PANERA BREAD CO - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-Q


(Mark one)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 12, 2003
		or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [For the transition period from to ]

Commission file number 0-19253

Panera Bread Company

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction incorporation or organization)		04-2723701 (I.R.S. Employer of Identification No.)

6710 Clayton Road, Richmond Heights, MO (Address of principal executive offices)		63117 (Zip code)

(314) 633-7100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

As of August 18, 2003, 28,008,727 shares and 1,862,381 shares of the registrant’s Class A and Class B Common Stock, respectively, $.0001 par value, were outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
Signatures
EXHIBIT INDEX
EX-10.1 Non-Competition Agreement - Yanofsky
EX-10.2 Employee/Stock Option Agreement - Yanofsky
EX-10.3 Employee/Stock Option Agreement - Twohig
EX-31.1 Certification by Chief Executive Officer
EX-31.2 Certification by Chief Financial Officer
EX-32 Certification Pursuant to 18 USC Sec. 1350

PANERA BREAD COMPANY

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (unaudited)
	Consolidated Balance Sheets as of July 12, 2003 and December 28, 2002	3
	Consolidated Statements of Operations for the twelve and twenty-eight weeks ended July 12, 2003 and July 13, 2002	4
	Consolidated Statements of Cash Flows for the twenty-eight weeks ended July 12, 2003 and July 13, 2002	5
	Notes to Consolidated Financial Statements	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20
ITEM 4.	CONTROLS AND PROCEDURES	20
PART II	OTHER INFORMATION
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	21

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PANERA BREAD COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share information)


					July 12, 2003			December 28, 2002

				ASSETS
Current assets:
	Cash and cash equivalents				$	39,519		$	29,924
	Investments in government securities					4,040			4,102
	Trade accounts receivable, less allowance of $59 in 2003 and $33 in 2002					7,749			7,462
	Other accounts receivable					1,173			2,097
	Inventories					6,329			5,191
	Prepaid expenses					2,035			1,826
	Deferred income taxes					7,291			8,488
	Other					33			172

				Total current assets		68,169			59,262
Property and equipment, net						111,098			99,313
Other assets:
	Investments in government securities					5,032			5,047
	Goodwill					23,091			18,970
	Deposits and other					6,138			5,554
	Deferred income taxes					—			294

				Total other assets		34,261			29,865

				Total assets	$	213,528		$	188,440

			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	6,399		$	5,987
	Accrued expenses					26,043			24,935
	Current portion of deferred revenue					1,205			1,403

				Total current liabilities		33,647			32,325
Deferred income taxes						861			—
Other long-term liabilities						1,378			262

				Total liabilities		35,886			32,587
Minority interest						3,086			2,197
Stockholders’ equity:
	Common stock, $.0001 par value:
		Class A, 75,000,000 shares authorized; 28,090,077 issued and 27,977,129 outstanding in 2003; and 27,446,448 issued and 27,337,448 outstanding in 2002				3			3
		Class B, 10,000,000 shares authorized; 1,868,531 issued and outstanding in 2003 and 1,977,363 in 2002				—			—
	Treasury stock, carried at cost					(900	)		(900	)
	Additional paid-in capital					118,024			110,120
	Retained earnings					57,429			44,433

				Total stockholders’ equity		174,556			153,656

				Total liabilities and stockholders’ equity	$	213,528		$	188,440

The accompanying notes are an integral part of the consolidated financial statements.

PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)


					For the twelve weeks ended					For the twenty-eight weeks ended

					July 12, 2003		July 13, 2002			July 12, 2003			July 13, 2002

Revenues:
	Bakery-cafe sales				$	58,951	$	48,192		$	132,271		$	107,669
	Franchise royalties and fees					7,886		6,096			17,832			13,400
	Fresh dough sales to franchisees					11,713		7,986			27,078			18,210

			Total revenues			78,550		62,274			177,181			139,279
Costs and expenses:
	Bakery-cafe expenses:
		Cost of food and paper products				16,650		15,220			37,547			33,034
		Labor				18,297		14,427			40,507			32,183
		Occupancy				4,033		3,414			9,114			7,750
		Other operating expenses				8,357		6,733			18,629			14,584

			Total bakery-cafe expenses			47,337		39,794			105,797			87,551
	Fresh dough cost of sales to franchisees					10,167		7,329			24,066			16,774
	Depreciation and amortization					4,318		3,139			9,621			6,927
	General and administrative expenses					7,291		5,609			15,855			12,893
	Pre-opening expenses					227		268			528			532

			Total costs and expenses			69,340		59,139			155,867			124,677

Operating profit						9,210		6,135			21,314			14,602
Interest expense						10		6			29			14
Other expense, net						156		(10	)		323			191
Minority interest						82		40			121			70

