insurance customers could cause a significant loss due to mortality or morbidity claims. These events could cause a material adverse effect on our results of operations in any period and, depending on their severity, could also materially and adversely affect our financial condition.”

“If a regional or global health pandemic were to occur, depending upon its severity, the Company’s business could be severely affected. Customers might avoid public gathering places, and local, regional or national governments might limit or ban public gatherings to halt or delay the spread of disease. A regional or global health pandemic might also adversely impact the Company’s business by disrupting production and delivery of materials and products in its supply chain and by causing staffing shortages in its stores. The impact of a health pandemic on Starbucks might be greater than on other companies that depend less on the gathering of people together for the sale, use or license of their products and services.”