PANERA BREAD CO - 10-Q Quarterly Report

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 [ ]

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

As of November 10, 2003, 28,083,371 shares and 1,862,381 shares of the registrant’s Class A and Class B Common Stock, respectively, $.0001 par value, were outstanding.


PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (unaudited)
	Consolidated Balance Sheets as of October 4, 2003 and December 28, 2002	3
	Consolidated Statements of Operations for the twelve and forty weeks ended October 4, 2003 and October 5, 2002	4
	Consolidated Statements of Cash Flows for the forty weeks ended October 4, 2003 and October 5, 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	18
ITEM 4.	CONTROLS AND PROCEDURES	18
PART II	OTHER INFORMATION
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	19

PANERA BREAD COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share information)


				October 4, 2003			December 28, 2002

			ASSETS
Current Assets:
	Cash and cash equivalents			$	45,114		$	29,924
	Investments in government securities				9,039			4,102
	Trade accounts receivable, less allowance of $53 in 2003 and $33 in 2002				9,082			7,462
	Other accounts receivable				1,329			2,097
	Inventories				6,673			5,191
	Prepaid expenses				2,767			1,826
	Deferred income taxes				4,948			8,488
	Other				134			172

			Total current assets		79,086			59,262
Property and equipment, net					116,593			99,313
Other assets:
	Investments in government securities				—			5,047
	Goodwill				23,123			18,970
	Deposits and other				6,295			5,554
	Deferred income taxes				—			294

			Total other assets		29,418			29,865

			Total assets	$	225,097		$	188,440

			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	5,499		$	5,987
	Accrued expenses				28,089			24,935
	Current portion of deferred revenue				1,116			1,403

			Total current liabilities		34,704			32,325
Deferred income taxes					1,510			—
Other long-term liabilities					1,495			262

			Total liabilities		37,709			32,587
Minority interest					3,660			2,197
Commitments and contingencies (Note E)
Stockholders’ equity:
	Common stock, $.0001 par value:
		Class A, 75,000,000 shares authorized; 28,185,439 issued and 28,076,439 outstanding in 2003; and 27,446,448 issued and 27,337,448 outstanding in 2002			3			3
		Class B, 10,000,000 shares authorized: 1,862,381 issued and outstanding in 2003 and 1,977,363 in 2002			—			—
	Treasury stock, carried at cost				(900	)		(900	)
	Additional paid-in capital				120,179			110,120
	Retained earnings				64,446			44,433

			Total stockholders’ equity		183,728			153,656

			Total liabilities and stockholders’ equity	$	225,097		$	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 share and per share amounts)


					For the twelve weeks ended				For the forty weeks ended

					October 4, 2003		October 5, 2002		October 4, 2003			October 5, 2002

Revenues:
	Bakery-cafe sales				$	62,752	$	50,270	$	195,023		$	157,939
	Franchise royalties and fees					8,735		6,699		26,568			20,099
	Fresh dough sales to franchisees					12,541		8,502		39,618			26,712

		Total revenue				84,028		65,471		261,209			204,750
Costs and expenses:
	Cost of food and paper products					17,336		15,301		54,883			48,335
	Labor					19,165		14,776		59,672			46,959
	Occupancy					4,188		3,368		13,303			11,118
	Other operating expenses					8,737		6,528		27,365			21,112

		Total bakery-cafe expenses				49,426		39,973		155,223			127,524
	Fresh dough cost of sales to franchisees					10,809		7,975		34,875			24,749
	Depreciation and amortization					4,708		3,244		14,329			10,171
	General and administrative expenses					7,322		5,735		23,177			18,628
	Pre-opening expenses					307		259		834			791

		Total costs and expenses				72,572		57,186		228,438			181,863

Operating profit						11,456		8,285		32,771			22,887
Interest expense						7		11		36			25
Other expense, net						265		76		589			267
Minority interest						133		61		254			131

Income before income taxes and cumulative effect of accounting change						11,051		8,137		31,892			22,464
Income taxes						4,034		2,970		11,640			8,199

Income before cumulative effect of accounting change						7,017		5,167		20,252			14,265
Cumulative effect to December 28, 2002 of accounting change, net of tax benefit						—		—		(239	)		—

		Net income			$	7,017	$	5,167	$	20,013		$	14,265

Per share data:
		Basic earnings per common share:
			Before cumulative effect of accounting change		$	0.23	$	0.18	$	0.68		$	0.49
			Cumulative effect of accounting change			—		—		(0.01	)		—

				Net income	$	0.23	$	0.18	$	0.67		$	0.49

		Diluted earnings per common share:
			Before cumulative effect of accounting change		$	0.23	$	0.17	$	0.67		$	0.48
			Cumulative effect of accounting change			—		—		(0.01	)		—

				Net income	$	0.23	$	0.17	$	0.66		$	0.48

Weighted average shares of common and common equivalent shares outstanding
	Basic					29,895		29,072		29,666			28,834

	Diluted					30,794		30,094		30,398			29,902

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 forty weeks ended

				October 4, 2003			October 5, 2002

Cash flows from operations:
	Net income			$	20,013		$	14,265
	Adjustments to reconcile net income to net cash provided by operating activities:
		Cumulative effect of accounting change, net of tax			239			—
		Depreciation and amortization			14,329			10,171
		Tax benefit from exercise of stock options			5,710			5,183
		Deferred income taxes			5,481			2,943
		Minority interest			254			131
		Other			116			70
	Changes in operating assets and liabilities:
		Trade and other accounts receivable			(825	)		(2,676	)
		Inventories			(1,356	)		(1,095	)
		Prepaid expenses			(941	)		122
		Accounts payable			(488	)		153
		Accrued expenses			3,802			(1,171	)
		Deferred revenue			(259	)		31
		Other			209			(136	)

			Net cash provided by operating activities		46,284			27,991

Cash flows used in investing activities:
	Purchase of investments				—			(9,200	)
	Additions to property and equipment				(29,094	)		(20,838	)
	Acquisitions				(6,813	)		(3,267	)
	Increase in deposits and other				(746	)		(615	)

			Net cash used in investing activities		(36,653	)		(33,920	)

Cash flows from financing activities:
	Exercise of employee stock options				3,777			2,337
	Proceeds from note receivable				—			248
	Proceeds from issuance of common stock				573			720
	Investments by minority interest owner				1,209			686

			Net cash provided by financing activities		5,559			3,991

Net increase (decrease) in cash and cash equivalents					15,190			(1,938	)
Cash and cash equivalents at beginning of period					29,924			18,052

Cash and cash equivalents at end of period				$	45,114		$	16,114

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

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 and Pumpernickel, Inc., 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 12 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.

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 and earnings per share for the twelve and forty weeks ended October 4, 2003 and October 5, 2002 would have been as follows (in thousands, except per share amounts):


(Mark one)

[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended October 4, 2003

		or

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


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

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


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 6. Exhibits and Reports on Form 8-K
Signatures
EX-10.1 Confidential and Propietary Information
EX-31.1 Certification by Chief Executive Officer
EX-31.2 Certification by Chief Financial Officer
EX-32 Certification Pursuant to Section 906

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