Income before income taxes and cumulative effect of accounting change						8,962		6,099			20,841			14,327
Income taxes						3,271		2,226			7,607			5,229

Income before cumulative effect of accounting change						5,691		3,873			13,234			9,098
Cumulative effect to December 28, 2002 of accounting change, net of tax benefit						—		—			(239	)		—

			Net income		$	5,691	$	3,873		$	12,995		$	9,098

Per share data:
	Basic earnings per common share:
			Before cumulative effect of accounting change		$	.19	$	.13		$	.45		$	.32
			Cumulative effect of accounting change			—		—			(.01	)		—

				Net income	$	.19	$	.13		$	.44		$	.32

	Diluted earnings per common share:
			Before cumulative effect of accounting change		$	.19	$	.13		$	.44		$	.30
			Cumulative effect of accounting change			—		—			(.01	)		—

				Net income	$	.19	$	.13		$	.43		$	.30

Weighted average shares of common and common equivalent shares outstanding
		Basic				29,711		28,845			29,567			28,733

		Diluted				30,495		30,025			30,267			29,874

The accompanying notes are an integral part of the consolidated financial statements.

PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)


				For the twenty-eight weeks ended

				July 12, 2003			July 13, 2002

Cash flows from operations:
	Net income			$	12,995		$	9,098
	Adjustments to reconcile net income to net cash provided by operating activities:
			Cumulative effect of accounting change, net of tax		239			—
			Depreciation and amortization		9,621			6,927
			Tax benefit from exercise of stock options		4,866			4,030
			Deferred income taxes		2,489			1,306
			Minority Interest		121			70
			Other		77			48
	Changes in operating assets and liabilities:
		Trade and other accounts receivable			664			(1,275	)
		Inventories			(1,012	)		(1,083	)
		Prepaid expenses			(209	)		235
		Accounts payable			412			(609	)
		Accrued expenses			2,834			(689	)
		Deferred revenue			(236	)		164
		Other			310			(215	)

			Net cash provided by operating activities		33,171			18,007

Cash flows from investing activities:
	Additions to property and equipment				(20,014	)		(14,441	)
	Acquisitions				(6,779	)		(3,267	)
	Increase in deposits and other				(588	)		(160	)

		Net cash used in investing activities			(27,381	)		(17,868	)

Cash flows from financing activities:
	Exercise of employee stock options				2,651			1,907
	Proceeds from note receivable				—			248
	Proceeds from issuance of common stock				387			566
	Investments by minority interest owners				767			686

		Net cash provided by financing activities			3,805			3,407

Net increase in cash and cash equivalents					9,595			3,546
Cash and cash equivalents at beginning of period					29,924			18,052

Cash and cash equivalents at end of period				$	39,519		$	21,598

The accompanying notes are an integral part of the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A-BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Panera Bread Company and its subsidiaries (the “Company”) have been prepared in accordance with instructions to Form 10-Q, and therefore do not include all information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States. They should be read in conjunction with the consolidated financial statements included in the Company’s Form 10-K/A for the fiscal year ended December 28, 2002.

The consolidated financial statements consist of the accounts of Panera Bread Company, its wholly owned subsidiaries Panera, LLC (formerly Panera, Inc.) and Pumpernickel Inc., its 75% interest in its subsidiary Pain Francais, Inc. (currently in the process of voluntary dissolution with the State of New York), and its indirect consolidated subsidiaries Pumpernickel Associates, LLC, Panera Enterprises, Inc., Artisan Bread, LLC, which has a majority interest in Cap City Bread, LLC operating 25 bakery-cafes, and Asiago Bread, LLC, which has a majority interest in 8 LLC’s operating 10 bakery-cafes. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair presentation of its financial position and results of operations for the interim periods. Interim results are not necessarily indicative of the results that may be expected for the entire year.

Certain reclassifications have been made to conform previously reported data to the current presentation.

NOTE B-STOCK-BASED COMPENSATION

In accordance with Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” as amended by SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of SFAS 123,” the Company elected to follow the provisions of Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees,” and provide the required pro forma disclosure in the footnotes to the financial statements as if the measurement provisions of SFAS 123 had been adopted. Accordingly, no compensation costs have been recognized in the Consolidated Statements of Operations for the stock option plans as the exercise price of stock options equals the market price of the underlying stock on the grant date. Had compensation costs for the Company’s stock option plans been determined under the fair value based method and recognition provisions of SFAS 123 at the grant date, the Company’s net income for the twelve and twenty-eight weeks ended July 12, 2003 and July 13, 2002 would have been as follows (in thousands, except per share amounts):


		For the twelve weeks ended				For the twenty-eight weeks ended

		July 12, 2003		July 13, 2002		July 12, 2003		July 13, 2002

Net income, as reported		$	5,691	$	3,873	$	12,995	$	9,098
Deduct:
	Compensation expense determined using Black-Scholes, net of tax		(580

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